MFB HUNGARIAN DEVELOPMENT BANK PRIVATE LIMITED COMPANY
Consolidated Financial Statements and Independent Auditor’s Report for the year ended 31 December 2008
Contents
page Independent Auditor’s Report
1
Consolidated Financial Statements Consolidated Balance Sheet as at 31 December 2008
2
Consolidated Income Statement for the year ended 31 December 2008
3
Consolidated Statement of Changes in Shareholder’s equity for the year ended 31 December 2008
4
Consolidated Cash Flow Statement for the year ended 31 December 2008
5
Notes to the Consolidated Financial Statements
6 - 55
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
1.
PRINCIPAL ACTIVITIES MFB Hungarian Development Bank Privated Limited Company (the “Bank” or “HDB”) is registered as a stock company under Hungarian law and is licensed to conduct commercial banking activities in Hungarian Forint and in foreign currency. The legal status and the activities of the Bank are regulated by Act XX of 2001 (“HDB Law”) which came into force on 15 June 2001. The Bank’s role is to participate – independently or together with other domestic or international organizations – in a) the sourcing and mediation of medium and long term domestic and foreign funding and subsidies to achieve economic decelopment aims; b) financing development loans and development capital in case of – from a national economic aspect – preferential state and local government developments or investments; c) financing investments, development loans and capital for research and development of Hungarian companies – primarily in small and medium enterprises sector -, and development loans for investments of agricultural businesses and farmers; d) the financial execution of state and local government developments and investments related to EU membership, and – according to the method regulated in separate law – the Bank participates in tasks related to the drawing of European Community funds (including mediation of subsidies and sourcing and mediation of resources from international economic or financial institutions); e) other roles defined in HDB Law to ensure sufficient development funding to achieve the economic development aims determined by the Government’s medium and long term economic strategy. The Bank’s registered office is located at 31 Nádor Street, Budapest, Hungary. The Bank is 100% owned by the Hungarian State. In 2008, the rights of ownership were exercised by the Ministry for National Development and Economy. In these consolidated financial statements the Bank and its subsidiaries together are called the Group. Members of the Group (subsidiaries): Magyar Export-Import Bank Zrt. Magyar Export-Import Bank Zrt. – as a specialized credit institution – provides financial services in connection with the export of Hungarian goods and services, Hungarian investments abroad and import. Main activities of the company contain the granting of loan and guarantee and risk sharing. Magyar Exporthitel Biztosító Zrt. The main activities of Magyar Exporthitel Biztosító Zrt. - based on the exclusive right received from the Hungarian state – are the provision of non marketable export loan, investment insurance and information supply in accordance with insurance activities. The company has significant role in the collection of receivables of exporters and central budget.
6
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
1.
PRINCIPAL ACTIVITIES (CONTINUED) Magyar Követeléskezelő Zrt. Magyar Követeléskezelő Zrt. purchases receivables and provides other financial and supplementary services that can be provided by non credit institutions. Main activity of the company is the management of public debts. MFB Invest Zrt. MFB Invest Zrt. performs the management and valuation of the portfolio on hand, and participates in the management of the portfolio of MFB Fejlesztési Tőkealap. MAG - Magyar Gazdaságfejlesztő Központ Zrt. Primary activitiy of MAG - Magyar Gazdaságfejlesztési Központ Zrt. (MAG Zrt.) is to intermediate and provide additional services in connection with reimbursable and non reimbursable financial resources of aids of Hungary and the European Union, and the effective operation of companies in the aid mediator group. Beszállítói Befektető Zrt. Beszállítói Befektető Zrt. has transferred its investment portfolio to MFB Invest Zrt. The decrease of share capital is in process, after the company will participate in the recovery of the Banks’ receivables. Magyar Vállalkozásfinanszírozási Zrt. As a part of New Hungary Development Plan Economy Development Operative Programme 4. priority and Central Hungarian Operative Programme 1.3. Financial Assets Clause – facilitating access to financial resources for small and medium sized enterprises – the Hungarian Government starts different financial programs mainly from EU sources for the period between 2007 and 2013. The company’s main role is to work out and to operate these programmes. The company operates as the subsidiary of MAG Zrt. since the autumn of 2008. Corvinus Első Innovációs Kockázati Tőkealap Corvinus Első Innovációs Kockázati Tőkealap grants capital regardless of the industry segment, mainly to small and medium size enterprises, which work out and/or apply innovation technologies. MFB Fejlesztési Tőkealap The capital fund manages the capital investment (by purchasing the determined middle and long term, mainly development aimed capital investments from the Groups’ portfolio) and loan portfolio (by refinancing the related member loans) applying the unchanged legal contents of association, cooperation and loan contracts in effect. Pólus Programiroda Kht. Pólus Programiroda Kht. was established by the merge of Magyar Vállalkozásfejlesztési Kht. and IT Információs Társadalom Kht on 4th March 2008. Pólus program is one of the most important programs of New Hungarian Development Plans. The aim of the program is partly to create a competitive business environment mainly at the designated cities (horizontal economy development), partly to promote the establisment of clusters which are export oriented and focuses on high added value (business development). The company operates as the subsidiary of MAG Zrt.
7
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
1.
PRINCIPAL ACTIVITIES (CONTINUED) KIKSZ Közlekedésfejlesztési Zrt. The activity of the company is the support of using financial aids derived from the Structural and Cohesion Funds of the European Union, and the support of using financial aids derived from the European Regional Development Fund, the European Social Fund and the Cohesion Fund in the 2007-2013 program period. The company operates as the subsidiary of MAG Zrt.
2.
BASIS OF PREPARATION a) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC). These Consolidated Financial Statements were approved by the Board of Directors on 8 June 2009.
b) Basis of measurement The consolidated financial statements are prepared on a fair value basis for derivative financial instruments, financial assets or liabilities at fair value through profit or loss, and available-forsale financial assets, except those for which a reliable measurement of fair value is not available. The latter items are stated at either amortised or historical cost. Other financial assets and liabilities and non-financial assets and liabilities are stated at either amortised cost or historical cost. These consolidated financial statements are presented in million Hungarian Forints (“MHUF”).
c) Functional currency Items included in the consolidated financial statements are measured using Hungarian Forint, the currency of the primary economic environment in which the Group operates (‘the functional currency’). Foreign exchange rates used in these consolidated financial statements were 187.91 HUF/USD and 264.78 HUF/EUR as at 31 December 2008: (31 December 2007: 172.61 HUF/USD and 253.35 HUF/EUR).
8
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
2.
BASIS OF PREPARATION (CONTINUED) d) Use of estimates and judgements The Group makes judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. According to the legal regulations the Group reviews its loan portfolios to assess impairment if objective evidence exists and on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. The Group uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between estimated and actual loss.
3.
SIGNIFICANT ACCOUNTING POLICIES a) Basis of consolidation Subsidiaries Subsidiaries are enterprises controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until that control effectively ceases. Associates Associates are those enterprises in which the Group has significant influence, but not control, over the financial and operating policies. Investments in associated companies are accounted for under the equity method, whereby the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the net assets of the investee. The income statement reflects the Group’s share of the result of operations of the investee and any goodwill impairment losses. Jointly controlled entities Jointly controlled entities are those enterprises over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group’s proportionate share of the enterprises’ assets, liabilities, revenue and expenses with items of a similar nature on a line by line basis, from the date that joint control effectively commences until that joint control effectively ceases.
9
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Transactions eliminated during consolidation Intercompany balances and transactions, and any unrealized gains arising from intercompany transactions are eliminated in preparing the consolidated financial statements. Goodwill Goodwill arising in a business combination is measured initially as the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the acquired identifiable assets, liabilities and contingent liabilities recognized. Goodwill is subject to an annual impairment test. Negative goodwill Negative goodwill arising in a business combination is measured initially as the excess of the net fair value of the acquired identifiable assets, liabilities and contingent liabilities recognized over the cost of the business combination. Negative goodwill that arose during the year has been credited to the income statement.
b) Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rates of the National Bank of Hungary prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to HUF at the foreign exchange rates quoted by the National Bank of Hungary at that date.
c) Financial assets and liabilities Classification Financial assets or financial liabilities at fair value through profit or loss are financial assets and financial liablities that are classified as held for trading mainly for the purpose of profit-taking, are derivative instruments that are not designated and effective hedging instruments or upon initial recognition are designated as at fair value through profit or loss. Financial assets at fair value through profit or loss contain certain government securities and non-hedging swap deals, financial libalitities at fair value contain non-hedging swap deals.
10
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables contain cash and balance with the National Bank of Hungary, placements with other banks and loans and advances to customers net of allowance for impairment losses. Held-to-maturity assets are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity. The Group has classified its government securities as held-to-maturity financial assets. Available for sale financial assets are non-derivative instruments that are not designated as another category of financial assets. Available for sale financial assets contains investments and securities other than government securities. Other libilities contains all financial liabilities that were not classified as at fair value through profit or loss. Other liabilities contain placements and loans from other banks, deposits from customers, issued securities if the interest rate risk is not hedged with swap deals and subordinated debt. The classification and fair value of financial instruments is detailed in Note 35.
Recognition Financial assets and liabilities are entered into the Group’s books on the settlement day, except for derivative assets, which are entered on the trade day. Financial assets or financial liabilities are initially measured at fair value plus (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.
Derecognition Financial assets are derecognised when the rights to receive cash flows from the financial assets expire or the Group transfers substantially all risks and rewards of ownership of the financial asset.
Measurement Subsequent to initial recognition, all financial assets or financial liabilities at fair value through profit or loss and all available for sale assets are measured at fair value. If no quoted market price exists from an active market and fair value cannot be reliably measured, the Group uses valuation techniques to determine fair value
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) All financial liabilities other than at fair value through profit or loss, held to maturity financial instruments and originated loans and receivables are measured at amortised cost less impairment. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument. A gain or loss on a financial asset or financial liability classified as at fair value through profit or loss shall be recognised in profit or loss. A gain or loss on an available-for-sale financial asset shall be recognised directly in equity, through the statement of changes in equity, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in equity shall be recognised in profit or loss. For financial assets and financial liabilities carried at amortised cost, a gain or loss is recognised in profit or loss when the financial asset or financial liability is derecognised or impaired, and through the amortisation process.
Fair value measurement The fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using valuation models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on the Group’s economic estimates and the discount rate is a market related rate at the balance sheet date for an instrument with similar terms and conditions. Where valuation models are used, inputs are based on market related measures at the balance sheet date. The fair value of derivatives that are not exchange-traded are estimated at the amount that the Group would receive upon normal business conditions to terminate the contract at the balance sheet date taking into account current market conditions and the current creditworthiness of the counterparties.
Amortised cost measurement The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectibility.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group shall estimate cash flows considering all contractual terms of the financial instrument but shall not consider future credit losses.
Impairment of financial assets If there is objective evidence that an impairment loss on loans and receivables or held-tomaturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The amount of the loss is recognised in profit or loss. Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed through profit or loss. When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in profit or loss, even though the financial asset has not been derecognised. The amount of the cumulative loss that is removed from equity and recognised in profit or loss shall be the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale shall not be reversed through profit or loss.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss. Financial assets are assessed individually or collectively. All individually significant financial assets are assessed for specific impairment. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Agricultural loans and micro credits are impaired collectively.
Impairment of non-financial assets If there is any indication that the carrying amount of a non-financial (within the scope of IAS 36) asset exceeds its recoverable amount, the Group makes estimates for the recoverable amount of the asset. The Group considers external and internal information in assessing the amount of impairment. Impairment loss is recognised or reversed according to the individual rating of the asset. Inventories within the scope of IAS 2 are measured at the lower of cost and net realisable value. The Group makes estimates for the realisable amount on a quarterly basis. Write-downs are recognised or reversed according to these estimates. If the carrying amount / cost of the non-financial asset exceeds its recoverable amount / realisable value, write-down shall be recognised, if not, write-down shall be reversed to increase the carrying amount of the asset. The carrying amount of the asset after reversal can not exceed the original net carrying amount.
d) Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central bank and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the balance sheet.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e) Securities Securities contain: - government bonds, - treasury bills, - compensation warrants, - other debt securities, interest bearing or discounted treasury bills, - National Bank of Hungary bonds, - debt securities, including fixed-income securities – interest bearing or discounted bills that are entered on stock exchange, or traded on approved, controlled market (controlled by regulation or by stock exchange), - other debt securities regardless its name, including debt securities took over in return for receivables to minimize loss. Securities classified as financial assets at fair value through profit or loss are measured at fair value through profit or loss. Securities classified as available for sale are measured at fair value through equity. The basis of measurement is the average of best bid and ask prices published on the website of Government Debt Management Agency Ltd. on the balance sheet date. Securities classified as held to maturity are measured at amortised cost. The amount of amortisation is calculated using effective interest rate method.
f) Investments Equity investments classified as controlling interest comprise those investments where the Bank through its direct ownership interest has the power to govern the financial and operating policies of the investee so as to obtain benefits from its activities. Equity investments classified as significant interest comprise those investments where the Bank through its direct ownership interest has the power to participate in the financial and operating policies of the investee, but not to control those activities. Other equity investments comprise other share holdings, which do not meet the preceding criteria. The investment portfolio includes investments that the Bank intends to hold long term and are determined as follows: 1. the HDB Law determines the allowable fully controlled equity investments. 2. The investment portfolio includes investments managed under the Bank’s Equity Investment Program. Under this Program the ownership in these investments cannot exceed 50%-1 vote and the Bank disinvests within the 5th-12th year after making the investment.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments are accounted for in accordance with IAS 39 at fair value, unless there is no quoted market price in an active market and fair value cannot be reliably measured, when investments are measured at cost. The Group does not hold equity investments for trading purposes.
g) Derivative financial instruments The Group uses derivative financial instruments, interest rate swaps, foreign exchange swaps and forward exchange contracts to manage its exposure to foreign exchange and interest rate risks arising from business activities. The analysis of fair value changes is in Note 18 and 19. The recognition of income/expenses relating to derivative transactions is on a mark-to-market basis. Value changes are immediately recognised in the income statement. The Group does not hold or issue derivative financial instruments for trading purposes. The Bank has changed its accounting policy concerning the assessment of fair value of financial instruments. From 1 January 2008, fair value is calculated by an internal model based on observable market inputs instead of price quotation. The valuation of financial assets and the presentation of the prior year data is performed in accordance with the new accounting policy.
h) Property and equipment Property and equipment contains investments, capitalized or material assets in normal use that serves directly or indirectly the financial activities or banking, and rights of porperty connected to real estate that serves the business activities permanently for more than 1 year. Items of Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. Freehold lands, works of art, asset under construction, tangibles out of operating are not depreciated. Depreciation rates based on the estimated useful lives are the following: Property and plant Property tenancy Investment on leased property Office and other machinery and equipment Mobiles Motor vehicles Computer equipments
2% 1 – 50 % 6 - 20 % 14,5 – 20 % 50 % 16,67 – 33 % 17 – 33 %
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) Intangible assets Intangible assets contain rights, intellectual properties (software and other intellectual properties) and goodwill arises on the acquisition of a company. Intangible assets are carried at historical cost less accumulated amortization. Intangible assets are reviewed periodically and items which are considered to have no further value are amortised in full. The amortization rates based on the estimated useful lives are the following: Software Other intangible assets
12,5 – 33 % 15 – 33 %
j) Bonds issued Obligations arising from issued bonds contain the Banks’ own issued bonds and other issued, negotiable debt securities – interest bearing or discount bonds – except shares. Issued bonds are measured using two methods. If the interest rate risk is hedged using interest rate swaps, bonds issued are measured at fair value. If the risk is not hedged, bonds issued are measured at issue price, adjusted by the amortisation of the issuance cost and premium or discount.
k) Provisions Provision is recognised, when: - the Group has a present obligation (legal or constructive) as a result of a past event, - it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, - a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed. A provision should be used only for expenditures for which the provision was originally recognised. The amount recognised as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) l) Statutory reserves i) General reserve In accordance with Section 75 of Act No. CXII of 1996, a general reserve equal to 10% of the net after tax income is required to be made in the Hungarian statutory accounts. The general reserve, as calculated under Hungarian Accounting and Banking Rules, is treated as appropriations against retained earnings.
ii) General risk reserve Under Section 87 of Act No. CXII of 1996, a general risk reserve of maximum 1.25% of the risk weighted assets of credit institutions may be made. The general risk reserve is treated as appropriations against retained earnings.
m) Commitments and contingencies Commitments and contingencies are a probable obligation that derives from a past event, and its existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events that are not entirely controlled by the Group, or a present obligation that derives from a past event, but is not recognised because it is not likely that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation can not be reliably estimated.
n) Interest and fee income and expense Interest income and expense include: - interest income or expense for financial assets and liabilities at amortised cost (including interest received or paid to banks or customers, interest received or paid on securities), - interest income or expense on financial assets and liabilities at fair value (including interest received or paid on securities).
o) Transaction costs Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability. Transactional costs are included in initial cost.
p) Dividend income Dividend income is recognised when the amount of dividend has been determined and approved.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
q) Income tax The amount of income tax payable is based on the tax obligations determined in accordance with Hungarian laws and it is adjusted by the deferred tax. Income tax and deferred tax are recognised in the income statement, except to the extent that deferred tax relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the balance sheet date. The base of the income tax is the profit before tax adjusted by the tax base modifying items and the rate was 16 % in 2008 (2007: 16%). Income taxes also contain the solidarity tax, which were introduced from 1 September 2006. The base of the tax is the profit before tax adjusted by the tax base modifying items and the rate was 4 % in 2008 and 2007. Tax payable is modified by the released deferred tax of the previous year and the charged deferred tax of the current year. Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
r) Statement of cash flows Information about the cash flows of the Group is useful in providing users of financial statements with a basis to assess the ability of the Group to generate cash and cash equivalents and the needs of the Group to utilise those cash flows. For the purposes of reporting cash flows, cash and cash equivalents include cash, balances and placements with the National Bank of Hungary except those with more than three months maturity.
s) Events after the balance sheet date Events after the balance sheet date are those events, favourable and unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue. These events are adjusting and non-adjusting events. All adjusting events after balance sheet date have been taken into account in the preparation of the consolidated financial statements of the Group. The material non-adjusting events after the balance sheet date are presented in Note 36.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
t) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.
4.
SUMMARY OF RISK MANAGEMENT POLICIES The most significant business risks to which the Group is exposed are credit, interest rate, liquidity and foreign exchange risks. Risk management policies are set by the Board of Directors of the Bank within the rules established by the regulations in force, the National Bank of Hungary and the Hungarian Financial Supervisory Authority. The application and observation of these policies is supervised by the Board. The Bank has established reporting systems, which permit the monitoring of risk exposures.
A. CREDIT RISK a) Management of credit risk Credit risk is the risk of financial loss to the Group if the client fails to meet its contractual obligations. Credit risk arises principally from the Group’s loans and advances to customers and other banks, investments and other activities. The Group reviews its loan and investment portfolio if objective evidence exists that impairment loss should be recognised and – due to statutory regulations - on a quarterly basis. The Group prepared and applies internal policies approved by the Board of Directors to implement its strategy. These policies make possible the established and transparent risk exposure, the control of assessment and decrease of risks. The risk management policies prepared to ensure safe management and prudent operation of the Group are based on the international and domestic professional practice, the concerning legal regulations and directions of Hungarian Financial Supervisory Authority. The Group gives loan and takes surety, bank guarantee and other bank commitments exlusively if the repayment or recovery is properly ensured according to the business and financial plans and available collaterals.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) i) Client evaluation Qualification of clients must be completed during the preparation of credit decision for every client against who the Group undertakes risk. Beyond that, the Group reviews its clients at least once per year and performs extra reviews for good cause. Clients are classified into categories according to the scores attained considering objective and subjective factors. The method of qualification differs in case of - new businesses, - project financing, - businesses already in operation, - local government. The Bank applies simplified evaluation if the undertaken risk does not exceed HUF 50 million, or in case of sole proprietorship and businesses carrying single-entry bookkeeping.
ii) Measurement of collateral The main types of collateral accepted by the Group are: surety of the State, mortgage on chattel and property, bank guarantee and surety of guarantee institutions. It is the Group’s strategy that the amount of collateral in case of loans to customers is generally 100% of capital plus annual interest, regardless the evaluation category of the client, the risk exposure and the type of business. In case of collateral, that has no risk (e.g. cash collateral), the expected collateral is 100% of capital plus semi-annual interest. The market value of the collateral is adjusted by the cover ratio. This ratio expresses the probable amount of recovery from the collateral, and besides it is the amount of collateral that is considered in the collateral registry and during the evaluation of assets. The Group performs the examination and – if needed – the remeasurement of collaterals during the evaluation of assets, on a quarterly basis. The remeasured collaterals are recognised in the collateral registry.
iii)Limit of Client/Group of Clients, limit of sector The limit of client determines the maximum amount of undertaken credit risk. The upper limit determined for one client or one group of clients is the limit of high-risk undertaken by the Bank. The amount of limit depends on the statements of the evaluation procedure, the audited financial statements and principally the amount of capital (share capital). The limit of sector is the upper limit of undertaken risk against clients classified into eight sector risk group.
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED)
iv) Evaluation of transaction If there is objective evidence that an impairment loss or provision shall be recognised on loans and receivables at amortised cost, on investments held to maturity or on off balance sheet liabilities, the amount of impairment or provision is calculated as the difference between the carrying amount and the present value of estimated future cash flows using the original effecitve interest rate. For reporting purposes, the Group groups its receivables and off-balance-sheet liabilities into categories according to the calculated impairment loss or provision: Problem-free Special mentioned Below average Doubtful Bad
0% 1 – 10 % 11 – 30 % 31 – 70 % 71 – 100 %
The categorization of assets has changed from 2008, there is no option to recognise 0% impairment loss or provision in special mentioned category, the weight range is 1-10%.
b) Exposure to credit risk The exposure to credit risk of the loan portfolio evaluated in accordance with risk management policies grouped by categories is shown below: Placements with other banks
2008 Loans and advances to customers
Total
%
Placements with other banks
2007 Loans and advances to customers
Total
%
Not impaired
372,680
241,873
614,553
76.05%
423,994
226,968
650,962
82.98%
Thereof: Problem-free Special mentioned 0% Special mentioned Below average Doubtful Bad
372,680 23,849 119
241,873 77,371 49,791 25,356 17,074
614,553 101,220 49,791 25,356 17,193
76.05% 0.00% 12.53% 6.16% 3.14% 2.13%
423,994 3,213 -
143,277 83,691 49,813 40,243 24,977 15,288
567,271 83,691 53,026 40,243 24,977 15,288
72.31% 10.67% 6.76% 5.13% 3.18% 1.95%
Total:
396,648
411,465
808,113
100.00%
427,207
357,289
784,496
100.00%
The table below sets out the exposure to credit risk grouped by technical considerations (individually or collectively impaired) and by due date (past due but not impaired or neither past due nor impaired). Loans with renegotiated terms are shown as a separate category.
22
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED)
b) Exposure to credit risk (continued) Placements with other banks 2008 2007 Carrying amount
396,000
427,151
Loans and advances to customers, net of allowance for impairment losses 2008 2007 372,779
319,808
Individually impaired Special mentioned Below average Doubtful Bad Gross carrying amount Impairment Net carrying amount
23,849 119 23,968 (648) 23,320
3,213 3,213 (56) 3,157
58,808 20,381 12,799 12,506 104,494 (20,805) 83,689
35,931 13,634 16,295 11,328 77,188 (20,054) 57,134
-
-
-
-
2,781 12,179 21,557 7,664 3,664 47,845 (13,233) 34,612
2,425 13,940 27,120 8,241 3,012 54,738 (14,382) 40,356
Net carrying amount
-
-
4,063
3,122
Past due comprises: 1 - 9 days 10 - 15 days 16 - 30 days 31 - 60 days 61 - 90 days 91 - 180 days 180 + days Net carrying amount
-
-
296 51 839 1 6 42 2,828 4,063
39 3,083 3,122
234,568
213,591
Collectively impaired Problem-free Special mentioned Below average Doubtful Bad Gross carrying amount Impairment Net carrying amount Past due but not impaired
Neither past due nor impaired Net carrying amount
372,680
423,994
Loans with renegotiated terms Gross carrying amount Impairment Net carrying amount
Total gross carrying amount Total impairment Total net carrying amount
396,648 (648) 396,000
427,207 (56) 427,151
20,495 (4,648) 15,847
8,650 (3,045) 5,605
411,465 (38,686) 372,779
357,289 (37,481) 319,808
23
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) b) Exposure to credit risk (continued) Impaired loans Impaired loans are loans for which the Group determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreement. Past due but not impaired Loans where contractual interest or principal payments are past due, but the Group did not charge impairment, because the available collaterals cover the total expected loss. The past due but not impaired category contains the receivables of Magyar Követeléskezelő Zrt. The company - according to its activities – buys past due receivables at their recoverable value. Loans with renegotiated terms Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Group has made concessions that it would not otherwise consider. Once a loan is restructured it remains in this category.
24
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) c) Collateral and other security enhancements
Collateral against placements with other banks 2008 2007 Against individually impaired Property Surety of State and State owned companies Cash collateral Bank guarantee Other
Collateral against loans and advances to customers, net of allowance for impairment losses 2008 2007
14,520 14,520
2,252 15 2,267
20,249 20,939 152 241 11,926 53,507
21,272 9,584 569 394 24,772 56,591
-
-
34,187 17 12,449 184 41 363 47,241
40,120 19 13,245 218 180 327 54,109
-
-
196 14 779 310 1,299
62 18 6 1 40 126
6,914 228 10 7,152
8,328 52 1 8,382
33,618 289 131,078 1,698 1,073 59,013 226,769
55,774 418 109,535 1,210 11,049 40,921 218,906
-
-
8,398
6,066
21,672
10,649
337,214
335,798
Against collectively impaired Property Debt securities Surety of State and State owned companies Cash collateral Bank guarantee Other
Against past due but not impaired Property Debt securities Surety of State and State owned companies Cash collateral Other Against neither past due nor impaired Property Debt securities Surety of State and State owned companies Cash collateral Bank guarantee Other Against loans with renegotiated terms Total
An estimate of the fair value of collateral and other security enhancements is shown in the table above. In case of project loans the main part of the collateral is materialized during the project in line with the loan disbursement, the collateral is taken into consideration after the realization or capitalization of the project.
25
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) c) Collateral and other security enhancements (continued) The asset side state guarantee frame, established by the law for HDB and Magyar ExportImport Bank Zrt. was HUF 400 and HUF 80 billion, respectively in 2008 (2007: HDB: HUF 400 billion, Magyar Export-Import Bank Zrt.: HUF 80 billion). The liability side state guarantee limit for HDB and Magyar Export-Import Bank Zrt. was HUF 1,200 and HUF 220 billion in 2008 (2007: HUF 1,200 and HUF 172 billion respectively). The state guarantee limit for Magyar Exporthitel Biztosító Zrt. for non-marketable insurance contracts was HUF 350 billion in 2008 (2007: HUF 250 billion)
d) Concentrations of credit risk An analysis of concentrations of credit risk by sector as at 31 December 2008 and 2007 is shown below: Loans and advances to customers 2008 2007 Property development, economic services Industry Agriculture Other services (local governments, health-care, other serivces) Construction (including motorway financing) Transport, storage, post, telecoms Accommodation, catering Trade
111,278 69,688 45,286 86,480 31,720 19,523 4,693 4,111
97,000 61,636 53,269 42,641 33,344 21,961 4,759 5,198
Total:
372,779
319,808
Placements with other banks contains refinancing loans (2008: MHUF 307.172; 2007: MHUF 234.519), money market deals (2008: MHUF 81.399; 2007: MHUF 172.041) and receivables from financial activities (2008: MHUF 7.429; 2007: MHUF 20.591). Refinancing loans are long term loans granted through loan programs, where the credit risk is beared by the refinanced credit institution.
B. LIQUIDITY RISK a) Management of liquidity risk The Group’s basic objective is to carry out secure and established course of business, and the prevention of liquidity situations which could threaten the Group to meet its obligations. The management of liquidity is determined by the characteristics of the business, the strategy, the yearly business plan, the legal regulations and the regulatory activities of National Bank of Hungary, Hungarian Financial Supervisory Authority and Ministry of Finance.
26
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) Liquidity means the availability of funds in amount and in time needed to meet the obligaions. Liquidity demand arises when the obligations become due. Liquidity risk is the gap between in and outflows in different amount and time.
a) Management of liquidity risk (continued) The Group must have the required regulatory capital – regarding the risks of financial services carried out by the Group - to maintain the solvency and to meet the obligations, and has to maintain continously at least 8% solvency ratio. The Group possesses a considerable amount of liquidity reserves in government securities and disposable credit lines providing high liquidity on money market. Liquidity risk is managed in a preventive manner to minimize the maturity, principal repayment and interest payment mismatch of loans provided in the course of loan programs and other financing. Cash flow statements are prepared at least on a monthly basis which contain all cash flow items from the Group’s book and predicted cash flow transactions considering different scenarios. Weekly liquidity reports are prepared for the continuous management of liquidity.
b) Residual contractual maturities of financial liabilities 31 December 2008 Placements and loans from other banks Deposits from customers Financial liabilities at fair value through profit or loss Issued securities Derivative liabilities held for risk management inflow outflow
Total:
More than Carrying Gross nominal Less than 1-3 3 months amount inflow/outflow 1 month months to 1 year 1-5 years 5 years 527,660 12,564
(592,805) (20,851)
(22,649) (2,408)
(4,866) (122,987) (266,289) (176,014) (916) (5,534) (5,456) (6,537)
3,053 367,884
(3,053) (451,354)
(3,053) (17,810)
(4,965)
4,849
53,075 (57,924) (4,849)
36,166 (38,245) (2,079)
(960) (960)
916,010
(1,072,912)
(10,624) (417,955)
-
-
16,909 (18,719) (1,810)
-
(47,999) (11,707) (139,145) (691,510) (182,551)
27
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED)
31 December 2007 Placements and loans from other banks Deposits from customers Financial liabilities at fair value through profit or loss Issued securities Derivative liabilities held for risk management inflow outflow
Subordinated debt Total:
Carrying Gross nominal Less than 1-3 3 months More than amount inflow/outflow 1 month months to 1 year 1-5 years 5 years 473,191 12,072
(575,063) (15,554)
(22,390) (88)
10 351,490
(10) (429,745)
(10) -
(4,750)
3,018
(3,018) (3,018)
(1,564) (1,564)
(1,454) (1,454)
-
-
-
9,500
(9,500)
-
-
(9,500)
-
-
849,281
(1,032,889)
(6,898) (188,121) (195,756) (161,897) (618) (8,053) (1,213) (5,582) (10,166) (282,929) (131,900)
(24,052) (13,720) (215,840) (479,898) (299,379)
C. MARKET RISKS a) Management of foreign exchange risk The Group has assets and liabilities, both on and off-balance sheet, denominated in various foreign currencies. Foreign exchange risk arises when the actual or forecasted assets in a foreign currency are either greater or less than the liabilities in that currency. The Group manages the currency structure of assets and liabilities on and off-balance sheet, utilising forward foreign exchange transactions and other hedging instruments. It is the policy of the Group that it should not speculate in currencies and should only take currency positions within strict limits. The Board of Directors establishes and monitors specific regulations based on statutory and internal limits, and approves the overall strategy. Adherence to these limits is monitored continuously. The Foreign Exchange Guarantee Agreement between the Bank and the Hungarian Ministry of Finance was signed on 27 January 2004 with retroactive effect. This agreement manages foreign exchange risks of the Bank’s foreign currency borrowings (Euro). Based on this agreement, State compensates any foreign exchange loss of the Bank arising from the placements denominated in other than Euro. However, the Bank is required to pay to the State the amount of realised foreign exchange gains on these transactions at the final maturity of the borrowings or upon introduction of the Euro as the official currency of Hungary. The Group applies stress-tests to determine the effect of possible foreign exchange changes (in case of EUR/HUF +/- 10% change, in case of EUR/USD the bottom and top of the last 2 years). The FX state guarantee frame for the Bank, declared by the law was HUF 1,200 billion in 2008 (2007: HUF 1,200 billion)
28
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED)
4.
b) Foreign currency risk analysis
31 December 2008
HUF
EUR
Other foreign currency
Total
Assets Cash and balance with the National Bank of Hungary Placements with other banks Loans and advances to customers, net of allowance for impairment losses Financial assets at fair value through profit or loss Available for sale securities Held-to-maturity securities Investments Property, plant and equipment Intangible assets Deferred tax assets Other assets Total assets (1)
8,993 270,742
183 76,665
65 48,593
9,241 396,000
147,878 10,015 54,967 171,773 15,445 5,069 3,137 52 47,165 735,236
212,114 1,434 3,140 293,536
12,787 41 498 61,984
372,779 10,015 54,967 171,773 16,920 5,069 3,137 52 50,803 1,090,756
20,842 5,591 3,053 6,059 540 6,797 42,882
495,292 6,968 367,884 4,849 834 9,665 885,492
11,526 5 342 11,873
527,660 12,564 3,053 367,884 4,849 6,893 540 16,804 940,247
Liabilities Placements and loans from other banks Deposits from customers Financial liabilities at fair value through profit or loss Issued securities Derivative liabilities held for risk management Provisions Deferred tax liabilities Other liabilities Total liabilities Subordinated debt
-
-
-
-
Shareholder's equity Total liabilities and shareholder's equity (2)
150,509 193,391
885,492
11,873
Net Exposure (1) – (2)
541,845
(591,956)
50,111
Commitments and Contingencies
138,245
90,767
19,615
248,627
Net foreign currency position at 31 December 2008
680,090
(501,189)
69,726
248,627
31 December 2007
HUF
EUR
Other foreign currency
150,509 1,090,756 -
Total
Total assets (1)
662,665
314,126
41,222
1,018,012
Total liabilities and shareholder's equity (2)
179,413
808,603
30,003
1,018,012
Net Exposure (1) – (2)
483,252
(494,477)
11,219
72,098
76,594
31,716
180,408
555,350
(417,883)
42,935
180,408
Commitments and Contingencies Net foreign currency position at 31 December 2007
-
29
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) c) Management of interest rate risk Interest rate risk is measured by the extent to which changes in market interest rates impact on margins and net interest income. Gaps in the value of assets, liabilities and off-balance sheet instruments that mature or reprice during a given period generate interest rate risk. The Group gives special attention to the preventive management of interest rate risk. The Group’s objective is to harmonize loans and the funds of loans during the acquirement of funds in respect of maturity, interest base and repricing periods to prevent significant repricing mismatches. The Group does not undertake interest rate exposure for speculative purposes. If the interest of loans and fund of loans does not harmonize, the Group concludes interest rate swap deals to ensure the proper closing of the position. Before concluding an interest rate swap deal a detailed proposal is prepared for the Asset-Liabiltiy Committee which determines the parameters of the deal. The Money and Capital Market Risk Management department prepares analysis on a monthly basis for the Asset-Liability Committee to indicate the probable effects of current interest rate changes on money market and interest rate convergence – with reference to joining the EMU on the Group’s profit in the following years. These calculations are prepared in several scenarios considering different interest rate levels and yield curves. Treasury reports the current and probable market position of portfolios managed by Treasury for the Asset-Liability Committee on a monthly basis. Regularly prepared reports in connection with interest rate risk management: • Repricing balance sheet concerning full-scale assets and liabilities, • Calculation of GAP, DGAP and Duration, • Stress-tests on interest rate risk exposure, • Possible effect of changes in interest convergence, • Stress-tests on the drastic changes of interest rates.
d) Interest rate risk analysis Interest rate risk analysis is presented solely for the Bank in the consolidated financial statements, because the exposure to interest rate risk is mainly concentrated at the Bank. The performed interest rate risk reports and stress-tests indicate that the Bank’s exposure to interest rate risk is low, greater changes in market rates - in any direction – do not cause great negative effect on the Bank’s profit due to the repricing accordance. According to stress-tests 1% change in BUBOR, 0.25% change in EURIBOR causes approximately HUF 1,018 million effect (31 December 2007: HUF 880 million), while 3 % change in BUBOR, 1 % change in EURIBOR causes approximately HUF 3,055 million effect (31 December 2007: HUF 2,500 million) on the Bank’s yearly interest income. The Bank assess the possible effects of interest rate changes – considering different direction and degree – on the value of the Bank’s portfolio and on the capital using DGAP on a monthly basis.
30
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) e) Market risk analysis Market risk management and analysis is presented solely for the Bank in the consolidated financial statements, because the exposure to market risk is mainly concentrated at the Bank. From market risk approach it is important to mention that the Bank is not licenced for investment services, and does not undertake speculative exposures. The trading position contains government securities held in the course of liquidity management and own foreign exchange exposures. Despite the Bank is exempted from keeping of trading book and preparing reports, the Money and Capital Market Risk Management department calculates the trading book risks in accordance with legal regulations. In line with the calculations the capital demand of trading book exposure is very low. The Bank keeps trading book positions and performs VAR analysis for trading assets and market instruments by its market risk management system. The VAR position calculated from the portfolio concerning 99% confidence level and 10 days holding period shows a low value, it was 0.22% of the regulatory capital as at 31 December 2008 (31 December 2007: 0.04%). This means that the probability of a HUF 261 million loss in the Bank’s current portfolio – concerning 10 days holding period – is only 1 % as at 31 December 2008 (31 December 2007: HUF 49 million). VAR position – 31 December 2008 99 % confidence level 10 days holding period Regulatory capital (million HUF):
Absolute risk indicators
117,800
Share
Interest
Net asset value
-
49,877
Parametral VAR
-
247
Foreign exchange Diversification (898) 60
Total
VAR expressed as a percentage of Regulatory capital
48,979 (46)
261
0.22
VAR position – 31 December 2007 99 % confidence level 10 days holding period Regulatory capital (million HUF):
Absolute risk indicators
110,042
Share
Interest
Foreign exchange Diversification
Net asset value
-
23,944
1,487
Parametral VAR
-
40
35
(26)
Total
VAR expressed as a percentage of Regulatory capital
25,431 49
0.04
31
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) D. CAPITAL MANAGEMENT The Group applies the regulations of Act CXII of 1996 on Credit Institutions and Financial Enterprises, HDB Law and Government Decree 196/2007 on management and capital requirements of credit risk . The Bank’s share capital must be at least HUF 60 billion according to the HDB Law. In accordance with the Act CXII of 1996 a credit institution - for the purpose of maintaining solvency and the ability to fulfil liabilities - must have a solvency margin complying at all times (in all survey periods) with the amount of the risk of the financial and investment activities performed thereby, and must continuously maintain at least 8% solvency ratio. The regulatory capital is determined in accordance with schedule no. 5 of Act CXII of 1996, and the denominator of solvency ratio is determined in accordance with Decree 13/2001. The method of calculating capital requirements has changed due to the implementation of Basel II / CRD regulations from 1 January 2008. The calculation of capital requirements for 2007 is presented in accordance with the new regulations for the comparability. The supervision of complying with capital management regulations is performed by the Hungarian Financial Supervisory Authority. The Group complied with the regulatory and prudential regulations and the limits set by the Act CXII of 1996 during 2008 and 2007, the solvency ratio exceeded significantly the 8 per cent requirement. The following table contains the calculation of regulatory capital and solvency ratio.
32
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
4.
SUMMARY OF RISK MANAGEMENT POLICIES (CONTINUED) D. CAPITAL MANAGEMENT (CONTINUED) 2008
2007
87,570 18,082 25,051 7,764 428 (86) 6,121 144,930
87,570 18,082 17,633 7,847 1,025 (205) 9,743 141,695
I. Calculation of Regulatory Capital Share capital Share premium Retained earnings General reserve General risk reserve Tax included in general risk reserve Net profit for the year Capital base Total amount of subordinated debt Amortization of the subordinated debt Subordinated loan capital Items to be deducted (-) Intangible assets Net value of invested assets in banks and financial investment companies Total amount of deducted items: Regulatory Capital available for hedging risks:
-
9,500 (9,500) -
(3,137)
(2,464)
(522) (3,659)
(522) (2,986)
141,271
138,709
Total capital requirement for credit risk Total capital requirement for exchange rate risk Total capital requirement for operating risk
50,951 979 4,179
53,218 477 4,300
Total Capital Requirement
56,109
57,995
701,363
724,938
II. Calculation of Capital Requirement
Risk weighted exposure III. Solvency ratio
20.14%
19.13%
The solvency ratio was 37.94 % according to the regulations in effect in 2007. The decrease in the recalculated solvency ratio (calculated according to the regulations effective from 2008) is in accordance with the higher credit risk weight of domestic credit institutions (50% instead of 20%), and the capital demand of market and operating risk – as new components.
33
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
5.
CASH AND BALANCES WITH THE NATIONAL BANK OF HUNGARY 2008
2007
Cash and cash equivalents Balances with National Bank of Hungary (NBH): Obligatory reserve in HUF Other
3,327
18,843
4,114 1,800
5,217 3,800
Total:
9,241
27,860
According to the regulation of the National Bank of Hungary, the Group is required to place 2 % of certain customer deposit as a statutory reserve in 2008 (2007: 5%).
6.
PLACEMENTS WITH OTHER BANKS 2008
2007
Maturity within one year Maturity over one year
89,243 307,405
192,650 234,557
Total:
396,648
427,207
Allowance for impairment losses on loans (See Note 26)
(648) 396,000
* *
(56) 427,151
* A Client of the Group fulfilled a significant repayment in advance before the end of 2007, and the repayment was placed on the money market. In 2008 a significant part of this amount was placed out for long term.
7.
LOANS AND ADVANCES TO CUSTOMERS, NET OF ALLOWANCE FOR IMPAIRMENT LOSSES 2008 Maturity within one year Maturity over one year
2007
82,055 329,410
75,131 282,159
411,465
357,290
Allowance for impairment losses on loans (See Note 26)
(38,686)
(37,482)
Total:
372,779
319,808
34
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
8.
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Cost
Government Bonds Discounted treasury bills Foreign exchange swaps Total
9.
31 December 2007 Unrealised Book value gain/(loss)
(422) -
3,218 6,797
8,014 7,943 57
(168) -
7,846 7,943 57
10,437
(422)
10,015
16,014
(168)
15,846
AVAILABLE FOR SALE SECURITIES 31 December 2008 Unrealised Book value gain/(loss)
Cost
31 December 2007 Unrealised Book value gain/(loss)
Government Bonds Discounted treasury bills NBH Bonds
1,336 3,861 49,794
(20) (4) -
1,316 3,857 49,794
1,834 23,935
(13) -
1,821 23,935
Total
54,991
(24)
54,967
25,769
(13)
25,756
HELD-TO-MATURITY SECURITIES Cost
11.
Cost
3,640 6,797
Cost
10.
31 December 2008 Unrealised Book value gain/(loss)
31 December 2008 Amortization Book value
Cost
31 December 2007 Amortization Book value
Government Bonds Discounted treasury bills Other securities
145,608 234 25,000
931 -
146,539 234 25,000
116,301 349 25,000
337 -
116,638 349 25,000
Total
170,842
931
171,773
141,650
337
141,987
INVESTMENTS
Significant interest Other
Allowance for impairment losses on investments (See Note 26) Total:
2008
2007
13,515 3,888
21,502 5,120
17,403
26,622
(483) 16,920
(2,434) 24,188
35
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
11.
INVESTMENTS (CONTINUED)
Consolidated subsidiaries
1 2 3 4 5 6 7 8 9 10 11
Name of the company Beszállítói Befektető ZRt. Corvinus Első Innovációs Kockázati Tőkealap Magyar Export-Import Bank ZRt. Magyar Exporthitel Biztosító ZRt. Magyar Követeléskezelő ZRt. Magyar Vállalkozásfinanszírozási ZRt. MFB Invest ZRt. MAG Magyar Gazdaságfejlesztési Központ ZRt. KIKSZ Közlekedésfejlesztési Zrt MFB Fejlesztési Tőkealap PÓLUS Programiroda Kht.
Industry Property management Security agency services Export lending Export loan insurance Financial services Financial services Property utilization Economic services Other economic services Property management Other economic services
Direct and indirect proprietary ratio 2008 2007 100.00% 100.00% 100.00% 100.00% 74.95% 74.95% 74.94% 74.94% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% -
Direct and indirect voting ratio 2008 2007 100.00% 100.00% 100.00% 100.00% 74.95% 74.95% 74.94% 74.94% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% -
Share capital 2008 2007 9,500 9,500 5,000 5,000 10,100 10,100 4,250 4,250 2,400 2,400 1,000 1,000 16,388 16,388 3,679 1,000 350 15,000 200 -
Proportional Share capital 2008 2007 9,500 9,500 5,000 5,000 7,570 7,570 3,185 3,185 2,400 2,400 1,000 1,000 16,388 16,388 3,679 1,000 350 15,000 200 -
Shareholder's equity 2008 2007 8,939 9,155 4,844 4,783 14,947 14,220 6,978 6,583 3,094 2,967 2,139 2,329 17,220 17,068 4,533 1,823 352 15,081 137 -
Proportional Shareholder's equity 2008 2007 8,939 9,155 4,844 4,783 11,203 10,658 5,229 4,933 3,094 2,967 2,139 2,329 17,220 17,068 4,533 1,823 352 15,081 137 -
36
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
11.
INVESTMENTS (CONTINUED) Consolidated associates
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Name of the company Biwatec-Felcsút Kft. Budai Egészség Központ Kft. Bükkszéki Sport- és Gyógyhotel Kft. Corvinus Nemzetközi Befektetési ZRt. Csepeli Lakásfejlesztő ZRt Egressy Ingatlanberuházó ZRt. FIREBIRD-Füredi Kapu ZRt Hotel Egerszalók ZRt. Hunguest Hotels Montenegro Intergas Hungária ZRt. Keresztúri Ingatlanfejlesztő ZRt. Kiskunhalasi Baromfifeldolgozó ZRt. Középületépítő Zrt Maggot 2006 Kft. N-GENE Kft. Park Otthon Klub Kft. Pólus Palace ZRt. Royal Balaton Golf&Yacht Ingatlanforgalmazási és Turisztikai ZRt. STYL-PT Kft. Szalók Holding ZRt. Terra Invest ZRt Zöldolaj BB ZRt.
Industry Recycling of waste Public health Health hotel management Trusteeship Property development Property utilization Property utilization Hotel services Hotel operation Wholesale trading of energy sources Property utilization Food industry Property management Technological research and development Technological research and development Construction of public utilities Tourism Property management Property management Tourism Property management Maintenance
Direct and indirect proprietary ratio 2008 2007 48.78% 48.78% 48.82% 49.00% 48.98% 48.98% 46.02% 49.89% 49.00% 49.00% 48.91% 48.91% 48.95% 48.95% 23.64% 23.64% 29.67% 29.67% 48.78% 48.78% 48.98% 48.98% 47.85% 47.85% 47.89% 47.88% 44.39% 44.39% 34.78% 34.78% 48.78% 48.78% 48.99% 48.99% 48.44% 47.90% 48.93% 48.98% 30.00%
48.44% 47.90% 48.93% 48.98% 30.00%
Direct and indirect voting ratio 2008 2007 48.78% 48.78% 48.82% 49.00% 48.98% 48.98% 46.02% 49.89% 49.00% 49.00% 48.91% 48.91% 48.95% 48.95% 23.64% 23.64% 29.67% 29.67% 48.78% 48.78% 48.98% 48.98% 47.85% 47.85% 46.57% 45.46% 44.39% 44.39% 34.78% 34.78% 48.78% 48.78% 48.99% 48.99% 48.44% 47.90% 48.93% 48.98% 30.00%
Share capital 2008 2007 205 205 246 245 392 392 515 475 1,000 1,000 552 552 715 715 550 550 3,495 3,344 1,230 1,230 2,552 2,552 3,135 3,135 1,802 1,802 360 360 1,840 1,840 205 205 2,337 2,337
48.44% 448 47.90% 408 48.93% 1,768 48.98% 784 25%+1 800
448 408 1,768 784 800
Proportional Proportional Shareholder's Shareholder's Share capital equity equity 2008 2007 2008 2007 2008 2007 100 100 149 164 73 80 120 120 135 16 66 8 192 192 1,722 1,676 843 821 237 237 1,008 577 464 288 490 490 603 854 295 418 270 270 590 562 289 275 350 350 747 745 366 365 130 130 592 607 140 143 1,037 992 8,930 10,756 2,650 3,191 600 600 1,203 1,483 587 723 1,250 1,250 1,933 1,933 947 947 1,500 1,500 2,692 3,071 1,288 1,469 863 863 1,795 7,342 860 3,515 160 160 343 360 152 160 640 640 1,800 1,873 626 651 100 100 171 201 83 98 1,145 1,145 4,985 4,970 2,442 2,435 217 196 865 384 240
217 196 865 384 240
358 408 2,957 6,263 616
386 408 3,765 6,442 709
173 195 1,447 3,068 185
187 195 1,842 3,155 213
Associates sold in 2008
Name of the company Industry 1 Aranykapu ZRt. Agriculture 2 Debreceni Hús ZRt. Agriculture 3 ReMat Kft Manufacturing of organic raw materials
Direct and indirect proprietary ratio 2007 28.00% 49.00% 17.82%
Direct and indirect voting ratio Share capital 2007 2007 28.00% 500 49.00% 2,240 25%+1 624
Proportional Share capital 2007 140 1,098 111
Shareholder's equity 2007 2,028 6,863 798
Proportional Shareholder's equity 2007 568 3,363 142
37
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
12.
PROPERTY, PLANT AND EQUIPMENT
Movement of property, plant and equipment in 2008: Land and buildings
Equipment
Work in Progress
Total
Gross value Opening balance Movement from changes of the Group Additions Disposals Closing balance
3,985
4,210
292
8,487
543 (167) 4,361
898 (570) 4,538
342 (299) 335
1,783 (1,036) 9,234
859
3,030
-
3,889
127 (46) 940
608 (413) 3,225
-
735 (459) 4,165
Depreciation Opening balance Movement from changes of the Group Additions Disposals Closing balance Net book value 31 December 2007
3,126
1,180
292
4,598
31 December 2008
3,421
1,313
335
5,069
Movement of property, plant and equipment in 2007:
Land and buildings
Equipment
Work in Progress
Total
Gross value Closing balance
3,985
4,210
292
8,487
Depreciation Closing balance
859
3,030
-
3,889
Net book value 31 December 2006
4,580
2,086
257
6,923
31 December 2007
3,126
1,180
292
4,598
38
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
13.
INTANGIBLE ASSETS
Movement of intangible assets in 2008: Intangible assets
Goodwill
Total
Gross value Opening balance Movement from changes of the Group Additions Disposals Closing balance
6,408
-
6,408
326 1,237 (140) 7,831
338 338
326 1,575 (140) 8,169
3,944
-
3,944
317 805 (34) 5,032
-
317 805 (34) 5,032
-
-
-
31 December 2007
2,464
-
2,464
31 December 2008
2,799
338
3,137
Amortization Opening balance Movement from changes of the Group Additions Disposals Closing balance Impairment of goodwill Opening balance Closing balance Net book value
Movement of intangible assets in 2007: Intangible assets
Goodwill
Total
Gross value Closing balance
6,408
-
6,408
Amortization Closing balance
3,944
-
3,944
-
-
-
Impairment of goodwill Closing balance Net book value 31 December 2006
2,392
236
2,628
31 December 2007
2,464
-
2,464
39
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
14.
OTHER ASSETS 2008 Receivables from the State (exchange rate risk guarantee) Accrued interest receivable and other accruals Trade receivables Advances Inventories Receivables from insurance and counter-insurance Receivables from matured, State guaranteed bond Other
2007
33,783 14,729 1,628 428 234 114 798
11,006 10,655 3,880 145 617 207 3,159 84
*
51,714 Allowance for impairment losses of other receivables and other assets (See Note 26.)
29,753
(911)
Total:
(1,399)
50,803
28,354
* Receivables from the State has increased because the significant decrease in HUF/EUR foreign exchange rate. 15.
PLACEMENTS AND LOANS FROM OTHER BANKS 2008
16.
2007
Payable within one year: Other banks in HUF Other banks in foreign currencies
17,105 116,190
11,525 188,735
Payable over one year: Other banks in HUF Other banks in foreign currencies
3,738 390,627
4,440 268,491
Total:
527,660
473,191
DEPOSITS FROM CUSTOMERS 2008 Payable within one year: HUF Foreign currencies Payable over one year: HUF Foreign currencies Total:
2007
5,059 6,730
3,345 6,835
532 243
714 1,178
12,564
12,072
40
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
17.
BONDS ISSUED The maturity of the 500 million EUR bond issued in March 2006 is 5 years, the interest rate is fix 3.75 %. Interest is payed annually. The maturity date of the bond is 24 March 2011. The maturity of the other 500 million EUR bond issued in October 2006 is 7 years, the interest rate is fix 4.125 %. Interest is payed annually. The maturity date is 30 October 2013. The maturity of the 400 million EUR bond issued in June 2007 is 5 years, the interest rate is fix 4.875 %. Interest is payed annually. The maturity date is 20 June 2012.
18.
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS The amount MHUF 3,053 included in Financial liabilities at fair value through profit or loss reflects the market value of non-hedging swap deals as at 31 December 2008 (31 December 2007: MHUF 10 liability).
19.
DERIVATIVE ASSETS AND LIABILITIES HELD FOR RISK MANAGEMENT a)
Foreign currency IRS deals
The Group concluded swap deals for the purpose of hedging the interest rate risk of foreign currency fixed interest rate bonds issued. These transactions are accounted for as fair value hedges. The amount MHUF 2,683 included in Derivative liabilities held for risk management reflects the market value of these transactions as at 31 December 2008 (31 December 2007: MHUF 3,018 liability). b)
Foreign exchange swap
The Group had foreign exchange swap deals to hedge the foreign exchange risk. The amount MHUF 2,166 included in Derivative liabilities held for risk management reflects these deals’ market value as at 31 December 2008. (There were no foreign exchange swaps as at 31 December 2007)
41
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
20.
PROVISIONS Provisions by title
21.
22.
2008
2007
Technical provision (insurance) Unused credit facilities Legal cases Labour law cases Liabilities because of mediated loans Liabilities because of settlement Other
3,622 971 967 297 246 225 565
2,584 800 960 516 251 581
Total:
6,893
5,692
2008
2007
Accrued interest payable and other accruals Advances received Trade payable Other
15,017 818 646 323
13,640 94 1,589 370
Total:
16,804
15,693
OTHER LIABILITIES
SUBORDINATED DEBT In May 1998, the State Lottery and Gambling Plc. (Szerencsejáték ZRt.), a company wholly owned by the Hungarian State, purchased subordinated bonds from the Group for MHUF 9,500. The maturity of the bonds is 10 years, and bear 0% interest. According to an agreement on 29 December 1998, the Ministry of Finance became the owner of the bonds. The maturity date of the bonds was 30 April 2008. The subordinated debt was repayed on 30 April 2008.
23.
SHARE CAPITAL 100% of the shares are owned by the Hungarian State. The rights of ownership are exercised by the Ministry of National Development and Economy. The total value of the 87,570 ordinary shares, with 1 million HUF nominal value each was 87,570 million HUF in 2008 and 2007.
42
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
24.
STATUTORY RESERVES 2008
25.
2007
General reserve General risk reserve
7,764 428
6,359 1,025
Total:
8,192
7,384
COMMITMENTS AND CONTINGENT LIABILITIES 2008
26.
2007
Unused credit facilities Guarantees Legal cases European Investment Fund subscription liability Other
187,617 56,847 2,316 929 918
128,427 47,467 2,689 889 936
Total:
248,627
180,408
ALLOWANCE FOR IMPAIRMENT AND PROVISIONS Impairment charges for the year, release of allowance for impairment charged in previous years and accumulation regarding the changes in the loan portfolio related to a financial asset or a group of financial assets are shown gross in the movement table. Changes in the allowance for impairment of originated loans, other assets and investments in 2008: Placements with other banks
Loans and advances to customers
Other assets
Total
Investments
(37,482)
(1,399)
(569) (23) 13 (36) (648)
(8,708) 11,385 10,965 420 (491) (3,390) (38,686)
(409) 415 13 402 482 (911)
(9,686) 11,777 10,991 786 (9) (3,390) (40,245)
1,333 (421) 1,039 113 926 (483)
Net movement in impairment (7. - 1.)
(592)
(1,204)
488
(1,308)
1,951
Released / (charged) to Income Statement (3. + 4.a)
(556)
2,257
(396)
1,305
(308)
1. Opening balance at 1 January 2008 2. Movement from release of impairment through equity 3. Charge 4. Total release and utilization 4.a. Release through profit and loss 4.b. Utilization and FX changes 5. Reclassification 6. Reclassification from provisions 7. Closing balance at 31 December 2008
(56) -
(38,937) -
(2,434)
43
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
26.
ALLOWANCE FOR IMPAIRMENT AND PROVISIONS (CONTINUED) Changes in provisions in 2008: Provision for off balance sheet items
Other provision
Total
1. Opening balance at 1 January 2008 2. Movement from changes of the Group 3. Charge 4. Release 5. Utilization 5.a. Reclassification into loans 5.b. Used up for expenses 5.c. FX changes 6. Closing balance at 31 December 2008
(2,747) (3,024) -
(2,945) (34) (2,426) 628
(5,692) (34) (5,450) 628
1,920 (3,851)
1,470 293 (28) (3,042)
3,390 293 (28) (6,893)
Net movement (6. - 1.)
(1,104)
(97)
(1,201)
Charged to Income Statement (3. + 4.)
(3,024)
(1,505)
(4,529)
Net change of impairment losses and provisions for 2008 was MHUF 3,532. Changes in the allowance for impairment of originated loans, other assets and investments in 2007: Placements with other banks
Loans and advances to customers
Other assets
Total
Investments and Goodwill
(74) (18) 36 36 (56)
(45,170) 1,878 (7,060) 16,056 14,305 1,751 (3,186) (37,482)
(2,555) 866 (196) 486 101 385 (1,399)
(47,799) 2,744 (7,274) 16,578 14,442 2,136 (3,186) (38,937)
(4,404) 1,116 (1,769) 2,623 600 2,023 (2,434)
Net movement in impairment (6. - 1.)
18
7,688
1,156
8,862
1,970
Released / (charged) to Income Statement (3. + 4.a)
18
7,245
(95)
7,168
(1,169)
1. Opening balance at 1 January 2007 2. Movement from changes of the Group 3. Charge 4. Total release and utilization 4.a. Release through profit and loss 4.b. Utilization and FX changes 5. Reclassification from provisions 6. Closing balance at 31 December 2007
44
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
26.
ALLOWANCE FOR IMPAIRMENT AND PROVISIONS (CONTINUED) Changes in provisions in 2007:
Other provision 1. Opening balance at 1 January 2007 2. Movement from changes of the Group 3. Charge 4. Release 5. Utilization 5.a. Reclassification into loans 5.b. Used up for expenses 6. Closing balance at 31 December 2007 Net movement (6. - 1.) Charged to Income Statement (3. + 4.)
Provision for off balance sheet items
Total
(2,051) (2,341)
(5,594) 3,114 (2,530) 366
(7,645) 3,114 (4,871) 366
1,645 (2,747)
1,541 158 (2,945)
3,186 158 (5,692)
2,649
1,953
(2,013)
(4,354)
(696) (2,341)
Net release of impairment and provisions for 2007 was MHUF 1,645.
45
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
27.
NET INTEREST INCOME 2008
2007
Interest and similar income Customers National Bank of Hungary Other banks Securities Other
21,914 593 26,804 13,913 3,997
39,984 562 16,267 10,589 3,199
Total:
67,221
70,601
Interest expense and similar charges Customers National Bank of Hungary Other banks Securities
(209) (2) (24,938) (15,053)
(716) (5) (32,156) (13,416)
Total:
(40,202)
(46,293)
27,019
24,308
Net interest income
28.
NET FEE AND COMMISSION EXPENSES 2008
2007
Fee and commission income Guarantee fees Hyferp commission Contract fees Other fees and commission
329 33 4,819 609
478 131 3,788 114
Total:
5,790
4,511
Fee and commission expenses Agent fees Guarantee fees Clearence and bank account commisions Other fees and commission Total:
(910) (42) (22) (102)
(679) (23) (21) (101)
(1,076)
(824)
46
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
29.
OTHER INCOME/EXPENSES 2008
2007
Other operating income Income on insurance Recoveries on receivables Revenue of businesses Received cost refund Received assets against receivables Gain on sale of receivables Gain on sale of securities Other income
2,534 2,164 618 482 426 285 139 1,588
1,634 1,879 2,652 619 407 1,008
Total:
8,236
8,199
2008
30.
2007
Other operating expenses Material costs Credit loss Fees Charitable donations Unrealized FX losses on the valuation of securities Other expenses related to loans Cost of final settlement Remitted receivables Other expenses
(2,507) (1,864) (1,254) (418) (254) (134) (1,152)
(3,246) (1,575) (439) (78) (828) (244) (1,557)
Total:
(7,583)
(7,967)
GENERAL AND ADMINISTRATIVE EXPENSES 2008
2007
Salaries and employee benefits Depreciation and amortization Other expenses
(12,286) (1,541) (5,538)
(10,864) (1,631) (5,055)
Total:
(19,365)
(17,550)
The average number of the employees in 2008 was 1,024 (2007: 944).
47
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
31.
TAXATION 2008
2007
Corporate tax Deferred tax asset – temporary difference:
(1,856) 172
(2,098) (129)
Tax payable in the Income Statement
(1,684)
(2,227)
Effective tax rate
Rate of tax Profit before income taxes Corporate tax Solidarity tax Effect of tax base modifying items Effect of consolidation entries General risk reserve Effect of consolidation of subsidiaries and associates Valuation of financial instruments
Amount
Rate of tax
7,805 16.00% 4.00%
Deferred tax effect Effective tax liability
2007
2008
21.58%
(1,249) (312) 53 (204) (119)
Amount 11,970
16.00% 4.00%
(1,915) (479) (177) 394 (48)
(25)
(104) 231
172
(129)
(1,684)
18.60%
(2,227)
48
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
32.
RELATED PARTIES Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. State and other State owned companies contain State and companies controlled by the State. The list of related parties where the Bank has direct or indirect controlling or significant influence (subsidiaries and associates) is in Note 11. The balances arising from transactions with related parties in 2008 were as follows:
Assets Cash and balances with the National Bank of Hungary Placements with other banks Loans and advances to customers, net of allowance for impairment losses Financial assets at fair value through profit or loss Available for sale securities Held-to-maturity securities Investments Other assets Liabilities Placements and loans from other banks Deposit from customers Provisions Other liabilities Income Statement Interest and similar income Iterest expense and similar charges
Subsidiaries and associates
State and other State owned companies
30,617 110,159
2,091 -
10,298 13,206 910
121,946 3,218 54,967 171,773 34,259
111,532 30,847 148 1,695
4,296 307 1,927
4,229 (3,519)
19,633 (69)
* The number includes interest and similar income of the Bank in the amount of MHUF 17,480. The average cost of funds for placed loans was MHUF 13,133.
49
*
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
32.
RELATED PARTIES (CONTINUED)
The balances arising from transactions with related parties in 2007 were as follows: Subsidiaries and associates
State and other State owned companies
Assets Cash and balances with the National Bank of Hungary Placements with other banks Loans and advances to customers, net of allowance for impairment losses Financial assets at fair value through profit or loss Available for sale securities Held-to-maturity securities Investments Other assets
34,576
9,017 -
2,835 20,463 114
42,013 15,789 25,756 141,988 11,256
Liabilities Placements and loans from other banks Deposit from customers Provisions Other liabilities
35,002 627 1,455 263
4,104 313 15,808
Income Statement Interest and similar income Iterest expense and similar charges
1,953 (2,104)
37,139 (566)
* The number includes interest and similar income of the Bank in the amount of MHUF 33,144. The average cost of funds for placed loans was MHUF 28,238.
50
*
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
33.
SEGMENT REPORTING
31 December 2008
Banking
Segment Other financial services
Industry and commerce
Cons. adjustments
Total
Cash and balances with the National Bank of Hungary Placements with other banks Loans and advances to customers, net of allowance for impairment losses Financial assets at fair value through profit or loss Available for sale securities Held-to-maturity securities Investments Property, plant and equipment Intangible assets Current tax assets Deferred tax assets Other assets TOTAL ASSETS
6,369 498,500
15 7,685
33,449 -
(30,592) (110,185)
9,241 396,000
368,853 10,015 54,160 165,548 68,016 4,201 2,538 269 52 47,832 1,226,353
3,015 839 5,938 62 192 111 1,255 19,112
2,514 234 14,602 740 150 2,673 54,362
(1,603) (32) 53 (65,760) (64) 338 (269) (957) (209,071)
372,779 10,015 54,967 171,773 16,920 5,069 3,137 52 50,803 1,090,756
Placements and loans from other banks Deposits from customers Financial liabilities at fair value through profit or loss Issued securities Derivative liabilities held for risk management Provisions Current tax liabilities Other liabilities Total liabilities
637,590 43,406 3,053 367,884 4,849 2,588 240 14,041 1,073,651
313 4 4,121 2,464 6,902
1,289 185 1,782 3,256
(111,532) (30,846) (1) 300 (1,483) (143,562)
527,660 12,564 3,053 367,884 4,849 6,893 540 16,804 940,247
-
-
-
152,702
12,210
51,106
(65,509)
150,509
1,226,353
19,112
54,362
(209,071)
1,090,756
67,459 (43,564)
1,061 (59)
2,212 (90)
(3,511) 3,511
67,221 (40,202)
23,895
1,002
2,122
-
27,019
7,958
809
13
Subordinated debt Total shareholder's equity TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY Interest and similar income Interest expense and similar charges Net interest income Profit before income tax
-
(777)
-
8,003
51
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
33.
SEGMENT REPORTING (CONTINUED)
31 December 2007
Banking
Segment Other financial services
Industry and commerce
Cons. adjustments
Total
1,046,529
17,936
33,958
(80,411)
1,018,012
891,002
6,057
1,129
(36,837)
861,351
-
-
-
146,027
11,879
32,829
(43,574)
147,161
1,046,529
17,936
33,958
(80,411)
1,018,012
70,105 (47,979)
857 (69)
1,394 -
(1,755) 1,755
70,601 (46,293)
Net interest income
22,126
788
1,394
-
24,308
Profit before income tax
12,957
519
(669)
Total assets Total liabilities Subordinated debt
9,500
Total shareholder's equity TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY Interest and similar income Interest expense and similar charges
34.
(620)
9,500
12,187
KEY MANAGEMENT PERSONNEL COMPENSATION The gross compensation of the Banks’ key management personnel in 2008 and 2007 was the following: 2008
2007
Members of the Board of Directors Members of the Supervisory Board CEOs and deputy CEOs
24 16 449
28 20 418
Total:
489
466
*
* The increase is because of the lump-sum settlement of a leaving deputy CEO.
52
MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
35.
CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS
31 December 2008
Cash and balance with the National Bank of Hungary Placements with other banks Loans and advances to customers, net of allowance for impairment losses Financial assets at fair value through profit or loss Available for sale securities Held-to-maturity securities Investments
Other assets or Trading assets liabilities at fair value through (fair value profit or loss option)
3,218
Cash and balance with the National Bank of Hungary Placements with other banks Loans and advances to customers, net of allowance for impairment losses Financial assets at fair value through profit or loss Available for sale securities Held-to-maturity securities Investments
Placements and loans from other banks Deposits from customers Financial liabilities at fair value through profit or loss Issued bonds Derivative liabilities held for risk management Subordinated debt
36.
Loans and receivables
Available for sale assets
Other assets or liabilities at amortised cost
9,241 396,000
372,779
372,779 10,015 54,967 171,773 16,920
374,006 10,015 54,967 166,482 16,920
527,660 12,564 3,053 367,884 4,849
527,660 12,564 3,053 367,031 5,811
54,967 16,920
527,660 12,564 3,053 248,848 4,849
15,789
119,036
Held-tomaturity assets
Loans and receivables
Available for sale assets
Other assets or liabilities at amortised cost
Total carrying amount
Fair value
27,860 427,151
27,860 427,151
27,860 427,151
319,808
319,808 15,846 25,756 141,987 24,188
321,444 15,846 25,756 141,305 24,188
473,191 12,072 10 351,490 3,018 9,500
473,191 12,072 10 350,197 4,455 9,275
57 25,756 141,987 24,188
473,191 12,072 10 237,642 3,018
Fair value
9,241 396,000
6,797
Other assets or Trading assets liabilities at fair (fair value value through option) profit or loss
Total carrying amount
9,241 396,000
171,773
Placements and loans from other banks Deposits from customers Financial liabilities at fair value through profit or loss Issued bonds Derivative liabilities held for risk management
31 December 2007
Held-tomaturity assets
113,848 9,500
EVENTS AFTER THE BALANCE SHEET DATE The Bank decided to launch a HUF 100 billion bond issuance program in April 2009. The Bank plans regular monthly issuance at variable interest rate and introduce the bonds to the Budapest Stock Exchange. In April 2009 the Bank signed a credit agreement of HUF 170 billion with the Hungarian State with the purpose of extending its loan portfolio. According to the agreement, the Bank receives the credit in two payments and in four currencies – euro, forint, dollar and yen. The source of the credit is an EUR 20 billion financing package from international organizations (EU, IMF).
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MFB Hungarian Development Bank Private Limited Company Notes to Consolidated Financial Statements for the year ended 31 December 2008 (in million HUF)
37.
FORTHCOMING IFRSs Standards and interpretations issued but effective only for annual reporting periods beginning after 1 January 2008. Amended IFRS 1 and IAS 27
Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Effective date: 1 January 2009 The Group is not a first-time adopter of IFRS, the amendments are not relevant to the consolidated financial statements.
Amended IFRS 2
Amendment to IFRS 2 Share-based Payment – Vesting Conditions and Cancellations Effective date: 1 January 2009 The amendment is not relevant to the Group’s operations.
Revised IFRS 3
Business Combinations Effective date: 1 July 2009 The amendment is not relevant to the consolidated financial statements.
IFRS 8
Operating Segments Effective date: 1 January 2009 The Group is currently in the process of evaluating the potential effect of this standard.
Revised IAS 1
Presentation of Financial Statements Effective date: 1 January 2009 The Group is currently in the process of evaluating the potential effect of this amendment.
Revised IAS 23
Borrowing Costs Effective date: 1 January 2009 The Group is currently in the process of evaluating the potential effect of this amendment.
Amended IAS 27
Consolidated and Separate Financial Statements Effective date: 1 July 2009 The Group is currently in the process of evaluating the potential effect of this amendment.
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