annual report

Transcription

annual report

ANNUAL REPORT
153 rd FINANCIAL YEAR
2008
To illustrate the 2008 Annual Report the BCEE Executive Committee decided to pay tribute to
the BCEE members of staff who through their unremitting commitment and dedication have
enabled BCEE to report such positive results, particularly in the current difficult economic
climate.
We sent out an internal memo asking all those interested to make an appointment for a
photo session with our in-house photographer, Mrs Flavie Hengen. She rose to the challenge
with great professionalism and enthusiasm, and took almost 200 individual portraits as well
as a series of snapshots depicting day-to-day life at the Bank.
Readers will no doubt recognise some familiar faces, but will also meet other members of
staff who work discretely and efficiently behind the scenes to make Spuerkeess the bank for
all Luxembourgers, or as we say in Luxembourgish: “Äert Liewen. Är Bank“.
BCEE Executive Committee
TABLE OF CONTENTS
1.
GOVERNING BODIES OF THE BANK
5
2.
KEY FIGURES AND MAIN DEVELOPMENTS
6
3.
BCEE MANAGEMENT REPORT
8
4.
DEVELOPMENTS IN THE LUXEMBOURG FINANCIAL CENTRE
20
5.
BANK FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS
28
BANK FINANCIAL STATEMENTS
28
A. INDEPENDENT AUDITOR’S REPORT
28
B. BALANCE SHEET AS AT 31 DECEMBER 2008
30
C. STATEMENT OF RECOGNISED INCOME AND EXPENSE AS AT 31 DECEMBER 2008
31
D. INCOME STATEMENT AS AT 31 DECEMBER 2008
32
E. CASH FLOW STATEMENT AS AT 31 DECEMBER 2008
34
F. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008
38
CONSOLIDATED ACCOUNTS
111
A. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2008
111
B. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE AS AT
31 DECEMBER 2008
112
C. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008
113
D. CONSOLIDATED CASH FLOW STATEMENT AS AT 31 DECEMBER 2008
114
E. EXTRACTS FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6.
FOR THE YEAR ENDED 31 DECEMBER 2008
ORGANISATION CHART
116
127
3
Board of Directors
Executive Committee
1. GOVERNING BODIES OF THE BANK
1. GOVERNING BODIES OF THE BANK
The organisation of Banque et Caisse d’Epargne de l’Etat, Luxembourg, the country’s leading financial
institution established in 1856, was updated by the Law of 24 March 1989 which defines the respective
powers of the Board of Directors and the Executive Committee. According to Article 8 of this constitutional
law, “the Board of Directors shall define the general policy of the Bank and supervise the management
of the Executive Committee. All administrative acts and arrangements necessary or conducive to the
attainment of the Bank’s objects shall be the responsibility of the Executive Committee, subject to the
authorisations required hereunder”.
BOARD OF DIRECTORS
CHAIRMAN
Mr Victor ROD
Director of the “Commissariat aux Assurances“, Howald
VICE-CHAIRMAN
Mr Gaston REINESCH
Director General, Ministry of Finance, Schifflange
MEMBERS
Mr Georges DENNEWALD
Staff Representative, Kehlen
Mr Paul ENSCH
Director, Chamber of Trade, Mersch
Mr Patrick GILLEN
Director Financial Control, Ministry of Finance, Dudelange
Staff Representative, Oberanven
Mr Paul HUSS
Mr Patrick NICKELS
Senior Economic Adviser to the Ministry of the Economy and Foreign Trade, Dudelange
Mr Georges SCHMIT
Director General, Ministry of the Economy and Foreign Trade, Heffingen
Mr Fernand SPELTZ
Adviser to the Chamber of Employment, Howald
SUPERVISORY COMMISSIONER
Mr Jean GUILL
EXECUTIVE COMMITTEE
Director of the Treasury, Luxembourg
PRESIDENT
MEMBERS
Chief Executive Officer, Foetz
Deputy Chief Executive Officer, Moutfort
Executive Vice-President, Luxembourg
Executive Vice-President, Bertrange
Executive Vice-President, Moutfort
Mr
Mr
Mr
Mr
Mr
Jean-Claude FINCK
Michel BIREL
Gilbert ERNST
Jean-Paul KRAUS
Guy ROSSELJONG
5
2. KEY FIGURES AND MAIN DEVELOPMENTS
1. Key figures
2007
2008 % change
in thousands of euros
2008/2007
BALANCE SHEET TOTAL
39,707,482
37,545,740
-5.4%
Deposits measured at amortised cost - Credit institutions
Deposits measured at amortised cost - Retail and public customers
Securities issued
Loans and advances at amortised cost - Credit institutions
Loans and advances at amortised cost - Customers
Available-for-sale securities - Fixed-income securities
8,497,560
19,613,743
7,859,877
9,960,335
10,319,249
15,071,950
3,805,524
24,320,226
5,671,112
10,112,612
12,141,557
11,806,820
-55.2%
+24.0%
-27.8%
+1.5%
+17.7%
-21.7%
BANK EQUITY CORE CAPITAL (1)
(“tier 1 capital“)
1,369,700
1,256,500
-8.3%
OPERATING INCOME (2) 466,565
532,069
+14.0%
Total overheads (3)
248,041
252,300
+1.7%
NET PROFIT
145,495
146,913
+1.0%
CAPITAL ADEQUACY RATIO (1)
28.6%
24.1%
CAPITAL ADEQUACY RATIO (1)
(“tier 1 capital“)
15.8%
14.6%
AVERAGE STAFF
(number of contracts)
1,777.5
1,789.0
+0.6%
AVERAGE STAFF
(work units)
1,602.5
1,615.0
+0.8%
(1) Bank equity core capital (“tier 1“) and capital adequacy ratio determined in accordance with Circular CSSF 06/273.
(2) Interest and dividend income, fee and commission income, income from financial instruments, operating income and expense.
(3) General administrative expenses plus value adjustments in respect of intangible assets and property, plant and equipment.
6
■
Growth in banking income (+14.0%) thanks to the momentum generated by
the Retail, Professional, Corporate and Public Sector, the Capital Markets and
Investment Funds segments.
■
Efficient cost control limiting the growth (+1.7%) of overheads and amortisation
and depreciation of intangible assets and property and equipment.
■
Slight growth in net profits (+1.0%).
■
Maintenance of solvency ratios at very high levels: capital adequacy ratio 24.1%
and “tier 1 ratio” 14.6%.
■
Creation of two new Financial Centres and the opening of the Belval Plaza and
Cloche d’Or branches in new business parks.
■
Upgrading of CRM (Customer Relationship Management) software enabling staff
to personalise customer relations and provide tailor-made products.
■
Launch of the EcoPrêt product range designed to finance investments promoting
the rational use of energy and the development of renewable energies.
■
Development of new versions of S-net and MultiLine to include LuxTrust security,
thereby guaranteeing high-security customer identification and the use of a
legally valid electronic signature.
■
Development of a new layout for www.axxess.lu and extension of the Jobstarters
offer increasing the free period for which the ZEBRA surf package is available to
18 months.
■
Receipt of The Banker’s “Bank of the Year 2008” award for Luxembourg, and
the “Best developed market bank Luxembourg 2009” award from Global Finance
magazine, both for the performance in 2008.
2.Major developments in 2008: maintaining a high level of commercial
activity despite turbulent financial markets
7
3. BCEE MANAGEMENT REPORT
The turbulence on the financial markets since the summer of 2007 and with the
full force of its impact being felt in mid-September 2008 the European economy
has been hit hard by the global crisis. The difficulties facing Europe now have
been exacerbated by the fact that most countries had been enjoying a particularly
dynamic credit cycle for a number of years during which long-term interest rates fell
well below their historical average, risk taking increased and asset prices rose. Easy
credit helped the financial sector to grow disproportionately compared to the real
economy whilst at the same time inflating the property market in many European
countries.
Faced with inflationist pressures caused by soaring commodity prices, the European
Central Bank (ECB) initially raised its refinancing rate from 0.25% to 4.25% (3 July
2008). In response to the economic turnaround, the ECB then significantly relaxed its
monetary policy from the autumn, dropping its headline rate to 3.75% (8 October
2008), 3.25% (6 November 2008) and finally 2.50% (4 December 2008).
The Luxembourg economy felt the full force of the international financial crisis in
2008 as the level of activity on the financial markets fell dramatically. The financial
crisis forced banks to increase value adjustments on their assets and net capital flows
into investment funds went into the red. Insurance companies, on the other hand,
continued to see their added value grow and were less affected by the economic
slowdown.
Throughout 2008 the profit and loss accounts of Luxembourg credit institutions
rode the storm of the financial crisis as the fall in financial markets reduced the
value of bank-held stocks. As a result other net revenues, including trading portfolio
value adjustments, plummeted. The depressed state of the stock markets in 2008
was also reflected in the level of fee and commission income which fell. By contrast,
in a context of scarce liquidity the Luxembourg banking sector benefited from its
surplus liquidity position, leading to an increase in interest margins. Finally, value
adjustments on non-trading-portfolio assets increased substantially.
Despite the crisis, these developments enabled BCEE to achieve a 1.0% growth in
net profit which rose to EUR 146.9 million. This profit was generated thanks to the
strength of the Bank’s traditional activities. Interest margin income rose slightly
due to the Bank’s comfortable liquidity position and the rate curve structure, while
commissions fell slightly by 5.1% because of the poor stock market performances
during the second half of 2008.
Overall expenses, which include overheads and value adjustments on property, plant
and equipment, were kept under control with an increase of only 1.7%
The Bank pursued its programme of investment in major strategic, commercial,
regulatory and risk management projects throughout 2008 and continued to
upgrade its Customer Relationship Management software with the aim of providing
more personalised customer support and tailored products.
8
For reporting purposes the Bank chose to divide its activities into three segments:
Retail, Professional, Corporate and Public Sector; Capital Markets and Investment
Funds; and Other Activities.
The financial statements were prepared in accordance with the statutory obligations
governing the preparation and presentation of financial statements by credit
institutions in force in Luxembourg. With the exception of the accounting principles
relating to the “AGDL” provision (“Association pour la Garantie des Dépôts à
Luxembourg“, Luxembourg Deposit Guarantee Scheme), the statistical provision
and special items with a reserve quota, the financial statements have been prepared
under IFRS as adopted by the EU. The Bank has published its financial statements
according to these new financial principles for the first time in 2008.
Strong growth in the “Retail, Professional, Corporate and Public Sector“ segment
Retail and Professional
This segment represents BCEE’s traditional activity and developments in this area are
particularly encouraging. A number of key investments set out in the “SPUERKEESS
2009” strategic plan are designed to improve the quality of customer relationships.
Firstly, the Bank continued its reorganisation of the branch network with the
creation of two new Financial Centres and the opening of two new branches.
Secondly, the Bank’s S-net and MultiLine software tools were upgraded to offer
LuxTrust security, guaranteeing high-security customer identification and offering
the use of a legally binding electronic signature. The Bank now has more than
115,000 S-net subscribers, confirming its undisputed position as the leading provider
of e-banking services in Luxembourg. Finally, the Bank continued to enhance its
lending services with the EcoPrêt range designed to finance investments promoting
energy saving and the development of environmentally friendly energy.
Against this background, the Bank recorded strong growth in lending activity,
notably in the home loans sector where outstanding loans increased by 8.3%.
The Bank also recorded remarkable growth in customer savings with an influx of
new money as the ongoing confidence crisis affecting certain banks continued to
the end of the year. Savings in fixed-term deposit accounts rose sharply, taking
advantage of their status as safe investments.
The Bank also continued to broaden its range of investment funds with the launch
of a new sub-fund in the LUX-PROTECT FUND. It also participated in the public bond
offer issued by the government of the Grand Duchy of Luxembourg.
9
Corporate and Public Sector
BCEE achieved strong growth in the highly competitive Corporate and Public Sector
with both lending and deposits increasing thanks to its high service quality and the
dynamism of its staff.
The Bank expanded its Internet services through the introduction of online
applications for leasing contracts based on the existing model used for home and
personal loans, and continued to develop the use of multi-service packages such as
ZEBRA BUSINESS.
Decline in the “Capital Markets and Investment Funds“ segment against the backdrop of the financial crisis
Capital Markets
Business in this sector was strongly affected by the international financial crisis.
2008 was characterised by the failure of a number of major financial institutions, a
general downturn in the quality of lending and zigzagging interest rates.
Despite this extremely negative climate, the Bank nevertheless managed to remain
in the black in this segment thanks to its very conservative approach to exposure and
high level of structural liquidity.
Investment Fund Administration and Management
This sector was inevitably hit hard by the financial crisis as customers turned to
products with a lower risk profile.
Basel II and Risk Management Policy
Now accredited by the Luxembourg financial markets authority (“Commission de
Surveillance du Secteur Financier“, CSSF), the Bank has been applying the internal
ratings-based approach for calculating the McDonough solvency ratio since 1
January 2008. As in previous years, improving risk management methods remained
at the heart of the Bank’s concerns.
The Bank also implemented a major new project designed to improve the analysis
of interest rates and structural liquidity gaps.
The Bank’s policy for management of the risks inherent in its various activities is
centred on the following management principles:
n
n
10
monitoring the risks associated with the Bank’s transactions and portfolios,
facilitating decision-making when making new transactions and permitting an
adequate return on the basis of the identified risks,
n
n
maintaining an adequate balance of portfolio activities based on results and the
effects of ongoing diversification,
ensuring the sustainable development of the Bank.
This section is divided into four major risk categories: counterparty or credit risk,
market risk, liquidity risk and operational risk.
Counterparty risk
For loans to the national economy, the decision structure comprises various credit
committees according to the customer’s overall outstandings. Home mortgage
loans account for over half of the Bank’s loan portfolio. In the case of the mortgage
loans portfolio, the credit risk is covered by procedures for assessing the customer’s
repayment capacity and by real guarantees. In the case of loans and advances
to businesses, the Bank has introduced rigorous procedures for analysing loan
applications and the acceptance of guarantees. Particular care is taken to comply
with limits per sector and per counterparty. Thanks to Basel II methods, the Bank can
monitor risk via aggregated portfolios on an ongoing basis.
In the interbank market and international loans sector, where the vast majority of
counterparties are banks and financial institutions, banking counterparties are given
an internal rating on the basis of a combination of quantitative and qualitative
parameters. The quantitative element is based on the ratios which best describe the
profitability, capital strength, liquidity and asset quality of the counterparty, while
the qualitative element is factored in by the analyst on the basis of a number of nonfinancial elements such as market share, management quality and external rating.
As far as international loans to non-financial entities are concerned, absolute
priority is given to commitments rated at least investment grade in OECD countries.
These counterparties, just like all the Bank’s other counterparties, receive an internal
rating based on rules similar to those applied to banking and financial institutions.
Credit exposure is also subject to counterparty risk monitoring and regular reviews
based on updated financial analyses and limit adjustment proposals for each
counterparty. The Bank also applies a country limit system for countries with a rating
below AA. These limits are reviewed on a periodic basis.
Investments in derivatives are regulated largely by the use of standard ISDA
(International Swaps and Derivatives Association Inc.) contracts, which include
netting clauses in the event of the default of one of the parties. The Bank further
reduces this risk by negotiating a CSA (Credit Support Annex) into the ISDA contracts
with its major counterparties for off-balance sheet transactions. On the basis of the
periodic re-evaluation of bilateral positions this annex requires the provision of
guarantees in the form of cash or high quality securities wherever the net value of
outstanding contracts exceeds a certain threshold. At the end of 2008, some 91%
of derivative transactions (by volume) were carried out under ISDA-CSA contracts.
11
Market risk
Market risk is the risk of losses stemming from unfavourable variations in various
financial parameters including, in particular, interest rates, share prices and foreign
exchange rates.
To manage market risk, the Bank distinguishes between maturity mismatch risk,
which results from structural differences in maturity between resources and
reinvestments on the Bank’s balance sheet, and the risk linked both to treasury
management and to trading operations.
Maturity mismatch risk is supervised by the ALM (Asset Liability Management)
Committee which seeks to minimise the negative effects of changes in interest rate
curves on the Bank’s performance by matching its own funds and funds deposited in
demand deposit accounts or savings accounts with the refinancing of domestic and
international loan portfolios, and with the Bank’s own bond and stock portfolios.
The ALM Committee is composed of members of the Bank’s Executive Committee
and a number of senior managers.
All the other market risk components, such as interest rate risk, foreign exchange
rate risk and equity price risks affecting treasury positions or on- or off-balance sheet
trading positions are centralised in real time in the trading room in the front-office
system and are maintained within limits set by the Bank’s Executive Committee. The
Executive Committee is kept regularly informed of compliance with limits and risk
exposure by a unit which is completely separate from the trading room.
Risks levels are monitored mainly but not exclusively, using the linear Value at Risk
(VaR) indicator introduced in 2003. The Bank calculates VaR using the historical
simulation method. Trading and treasury activities are subject to separate VaR limits.
VaR is measured on a daily basis for all market risk portfolios (trading, treasury
and investment) except for the Bank’s portfolio of participating interests. This
measurement covers a one-day period with a 99% confidence threshold. The time
series cover a full year totalling 261 observations for 2008.
The effectiveness of VaR calculations is monitored ex-post as part of a back-testing
procedure where forecasts using VaR are compared with actual value adjustments.
The first graph below shows VaR and back-testing trends for the Bank’s Treasury in
2008. On average VaR was EUR 1.48 million, reaching an average of EUR 131,000 for
the trading portfolio alone in 2008.
The negative Treasury result should not exceed VaR for more than one day in one
hundred on average. In 2008 the VaR threshold was exceeded on three occasions.
12
Treasury Value at Risk / back-testing (2008)
3.00
P&L TB
VaR TB
VaR / P&L (EUR Mio)
2.00
1.00
0
-1.00
-2.00
-3.00
Jan.08
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.09
Development of Value at Risk and back-testing
---- for the Trading Book (2008)
1.25
P&L TB
1.00
VaR TB
0.75
VaR / P&L (EUR Mio)
0.50
0.25
0
-0.25
-0.50
-0.75
-1.00
-1.25
Jan.08
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.09
13
In addition to VaR, which can be used for overall management of the various market
risks, the Bank also uses other risk management tools specifically selected for the
financial instruments concerned. Thus, interest rate risk is managed by simulating
the impact of a one basis point (0.01%) parallel variation in the interest rate curve
on the Net Present Value of positions. Daily reports illustrate the variation resulting
from a parallel one basis point variation in all interest rate curves, known as the
Basis Point Value (BPV), which must remain within set limits. Similarly, foreign
exchange rate risk and equity market risk are managed by means of limits on
individual positions and stop-loss limits.
Liquidity risk
Liquidity risk refers to the problem of reconciling incoming and outgoing financial
flows on a given date. A financial institution runs the risk that on a given date it
may find itself unable to meet its payment obligations owing to a shortage of liquid
assets against liabilities due. Thanks to its financial structure, the Bank generally has
surplus liquidity and it was able to maintain this position throughout the liquidity
crisis which hit the financial sector in the second half of 2007, peaking in the fourth
quarter of 2008 following the failure of the US investment bank Lehman Brothers.
The Bank constantly monitors liquidity risk in relation to maturities. The trading
room is responsible for short-term liquidity management. In addition, the Bank’s
liabilities are stable and diversified, notably taking the form of a very sound
customer deposit base and Euro Commercial Paper (ECP), US Commercial Paper
(USCP) and Euro Medium Term Notes (EMTN) refinancing programmes, giving it
a comfortable position in terms of liquidity. Also, its portfolio of very high grade
fixed-income securities (on average AA-) allows the Bank to refinance both with the
European Central Bank and on the repo market.
In the event of an urgent need for substantial liquidity the Bank has an intraday
and overnight credit line with the “Banque Centrale du Luxembourg“ (BCL) backed
by the pledging of public bonds and other fixed-income securities. To that end, the
Bank always holds a portfolio of fixed income securities worth at least EUR 4,000
million which it can use as a guarantee for the BCL at any time.
Operational risk
Generally speaking, operational risk is the risk of losses resulting from inadequate or
deficient internal procedures, human or system errors or external events.
Operational risk is controlled by a detailed set of rules and procedures and by an
internal control system implemented at all levels which is monitored by the Bank’s
management.
14
The Bank centralises operational risk management using a tool which allows it
to manage internal incidents using the methods proposed by Basel II, and also to
define self-assessment plans for operational risks for all the Bank’s activities. The
Bank has a database of all incidents arising from human or system errors which have
an impact on the Bank’s earnings. These incidents are regularly analysed by various
internal Bank committees, such as the IT Management Committee.
The Bank also seeks to reduce operational risk by constantly improving operating
systems and organisational structures.
In the retail banking segment, rigorous transaction tracking, the separation of
responsibilities at operational level and ever tighter procedures are all designed
to avoid potential incidents. The Compliance Department ensures that the Bank
complies with all the regulations in force, in particular those relating to procedures
and training involving the prevention of money laundering, the financing of
terrorism and customer complaint monitoring.
The Organisation Department is responsible for coordinating major IT projects,
ensuring change management and avoiding the operational risks inherent in
these projects. Its role also involves ensuring the Bank’s physical and IT security
together with the coordination of the Disaster Recovery Plan (DRP) and the Business
Continuity Plan (BCP) which both serve to guarantee the Bank’s ability to continue
to do business in the event of a crisis.
In the area of information systems security, particular attention is paid at all times
to the protection of customer data. Security considerations form an integral part of
all IT projects and the Bank regularly commissions specific security audits to confirm
that security levels are maintained.
Finally, the Bank has extended a number of insurance policies in order to safeguard
against potential financial losses in the event that an operational risk were to
materialise. These insurance policies cover its major areas of activity. Part of these
risks are covered by the reinsurance company BCEE Ré.
Financial risk and hedge accounting in the financial statements
The Bank uses derivative instruments to hedge against interest rate, foreign
exchange rate, loans and fixed price risks (stock market indexes, share prices). The
derivative instruments commonly used for “plain vanilla” hedging transactions are
interest rate swaps (IRS) and cross-currency interest rate swaps (CIRS). In parallel to
these standard contracts, the Bank also uses swaps with structured components as
specific hedges for structured issues and structured bond acquisitions containing
embedded derivatives held in the portfolio of available-for-sale assets.
15
A derivative instrument is always considered to be held for trading purposes unless
designated as a hedging instrument. When entering a contract the Bank may
designate certain financial instruments as hedging instruments if these transactions
meet the criteria defined in IAS 39.
The Bank primarily uses fair value hedges.
Hedge accounting should comply with the following restrictive conditions set out
in IAS 39:
n
Prior to setting up the hedge, a detailed and standard documentation on the
relation between the hedged item and the hedging item, the nature of the
hedged risk, the objective and strategy justifying the hedging transaction as well
as the method used to measure the efficiency of the hedging relationship should
be prepared.
n The hedge must start as soon as the instrument is set up and continue without
interruption.
n Prospective efficiency: as soon as the transaction is set up, the characteristics of
the hedging transaction should enable an efficient hedge in order to neutralise
fair value changes or changes in the cash flow of the hedged underlying item
during the hedging period. Prospective efficiency is reached when the main
characteristics between hedged items and hedging items are significantly
identical (face value, interest rate, maturity, currency) within the hedging period
designated by the Bank.
n Retrospective efficiency: back-testing of the hedge efficiency (variations between
80% and 125%) is carried out at each accounting cut-off date.
The hedging transactions carried out by the Bank are highly efficient.
Increased profitability achieved despite the very difficult economic context
The Bank’s financial earnings for the year ending 31 December 2008 were up on
those posted for 2007.
Net banking income recorded 14% growth to reach EUR 532.1 million at the end
of 2008.
The net interest margin is up significantly (+27%) thanks to growth in the amount
of lending and saving deposits from non-banking customers, the higher margin
generated on capital markets and ALM transactions and increased revenues from
reinvestment of own funds.
Fee and commission income fell by 5.1% largely due to the low level of securities
activity, while “traditional” banking activities such as lending and payments
involving non-banking customers showed healthy growth.
16
Income from variable-income securities grew by 45.2% due to a further increase
in dividends received from investments in subsidiaries and associates recorded as
available-for-sale financial assets.
Income from financial transactions fell from EUR 32.8 million at the end of 2007
to EUR 0.1 million at 31 December 2008. More volatile by definition, this heading
includes income from securities and derivatives trading, revenue from the disposal
of available-for-sale financial assets, income from fair value hedge and foreign
exchange transactions. Income from the revaluation of fixed-income securities
(recognised as available-for-sale financial assets) whose prices were affected by the
widespread crisis in the financial markets, are recorded under shareholders’ equity
“revaluation reserve”. The same applies to the revenue from the revaluation of
variable-income securities recorded under available-for-sale financial assets. At the
end of 2008 the revaluation reserve was at a comfortable level.
Other operating income and expense was down on the previous year, falling from
EUR 5.2 million to EUR 4.5 million at the end of 2008.
Thanks to a rigorous policy of cost control, the Bank was able to limit growth in
overheads, including value adjustments on tangible and intangible fixed assets,
to 1.7%. Major re-engineering projects and the automation of procedures have
contributed to ongoing improvements in productivity, thereby offsetting the effect
of the structural increase in personnel costs whilst maintaining the quality of service
provision.
In line with its policy of prudence and against the backdrop of the financial crisis,
the Bank made net value adjustments for individual and collective credit risks of
EUR 87.1 million in 2008 as against EUR 26.8 million in 2007. This amount includes a
statistical provision adjustment of EUR 59.7 million for 2008.
Elsewhere, the Bank continued to implement its policy of prudence by apportioning
the maximum amount permitted under the legislation in force at 31 December 2008
to the ADGL provision, the apportionment for 2008 amounting to EUR 19.6 million
as against EUR 18.5 million in the previous year.
Given the above, the Bank posted a net income of EUR 146.9 million compared with
EUR 145.5 million the previous year, a rise of EUR 1.4 million or 1.0%.
After distributing part of the net income to the Luxembourg State, the remaining
income enabled the Bank to increase its equity capital, the level of which is more
than sufficient to meet EU solvency requirements, with an overall capital adequacy
ratio at 31 December 2008 of 24.1% and a “tier 1 ratio“ of 14.6%. The regulatory
minimum solvency ratio is 14.0%. At 31 December 2008 basic shareholders’ equity
stood at EUR 1,256.5 million.
17
Outlook for 2009
At the start of 2009, the financial markets continue to reel as more bad news is
announced, and the major economies of the European Union have still to emerge
from the recession. However, both European and national authorities have taken
coordinated action in an attempt to restore confidence.
The Luxembourg government has taken a number of fiscal measures designed
to assist both individuals and businesses, thereby making its contribution to the
strategic objectives defined in the European economic stimulus plan. To further
support economic activity through public works, the government has also decided
to bring forward a number of investment projects initially scheduled for 2010 to
2013 to start in 2009.
In light of the aforementioned stimulus measures and its prudent management
strategy, BCEE is confident of its ability to continue its development as a universal
bank in 2009.
The continuing improvement of the quality of customer service will again remain
the Bank’s primary concern and no.1 priority in 2009.
No major events likely to jeopardise the Bank’s normal course of business occurred
after the close of the 2008 financial year.
Luxembourg, 19 March 2009
For the Executive Committee
Michel Birel
Deputy Chief Executive Officer
18
Jean-Claude Finck
Chief Executive Officer
François MAJERUS, Service Private Banking
4. DEVELOPMENTS IN THE LUXEMBOURG FINANCIAL CENTRE
1. Impact of the financial crisis
In 2008 the international financial crisis severely curbed activity in the Luxembourg
financial sector, particularly in light of the large number of international banking
groups operating subsidiaries in Luxembourg. It was against this backdrop that
the Luxembourg authorities found themselves with no option but to bail out two
long-established banks with Belgian and Franco-Belgian shareholders even though
they were fundamentally healthy. In addition, the three major Icelandic banks with
subsidiaries in Luxembourg went into official receivership and thus came under
the direct control of the Icelandic authorities. At the end of 2008, the Luxembourg
government signed a declaration of intent in preparation for a takeover of the
Luxembourg subsidiary of the largest Icelandic bank, Kaupthing, by a consortium of
Arab investors. This agreement, under which the Luxembourg authorities together
with their Belgian counterparts will make a joint loan to the Bank, enabling it to
continue operating and thus to reimburse its depositors in Belgium and Luxembourg,
is still awaiting approval by the creditor banks.
Initially the continental European banks present in Luxembourg were less directly
affected by the financial storm than their counterparts in the US. However, the
crisis spread rapidly and September onwards saw government authorities in various
countries forced to bail out a number of financial institutions: a major German
mortgage bank was recapitalised by a public/private sector consortium; the Icelandic
banking sector collapsed; six small Danish banks were sold, merged or bailed out
by the government; and Switzerland made capital injections into one of its major
banks. In the United Kingdom and Ireland several banks were nationalised or
received injections of public capital. The example of Iceland, and to a lesser extent
those of Ireland, Belgium and perhaps the United Kingdom, served to highlight
some of the problems to which economies with over-developed banking sectors are
prey.
Finally, the enormous, USD 50 billion fraud perpetrated by American fund manager
and former Nasdaq director, Bernard Madoff, cast a shadow over the credibility of
hedge funds. A number of Luxembourg investment funds lost significant sums in
what has become the greatest scam in the history of finance.
20
Luxembourg
and Belgium
Germany
France
Italy
Switzerland
Scandinavia
United States
Japan
Other countries
Total
1985
1990
1995
2000
2005
2006
2007
2008
12
29
7
8
7
16
11
6
22
118
22
38
20
11
16
20
12
9
29
177
27
70
19
18
17
14
10
9
36
220
25
61
16
21
15
10
9
5
40
202
16
43
15
15
13
10
5
5
33
155
17
45
15
15
13
10
5
5
31
156
19
45
15
13
13
10
5
5
31
156
21
43
14
11
12
10
5
5
31
152
Geographical origin of Luxembourg-based banks
2. Number of banks
The number of banks registered on the official listing produced by Luxembourg’s
financial markets authority, the CSSF (“Commission de Surveillance du Secteur
Financier“), fell by four to 152 at the end of December 2008.
The widespread restructuring which has accompanied the various mergers and
acquisitions of international banking groups with subsidiaries in Luxembourg in
recent years has led to a general refocusing on private banking activities. At the
same time, these mergers have enabled Luxembourg to position itself as an intragroup skill centre for the following activities:
n
n
n
n
Registration, distribution and administration of investment funds,
IT services,
Securities services and derivatives transactions and administration,
Loan administration and accounting and syndicated loans agency services.
At global level, Luxembourg’s financial market ranks eighth in terms of
international assets. In Europe, it is now the undisputed centre for investment
funds and reinsurance. It is against this backdrop that on 1 January 2008 the
Luxembourg authorities confirmed their commitment to maintain Luxembourg’s
appeal as a financial centre over other European centres by setting up a financial
development agency, Luxembourg for Finance. The agency’s brief is to present an
objective, coordinated and cohesive image of the realities and opportunities of the
Luxembourg financial market abroad. Within this framework it is also responsible
for the dissemination of information about the financial market to customers and
investors, professionals and the international media, and for preparing, organising
and overseeing promotional campaigns on the international stage.
21
01
02
03
29,124
27,082
23,985
27,699
10,000
10,213
15,000
16,335
20,000
28,062
20,082
25,000
22,164
30,000
26,539
35,000
31,346
36,749
40,000
42,496
40,662
45,000
21,458
Employment in banks, management companies and FSPs (1985-2008)
5,000
0
85
90
95
97
98
99
00
04
05
06
07
08
3. Employment
Total employment in the financial sector (establishments monitored by the
“Commission de Surveillance du Secteur Financier“, CSSF) rose from 40,662 at the
end of 2007 to 42,496 at 31 December 2008 (+4.5%). However, there is no escaping
the fact that this increase in employment figures fell off strongly at the end of the
year under review as several banks announced redundancies. A sector-by-sector
breakdown reveals an increase in the number of investment management companies
(187 at the end of 2007 compared with 178 a year earlier) accredited under Chapter
13 of the Law of 20 December 2002 which transposes the third European Directive
on Undertakings for Collective Investments in Transferable Securities (UCITS) into
Luxembourg law. These companies employed 2,382 members of staff at the end of
the year under review. The number of staff employed by financial service providers
rose from 12,174 at the end of 2007 to 12,914 at 31 December 2008. In addition,
the numbers employed in banking in its strictest sense increased by 1,060 (+4.1%),
reaching 27,200 at the end of the year.
The increase in the numbers working in banking is all the more remarkable when
viewed against the current situation in which the number of banks is falling and
numerous financial activities are being outsourced. However, 2009 is undoubtedly
set to be a difficult year as a significant proportion of earnings in the financial
market are linked to stock market performances and the major OECD countries have
now entered recession. Some banks in Luxembourg have already streamlined their
activities and announced large-scale redundancy schemes, while a small number of
others are in the process of winding up and were withdrawn from the CSSF’s official
listing at the start of 2009.
22
Throughout 2008 the profit and loss accounts of Luxembourg credit institutions
rode the storm of the financial crisis as the fall in financial markets reduced the
value of bank-held stocks. As a result other net income, including trading portfolio
value adjustments, plummeted from EUR 1.4 billion to EUR -0.5 billion in the space
of a year. The depressed state of the stock markets in 2008 was also reflected in the
level of fee and commission income which fell by 10% to EUR 3.4 billion over the
year. By contrast, in a context of scarce liquidity the Luxembourg banking sector
benefited from its surplus liquidity position, recording an increase of 23.4% to EUR
7.1 billion in interest margins for the year under review.
4. Falling financial income
As a result banking income fell by 4.2% to EUR 10 billion.
Given the 2.6% growth in overheads (personnel and other operating costs) to EUR
4.2 billion, gross income before provisions fell to EUR 5.8 billion (-8.6%) compared
to the previous year. In addition, value adjustments on non-trading-portfolio assets
increased substantially, resulting in a drop of more than 50% in net profit.
The total balance sheet values of Luxembourg-based banks fell from EUR 940.3
billion at the end of 2007 to EUR 929.0 billion at the end of 2008 (-1.2%). This
progression reflects the difficult environment in which the banks were operating.
5. Undertakings for collective investment funds
The relative significance of fee and commission income (34%) in overall banking
revenue in Luxembourg reflects the level of off-balance sheet activities carried out
by banks and more particularly the scale of investment fund activity. Suffering from
the poor performance of the majority of share classes and the withdrawal of capital
from hedge funds, the total assets held in undertakings for collective investment
funds dropped for the first time since 2002, recording a fall of almost 25% relative
to the record figures posted in 2007. However, total net assets under management
continued to far exceed the balance sheet totals of Luxembourg-based banks, and
in 2008 the Luxembourg investment fund industry confirmed its dominant position
in Europe in the face of heightened competition.
At 31 December 2008, 3,371 undertakings for collective investment funds - including
837 specialist investment funds - comprising 12,325 ordinary sub-funds from some
40 different countries were registered on the official CSSF list, representing an
increase of 1,210 over the previous year. The majority of investment and specialist
investment funds (2,019) are now umbrella funds comprising a total of 10,973 subfunds. Traditionally structured, single-compartment funds numbered 1,352. Assets
invested in investment funds and specialist investments funds fell to EUR 1,559.7
billion at 31 December 2008 as against EUR 2,059.4 billion at 31 December 2007
(-24.3%). This drop is due primarily to the stock market collapse in 2008, as net
capital withdrawals stood at only EUR 77.2 billion or 3.7% of net assets at the start
of 2008.
23
Luxembourg is now Europe’s leading investment fund centre in terms of net assets
under management, holding almost 30% of the total assets managed in Europe,
ahead of France (23%), Ireland (12%) and Great Britain (10%); and the second
largest in the world after the United States.
In 2008 the investment fund and specialised investment fund industry was driven
primarily by German promoters whose assets suffered less than those from other
countries. Holding 21.1% of net assets in Luxembourg funds, German promoters
now occupy pole position, ahead of the Americans (19.6%) who have been relegated
to second place followed by the Swiss (17.4%). This leading group is followed some
way behind by Belgian (9.1%), British (8.7%) and Italian (8.4%) promoters.
Looking at investment policy, nearly half the net assets of investment funds and
specialist investment funds are now invested in fixed income securities (46.4%),
compared with 38% a year ago. A very significant portion (44.3%) of investments
in fixed income securities take the form of money market instruments and other
short-term securities.
Net assets of undertakings for collective investment (billions of euros) (1990-2008)
2,059
2,200
1,525
1,800
1,560
1,845
2,000
1,600
1,106
1,400
953
01
845
928
392
600
72
263
400
456
800
200
00
735
1,000
875
1,200
0
90
24
95
97
98
99
02
03
04
05
06
07
08
13,353
Q U OTAT I O N L I N E S
7,225
15,000
9,092
13,000
49,097
10,000
39,860
9,000
36,054
8,000
33,022
7,000
26,486
6,000
23,438
5,000
19,690
4,000
17,051
12,870
14,478
12,000
11,000
45,573
29,102
5,750
5,134
4,272
20,000
3,844
25,000
4,800
30,000
8,246
35,000
7,513
40,000
9,143
45,000
11,651
10,544
50,000
NEW ADMISSIONS
Luxembourg Stock Exchange (1996-2008)
15,386
3,000
10,000
2,000
5,000
1,000
0
0
96
97
98
99
00
01
02
03
04
05
06
07
08
6. Luxembourg Stock Exchange
In 2008, the Luxembourg Stock Exchange, founded in 1929, continued to develop
its activity as a listing centre for international securities. Despite the international
financial crisis, new admissions to the official listing remained buoyant with 11,651
new securities being admitted for trading as against 13,353 in 2007. The newly listed
securities break down as follows: 7,318 bonds, 1,535 investment funds and 2,771
warrants, and the listing now contains shares from approximately 40 countries and
bonds from around a hundred countries.
At the end of 2008 the total number of quotation lines was 49,097 (+7.7%). Of the
total listing, 43,876 were admitted for trading on the regulated market and 5,221
for trading on the Euro MTF market. A structural analysis of the official listing
reveals that the largest sub-funds are bonds with 32,933 lines and investment funds
with 8,133 lines. In 2008 overall trading volume reached EUR 1,414 million (+117%),
with Luxembourg-listed bonds accounting for 43% of the total international bonds
listed on European Union stock markets.
During 2008, the LuxX index lost 59.5% and was particularly affected by the
international financial crisis due to the predominance of banking and financial
shares. Eight out of nine shares in the index, five of which are banks or other
financial companies, saw a fall in prices over the last year.
The LuxX Index reached a high of 2,402.16 points on 2 January 2008 and hit a low of
905.52 on 21 November. It finished the year under review at 980.91 points as against
2,419.28 points at the end of 2007.
25
7. Luxembourg, an attractive insurance centre
The insurance and reinsurance sector is one of the main pillars of the Luxembourg
financial market.
In recent decades the free circulation of reinsurance flows (1964 European Directive)
encouraged a significant number of large companies to cover their own group’s risk
via Luxembourg-based reinsurance companies. Developments in the single market
during the 1990s, particularly the free movement of capital, the deregulation of the
insurance sector and the principle of the freedom to provide life insurance services
(with the third generation of European directives on insurance coming into force
on 1 July 1994), also spurred a number of renowned international groups to set
up in Luxembourg. This explains the appearance of a large number of subsidiaries
specialising in the free provision of services in the pan-European insurance market.
At the same time, the total amount of written premiums has risen considerably.
The increasingly international profile of the market has enabled Luxembourg-based
insurance companies to develop a wide range of life insurance products, notably in
the area of international wealth management. In its role as a pioneer, Luxembourg
has also created an attractive legal basis for international pension funds.
Boosted by the developments described above, at the end of 2008, Luxembourg
numbered 261 reinsurance and 92 insurance companies, including 49 life insurance
companies, predominantly subsidiaries of large European groups. Luxembourgbased insurance and reinsurance companies employ over 3,000 people, not
including the 8,000 or so insurance agents, brokers and their staff. This figure
includes approximately 200 employees in reinsurance.
Number of insurance and reinsurance companies (1990-2008)
300
250
244
234
264
257
255
255
270
267
264
273
262
263
262
261
136
95
95
94
58
60
59
57
57
57
57
52
51
54
95
55
95
54
28
50
94
93
45
60
95
94
93
91
90
81
95
96
97
98
99
00
01
02
03
04
05
06
07
92
49
100
0
90
26
INSUR ANCE
OF WHICH LIFE
INSUR ANCE
200
150
REINSUR ANCE
08
Norbert Nickels, Service Secrétariat Général
Being complementary activities, banking and insurance have generated a number of
joint ventures. As insurance companies are traditionally major investors – the total
net assets of insurance companies is almost EUR 80 billion – their impact on the
Luxembourg financial market is very positive.
8. Fight against money laundering and the financing of terrorism
Under Article 5 (1) of the Law of 12 November 2004 on the Fight Against Money
Laundering and the Financing of Terrorism, Luxembourg-based banks have a duty
to inform the relevant authorities if they know, suspect or have good reason to
suspect that money laundering or financing of terrorism is taking, has taken place
or has been attempted. In addition, in 2008 CSSF circulars continued to demand
that special attention be paid to transactions from certain countries or territories
identified by the Financial Action Task Force (FATF) as being “uncooperative in the
fight against money laundering”.
27
5. BANK FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS
BANK FINANCIAL STATEMENTS
A. Independent Auditor’s report
Report on the annual accounts
Following our appointment by the Government of the Grand Duchy of Luxembourg,
on proposal from the Board of Directors of Banque et Caisse d’Epargne de l’Etat,
Luxembourg, we have audited the accompanying annual accounts of Banque et
Caisse d’Epargne de l’Etat, Luxembourg, which comprise the balance sheet as at 31
December 2008, the profit and loss account and the cash flow statement for the year
then ended and a summary of significant accounting policies and other explanatory
notes.
Executive Committee’s and Board of Directors’ responsibility for the annual accounts
The Executive Committee is responsible for the preparation and fair presentation
of these annual accounts, which are submitted to the Board of Directors for
approval, in accordance with the constitutional law of 24 March 1989 and with
the statutory and regulatory requirements on the preparation and presentation
of annual accounts in force in Luxembourg. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair
presentation of annual accounts that are free from material misstatement, whether
due to fraud or error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these annual accounts based on our
audit. We conducted our audit in accordance with International Standards on
Auditing as adopted by the “Institut des Réviseurs d’Entreprises”. Those standards
require that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance whether the annual accounts are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the annual accounts. The procedures selected depend
on the Auditor’s judgment, including the assessment of the risks of material
misstatement of the annual accounts, whether due to fraud or error. In making
those risk assessments, the Auditor considers internal control relevant to the entity’s
preparation and fair presentation of the annual accounts in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit
28
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
In our opinion, these annual accounts give a true and fair view of the financial
position of Banque et Caisse d’Epargne de l’Etat, Luxembourg, as of December 31,
2008, and of the results of its operations and of its cash flows for the year then
ended in accordance with Luxembourg legal and regulatory requirements relating
to the preparation of the annual accounts.
also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the Executive Committee and
approved by the Board of Directors, as well as evaluating the overall presentation
of the annual accounts.
Report on other legal and regulatory requirements
The management report, which is the responsibility of the Executive Committee
and which is approved by the Board of Directors, is in accordance with the annual
accounts.
PricewaterhouseCoopers S.à r.l.
Réviseur d’entreprises
Represented by Pierre Krier
Luxembourg, 19 March 2009
Only the French version of the present Annual Report has been reviewed by the auditors. Consequently, the auditors’
report only refers to the French version of the report. In case of differences between the French version and the
translation, the French version should be retained.
29
B. BALANCE SHEET STATEMENT AS AT 31 DECEMBER 2008
ASSETS in euros
Notes
31.12.07
Cash and cash balances with central banks
4.1.
946,542,152
Loans and advances measured at amortised cost Credit institutions
4.8.
9,960,334,536
Loans and advances measured at amortised cost - Customers
4.9.
10,319,249,125
Financial assets held for trading
4.2. 4.7.
286,483,148
Derivative instruments used for hedging purposes
4.7.
190,962,348
Available-for-sale financial assets Fixed income securities
4.2.
15,071,949,811
Available-for-sale financial assets Variable income securities 4.2.
871,618,291
Held-to-maturity investments 4.4.
1,450,062,610
Shares in associates and subsidiaries
4.3.
154,173,018
Tangible assets - property, plant and equipment 4.10.
180,908,955
Tangible assets - investment property
4.12.
16,243,745
Intangible assets
4.11.
9,202,886
Current tax assets
4.14.
1,258,366
Deferred tax assets
4.14.
132,000,655
Other assets
4.13.
116,492,032
TOTAL ASSETS
LIABILITIES
in euros
Deposits measured at amortised cost - Private customers
Deposits measured at amortised cost - Public sector
Financial liabilities held for trading
Debt certificates issued
Provisions
Other liabilities
Current tax liabilities
Deferred tax liabilities
Pensions and other post retirement benefit obligations
Notes(*)
4.16.
4.17.
4.17.
4.2. 4.7.
4.7.
4.15.
4.19.
4.20.
4.14.
4.14.
4.18.
Sub-total LIABILITIES (before equity)
to be carried forward The appended notes on pages 38 to 109 are fully part of the financial statements
30
31.12.08
355,194,150
10,112,612,285
12,141,556,621
213,600,989
141,802,858
11,806,819,966
652,580,293
1,337,266,570
246,169,819
179,496,380
15,852,020
9,635,760
1,258,366
257,903,589
73,990,623
39,707,481,678
37,545,740,289
31/12/07
31/12/08
8,497,559,520
15,799,567,245
3,814,175,763
269,675,182
237,596,543
7,859,876,570
414,093,065
168,627,002
14,372,238
140,242,426
235,999,135
3,805,523,752
19,806,242,626
4,513,983,494
329,148,392
316,147,029
5,671,111,996
346,596,615
310,052,318
21,929,396
142,818,390
244,713,006
37,451,784,689
35,508,267,014
(continuation)
EQUITY in euros
31.12.07
Sub-total of LIABILITIES before equity,
brought forward
37,451,784,689
31.12.08
35,508,267,014
Issued capital
Revaluation reserve (*)
Reserves - Retained earnings
173,525,467
653,395,439
1,283,281,020
173,525,467
325,071,866
1,391,962,852
Income from current year Sub-total equity
145,495,063
2,255,696,989
146,913,090
2,037,473,275
TOTAL LIABILITIES AND EQUITY
(*) of which originating from available-for-sale financial assets
39,707,481,678
657,322,804
37,545,740,289
325,167,755
B. BALANCE SHEET STATEMENT AS AT 31 DECEMBER 2008
C. STATEMENT OF RECOGNISED INCOME AND EXPENSE AS AT 31 DECEMBER 2008
in euros
31.12.07
31.12.08
Available-for-sale assets - Value adjustments
- Sale income recognised through profit and loss
Actuarial differences on defined benefit plan
Cash flow hedges
70,857,207
100,539,227
-29,682,020
27,723,054
-1,337,987
-332,155,046
-335,479,549
3,324,503
-1,813,231
3,831,473
Net profit accounted for directly in equity
97,242,274
-330,136,804
Income from current year
145,495,063
146,913,090
Total income and expense accounted for during
the financial year
242,737,337
-183,223,714
The appended notes on pages 38 to 109 are fully part of the financial statements
31
D. INCOME STATEMENT AS AT 31 DECEMBER 2008
in euros
Notes
31.12.07
Net interest income
5.1.
318,025,856
Dividend income
5.2.
37,008,790
Fee and commission income
5.3.
73,600,934
INCOME FROM INTEREST, DIVIDENDS
AND FEES AND COMMISSIONS
403,953,136
53,740,785
69,853,937
428,635,580
527,547,858
Income from financial instruments not recognised
5.4.
29,783,014
at fair value through profit or loss
Trading income 5.5.
617,551
Net income from hedge accounting
5.6.
-435,709
Translation differences
2,814,203
-3,189,555
-10,986,084
7,545,895
6,699,727
NET BANKING INCOME
461,414,639
527,617,841
8,177,020
-3,026,318
6,887,874
-2,437,166
466,565,341
532,068,549
-163,012,904
-59,907,716
-25,120,491
-166,309,408
-61,195,141
-24,795,216
218,524,230
279,768,784
-26,843,758
-19,593,951
-87,104,040
-20,660,473
172,086,521
172,004,271
Profit or loss from non-current assets and disposal groups
classified as held-for-sale not qualifying as discontinued
operations
1,577,479
321,097
Other operating income
Other operating expense
5.7.
5.7.
OPERATING INCOME
5.8.
Staff expenses
Other general overheads
5.9.
Value adjustments on tangible and intangible assets
5.10.
5.11.
5.12.
INCOME AFTER EXPENSES
Impairment on financial assets - individual and
collective assessments
Provisions
5.13.
5.14.
INCOME BEFORE TAX
Tax on income from continuing operations
5.15.
-19,289,270
-24,998,074
Deferred tax assets
5.15.
-8,879,667
-414,204
145,495,063
146,913,090
NET INCOME FOR THE YEAR
32
31.12.08
Carmen Jaffke, Service Electronic Banking and Business
E. CASH FLOW STATEMENT AS AT 31 DECEMBER 2008
The cash flow statement shows incoming and outgoing cash movements. Cash and cash equivalents
include cash, balances with central banks as well as demand deposits.
The cash flow statement classifies cash flow for the period into operating, investing and financing activities.
Cash flow from operating activities
- Cash flow from operating activities before change in operating assets and liabilities:
in euros
31.12.07
Interest received Interest paid Dividend income Fees and commission received
Fees and commission paid
Other operating costs
Sub-total
31.12.08
3,600,056,515
-3,317,648,530
38,880,230
100,420,800
-26,819,866
8,177,020
-215,037,639
-3,026,318
185,002,212
3,510,144,188
-3,077,555,350
53,740,785
98,914,070
-29,060,133
6,887,874
-221,364,441
-2,437,166
339,269,827
in euros
31.12.07
31.12.08
Available-for-sale financial assets - Fixed income securities
Available-for-sale financial assets - Variable income securities
Loans and advances at amortised cost - Credit institutions Loans and advances at amortised cost - Customers
Other assets
Sub-total
39,571,988
457,812,264
-43,352,631
2,256,840,204
-1,315,377,479
5,223,874
34,903,877
1,435,622,097
5,188,476
3,015,058,996
17,488,618
248,984,671
-1,557,515,265
2,553,017
42,617,552
1,774,376,065
- Cash flow from changes in operating assets:
34
in euros
Securities held for trading - Short sales Deposits measured at amortised cost - Credit institutions Deposits measured at amortised cost - Customers Derivative instruments used for hedging Other liabilities Debt certificates issued
Sub-total
31.12.07
31.12.08
48,914
-13,852,054
-1,358,435,530
-3,824,205
-82,409,491
-281,725,271
-1,740,197,637
-142,388
-3,662,991,405
2,519,084,582
-7,887,783
137,252,709
-2,102,123,615
-3,116,807,900
-119,573,328
-1,003,162,008
31.12.07
31.12.08
- Cash flow from changes in operating liabilities:
Cash flow from investing activities
in euros
Acquisition of available-for-sale financial assets - Variable income securities
5,273,806
Acquisition of variable income securities - Subsidiaries
2,726
Acquisition of variable income securities - Associates
-307,307
Acquisition / redemption of held-to-maturity financial assets 165,188,891
Acquisition / sale of intangible and tangible assets
4,276,549
174,434,665
1,468,229
-7,775
39,250
112,437,988
-4,463,843
109,473,849
35
Cash flow from financing activities
31.12.07
31.12.08
-49,578,705
-30,000,000
-111,672,420
-35,000,000
-79,578,705
-146,672,420
Net change
-24,717,368
-1,040,360,579
2007
2008
-803,000,849
-921,906,857
-24,717,368
-94,188,640
-1,040,360,579
-43,811,372
-921,906,857
-2,006,078,808
Net changes in euros
Net proceeds from subordinated liabilities Income distribution
Change in cash and cash equivalents
Situation as at 1 January
Net change in cash flow
Effect of exchange rate changes on cash and on cash equivalents
Situation as at 31 December
36
Ernest RAYECK, Service Production Informatique
F. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2008
1. General information
Banque et Caisse d’Epargne de l’Etat, Luxembourg (hereinafter “the Bank”),
established by the law of 21 February 1856 and governed by the law of 24 March
1989, is a self-governing public institution endowed with legal personality. Ultimate
responsibility for the institution lies with the Government Minister who heads the
Treasury.
The Bank’s head office is located at 1, place de Metz, L-2954 Luxembourg.
Within the limits set by the laws and regulations applicable to credit institutions,
the object of the Bank is to perform all financial and banking activities, as well as
all similar, related or ancillary operations.
The Bank’s average staff headcount for the 2008 financial year was 1,789 (1,777 in
2007).
The financial year corresponds to the calendar year.
The financial statements were approved for issue by the Board of Directors on 19
March 2009.
2. Significant accounting principles
2.1 COMPLIANCE WITH GENERAL IFRS PRINCIPLES
The financial statements for the 2008 financial year were prepared in accordance
with the legal and regulatory requirements for the preparation and presentation
of financial statements in force in Luxembourg for credit institutions such as
described hereafter. With the exception of the accounting principles relating to the
recognition of the AGDL (Association for the Guarantee of Deposits in Luxembourg),
the fixed provision and the special items with a reserve element (hereafter “the
regulatory provisions”) which are detailed in note 3.7 “Provisions”, the accounting
principles are based on IFRS as adopted by the European Union.
For the purpose of comparison, the financial statements relating to the 2007 financial
year that have been published using Luxembourg standards (“Lux-Gaap”) have
been reprocessed following the same legal and regulatory requirements. The Bank
publishes consolidated accounts in accordance with IFRS standards as adopted by
the European Union since 2007. It used the values set at the time of switching from
Luxembourg standards to IFRS standards, such as adopted by the European Union
on 1 January 2006 for consolidated accounts as a starting point for establishing
the comparative balance sheet as at 31 December 2007, with the exception of the
recognition of the regulatory provisions described above. The income statement for
38
The following table details the main impacts of the change in the primary basis of accounting on equity
as at 1 January 2007:
Equity as at Capital and Reserves Revaluation reserve
1 January 2007
Balance as per former Luxembourg
accounting principles (“Lux-Gaap”)
1,596,080,820
-
Subscribed capital
173,525,467
-
Reserves
1,058,991,679
-
Fund for general banking risks
213,046,532
-
Profit for 2007 financial year
117,044,641
-
Value adjustments within the
meaning of article 62
33,472,501
-
Changes due to switching from
“Lux-Gaap” to the new Luxembourg
primary basis of accounting
6,220,730
653,395,439
-3,267,142
-
Available-for-sale financial assets -19,264,955
660,345,228
Assets and liabilities measured at
amortised cost
67,618,053
-
Derivatives used for hedging purposes
19,406,006
-5,581,019
Provisions (including pensions and other
post retirement benefit obligations)
-44,825,885
-
Deferred tax assets
-6,873,002
-1,368,770
Other
-6,572,345
-
Balance as per new Luxembourg
accounting principles
1,602,301,550
653,395,439
Total Equity
1,596,080,820
-
the 2007 financial year and the table showing the change in equity in 2007 are shown after having been
reprocessed according to the same principles.
-
659,616,169
-
2,255,696,989
The Bank provides segmental information as required by standard IFRS 8 in the consolidated accounts.
The Bank has not applied in advance the new standards which came into force after 1 January 2009.
Indeed, the Bank considers the impact on the financial statements as being non-material.
The financial statements are stated in euros, the Bank’s functional currency. The financial statements have
been prepared at historical cost or amortised cost, adjusted to fair value for available-for-sale financial
assets, financial assets held for trading and derivatives.
Financial assets and liabilities measured at amortised cost, designated as hedged items in the context of
fair value hedges, must be adjusted for any changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk.
39
2.2 TRANSACTIONS IN FOREIGN CURRENCY
The impact of exchange rate fluctuations on the main headings of the income
statement is detailed below. BCEE’s functional currency is the euro (“EUR”).
Transactions in foreign currency are translated into the functional currency at the
exchange rate prevailing on the date of the transaction.
Monetary items in foreign currency are translated at the exchange rate prevailing
on the balance sheet date.
Non-monetary items recognised at historical cost are translated using the exchange
rate on the transaction date whereas non-monetary elements recognised at fair
value are translated at the exchange rate in force on the date the fair value was
determined.
Translation differences in monetary assets and liabilities are recognised in the
income statement unless the transaction has been classified as a cash flow hedge.
For monetary assets classified as “available-for-sale assets”, translation differences
relating to the difference between the fair value on the balance sheet date and their
acquisition cost are accounted for in the revaluation reserve, whereas translation
differences relating to the adjustment of the amortised cost are recognised in the
income statement.
Translation differences relating to adjustments of the fair value of non-monetary
items are the same as for recognition of these changes in fair value.
For the main currencies, the following exchange rates have been used for translating
the financial statements.
One euro is equal to:
CHF
GBP
JPY
USD
SEK
40
31.12.2007
1.6558
0.7343
165.0000
1.4721
9.4283
31.12.2008
1.4930
0.9670
126.8500
1.4050
10.9000
2.3.1Initial measurement and recognition
All purchases and sales of financial assets and liabilities whose delivery or settlement
are made after the transaction date are recognised in the balance sheet on the
delivery or settlement date.
All financial instruments are recognised at fair value when initially recognised,
increased by directly attributable costs when the financial instruments are not held
at fair value through profit or loss.
Derivatives are recognised in the balance sheet at their fair value on the transaction
date. The classification of derivatives on initial recognition depends on their
characteristics and purpose. Thus, a classification into “financial assets held for
trading” or into “hedging instruments” is possible.
2.3 BANKING TRANSACTIONS
Derivatives are recognised as assets when their fair value is positive and as liabilities
when it is negative. The fair value is understood here to be the “dirty price” of these
instruments, therefore including accrued interest.
Embedded derivatives, according to the definition of standard IAS 39, are
separated from the host instrument and recognised at fair value if their economic
characteristics and risks are not closely linked to those of the host contract and if
the overall financial instrument is not classified as being held for trading or has not
been designated as being valued at fair value through profit or loss. Embedded
derivatives that have been separated from their host are recognised at fair value
in the trading portfolio and changes in fair value are recognised in the income
statement.
Gains or losses on sales of financial assets that are not subject to revaluation
through profit or loss are calculated as the difference between the amount received
(net of transaction expenses) and the acquisition cost or amortised cost of the asset.
2.3.2 Subsequent measurement
The valuation of financial instruments will depend on their characteristics and
their classification into a valuation category. The chosen valuation categories are
the following: Financial assets held for trading, held-to-maturity investments and
available-for-sale financial assets.
The valuation methods used are the “historical cost”, “amortised cost” and “fair
value” methods. Historical cost is the amount initially recognised. Amortised cost
corresponds to the amount initially recognised, less repayments of capital, adjusted
for premiums and discounts over the life of the asset (difference between the
initial amount and the repayment amount on maturity) less impairment recognised
whenever there is objective evidence that the asset is impaired.
41
The fair value of the counterparty given or received can usually be determined by
reference to an active market or using valuation techniques based on observable
market data.
2.3.3 Accounting assessments and estimates
In setting up accounting principles under IFRS, in some cases the Bank has had to
assess and estimate amounts in the financial statements.
The most significant cases where assessments or estimates have had to be made are:
2.3.3.1 The fair value of financial instruments
When a fair value of a financial instrument recognised in the Balance sheet cannot
be determined from an active market, it is calculated using valuation techniques
most often based on mathematical models. As far as possible, the variables supplied
to mathematical models originate from market observation.
The Bank determines the activity, or inactivity, of a fixed-income transferable
securities market, from criteria such as the proportion held by the Bank in the total
bond exposure, the number of price contributors, the average bid size and the
differences between bid and ask prices.
Due to the crisis in the financial markets which worsened throughout 2008, and
having been aware that the bond market was declining considerably, the Bank
favoured mathematical models originating from market observation in valuing its
positions in fixed income securities considered as being inactive.
When the market is considered active, the Bank uses the prices of an official
quotation source such as Bloomberg or Reuters. Bonds for which the Bank judges
that the market is inactive, the Bank first calculates a price by applying the
discounted cash flow method on interest rate curves and spread curves, determined
according to the issuer’s rating. The price thus calculated is then weighted with
a price indication provided by a quotation source, even if the price indication
originates from a market deemed inactive by the Bank.
2.3.3.2Impairment of financial assets measured at amortised cost
In accordance with IAS 39, the Bank recognises impairment whenever there is
objective evidence that an asset is impaired.
For retail banking, the estimation of the irrecoverable amount is carried out from
observations of historical loss data, whereas an assessment carried out case by case
enables the irrecoverable amount to be determined from wholesale banking. A
specific value adjustment is recognised as a result.
42
The Bank also recognises “collective impairment” on receivables not identified
individually as being in default, in order to take into account the progressive credit
risk after the date on which the loan was granted. The allowance for impairment is
based on historical loss data with a higher weighting for recent years.
2.3.3.3 Impairment of available-for-sale assets
The Bank considers the securities of the “available-for-sale financial assets”
(AFS) portfolio as impaired when it expects a decrease in future contractual cash
flows because of “objective impairment evidence” such as, for instance, a rating
downgrade below a threshold deemed critical by the Bank or a piece of information
they hold on the issuer’s solvency. In other words, the Bank considers that an
allowance for impairment should be recognised when the price drop not only
reflects the fluctuation of market parameters such as credit spread, but also, for the
security in question, when it is the consequence of an expected reduction of cash
flow.
The Bank assimilates the notion of “objective impairment evidence” as determined
by IFRS, to the definition of default under Basel II.
The Bank considers that there is impairment of variable-income transferable
securities when it expects the company in which it holds shares to have cash flow
difficulties.
When the Bank recognises impairment on fixed-income securities, the difference
between the fair value and amortised cost will be recognised in the income
statement and will no longer be recognised in equity under “Revaluation reserve”.
Similarly, when the Bank recognises impairment on variable-income securities, the
difference between the fair value and the acquisition cost will be recognised in the
income statement and will no longer be recognised in equity under “Revaluation
reserve”.
3. Information on the accounting principles applied to balance sheet
categories
3.1CASH AND CASH BALANCES WITH CENTRAL BANKS
Cash flow consists mainly of the following headings: cash and minimum compulsory
reserve at the Central Bank of Luxembourg.
Money is transferred to the minimum compulsory reserve in order to satisfy the
reserve requirements imposed by the Central Bank of Luxembourg.
43
These funds are not available for financing the Bank’s ordinary transactions. The
reserve base, calculated on a monthly basis, is defined according to items from
the balance sheet, in compliance with Luxembourg accounting principles. The
calculation of the base and the reserve requirement is carried out by the Central
Bank.
3.2 FINANCIAL INSTRUMENTS
The Bank classifies financial assets into four categories. Each category has a specific
accounting treatment.
3.2.1 Assets and liabilities held for trading
Financial instruments held with the aim of making a profit from short-term price
fluctuations are classified as assets or liabilities held for trading. Are included in
this category fixed-income securities, variable-income securities, short sales on these
same financial instruments as well as derivatives used for trading.
Since the concept of “short-term” is not defined by IAS 39, the Bank considers the
average duration to be six months for non-derivatives.
Financial assets held for trading are initially recognised at fair value with any
subsequent adjustments in fair value recognised in “Trading income” in the income
statement. Accrued interest is recorded under “Net interest income” and dividends
are recorded under “Dividend income” according to the contractual conditions or
when the right to payment is established.
3.2.2 Held-to-maturity fixed income securities
Listed securities with a predetermined maturity that the Bank expressly intends
and has the means to hold to maturity are recognised under “Held-to-maturity
investments” at amortised cost, using the effective interest rate method integrating
premiums and discounts spread over the life of the asset, after deduction of
impairment, if any. Discounts and premiums are recorded in the income statement
under “Net interest income”.
Conditions for classification as held-to-maturity investments, as well as the strict
portfolio regulations (limited conditions for transfer and sale) have led the Bank to
limit the use of this portfolio. Since these assets are held to maturity and are not
valued at fair value, they are not exposed to a risk of interest rate fluctuation and as
a result it is not possible to hedge this risk. Nonetheless, translation risk and credit
risk can be hedged. The Bank invests mainly in securities issued or guaranteed by
first grade government or bank issuers under its Asset and Liabilities Management
policy.
44
Available-for-sale financial assets are assets that have initially been designated
as such or which are not initially classified in any of the other three categories
“Financial assets held for trading, Held-to-maturity investments or Loans and
advances”.
Available-for-sale financial assets include fixed income securities, loans quoted in
an active market as well as variable income securities, notably investments in shares
and mutual funds. Moreover the Bank has opted for valuation at fair value, in
compliance with standard IAS 39, of the shareholdings in associates and subsidiaries
by classifying the said investments as available-for-sale financial assets for the needs
of the separate financial statements. Available-for-sale financial assets are initially
recognised at fair value, including transaction expense. Interest is recognised in
interest income using the effective interest rate method. Dividends are recognised
in the income statement under “Dividend income” once the right to payment has
been established.
3.2.3Available-for-sale financial assets
Available-for-sale financial assets are valued at their fair value based on the bid
price in an active market in the case of listed securities or using models based on
observable market data. Gains or losses resulting from changes in fair value are
recognised in equity under “Revaluation reserve”. Impairment is recognised in the
income statement and is therefore no longer recorded in equity under “Revaluation
reserve”.
When an available-for-sale financial asset is sold, the loss or gain is recorded in
the income statement under “Income from financial instruments not recognised at
fair value through profit or loss”. If the Bank has several investments in the same
security, the sale is recorded using the FIFO (first in - first out) method.
Unrealised or realised gains or losses on fixed income securities are measured by
comparing the fair value of the security to its amortised cost. In the case of variable
income securities, gains or losses are measured by comparing the market price with
the acquisition cost including transaction costs.
The accounting treatment for bonds included in the available-for-sale portfolio and
which are hedged against interest rate risk is described in the following paragraph.
3.2.4 Derivative instruments used for hedging purposes
The Bank uses derivative instruments to hedge interest rate, foreign exchange, credit
and price risk such as stock market indices or share prices. The instruments used for
“plain vanilla” hedging transactions are Interest Rate Swaps (IRS) and Cross-currency
Interest Rate Swaps (CIRS). The Bank also uses swaps with structured components to
hedge specific EMTN issues and structured bonds containing embedded derivatives
held in the portfolio of available-for-sale financial assets.
45
A derivative instrument is always considered to be held for trading unless designated
as a hedging instrument. At inception, the Bank may designate financial instruments
as hedging instruments if they are part of hedging transactions meeting the criteria
defined in IAS 39.
The Bank classifies hedging instruments in the following categories:
n
n
fair value hedge of an asset, a liability or a firm commitment;
cash flow hedge covering future cash flow attributable to a specific asset or
liability or future transaction.
The Bank mainly uses fair value hedges.
Hedge accounting should comply with the following restrictive conditions specified
by standard IAS 39:
n
n
n
n
Prior to setting up the hedge, a detailed and standard documentation on the
relation between the hedged item and the hedging item, the nature of the
hedged risk, the objective and strategy justifying the hedging transaction as well
as the method used to measure the efficiency of the hedging relationship should
be prepared.
The hedge should start at inception of the transaction and continue without
interruption.
Prospective efficiency: as soon as the transaction is set up, the characteristics of
the hedging transaction should enable an efficient hedge in order to neutralise
fair value changes or changes in the cash flow of the hedged underlying item
during the hedging period. Prospective efficiency is reached when the main
characteristics between hedged items and hedging items are significantly
identical (face value, interest rate, maturity, currency) within the hedging period
designated by the Bank.
Retrospective efficiency: back testing of the hedge efficiency (variations between
80% and 125%) is carried out at each accounting cut-off date.
Changes in the fair value of derivatives designated as fair value hedges which meet
the criteria for hedge accounting and have proved their effectiveness relative to the
hedged instrument are recognised in the income statement under “Net income from
hedge accounting” as well as changes in the fair value of the hedged instruments.
If the hedge no longer meets the criteria for hedge accounting, the adjustment
to the carrying amount of a hedged item is amortised to profit or loss over the
remaining period to maturity as adjustment to the return on the hedged item.
46
When a hedging instrument expires or is sold, is cancelled or exercised or when
a hedge no longer meets the hedge accounting criteria, the Bank ceases to apply
hedge accounting. Any adjustment in the carrying amount of an interest-bearing
hedged instrument is amortised through profit or loss, and must be totally
amortised on maturity. If the item is derecognised, i.e. removed from the balance
sheet, the change in fair value is recognised immediately in the income statement.
3.2.5Sale and repurchase agreements - lending/borrowing of securities
Changes in the fair value of derivative instruments designated as cash flow hedges,
which meet the criteria for hedge accounting and have proved their effectiveness
relative to the underlying instrument to be hedged, are recorded in equity under
“Revaluation reserve – cash flow hedges”.
Sale and repurchase agreements
Securities sold under repurchase agreements (repo transactions), when the repurchase
concerns the same or a significantly identical asset, remain on the balance sheet and
are considered as assets held for trading, available-for-sale financial assets or heldto-maturity financial assets. The amount due to the counterparty is recorded as a
liability under “Deposits”.
The Bank enters mainly into repurchase agreements relating to the same or an
identical asset.
The value of securities purchased under a resale agreement is recorded under
“Loans and advances measured at amortised cost”.
The Bank carries out “triparty-repo” transactions with counterparties whose rating
is higher than or equal to “A”. An intermediary intervenes as a third party during
the whole lifespan of the “triparty repo” in order to manage payments against
delivery, control securities’ eligibility criteria, calculate and manage the markup call
and manage securities’ substitutions. The maturity dates for “triparty-reverse-repo”
contracts vary between overnight and six months.
Lending and borrowing of securities
Securities lent remain on the balance sheet. Borrowed securities are not recognised
in the balance sheet.
3.2.6Loans and advances measured at amortised cost
Loans and advances measured at amortised cost are financial assets issued by the
Bank with fixed or determinable payments and which are not quoted in an active
market.
47
Loans and advances with fixed maturity issued by the Bank are recorded at amortised
cost using the effective interest rate method. They are tested for impairment at each
balance sheet date and an allowance for impairment is recorded if necessary.
IAS 18 requires loan administration expenses to be considered as origination fees,
which means they must be taken into account for the calculation of the effective
interest rate. The actuarial method is used, with material expenses and commissions
linked to fixed income loans spread over the life of the asset and recorded as an
adjustment to the effective rate of return on the asset in question.
If the amounts are not material, they are directly charged to the income
statement.
In the case of variable or adjustable rate loans, the straight-line method is used and
not the actuarial method.
As the Bank has opted to value loans and advances not evidenced by a security at
amortised cost, measurement based on the interest rate curve is only used if the loan
is hedged by a derivative instrument and when the Bank has formally designated
the transaction as a hedging transaction in accordance with IFRS requirements.
3.2.7 Interbank market
3.2.7.1 Borrowings
Borrowings are initially recognised at their fair value net of transaction expense.
Subsequently, borrowings are recognised at amortised cost and differences between
the net amount received and the amount repaid are recorded in the income
statement over the duration of the loan using the effective interest rate method.
3.2.7.2Issuance of debt securities
Initially, debt issued by BCEE is measured at amortised cost. However, in the context
of its EMTN (Euro medium term notes) programmes, the Bank issues a large number
of structured bonds containing embedded derivatives whose price fluctuations are
hedged by swaps with a structure identical to that of the swap contained in the
bond.
The Bank has designated these transactions as fair value hedges, which enables it to
cancel out the market effect in the income statement.
3.2.8 Impairment of financial assets
In accordance with IAS 39 criteria, the Bank records impairment whenever there is
objective evidence that an asset is impaired.
48
In the case of fair value instruments, the recoverable amount corresponds either to
the fair value or the value of estimated future cash flows discounted at the market
rate applicable to similar instruments.
Impairment allowances relating to available-for-sale financial instruments or to
loans and advances reduce the carrying amount of the asset directly.
Two categories of impairment can be distinguished:
With regard to assets measured at amortised cost, the recoverable amount is net of
pledges and guarantees and corresponds to estimated future cash flows discounted
at the initial effective interest rate or, in the case of variable-income instruments, at
the last effective interest rate. The amount of impairment recorded corresponds to
the difference between the book value and the recoverable value.
Impairment relating to individual value adjustments:
The amount of the impairment loss is measured as the difference between the
asset’s carrying amount and its recoverable amount. Financial assets are valued
contract by contract. However, financial assets of small amounts such as private
loans, showing similar risk characteristics, are in principle grouped together in order
to carry out an overall valuation of the impairment rate.
Impairment relating to collective value adjustments:
When no individual value adjustments can be made, IFRS standards provide for the
setting up of collective value adjustments to cover the risk of potential loss when
there is an objective indication of probable loss in certain portfolio segments or in
other loan commitments existing on the balance sheet date. Currently the Bank only
applies this principle to retail customers for the “loans and advances at amortised
cost” portfolio. When calculating the collective value adjustments, the Bank uses its
experience and historical data for losses incurred. The probability of default for the
different types of loans is calculated taking into account the period between the
time the loan was granted and the time it defaulted.
When the Board considers a financial asset as being totally unrecoverable, it is
written off against the related provision for impairment. Subsequently, should any
incoming funds be recognised on this asset, they are to be recognised as income
under the heading “Other operating income”. If in a subsequent period, the amount
of the impairment loss decreases, then the previously recognised impairment loss
shall be reversed under the heading.
3.2.9 Other financial assets and liabilities
Other assets comprise short-term receivables. Other liabilities comprise mainly shortterm payables, amounts due to sundry creditors, coupons payable and amounts due
to preferential creditors as well as the share of profit payable to the Luxembourg
State.
49
3.2.10 Income and expenses relating to financial assets and liabilities
Interest income and expenses are recognised in the income statement for all
financial instruments measured at amortised cost using the effective interest rate
method.
The effective interest rate is the rate that exactly discounts future cash payments or
receipts over the scheduled duration of the financial instrument in such a way as to
obtain the net accounting value of the financial asset or liability.
The calculation includes transaction expenses and income, premiums and discounts.
Transaction expenses and income that are fully part of the contract’s effective rate
can be treated as additional interest, such as a handling fee or a new business
commission.
The Bank recognises fees as income according to the type of service rendered and to
the accounting method of the financial instruments to which the service is attached:
fees paid for continued services; they are spread out as income over the duration
of the rendered service (handling fee on loans, transaction costs...);
n fees paid for one-off services; they are fully recognised as income when the
service has been delivered;
n fees paid for the execution of an important act are fully recognised as income at
the time of the execution of that act.
n
3.3 PROPERTY, PLANT AND EQUIPMENT (TANGIBLE ASSETS)
Property, plant and equipment as well as investment property are recorded at
acquisition cost. Directly related acquisition expenses are recorded as being fully
part of the acquisition cost.
Property, plant and equipment consist of land, buildings, facilities and installations
and computer hardware and other equipment. With respect to the heading
“Investment property“ in standard IAS 40, the Bank would use it for rented-out
property.
Tangible assets are recognised at historical cost less accumulated depreciation,
amortisation and impairment. The amortisable portion of these assets is calculated
after deduction of their residual value. These assets are amortised over their
estimated useful life using the straight-line method. Land is recognised at cost.
Directly related acquisition costs are capitalised and amortised as an integral part of
the acquisition cost at the same pace as the principal asset.
50
n
n
n
n
buildings: 50 years,
computer equipment: 4 years,
office fixtures, furnishings and other equipment: between 2 and 10 years,
vehicles: 4 years.
Investments in leased buildings are amortised over the remaining term of the lease.
If the duration of the lease is not fixed, amortisation is recorded over ten years.
Maintenance and repairs that do not affect the productive value of the property are
accounted for in the income statement when incurred.
If the recoverable value of an asset drops below its carrying amount, the carrying
amount in the balance sheet must be adjusted to the estimated recoverable value
through the recognition of impairment.
Estimated useful life of main types of tangible assets:
Expenses incurred for the purpose of increasing the benefit generated by a property
asset or which extend its useful life are recorded under assets at their fair value and
amortised over the asset’s estimated useful life.
Gains or losses on the scrapping or disposal of tangible assets are determined by the
difference between the disposal proceeds and the residual value of the assets and
are recognised in income or expense for the period as appropriate under “Other net
operating income or expense” as at the date the asset is scrapped or disposed of.
Equipment and furnishings with a useful life of less than one year are charged
directly to income for the year.
3.4INTANGIBLE ASSETS
The Bank considers software, whether acquired or proprietary, as well as related
development and setting up expenses, as intangible assets. Software is amortised
over a 3-year period using the straight-line method.
3.5LEASE AGREEMENTS
A lease agreement which transfers most of the risks and advantages linked to the
possession of assets is a financial lease, otherwise it is an operating lease.
51
3.5.1 The Bank is a tenant
The Bank has mainly concluded lease agreements for renting its offices or
equipment. Lease agreements are recognised in the income statement. If a printing
contract is terminated in advance the penalties to be paid are recognised as a charge
in the financial year during which the termination has occurred.
3.5.2 The Bank is a lessor
When the Bank leases an asset within the framework of financial lease, the updated
value of the payments owed with respect to the agreement is recognised as
receivable under the heading “loans and advances at amortised cost” for customers
or credit institutions. The difference between the amount of payments owed and
their updated amount is recognised as unrealised financial income. The rents, as
well as the costs attributable to the signing of the contract, are spread over the
duration of the lease agreement so that the income generates a constant effective
interest rate.
3.6 Employee benefits
Employee benefits are accounted for in accordance with IAS 19. The employee
benefits granted by the Bank are divided into three categories:
3.6.1 Short-term benefits
Short-term benefits cover mainly wages, annual holidays and bonuses paid within
twelve months of the end of the financial year in respect of that financial year.
These are recorded as expenses for the year, including the amounts still due at the
end of the financial year.
3.6.2Long-term benefits
Long-term benefits are benefits that generally relate to length of service, paid
to employees still in activity and paid more than twelve months after the end
of the financial year-end. A provision is raised corresponding to the outstanding
commitments at the year-end. These commitments are valued using the same
actuarial method as that applied to post-employment benefits.
3.6.3 Post-employment benefits
In compliance with the Luxembourg Law dated 24 March 1989 regarding Banque
et Caisse d’Epargne de l’Etat, Luxembourg, employees benefit from a pension
supplement, at the company’s expense, if they fulfil the conditions for being eligible
for the civil service pension scheme. Pension supplements concern the following
benefits:
52
n
Furthermore, civil servants-employees’ pensions are also paid for by the company.
The pension amount of a civil servant-employee is based upon the civil service
pension scheme. However, the pension amount of an agent/employee is based upon
the difference between the amount of the said benefit as provided by the civil
service pension scheme and the amount of the benefit as provided by the pension
scheme for private sector employees.
old-age pension,
invalidity pension,
n surviving spouse/partner pension,
n surviving orphan pension,
n three-month additional pension.
n
As such this scheme is inherently a set benefit scheme which finances commitments
relating to the first ‘pillar’.
The financing method applied by the pension fund (as set up by the Bank) uses the
projected unit credit method with regard to the provision for benefits.
Per annum, the Bank’s pension expenses are the sum of the following amounts:
n
n
n
n
the cost of services rendered during the financial year,
the financial cost resulting from the application of the discount rate,
the expected return from assets,
all actuarial differences.
Actuarial differences are recognised systematically in equity. The Bank uses the
STATEC mortality tables adjusted by five years to take account of the longevity of
the beneficiaries.
3.7 PROVISIONS
A provision, according to IAS 37, is a liability where the maturity date or amount
is not precisely determined, but represents for the Bank a commitment towards a
third party, resulting from past practices, whereby it is more or less certain that it
will lead to an outflow of resources for the benefit of the third party, without at
least an equivalent contribution expected from the latter.
The Bank records a provision at the present value of the expenditures expected
to be required to settle the obligations. The risks and uncertainties that inevitably
surround many events and circumstances shall be taken into account in reaching the
best estimate of a provision.
By maintaining regulatory provisions accepted under Lux-Gaap but not under IFRS,
the Bank grants an exception to IAS 37. Regulatory provisions comprise:
53
n
The lump-sum provision: this is a provision temporarily exempt from tax and
being considered as a general provision covering potentially risky assets and offbalance-sheet items, which risks are not yet identified when the balance sheet is
drawn up.
n
The AGDL provision: this is a provision temporarily exempt from tax aiming at
fulfilling the Bank’s obligations resulting from its membership of AGDL. The
purpose of the Deposit Guarantee Association Luxembourg (AGDL) is to set up
a mutual guarantee system covering deposits in cash (deposit guarantee) and
claims resulting from investment transactions (investor compensation as defined
by the law and by its statutes in favour of costumers and investors with members
of the Association.
The system is composed of two parts: the deposit guarantee (cash deposits) and
the investor compensation scheme (notably securities). Every guarantee covers an
amount of maximum 20,000 E per person and per bank.
n
Special items with a reserve element: this refers to amounts liable for fiscal
immunity corresponding to capital gains resulting in particular from the
application of articles 53, 54 and 54b of the Income Tax Law (LIR). Pursuant to
these articles, capital gains resulting from the transfer, conversion or removal of
an asset can be fiscally immunised, provided a certain number of conditions are
met, when they are transferred to assets acquired or originated by the entity.
3.8 DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are recognised on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts. Deferred
tax assets and liabilities are calculated using the global method, which takes into
account all temporary differences regardless of the date on which the tax will
become payable or recoverable.
The tax regulation applied and the tax rate used to determine the deferred taxes
are those provided for by existing tax laws and which will be applied when the tax
becomes recoverable or payable.
Deferred tax assets are recognised to the extent that it is likely for the entity to
recover the asset within a given time frame. Deferred taxes are recognised in the
income statement as income or expense with the exception of deferred taxes on
unrealised gains or losses on available-for-sale financial assets and changes in
the value of derivative instruments designated as cash flow hedges, which are
recognised in equity.
54
Marc Reiff, Service Back-Office Produits Financiers
55
56
4. Notes to the balance sheet
(in euros)
4.1 CASH AND CASH BALANCES WITH CENTRAL BANKS
Cash flow comprises cash and cash balances with central banks. The compulsory reserve with the Central
Bank of Luxembourg is recognized under this heading. This is a minimum reserve intended to satisfy the
reserve requirement imposed by the Central Bank. As a result, these funds are not available for financing
the Bank’s ordinary transactions.
4.2 FINANCIAL INSTRUMENTS
4.2.1 Analysis by counterparty and by type
4.2.1.1 Assets and liabilities held for trading
Assets
31.12.2007
31.12.2008
Non-derivatives
Derivatives (note 4.7.)
Total
12,923,281
273,559,868
286,483,149
7,726,318
205,874,671
213,600,989
Liabilities
31.12.2007
31.12.2008
Non-derivatives
Derivatives (note 4.7.)
Total
Assets - Non-derivatives
146,403
269,528,779
269,675,182
5,266
329,143,126
329,148,392
31.12.2007
31.12.2008
Debt instruments
Public sector
Credit institutions
Corporate
Equity instruments
11,694,051
592,012
8,739,230
2,362,809
7,453,978
2,504,993
3,233,628
1,715,357
1,229,230
272,340
Total
12,923,281
7,726,318
Fair value adjustment
68,290
157,950
Liabilities - Non-derivatives
31.12.2007
31.12.2008
Short sales Bonds
Shares
90,157
56,246
673
4,593
Total
146,403
5,266
Categories
31.12.2007
31.12.2008
Debt instruments 15,071,949,811
Public sector
2,734,037,194
Credit institutions
9,850,394,691
Corporate
2,487,517,926
11,806,819,966
2,534,962,855
5,662,167,212
3,609,689,899
Equity instruments
Credit institutions
Corporate
Other
871,618,291
17,334,973
850,156,081
4,127,237
652,580,293
17,050,799
635,449,290
80,204
Total 15,943,568,102
455,567,370
Impairment of financial assets -13,064,670
12,459,400,259
4.2.1.2 Available-for-sale financial assets
110,721,552
-109,068,631
The breakdown of unrealised profit at year-end is as follows:
Debt instruments
Debt instruments consist of variable-rate bonds, fixed-rate bonds as well as structured bonds. Fixed-rate
and structured bonds may turn into variable-rate bonds by using derivatives (asset swaps). The Bank
equates these transactions to fair value hedges. The prospective and retrospective efficiencies of these
hedging transactions are close to 100%.
31.12.2008
Fair value adjustment of debt instruments
Value adjustment
of the swap leg
hedging the asset
Non-hedged value Hedged value
Hedging value
adjustment (“credit and adjustment (interest
adjustment
liquidity spread”)
rate and price)
Fixed-rate and
structured bonds -187,202,042
120,240,731
-120,229,949 Retrospective
efficiency rate
99.99%
Variable-rate bonds -235,550,177
57
31.12.2007
Fair value adjustment of debt instruments
Value adjustment
of the swap leg
hedging the asset
Non-hedged value Hedged value
Hedging value
adjustment (“credit and adjustment (interest
adjustment
liquidity spread”)
rate and price)
Fixed-rate and
structured bonds 2,964,352
-100,113,269
100,687,066
Retrospective
efficiency rate
100.57%
Variable-rate bonds -71,756,998
Table detailing the variation of the accounting value:
Debt instruments
2007
15,562,004,312
Acquisitions
3,903,974,471
Sales
-807,500,791
Reimbursments/redemptions -3,178,151,867
Income realised
81,628
Accrued interest
-988,119
Fair value adjustments
-189,149,585
Impairment
-11,351,882
Foreign exchange difference
-206,968,356
15,071,949,811
2008
15,071,949,811
1,240,876,327
-239,126,377
-4,134,567,291
-4,625,119
-25,087,650
-133,605,574
-91,377,625
122,383,464
11,806,819,966
Equity instruments
31.12.2008
Fair value adjustment of equity instruments
Equity instruments, of which: Impairment of financial assets
31.12.2007
Fair value adjustment of equity instruments
Equity instruments
58
413,233,040
-4,626,335
613,314,192
31.12.2007
31.12.2008
38,349,338
115,823,680
154,173,018
38,317,863
207,851,956
246,169,819
31.12.2007
31.12.2008
Debt instruments
Public sector
516,955,866
Credit institutions
931,848,684
Corporate
1,258,060
Total 1,450,062,610
493,594,058
737,477,362
106,195,150
1,337,266,570
Acquisition cost
Sub-total
4.4 HELD-TO-MATURITY INVESTMENTS
Categories
4.3 SHARES IN ASSOCIATES AND SUBSIDIARIES
The Bank has not recognised any impairment at year-end on held-to-maturity investments.
Table detailing the change in accounting value:
Held-to-maturity investment
2007
1,608,789,247
Acquisitions
329,279,920
Sales
-
Reimbursments/redemptions
-494,188,314
Income realised
-
Accrued interest
6,462,253
-
Impairment -
Foreign exchange difference
-280,496
1,450,062,610
2008
1,450,062,610
156,385,005
-269,048,743
-358,053
225,751
1,337,266,570
4.5 COLLATERALISED SECURITIES IN THE CONTEXT OF REPURCHASE agreements
Categories
Debt instruments issued by the public sector
Debt instruments issued - other
Equity instruments
Total
31.12.2007
31.12.2008
1,329,068,257
924,493,656
117,020,621
-
2,370,582,534
-
59
4.6 CONVERTIBLE BONDS INCLUDED IN THE DIFFERENT PORTFOLIOS
Categories
Convertible bonds
31.12.2008
324,018,579
91,907,907
Convertible bonds in which the Bank has invested form part of the portfolio of available-for-sale assets and
are hedged by swaps against the fluctuations of market interest rates.
4.7 DERIVATIVES
Assets
Liabilities
Notional
Categories
Balances as at 31.12.2008
Derivatives used for trading purposes
205,874,671
329,143,126 19,835,831,382
Transactions linked to exchange rates - Foreign exchange swaps and forward exchange
- Other
24,177,291
20,870,516
3,306,775
151,082,797
151,082,797
-
7,050,731,803
6,539,768,422
510,963,381
181,659,074
181,659,074
159,699,593
159,699,593
11,927,537,301
11,927,537,301
38,306
38,306
18,360,735
18,360,735
857,562,278
857,562,278
141,578,389
315,779,103
9,319,948,924
Transactions linked to exchange rates
- CCIS
77,249,485
77,249,485
-
-
732,320,013
732,320,013
Transactions linked to interest rates
- IRS (interest rate)
23,433,562
23,433,562
235,273,056
235,273,056
5,435,967,595
5,435,967,595
Transactions linked to other indices
- IRS (other indices)
40,895,342
40,895,342
80,506,048
80,506,048
3,151,661,316
3,151,661,316
224,469
367,925
80,000,000
224,469
224,469
367,925
367,925
80,000,000
80,000,000
- IRS
Transactions linked to credit risk
- Credit derivatives (CDS)
Fair value hedge Cash flow hedge
- IRS
60
31.12.2007
Assets Categories
Derivatives used for trading purposes
Liabilities Notional
Balances as at 31.12.2008
273,559,868
269,528,779
40,186,230,832
5,394,526
5,393,558
968
23,721,043
22,819,629
901,414
10,840,382,561
10,185,284,384
655,098,177
268,165,342
268,165,342
243,237,002
243,237,002
27,968,633,102
27,968,633,102
-
-
2,570,734
2,570,734
1,377,215,169
1,377,215,169
190,962,349
232,012,863
15,252,134,416
5,135,505
5,135,505
-
-
910,362,115
910,362,115
- IRS (interest rate)
185,767,961
185,767,961
232,012,863
232,012,863
10,299,044,884
10,299,044,884
Transactions linked to other indices
- IRS (other indices)
58,883
58,883
-
-
4,042,727,417
4,042,727,417
Cash flow hedge
-
5,583,680
80,000,000
- IRS
-
-
5,583,680
5,583,680
80,000,000
80,000,000
Transactions linked to exchange rates - Foreign exchange swaps and forward exchange
- other
- IRS
Transactions linked to credit risk
- Credit derivatives (CDS)
Fair value hedge Transactions linked to exchange rates
- CCIS
61
4.8 LOANS AND ADVANCES AT AMORTISED COST - CREDIT INSTITUTIONS
Categories
Interbank loans
Reverse repurchase agreements
Roll-over credit
Financial lease
Sub-total
Loan commitments
31.12.2007
31.12.2008
4,858,503,542 2,056,596,751
4,759,588,862 7,781,453,670
341,943,473
274,216,284
298,659
345,580
9,960,334,536 10,112,612,285
98,208,578
88,433,473
Impairment of financial assets
-
-10,500,000
In the event of reverse repurchase transactions, the Bank becomes the legal owner of the securities
received as a collateral and has the right to sell or collateralise these securities. As of 31/12/2008, no security
had been sold or collateralised.
4.9 LOANS AND ADVANCES MEASURED AT AMORTISED COST - CUSTOMERS
Categories
31.12.2007
31.12.2008
Retail customers
4,792,147,563 6,526,747,664
Corporate customers
3,003,253,043 3,771,324,211
Public sector
2,523,848,519 1,843,484,746
Sub-total 10,319,249,125 12,141,556,621
Loan commitments
3,567,617,457 3,814,282,691
Impairment of financial assets
-29,782,138
-60,870,028
Public sector
Total
Impairment of loans and advances
Retail customers
Situation as at 1 January 2008
Write-down
Reversal
Write-off
Situation as at 31 December 2008
Impairment of assets - individual
assessment
Impairment of assets - collective
assessment
Total
Corporate 13,267,566
8,653,350
-7,024,027
-729,231
14,167,658
16,514,572
46,052,120
-15,864,322
-
46,702,370
-
-
-
-
-
29,782,138
54,705,470
-22,888,349
-729,231
60,870,028
10,520,758
46,702,370
-
57,223,128
3,646,900
14,167,658
-
46,702,370
-
-
3,646,900
60,870,028
Outstanding amounts for loans that generated impairment: 332,766,111 euros against 491,169,939 euros
a year earlier. Value adjustments cover the principal amount and interest.
62
Increase
Decrease
Land and Other equipment buildings
and furnishings
TOTAL
241,772,070
3,532,841
-287,787
245,017,124
68,927,123
11,724,273
-10,615,175
70,036,221
310,699,193
15,257,114
-10,902,962
315,053,345
86,124,480
-73,594
5,289,521
91,340,407
43,665,758
-10,615,175
11,165,975
44,216,558
129,790,238
-10,688,769
16,455,496
135,556,965
155,647,590
153,676,717
25,261,365
25,819,663
180,908,955
179,496,380
Accumulated depreciation
Reversal
Allowance
4.10 TANGIBLE ASSETS – PROPERTY, PLANT AND EQUIPMENT
Net book value
Increase
Decrease
Land and Other equipment buildings
and furnishings
TOTAL
245,575,951
774,087
-4,577,968
241,772,070
67,906,318
8,466,465
-7,445,660
68,927,123
313,482,269
9,240,552
-12,023,628
310,699,193
83,885,472
-4,255,447
6,494,455
86,124,480
40,770,038
-7,425,781
10,321,501
43,665,758
124,655,510
-11,681,228
16,815,956
129,790,238
161,690,479
155,647,590
27,136,280
25,261,365
188,826,759
180,908,955
Reversal
Allowance
Net book value
63
4.11 INTANGIBLE ASSETS
Increase Decrease Situation as at 31 December 2008
23,663,146
8,276,063
-8,171,970
23,767,239
Reversal
Allowance
14,460,260
-8,171,970
7,843,189
14,131,479
Net book value
9,202,886
9,635,760
Increase Decrease Situation as at 31 December 2007
25,166,377
7,869,505
-9,372,736
23,663,146
Reversal
Allowance
16,024,158
-9,372,736
7,808,838
14,460,260
Net book value
9,142,219
9,202,886
Allowance to depreciation of intangible assets are recognised in the income statement under “Depreciation
of tangible and intangible assets“.
64
Increase (acquisitions)
Increase (investment expenditure)
Decrease
26,197,746
67,496
247,020
-308,918
26,203,344
Reversal
Allowance
9,954,001
-99,208
496,531
10,351,324
4.12 TANGIBLE ASSETS - INVESTMENT PROPERTY
Net book value
16,243,745
15,852,020
Increase (acquisitions)
Increase (investment expenditure)
Decrease Situation as at 31 December 2007
26,187,988
9,758
26,197,746
Reversal
Allowance
9,458,304
495,697
9,954,001
Net book value
16,729,684
16,243,745
The rental income from rented out investment property amounts to 2,241,806 euros for the 2008 financial
year, against 2,292,476 euros a year earlier. Maintenance costs for the 2008 financial year in relation to
investment property amount to 452,905 euros.
The fair value of investment property amounts to 46,668,512 euros as at 31 December 2008. This amount
was determined by chartered surveyors.
65
4.13 OTHER ASSETS
Categories
31.12.2007
Miscellaneous debtors (1)
63,593,620
Other short-term receivables (2)
50,237,398
Other
2,661,014
Total
116,492,032
31.12.2008
43,702,351
29,270,722
1,017,550
73,990,623
(1) Mainly transactions on securities and coupons.
(2) Mainly transactions on credit cards and cheques.
4.14 TAX: TAX ASSETS AND LIABILITIES
Whereas current tax constitute a tax liability, deferred tax are the amounts of income taxes payable in
future periods in respect of taxable temporary differences (liabilities) or the amounts of income taxes
recoverable in future periods in respect of deductible temporary differences (assets). In the absence of a
new fiscal law incorporating IFRS standards, the Bank, in agreement with the tax authorities, calculates
tax liability on the basis of the change in net assets of the balance sheet items valued through the income
statement. However the valuation results of the derivatives negociated in an over-the-counter market and
fair value hedging transactions are excluded from the fiscal base because of their improbable realisation.
These valuations give rise to deferred tax within the income statement.
Generally speaking, we differentiate between “deferred tax assets“ and “deferred tax liabilities“.
4.14.1 Tax assets
Categories 31.12.2007
Current tax assets
1,258,366
Deferred tax assets
132,000,655
Tax assets 133,259,021
31.12.2008
1,258,366
257,903,589
259,161,955
Breakdown of deferred tax assets according to origin:
Derivatives - application of fair value
59,112,487
Debt instruments - application of fair value
36,996,523
Capital instruments - application of fair value
-
Other - financial instruments
10,953,832
Pension funds - actuarial difference
24,937,813
Deferred tax assets
132,000,655
66
31.12.2008
93,156,241
120,991,714
14,809,600
8,155,707
20,790,327
257,903,589
Liable tax 14,372,238
Income tax
14,117,788
Commercial tax
254,450
140,242,426
Tax liabilities 154,614,664
31.12.2008
21,929,396
20,499,645
1,429,751
142,818,390
164,747,786
Breakdown of deferred tax assets according to origin:
Categories Derivatives - application of fair value
Debt instruments - application of fair value
Capital instruments - application of fair value
Other - financial instruments
Pension fund - actuarial difference
Deferred tax liabilities 31.12.2007
31.12.2008
62,223,517
37,333,457
27,269,156
697,280
12,719,016
140,242,426
35,017,923
63,582,416
15,042,397
16,903,069
12,272,585
142,818,390
4.14.2 Tax liabilities
The table below gives a breakdown of the changes to deferred tax assets and liabilities, depending on
whether the charges relate to items that are charged or credited to equity, or relate to items that are
charged or credited to the profit or loss.
Deferred tax assets/ liabilities
Deferred tax assets
Net deferred tax
assets / liabilities 31.12.2007
Equity movements Income movements
31.12.2008
132,000,655
-140,242,426
126,768,141
-3,026,967
-865,207
451,003
257,903,589
-142,818,390
-8,241,771
123,741,174
-414,204
115,085,199
67
4.15 DEBT CERTIFICATES
Cash certificates
386,887,532
Commercial paper
3,538,726,151
Medium Term Notes and other securities issued
3,934,262,887
Total 7,859,876,570
Of which: subordinated securities (notional)
446,430,315
31.12.2008
349,411,585
2,684,879,315
2,636,821,096
5,671,111,996
334,757,896
During the 2008 financial year, the Bank repurchased own securities issued for a value of 183,703,384 euros
(905,470,673 euros during the 2007 financial year).
Breakdown as at 31 December 2008 of subordinated notes
Description
Rate Currency
Balance upon Assimilated Non-assimilated
issuance
part
part
Note 1999-2009
Note 1999-2014
Note 2000-2012
Note 2000-2015
Note 2000-2020
Note 2001-2016
Note 2001-2021
Note 2001-2021
Note 2002-2012
Note 2002-2012
Note 2002-2022
Note 2003-2013
5.030
5.030
6.720
4.625
4.615
2.700
5.511
5.511
2.600
5.585
4.662
0.883
EUR
EUR
GBP
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
JPY
80,000,000
20,000,000
10,341,262
25,000,000
25,000,000
25,000,000
20,000,000
30,000,000
4,500,000
5,500,000
50,000,000
39,416,634
16,000,000
20,000,000
8,273,009
25,000,000
25,000,000
25,000,000
20,000,000
30,000,000
3,600,000
4,400,000
50,000,000
39,416,634
64,000,000
2,068,253
900,000
1,100,000
-
Total
334,757,896
266,689,643
68,068,253
The interest charge on subordinated securities issued amounts to 18,965,763 euros as at 31 December 2008,
against 24,571,911 euros as at 31 December 2007.
68
Interbank deposits
6,126,976,986
Repurchase agreements
2,370,582,534
Total 8,497,559,520
31.12.2008
3,805,523,752
3,805,523,752
4.17 DEPOSITS MEASURED AT AMORTISED COST - CUSTOMERS
Categories
31.12.2007
Private customers 15,799,567,245
Repayable on demand
Time-deposit account Savings
31.12.2008
19,806,242,626
2,596,962,947
9,284,073,629
3,904,839,751
13,690,918
3,625,008,253
12,099,395,419
4,081,838,954
-
Public sector
3,814,175,763
Total 19,613,743,008
4,513,983,494
24,320,226,120
4.16 DEPOSITS MEASURED AT AMORTISED COST - CREDIT INSTITUTIONS
4.18 PENSION FUND - DEFINED BENEFIT PENSION PLAN
Main estimations used in determining pension commitments:
Variables
Discount rate for staff at work
Discount rate for retired staff
Salary growth (indexation included)
Pension growth (indexation included)
31.12.2007
31.12.2008
5.25%
5.00%
3.50%
2.50%
5.40%
5.00%
3.50%
2.50%
Net transfer to the pension fund (recognised as income under “Staff expenses“):
Components
Current service cost
Interest cost Staff contribution
Total 31.12.2007
31.12.2008
4,580,237
12,340,265
-9,037,521
7,882,981
3,488,182
12,054,951
-9,403,025
6,140,108
69
Pension fund under Balance sheet liabilities:
Commitments as at 1 January
Current service cost
Interest cost
Paid benefits Actuarial gains and losses
Commitments as at 31 December
2007
2008
267,141,220
4,580,238
12,340,264
-8,666,460
-39,396,127
235,999,135
235,999,135
3,488,182
12,054,951
-8,767,867
1,938,605
244,713,006
The financial assets which the Bank invests in are not eligible, within the meaning of IAS 19, for a compensation with the pension fund commitments.
4.19 PROVISIONS
Movements of the financial year:
Allowance
Reversal
Use of provisions
2007
2008
382,673,421
31,524,406
-104,762
-
414,093,065
414,093,065
21,164,378
-60,205,612
-28,455,216
346,596,615
The “Provisions“ items record among other things the regulatory provisions accepted under the “Lux-Gaap“
standards. Among the regulatory provisions, we first recognise the AGDL provision whose stock amounts
to 174,447,649 euros (182,880,903 euros as at 31/12/2007). The sole objective of AGDL is to establish a
mutual guarantee system in order to compensate depositors of banks operating under Luxembourg law
in the event of a default. The Bank continued to provide AGDL with an allowance of 19,643,479 euros for
the 2008 financial year (18,489,959 euros in 2007) after having contributed in 2008 to compensation up to
28,076,733 euros in favour of depositors of 3 Icelandic banks.
Another regulatory provision is the lump-sum provision, which aims to build up, over time and in an
anticyclic way, reserves in order to hedge unexpected losses. For the 2008 financial year, the Bank carried
out a release of the provision amounting to 59,701,707 euros for compensating impairment related to the
financial crisis recognised on loans, whereas in 2007 it provided 11,872,510 euros.
Next to the fixed amounts and AGDL provision, at the end of the 2008 financial year, the Bank recognised
31,732,029 euros against 30,715,035 euros a year earlier, with respect to the special items with a reserve
element, under articles 53, 54 and 54b of the income tax law (LIR).
70
Categories
Amounts payable in the short term (1)
Preferential or secured creditors
Total
31.12.2007
31.12.2008
134,149,034
34,477,968
168,627,002
270,525,728
39,526,590
310,052,318
(1) Amounts payable in the short term are mainly amounts to be paid by the Bank acting as service provider
with regard to cheques, coupons, securities, bank transfers, …
4.21 TRANSACTIONS WITH ASSOCIATED PARTIES
The associated parties of Banque et Caisse d’Epargne de l’Etat, Luxembourg, are the consolidated
companies, Associates and senior managers of the Bank.
4.21.1 Relations between the Group’s consolidated companies
Deposits of subsidiaries with the Bank
Interest on deposits 31.12.2007
31.12.2008
46,653,462
1,229,186
46,536,541
1,965,913
4.20 OTHER LIABILITIES
No impairment has been recognised on loans granted to associated parties.
4.21.2 Remuneration of the Bank’s management and supervisory bodies
Breakdown of the fees paid to the members of the Board of Directors and the Executive Committee:
Board of Directors (9 members)
Executive Committee (5 members)
Total
31.12.2007
31.12.2008
117,300
804,849
922,149
122,450
821,998
944,448
4.21.3 Loans and advances to members of the Bank’s Board and Committee
Breakdown of the loans and advances to members of the Board of Directors and the Executive Committee:
Board of Directors (9 members)
Executive Committee (5 members)
Total
31.12.2007
31.12.2008
1,117,655
726,457
1,844,112
912,662
679,597
1,592,259
71
4.22 INDEPENDENT AUDITOR’S FEES
Audit
Other audit services
Fiscal services
Other
Total
2007
2008
500,250
57,845
-
33,810
591,905
470,000
38,550
30,000
163,745
702,295
4.23 EQUITY
Table showing the change in equity as at 31 December 2008
Capital
Reserves Revaluation Net income reserve
As at 1 January 2008
72
Total equity
173,525,467 1,283,281,020 653,395,439 145,495,063 2,255,696,989
Appropriation of
profit for 2007 -
145,495,063
-
-145,495,063
-
Net income from
2008 financial year
-
-
-
146,913,090
146,913,090
Distribution of
profit for 2007
financial year
-
-35,000,000
-
-
-35,000,000
Actuarial gains and losses
on pension fund
-
-1,813,231
-
-
-1,813,231
Value adjustments
on available-for-sale
investments
-
-
-332,155,046
-
-332,155,046
Value adjustments
on cash flow hedges
-
-
3,831,473
-
3,831,473
As at 31 December 2008 173,525,467
1,391,962,852
325,071,866
146,913,090
2,037,473,275
As at 1 January 2007
173,525,467 1,175,884,997 583,876,219 109,672,969 2,042,959,652
Appropriation of
profit for 2006
-
109,672,969
Net income from
2007 financial year
-
-
-
145,495,063
145,495,063
Distribution of
profit for 2006
financial year
-
-30,000,000
-
-
-30,000,000
Actuarial gains and losses
on pension fund
-
27,723,054
-
-
27,723,054
Value adjustments
on available-for-sale
investments
-
-
70,857,207
-
70,857,207
Value adjustments
on cash flow hedges
-
-
-1,337,987
-
-1,337,987
- -109,672,969
-
Capital
Reserves Revaluation Net income Total equity
reserve
As at 31 December 2007 173,525,467 1,283,281,020 653,395,439 145,495,063 2,255,696,989
The Bank allocated profit amounting to EUR 35,000,000 to the State in respect of the 2008 financial year
(2007: EUR 35,000,000).
The capital amount has been transferred from existing reserves on the day the law dated 24 March 1989
concerning “Banque et Caisse d’Epargne de l’Etat, Luxembourg” came into force.
73
4.24 OFF BALANCE SHEET ITEMS
Type of guarantees issued
31.12.2007
31.12.2008
207,631,718
106,521,088
267,963,708
24,533,631
76,101,968
682,752,113
229,460,612
104,476,583
272,424,069
26,958,621
78,143,624
711,463,509
31.12.2007
31.12.2008
Amounts subscribed and unpaid on securities,
participating interests and shares in
affiliated undertakings 8,003,706
Loan commitments 3,665,826,035
Other
8,649,951
Total 3,682,479,692
6,599,507
3,902,716,164
7,247,274
3,916,562,945
Completion guarantees
Credit letters
Counter-guarantees
Documentary credits
Other
Total Commitments
Management of third-party assets
The Bank provides management and representation services to third parties, particularly wealth
management, the custody and administration of securities, the hire of safe deposit boxes, fiduciary
representation and agent functions.
74
Viviane Klos, Service Immeubles & Support Logistique
75
5. Notes to the income statement
5.1 INTEREST INCOME
Interest received and similar income
Assets repayable on demand
Available-for-sale financial assets
Loans and advances - Debt instruments
Loans and advances - Loans and advances Held-to-maturity investments valued at amortised cost
Derivatives used for hedging purposes, interest rate risk Other assets
Total
Interest paid and similar expense
Liabilities measured at amortised cost - Deposits
Liabilities measured at amortised cost - Debt certificates
Liabilities measured at amortised cost - Subordinated debts
Derivatives used for hedging purposes, interest rate risk
Other liabilities
Total
Interest income
Total of interest received and similar income on financial
instruments not recognised at fair value through profit or loss
Total of paid interest and similar expense on financial
instruments not recognised at fair value through profit or loss 5.2 DIVIDEND INCOME
Associates
Subsidiaries
Dividend income
76
2007
2008
17,557,400
98,420,065
697,684,164
295,981,209
645,971,918
57,185,827
1,981,272,451
735,377
3,794,808,411
17,579,400
69,417,911
643,076,722
138,551,454
776,157,668
48,802,020
2,015,964,910
1,027,357
3,710,577,442
2007
2008
-96,408,394
-1,031,268,972
-330,454,499
-25,778,359
-1,990,827,008
-2,045,323
-3,476,782,555
-107,534,826
-953,039,190
-160,376,773
-18,789,521
-2,064,925,582
-1,958,414
-3,306,624,306
318,025,856
403,953,136
3,696,388,346
3,641,159,531
-3,380,374,161
-3,199,089,480
2007
2008
157,907
17,144,430
8,342,286
11,364,167
37,008,790
45,412
25,100,471
9,788,061
18,806,841
53,740,785
Categories
Lending activities
Asset management
Undertakings for collective investment activities
Other
Fees and commissions received and paid 2007
2008
20,449,619
24,114,622
9,258,720
19,777,973
73,600,934
22,724,732
18,510,348
8,266,443
20,352,414
69,853,937
5.4 INCOME FROM FINANCIAL INSTRUMENTS NOT RECOGNISED AT FAIR VALUE THROUGH PROFIT OR LOSS
Categories
2007
2008
29,682,020
100,998
-
-4
29,783,014
-3,324,503
185,897
6,959
-57,908
-3,189,555
2007
2008
1,457,313
-579,392
3,118,271
-3,790,345
411,704
617,551
509,780
1,591,670
7,082,670
-20,669,551
499,347
-10,986,084
2007
2008
Fair-value hedge
Debt instruments (as assets) hedged by derivatives
2,779,949
Issued liabilities hedged by derivatives
-1,322,256
Loans hedged by derivatives
-2,711,707
Deposits hedged by derivatives
818,305
Total
-435,709
Value adjustment on hedged instruments
-164,682,076
Value adjustment on hedging instruments
164,246,367
Total
-435,709
6,997,724
-2,754,785
3,875,095
-572,139
7,545,895
222,955,024,
-215,409,129
7,545,895
Loans and advances measured at amortised cost
Held-to-maturity investments
Financial liabilities measured at amortised cost Total
5.3 FEES AND COMMISSIONS
5.5 TRADING INCOME
Categories
Capital instruments and associated derivatives
Currency exchange instruments and associated derivatives Interest rate instruments and associated derivatives
Credit derivatives Commodities and associated derivatives
Total
5.6 NET INCOME FROM HEDGE ACCOUNTING
Hedging transactions are highly effective.
77
5.7 OTHER NET OPERATING INCOME
2007
2008
8,177,020
-3,026,318
5,150,702
6,887,874
-2,437,166
4,450,708
2007
2008
127,062,490
6,433,111
18,590,707
7,882,981
3,043,615
163,012,904
131,142,744
6,534,996
19,275,658
6,140,108
3,215,902
166,309,408
2007
2008
14,976,769
12,995,671
18,029,175
13,906,101
59,907,716
16,194,022
12,633,582
18,326,855
14,040,681
61,195,141
2007
2008
6,494,455
10,321,501
16,815,956
5,289,521
11,165,975
16,455,496
Other operating expense
Other net operating income
“Other operating income and expense” include mainly:
- the rent for rented out property and various advances from tenants,
- VAT repayments relating to previous financial years,
- incoming funds on amortised receivables.
5.8 STAFF EXPENSES
Categories
Wages Social security costs
Pensions and similar expense
Transfer to the pension fund
Other staff expenses Total
5.9 OTHER GENERAL OVERHEADS
Categories
Expenses linked to property and furnishing
Rents and maintenance of software
Operating costs linked to the banking business
Other
Total
5.10 VALUE ADJUSTMENTS ON TANGIBLE ASSETS
Depreciation
Categories
Depreciation - buildings
Depreciation - equipment and furnishing Depreciation of tangible assets
78
In 2007 and 2008, the Bank did not recognise any impairment on tangible assets under IAS 36.
5.11 VALUE ADJUSTMENTS ON INTANGIBLE ASSETS
Depreciation
Categories
Depreciation - buildings Depreciation of intangible assets 2007
2008
7,808,838
7,808,838
7,843,189
7,843,189
Impairment
Impairment
The Bank did not recognise any impairment on intangible assets under IAS 36.
5.12 VALUE ADJUSTMENTS ON INVESTMENT PROPERTY
Depreciation
Categories
Depreciation
Depreciation of tangible assets investment
2007
2008
495,697
495,697
496,531
496,531
Impairment
The Bank did not recognise any impairment on investment property under IAS 36.
79
5.13 Impairment of financial assets - individual and collective assessments
Collective impairment
2007
Collective Allowance Reversal Total
Allowance
impairment
Loans and advances
-555,227
-555,227
86,826
86,826
Individual impairment
-468,401
-468,401
-156,876
-156,876
Reversal 2008
Total
618,914
618,914
462,038
462,038
2007
2008
Individual Allowance
Reversal Total
Allowance
impairment
Available-for-sale
financial assets
-12,071,207
1,271,718 -10,799,489
Loans and advances -18,112,800 15,631,824
-2,480,976
-30,184,007 16,903,542 -13,280,465
Reversal Total
-121,113,076 17,047,252 -104,065,824
-62,508,408 19,306,447 -43,201,961
-183,621,484 36,353,699 -147,267,785
Allowance for lump-sum provision
2007
2008
Allowance -11,872,510
Reversal
-
Net allowance -11,872,510
59,701,707
59,701,707
5.14 PROVISIONS
80
2007
2008
Allowance for AGDL provision -18,489,959
Allowance for special items with a reserve element -1,103,992
Net allowance -19,593,951
-19,643,479
-1,016,994
-20,660,473
2007
2008
Tax on income from continuing operations 19,289,270
Deferred tax 8,879,667
Tax on profit for the financial year28,168,937
24,998,074
414,204
25,412,278
The standard tax rate applicable in Luxembourg as at 31 December 2007 and 31 December 2008 was
29.63%.The Bank’s effective tax rate was 19.36% or 17.30% respectively, given the discrepancy between
the Luxembourg tax base and the accounting principles for financial statements currently in force in
Luxembourg.
The difference between these two rates can be analysed as follows:
2007
2008
Net income before tax173,664,001
Tax rate
29.63%
Theoretical tax at standard rate 51,456,644
Fiscal impact of non-deductible expenses 3,221,399
Fiscal impact of non-taxable income -21,877,284
Tax rebate and relief -3,203,550
Other -1,428,272
Tax on profit for the financial year28,168,937
172,325,369
29.63%
51,060,007
133,161
-20,545,142
-3,471,597
-1,764,151
25,412,278
5.15 TAX EXPENSE
81
6. Management of financial risks
6.1 GENERAL RULES FOR MANAGEMENT OF FINANCIAL RISKS
Traditionally, BCEE has adopted a prudent and conservative policy in respect of
risk management. During recent years, the Bank has increased its efforts to further
harmonise control procedures and to move towards maximum transparency in
management methods.
6.1.1 Organisation of Risk Management
Banks face risks of different types, be they financial (such as credit or market risk),
or operational.
Within the Bank, the Executive Committee has the ultimate responsability with
regard to the analysis and the management of the Bank’s exposures. From an
organisational point of view, risk management and risk control are delegated to the
Risk Analysis department (Risk Management).
6.1.2 Executive Committee
The Bank’s Management, through the Executive Committee, sets the objectives for
the commercial entities’ business, the type of transactions to be carried out and their
limitations, as well as the rules for organisation and internal control.
6.1.3 Risk Management
The Risk Management department (Risk Analysis), which forms a separate unit from
any commercial activity within the Bank, is responsible for:
n
n
n
setting up a coherent framework for analysing financial risks, the analysis itself
and the permanent monitoring of these risks,
the approval or rejection of requests from the commercial entities, and the
submission of cases to the Executive Committee for transactions where the
volume is beyond a threshold set by the Executive Committee,
monitoring limits (credit, market, trading) within which the commercial entities
should operate.
The department consists of two units:
n
82
Analysis and Risk Monitoring: the Analysis and Risk Monitoring (“Analyse et Suivi
Risque or ASR”) unit is responsible for analysing and monitoring credit risk, as well
at the level of individual exposures or at the level of the Bank’s various portfolios.
Risk Control: the Risk Control unit is responsible for supervising activities that
take place in the dealing room. This includes the administration and setting of
systems used by the dealing room, as well as the modelling, risk valuation and
monitoring of limits imposed on the dealing room’s activities, as well as internal
reporting of profits realised by the dealing room. The Risk Control unit reports
directly to the Executive Committee.
6.1.4 Compliance
Compliance risk - also called non-conformity risk - generally refers to the risk of
loss stemming from the fact that activities are not carried out in accordance with
standards currently in force.
n
Compliance risk falls within the remit of the Compliance department, which ensures
in particular:
adherence to money-laundering obligations, using a tool aimed at detecting
suspicious transactions,
n generally speaking, adherence to the regulatory environment at Bank level (with
certain elements being delegated to the Internal Audit department),
n the monitoring of customer claims.
n
6.1.5 Internal Audit
The Risk Management function is subject to regular and recurrent missions by
the Internal Audit department. During these missions, Internal Audit checks the
suitability and application of procedures by the Risk Management.
6.1.6 Systems used for measuring and checking limits
a. Market risk
Market risk refers to the risk of loss of economic value for instruments held by the
Bank caused by unfavourable developments in market parameters.
Within the framework of market risk valuation and monitoring, the Bank applies a
set of methods including:
n
Permanent calculation of the “Basis Point Value” (BPV) indicator for positions
subject to rate risk held at dealing room level. BPV is a simple and efficient
method which makes it possible to quantify market risk originating from small
rate fluctuations for the positions held. The traders are required to operate
permanently within BPV limits decided on by the Management. Adherence to
these limits is monitored by Risk Control.
83
n
Value-at-risk (VaR), both for the trading book and the banking book, in order
to measure amounts at risk with respect to the positions held by the Bank. Risk
amounts are subject to limits decided on by the Management and supervised
by Risk Control. VaR represents a progress with regard to less sophisticated
indicators such as BPV, because it allows to:
- integrate the correlations as the risk factors change between the positions held,
- express the potential loss by a single amount, that can be related to the Bank’s equity,
- quantify the probability of this loss occurring again,
- stress-tests on positions held in order to value the impact of unexpected market movements, this impact not being correctly captured by VaR.
b. Credit risk
A permanent monitoring of the quality of all debtors is set up within Risk
Management. This supervision is based on the monitoring of internal ratings of
each counterparty and on a behavioural analysis of commitments. Risk Management
constantly informs the Bank’s Management about changes in the quality of debtors.
Besides, Risk Management performs a quarterly check of the changes in credit
quality with regard to all the Bank’s portfolios, the results of these studies being
made available directly to Senior Mangement.
The positions held at dealing room level are subject to permanent and real-time
monitoring for adherence to the credit limits granted by the Management.
On top of the limits at counterparty level, the Bank has set up a system of sectional
and geographical limits in order to monitor the risk of concentration.
c. Counterparty risk stemming from transactions on derivatives
The Bank has negotiated ISDA framework agreements including CSA appendices in
order to limit the counterparty risk resulting from transactions on derivatives where
these transactions show a positive market to market valuation. By the end of 2008,
approximately 91% of the volume of transactions on derivatives took place within
the framework of these agreements.
d. Liquidity risk
Liquidity risk results from the mismatch of incoming and outgoing financial flows at
a given date. The risk for a financial institution is that of no longer being able, at
any given time, to honour its payments due to the lack of liquid assets in relation
to liabilities that have become payable. Because of its financial structure, the Bank
usually finds itself in a situation of liquidity surplus.
84
In the event of an urgent and important need for liquidities, the Bank may use
an intraday and overnight credit line with the Central Bank of Luxembourg (BCL)
against pledges of public securities or other fixed income securities. To that effect,
the Bank keeps at all times a portfolio of at least 4,000 million euros in fixed income
securities which could act as a guarantee for the BCL.
The Bank carries out a permanent monitoring of liquidity risks with regard to
maturity dates. The Trading department is in charge of short-term liquidity
management. Furthermore, the Bank has stable and diversified liabilities, notably
in the form of a very strong and constantly growing customer deposit base with
ECP, USCP and EMTN refinancing programmes which provide the Bank with a
comfortable situation in terms of liquidity. Moreover, the portfolio of quality fixed
income securities (average rating of AA-) allows the Bank to participate, if needed,
in the Europeen Central Bank’s Open Market Operations as well as to raise money
with bilateral and triparty repo counterparties. Finally, the extension of quality
criteria for the collateral accepted by the European Central Bank has extended our
refinancing possibilities with the latter.
Par. II.1. of CSSF Circular 07/301 – “Identification of risks” explicitly mentions the
securitisation risk that a credit institution sponsors or initiates. Securitisation can be
seen as a technique of liquidity management since it enables assets to be removed
and thus allows a bank to raise funds.
As the Bank has not initiated or sponsored such an operation and as the Bank is not
likely to participate in such an enterprise in future, this risk is not an issue for the
Bank.
6.2 EXPOSURE TO CREDIT RISKS
6.2.1 Objectives and management of credit risk
Each commitment of the Bank giving rise to a credit risk is subject to prior analysis
by the ASR department (Risk Analysis and Monitoring).
With regard to credits granted to the national economy, the outstanding amounts of
which are recognised in the balance sheet under “Loans and advances at amortised
cost - Customers”, the decision-making structure is organised into a hierarchy
with different credit committees according to the customer’s overall outstanding
amount. Starting from a defined threshold, cases must be ratified by the Bank’s
Executive Committee. The portfolio’s structure is made up of residential mortgage
loans for over half of the outstanding amount. Credit risk relating to residential
mortgage loans is assessed by the process of evaluating customers’ ability to pay
and by the existence of real guarantees. As far as the sector of loans and advances
to companies is concerned, the Bank applies rigorous procedures for analysing cases
and for taking sufficient guarantees. Particular attention is paid to the adherence to
limits per sector and per counterparty. The Basel II methodology allows the Bank to
continuously monitor aggregate portfolios in respect of risk trends.
85
In the area of interbank markets and international credits, the outstanding
amounts of which are recognised in the balance sheet under “Loans and advances
at amortised cost - Credit institutions”, “Loans and advances at amortised cost Customers” and “Available-for-sale financial assets - Fixed income securities”, where
a large majority of counterparties are made up of banking and financial institutions,
a set of quantitative and qualitative analyses is used to allocate an internal rating
to a bank counterparty. The quantitative element is based on the ratios that best
describe the counterparty’s profitability, capital strength, liquidity and the quality
of its assets, while the qualitative element is input by the analyst, taking account
of non-financial aspects such as market share, management quality and external
rating.
With regard to international credits to non-financial entities, the outstanding
amounts of which are recognised in the balance sheet under “Loans and advances at
amortised cost - Customers” and “Available-for-sale financial assets - Fixed income
securities”, priority is given to commitments classified at least as Investment Grade
in OECD countries. These counterparties, like all the other Bank’s counterparties, are
granted an internal rating, based on rules similar to those applied to banking and
financial institutions.
Outstanding credit amounts are subject to counterparty risk monitoring and to
regular checks on the basis of current financial analyses and proposals for adjusting
the limits per counterparty. The Bank also applies a system of country limits for
countries with a rating under AA. The dealing room is required to adhere, for each
balance sheet and off-balance sheet instrument, both to the counterparties’ credit
limit and to the settlement limits (settlement limit and daily settlement limit). These
limits are subject to periodical review.
Investments in derivatives are largely regulated using ISDA (International Swaps
and Derivatives Association Inc.) type contracts which include compensation clauses
in the event of bankruptcy of one of the parties. The Bank has secured a means of
additional risk reduction by negotiating the CSA (Credit Support Annex) appendix to
the ISDA contracts with the most important counterparties in the area of off-balance
sheet transactions.
This appendix stipulates, on the basis of a periodical revaluation of bilateral
positions, that guarantees in the form of cash or top-rated securities must be
deposited whenever the net value of outstanding contracts exceeds a certain
threshold. By the end of 2008, approximately 91% of the volume of transactions on
derivatives took place within the framework of an ISDA-CSA contract.
86
Concentration risk is the risk resulting from an excessive exposure with regard to
one single debtor, a group of debtors, an economic sector or a country. In order
to avoid this risk, the BCEE has put in place a set of procedures ensuring efficient
management of the limits allocated. It is equally possible to consider concentration
risk not only from the commitments point of view, but also from that of the Bank’s
resources, in which case this risk could be seen in the context of liquidity risk for
instance.
On top of the counterparties limits, the Bank has set up a system of limits per sector
and per country in order to contain concentration risks at an acceptable level.
For this reason the Bank has invested in risk management tools adapted to the
different risk profiles and financing types.
6.2.2 Credit and concentration risk
Generally speaking the commitments are for the most part concentrated on
high ratings (AAA, AA and A) so as to limit risk exposure and volatility. The Bank
systematically avoids riskier segments of the market.
6.2.3 Risk mitigation
The extent of the activities to which BCEE allocates its equity is defined by its internal
organisation, and by its method of internal reporting (Management Information
System) upon which its internal accounting reporting is based.
The Bank uses the classical techniques for reducing credit risk which are:
Real guarantees (collaterals)
Breakdown by type of collateral
2007
2008
Mortgages
5,979,756,131
4,750,050,000
Pledge for cash deposits
or securities deposits
425,260,522
6,014,126,703
7,725,871,886
86,748,475
Personal guarantees
Personal guarantees amounted to 4,300,232,790 euros at the end of 2008 against
4,221,944,986 euros a year earlier.
87
6.2.4 Analysis of credit risk on financial assets
The Bank defines the exposure to the credit risk of financial assets as being the book
value applied within the framework of IFRS standards.
In order to meet the requirements of IFRS 7 “Financial Instruments: Disclosures”,
credit risk exposure as of 31 December 2008 is shown according to internal ratings.
In the following tables giving information on exposure, credit risk exposure is shown
at book value before risk mitigation. The application of a collateralisation rate
shows the effect of risk mitigation.
Credit risk is shown according to the following exposure:
n
n
n
88
geographical area,
counterparty category,
risk classification (internal ratings).
Pascal Berg, Service Financial Markets
89
Tables giving information on exposure by geographical area
Geographical area
as at 31.12.2008 (in thousands of euros)
Cash and cash balances
with central banks
Loans and advances
at amortised cost
Financial assets held
for trading and
derivatives used for
hedging purposes
Available-for-sale
securities
Held-to-maturity
investments
Other
Total
Geographical area
as at 31.12.2007 (in thousands of euros)
with central banks
Loans and advances
at amortised cost
Financial assets held
for trading and
hedging purposes
Available-for-sale
securities
Held-to-maturity
investments
Other
Total
90
European Other North Asia and
Union and European
America Australasia
Switzerland countries
Supra -
national
Other
Total
355,194
-
-
-
-
-
355,194
21,921,903
130,641
112,175
58,810
-
30,640
22,254,169
352,459
-
2,945
-
-
-
355,404
10,059,743
285,554
1,457,615
450,410
92,743
359,505
12,705,570
-
-
76
1,129
416,271 1,573,864
-
105
509,325
1,336,752
536,774
34,562,825
European Other Union and European
Switzerland countries
North Asia and
515
-
1,337,267
-
53
538,137
93,257 390,198 37,545,740
Supra -
America
Australasia
national
Other
Total
946,542
-
-
-
-
-
946,542
20,001,917
96,293
29,976
115,186
-
36,212
20,279,584
472,989
-
3,942
125
390
-
477,445
12,642,834
347,920
1,842,867
501,905
105,965
656,250
16,097,741
-
-
70
5,233
444,283 1,882,018
-
232
617,448
1,448,484
450,316
35,963,082
1,578
-
1,450,062
15
241
456,107
107,948 692,703 39,707,482
2007
Outstanding amount
2008
Average Impairment
collateralisation
rate Outstanding
Average
amount collateralisation
rate
Impairment
rate
rate
with central banks
Sovereigns
High grade
946,542,152
-
-
355,194,150
-
-
Standard grade
-
-
-
-
-
-
Sub-standard grade
-
-
-
-
-
-
Past due but not impaired
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
-
-
-
Total all categories
946,542,152
Tables giving information on exposure by counterparty category and by risk classification
355,194,150
Loans and advances
at amortised cost
Banks
High grade
7,537,233,296
39.80%
-
9,409,384,326
79.98%
-
Standard grade
2,353,814,112
53.11%
-
748,703,176
26.71%
-
4,946,346
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
14,107,410
-
74.43%
13,773,837
-
-
9,225
-
-
Sub-standard grade
Not rated
Corporates
High grade
536,302,289
95.69%
-
898,024,568
1.18%
-
Standard grade
605,063,702
34.07%
-
476,776,069
5.43%
-
Sub-standard grade
204,185,263
53.26%
-
230,100,105
24.19%
-
-
-
-
-
-
-
Impaired
30,946,815
64.36%
51.26%
149,114,298
25.95%
31.32%
Not rated
110,823,864
37.85%
-
419,247,536
4.28%
-
Sovereigns
High grade
1,674,018,908
0.68%
-
2,456,577,960
13.62%
-
13,121,891
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
-
-
-
Standard grade
91
2007
Outstanding amount
2008
Average Impairment
collateralisation
rate Outstanding
Average
rate
Impairment
rate
rate
Retail
High grade
2,545,166,850
73.78%
-
3,242,881,443
75.27%
-
Standard grade
3,428,524,227
88.49%
-
2,974,627,042
76.89%
-
737,585,530
74.46%
-
959,762,290
77.26%
-
18,600,000
88.06%
-
14,049,337
77.26%
-
414,641,476
62.49%
2.37%
257,441,528
52.82%
4.09%
-
-
-
-
-
Sub-standard grade
Impaired
Not rated
Other
High grade
13,934,888
-
-
-
-
-
-
-
-
-
-
-
8,313
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
36,892,054
-
-
3,362,593
-
-
20,279,583,661
-
- 22,254,168,906
-
-
Standard grade
Sub-standard grade
Not rated
Financial instruments
held for trading and
hedging purposes
Banks
High grade
459,329,964
30.53%
-
252,135,742
4.95%
-
6,975,930
-
-
93,437,210
4.51%
-
490,622
-
-
1,971,378
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
10,648,981
-
-
7,859,517
-
-
477,445,496
-
-
355,403,847
-
-
Standard grade
Sub-standard grade
Not rated
Available-for-sale
securities
Banks
92
High grade
9,300,709,370
-
-
5,330,613,260
-
-
Standard grade
1,078,491,053
-
-
1,663,364,537
-
-
Sub-standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
76,440,193
-
84.70%
Not rated
-
-
-
-
-
-
Outstanding amount
2008
Average Impairment
collateralisation
rate Outstanding
Average
rate
Impairment
rate
rate
Corporates
High grade
490,463,542
-
-
486,355,620
-
-
Standard grade
698,042,102
-
-
607,112,795
-
-
5,249,025
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
62,502
-
-
Sub-standard grade
Sovereign
High grade
2,658,612,264
-
-
2,381,878,869
-
-
207,592,469
-
-
273,890,585
-
-
Sub-standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
-
-
-
Standard grade
2007
Securitisation
High grade
949,085,534
-
-
100,476,722
-
-
28,283,300
-
-
616,985,728
-
-
Sub-standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
45,581,647
-
29.54%
80,720,804
-
54.91%
Not rated
357,443,984
-
-
1,086,182,471
-
-
Standard grade
Retail
High grade
6,508,791
-
-
-
-
-
Standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
-
-
-
Other
High grade
271,678,039
-
-
1,485,992
-
-
Standard grade
-
-
-
-
-
-
Sub-standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
-
-
-
16,097,741,120
-
- 12,705,570,078
-
-
93
2007
Outstanding amount
2008
Average Impairment
collateralisation
rate Outstanding
Average
rate
Impairment
rate
rate
Held-to-maturity
investments
Banks
High grade
720,378,204
-
-
498,580,403
-
-
Standard grade
206,892,527
-
-
268,171,765
-
-
Sub-standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
-
-
-
Corporates
High grade
-
-
-
-
-
-
1,269,912
-
-
-
-
-
Sub-standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
69,985,076
-
-
Standard grade
Sovereign
High grade
518,961,824
-
-
500,529,326
-
-
2,560,144
-
-
-
-
-
Sub-standard grade
-
-
-
-
-
-
-
-
-
-
-
-
Impaired
-
-
-
-
-
-
Not rated
-
-
-
-
-
-
1,450,062,610
-
-
1,337,266,570
-
-
Standard grade
Non-financial assets (*)
456,106,639
-
-
538,136,738
-
-
456,106,639
-
-
538,136,738
-
-
39,707,481,679
-
- 37,545,740,289
-
-
Total
(*) The category “Non-financial assets” comprises the following categories: “Tangible assets – property, plant and equipment”, “Tangible
assets - investment property “, “Intangible assets”, “Current tax assets”, “Deferred tax assets” and “Other assets”.
94
René KETTEL, Service Immeubles et Support Logistique
Pascale WERNER, Agence Strassen
95
The average collateralisation rate shows the average hedging rate of outstanding
amounts by collateral held.
The average impairment rate shows the average percentage of outstanding
amounts deemed unrecoverable.
Banks, Corporates and Sovereigns:
The reclassification according to internal risk category corresponds to the following
“S&P” equivalents:
High grade
: from AAA to A+
Standard grade
: from A to BBBSub-standard grade : from BB+ to BBOutstanding amounts carrying the “impaired” label correspond to outstanding
amounts showing “objective impairment evidence” and whose internal risk
category (internal rating) is equal to or lower than a B+ rating.
Securitisations:
The reclassification according to internal risk category corresponds to the following
“S&P” equivalents:
High grade
: from AAA to A+
Standard grade
: from A to BBBOutstanding amounts carrying the “impaired” label correspond to outstanding
amounts showing “objective impairment evidence” and whose internal risk
category (internal rating) is equal to or lower than a B+ rating.
6.3 MARKET RISK
6.3.1 Determination of risk exposure
Market risk is the risk of loss resulting from unfavourable fluctuations of various
financial parameters, mainly interest rates, share prices and exchange rates.
6.3.2 Objectives and risk management
To manage market risk, the
risk, resulting from structural
reinvestments on the Bank’s
management as well as the risk
96
Bank distinguishes between maturity mismatch
differences in maturity between resources and
balance sheet, and the risk linked to treasury
linked to trading operations.
All other market risk components, such as interest rate risk, foreign exchange risk or
equity price risks affecting treasury positions or on- and off-balance sheet trading
positions are centralised in real time in the front-office system and are maintained
within the limits set by the Bank’s Executive Committee. The Executive Committee is
kept regularly informed of compliance with limits and risk exposure by a unit that
is completely separate from the trading room.
The maturity mismatch risk is supervised by the ALM (Asset Liability Management)
committee which seeks to minimise the negative effects of changes in interest rate
curves on the Bank’s performance by matching its own funds and funds deposited in
demand deposit accounts or savings accounts with the refinancing of domestic and
international loan portfolios, and with the Bank’s own bond and stock portfolios.
The ALM Committee is composed of members of the Bank’s Executive Committee
and a number of senior managers.
Risk levels are mainly monitored using the linear Value at Risk (VaR) indicator
introduced in 2003. The Bank calculates VaR using the historical simulation method.
Trading and treasury activities are subject to VaR limits for each activity.
VaR is measured on a daily basis for all market risk portfolios (trading, treasury and
investment), except for the Bank’s portfolio of participating interests. This valuation
covers a one-day period with a 99% confidence threshold. The time series cover a
full year, which, for 2008, corresponded to a total of 261 observations.
The efficiency of VaR calculations is monitored ex-post via a back-testing procedure
where forecasts using VaR are compared with the changes in value effectively
observed. The chart below shows VaR and back-testing trends for the Bank’s
Treasury in 2008. On average VaR was EUR 1.48 million. VaR averaged EUR 131,000
for the trading portfolio alone in 2008.
The negative result of the Treasury activity should not exceed VaR for more than
one day out of a hundred on average. In 2008, the VaR threshold was exceeded
three times.
97
3.00
P&L TB
VaR TB
2.00
VaR / P&L (EUR Mio)
Treasury Value at Risk / back-testing (2008)
1.00
0
-1.00
-2.00
-3.00
Jan.08
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.09
As well as VaR, which allows overall management of the various market risks, the
Bank uses other risk management tools depending on the financial instruments
concerned. Accordingly, interest rate risk is managed by simulating the impact of
a one basis point (0.01%) variation in the interest rate curve on the Net Present
Value of positions. Daily reports therefore present the variation resulting from a
parallel one basis point variation in all interest rate curves, known as the Basis Point
Value (BPV), which must remain within set limits. Moreover, foreign exchange risk
and equity market risk are managed by means of limits on individual positions and
stop-loss limits.
6.3.3 Analysis of the fair value of financial instruments
The table below shows the comparison by category of the book value and fair value
of the Bank’s financial instruments recognised in the financial statements.
98
213,600,989
-
Available-for-sale financial assets -
Fixed income securities
11,806,819,966
11,806,819,966
-
Variable income securities
652,580,293
652,580,293
-
Loans and advances measured at
amortised cost - Credit institutions
10,112,612,285
10,112,612,285
-
amortised cost - Customers
12,141,556,621
12,522,452,053
380,895,432
141,802,858
141,802,858
-
1,337,266,570
1,333,601,916
-3,664,654
36,761,433,732
37,138,664,510
377,230,778
Derivative instruments used for
hedging purposes
TOTAL
213,600,989
Categories as at 31/12/2008
Book value Fair value Unrealised valuation
Financial assets
355,194,150
355,194,150
-
Financial liabilities
329,148,392
329,148,392
-
5,671,111,996
5,671,111,996
-
Deposits measured at amortised cost -
Credit institutions
3,805,523,752
3,805,523,752
-
Customers and public sector
24,320,226,120
24,310,281,494
9,944,626
hedging purposes
TOTAL
316,147,029
316,147,029
-
34,442,157,289
34,432,212,663
9,944,626
99
Categories as at 31/12/2007
Book value Fair value Unrealised valuation
Financial assets
946,542,152
946,542,152
-
286,483,149
286,483,149
-
Fixed income securities
15,071,949,811
15,071,949,811
-
871,618,291
871,618,291
-
amortised cost - Credit institutions
amortised cost - Customers
hedging purposes
TOTAL
9,960,334,536
9,960,334,536
-
10,319,249,125
10,319,249,125
-
190,962,349
190,962,349
-
1,450,062,610
1,414,963,194
-35,099,416
39,097,202,023
39,062,102,607
-35,099,416
269,675,182
269,675,182
-
7,859,876,570
7,859,876,570
-
Credit institutions
8,497,559,520
8,497,559,520
Customers and public sector
19,613,743,008
19,613,743,008
hedging purposes
TOTAL
-
-
237,596,543
237,596,543
-
36,478,450,823
36,478,450,823
-
The fair value of financial instruments not recognised at fair value in the financial statements is determined
following the methods and estimations detailed hereafter.
100
In respect of financial assets and liabilities with a maturity date of 6 months or less,
we estimate that their value is very close to the book value. Credit risk is considered
to be immaterial owing to BCEE’s prudent policy and the proximity of the maturity
date. Moreover the short residual duration makes for an insignificant rate risk.
Similarly, the value of assets systematically collateralised is very close to the book
value, the credit risk being hedged. For the most part, these consist of Repo, secured
loans and equipment loans.
Financial assets measured at amortised cost in the balance sheet:
Financial assets and liabilities towards local customers as well as fixed income
securities held to maturity are recognised at amortised cost in the balance sheet.
For the needs of fair value calculation, the Bank distinguishes between instruments
quoted on a market and over-the-counter instruments.
Assets and liabilities measured at amortised cost in the balance sheet and having a
value close to the book value:
The fixed income securities that are part of the held-to-maturity portfolio, are
sovereign bonds that are quoted in an active market.
With respect to financial assets and liabilities for local customers, the Bank calculates
fair value using the discounted cash flow method, basing itself:
a. on credit risk data such as the customer’s risk classification, the probability of
default as well as the loss given default. These criteria were established using
historical observations of realised default and make it possible to determine
credit risk premiums (credit spreads) by risk classification, maturity date and type
of financial instrument.
b. on a reference rate curve.
101
Table showing the percentage of financial assets and liabilities accounted for at fair value in
the balance sheet
Among financial instruments recognised at their fair value, the table below distinguishes between those
whose fair value is determined on the basis of the price quoted in an active market, those valued using
valuation techniques based on market observations.
The valuation methods are described under “2.3.3 Accounting assessments and estimates”.
The table below shows the percentage of the book value of a balance sheet category that is valued using
one of the 2 methods.
Categories as at 31.12.2008
Price of an active market Valuation techniques
based on market
observations
Financial assets
Instruments held for trading (*)
3%
97%
Available-for-sale instruments – Fixed income securities
26%
74%
Available-for-sale instruments – Variable income securities
58%
42%
-
100%
Derivative instruments used for hedging purposes (*) Financial liabilities
-
100%
Derivative instruments used for hedging purposes (*) -
100%
Debt certificates issued (*)
-
100%
(*) nearly all derivative instruments held for trading and hedging are over-the-counter market instruments.
102
Financial assets
4%
96%
Available-for-sale instruments – Fixed income securities
81%
19%
Available-for-sale instruments – Variable income securities
84%
16%
Derivative instruments used for hedging purposes (*)
-
100%
-
100%
Derivative instruments used for hedging purposes (*)
-
100%
Debt certificates issued (*)
-
100%
Categories as at 31.12.2007
Price of an active market
Valuation techniques
based on market
observations
(*) nearly all derivative instruments held for trading and hedging are over-the-counter market instruments.
6.3.4 Analysis of foreign exchange risk: Net positions in foreign currency
As at 31.12.2008 USD
Other
Total
Net position in the
balance sheet 24,717,708 5,205,698 29,923,406
As at 31.12.2007
Net position in the
balance sheet
AUD CHF GBP SEK
USD
Other
Total
3,420,840 2,930,437 20,115,329 -2,089,229 6,597,635 4,284,593 35,259,605
Only those foreign currencies whose net exchange position exceeds the equivalent of 2 million euros in
absolute terms have been mentioned individually.
103
6.4 LIQUIDITY RISK
6.4.1 Liabilities’ maturity schedules
Tables showing the liabilities of the balance sheet over the remaining residual life until
repayment of liabilities (contractual data)
Current accounts and savings accounts are considered as repayable on demand.
Category
Within 3 M - 1 YR
3 months
Sub-total less 1 - 5 YRS
More than Not than 1 YR
5 YRS
specified
Sub-total Total 2008
more
than 1 YR
Debt certificates
issued
2,710,669,177
730,296,046
3,440,965,223
1,065,991,787
1,164,154,986
-
2,230,146,773
5,671,111,996
Deposits measured
at amortised cost - Credit institutions
3,540,576,697
264,947,055
3,805,523,752
-
-
-
0
3,805,523,752
Deposits measured
at amortised cost - Customers and
public sector
Total
Category
21,716,369,045
2,397,183,180 24,113,552,225
182,881,024
23,792,871
27,967,614,919 3,392,426,281 31,360,041,200 1,248,872,811 1,187,947,857
3 M - 1 YR
1 - 5 YRS
More than Not 5 YRS
specified
more
than 1 YR
3 months
Sub-total less 206,673,895
than 1 YR
Within -
24,320,226,120
0 2,436,820,668 33,796,861,868
Debt certificates
issued
3,495,083,999
892,339,060
4,387,423,059
1,675,982,913
1,796,462,655
7,943
3,472,453,511
7,859,876,570
Deposits measured
at amortised cost - Credit institutions
8,078,112,878
417,229,401
8,495,342,279
2,217,241
-
-
2,217,241
8,497,559,520
Deposits measured
at amortised cost - Customers and
public sector
Total
104
18,294,320,656
1,083,345,090
19,377,665,746
199,605,364
36,471,898
29,867,517,533 2,392,913,551 32,260,431,084 1,877,805,518 1,832,934,553
-
236,077,262
19,613,743,008
7,943 3,710,748,014 35,971,179,098
Category
Within 3 M - 1 YR
3 months
Sub-total less 1 - 5 YRS
5 YRS
specified
more
than 1 YR
Deposits measured
at amortised cost –
Customers and
public sector
2,962,443,146 20,616,937,170
- 3,703,288,950
3,194,666,368
508,622,582
1 - 5 YRS
5 YRS
specified
more
than 1 YR
Category
17,654,494,024
Within 3 M - 1 YR
3 months
Sub-total less Sub-total 24,320,226,120
Table showing deposits from customers and the public sector according to “expected” maturity
dates determined under asset-liability management policy.
Total 2007
Deposits measured
at amortised cost –
Customers and
public sector
15,268,687,730
1,670,471,863 16,939,159,593
3,236,398,352
295,358,259
- 3,531,756,611 20,470,916,204
6.4.2 Derivatives’ maturity schedule
Tables showing derivatives with gross cash flow payment
Given that residual life is calculated using contractual data, the optional feature of certain contracts has
not been taken into account.
Amounts are expressed in equivalent EUR using the exchange rate on 31/12/2008.
105
Category
Within 3 M - 1YR
1 - 5 YRS
3 months
More than Total 2008
5 YRS
Derivatives used for trading
purposes
Currency swaps and forward
exchanges
Increase 6,128,329,405
271,615,522
-
-
6,399,944,927
Decrease -6,272,280,654
-267,487,768
-
-
-6,539,768,422
Derivatives used for hedging
purposes
CCIS
Increase
14,951,837
37,178,846
238,526,108
518,913,319
809,570,110
Decrease
-14,085,231
-41,005,539
-234,454,037
-442,775,206
-732,320,013
Total increase
6,143,281,242
308,794,368
238,526,108
518,913,319
7,209,515,037
Total decrease
-6,286,365,885
-308,493,307
-234,454,037
-442,775,206
-7,272,088,435
Within 3 M - 1YR
1 - 5 YRS
Category
3 months
5 YRS
purposes
Currency swaps and forward
exchanges
Increase 9,453,268,620
715,882,679
461,909
-
10,169,613,208
Decrease -9,471,779,952
-713,034,368
-470,064
-
-10,185,284,384
purposes
CCIS
106
Increase
27,575,757
108,869,037
256,069,198
522,984,239
915,498,230
Decrease
-25,304,468
-105,957,770
-254,667,521
-524,432,356
-910,362,115
Total increase
9,480,844,377
824,751,716
256,531,107
522,984,239
11,085,111,439
Total decrease
-9,497,084,420
-818,992,138
-255,137,585
-524,432,356
-11,095,646,499
Liabilities net of cash flow originating from derivatives with net payments are as follows:
Category
Within 3 M - 1YR
1 - 5 YRS
3 months
5 YRS
purposes
IRS
73,577,315
206,989,008
45,124,017
10,926,685
336,617,025
purposes
IRS
106,765,421
148,961,345
672,745,094
440,222,790
1,368,694,650
Total decrease
180,342,736
355,950,353
717,869,111
451,149,475
1,705,311,675
Within 3 M - 1YR
1 - 5 YRS
Category
3 months
Tables showing derivatives with net cash flow payment
5 YRS
purposes
IRS
209,925,891
476,848,219
318,279,328
6,014,823
1,011,068,261
purposes
IRS
116,306,291
178,961,414
606,408,020
389,846,390
1,291,522,115
Total decrease
326,232,182
655,809,633
924,687,348
395,861,213
2,302,590,376
6.5 ECONOMIC CAPITAL
BCEE has embarked on a process of economic risk measuring and of planning its equity resources allocation
between the various businesses.
This study and work was formalised and submitted to CSSF in 2008 as a draft ICAAP report. CSSF’s Circular
07/301 ICAAP (Internal Capital Adequacy Assessment Process) plans to set up “healthy, efficient and exhaustive strategies and processes, allowing institutions to assess and keep at any time the amount, type and
allocation of internal equity capital they deem appropriate to cover the type and level of risks which they are
or could be exposed to”.
107
This document specifies the identification and management processes of the various
risks with which BCEE is faced, whether it be those described in Pillar 1 of the Basel
agreements or other risks (liquidity, profitability, etc...).
The economic methods used to quantify the different risks are based on adjustments
and supplements to regulatory methods as well as on the valuation of risks not considered by Pillar 1.
The equity policy is in line with the mission defined in its articles of association: to
contribute to the development of the Luxembourg economy. Therefore, BCEE aims
to keep a moderate lever which is materialised as a high target capitalisation ratio.
Furthermore, equity resources are allocated as a priority to activities within the national market.
6.5.1 Equity policy
6.5.1.1Equity determination
The Bank’s goal is to contribute to the development of Luxembourg’s economy and
not necessarily to reach a maximum return on equity. However the Bank also strives
to generate enough profit to strengthen its financial position.
In accordance with CSSF Circular 05/227, since 1 January 2008, BCEE has set up financial reporting based on IFRS standards. The methods used to calculate prudential
equity have been adapted in order to allow determination on the basis of the new
financial reporting.
In CSSF Circular 05/228, the Commission defined the regulatory adjustments to be
applied in order to ensure the transition from accounting equity towards prudential
equity.
6.5.1.2Process for implementing the internal capital adequacy policy
In order to implement its internal capital adequacy policy, the Bank is adopting the
following approach:
Development of an internal model for risk valuation (risks found in Pillar 1,
Basel II, as well as non-hedged risks).
■ Determination of an important safety margin between available equity and risk
hedging, materialized by a high capital/risk target ratio.
■ Allocation of equity following the Bank’s internal organisation, according to internal
financial reporting.
■ Setting up of forecasts on risk exposure by activity (maximum economic risk, regulatory risk).
■
108
It is the Bank’s view that economic equity consists of funds not claimable in the
medium or long-term and hedges the Bank’s overall risks. Thus economic equity
shows a certain continuity even if the valued risks taken as a whole are based on a
one year timescale.
Prudential equity consists of liabilities not claimable by a creditor (excluding defaults)
and includes two sources of volatility: the revaluation reserve on the one hand and
profits on the other hand.
Calculation of the provisional amount of equity necessary for hedging risks in
order to reach the target ratio.
■ Allocation of surplus capital when the minimum ratio is reached in accordance
with strategic orientations.
■
Regarding the revaluation reserve, it should be noted that its volatility depends on
the realisation of risks included in the ICAAP measures: credit risk on debt instruments
and market risk on the equity banking book.
With respect to future profits, they are already considered as reducing the valuation
of profitability risks.
Therefore BCEE considers that its economic capital consists of its entire prudential
equity, including the revaluation reserve. During the financial year ended 31
December 2008, the Bank has complied with the minimum capital requirements as
stipulated in CSSF Circular 06/273.
109
Inès Kharroubi, Service Audit Interne
110
in euros
31.12.2007
31.12.2008
Loans and advances measured at amortised cost Credit institutions
Loans and advances measured at amortised cost - Customers
Available-for-sale financial assets – Fixed income securities
Available-for-sale financial assets – Variable income securities
Investments in associates
Tangible assets – property, plant and equipment
Tangible assets – investment property
Intangible assets
Current tax assets
Deferred tax assets
Other assets
946,542,152
355,194,150
9,960,334,536
10,319,249,124
286,483,148
190,962,348
15,071,949,807
930,227,349
1,450,062,610
154,338,554
184,308,277
16,243,745
9,202,886
1,266,626
132,007,754
118,866,044
10,112,612,285
12,141,556,621
213,600,989
141,802,858
11,806,819,966
707,704,021
1,337,266,570
161,001,583
182,595,193
15,852,020
9,635,760
1,653,379
259,222,286
75,965,039
TOTAL ASSETS
39,772,044,960
37,522,482,720
LIABILITIES in euros
Deposits measured at amortised cost - customers
Provisions
Other liabilities
Current tax liabilities
Pensions and other post retirement benefit obligations
Sub-total (before equity)
to be carried forward
31.12.2007
31.12.2008
8,497,559,520
19,567,089,475
269,675,182
237,596,543
7,859,876,570
3,218,483
169,909,292
15,170,928
280,812,234
235,999,135
3,805,523,752
24,248,313,923
329,148,392
316,147,027
5,671,111,996
30,916,733
311,753,507
23,095,391
268,908,638
244,713,006
37,136,907,362
35,249,632,365
ASSETS
CONSOLIDATED ACCOUNTS
111
EQUITY
in euros
Sub-total of LIABILITIES before equity
Issued capital
Revaluation reserve (*)
Consolidated reserves
of which equity method
Net profit for the year
Equity – Group share
Minority interests
TOTAL LIABILITIES including EQUITY
(*) of which originating from available-for-sale assets
(continuation)
31.12.2007
31.12.2008
37,136,907,362
35,249,632,365
173,525,467
538,636,052
1,718,128,033
102,481,274
201,669,100
2,631,958,652
173,525,467
136,198,177
1,859,640,045
91,537,878
100,819,199
2,270,182,888
3,178,946
2,667,467
39,772,044,960
542,563,415
37,522,482,720
136,294,067
B. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE AS AT 31 DECEMBER 2008
in euros
112
31.12.2007
31.12.2008
Available-for-sale assets
- Value adjustments
- Sale income recognised through profit and loss
Actuarial differences on defined benefit plan
Cash flow hedges
Net profit accounted for directly in equity
Profit for the year attributable to the Group
Profit for the year attributable to minority interests
55,117,735
85,209,540
-30,091,805
27,723,054
-1,337,987
81,502,802
201,669,100
1,762,014
-425,942,806
-422,812,326
-3,130,480
-1,813,231
3,831,473
-423,924,564
100,819,199
2,112,380
Total income and charges accounted for during
the financial year
284,933,916
-320,992,985
in euros
31.12.2007
Net interest income
321,076,200
Dividend income
18,132,749
Fee and commission income
93,338,150
INCOME FROM INTEREST, DIVIDENDS AND FEES
AND COMMISSIONS
432,547,099
Income from financial instruments not recorded at fair value
through profit or loss
30,192,796
Trading income
617,551
Net income from hedge accounting
-435,709
Translation differences
2,835,732
NET BANKING INCOME
465,757,469
8,412,766
-3,411,717
OPERATING INCOME
470,758,518
Staff expenses
-165,141,671
-61,054,008
Value adjustments on tangible and intangible assets
-25,239,973
OPERATING INCOME AFTER EXPENSES
219,322,866
Impairment on financial assets - individual and
collective assessments
-13,748,866
Provisions
-
Share of profit of associates
20,556,252
INCOME BEFORE TAX
226,130,252
Profit or loss from non-current assets and disposal groups,
classified as held-for-sale not qualifying as discontinued operations
1,577,479
Tax on income from continuing activities
Deferred tax
NET INCOME FOR THE YEAR
SHARE OF INCOME ATTRIBUTABLE TO MINORITY INTERESTS SHARE OF INCOME ATTRIBUTABLE TO THE GROUP
31.12.2008
408,465,403
26,031,942
93,719,910
528,217,255
-2,995,531
-10,986,084
7,545,895
6,694,671
528,476,206
C. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008
7,011,316
-2,829,850
532,657,672
-168,964,892
-62,397,089
-24,926,685
276,369,006
-146,581,042
-28,076,733
14,819,446
116,530,677
321,097
-23,177,878
-28,126,777
-1,098,739
14,206,582
203,431,114
102,931,579
1,762,014
2,112,380
201,669,100
100,819,199
113
D. CONSOLIDATED CASH FLOW STATEMENT AS AT 31 DECEMBER 2008
The cash flow statement shows the increase and decrease of cash movements. Cash and cash equivalents
include cash, balances with central banks as well as demand deposits.
The cash flow statement classifies cash flow for the period into operating, investing and financing activities.
- Cash flow from operating activities before change in operating assets and liabilities:
in euros
31.12.2007
Interest received
3,600,056,515
Interest paid
-3,317,648,530
Dividend income
38,880,230
Fees and commissions received
100,420,800
Fees and commissions paid
-26,819,866
8,177,020
-215,037,639
-3,026,318
Sub-total
185,002,212
31.12.2008
3,510,144,188
-3,077,555,350
53,740,785
98,914,070
-29,060,133
6,887,874
-221,364,441
-2,437,166
339,269,827
- Cash flow from changes in operating assets:
in euros
31.12.2007
39,571,988
Available-for-sale financial assets – Fixed income securities
457,812,264
Available-for-sale financial assets – Variable income securities
-43,352,631
Loans and advances at amortised cost – Credit institutions
2,256,840,204
Loans and advances at amortised cost – Customers
-1,315,377,479
5,223,874
Other assets
34,903,877
Sub-total
1,435,622,097
31.12.2008
5,188,476
3,015,058,996
17,488,618
248,984,671
-1,557,515,265
2,553,017
42,617,552
1,774,376,065
- Cash flow from changes in operating liabilities:
in euros
31.12.2007
Securities held for trading - Short sales
48,914
-13,852,054
Deposits measured at amortised cost - Customers -1,354,708,639
Derivative instruments used for hedging -3,824,205
Other liabilities -82,409,491
-281,725,271
Sub-total
-1,736,470,746
-115,846,437
114
31.12.2008
-142,388
-3,662,991,405
2,546,159,559
-7,887,783
137,252,709
-2,102,123,615
-3,089,732,923
-976,087,031
in euros
31.12.2007
Acquisition of available-for-sale financial assets –
5,273,806
Acquisition / sale of variable income securities - Subsidiaries
2,726
Acquisition / sale of variable income securities -
Associates
-307,307
Acquisition / redemption of held-to-maturity investments
165,188,891
Acquisition / sale of tangible and intangible assets
4,276,549
31.12.2008
1,468,229
-7,775
39,250
112,437,988
-4,463,843
174,434,665
109,473,849
31.12.2007
Net proceeds from subordinated liabilities
-49,578,705
Income distribution
-30,000,000
31.12.2008
-111,672,420
-35,000,000
-79,578,705
-146,672,420
Net change
-20,990,477
-1,013,285,602
2007
-804,787,917
Net change in cash flow
-20,990,477
Effect of exchange rate changes on cash
and cash equivalents
-94,188,640
-919,967,034
2008
Change in cash and cash equivalents
-919,967,034
-1,013,285,602
-43,811,372
-1,977,064,008
115
E. EXTRACTS FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2008
1. General information
The consolidated financial statements under International Financial Reporting
Standards (IFRS) as adopted by the European Union concern the Group of which
Banque et Caisse d’Epargne de l’Etat is the parent company.
The financial statements were approved for issue by the Board of Directors on 19
March 2009.
For ease of comparison, some items have been re-classified in the balance sheet for
the year ended 31 December 2007.
2. Significant accounting policies
2.1 Compliance with IFRS significant accounting policies
The Consolidated Financial Statements for the year ended 31 December 2008 have
been prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union.
The consolidated financial statements are stated in euro, which is the functional
currency of the parent company and its subsidiaries (except one subsidiary - see note
2.2.2). The consolidated financial statements have been prepared based on historical
cost or amortised cost, adjusted to fair value for the recording of available-for-sale
investments, financial assets held for trading purposes and derivative instruments.
Financial assets and liabilities measured at amortised cost, designated as hedged
items in the context of fair value hedges, must be adjusted with any changes to fair
value that are attributable to hedged risks.
The Group provides the segment information required by IFRS 8 in part 3 of the
present document (provisional application on 31 December 2007).
The Group has not applied in advance the new standards that came into force on 1
January 2009. Indeed, the Bank considers the impact on the financial statements as
being immaterial.
116
2.2.1 Consolidation scope
The consolidation scope comprises the parent company, its subsidiaries and any
special purpose vehicles over which the Group exercises, directly or indirectly,
effective control over their management and operating and financial policies.
Subsidiaries are fully consolidated from the date on which the Bank acquires control
over their financial policy. They are de-consolidated from the date that control
ceases.
Consolidation has not generated any goodwill as the Group has owned all its
subsidiaries since the date they were created.
2.2 Basis of consolidation
The acquisition is accounted for at cost, i.e. the amount of cash or cash equivalents
which represents the fair value plus costs directly attributable to the acquisition.
Inter-company transactions and unrealised gains on transactions between group
companies are eliminated. Unrealised losses relating to inter-company transactions
are also eliminated unless the cost cannot be recovered.
If any member of the Group applies different accounting methods from those
applied in the preparation to the consolidated financial statements, appropriate
restatements are made to ensure consistency with the Group policies.
If an entity has a different financial year end to that of the Group, adjustments are
made to take into account transactions made and any other significant events that
occurred between the end of its financial year and that of its parent company.
The share of minority interests in shareholders’ equity is recorded on a separate line.
In the same way, the share of earnings attributable to minority interests is identified
on a separate line.
2.2.1.1 Fully consolidated subsidiaries
The consolidated financial statements record the assets and liabilities as well as
income and expenses of the Group and its subsidiaries. A subsidiary is a company in
which the Group holds at least 50% of the voting rights or any company over which
the Group directly or indirectly exercises dominant control enabling it to govern the
company’s financial and operating policies.
117
List of subsidiaries included in the consolidation scope
Name
Lux-Index US Advisory
Lux-Pension Advisory
Lux-Investment Advisors
Lux-World fund Advisory S. A.
Lux-Croissance Advisory S. A.
Luxcash Advisory S. A.
Lux-Garantie Advisory S. A.
Lux-Protect fund Advisory
Luxbond Advisory S. A.
BCEE Ré S. A.
Bourbon Immobilière S. A.
Luxembourg State and Savings Bank Trust Company S. A.
% of voting rights
79.88
82.00
80.00
87.43
86.70
85.67
85.40
89.13
93.53
100.00
100.00
99.90
2.2.1.2 Investments in associates
Associated companies over which the Group exercises significant influence are
accounted for using the equity method. Significant influence means that the Group
is in a position to influence the company’s financial and operating policies so as to
obtain a significant part of rewards. The Group is considered to exercise significant
influence when it owns, directly or indirectly through its subsidiaries, 20% or more
of the voting rights of a company.
Investments in associates are recognised at cost and the book value is increased or
decreased by the Bank’s share in the associate’s results after the acquisition date. The
Group’s share of the associate’s profit or loss is recognised in the income statement.
Consolidation using the equity method ceases when the carrying amount of the
investments is reduced to nil, unless the Group is under the obligation to assume or
guarantee the associate’s commitments.
118
Associated companies
Direct holdings
Société Nationale de contrôle Technique S. à r. l.
Bourse de Luxembourg
Parking Théâtre
Cetrel
Visalux
Europay Luxembourg
La Luxembourgeoise
La Luxembourgeoise-Vie
Indirect holdings
Pecoma International
EFA Partners
% of capital held
20.00
22.74
26.23
28.70
30.87
29.20
40.00
40.00
Investments in associates
33.33
29.05
The overall position held within Luxair is 21.81% of Luxair’s capital. The Group
considers that it does not exercise significant influence given that it acquired
8.4% of Luxair’s capital during the 3rd quarter of 2008 with the aim of reselling
within a short period. The overall position is recognised under “Available-for-sale
financial assets – Variable income securities” and is valued at fair value through the
“revaluation reserve”.
2.2.2 Foreign currency translation following consolidation
Within the consolidated accounts, the balance sheet items of the only company
in consolidated foreign currency (Lux-Index-US Advisory) are translated into the
Group’s presentation currency (euro) at the rate prevailing at the end of the
financial year. Income and expense items originating from the subsidiary expressed
in US dollars are converted on the basis of the period’s average rate of the period.
Translation results produced by the consolidation are recognised directly as equity
which ensures their neutrality over profit and loss. In the event that the company
is sold, these translation results will be recognised as profit or loss in the income
statement.
119
3. Segment reporting
The Group provides segment reporting based on its internal organisation and on its
internal financial information system (“management view”) in accordance with IFRS 8.
3.1 Business segments
The Group’s business segments are categorised into relevant segments showing
similar profitability and risk features. The segments represent coherent groups of
products aimed at the same type of customers and counterparties. The businesses
thus defined are managed separately and are supported by specific structures within
the BCEE Group organisation. They break down as follows:
n
Retail, Professional, Corporate and Public Sector banking: the business includes
all activities involving deposits, credit, advisoring and transactions linked to these
customers, excluding businesses handled directly by the dealing room. From an
organisational point of view, these activities come under the “Retail and Private
Banking” and “Corporate Banking” departments.
n
Capital markets and Investment funds: this includes activities relating to
Treasury, Trading, Asset and Liability Management, Customer Desk, Mutual
Fund administration and management. From an organisational point of view,
these activities come under the “Financial Markets” and “Investment Funds”
departments.
n
Other: includes all back-office and support activities, revenues from shareholdings
and costs not allocated to a business on a reasonable basis.
The results of the different activities include transactions between the different
entities. These transactions are valued at a price based on the market for transactions
relating to financing and to reinvestment between businesses. Back office services
are also valued at a market price if available.
The difference between the sum of the figures for the different segments and the
overall consolidated accounts of the Group comes from the following items:
n
Interest margin: the difference between the interest margin allocated to
businesses and the total margin comes from differences in valuation methods
for internal transactions between “Financial Markets” on the one hand and the
other segments on the other hand.
Similarly, the commercial interest margin includes income from “float” valued using
a method favouring commercial dynamics.
120
In 2008, the margin difference was below the level of materiality defined by the
Group.
n
Fees and commissions: the reconciliation difference is explained by the sum of
fees and commissions not directly linked to a business. The BCEE Group considers
that the development cost for attributing these flows to a business would exceed
the benefit obtained by this information.
n
Assets and liabilities are valued according to IFRS rules which are valid for global
reporting with one exception.
Another difference is generated by a conventional valuation mechanism of the
margin on loans at social rates. This method is part of the “management view” and
is intended not to penalise branches selling these products.
Gross receivables and debts to customers of the “Retail and Private Banking” and
“Corporate Banking” business are recognised for their annual average amount and
not for their end-of-year amount. This lay-out is in line with the “management view”.
The reconciliation difference for assets and liabilities stems from the consideration
of average outstanding amounts compared to end-of-period outstanding amounts,
assets for customers not linked to a business and from assets not spread out over
businesses (temporary accounts, fiscal assets and liabilities, internal accounts).
3.2 Geographical information
All BCEE Group operations are carried out from within the Grand-Duchy of
Luxembourg.
3.3 Information on products and services
The Group’s Net Banking Income (NBI) breaks down into the following main
products:
n
n
n
n
deposits from individual clients, professional clients, businesses and the public sector,
loans and credits from individual clients, professional clients, businesses and the public sector,
other products from individual clients, professional clients, businesses and public
sector,
other products.
The NBI is valued by taking into account interest, fees and commissions being reinvoiced between businesses.
3.4 Information on important customers
No customer nor any consolidated group of customers generates more than 10% of
the BCEE Group’s NBI.
121
31.12.2008
Thousands of euros
Retail, Professional, Corporate and Public Sector
Banking
Net interest margin
Dividend income
Fees and commissions
Financial markets Other
Reconciliation
Total
and investment
funds
234,994
171,695
11,958
-10,182
408,465
-
10,556
15,475
-
26,032
25,552
9,169
60,271
-1,272
93,720
External fees and commissions
54,415
30,951
9,283
-929
93,720
Internal fees and commissions
-28,862
-21,782
50,988
-344
-
4,828
-4,586
17
-
259
265,374
186,836
87,721
-11,455
528,476
-
-202
4,383
-
4,181
265,374
186,634
92,104
-11,455
532,658
-138,771
-24,066
-93,452
-
-256,289
-1,603
-144,997
-28,057
-
-174,658
-
-
321
-
321
125,001
17,570
-29,084
-11,455
102,032
-
-
-13,920
-
-13,920
-
-1,658
14,365
-
12,707
125,001
15,912
-28,639
-11,455
100,819
Assets
10,000,466
26,013,276
2,033,134
-524,394
37,522,483
Liabilities 18,693,351
12,491,107
2,283,955
4,054,069
37,522,483
Income on financial instruments
and on exchange
Net Banking Income Other operating income
and expense
Operating income
General overheads and
value adjustments on
tangible and intangible
assets
Net Value adjustments
and impairment
Other
Income before tax
Tax on profit and
deferred tax
Minority interests/
income from associates
Net income
122
Retail, Professional, Corporate and Public Sector
Banking
Net interest margin
Dividend income
Fees and commissions
Financial markets Other
Reconciliation
Total
and investment
funds
212,406
112,575
9,020
-12,925
321,076
-
6,826
11,306
-
18,133
24,932
6,058
61,587
762
93,338
External fees and commissions
52,308
30,409
9,599
1,022
93,338
Internal fees and commissions
-27,376
-24,352
51,988
-260
-
1,966
30,310
935
-
33,210
239,303
155,769
82,848
-12,163
465,757
-
237
4,764
-
5,001
239,303
156,006
87,612
-12,163
470,759
-136,594
-21,710
-93,132
-
-251,436
-3,112
-10,637
-
-
-13,749
-
-
1,577
-
1,577
99,597
123,659
-3,942
-12,163
207,151
-
-
-24,277
-
-24,277
31.12.2007
Thousands of euros
Income on financial instruments
and on exchange
Net Banking Income Other operating income
and expense
Operating income
General overheads and
value adjustments on
tangible and intangible
assets
Net Value adjustments
and impairment
Other
Income before tax
Tax on profit and
deferred tax
Minority interests/
income from associates
Net income
Assets
Liabilities -
-1,748
20,542
-
18,794
99,597
121,912
-7,677
-12,163
201,669
8,817,633
29,189,602
1,551,634
213,176
39,772,045
16,780,020
20,210,069
1,642,392
1,139,563
39,772,045
123
Net banking income
Deposits from individual clients,
professional clients, businesses
and the public sector 107,244 115,037
Loans and credits from
individual clients, professional
clients, businesses and the public sector 81,791 89,178
Other products from individual
clients, professional clients,
businesses and public sector 50,269 61,159
226,454 263,102
Other products
124
31.12.07 31.12.08
Thousands of euros Thousands of euros
Jasmine BIVER, Service Gestion du Personnel
125
Davide DUARTE DA SILVA, Centre Financier Place de Metz
126
6. ORGANISATION CHART
(at 31.12.2008)
EXECUTIVE COMMITTEE (MANAGEMENT BOARD)
Jean-Claude FINCK President and Chief Executive Officer
Michel BIREL Deputy Chief Executive Officer
Gilbert ERNST Executive Vice President and Member of the Executive Committee
Jean-Paul KRAUS Executive Vice President and Member of the Executive Committee
Guy ROSSELJONG Executive Vice President and Member of the Executive Committee
Internal Audit
Guy QUEUDEVILLE
Compliance
Frank MOSAR
DEPARTMENTS
UNITS
PRIVATE BANKING
Paul WARINGO
Banque Privée
Paul WARINGO
CORPORATE BANKING
Romain Wehles
Crédits
Romain WEHLES
FINANCIAL MARKETS
Aly Kohll
Financial Markets
Aly KOHLL
LEGAL
Joseph DELHAYE
Juridique et
Contentieux
Joseph DELHAYE
Coordination du
Réseau des Agences
Gaston MOLLING
Electronic Banking
and Business
Lysiane BACK
Financial
Institutions
Luc HIERONIMY
RISK MANAGEMENT
John DHUR
Analyse et Suivi
Risque
John DHUR
Risk Control
J-C Wilmes
FINANCIAL REPORTING
Doris ENGEL
Administration des
Marchés Financiers
Jean LAUX
Compt. Centrale
et Budgétisation
Doris ENGEL
Securities
Carlo MATAGNE
Investment Funds
Paolo VINCIARELLI
Investment Funds
Paolo VINCIARELLI
Operations
Marc Andre
Back-Office
Crédits
Jean THEIN
Back-Office des
Produits Financiers
Alain HAMMANG
Organisation
Marc ANDRE
Paiements
Serge WAGENER
Valeurs
Georges
DENNEWALD
SECRETARY GENERAL
Françoise THOMA
Assurances
Annette REISCH
Gestion
du Personnel
Roland FÜRPASS
Immeubles et
Support Logistique
Paul HUSS
Marketing
Gérard TANSON
Secrétariat
Général
Françoise THOMA
Information
TechnologIES
Jean Hilger
Développements
Informatiques
Jean HILGER
Production
Informatique
Michel MERGEN
127
128
Eric SwaEnepoel, Service Production
Informatique
Nadine Burg, Agence Limpertsberg
Carlo Dimmer, Agence Gare
Xavier Cardinale, Service Production
Informatique
Marc BECKER, Service Juridique et Contentieux
Viviane Wingert-Nickels, Agence Banque
Européenne d’Investissement
Jacques Reuter, Service Coordination Réseau
des Agences
Rolande Weydert, Agence Cour de Justice
Jean-Luc Bermes, Service Crédits
Emile Clement, Agence Colmar-Berg
Anne Adamy, Service Production Informatique
Marcel LAMBERT, Service Juridique et
Contentieux
Philippe Hennes, Service Crédits
Silvia Goncalves Pereira, Service
Coordination Réseau des Agences
Marc Deckenbrunnen, Centre Financier
Ettelbruck
Christophe Manfredi, Service Production
Informatique
Patrice Garcia, Service Valeurs
Jeanne Faber, Agence Centre
Gaston MOLLING, Service Coordination
Réseau des Agences
Serge Barthelme, Service Développements
Informatiques
Carlo SCHERENTZ, Centre Financier
Esch-sur-Alzette
Patrick BERNARD, Service Gestion du
Personnel
Germain Leyers, Service Analyse et
Suivi Risque
Henri BARNICH, Service Organisation
129
130
Amadeu TRAVANCA, Service Gestion du
Personnel
Patrick MERGES, Service Investment Funds
Romain LUCIUS, Agence Bridel
Norbert BRAUSCH, Service Crédits
Nathalie KLEIN, Centre Financier
Esch-sur-Alzette
Fernand HABSCHEID, Centre Financier
Niederwiltz
Antonella STREGAPEDE, Service Back-Office
Crédits
Claude BONERT, Service Audit Interne
Sandra SCHILTZ, Service Juridique et
Contentieux
Daniel IRRTHUM, Agence Belvaux
Mireille JOHANNS, Agence Schifflange
Marco BERNERS, Agence Merl-Belair
Marie SCHILTZ-WOHL, Service Electronic
Banking and Business
André DA SILVA RAMOS, Service Back-Office
Crédits
Gilles BACH, Agence Bonnevoie
Michel GREIS, Service Développements
Informatiques
Robert HOFFMANN, Service Production
Informatique
Paul HERMES, Service Coordination Réseau
des Agences
Laurent CLOOS, Centre Financier Place de Metz
Lynn EVEN, Service Gestion du Personnel
Michele GRIMALDI, Service Analyse et
Suivi Risque
Eric PLUMIER, Agence Gare
Marie-Anne BELLEVILLE, Service Juridique et
Contentieux
Christian SCHOTT, Service Analyse et
Suivi Risque
131
132
Andrea VIRGILI, Service Analyse et Suivi Risque
Pierre WANTZ, Centre Financier Place de Metz
Guy ZEIMEN, Service Juridique et Contentieux
Monique VERWERFT, Service Financial Markets
Jean-Pierre BOUETTE, Service Production
Informatique
Charles WEISS, Centre Financier Niederwiltz
Frank LORENZONI, Agence Centre
Jean-Jacques ARRENSDORFF, Service
Back-Office Crédits
Danielle REUTER, Service Marketing
Thierry BONEM, Service Electronic Banking
and Business
Othello PESCAROLO, Service Production
Informatique
Marc PHILIPPE, Service Risk Control
Aloyse KAPGEN, Agence Strassen
Gilles USELDINGER, Service Back-Office
Produits Financiers
Thomas BIESDORF, Centre Financier Gasperich
Claude BRAUN, Agence Niederanven
Claudine STEINBACH-SCHMIT, Agence
Limpertsberg
Sylvia ROSSLER, Service Paiements
Benn WURTH, Service Risk Control
Robert ALLIAUME, Agence Niederanven
Constant GRIZAENKO, Agence Beaufort
Tanja FLOHR, Service Marketing
Marcel URBE, Centre Financier Ettelbruck
Alexandra TURNER, Service Crédits
133
134
Romain GOEDERT, Agence Rumelange
Romain MAKIL, Agence Bettembourg
Marco SEIL, Service Paiements
Romain THEIS, Service Investment Funds
Paul KEIFFER, Service Electronic Banking and
Business
Henriette JEITZ, Centre Financier Bascharage
Nadine BEREND, Centre Financier
Place de Metz
Massimo ZUCCOLI, Service Crédits
Anne-Catherine SCHLINK, Centre Financier
Place de Metz
Patrick DELHEZ, Centre Financier Bascharage
Christiane KAYL-ELVINGER, Agence
Schifflange
Daniel HAAG, Service Crédits
Vahid NOURAFZA, Service Risk Control
Dzemal TOMIC, Service Investment Funds
Thomas BIRCHEM, Centre Financier
Bascharage
Marc REUTER, Agence Sandweiler
Jessica Dinis Igrejas, Centre Financier Place
de Metz
Jean-Marie MORRONI, Agence Schifflange
Nathalie PIERETTI-LANDINI, Agence Belvaux
Thierry TOURNAY, Service Développements
Informatiques
Yvon Streff, Service Financial Markets
Marco Keup, Service Organisation
Jacqueline SCHAACK, Centre Financier
Niederwiltz
Marilène MARQUES, Service Risk Control
135
136
Romain WEHLES, Service Crédits
Rosaria PENNINO, Service Développements
Informatiques
Guy FEHR, Centre Financier Esch-sur-Alzette
Simone SCHARTZ, Service Marketing
Ilido DOS SANTOS, Service Développements
Informatiques
Daniel MACK, Service Risk Control
Michaël HAMMEN, Service Production
Informatique
Michel MERGEN, Service Production
Informatique
Jean-Paul GLOD, Service Securities
Cyril TANNER, Service Back-Office Crédits
Claude FABER, Service Marketing
Joël KOCH, Service Production Informatique
Eldin KRUSKO, Agence Bonnevoie
Aimé MANTZ, Service Immeubles et Support
Logistique
Igor STOJADINOVIC, Agence Merl-Belair
Aloyse SCHUMMER, Centre Financier Place
de Metz
Sonia PELS, Secrétariat de direction
Aloyse ZEIMEN, Agence Pommerlach
Laurent PIERRARD, Service Investment Funds
Viviane GROSSINET, Agence Niederanven
Marcel CORNARO, Service Valeurs
Marc SCHMIT, Agence Mamer
Christian CESARON, Service Production
Informatique
Claude BAUM, Service Coordination Réseau
des Agences
137
138
Joseph HAMES, Centre Financier Bascharage
Jean-Claude WILMES, Service Risk Control
Marco NIES, Centre Financier Place de Metz
Carina RIBEIRO SILVA, Agence Gare
Christian MAIS, Agence Bettembourg
Gilles STROTZ, Centre Financier
Esch-sur-Alzette
Jean HILGER, Service Développements
Informatiques
Paulo PEREIRA FERRAZ, Agence Wormeldange
Yann WEINZOEPFLEN, Service Comptabilité
Centrale et Budgetisation
Gilbert LEICK, Service Back-Office Produits
Financiers
Cristina SANTOS RODRIGUES, Agence Banque
Jean-Marie PUTZ, Service Private Banking
Frederik PANNRUCKER, Agence Centre
Léa DUHR, Agence Centre
Eric FACHETTI, Centre Financier Gasperich
Marc LANG, Centre Financier Bascharage
Patrick FEHLEN, Service Crédits
Roland FURPASS, Service Gestion du Personnel
François MANGEN, Service Juridique et
Contentieux
Alain NEGAA, Service Développements
Informatiques
Fabien THREINEN, Service Comptabilité
Centrale et Budgetisation
Paul HUSS, Service Immeubles et Support
Logistique
Charles PLETSCH, Service Coordination
Réseau des Agences
Michel STAUDT, Service Coordination Réseau
des Agences
139
140
Georges SCHROEDER, Agence Merl-Belair
Charles SCHWARTZ, Service Production
Informatique
Nadine LULLING, Service Marketing
Roger PHILIPPE, Centre Financier Ettelbruck
Sophie Grimaudo, Service Compliance
Marc GOERGEN, Agence Gare
Claude SANDT, Agence Dudelange
Laurent SCHOLTES, Service Coordination
Réseau des Agences
Carl Axel GOLDSCHMIDT, Service Coordination
Réseau des Agenecs
Steve PHILIPPE, Centre Financier Place de Metz
Camille Theisen, Service Paiements
Romain GERSON, Service Administration des
Marchés Financiers
Alex Peter, Service Securities
Angèle Hornung-Schmitz,
Service Immeubles et Support Logistique
Roberto ScasselLati, Agence Mondercange
Josiane Back, Service Coordination Réseau
des Agences
Manuel Delgado Ferreira, Agence
Limpertsberg
Pascale Erasmy, Agence Wormeldange
Joachim Goldsztajn, Service Administration
Marchés Financiers
Sylvie Cardoso Da Silva, Service Back-Office
Crédits
Eric Lemoine, Service Production
Informatique
Michèle Fohl, Service Secrétariat Général
Jean-Paul Schneider, Service Electronic
Banking and Business
Martine Meyers, Agence Banque
141
Flavie HENGEN, Service Marketing
Photos : blitz agency (photos page 4)
Service Marketing (other photos)
Layout : Service Marketing
Printed by : Imprimerie Saint-Paul, Luxembourg
Editor :
Banque et Caisse d’Epargne de l’Etat, Luxembourg
Etablissement Public Autonome
Head Office: 1, Place de Metz
L-2954 Luxembourg
Phone: (+352) 4015-1, Fax (+352) 4015-2099
BIC: BCEELULL R.C.S. Luxembourg B 30775
www.bcee.lu
142
Renée OBERLINKELS, Service Marketing
Danièle Kosel-Muller, Service Marketing
Raoul LOUDVIG, Service Marketing
Tatiana SCHMITZ, Service Marketing

annual report

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