| | Note | | 2004 | | 2003 | |
| | | | 1,000 EUR | | 1,000 EUR | |
| | | | | | | |
| Cash flows from operating activities | (20 | ) | 177,841 | | 152,211 | |
| | | | | | | |
| Cash flows from investing activities | | | | | | |
| Lending | | | | | | |
| Disbursements of loans | | | –1,347,779 | | –1,842,064 | |
| Repayments of loans | | | 1,408,072 | | 749,739 | |
| Exchange rate adjustments | | | 188,852 | | 666,094 | |
| Placements and debt securities | | | | | | |
| Purchase of debt securities | | | –492,460 | | –606,556 | |
| Sales of debt securities | | | 502,834 | | 311,156 | |
| Placements with credit institutions | | | 34,171 | | –28,127 | |
| Other financial placements | | | 1,552 | | –549 | |
| Exchange rate adjustments etc. | | | –701 | | 9,224 | |
| Other items | | | | | | |
| Change in other assets | | | 826 | | 46,565 | |
| Change in tangible and intangible assets | | | –7,644 | | –3,809 | |
|
|
|
|
|
| |
| Investing activities, total | | | 287,722 | | –698,328 | |
| | | | | | | |
| Cash flows from financing activities | | | | | | |
| Debts evidenced by certificates | | | | | | |
| Issues of new debt | | | 1,808,339 | | 3,257,711 | |
| Redemptions | | | –1,764,676 | | –1,870,382 | |
| Exchange rate adjustments | | | –485,749 | | –1,322,162 | |
| Issuing charges | | | –1,525 | | –3,137 | |
| Other items | | | | | | |
| Placements from credit institutions | | | –19,898 | | 14,025 | |
| Change in other liabilities | | | 170,957 | | 308,101 | |
| Dividend paid | | | –41,334 | | –40,300 | |
|
|
|
|
|
| |
| Financing activities, total | | | –333,885 | | 343,855 | |
| | | | | | | |
| CHANGE IN NET LIQUIDITY | (20 | ) | 131,678 | | –202,262 | |
| | | | | | | |
| Opening balance for net liquidity | | | 2,744,295 | | 2,946,558 | |
| Closing balance for net liquidity | | | 2,875,973 | | 2,744,295 | |
| | | | | | | |
| The Nordic Investment Bank's accounts are kept in euro. | | | | | | |
NOTES TO THE FINANCIAL STATEMENTS
General operating principles
The operations of the Nordic Investment Bank (hereinafter called the Bank or NIB) are governed by an agreement among the governments of Denmark, Finland, Iceland, Norway and Sweden (hereinafter called the member countries), and the Statutes adopted in conjunction with that agreement. The Agreement establishing the Bank dated 4 December 1975 was replaced by a new agreement that was signed on 23 October 1998 and entered into force on 18 July 1999. The new Agreement further strengthens the Bank's status as an international financial institution as well as its legal status.
In the member countries, the Bank is exempt from payment restrictions and credit policy measures, and has the legal status of an international juridical person, with full legal capacity. The Agreement contains provisions concerning the Bank's immunity and the exemption of the Bank's assets and income from all taxation.
The purpose of the Bank is to grant loans and issue guarantees on sound banking terms and in accordance with socio-economic considerations for the implementation of investment projects of interest to its member countries and other countries that receive loans or guarantees from the Bank.
The headquarters of the Bank are located in Helsinki, Finland.
Significant accounting principles
BASIS FOR PREPARING THE FINANCIAL STATEMENTS
The Bank's Financial Statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). Since 1 January 1999, the Bank's accounts are kept in euro. The Bank's Financial Statements are presented in millions or thousands of euro. With the exceptions noted below, they are based on historical cost.
ASSESSMENTS MADE IN PREPARING THE FINANCIAL STATEMENTS
As part of the process of preparing the Financial Statements, the Bank's management is required to make certain estimates and assumptions that have an effect on the Bank's profits, its financial position and other information presented in the Annual Report. These estimates are based on available information and the judgements made by the Bank's management. Actual outcome may deviate from the assessments thus made, and such deviations may at times be substantial compared to the Financial Statements.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are recognised in the accounts at the exchange rate prevailing on the closing date. Non-monetary assets and liabilities are recognised in the accounts at the euro rate prevailing on the transaction date. Income and expenses recognised in currencies other than the euro are converted on a monthly basis to the euro, in accordance with the euro exchange rate at the end of each month.
Realised and unrealised exchange rate gains and losses are recognised in the Profit and Loss Account.
The Bank uses the official exchange rates published for the euro by the European Central Bank. See note 21.
CASH AND CASH EQUIVALENTS, NET LIQUIDITY
The item “Cash and cash equivalents” refers to monetary assets and placements with original maturities of 6 months or less, calculated from the date the acquisition and placements were made. The item also includes placements in liquid debt securities at floating interest rates, regardless of original maturity.
Net liquidity refers to the net amount of monetary assets, placements and liabilities with original maturities of 6 months or less calculated from the time the transaction was entered into, as well as placements in liquid debt securities at floating interest rates irrespective of original maturity. This corresponds in substance to the Bank's operational net liquidity.
17
FINANCIAL PLACEMENTS
Items recognised as financial placements in the Balance Sheet include placements with credit institutions and in debt securities, for example, bonds and other debt certificates, as well as certain placements in instruments with equity features. The placements are initially recognised on the settlement date. Their subsequent accounting treatment depends on the purpose of the placements.
Financial assets held for trading are carried at fair value. Changes in fair value are recognised in the Profit and Loss Account. Held-to-maturity financial assets are carried at amortised cost. These financial assets are assessed on an ongoing basis for impairment.
Available-for-sale financial assets are measured at fair value. Unrealised value changes are recognised in “Equity” under the item “Other value adjustments” until the asset is sold or the unrealised loss is considered to be permanent. When the placement is sold or written down, the accumulated unrealised gain or loss is transferred to the year's profit or loss, and becomes part of “Net profit on financial operations”.
LENDING
The Bank may grant loans and provide guarantees under its Ordinary Lending or under various special lending facilities. The special lending facilities, which carry member country guarantees, consist of Project Investment Loans (PIL loans), Environmental Investment Loans (MIL loans) and Baltic Investment Loans (BIL loans).
Ordinary Lending includes loans and guarantees in and outside the member countries, as well as Regional Loans in the Nordic countries. In addition, loans in Estonia, Latvia and Lithuania were transferred from the PIL facility to Ordinary Lending as of November 2004. The Bank's Ordinary Lending ceiling corresponds to 250% of its authorised capital and accumulated general reserves and amounts to EUR 12,673 million following the appropriations of the year's profits in accordance with the Board of Directors' proposal.
Project Investment Loans are granted for financing creditworthy projects in the emerging markets of Asia, the Middle East, Central and Eastern Europe, as well as Latin America and Africa. PIL loans were also granted to the Baltic countries until the transfer to Ordinary Lending. The Bank's Statutes permit loans to be granted and guarantees to be issued under the PIL facility up to an amount corresponding to EUR 4,000 million. During 2003 the Nordic Council of Ministers approved an increase in the PIL facility from EUR 3,300 million to EUR 4,000 million, with no change in the EUR 1,800 million guarantee. The increase became effective on 1 July 2004. In connection with this increase, and with the same effective date, the Bank decided to adjust the guidelines for calling the member countries' guarantees. Under the adjusted guidelines, the Bank will assume 100% of any losses occurred under an individual PIL loan, up to the amount available at any given time in the Special Credit Risk Fund for PIL. Only thereafter would the Bank be able to call the member countries' guarantees according to the following principle: the member countries guarantee 90% of each loan under the PIL facility up to a total amount of EUR 1,800 million. Payment under the member countries' guarantees takes place at the request of the Board of Directors, as provided for under an agreement between the Bank and each individual member country.
The Bank is authorised to grant special Environmental Investment Loans (MIL) up to an amount of EUR 300 million, for the financing of environmental projects in the neighbouring areas to the member countries. The increase in the Bank's Environmental Investment Loan facility from EUR 100 million to EUR 300 million became effective on 1 January 2003. The Bank's member countries guarantee 100% of the MIL facility.
Until 31 December 1999 the Bank granted loans for investments in the Baltic countries within the EUR 60 million Baltic Investment Loan facility (BIL). The Nordic countries guarantee 100% of the BIL facility.
The Bank's lending transactions are recognised in the Balance Sheet at the time the funds are transferred to the borrower. Loans are recognised initially at historical cost, which corresponds to the fair value of the transferred funds including transaction costs. Loans outstanding are carried at amortised cost. If the loans are hedged against changes in fair value by using derivative instruments, they are recognised in the Balance Sheet at fair value, with value changes recognised in the Profit and Loss Account.
PROVISIONS FOR LOAN LOSSES
Receivables are carried at their estimated recoverable amount. Loans are recognised in the Balance Sheet net of write-downs both for actual as well as possible loan losses. On the liabilities side, possible loan losses are recognised in respect of the guarantees NIB has issued. Actual and possible losses are taken as charges to the Profit and Loss Account, less amounts recovered. The net cost of any calls made under
18
guarantees and other similar commitments issued by NIB is likewise recognised in the Profit and Loss Account.
Provisions for impairment are made based on individual assessment of the collectable amount for loans and guarantees. The assessment takes into account any costs of administration or realisation of the security.
In the event that payments in respect of an Ordinary Loan are more than 90 days overdue, all of the borrower's loans are deemed to be non-performing.
In the event that payments in respect of a PIL loan to a government or guaranteed by a government are more than 180 days overdue, all of the borrower's loans are deemed to be non-performing. Whenever payments in respect of a PIL loan that is not to a government or guaranteed by a government are more than 90 days overdue, all of the borrower's loans are deemed to be non-performing. Provisions for loan losses are then made in respect of the part of the outstanding loan principal, interest, and fees that correspond to the Bank's own risk for this loan facility at any given point in time.
INTANGIBLE ASSETS
Intangible assets mainly consist of investments in software, software licenses and ongoing investments in new IT systems. The investments are carried at historical cost, and are amortised over the assessed useful life of the assets, which is estimated to be between 3 and 10 years. The amortisations are made on a straight-line basis over the useful life of the assets.
TANGIBLE ASSETS
Tangible assets in the Balance Sheet include land, buildings, office equipment, and other tangible assets owned by the Bank. The assets are recognised at historical cost, less any accumulated depreciation based on their assessed useful life. No depreciations are made for land. The Bank's office building in Helsinki is depreciated straight-line over a 40-year period. The Bank's other buildings are depreciated over a 30-year period. The depreciation period for office equipment and other tangible assets is determined by assessing the individual item. The depreciation period is usually 3 to 5 years.
WRITE-DOWNS
The Bank's assets are reviewed annually for impairment. If there is any objective evidence of impairment, the possible impairment loss is determined based on the recoverable amount of the assets.
BORROWING
The Bank's borrowing transactions are recognised in the Balance Sheet at the time the funds are transferred to the Bank. The borrowing transactions are recognised initially at historical cost, which is the fair value of the funds transferred, less transaction costs. Borrowing outstanding is carried at amortised cost. The Bank uses derivative instruments to hedge the fair value of virtually all its borrowing transactions. In these instances the borrowing transaction is recognised in the Balance Sheet at fair value, with any changes in value recognised in the Profit and Loss Account.
DERIVATIVE INSTRUMENTS
The Bank's derivative instruments are recognised at fair value in the Balance Sheet as “Other assets” or “Other liabilities”.
During the time the Bank holds a derivative instrument, any changes in the fair value of such an instrument are recognised in the Profit and Loss Account, or directly in “Equity” as part of the item “Other value adjustments”, depending on the purpose for which the instruments were acquired. The value changes of derivative instruments that were not acquired for hedging purposes are recognised in the Profit and Loss Account. The accounting treatment for derivative instruments that were acquired for hedging purposes depends on whether the hedging operation was in respect of cash flow or fair value.
When hedging future cash flows, the change in fair value of the effective portion of the hedging instrument is recognised directly in “Equity” as part of the item “Other value adjustments” until the maturity of the instrument. At maturity, the amount accumulated in “Equity” is included in the Profit and Loss Account in the same period or periods during which the hedged item affects the Profit and Loss Account.
19
When hedging the fair value of a financial asset or liability, the derivative instrument's change in fair value is recognised in the Profit and Loss Account together with the hedged item's change in fair value in “Net profit on financial operations”.
Sometimes a derivative may be a component of a hybrid financial instrument that includes both the derivative and a host contract. Such embedded derivative instruments are part of a structured financing transaction that is hedged against changes in fair value by means of matching swap contracts. In such cases, both the hedged borrowing transaction and the hedging derivative instrument are recognised at fair value with changes in fair value in the Profit and Loss Account.
The hedge accounting is based on a clearly documented relationship between the item hedged and the hedging instrument. When there is a high (negative) correlation between the hedging instrument on the one hand and the value change on the hedged item or the cash flows generated by the hedged item on the other hand, the hedge is regarded as effective. The hedging relationship is documented at the time the hedge transaction is entered into, and the effectiveness of the hedge is assessed continuously.
FAIR VALUE
The fair value of financial instruments, including derivative instruments that trade in a liquid market, is the bid or offered closing price at Balance Sheet date. Where there is no liquid market for a financial instrument, fair value is determined by discounting the estimated future cash flows at market rates that correspond to the remaining lifetime of the instrument. The Bank's structured borrowing transactions with embedded derivative instruments, and the hedging swap contracts, are measured at fair value by using valuation models.
EQUITY
The Bank's authorised and subscribed capital was EUR 4,000 million, of which the paid-in portion was EUR 404.3 million. Payment of the subscribed, non-paid-in portion of authorised capital, i.e., the callable capital, will take place at the request of the Bank's Board of Directors to the extent that the Board deems it necessary for the fulfilment of the Bank's debt obligations.
Estonia, Latvia and Lithuania became members of the Bank on 1 January 2005; as of that date, the Bank's authorised capital increased to EUR 4,142 million. As a result, the paid-in portion will rise to EUR 418.6 million. The new member countries shall make their payments of the paid-in portion pursuant to an agreed schedule of payments in three annual instalments starting on 31 March 2005. In consequence of the membership enlargement, also the share of each member country in the authorised capital and in the guarantees for the PIL and MIL facilities changed as of 1 January 2005.
The Bank's reserves have been built up by means of appropriations from the profits of previous accounting periods, and consist of the Statutory Reserve, as well as funds for credit risks: the General Credit Risk Fund, the Special Credit Risk Fund for PIL, and the Fund for the HIPC programme (Debt Initiative for Heavily Indebted Poor Countries).
The Bank's profits are transferred to the Statutory Reserve until it amounts to 10% of NIB's subscribed authorised capital. Thereafter, the Nordic Council of Ministers, after proposal of the Bank's Board of Directors, shall decide upon the allocation of the profits between the Statutory Reserve and dividends on the subscribed capital.
The General Credit Risk Fund is designed to cover unidentified exceptional risks in the Bank's operations.
Allocations to the Special Credit Risk Fund for PIL are made primarily to cover the Bank's own risk in respect of loan losses on PIL loans.
In 2000, the Bank decided to participate in the HIPC programme initiated by the World Bank and the International Monetary Fund. NIB's participation in the programme concerns only one borrower country.
INTEREST
The Bank's net interest income includes accrued interest on loans as well as accruals of the premium or discount value of financial instruments. Net interest income also includes swap fees that are accrued over the transactions' lifetimes.
Borrowing costs are recognised as reductions of the borrowing in the Balance Sheet. They are amortised over the lifetime of the borrowing and included in “Net interest income” in the Profit and Loss Account.
20
FEES AND COMMISSIONS
Fees collected when disbursing loans are recognised as income at the time of the disbursement, which means that fees and commissions are recognised as income at the same time as the costs are incurred. Commitment fees are charged on loans that are agreed upon but not yet disbursed, and are accrued in the Profit and Loss Account over the commitment period.
Annually recurrent costs arising as a result of the Bank's borrowing, investment and payment transactions are recognised under the item “Commission expense and fees paid”.
FINANCIAL TRANSACTIONS
The Bank recognises in “Net profit on financial operations” both realised and unrealised gains and losses on debt securities and other financial instruments. Adjustments for hedge accounting are included.
ADMINISTRATIVE EXPENSES
The Bank provides services to the Nordic Development Fund (NDF) and the Nordic Environment Finance Corporation (NEFCO). Payments received by the Bank for providing services at cost to these organisations are recognised as a reduction in the Bank's administrative expenses.
NIB receives a host country reimbursement from the Finnish Government equal to the tax withheld from the salaries of NIB's employees. This payment is shown in note 5 and reduces the Bank's administrative expenses.
LEASING AGREEMENTS
Leasing agreements are classified as operating leases if the rewards and risks incident to ownership of the leased asset, in all major respects, lie with the lessor. Lease payments under operating leases are recognised on a straight-line basis over the lease term. The Bank's rental agreements are classified as operating leases.
EMPLOYEES' PENSIONS AND INSURANCE
The Bank is responsible for the pension coverage of its employees. In accordance with the Headquarters Agreement between the Bank and the Finnish Government and as part of its employee pension coverage, the Bank has adopted the Finnish State pension system. Contributions to this pension system, which are paid to the Finnish State Pension Fund, are calculated as a percentage of salaries. The Finnish Government determines the basis for the contributions, and the Finnish State Treasury establishes the actual percentage of the contributions.
NIB has also provided its employees with an additional pension insurance scheme arranged by a private pension insurance company. This is group pension insurance based on a defined contribution plan. The Bank's pension liability is completely covered.
In addition to the applicable local social security systems, NIB has taken out a comprehensive accident, life and health insurance policy for its employees in the form of a group insurance plan.
Risk management
The Bank applies conservative guidelines for its risk management. These guidelines call for continuous monitoring of NIB's risk exposure with regard to interest rate, foreign exchange rate, and counterparty risks. The Board of Directors establishes limits for these risks. The market risks are controlled with a combination of value-at-risk (VaR), duration, and gap analysis.
The Bank uses derivative instruments in the form of interest rate and currency swaps, forward contracts, futures, forward rate agreements, and options, in order to protect itself against market risks that may occur in the Bank's borrowing and lending operations. Through this hedging policy, the Bank strives to eliminate these market risks, usually on a back-to-back basis.
FOREIGN EXCHANGE RATE RISK
According to its Statutes, the Bank has to protect itself against foreign exchange rate risk to the extent practicable. Exchange rate risks can occur in the Bank's operations mainly because NIB's lending operations are funded in a currency other than the currency in which the loan is denominated. These exchange rate risks are minimised by hedging the exchange rate exposure inherent in the borrowing operations by means
21
of swap contracts. Swap contracts, however, do not eliminate the exchange rate risk in the Bank's future interest margin income in foreign currencies. The risk primarily involves exchange rate changes between the euro and the US dollar. The effects of such changes are, however, limited.
INTEREST RATE RISK
The interest rate risk is the possible effect that changes in market interest rates can have on the value of interest-bearing assets and liabilities, and on the interest flow that is recognised in the Profit and Loss Account. The interest rate risk is dependent on the length of the interest rate fixing period, and on the maturity profile of assets relative to liabilities. Differences in the length of interest rate fixing periods can involve sensitivity to changes in interest rate levels (general interest rate risk). The differences in the maturity profile between assets and liabilities can lead to a refinancing or reinvestment risk, as changes may occur in interest rate margins of the assets or liabilities. The Bank has an established limit system to control general interest rate risk as well as refinancing and reinvestment risks. The system measures differences in interest rate fixing periods and in maturity profiles, and calculates their estimated effect on the Bank's net interest income.
The Bank invests an amount corresponding to its equity in interest-bearing securities with high credit ratings. Approximately one-third of the Bank's equity has been placed in a marked-to-market portfolio with a maximum duration of 5.5 years and a daily value-at-risk not exceeding 0.4% of the portfolio's value at a 95% confidence level. The remaining two thirds of the Bank's equity has been placed in a held-to-maturity portfolio that has a duration of between 3.0 and 5.5 years. Fluctuations in the value of the trading portfolio affect the Bank's profits. Fluctuations in interest rates also affect the net interest income in the held-to-maturity portfolio, since the interest and capital at maturity are reinvested.
CREDIT RISK
Credit risk is realised in the event the Bank's counterparties fail to fulfil their contractual obligations vis-à-vis the Bank. Credit risk is an integral part of banking operations, and exists in the Bank's various products such as loans, guarantees, derivative instruments, etc.
The Bank's credit risk is monitored by means of a common, unified risk classification system, in which the Bank's counterparties are divided into credit risk categories on a scale from 1 to 10. The Bank also has rules for credit risk concentrations with regard to individual counterparties, economic sectors, countries, etc.
Note 8 provides information regarding the geographical distribution of the Bank's loans and guarantees issued, as well as their distribution by type of security.
LIQUIDITY RISK
The Bank's policy is to have a level of liquidity that corresponds to its net liquidity requirements for the following 12 months. These funds are invested partially in the interbank market and partially in various kinds of floating interest rate debt securities. A small portion is invested in fixed-interest rate instruments. The average duration of the liquidity portfolio is restricted by the limit for interest rate risk.
OPERATIONAL RISK
NIB deals with legal risks and other risks through a system of internal controls, and by clear rules for the assignment of work and responsibilities among and within all the Bank's departments. The internal controls cover systems and procedures for monitoring transactions, positions and documentation with a clear segregation of duties between recording, risk management and transaction generating functions.
Internal audit
The internal audit is part of the Bank's internal control system. Important focal areas for the internal audit include the efficiency and reliability of the Bank's individual processes and systems, as well as compliance with the Bank's Statutes and other central directives and regulations. The internal audit is carried out in accordance with international standards for professional practice issued by the Institute of Internal Auditors. The internal audit annual activity plan is approved by the Board of Directors, and the audit reports are regularly submitted to the Board of Directors and to the Bank's Control Committee.
22
Segment information
Segment information and currency distribution in the notes are presented in nominal amounts. The adjustment to hedge accounting is presented as a separate item.
Reclassifications
Some minor reclassifications have been made. The comparative figures have been adjusted accordingly.
Revised IAS 39
NIB will adopt the revised International Accounting Standard 39 Financial Instruments: Recognition and Measurement (IAS 39), based on new and amended International Financial Reporting Standards (IFRSs). This revised standard replaces IAS 39 Financial Instruments: Recognition and Measurement (revised in 2000) and will be applied to annual periods beginning on or after 1 January 2005. The new standard is not expected to have a significant effect on the financial statements.
NOTES TO THE PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND CASH FLOW STATEMENT
| (1) | Segment information |
| (2) | Interest income and interest expense |
| (3) | Commission income and fees received |
| (4) | Net profit on financial operations |
| (5) | General administrative expenses |
| (6) | Possible loan losses and actual loan losses |
| (7) | Financial placements |
| (8) | Loans and guarantees outstanding |
| (9) | Intangible and tangible assets |
| (10) | Depreciations and write-downs |
| (11) | Other assets |
| (12) | Outstanding debts evidenced by certificates and swaps |
| (13) | Other liabilities |
| (14) | Authorised capital--paid-in capital |
| (15) | Statutory reserve and credit risk funds |
| (16) | Collateral and commitments |
| (17) | Fair value of financial instruments |
| (18) | Maturity profile |
| (19) | Average balance sheet |
| (20) | Cash flow statement |
| (21) | Exchange rates |
23
| (1) | SEGMENT INFORMATION |
| | |
Primary reporting segment--business operations
(Amounts in EUR 1,000) |
In its segment reporting, NIB divides its operations into two major segments: lending and financial operations. The lending operations consist of granting loans on commercial terms in and outside the member countries for projects of mutual interest for the member countries and the borrower country. Financial operations consist of the management of liquidity and placement of funds in financial investment portfolios.
| | | Lending | | Liquidity | | Placements
in financial
investment
portfolios | | Total | | | | Lending | | Liquidity | | Placements
in financial
investment
portfolios | | Total | |
| |
| |
| | | 2004 | | 2004 | | 2004 | | 2004 | | | | 2003 | | 2003 | | 2003 | | 2003 | |
| | | | | | | | | | | | | | | | | | | | |
| Net interestincome | | 73,510 | | 19,575 | | 70,078 | | 163,163 | | | | 69,523 | | 15,354 | | 70,552 | | 155,429 | |
| | | | | | | | | | | | | | | | | | | | |
| Commission income and fees received | | 4,329 | | 3,669 | | | | 7,998 | | | | 4,753 | | 123 | | | | 4,876 | |
| | | | | | | | | | | | | | | | | | | | |
| Commission expense and fees paid | | - -5 | | - -1,152 | | | | - -1,157 | | | | - -76 | | - -1,394 | | | | - -1,470 | |
| | | | | | | | | | | | | | | | | | | | |
| Net profit on financial operations | | 797 | | 5,831 | | 16,161 | | 22,788 | | | | 396 | | 12,628 | | 1,545 | | 14,569 | |
| | | | | | | | | | | | | | | | | | | | |
| Foreign exchange losses | | | | 87 | | | | 87 | | | | | | - -23 | | | | - -23 | |
| | | | | | | | | | | | | | | | | | | | |
| Administrative expenses, depreciations and write-downs | | - -20,657 | | - -1,289 | | - -2,329 | | - -24,276 | | | | - -19,274 | | - -941 | | - -2,139 | | - -22,354 | |
| | | | | | | | | | | | | | | | | | | | |
| Provisions for possible loan losses | | 3,764 | | | | | | 3,764 | | | | 307 | | | | | | 307 | |
| | | | | | | | | | | | | | | | | | | | |
| Profit for the year | | 61,737 | | 26,720 | | 83,910 | | 172,367 | | | | 55,629 | | 25,747 | | 69,958 | | 151,334 | |
| | | | | | | | | | | | | | | | | | | | |
| Assets | | 10,345,947 | | 4,236,131 | | 1,780,567 | | 16,362,645 | | | | 10,588,906 | | 4,427,740 | | 1,649,610 | | 16,666,256 | |
Secondary reporting segment--geographical segment
(Amounts in EUR 1,000)
In the Nordic countries, the Bank participates in the financing of cross-border investments and projects in industry that involve several Nordic countries. The core of NIB's lending operations outside the Nordic countries consists of loans under the Bank's Project Investment Loan facility for projects in emerging markets. NIB also grants loans to projects in the OECD area and the Baltic countries.
The table below is based on the region where the borrowers reside. 1)
| | | 2004
Net interest income | | 2003
Net interest income | |
| |
| Nordic loans | | | | | |
| Denmark | | 5,590 | | 4,880 | |
| Finland | | 15,484 | | 14,233 | |
| Iceland | | 2,372 | | 2,205 | |
| Norway | | 5,725 | | 5,336 | |
| Sweden | | 21,370 | | 19,678 | |
| |
| Total, Nordic loans | | 50,540 | | 46,332 | |
| | | 2004
Net interest income | | 2003
Net interest income | |
| |
| International loans | | | | | |
| Africa | | 2,188 | | 2,049 | |
24
| Asia | | 6,804 | | 7,518 | |
| Baltic countries | | 3,309 | | 2,609 | |
| Central and Eastern Europe | | 4,056 | | 3,879 | |
| Latin America | | 5,235 | | 5,217 | |
| Middle East | | 1,378 | | 1,442 | |
| Western Europe | | — | | 477 | |
| Total, international loans | | 22,970 | | 23,191 | |
| |
| Total, net interest income from lending | | 73,510 | | 69,523 | |
| |
| | |
| 1) | According to the domicile of the borrower's group headquarters. |
| | |
| (2) | INTEREST INCOME AND INTEREST EXPENSE |
| (Amounts in EUR 1,000) |
| |
| Interest income | | 2004 | | 2003 | |
| Cash and cash equivalents | | 77,007 | | 81,353 | |
| Placements with credit institutions for more than 6 months | | 2,557 | | 1,677 | |
| Debt securities of more than 6 months | | 58,531 | | 54,851 | |
| Loans outstanding | | 309,129 | | 331,005 | |
| Other interest income | | 303 | | 454 | |
| |
| Total, interest income | | 447,527 | | 469,341 | |
| | | | | | |
| Interest expense | | | | | |
| Short-term amounts owed to credit institutions | | 6,515 | | 5,498 | |
| Long-term amounts owed to credit institutions | | 2,328 | | 2,339 | |
| Debts evidenced by certificates | | 610,531 | | 653,899 | |
| Swap contracts and other interest expenses, net | | - -342,380 | | - -356,623 | |
| Borrowing costs | | 7,370 | | 8,798 | |
| |
| Total, interest expense | | 284,364 | | 313,912 | |
| | | | | | |
| (3) | COMMISSION INCOME AND FEES RECEIVED |
| (Amounts in EUR 1,000) |
| |
| | | 2004 | | 2003 | |
| Commitment fees | | 1,803 | | 1,997 | |
| Loan disbursement fees | | 1,875 | | 2,114 | |
| Guarantee commissions | | 156 | | 172 | |
| Premiums on prepayments of loans | | 3,995 | | 470 | |
| Commissions on lending of securities | | 169 | | 123 | |
| |
| Total, commission income and fees received | | 7,998 | | 4,876 | |
| | | | | | |
| | | | | | |
| (4) | NET PROFIT ON FINANCIAL OPERATIONS |
| (Amounts in EUR 1,000) |
| |
| | | 2004 | | 2003 | |
| Debt securities in trading portfolio, realised gains and losses | | 13,095 | | 7,443 | |
| Debt securities in trading portfolio, unrealised gains and losses | | 7,019 | | - -3,976 | |
| Adjustment to hedge accounting, unrealised gains and losses of fair value hedges | | 3,927 | | 5,427 | |
| Changes in fair value of non-hedging derivatives,unrealised gains and losses | | - -2,005 | | 2,794 | |
| Repurchase of NIB bonds, other items | | 752 | | 2,880 | |
| |
| Total, net profit on financial operations | | 22,788 | | 14,569 | |
| | | | | | |
| (5) | GENERAL ADMINISTRATIVE EXPENSES |
| (Amounts in EUR 1,000) |
| |
| | 2004 | | 2003 | |
| Personnel costs | 14,714 | | 13,845 | |
| Pension premiums in accordance withthe Finnish State pension system | 2,781 | | 2,786 | |
| Other pension premiums | 597 | | 678 | |
| Office premises costs | 1,353 | | 900 | |
| Other general administrative expenses | 7,501 | | 7,076 | |
| Cost coverage, NDF and NEFCO | -938 | | -879 | |
| Cost coverage, rental income and other | | | | |
| administrative income | -643 | | -991 | |
| Total | 25,365 | | 23,415 | |
|
|
|
| |
| Host country reimbursement according to agreement with the Finnish Government | -3,970 | | -3,662 | |
|
|
|
| |
| Net | 21,395 | | 19,753 | |
| | | | | |
| Average number of employees | 148 | | 147 | |
25
The average age of the staff was 44, and the average period of employment was 9 years.
Compensation for the Board of Directors, the Control Committee, and Senior Management
Compensation for the Board of Directors and the Control Committee was set by the Nordic Council of Ministers. Compensation for the Bank's senior management was set by the Board of Directors, and is paid in the form of fixed salaries and ordinary fringe benefits.
Compensation for the Chairman of the Board of Directors, the Members of the Board of Directors, the President and CEO and the Control Committee is presented in the table below:
(Amounts in EUR)
| 2004 | | 2003 | |
| Compensation/
emolument | | Compensation/
emolument | |
|
|
|
| |
| Chairman of the Board of Directors | 13,956 | | 12,089 | |
| Other Members of the Board of Directors | 86,351 | | 78,163 | |
| President and CEO | 369,831 | | 364,907 | |
| Control Committee | 21,550 | | 18,792 | |
Senior management is granted staff loans from the Bank at interest rates and on terms and conditions equal to those applicable to other employees. The rates are set with reference to the so-called base rate determined from time to time by the Finnish Ministry of Finance.
The pension benefits for the Bank's senior management follow the same rules applied to the pension benefits for the rest of the permanent staff, with a few exceptions.
Rental agreement
NIB operates in its own office building in Helsinki. Of the building's total area of 18,500 m², 2,000 m² are rented to other parties. The Bank rents an additional office space of 837 m².
(6) POSSIBLE LOAN LOSSES AND ACTUAL LOAN LOSSES
(Amounts in EUR 1,000)
| 2004 | | 2003 | |
|
|
|
| |
| Loan losses covered by provisions previously made | – | | 2,857 | |
| Reversals of previous provisions recognised in this year's accounts as actual losses | – | | -3,500 | |
| Provisions for the year's possible loan losses | 702 | | 988 | |
| Reversals of previous provisions for possible loan losses | -4,466 | | -652 | |
|
|
|
| |
| Provision for possible loan losses, net | -3,764 | | -307 | |
(7) FINANCIAL PLACEMENTS
The debt securities were issued by the following counterparties:
(Amounts in EUR million)
| 2004 | | 2003 | |
|
|
|
| |
| Governments | 519 | | 569 | |
| Public institutions | 12 | | 52 | |
| Other | 720 | | 633 | |
|
|
|
| |
| Total, debt securities | 1,251 | | 1,254 | |
26
These debt securities are at fixed interest rates.
The distribution of the Bank's debt security portfolios was as follows:
(Amounts in EUR million)
| Book value | | | | Fair value | | | |
| 2004 | | 2003 | | 2004 | | 2003 | |
|
|
|
|
|
|
|
| |
| Trading portfolio | 304 | | 361 | | 304 | | 361 | |
| Held-to-maturity portfolio | 947 | | 893 | | 1,007 | | 936 | |
|
|
|
|
|
|
|
| |
| Total, debt securities | 1,251 | | 1,254 | | 1,311 | | 1,297 | |
(8) LOANS AND GUARANTEES OUTSTANDING
Loans outstanding are recognised net of possible loan losses and actual loan losses.
Loans outstanding were distributed as follows over the Bank's four loan facilities:
(Amounts in EUR million)
| 2004 | | 2003 | |
|
|
|
| |
| Ordinary Loans | | | | |
| Investment loans in the Nordic countries | 8,080 | | 8,219 | |
| Regional loans in the Nordic countries | 64 | | 87 | |
| Investment loans outside the Nordic countries 1) | 390 | | 130 | |
| Adjustment to hedge accounting | 48 | | 45 | |
|
|
|
| |
| Total | 8,583 | | 8,481 | |
| | | | | |
| Project Investment Loans (PIL) | | | | |
| Africa | 246 | | 247 | |
| Asia | 632 | | 701 | |
| Baltic countries 1) | – | | 223 | |
| Central and Eastern Europe | 267 | | 314 | |
| Latin America | 380 | | 389 | |
| Middle East | 111 | | 126 | |
| Adjustment to hedge accounting | 5 | | 6 | |
|
|
|
| |
| Total | 1,640 | | 2,006 | |
| | | | | |
| Environmental Investment Loans (MIL) | 44 | | 17 | |
| Baltic Investment Loans (BIL) | 12 | | 18 | |
|
|
|
| |
| Total, loans outstanding | 10,279 | | 10,522 | |
1) PIL loans to Estonia, Latvia and Lithuania (totalling EUR 232.2 million) were transferred to Ordinary Lending in 2004. Thus, the amounts for 2003 and 2004 in these categories are not comparable.
Loans outstanding at floating interest rates amounted to EUR 9,028 million (9,081), while those at fixed interest rates amounted to EUR 1,199 million (1,391). Guarantees issued under Ordinary Lending amounted to EUR 25.0 million (28.6) on 31 December 2004.
Provisions for loan losses
A total of EUR 1.0 million (4.8) has been deducted from the Bank's loans outstanding for provisions for possible loan losses. In 2004, this amount was comprised only of provisions for Project Investment Loans (1.8) . The following changes were recognised in the Balance Sheet in respect of provisions for loan losses:
(Amounts in EUR million)
| 2004 | | 2003 | |
|
|
|
| |
| Provisions on 1 January | 4.8 | | 8.4 | |
| Provisions made during the year | 0.7 | | 1.0 | |
| Reversals of previous provisions | -4.5 | | -1.3 | |
| Loan losses covered by provisions previously made | – | | -2.9 | |
| Exchange rate adjustments | – | | -0.4 | |
|
|
|
| |
| Provisions on 31 December | 1.0 | | 4.8 | |
27
The distribution of provisions for possible loan losses was as follows:
(Amounts in EUR million)
| | 2004 | | 2003 | |
|
|
|
| |
| Distribution by lending facility: | | | | |
| Ordinary Loans | | | | |
| Investment loans in the Nordic countries | –- | | 3.0 | |
| Project Investment Loans (PIL) | | | | |
| Asia | – | | 0.2 | |
| Central and Eastern Europe | – | | 0.2 | |
| Latin America | 1.0 | | 1.3 | |
|
|
|
| |
| Total, provisions | 1.0 | | 4.8 | |
As of 31 December 2004, none of the Bank's Ordinary Loans were non-performing (-), i.e., were more than 90 days overdue. As of 31 December 2004, the Bank had EUR 4.4 million (17.8) in non-performing loans under its Project Investment Loan facility. Under the Baltic Investment Loan and Environmental Investment Loan facilities, there were no loans that were non-performing as of 31 December 2004.
As of 31 December 2004, loans agreed but not yet disbursed amounted to the following:
(Amounts in EUR million)
| | 2004 | | 2003 | |
|
|
|
| |
| Loans agreed but not yet disbursed | | | | |
| Ordinary Loans | 432 | | 254 | |
| Project Investment Loans | 632 | | 633 | |
| Environmental Investment Loans | 84 | | 90 | |
|
|
|
| |
| Total, loans agreed but not yet disbursed | 1,147 | | 978 | |
The amounts set forth above for loans agreed but not yet disbursed include loans for considerable amounts, where certain conditions, primarily interest rate conditions, may not yet have been finally approved. They therefore cannot be considered as binding commitments for the Bank.
Currency distribution of loans outstanding
(Nominal amounts, in EUR million)
| Currency | Ordinary
Loans
2004 | | 2003 | | PIL
loans
2004 | | 2003 | | Total
2004 | 1) | 2003 | |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
| Nordic currencies | 2,835 | | 2,716 | | 2 | | 3 | | 2,837 | | 2,719 | |
| EUR | 4,461 | | 4,093 | | 238 | | 435 | | 4,751 | | 4,558 | |
| USD | 1,130 | | 1,517 | | 1,358 | | 1,522 | | 2,492 | | 3,041 | |
| Other currencies | 108 | | 110 | | 37 | | 40 | | 146 | | 154 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Total | 8,535 | | 8,436 | | 1,636 | | 2,001 | | 10,226 | | 10,472 | |
| | | | | | | | | | | | | |
| Adjustment to hedge accounting | 48 | | 45 | | 5 | | 6 | | 53 | | 51 | |
|
|
|
|
|
|
|
|
|
|
|
| |
| Total, loans outstanding | 8,583 | | 8,481 | | 1,64 | | 2,006 | | 10,279 | | 10,522 | |
1) The total amount also includes EUR 44 million (17) in Environmental Investment Loans (MIL) and EUR 12 million (18) in Baltic Investment Loans (BIL).
Sector distribution
(Amounts in EUR million)
| Loans outstanding as of 31 December | 2004 | | 2004 | | 2003 | | 2003 | |
|
|
|
|
|
|
|
| |
| Manufacturing | 4,052 | | 40 | % | 4,317 | | 41 | % |
| Energy | 2,540 | | 25 | % | 2,494 | | 24 | % |
| Transport and communication | 1,412 | | 14 | % | 1,526 | | 15 | % |
| Trade and services | 760 | | 7 | % | 719 | | 7 | % |
| Bank and finance 1) | 746 | | 7 | % | 682 | | 6 | % |
| Regional loans | 64 | | 1 | % | 87 | | 1 | % |
| Other | 652 | | 6 | % | 647 | | 6 | % |
| Adjustment to hedge accounting | 53 | | 0 | % | 51 | | 0 | % |
|
|
|
|
|
|
|
| |
| Total | 10,279 | | 100 | % | 10,522 | | 100 | % |
28
| | | | | | | |
| Loans disbursed | 2004 | 2004 | | 2003 | 2003 | |
|
|
|
|
|
|
|
| Manufacturing | 410 | 30 | % | 637 | 34 | % |
| Energy | 320 | 24 | % | 491 | 27 | % |
| Transport and communication | 245 | 18 | % | 290 | 16 | % |
| Trade and services | 133 | 10 | % | 183 | 10 | % |
| Bank and finance 1) | 91 | 7 | % | 123 | 7 | % |
| Regional loans | — | 0 | % | — | 0 | % |
| Other | 147 | 11 | % | 117 | 6 | % |
|
|
|
|
|
|
|
| Total | 1,348 | 100 | % | 1,841 | 100 | % |
| |
|
|
|
|
|
|
| | | | | | | |
| 1) The Bank's financial intermediaries. | | | | | | |
| | | | | | |
Distribution of loans outstanding and guarantees by various types of security
The following table shows loans outstanding, including guarantee commitments, distributed by type of security:
(Amounts in EUR million)
| As of 31 December 2004 | | | Amount | | Share, in % |
|
|
|
|
|
|
|
| Loans to or guaranteed by governments | | | | | |
| | Loans to or guaranteed by member countries | 116 | | | | |
| | Loans to or guaranteed by other countries | 1,368 | | 1,484 | | 14.5 |
| Loans to or guaranteed by local authorities in member countries | | | 300 | | 2.9 |
| Loans to or guaranteed by companies owned 50% or more by member countries or local authorities in member countries | | | 619 | | 6.0 |
| Loans to or guaranteed by banks | | | 669 | | 6.5 |
| Other loans | | | | | |
| | Backed by a lien or other security in property | 402 | | | | |
| | With a guarantee from the parent company and other guarantees | 1,772 | | | | |
| | With a negative pledge clause and other covenants | 4,986 | | 7,160 | | 69.8 |
| Loans without formal security | | | 18 | | 0.2 |
| |
|
|
|
|
|
| Total | | | 10,251 | | 100.0 |
| | | | | | |
| Adjustment to hedge accounting | | | 53 | | |
| | |
|
|
|
|
|
| Total, loans outstanding (including guarantees) | | | 10,304 | | |
| | |
|
|
|
|
|
| | | | | | | |
| As of 31 December 2003 | | | Amount | | Share, in % |
|
|
|
|
|
|
|
| Loans to or guaranteed by governments | | | | | |
| | Loans to or guaranteed by member countries | 189 | | | | |
| | Loans to or guaranteed by other countries | 1,421 | | 1,610 | | 15.3 |
| Loans to or guaranteed by local authorities in member countries | | | 294 | | 2.8 |
| Loans to or guaranteed by companies owned 50% or more by member countries or local authorities in member countries | | | 628 | | 6.0 |
| Loans to or guaranteed by banks | | | 618 | | 5.9 |
| Other loans | | | | | |
| | Backed by a lien or other security in property | 460 | | | | |
| | With a guarantee from the parent company and other guarantees | 1,855 | | | | |
| | With a negative pledge clause and other covenants | 4,992 | | 7,307 | | 69.6 |
| Loans without formal security | | | 43 | | 0.4 |
| |
|
|
|
|
|
| Total | | | 10,500 | | 100.0 |
| | | | | | |
| Adjustment to hedge accounting | | | 51 | | |
| |
|
|
|
|
|
| Total, loans outstanding (including guarantees) | | | 10,551 | | |
| | |
|
|
|
|
|
The member countries guaranteed Project Investment Loans (PIL) up to the following amounts as of 31 December 2004:
(Amounts in EUR 1,000)
| Member country | Amount of guarantee | Share, in % |
|
|
|
| Denmark | 391,225 | 21.7 |
| Finland | 357,094 | 19.8 |
| Iceland | 16,139 | 0.9 |
| Norway | 340,991 | 19.0 |
| Sweden | 694,551 | 38.6 |
| |
|
|
| Total | 1,800,000 | 100.0 |
| |
|
|
29
The member countries guaranteed Environmental Investment Loans (MIL) up to the following amounts as 31 December 2004:
(Amounts in EUR 1,000)
| Member country | Amount of guarantee | Share, in % |
|
|
|
| Denmark | 72,600 | 24.2 |
| Finland | 53,200 | 17.7 |
| Iceland | 3,300 | 1.1 |
| Norway | 63,500 | 21.2 |
| Sweden | 107,400 | 35.8 |
| |
|
|
| Total | 300,000 | 100.0 |
| |
|
|
The member countries guaranteed Baltic Investment Loans (BIL) up to the following amounts as of 31 December 2004:
(Amounts in EUR 1,000)
| Member country | Amount of guarantee | Share, in % |
|
|
|
| Denmark | 13,380 | 22.3 |
| Finland | 11,700 | 19.5 |
| Iceland | 630 | 1.0 |
| Norway | 11,340 | 18.9 |
| Sweden | 22,950 | 38.3 |
| |
|
|
| Total | 60,000 | 100.0 |
| |
|
|
From 1 January 2005 the member countries' relative shares in the PIL and MIL guarantee amounts changed as a result of Estonia's, Latvia's and Lithuania's membership in the Bank.
| (9) | INTANGIBLE AND TANGIBLE ASSETS |
The Bank's intangible assets amounted to EUR 5.9 million (2.6) .
As of 31 December 2004, the historical cost for buildings and land was recognised in the Balance Sheet, net of depreciation on the buildings in accordance with the depreciation plan, at EUR 29.6 million (30.3) . Shares providing ownership rights in connection with employee housing accommodation and other shares and holdings have a balance sheet value of EUR 1.1 million (1.1) .
The value of office equipment and other tangible assets is recognised at EUR 5.3 million (3.2) .
| (10) | DEPRECIATIONS AND WRITE-DOWNS |
| (Amounts in EUR 1,000) |
| | 2004 | 2003 |
| | |
|
|
| Intangible assets | 811 | 761 |
| Tangible assets | | |
| | Buildings | 670 | 670 |
| | Office equipment | 1,399 | 1,169 |
| |
|
|
| Total | 2,880 | 2,600 |
| |
|
|
30
| | |
| (11) | OTHER ASSETS |
| (Amounts in EUR million) |
Derivatives are included in Other assets.
| | 2004 | 2003 |
| | |
|
|
| | Floating interest rates, nominal amount | 6,824 | 6,511 |
| | Fixed interest rates, nominal amount | 10,539 | 11,032 |
| | |
|
|
| | Total, nominal amount | 17,363 | 17,543 |
| | |
|
|
| | Netting of nominal amount per derivative | –16,724 | –16,987 |
| | Derivative receivables, net 1) | 639 | 556 |
| | Adjustment to hedge accounting and changes in fair value of non-hedging derivatives | 569 | 831 |
| Derivative instruments | 1,208 | 1,387 |
| Other | 3 | 5 |
| | |
|
|
| Total | 1,212 | 1,393 |
| | |
|
|
| | | |
| 1) Includes capitalised swap fees. | | |
Derivatives are carried at fair value in the Balance Sheet net per contract. Thus, swap contracts with a positive net fair value are recognised in the Balance Sheet under “Other assets”, while swap contracts with a negative net fair value are recognised under “Other liabilities”.
| (12) | OUTSTANDING DEBTS EVIDENCED BY CERTIFICATES AND SWAPS |
At year-end, the Bank's borrowings evidenced by certificates were distributed among the currencies shown in the table below. The table also demonstrates the distribution of borrowings by currency on an after-swap basis:
(Amounts in EUR million)
| Currency | | | | | Swap contracts payable/receivable | | | | |
| Borrowing | Net currency |
|
|
|
|
|
|
|
|
|
|
|
|
| 2004 | | 2003 | | 2004 | | 2003 | | 2004 | | 2003 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Nordic currencies | 1,031 | | 1,246 | | 1,842 | | 1,544 | | 2,873 | | 2,790 |
| EUR | 830 | | 928 | | 5,618 | | 5,112 | | 6,448 | | 6,040 |
| USD | 4,500 | | 3,695 | | –1,391 | | 130 | | 3,108 | | 3,825 |
| JPY | 1,560 | | 1,839 | | –1,522 | | –1,796 | | 38 | | 43 |
| GBP | 1,827 | | 2,379 | | –1,810 | | –2,364 | | 17 | | 15 |
| HKD | 450 | | 535 | | –450 | | –535 | | — | | -— |
| Other currencies | 1,571 | | 1,584 | | –1,526 | | –1,541 | | 45 | | 43 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Total | 11,769 | | 12,205 | | 762 | | 550 | | 12,530 | | 12,755 |
| | | | | | | | | | | | |
| Adjustment to hedge accounting and changes in fair value of non-hedging derivatives | 586 | | 882 | | -548 | | -844 | | 38 | | 37 |
| Swap fees | — | | — | | 143 | | 174 | | 143 | | 174 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Total, borrowing outstanding | 12,355 | | 13,087 | | 357 | | –121 | | 12,711 | | 12,966 |
| |
|
|
|
|
|
|
|
|
|
|
|
The table set forth above includes 237 (249) borrowing transactions in the equivalent amount of EUR 8,116 million (8,934) entered into under the Bank's euro medium-term note programme, 4 (4) borrowing transactions in the equivalent amount of EUR 177 million (176) under the Bank's Swedish medium-term note programme, and 3 (2) borrowing transactions in the equivalent amount of EUR 2,202 million (1,584) under the Bank's US medium-term note programme. The Bank has established a USD 600 million commercial paper programme in Europe and another USD 600 million programme in the United States.
Of debt securities issued, the amount of EUR 1,556 million (1,571) is at floating interest rates, while EUR 9,998 million (10,375) is at fixed interest rates. Other borrowing transactions, amounting to EUR 215 million (259), are at fixed interest rates. As of 31 December 2004, the Bank had entered into agreements for future borrowings of EUR 85.4 million (20.0) in the form of 2 (2) borrowing transactions in USD and JPY having an average maturity of 21.2 years (25.0) .
31
| | |
| (13) | OTHER LIABILITIES |
| | (Amounts in EUR million) |
| Derivatives are included in Other liabilities. | | | 2004 | | | 2003 | |
|
|
|
|
|
|
| |
| Floating interest rates, nominal amount | | | 16,919 | | | 16,740 | |
| Fixed interest rates, nominal amount | | | 1,207 | | | 1,352 | |
| | | |
|
|
|
| |
| Total, nominal amount | | | 18,126 | | | 18,092 | |
| Netting of nominal amount per derivative | | | –16,582 | | | –16,812 | |
| | | |
|
|
|
| |
| Derivative payables, net 1) | | | 1,544 | | | 1,280 | |
| Adjustment to hedge accounting and changes in fair value of non-hedging derivatives | | | 21 | | | –13 | |
| Derivative instruments | | | 1,565 | | | 1,267 | |
| | | |
|
|
|
| |
| Other | | | 4 | | | 15 | |
| | | |
|
|
|
| |
| Total | | | 1,569 | | | 1,282 | |
| | | |
|
|
|
| |
| | | | | | | | |
| 1) | Includes capitalised swap fees. |
Derivatives are carried at fair value in the Balance Sheet net per contract. Thus, swap contracts with a positive net fair value are recognised in the Balance Sheet under “Other assets”, while swap contracts with a negative net fair value are recognised under “Other liabilities”.
| (14) | AUTHORISED CAPITAL—PAID-IN CAPITAL |
The member countries have subscribed to the following amounts of the Bank's authorised capital:
(Amounts in EUR million)
| Member country | | 2004 | | Share, in % | |
| | |
|
|
| |
| Denmark | | 881.1 | | 22.0 | |
| Finland | | 765.8 | | 19.2 | |
| Iceland | | 38.6 | | 1.0 | |
| Norway | | 793.1 | | 19.8 | |
| Sweden | | 1,521.4 | | 38.0 | |
| | |
|
|
| |
| Total | | 4,000.0 | | 100.0 | |
| | |
|
|
| |
The member countries' portions of paid-in capital are as follows:
(Amounts in EUR million)
| Member country | | 2004 | | Share, in % | |
| | |
|
|
| |
| Denmark | | 89.2 | | 22.1 | |
| Finland | | 74.4 | | 18.4 | |
| Iceland | | 3.9 | | 1.0 | |
| Norway | | 77.1 | | 19.1 | |
| Sweden | | 159.5 | | 39.5 | |
| | |
|
|
| |
| Total | | 404.3 | | 100.0 | |
| | |
|
|
| |
Due to the fact that Estonia, Latvia and Lithuania became members of the Bank on 1 January 2005, the Bank's authorised capital increased to EUR 4,142 million as of 1 January 2005 and the paid-in portion of the authorised capital will increase to EUR 418.6 million.
| (15) | STATUTORY RESERVE AND CREDIT RISK FUNDS |
At the end of 2004, the Statutory Reserve amounted to EUR 645.0 million, or 16.1% of the Bank's authorised capital of EUR 4,000.0 million. No appropriations were made to the Statutory Reserve from the profits of the financial year 2003.
The General Credit Risk Fund recognised in “Equity” is built up by means of allocations from prior years' profits. This fund is established to cover unidentified, exceptional credit losses. The General Credit Risk Fund and the Statutory Reserve together constitute the Bank's general reserves. The General Credit Risk Fund amounted to EUR 357.0 million in 2004. The Board of Directors is proposing that EUR 67.4 million be allocated to this fund from the year's profits.
32
In accordance with its Statutes, the Bank has a Special Credit Risk Fund for the Project Investment Loan facility. This fund is primarily designed to cover the Bank's own risk in respect of this lending facility. In 2004, the fund amounted to EUR 188.2 million. The adjusted guidelines for calling the member countries' guarantees entered into force on 1 July 2004. Under these guidelines, the Bank assumes 100% of any losses under individual PIL loans, up to the amount available at any given time in the Special Credit Risk Fund for PIL. Only after this fund has been fully used, can the Board of Directors call the member countries' guarantees. The Board of Directors decided in 2003 to propose that significant annual allocations be made to the Special Credit Risk Fund for PIL. In line with this, the Board of Directors is proposing that EUR 50.0 million be allocated to this fund from 2004 profits.
In addition, the Bank has established a EUR 4.3 million fund in “Equity” for the HIPC programme (Debt Initiative for Heavily Indebted Poor Countries).
Taken together, these credit risk funds amounted to EUR 549.5 million on 31 December 2004.
As part of the terms and conditions of membership, Estonia, Latvia and Lithuania have, as of 1 January 2005, agreed to pay to the Bank's reserves altogether the amount of EUR 42.7 million in the same proportion as their share of the subscribed capital. Estonia, Latvia and Lithuania will make their payments in semi-annual instalments in accordance with individual payment agreements during the period from 31 March 2008 to 30 September 2012.
| (16) | COLLATERAL AND COMMITMENTS |
| | (Amounts in EUR million) |
| | 2004 | | 2003 | |
|
|
|
| |
| Guarantees issued (note 8) | 25 | | 29 | |
| Loans agreed but not yet disbursed (note 8) | 1,147 | | 978 | |
| Borrowing commitments | 32 | | 20 | |
| Subscription to shares in the European Investment Fund, unpaid portion | 4 | | 4 | |
| | | | | |
| Collateral with respect to derivatives exposure | | | | |
| Collateral received 1) | 223 | | 162 | |
| Collateral given 2) | 313 | | 255 | |
| | | | | |
| | |
| 1) | Fair value. |
| 2) | Book value. |
| | |
| (17) | FAIR VALUE OF FINANCIAL INSTRUMENTS |
| | (Amounts in EUR million) |
| | | | | | | | | | | | | | |
| | | | | | | 2004 | | | | | | 2003 | |
| | | | | | | Fair | | | | | | Fair | |
| | | | | | | value | | | | | | value | |
| | | | | | | — | | | | | | — | |
| | | Carrying | | Fair | | Carrying | | Carrying | | Fair | | Carrying | |
| | | amount | | value | | amount | | amount | | value | | amount | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Assets | | | | | | | | | | | | | |
| Cash and cash equivalents | | 3,198 | | 3,198 | | — | | 2,997 | | 2,997 | | — | |
| Placements with credit institutions | | 90 | | 90 | | — | | 124 | | 124 | | — | |
| Debt securities | | 1,251 | | 1,311 | | 60 | | 1,254 | | 1,297 | | 43 | |
| Other financial placements | | 7 | | 7 | | — | | 8 | | 8 | | — | |
| Loans outstanding | | 10,279 | | 10,281 | | 2 | | 10,522 | | 10,526 | | 4 | |
| Derivatives, net | | 1,208 | | 1,208 | | — | | 1,387 | | 1,387 | | — | |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | 62 | | | | | | 47 | |
| Liabilities | | | | | | | | | | | | | |
| Short-term amounts owed to credit institutions | | 322 | | 322 | | — | | 252 | | 252 | | — | |
| Long-term amounts owed to credit institutions | | 94 | | 94 | | — | | 114 | | 114 | | — | |
| Debt securities issued | | 12,132 | | 12,135 | | 3 | | 12,822 | | 12,826 | | 4 | |
| Other debt | | 222 | | 222 | | — | | 264 | | 264 | | — | |
| Derivatives, net | | 1,565 | | 1,565 | | — | | 1,267 | | 1,267 | | — | |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | 3 | | | | | | 4 | |
| Net | | | | | | 59 | | | | | | 43 | |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
33
| | |
| | (18) MATURITY PROFILE |
| | (Amounts in EUR million) |
The table set forth below presents assets and liabilities according to their remaining maturities, calculated from closing date to maturity date. The possibility of prepayments is taken into consideration regarding derivative contracts and borrowing transactions. Loans outstanding, however, are reported according to the latest possible repayment date. Those assets and liabilities that do not have a contractual maturity date, as well as all value adjustments, are recognised in the “Undefined” column. See also notes 11 and 13.
| | | | | | | | | | More | | | | | |
| | 0-6 | | 6-12 | | 1-5 | | 5-10 | | than 10 | | | | | |
| | months | | months | | years | | years | | years | | Undefined | | Total | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Assets | | | | | | | | | | | | | | |
| Cash and cash equivalents | 516 | | 5 | | 1,853 | | 421 | | 400 | | 4 | | 3,198 | |
| Financial placements | | | | | | | | | | | | | | |
| Placements with credit institutions | 48 | | 41 | | — | | — | | — | | — | | 90 | |
| Debt securities | 108 | | — | | 581 | | 401 | | 151 | | 11 | | 1,251 | |
| Other | — | | — | | — | | — | | — | | 7 | | 7 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | 156 | | 41 | | 581 | | 401 | | 151 | | 17 | | 1,348 | |
| Lending | | | | | | | | | | | | | | |
| Loans outstanding | 293 | | 374 | | 4,777 | | 4,023 | | 759 | | 53 | | 10,279 | |
| Intangible assets | — | | — | | — | | — | | — | | 6 | | 6 | |
| Tangible assets | — | | — | | — | | — | | — | | 36 | | 36 | |
| Other assets | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | |
| Receivables 1) | 577 | | 220 | | 3,893 | | 1,178 | | 1,080 | | 569 | | 7,517 | |
| Payables | –483 | | –198 | | –3,695 | | –1,133 | | –800 | | — | | –6,309 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | 94 | | 21 | | 198 | | 46 | | 280 | | 569 | | 1,208 | |
| Other assets | — | | — | | — | | — | | — | | 3 | | 3 | |
| Accrued interest and fees receivable | — | | — | | — | | — | | — | | 284 | | 284 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total assets | 1,060 | | 442 | | 7,409 | | 4,890 | | 1,590 | | 972 | | 16,363 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | More | | | | | |
| | 0-6 | | 6-12 | | 1-5 | | 5-10 | | than 10 | | | | | |
| | months | | months | | years | | years | | years | | Undefined | | Total | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Liabilities and equity | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | |
| Amounts owed to credit institutions | | | | | | | | | | | | | | |
| Short-term | 322 | | — | | — | | — | | — | | — | | 322 | |
| Long-term | 48 | | 46 | | — | | — | | — | | — | | 94 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | 371 | | 46 | | — | | — | | — | | — | | 417 | |
| Debts evidenced by certificates | 861 | | 314 | | 7,362 | | 1,709 | | 1,523 | | 586 | | 12,355 | |
| Other liabilities | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | |
| Receivables | –338 | | –147 | | –7,413 | | –1,439 | | –935 | | 21 | | –10,251 | |
| Payables | 391 | | 185 | | 8,394 | | 1,666 | | 1,181 | | — | | 11,816 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | 53 | | 38 | | 981 | | 226 | | 246 | | 21 | | 1,565 | |
| Other liabilities | — | | — | | — | | — | | — | | 4 | | 4 | |
| Accrued interest and fees | — | | — | | — | | — | | — | | 241 | | 241 | |
| payable | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Total liabilities | 1,285 | | 399 | | 8,343 | | 1,935 | | 1,768 | | 852 | | 14,582 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Equity | — | | — | | — | | — | | — | | 1,781 | | 1,781 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Total liabilities and equity | 1,285 | | 399 | | 8,343 | | 1,935 | | 1,768 | | 2,633 | | 16,363 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Net during the period | –225 | | 43 | | –934 | | 2,955 | | –178 | | –1,660 | | — | |
| Cumulative net during the period | –225 | | –183 | | –1,116 | | 1,839 | | 1,660 | | — | | — | |
34
| | | | | | |
| (19) AVERAGE BALANCE SHEET | | | | |
| (Amounts in EUR million) | | | | |
| | 2004 | | 2003 | |
| |
|
|
| |
| Assets | | | | |
| Cash and cash equivalents | 3,621 | | 3,578 | |
| Financial placements | | | | |
| | Placements with credit institutions | 128 | | 123 | |
| | Debt securities | 1,227 | | 1,101 | |
| | Other | 8 | | 2 | |
| |
|
|
| |
| | 1,362 | | 1,226 | |
| Lending | | | | |
| | Loans outstanding | 10,414 | | 10,197 | |
| Intangible assets | 4 | | 2 | |
| Tangible assets | 35 | | 34 | |
| Other assets | | | | |
| | Derivatives | 1,344 | | 1,202 | |
| | Other assets | 5 | | 13 | |
| |
|
|
| |
| | 1,349 | | 1,215 | |
| | | | | |
| Accrued interest and fees receivable | 325 | | 341 | |
| | |
|
|
| |
| Total assets | 17,111 | | 16,594 | |
| | |
|
|
| |
| Liabilities and equity | | | | |
| Liabilities | | | | |
| Amounts owed to credit institutions | | | | |
| | Short-term amounts owed to credit institutions | 296 | | 280 | |
| | Long-term amounts owed to credit institutions | 126 | | 121 | |
| |
|
|
| |
| | 422 | | 401 | |
| Debts evidenced by certificates | | | | |
| | Debt securities issued | 13,245 | | 13,145 | |
| | Other debt | 242 | | 269 | |
| |
|
|
| |
| | 13,487 | | 13,413 | |
| Other liabilities | | | | |
| | Derivatives | 1,205 | | 877 | |
| | Other liabilities | 6 | | 6 | |
| |
|
|
| |
| | 1,211 | | 883 | |
| | | | | | |
| Accrued interest and fees payable | 283 | | 301 | |
| |
|
|
| |
| Total liabilities | 15,404 | | 14,999 | |
| | | | | |
| Equity | 1,707 | | 1,594 | |
| |
|
|
| |
| Total liabilities and equity | 17,111 | | 16,594 | |
| |
|
|
| |
| | | | | |
| The average Balance Sheet is calculated on a monthly basis. | | | | |
35
| (20) CASH FLOW STATEMENT | | | | |
| (Amounts in EUR 1,000) | | | | |
| | | | |
| 2004 | | 2003 | |
| |
|
|
| |
| Profit for the year | 172,367 | | 151,334 | |
| Amortisation of issuing charges | 7,370 | | 8,798 | |
| Market value adjustment, trading portfolio | –5,039 | | 6,364 | |
| Depreciation and write-down in value of tangible and intangible assets | 2,880 | | 2,600 | |
| Change in accrued interest and fees (assets) | 35,041 | | 23,805 | |
| Change in accrued interest and fees (liabilities) | –28,848 | | –32,219 | |
| Provision for possible loan losses | –3,764 | | –307 | |
| Adjustment to hedge accounting and changes in fair value of non-hedging derivatives | –1,921 | | –8,221 | |
| Other adjustments to the year's profit | –245 | | 57 | |
| |
|
|
| |
| Cash flow from operating activities | 177,841 | | 152,211 | |
Specification of the change in cash and cash equivalents on 31 December:
(Amounts in EUR 1,000)
| 2004 | | 2003 | |
| |
|
|
| |
| Cash and balances with banks | 12,706 | | 10,430 | |
| Short-term placements with credit institutions | 505,724 | | 575,337 | |
| Liquid debt securities at floating interest rates | 2,679,922 | | 2,410,902 | |
| |
|
|
| |
| Cash and cash equivalents | 3,198,351 | | 2,996,669 | |
| | | | | |
| Short-term amounts owed to credit institutions | –322,378 | | –252,373 | |
| |
|
|
| |
| Net liquidity | 2,875,973 | | 2,744,295 | |
| | | | | |
| Change in net liquidity | 131,678 | | –202,262 | |
(21) EXCHANGE RATES
| | EUR rate on | | EUR rate on | |
| | 31 Dec 2004 | | 31 Dec 2003 | |
| |
|
|
|
| |
| DKK | Danish Krone | 7.4388 | | 7.4450 | |
| ISK | Icelandic Króna | 83.6 | | 89.46 | |
| NOK | Norwegian Krone | 8.2365 | | 8.4141 | |
| SEK | Swedish Krona | 9.0206 | | 9.0800 | |
| AUD | Australian Dollar | 1.7459 | | 1.6802 | |
| CAD | Canadian Dollar | 1.6416 | | 1.6234 | |
| CHF | Swiss Franc | 1.5429 | | 1.5579 | |
| CZK | Czech Koruna | 30.464 | | 32.410 | |
| EEK | Estonian Kroon | 15.6466 | * | 15.6466 | * |
| GBP | Pound Sterling | 0.70505 | | 0.7048 | |
| HKD | Hong Kong Dollar | 10.5881 | | 9.8049 | |
| JPY | Japanese Yen | 139.65 | | 135.05 | |
| LVL | Latvian Lats | 0.6979 | | 0.6725 | |
| NZD | New Zealand Dollar | 1.8871 | | 1.9244 | |
| PLN | Polish Zloty | 4.0845 | | 4.7019 | |
| SDR | Special Drawing Right | 0.88 | ** | 0.84823 | *** |
| SGD | Singapore Dollar | 2.2262 | | 2.1450 | |
| SKK | Slovak Koruna | 38.745 | | 41.170 | |
| TWD | New Taiwan Dollar | 43.34202 | ** | 42.82379 | *** |
| USD | United States Dollar | 1.3621 | | 1.2630 | |
| ZAR | South African Rand | 7.6897 | | 8.3276 | |
| | |
| * | Fixed exchange rate in Currency Board arrangement with regard to the euro. |
|
| ** | The exchange rate is calculated by using the market rate for USD/relevant currency, as of 30 December 2004, which then provides the EUR/relevant currency rate. |
| *** | The exchange rate is calculated by using the market rate for USD/relevant currency, as of 31 December 2003, which then provides the EUR/relevant currency rate. |
|
36
AUDITORS' REPORTS
To the Control Committee of the Nordic Investment Bank
In our capacity as auditors appointed by the Control Committee of the Nordic Investment Bank we have audited the Financial Statements, the accounting records and the administration of the Bank for the year 2004. The Board of Directors and the President are responsible for the accounting documents as well as the administration. Based on our audit, it is our responsibility to express an opinion on the Financial Statements and the administration of the Bank.
Our audit was conducted in accordance with International Standards on Auditing as issued by the International Federation of Accountants. Those standards require that we plan and perform the audit in order to obtain reasonable assurance about whether the Financial Statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates as well as evaluation of the overall financial statement presentation. Our audit also included a review of whether the Board of Directors' and the President's administration have complied with the Statutes of the Bank. We believe that our audit provides a reasonable basis for our opinions below.
In our opinion, the Financial Statements give a true and fair view of the financial position of the Nordic Investment Bank as at 31 December 2004 and of the results of its operations and its cash flows in 2004 in accordance with International Financial Reporting Standards as adopted by the International Accounting Standards Board. It is also our opinion that the administration of the Board of Directors and the President complied with the Statutes of the Bank.
Helsinki, 4 March 2005
Kristian Hallbäck
Authorised Public Accountant
Ernst & Young, Helsinki
Torbjörn Hanson
Authorised Public Accountant
Ernst & Young, Stockholm
To the Nordic Council of Ministers
Statement by the Control Committee of the Nordic Investment Bank on the audit of the administration and accounts of the Bank
In accordance with section 13 of the Statutes of the Nordic Investment Bank, we have been appointed to control the operations of the Bank and to be responsible for the auditing of the Bank's accounts. After having completed our assignment for the year 2004, we hereby submit the following report.
The Control Committee met during the fiscal year, as well as after the Bank's Financial Statements had been prepared. Control and examination measures considered necessary were then performed. The Annual Report of the Bank was examined at a meeting in Helsinki on 4 March 2005. In carrying out its tasks, the Control Committee received such information and carried out such examination measures as it deemed necessary to assess the Bank's position in regard to its risks. We have also received the Auditors' Report, submitted on 4 March 2005 by the authorised public accountants appointed by the Control Committee.
Following our audit, we note that:
| | • | The Bank's operations during the financial year have been conducted in accordance with the Statutes, and that |
| | | |
| | • | The Financial Statements give a true and fair view of the financial position of the Bank as at 31 December 2004 and of its results and financing in 2004. The Profit and Loss Account shows a profit of EUR 172,366,696.29 for the financial period. |
37
We recommend to the Nordic Council of Ministers that:
| | • | The appropriation of the Bank's profits for the financial period, as proposed by the Board of Directors, be approved; |
| | • | The Profit and Loss Account and the Balance Sheet be adopted; |
| | • | The proposal by the Board of Directors regarding distribution of dividends to the Bank's owners be approved; and |
| | • | The Board of Directors and the President be discharged from liability for the administration of the Bank's operations during the accounting period examined by us. |
Helsinki, 4 March 2005
Guðmundur Snorrason
Olavi Ala-Nissilä
Jónína Bjartmarz
Bill Fransson
Trond Helleland
Per Kaalund
Riitta Prusti
Gitte Seeberg
Tuve Skånberg
Anders Talleraas
38
