CONTENTS
2 MANAGEMENT REPORT 1 5 KEY FIGURES OF LATVIA’S ECONOMIC DEVELOPMENT, PAREX FINANCIAL HIGHLIGHTS AND RATINGS
6 KEY BUSINESS ACHIEVEMENTS
7 SERVICES
28 PAREX BANKA’S STRUCTURE
29 PAREX INTERNATIONAL PRESENCE
30 AWARDS RECEIVED AND BEST TRANSACTIONS OF 2005
31 FINANCIAL STATEMENTS SECTION
ANNUAL REPORT 2005 of the issue was fixed at the level of LVL 5 million. The securities with competitive rates, issuing payment cards, providing were listed on Riga Stock Exchange. internet banking and asset management advisory. Parex banka MANAGEMENT was also planning to start operations in Stockholm (Sweden) Parex banka is well on track to become the leading provider of through its branch in spring of 2006. REPORT investment banking services in the Baltics, which is evidenced by the volume and scope of its services. During 2005, the total The subsidiaries of the Bank demonstrated outstanding results amount of Parex banka’s participation in syndicated lending during 2005, and their achievements are reflected in their key deals reached USD 41 million, and the number of transactions financial indicators further. constituted 21. Parex banka acted as Co-Manager in the issue of loan-participation notes by the City of Kiev, raising USD 250 mil- During 2005, Parex Bankas, the Lithuanian subsidiary of Parex The year 2005 was another year of success and significant real estate in combination with comparatively low monthly lion with a ten-year maturity for financing of different municipal Group, showed net profit of LTL 7.2 million, which is by 31% more developments for Parex banka. Facing a demanding market, payments on credit. Individual service, competitive product projects, including the construction of a new bridge over the than a year ago. Furthermore, the volume of deposits rose by 2 we managed to steadily improve our position. The net profit for offers, attractive interest rates and fees for services, broad Dnieper. The Bank has a dedicated securities brokerage desk 42% in 2005, rising to LTL 311 million as at 31 December 2005. At 3 the Bank reached another record level amounting to LVL network of representative offices, branches and subsidiaries – all offering its customers a broad range of services, constantly the end of the reporting period, the volume of loans issued was 30.2 million, demonstrating almost double growth since the these factors will strengthen the position of Parex banka in the bringing new products and opening new markets for clients, as LTL 282.5 million, an increase of 16% as to the corresponding year 2004. Parex banka’s assets increased by 29%, total retail banking sector in the Baltics. well as providing 24 hr service and pan-Baltic and CIS/CEE equity figure from 2004. Total assets grew by 9% reaching LTL 483 shareholders’ equity grew by 23.1% and the volume of and credit research. With its new OTC platform for energy-related million at the end of the period. During 2005, Parex Bankas attracted deposits increased by 18.3%, including an increase in Payment cards are still another high-growth area for Parex derivatives, Parex banka continues to be a knowledge base in the completed visual changes in its distribution network in order to local retail deposits by 41.5%. The loan portfolio demonstrated banka, which is active in issuing payment cards in all three Baltics offering global commodity derivatives for local investors, comply with the Group’s identity guidelines. Significant improve- strong growth, increasing by 24.9%, including growth in Baltic countries. At the end of the reporting period there were particularly energy-related derivatives. ments have been made to the e-banking platform by enhancing mortgage lending by 47%. more than 242 thousand active cards and, during 2005 alone, the web site and Internet banking portal. Parex Internet bank is more than 68 thousand active cards were added. In 2005, Parex Parex banka continues to be internationally acknowledged, and one of the best services in this segment in Lithuania. A new As at 31 December 2005, Parex banka has the largest market banka became the first and only issuer of American Express various awards document the competitiveness of our product mortgage product Flexible loan, new design of VISA Classic credit share in terms of deposits, comprising 19.8%. In terms of assets credit cards in Latvia by launching American Express Platinum range. This year Parex banka has been named the Best Bank in card, and several new types of deposits are only a few of the and capital and reserves Parex banka remains among the leading and Gold cards. In October, Parex banka introduced a new credit Latvia in 2005 by Global Finance Magazine, the Best Bank in the changes in the Bank’s services delivered to the increasingly credit institutions in Latvia with a respective market share of card, Blue from American Express, thus meeting the customers’ Baltic Region by the Caspian Integration Business Club, the Best demanding customers. 16.3% and 18.1%. growing needs. Bank in Corporate Lending by business newspaper Bizness & Baltija
MANAGEMENT REPORT MANAGEMENT and the Best Bank in Latvia in 2005 by Euromoney Magazine. The total volume of assets of the Estonian branch together with Parex banka maintains leading positions in the banking sector in During the reporting period, Parex banka continued to diversify the Estonian subsidiary Parex Leasing and Factoring comprised the Baltics and continues strong and stable growth. The Bank’s its funding base: the total share of syndicated loans in Bank’s Parex banka is one of the leading banks in the area of AML/KYC EUR 79 million and grew by 86% during the year, thus surpassing developments are largely affected by the trends in the national liabilities increased from 6.7% to 11.3%. In July 2005, Parex banka international standard and best practice implementation. It can be the volume of assets in the two smallest Estonian banks. In 2005, economy. The stability of performance of Parex banka is rooted in successfully closed the largest syndicated loan with one of the demonstrated by the fact that in June 2005 the Bank commis- Parex lending portfolio in Estonia reached EUR 50 million and deep understanding of the Bank’s customers in the Baltic region, lowest margin ever taken by a Latvian private institution. The sioned the international auditing company Deloitte & Touche to was driven by 37% increase for private individuals and 42% for based on more than 13 years experience servicing them, as well amount of the syndicated facility reached EUR 188.5 million at a perform an independent review of the Anti-Money Laundering and legal entities. Many customers have shifted their deposits from as on the Bank’s Management’s ability to seize the opportunities margin of 0.6% over EURIBOR. The year 2005 was also the debut Combating Terrorist Financing (AML/CFT) Program existing at Parex other banks to the Parex banka Estonian branch. The total on the market while effectively managing risks. year for Parex banka in issuing local public notes and Eurobonds. banka. The review has confirmed that the Bank’s AML/CFT program volume of deposits at the end of the year 2005 reached EUR 30 The debut Eurobond transaction was joint-led by JP Morgan is in a compliance with the legal and regulatory requirements. million, which is 11 times more than by the end of the previous Lending is one of the key growth areas for Parex banka. The Bank and Credit Suisse First Boston, raising EUR 100 million with a year. Parex Estonian subsidiary Parex Leasing and Factoring had continues to strengthen its positions in mortgage lending in the three-year maturity, and was significantly oversubscribed. The Parex banka continued the international expansion by opening a achieved 15% market share in the segment of railway rolling Baltic States and is planning to increase its market share in this Eurobond was listed on the London Stock Exchange and branch in Berlin (Germany) and becoming the first financial stock leasing by the end of 2005. segment by launching new services on the market. In 2005, Parex received great interest from European investors as well as institution of the New EU Member to start operating in Western banka introduced a unique product Mini-payment giving an secondary market support. In March 2005, Parex banka success- Europe. The main services provided by Parex banka’s Berlin Parex Express Kredīts (previously, Parex līzings) is a subsidiary of opportunity to acquire a larger, better and more expensive fully completed its public offering of LVL notes. The total volume branch include: servicing customer accounts, offering deposits Parex bank operating in high-margin sector – mostly in
ANNUAL REPORT 2005 ANNUAL REPORT 2005 consumer lending. During 2005, the total loan portfolio of the During 2005, Parex Open Pension Fund showed a dynamic subsidiary increased by 44%, reaching LVL 8.7 million. Parex growth. Total assets of pension plans grew by 52.4%, reaching KEY FIGURES OF LATVIA’S ECONOMIC Express Kredīts has significantly strengthened its positions in this LVL 6.8 million. At the end of the reporting period, the number segment by accelerating client identification procedure, improv- of participants exceeded 19.5 thousand, and the market share DEVELOPMENT. PAREX FINANCIAL ing administration of non-payers and collection of debts. The of Parex Open Pension Fund in terms of participants comprised subsidiary has a broad distribution network in all regions of 37%. Pension system funds are managed and advised by Parex HIGHLIGHTS AND RATINGS Latvia – 239 association agreements with business partners, Asset Management. including Internet shops, have been signed. Services of Parex Express Kredīts are also available in six branches of Parex banka in During the first half of 2005, Parex banka established and Key figures of Latvia’s economic development the largest Latvia’s cities. acquired several leasing companies in CIS countries and currently operates Parex Leasing (“Парекс Лизинг”) and Extrole- 2006* 2005 2004 2003 2002 2001 The Group’s subsidiary Parex Asset Management (PAM) has been asing (“Экстролизинг”) in Moscow, Ekspress leasing (“Экс- (% growth in comparable prices) 4 growing remarkably strong in size, scope and performance. In пресс лизинг”) in St. Petersburg, Lasca Leasing (“Ласка Лізинг”) in Gross domestic product 8.0 10.2 8.5 7.2 6.5 8.0 5 2005, subsidiaries of PAM in Russia, Ukraine and Lithuania Kiev and Parex Leasing (“Парекс Лизинг”) in Minsk. A new leasing Private consumption 7.8 9.2 9.3 8.2 7.4 7.3 Public consumption 2.4 2.8 2.1 1.9 2.2 2.8 obtained licences, which expanded a distribution platform for company named Parex Leasing and Factoring (“Парекс Лизинг Goods and services exports 17.6 18.2 9.4 5.2 5.4 7.5 PAM products in these countries. In December 2005, Parex Asset энд Факторинг”) was founded in Baku, Azerbaijan. Parex banka Goods and services imports 16.2 14.3 16.6 13.1 4.7 14.3 Management founded a subsidiary Parex Dzīvība, which is selectively operates on CIS markets through its new subsidiaries (% of GDP) planning to start offering a wide range of life insurance services and adheres to a very cautious policy by concentrating on External debt 5.3 6.0 7.4 6.6 8.1 8.8 in the second quarter of 2006. With over USD 1 billion of assets leasing of transport vehicles as a safe form of credit exposure. Total debt 10.0 10.7 13.2 13.2 13.1 13.7 under management, from which 71% are assets owned within Current account -12.2 -12.5 -12.9 -8.1 -6.6 -7.6
Parex Group, PAM remains the largest asset management We were able to fulfil our performance aspirations with respect (% of economically active inhabitants)
company in the Baltic States and the second largest in Eastern to institutional and private investors and clients. We are building Unemployment level 7.3 7.5 8.5 8.6 8.5 7.7
Europe with a global outreach from 16 countries, including on our proven strengths and our reputation as a leading financial * Source: CSB, PAM projections Japan, Switzerland, Germany, and Sweden. After the merger institution in the Baltics. The performance and service quality, between PAM and Parex Investment Company at the end of 2005, and thus our esteemed clientele, always remain at the centre of Financial highlights of Parex Group the total number of Parex funds reached 8 with returns ranging our attention. 2005 2004 2003 from 2.9% for Parex Conservative Fund to 65.4% for Parex Russian LVL 000’s/% Group Bank Group Bank Group Bank
MANAGEMENT REPORT MANAGEMENT Equity Fund. The total volume of funds more than doubled and Net operating income 89,827 79,383 72,640 64,934 67,305 60,927 the market share reached 48% (excluding money market funds, Net profit 33,214 30,175 16,452 15,104 13,423 13,423 the market share reached 89%). Return on equity (ROAE) 23.35% 21.61% 14.03% 12.95% 14.93% 14.93% Return on assets (ROAA) 2.03% 1.94% 1.32% 1.27% 1.33% 1.38%
Net interest margin 3.04% 2.82% 3.38% 3.20% 3.12% 2.98%
Assets 1,842,336 1,757,009 1,424,481 1,361,442 1,064,652 1,023,415
Deposits 1,317,924 1,252,015 1,105,571 1,058,256 835,585 800,978
Loans 879,262 810,958 691,693 640,349 475,606 445,542
Shareholders‘ equity 158,091 154,121 126,387 125,160 108,157 108,157
Source: Parex banka
Valery Kargin Viktor Krasovitsky Guntars Grīnbergs Parex banka’s credit ratings President/ Chairman of the Board Chairman of the Council of Directors Chairman of the Council Long-term Short-term
Moody’s Investors Service Ba1 NP
Riga, 3 March, 2006. Fitch BB+ B Capital Intelligence BBB- A3
ANNUAL REPORT 2005 ANNUAL REPORT 2005 KEY BUSINESS ACHIEVEMENTS SERVICES
Parex banka’s total assets LVL 000’s 2,000,000 1,750,000 1,757,009 1,500,000 1,250,000 1,000,000 750,000 500,000 250,000 0 8 DEPOSITS 6 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 7
Parex banka’s capital and reserves 10 CREDIT CARDS LVL 000’s 160,000 154,121 140,000 12 REMOTE BANKING 120,000 100,000 80,000 14 LOAN FOR PRIVATE PERSONS 60,000 40,000 20,000 16 PENSION FUND MANAGEMENT 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 18 CORPORATE SERVICE Parex banka’s loans LVL 000’s 900,000 810,958 20 INVESTMENT MANAGEMENT 787,500 675,000 562,500 22 BROKERAGE SERVICES 450,000 337,500 225,000 24 INSURANCE 112,500 KEY BUSINESS ACHIEVEMENTS 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 26 GLOBAL PRESENCE
Parex banka’s deposits LVL 000’s 1,400,000 1,252,015 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
ANNUAL REPORT 2005 ANNUAL REPORT 2005 Key achievements in 2005 Goals for 2006
BEST • As at 30 December 2005, deposits had increased by nearly 200 • Parex banka will continue to offer deposit products both to million lats, ensuring Parex banka a 20% market share and provid- retail clients, ensuring competitive interest rates on standard ing the leading position in Latvia in terms of deposits. deposits, and to corporate and financial clients. DEPOSIT RATES • Due to the strategic approach and consistently attractive • By modifying the levels of liquidity and profitability, to broaden interest rates, the growth of deposits was stable, while interest the range of Parex banka deposit products. costs were predictable. Compared to its competitors, Parex • To improve Parex banka’s product range by introducing EACH DAY PAREX BANKA’S CLIENTS banka’s growth in deposits was not dependant on temporary structured deposits, which in the recent years have become increases resulting from marketing campaigns. popular in the U.S., Switzerland and other countries. The attrac- ARE PAID, ON AVERAGE, AN INTEREST tiveness of deposits is linked to popular market indexes, e.g. the OF LVL 63,216 ON THEIR DEPOSITS. price of gold, oil, currency, and other financial instruments. • The forecasted growth of deposits will reach 32% in 2006, as it 8 is expected that the volume of resident deposits will grow three 9 Parex banka is always ready to offer competitive interest rates to its clients, as well as to establish times as quickly as the volume of non-resident deposits. flexible and individually suitable terms of deposit. Owing to this policy, which is focused on meeting client’s needs, Parex banka can pride itself for attracting the largest volume of deposits among the commercial banks in Latvia. The volume of deposits is increased also by the competitive positioning of Parex banka internationally, appealing to new clients with attractive interest rates. Parex banka investments Parex banka offers clients: LVL 000’s a wide range of deposit products: from savings accounts and overnight deposits to five- 1,400,000 • 1,252,015
DEPOSITS year term deposits; 1,200,000 • an individual approach towards depositor needs, while exploring new opportunities for 1,000,000 more attractive terms and interest rates for deposits. 800,000 600,000 400,000 200,000 0 2000 2001 2002 2003 2004 2005
THE OLDEST VINE IN THE WORLD IS 400 YEARS OLD, AND EACH YEAR IT YIELDS UP TO 55 KG OF GRAPES.
55 kg
ANNUAL REPORT 2005 ANNUAL REPORT 2005 Key achievements in 2005
CREDIT CARDS Parex banka started to issue the prestigious American Express® credit cards in Latvia. • In April, the clients were offered the prestigious American Express® Gold and Platinum credit cards with a high-level of service and extensive benefits. ON AVERAGE, 17,160 PURCHASES • In October, a wider audience was offered a new innovative A DAY ARE MADE USING PAYMENT American Express® BLUE credit card, which impresses not only CARDS ISSUED BY PAREX BANKA. with its unique and transparent design, but also provides one of the most flexible financial arrangements in the Latvian credit card market. • The American Express® Selects programme of discounts and 10 Parex banka is an exclusive issuer of American Express® credit cards in Latvia. This agreement special offers was created. 11 confirms that American Express® supports Parex banka’s activities in the rapidly growing credit card market in Latvia. Parex banka provides credit cards to a broad consumer base, by offering flexible card receipt and credit repayment terms. Goals for 2006 • Parex banka’s American Express® credit cards guarantee an outstanding level of service and financial freedom. • It is planned to ensure acceptance of American Express® • The network of VISA and MasterCard payment cards allows the residents to choose the payment cards in all of the most popular trading places in Latvia. most suitable debit or credit card with favourable terms of credit. • Develop the range of credit card products further, adjusting it to • Parex ISIC/ITIC cards for scholars, students and teachers combine the internationally fit the needs and desires of various Latvian population segments acknowledged ISIC/ITIC network with the advantages of Visa Electron or Visa Classic payment as close as possible. cards. • Introduce Mastercard Standard – a new credit card, aimed at a
CREDIT CARDS wide range of consumers. • Improve on American Express® credit card offers and service.
Payment cards issued by Parex banka 600,000 THE LARGEST NUMBER OF ROSES – 560,354 ABOUT 3 MILLION – IS SOLD 500,000 WORLDWIDE ON ST. VALENTINE’S DAY. 400,000 300,000
200,000
100,000
0 2000 2001 2002 2003 2004 2005 debit cards credit cards
ANNUAL REPORT 2005 ANNUAL REPORT 2005
Parex SMS bank provides information on current account and Goals for 2006 payment card balance no matter where the client is located. ONLINE BANK – Parex DIGI::FIRMA is a remote account management system, • To extend the range and options of remote payment channels. especially suitable for large companies and enterprises with • To offer the latest Internet Bank services also in Western European intensive cash flow. branches of Parex banka. A CONVENIENT BANK It provides: • To continue promoting remote payment solutions, hence consid- • the system allows using multi-level signature system accepted erably increasing the number of electronic payments. at the company; • the possibility to sign a large number of documents simultaneously; EACH DAY, ON AVERAGE, 4,166 Parex Internet Bank TRANSACTIONS ARE CARRIED OUT • compatibility with company’s management systems (including Users of service accounting software). 150,000 136,405 THROUGH PAREX INTERNET BANK. 135,000 12 Key achievements in 2005 120,000 13 Parex Internet Bank is an electronic settlement system ensuring full 24/7 access to manage finances by 105,000 taking advantage of modern and effective remote payment channels. From a simple remote account management system, Parex 90,000 In an online regime Parex Internet Bank enables to make and configure automatic • • Internet Bank has evolved into a unified internet resource, which payments, open a term deposit, apply for payment cards and other banking products, 75,000 assists the clients in handling effectively all their banking transactions. manage securities portfolio and other financial instruments. Due to a targeted and continuous popularisation of remote 60,000 • Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec payment channels and automatic payments, the number of 2005 electronic transfers increased by 69%. • The number of Internet banking users increased by 60%. Usage of Parex Internet Bank • 3.5 million connections to the Parex Internet Bank were 350,000 registered. 335,286 325,000
300,000
REMOTE BANKING REMOTE 275,000
250,000
225,000
200,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2005 THE NUMBER OF WING FLAPS OF THE HUMMINGBIRD REACHES Payments made through Parex Internet Bank 150,000 200 PER MINUTE. 141,332 135,000
120,000
105,000
90,000
75,000
60,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2005
ANNUAL REPORT 2005 ANNUAL REPORT 2005 Loans to private persons, against a real estate pledge Key achievements in 2005 LVL 000’s 300,000 PAY THE SAME • As at 31 December 2005, Parex banka had issued loans totalling 248,411 250,000 LVL 248,411,000 to private persons. • The loan portfolio grew by 60.7% compared to 2004. This AMOUNT FOR LARGER 200,000 impressive growth confirms the effectiveness of the product 150,000 development strategy for mortgage lending. AND BETTER HOMES 100,000 • The new-type loan Mini-Payment already formed about 30% of new loan transactions per month. 50,000
0 8,210 FAMILIES IN LATVIA 2000 2001 2002 2003 2004 2005 Goals for 2006 LIVE IN HOMES FINANCED 14 BY PAREX BANKA. • To continue development of loan services by offering new 15 attractive products, thus strengthening our position as the leading provider of innovative solutions and products. Mortgage lending to private individuals was one of the top priorities for the year 2005. In the last • To continue attracting new clients through referrals from real quarter of the year 2005, the Bank introduced a new type of mortgage loan – Mini-Payment estate companies, brokers, and new project developers. (Minimaksājums), which differs from common mortgage loans through: • To improve and develop the branch network, increase person- • accessibility to a wider range of residents; nel competence and client service effectiveness in order to • providing clients with an opportunity to purchase larger, better and more expensive real ensure wider availability of loan resources. estate for a comparatively lower monthly payment. There is no obligation to repay the whole principal of the loan until the agreed repayment date; at the loan maturity date up to 50% of the real estate market value can remain unpaid; • fexible repayment schedule. Payments can be increased at any time based on client’s income growth. LOAN FOR PRIVATE PERSONS FOR PRIVATE LOAN
OF ALL THE WORLD’S ANIMALS, THE TORTOISE LIVES IN ITS “HOUSE” FOR THE LONGEST TIME – 152 YEARS.
ANNUAL REPORT 2005 ANNUAL REPORT 2005 PENSION FUND MANAGEMENT16 ANNUAL REPORT PROFITABLE PAREX – PENSIONPLANS 2005 private individualorlegalentity.private and prosperous oldage. provided by The opportunities Parex banka strated animpressive growth –10.30%and9.79%,respectively (asat31December, 2005). increases for itsclients. plans are always highlyprofitable, thereby providing oneofthelargest pensioncapital • • After theinceptionof After Owing to Owing offers various state-funded and private pensionplans, andprivate itsclientsasecured thusensuring offers state-funded various Parex Management Asset Parex’s third tierpensionplans: , themanagerof Parex Parex PLAN GREW BY LVLPLAN GREW 2,332,489. PAREX’SPENSION THIRDTIER IN 2005,NETASSETS OF Balanced pension plansmay beusedbyany pension fundassets, and Active pensionplans Parex pension demon- pension planhadreached 19,500. year,end ofthereporting inthird tier thenumberofparticipants the By share oftheopenpensionfundmarket. 36.97% market in Latvia, aheadoftheState in Latvia, Treasury and becoming thesecondlargest secondtierpensionplanmanager from 15.5%to ofnumberparticipants. 19,4%interms Thus accordingly. pants by40–45%,andgrowth inpensionplan’s assetsby38–40% isplannedto increase the numberofpartici- annual return. It pension planswithdifferent investment strategies and7–8% share.market profitability ofsecondtierpensionplans, andto increase the reaching LVL 6.8million.Suchanincrease ensured overall)increased by52.4%(compared to 43.7%intheindustry • • Goals for 2006 • • Key achievements in2005 Sne April, 1 Since isplannedto of maintaintheleadingpositioninterms It to 2004,assets ofthethird comparison tierpensionplan In Parex’s FOR ASMALL PEARL TO GROW. IT TAKES ABOUT50 YEARS second tier pension plans increased their market share secondtierpensionplansincreased theirmarket Parex Open Pension Fund Pension Open Parex Unifondi offers three licensed . Parex banka Parex ANNUAL REPORT 2005 a 17 Total loans issued by Parex Group Key achievements in 2005 LVL 000’s 1,000,000 CORPORATE 895,858 • Parex banka’s loan portfolio reached LVL 827,136,000, an increase 800,000 by 24.9% compared to the year 2004. • The most significant projects in financing companies were in LENDING 600,000 transport and communications, real estate and trade industries. Compared to the previous year, the largest increase of corpo- 400,000 • rate lending portfolio was in real estate (annual increase by 60%) BY THE END OF 2005, THE TOTAL 200,000 and manufacturing (increase by 22%). AMOUNT OF THE LOANS 0 2000 2001 2002 2003 2004 2005 GRANTED TO ENTERPRISES Goals for 2006 BY PAREX BANKA REACHED 18 LVL 564,874,000. • To maintain the leading position in corporate lending, particu- 19 larly in the real estate, trade, and transport and communications industries. Parex banka offers a wide range of loan and other financing services for large, medium-size and small • To ensure continuous growth by increasing the financing limits companies and enterprises. The Bank offers innovative forms of lending and flexible credit terms, available to existing clients, whilst attracting new clients by using considering the individual desires, demands and prospects of a client. Parex banka also has representa- our professional expertise in specific sectors. tive offices, branches and subsidiaries in 15 countries around the world, therefore corporate lending services are also provided to companies outside Latvia. CORPORATE SERVICE CORPORATE
THERE ARE 48 MILLION SQUARE KILOMETRES OF VIRGIN LAND ON THE EARTH.
ANNUAL REPORT 2005 ANNUAL REPORT 2005 Returns on Parex Funds Key achievements in 2005
Parex Russian 65.39% • In November, Parex Asset Management and Parex Ieguldījumu PAM – Equity Fund pārvaldes sabiedrība (Parex Investment Company) merged into Parex one entity – Parex Asset Management IPAS. Baltic Sea 37.64% Equity fund • The licensing process of Parex Asset Management subsidiaries and ABSOLUTE RETURN products in Russia, Ukraine and Lithuania was completed, thereby Parex Baltic 25.32% providing the basis for successful distribution of Parex investment Real Estate Fund products in these countries. Parex • Parex investment funds showed decent profitability – from 2.9% PAREX ASSET MANAGEMENT 12.52% Balanced in Parex Conservative Fund to 65.4% in Parex Russian Equity Fund. MANAGES ASSETS VALUED AT MORE Fund • All of the open Parex investment funds founded in Latvia and THAN HALF A BILLION LATS. Parex Eastern European 11.66% Lithuania were registered for public distribution in both countries. 20 Balanced Fund • The volume of Parex investment funds listed on the Riga Stock 21 Parex Exchange, increased by 140%, with the market share of invest- 4.45% Parex Asset Management with its 40 employees and over USD 1 billion assets under management is Eastern European ment funds registered in Latvia reaching 48% (or 89%, if exclud- Bond Fund the largest asset management company in the Baltic States. ing money market funds). The company specialises in investments in Central and Eastern European countries, and in Parex • Conservative 2.90% • Parex clients were provided an opportunity to complete transac- CIS securities and real estate markets, offering a full range of investment solutions in these Fund tions with investment funds in Parex subsidiaries and client service regions. 0% 10% 20% 30% 40% 50% 60% 70% centres as well as through the Internet Bank. • Parex Asset Management offers global investment strategies for local clients, as well as investment consultations and investment portfolio management for international institu- tional clients interested to invest in the Central and Eastern European region. Goals for 2006 • Parex Asset Management manages the investment portfolio of Parex banka, Parex pension plans and several local investment funds, and investment portfolios of insurance companies • In December 2005, Parex Asset Management established a life and banks. EACH DROP OF SALT-WATER insurance subsidiary Parex Dzīvība. It is planned to start operations CONTAINS APPROXIMATELY ONE in the second half of 2006. BILLION GOLD ATOMS, WHILE • In January, Parex Austrumeiropas sabalansētais fonds (Parex Eastern European Balanced Fund) was registered for public distribu- THE WORLD’S OCEANS CONTAIN tion in Sweden. It is also planned to register Parex investment ABOUT 70 MILLION TONNES OF GOLD. funds for public distribution in Germany and Switzerland. • To launch a new Baltic Real Estate fund. INVESTMENT MANAGEMENT • To establish a risk capital fund for investments into those prospective enterprises of the Baltic States which are not listed on the stock exchange.
ANNUAL REPORT 2005 ANNUAL REPORT 2005 Key achievements in 2005 • Income from securities service commissions in all securities markets more than doubled during the last year. Evidently, this BROKERAGE • 2005 was a year of rapid growth in securities services. The reflects our clients’ confidence and interest to work with the Bank number of transactions and number of clients increased sharply. in the complicated securities market.
SERVICES IN Commission Transactions USD 000’s 28,000 1,600
THE SECURITIES MARKET 24,000 1,400 1,200 20,000 1,000 16,000 ON AVERAGE, 2,270 FINANCIAL 800 12,000 TRANSACTIONS ARE CARRIED OUT 600 8,000 22 BY PAREX BANKA’S BROKERS DAILY. 400 23 4,000 200
0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Parex banka’s brokerage services provide the clients – private and institutional investors – with: 2004 2005 2004 2005 • an opportunity to invest in diversified securities markets, from the Baltics to Australia and Japan; • an access to convenient electronic stock trading platforms in the Baltic, US and Russian markets; • an opportunity to participate first in new stock and bond issues. Financing against the Turnover securities pledge – Repo operations – has gained great popularity. USD 000’s 1,400,000
1,200,000
1,000,000
800,000
600,000
400,000 THE FIRST FOUR MOVES IN CHESS 200,000
BROKERAGE SERVICES BROKERAGE 0 CAN BE MADE IN 318,979,564,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec COMBINATIONS. 2004 2005
Goals for 2006
• To offer new products and services. One of the most important projects in the local securities market will be the merger of all three Baltic stock exchanges into one commercial platform. • Actively market our fully-fledged brokerage service to both local and foreign institutional clients.
ANNUAL REPORT 2005 ANNUAL REPORT 2005 INSURANCE Key achievements in 2005 Goals for 2006 • Written premiums reached LVL 12.7, ranking the company The largest Norwegian non-life insurance company Gjensidige fourth largest among the non-life insurance companies in Latvia. Forsikring, which controls about one-third of the Norwegian non-life A total of 205 thousand insurance contracts were signed and the insurance market acquired 100% of the shares of Parex Insurance INSURANCE CLAIMS PAID claims paid reached 5.9 million lats. Company at the beginning of 2006. The new shareholders are IN 2005 TOTALLED • Largest increase in written premiums among the five leading planning: LVL 5,878,938. non-life insurance companies of 31%, while maintaining the • to offer greater financial security, improved service, and new lowest level of administrative expenses at 33.2%. products, for instance, by creating joint insurance programmes • New branches and selling points were established, covering in Scandinavia and the Baltics; most regions in Latvia. Increased activity in the Baltic region led • to extend the operations in Lithuania and Estonia, broaden the Parex Insurance Company (Parex Apdrošināšanas kompānija) is the third largest insurance company in Latvia to registration and opening of the branch in Estonia. choice of insurance products, and offer new services to clients. in terms of capital and reserves. The company offers not only a full spectrum of insurance services, but also 24 especially advantageous solutions in the key market segments. 25 • Parex Insurance Company holds a particularly strong position in transport insurance area – Parex is ranked third in the market by the total amount of written premiums, holding a 13.6% market share for obligatory insurance (MTPL) and 13.9% market share for voluntary insurance Insurance premiums underwritten in 2005 (gain %)
(CASCO). 35 • Parex Insurance Company offers MTPL service with after-payment option using payment 30 cards, in cooperation with Latvian commercial banks. • Parex Insurance Company has 25 branches currently operating in Latvia, 12 branches in 25 Lithuania, and one branch in Estonia. 20 INSURANCE 15
10
5
0 BTA Balta Parex -5 ERGO Latvija If Latvija Company -10 Insurance
-15
A BEE FLIES OVER 4,000 FLOWERS TO GATHER A SPOON OF HONEY.
ANNUAL REPORT 2005 ANNUAL REPORT 2005 Key achievements in 2005 Goals for 2006
GLOBAL • The Bank participated in more than 28 international transac- • A syndicated loan of EUR 200,000,000 was signed in cooperation tions for the total amount of USD 2 billion. with Mizuho Corporate Bank, Ltd. PRESENCE • AP Anlage&Privatbank AG continued attracting new clients and • In cooperation with Deutsche Bank and HSBC, Parex banka increased its assets by EUR 7 million. Net profit for the year placed its new Euro-denominated senior unsecured notes, constituted EUR 352,000. raising EUR 200 million with a five-year maturity and a 5.625 % IN 2005, PAREX BANKA WAS OPERATING • In summer 2005, AP Anlage&Privatbank representative offices coupon. were established in Latvia and Estonia. • The Bank will continue its successful track record of raising IN 43 CITIES AND TOWNS WORLDWIDE • The syndicated loan was closed at the amount of EUR funds through syndicated loans and bond placements in world THROUGH ITS WIDE NETWORK 188,500,000 in cooperation with ING Bank N.V., Mizuho Corporate debt markets. OF REPRESENTATIVE OFFICES, Bank, Ltd. and Standard Bank London Limited. • The Bank will continue to broaden its presence in the Baltics 26 BRANCHES AND SUBSIDIARIES. • The debut EUR 100 million Eurobond issue was placed in and international markets by using the successful strategies of 27 cooperation with JP Morgan and Credit Suisse First Boston. The the Berlin and Stockholm branches in order to determine the Eurobond attracted strong demand from both private and depth of the market in the EU for possible future initiatives. With an aim to develop the business and gain a maximum success in international markets, Parex institutional international investors. banka regularly expands its activities abroad and actively cooperates with international organisations, primarily in raising funding for the Bank. • Parex banka has representative offices, branches and subsidiaries in 15 countries around the world, including banking subsidiaries in Switzerland, AP Anlage&Privatbank AG, and in Lithuania, Parex Bankas. • Parex banka is an active participant on the syndicated loan markets, it also takes advantage of issuing long-term debt securities in order to diversify the Bank’s funding base. GLOBAL PRESENCE GLOBAL
A MAN, DURING HIS LIFE, WALKS APPROXIMATELY 121,000 KILOMETRES, WHICH EQUALS THREE STROLLS AROUND THE WORLD IF WALKING ALONG THE EQUATOR LINE.
ANNUAL REPORT 2005 ANNUAL REPORT 2005 PAREX BANKA’S STRUCTURE PAREX GROUP COMPANIES AND REPRESENTATIVE OFFICES
Council of the Bank Internal Audit Department Board Council of the Directors
Senior Vice President 28 Compliance Supervision 29
In Latvia Senior Vice President Parex banka Customer Service Vice President Vice President Vice President Vice President Parex Leasing and Factoring Vice President Customer Service Correspondent Products and Customer Service Customer Service Customer Service Banknotes and Customer Service Division: Banking and Payment Cards Services Parex Express Credit Divison: Divison: Division: Cash Delivery Transportation and Global Cash Division Development In Kazakhstan In Ukraine Divison: Large Latvian and Latvian Individuals Parex Insurance Company Energy Sector Latvian Corporate Divison CIS and CEE Western Customers and SME Service Division Division Clients Clients Parex Asset Management Representative office Representative offices Parex open pension fund Laska leasing Parex brokerage system Parex Asset Management Parex Life Ukraine Internet bank Customer Service Personnel Marketing and DIGI Products Division Legal Development Division Division Department Division In Estonia In Moldova In Belarus Vice President Lending Parex banka branch Representative office Representative office Transport and Credit Parex Leasing and Factoring Parex leasing Corporate Regional Lending Lending and Energy Sector Lending Legal Credit Risk Analysis Lending Administration Lending Lending and Leasing Leasing in the CIS Clients Lending Division Division Supervision Division and Documentary Development Division Division Development Division Operations Division Division Division Senior Vice President Capital Markets and Investment Banking Treasury and In Sweden In Lithuania In Japan Trading and Custody and Funds International Liquidity Investment Banking Brokerage Administration Relations Legal Department Parex banka branch Parex Bankas Representative office Management Division Department Department Division Department Representative office Parex Factoringas ir Lizingas Baltic Polis Vice President Finance and Parex Investiciju Valdymas
PAREX BANKA’S STRUCTURE BANKA’S PAREX PRESENCE INTERNATIONAL PAREX Information Technology Dealing Operations Financial Analysis Accounting Methodology Banking Technology Clearing Division Department Division Department Division (Back Office) In Russia In Switzerland In UK Representative offices AP Anlage & Privatbank AG Representative office Parex leasing Express leasing Parex Asset Management Legal Sector
In Azerbaijan In Germany In Uzbekistan Representative office Parex banka branch Representative office Parex Leasing and Factoring Representative office Marketing Information Systems Loan Workout Marketing and Sales Compliance Assets and Liabilities Risk Management Communication Credit Committee Maintenance Committee Committee Committee Committee Committee (RMC) Committee Committee
ANNUAL REPORT 2005 ANNUAL REPORT 2005 AWARDS RECEIVED AND BEST TRANSACTIONS OF 2005 FINANCIAL STATEMENTS SECTION
32 ECONOMIC AND BANKING 31 30 ENVIRONMENT IN LATVIA Global Finance Magazine Global Finance Magazine Euromoney Magazine 34 MANAGEMENT OF THE BANK
35 STATEMENT OF RESPONSIBILITY Syndicated Loan Syndicated Loan Syndicated Loan OF THE MANAGEMENT USD 65,500,000 USD 65,500,000 USD 170,000,000 Co-arranger Manager Manager April 2005 August 2005 November 2005 FINANCIAL STATEMENTS: 36 STATEMENTS OF INCOME 37 BALANCE SHEETS AND MEMORANDUM ITEMS Syndicated Loan Eurobond Issue Syndicated Loan 38 STATEMENTS OF CHANGES USD 38,000,000 USD 150,000,000 USD 60,000,000 IN SHAREHOLDER’S EQUITY Lead Manager Co–Manager Lead Manager November 2005 June 2005 April 2005 39 STATEMENTS OF CASH FLOWS 40 NOTES
AWARDS RECEIVED AND AWARDS TRANSACTIONS OF 2005 BEST 76 AUDITORS‘ REPORT Syndicated Loan Syndicated Loan Syndicated Loan USD 50,000,000 USD 16,000,000 USD 50,000,000 Lead Manager Lead Manager Lead Manager November 2005 November 2005 April 2005
Eurobond Issue Loan Participation Notes Loan Participation Notes USD 200,000,000 USD 250,000,000 USD 100,000,000 Co-Lead Manager Co-Lead Manager Co-Manager October 2005 October 2005 October 2005
ANNUAL REPORT 2005 ANNUAL REPORT 2005 32 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT of capitalandreal estate markets. profit. Further improvements in the banking system’s efficiency are closely linked to the development of the economy,with operating are structural banks commercialreforms, and andloans, theand deposits development assets, in growth gradual a stability.is Thereits by characterized is sector banking Latvian The thereAs 2005,inLatvia were at31December 22banks, 1branchofaforeign branchofNordea bank–theLatvian BankFinland Plc (Finland). of European governments. of trust growing The investment. for place prospective and safe investors in Latvia is a proved by the falling risk premium – difference as of return on government bonds of Latviaand Latvia return on the highest qualitydebt securities assessing been has while a for already community finance international The A2, andA,respectively, inLats. agencies ratings credit international by assigned agencies. ratings rating The foreign leading by assigned ratings credit the in reflected is Latvia in reforms economic of success The direct investments increased by 11.8%. foreign accumulated 2005, of months nine first the investments. During direct foreign covered by is being time the for deficit account current 27.1%. The by economy, the foreign trade volume has also grown significantly. Thus, in 2005, the export volume has increased by 33.6% with the import volume also growing still the current account deficit, which in 2005 most probably will amount near to oreven exceed 13% of the GDP. Along with the development of the Latvian is economy Latvian of GDP. the weaknesses of few the approximately 1% of with years, One seven last the over level lowest the reached has deficit fiscal the Starting from 1996, and the only exception being the year 1999, the budget deficit has been lower than 3.0% of the GDP. According to provisional data in 2005, populationatthebeginningeconomically active oftheyear to 7.5%intheendofNovember. the of 8.5% from reduced level unemployment registered The price 6.7%. mere consumer constituted year the the for 2005, rate inflation During average pressure. the however, 7.0%; inflation by grewthe index of increase an in resulted Union European the into integration and growth economic rapid The andconstruction. commercial services, exceed the 10% level. More than 4/5 of the growth was generated even byor tothe developmentclose of be fivewill industries:2005 trade,in growth manufacturing, GDP transport andtotal communications, the that projected is It 2004. in period respective the to compared 10.1% by grown has Latvia of GDP the In 2005, the economy of Latvia continued to exhibit upward development in almost all the significant economic sectors. During the first three quarters of 2005, foreign were reserves equivalentto 3–4months’ imports. volume andnon-factored ofstate service commodity At the end of October 2005, the cash base (cash in circulation and deposits with the Bank of Latvia) coverage of net foreign assets constituted 114.5%, and net As 2004 at31December As 2005 at31December exchange rates oftheBankLatvia areasOfficial follows: for planningandpricing. corporate The current peg mechanism allows for relative stability and predictability of the national currency, mitigates the foreign currency risks and creates a stable basis the onlylegaltender ofLatvia. oftheRepublic beginningthe be at will Lat then until 2008, of Community toapprovedschedule the tois admittedbe by toCabinet, the Latvia Economic the Monetary and Euro will replace policy.for of transactions, Latvia and the the national will Bank currency discontinue Accordingeveryday of its Latvia independent monetary proving its compliance with the Maastricht criteria. As soon as the Council of the European Union allows Latvia to join the Economic and Monetary Community, while years, two least at for mechanism this in participate to have will Latvia II. mechanism exchange currency European joined has Latvia 2005, May 2 Since 2005. January 1 LVL from effective 0.702804 = EUR 1 of rate the at Euro to pegged been has Lat 2004, in Union European Followingthe Latvia’sto accession Fundhas pegged Lat Monetary to Special the Drawing(SDR), International thereby Right of a fixed implementing exchangethe policy national currency rate. Latvia of Bank the 1994, of Ascontrols. exchange without currencies hard against convertible fully is Latvia, of Republic the of tender legal (LVL),only Lat the inCentralmost successfullydeveloping Europe. andEastern countries the of one become has economy. Latvia Thus, Latvian the in improvements facilitated have policies fiscal and monetary balanced and well-considered The LATVIA IN ENVIRONMENT BANKING AND ECONOMIC
Banking sector in2005 Banking sector 2005 Standard & Poor’s& Standard , Moody’s and LVL 1.00= LVL 1.00= Fitch Ratings Fitch are A-, A2, and A-, respectively, for Latvia’s long-term liabilities in foreign currency, and A-, and foreigncurrency, in Latvia’srespectively,liabilities for A-, long-term and A2, A-, are 1.938 1.686 USD 1.422 1.423 EUR 1.004 0.979 GBP 53.763 48.544 RUB than in the EU Member States.than intheEUMember as to enhance the development and stability of financial and capital markets.Many of the regulations on the operations of Latvian credit institutions are stricter toestablished ensurebeen Commission,has vestedprotectioninvestors, which Financial of the in CapitalMarket and depositorsinsured and persons, wellas is authority Europe.supervisory Eastern The and Central all in strictest the among is Latvia in supervision banking foreignexperts, of number a to According banks. capital of sector banking was only 5.3%. Only one bank is fully Fivestate-owned. major banks held assets comprising two-thirds of the total assets of all Latvian sharestate’s the the in 2005, share of end the At owned. privately are banks the of Most completed. nearly is sector banking Latvian the of restructuring The and SampoBank. Landesbank Norddeutsche Westbank, und Vereins- Banken, Enskilda Skandinaviska Swedbank, banks: Latvian of capital share the in banks foreign several of The sector banking is one of the most developed economic sectors in Latvia and is attractive toparticularly foreign investors. This is evidenced by investments ANNUAL REPORT 2005 33 34 FINANCIAL STATEMENTS SECTION NOTES Hans Eberhard Berndt Gints Poišs PētersoneKārina Bērziņš Andris Guntars Grīnbergs Gene ZolotarevGene Vladislavs Skrebelis Jānis Skrastiņš LagzdiņšArnis Alexander Kvasov Viktor Krasovitsky Kargin Valery ANNUAL REPORT ZolotarevGene Līga Puriņa Brīvmanis Ēriks LagzdiņšArnis Alexsander Kvasov Viktor Krasovitsky Council ofDirectors year, thereporting During there have Board. beennootherchangesintheManagement Board).member oftheManagement Bank’sthe Boardof decision the (previouslyManagement the of By chairman CouncilMarch2005, 23 on appointeddeputy been the has as ViktorKrasovitsky Management Board year, thereporting During there have beennochangesintheCouncil oftheBank. Council oftheBank BANK THE OF MANAGEMENT 2005
as atthedate ofsigning thesefinancialstatements: as atthedate ofsigning thesefinancialstatements: as atthedate ofsigning thesefinancialstatements: Senior Senior Vice President Responsible forLending Operations, covering alllending, credit andleasingfacilities toretail andcorporate clients. Vice President technology information strategic developmentandimplementation, andtheBank’s management, andtheGroup’s accountingand liability systems. asset management, financial Group’s the and Bank’s the for Responsible Vice President Responsible fortheGroup’s compliance withregulations andinternalprocedures. Senior Vice President branch and settlements operations, card corporate), management. and (retail service client covering Division, Operations for Responsible Senior Vice President oftheCouncil ofDirectorsChairman Management. Also responsible for managing the Group’s strategic development covering investor relations, debt and equity equity financing, and relationships withinternational financialinstitutions. and debt relations, investor covering development strategicGroup’s the managing for responsible Also Management. CapitalMarkets,for Responsible Trading Treasury,& InvestmentBanking,Corporate Finance, InvestmentProducts, Trust Asset and Member oftheCouncil Member oftheCouncil Member oftheCouncil Member oftheCouncil Chairman Deputy oftheCouncil Chairman Member of the Management Board oftheManagement Member Board oftheManagement Member Board oftheManagement Member Board oftheManagement Member Board oftheManagement Member Board oftheManagement Chairman Deputy President Board oftheManagement andChairman Riga, 3March 2006 Riga, regulations oftheFinancial applicablefor Commission, andotherlegislation ofLatvia credit oftheRepublic andCapital institutions. Market and detection of fraud and other irregularities in the Group. They are also responsible for operating the Bank in compliance with the Law on Credit Institutions, The Management of AS Parex banka is responsible for the maintenance of proper accounting records, the safeguarding of the Group’s assets, and the prevention reasonable judgementsandestimates have inthepreparation beenmadeby theManagement ofthefinancialstatements. and Prudent 2. Note in disclosed as changes for except basis, consistent a on applied been have policies accounting Appropriate basis. concern going a on The financial statements are prepared in accordance withInternational StandardsFinancialReporting issued by theInternational Accounting Standards Board ended. the of then years shareholders’ the in for position flows changes operations,cash their and equity,of results financial the and 2004 the and 2005 December 31 fairly at as Group present the and Bank and documents source the with accordance in prepared are 45 to 6 pages on out set statements financial The the for as well as Bank the of statements financial the of preparation oftheconsolidated (hereinafter financialstatements oftheBankanditssubsidiaries –theGroup). preparation the for responsible is Bank) the – (hereinafter banka Parex AS of Management The MANAGEMENT THE OF RESPONSIBILITY OF STATEMENT President, ofthe Chairman Management BoardManagement Valery Kargin Chairman oftheCouncil of Chairman Viktor Krasovitsky Direct ors Chairman oftheCouncil Chairman Guntars Grīnbergs ANNUAL REPORT 2005 35 36 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT expense Depreciation andamortisation Administrative expense Net operatingincome Commission andfee expense Commission andfee income Net interest income Interest expense Interest income LVL 000’s 2005 DECEMBER 31 ENDED YEARS THE FOR INCOME OF STATEMENTS The accompanying notesare ofthesefinancialstatements. anintegral part 3March 2006 Riga, signed ontheirbehalfby: oftheBankand the Management The financial statements have beenapproved by Net profit for the year Corporate incometax Profit before interest incometaxandminority corporate Profit from investments insubsidiaries offinancialassets Impairment operatingexpense Other operatingincome Other Profit ontradingwithfinancialinstruments, net Net commissionandfee income Minority interest Minority Profit before interest minority offinancialassets ofimpairment Reversals 2005 President, ofthe Chairman Management BoardManagement Valery Kargin 21, 22 Notes 8, 9 10 11 20 10 5 5 4 4 7 6 (47,722) (32,425) Chairman oftheCouncil of Chairman 33,214 Group (6,347) (6,794) (2,722) (4,365) 89,827 32,528 46,474 78,899 15,484 25,734 33,214 37,579 2,135 5,347 (804) Viktor Krasovitsky – – 2005 Direct AND 2004 AND ors (41,539) (31,581) 30,175 (5,773) (7,058) (2,674) (4,111) 79,383 30,049 40,934 72,515 13,833 22,991 30,175 34,286 Bank 1,625 5,229 (340) – – Chairman oftheCouncil Chairman (38,800) (19,848) 16,452 Guntars Grīnbergs (6,318) (5,074) (2,206) (9,109) 72,640 13,227 18,823 23,897 38,670 58,518 16,454 18,660 Group 1,920 1,010 (344) (419) (2) 2004 (33,933) (19,153) 15,104 (5,580) (5,098) (8,672) (2,020) 64,934 12,190 16,514 21,612 34,943 54,096 15,104 17,124 1,287 (340) Bank 715 – – The accompanying notesare ofthesefinancialstatements. anintegral part 3March 2006 Riga, signed ontheirbehalfby: oftheBankand the Management The financialstatements have beenapproved by Funds undertrustmanagement financialinstruments Other Foreign exchange contracts Financial commitments Contingent liabilities Memorandum items Total liabilitiesandshareholders’ equity Total shareholders’ equity interest Minority Total shareholders’ to shareholders attributable oftheBank equity earnings Retained Fair valuerevaluation reserve Share premium Paid-in share capital Shareholders’ equity Total liabilities liabilities Other Provision for liabilitiesand charges Deferred incometaxliability Current incometaxliability Accrued expenseanddeferred income Derivative financialinstruments Derivative Issued debtsecurities fromDeposits customers Balances dueto credit institutionsandcentralbanks Liabilities Total assets Other assets Other Current incometaxprepayment Prepayments andaccruedincome Fixed assets Intangible assets Intangible Derivative financialinstruments Derivative Investments insubsidiaries Shares andothernon-fixed incomesecurities Fixed incomesecurities Loans andadvancesto customers Balances duefrom credit institutions Cash anddepositswithcentralbanks Assets LVL 000’s 31 DECEMBER 2005 AND 2004 BALANCE SHEETS AND MEMORANDUM ITEMS President, ofthe Chairman Management BoardManagement Valery Kargin 14,15,16 Notes 17,18 31 30 30 30 30 29 28 11 11 30 25 27 26 24 11 23 22 21 30 20 19 13 12 1,842,336 1,842,336 1,684,245 1,317,924 Chairman oftheCouncil of Chairman 166,053 105,013 703,087 190,824 158,091 158,079 262,996 432,061 879,262 312,583 144,079 Group 21,115 78,000 12,694 65,027 17,705 74,070 10,340 23,771 30,467 2,358 7,695 2,366 6,404 2,805 AS AT Viktor Krasovitsky 109 608 772 564 31.12.2005 12 – – Direct ors 1,757,009 1,757,009 1,602,888 1,252,015 105,013 717,401 197,708 154,121 154,121 258,764 411,690 810,958 311,968 136,835 21,281 73,897 12,694 65,027 74,070 19,788 21,547 29,104 Bank 3,013 2,503 7,497 6,849 2,376 3,860 9,338 1,223 567 750 698 – – – 1,424,481 1,424,481 Chairman oftheCouncil Chairman 1,298,094 1,105,571 170,514 805,001 125,296 126,387 126,374 172,250 298,758 691,693 312,870 Guntars Grīnbergs 25,592 25,900 44,786 12,694 65,027 11,648 23,169 11,512 70,781 Group 3,867 4,354 3,310 1,733 8,334 3,497 1,405 905 729 31.12.2004 13 56 – – – ANNUAL REPORT 1,361,442 1,361,442 1,236,282 1,058,256 131,829 816,745 127,825 125,160 125,160 162,663 274,122 640,349 320,259 25,592 25,888 43,722 12,694 65,027 19,452 18,559 11,429 63,748 3,717 7,574 3,510 3,322 1,533 8,006 1,914 1,414 Bank 901 657 56 2005 – – – 37 38 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT Deferred incometaxcharged directlyto equity Changes infairvalueofavailable for salesecurities Fair charged valuerevaluation to reserve statement of Dividends paid sharesIssue ofnew Balance 2004 asat 1January LVL 000’s Changes intheGroup’s shareholders’ are equity asfollows: YEARS THE FOR EQUITY SHAREHOLDERS’ IN CHANGES OF STATEMENTS The accompanying notesare ofthesefinancialstatements. anintegral part Balance asat 31 December 2005 Net profit for the year Deferred incometaxcharged directlyto equity Changes infairvalueofavailable for salesecurities Fair charged valuerevaluation to reserve statement of Balance asat 31December 2004 Net profit for the year Deferred incometaxcharged directlyto equity Changes infairvalueofavailable for salesecurities Fair charged valuerevaluation to reserve statement of Dividends paid sharesIssue ofnew Balance 2004(adjusted asat–seeNote 2) 1January Effect ofadoption standardsrevised (Note 2) 2004(aspreviously reported) Balance asat1January LVL 000’s Changes intheBank’s shareholders’ are equity asfollows: Balance asat 31December 2005 Net profit for the year interest Changes inminority Deferred incometaxcharged directlyto equity Changes infairvalueofavailable for salesecurities Fair charged valuerevaluation to reserve statement of Balance asat 31December 2004 Net profit for the year interest Changes inminority income income income income 2005 ENDED 31 DECEMBER 2005 AND 2004 AND 2005 DECEMBER 31 ENDED 63,327 65,027 65,027 Paid-in capital 1,700 share 65,027 65,027 63,327 – – – – – – – – – – – Paid-in capital 63,327 share 1,700 – – – – – – – – – – Attributable toAttributable shareholders oftheBank premium 12,694 12,694 9,226 3,468 Share – – – – – – – – – – – premium 12,694 12,694 revaluation 9,226 Share 3,468 9,226 Fair value (4,284) (5,611) 4,270 2,358 3,867 reserve 2,621 5,550 (342) – – – – – – – – – – 154 – – – – – – revaluation Retained Retained 44,786 31,334 78,000 earnings (3,000) 33,214 16,452 Fair value reserve (4,112) (5,611) 4,120 2,503 3,717 5,550 2,751 4,270 (342) (150) – – – – – – – – – 147 – – – – 108,157 126,374 158,079 (4,284) (5,611) (3,000) 33,214 16,452 5,550 5,168 2,621 (342) Total 154 – – Retained earnings 31,618 73,897 43,722 (3,000) 15,104 31,334 30,175 284 Minority Minority – – – – – – – interest 12 13 11 (1) – – – – – – – – – – 2 shareholders’ 126,387 108,168 154,121 125,160 108,291 158,091 108,157 (5,611) (3,000) (4,284) (4,112) (5,611) (3,000) 16,452 30,175 15,104 33,214 5,550 5,168 2,751 5,550 5,168 2,621 equity (342) (342) Total Total 134 154 147 (1) 2 Cash equivalents andcash at theendof theyear Cash equivalents andcash at thebeginning oftheyear The accompanying notesare ofthesefinancialstatements. anintegral part the in recognised expense income/ interest from different statement ofincome. materially not is year reporting the during Group the and Bank the by paid received/ Interest Net cash inflowNet cash for the year Increase equivalents andcash incash from financingactivities Proceeds from issue debtsecurities Dividends (paid) Proceeds from shares issueofnew Cash inflowactivities from financing (Decrease) equivalents andcash incash from investing activities Purchase/ investments (Sale)of equity andothernon-tradinginvestments Acquisitions andinvestments insubsidiaries (Purchase) ofintangible andfixed assets Cash (outflow) from investing activities equivalents andcash Net cash from operating activities Corporate incometax(paid) Increase equivalents andcash incash from operating before activities indepositsfromIncrease customers inbalancesduetoIncrease credit institutions (Increase) inloansandadvancesto(Increase) customers Decrease/ (increase) inbalancesduefrom credit institutions (decrease)Increase/ intradinginvestments Increase/ (decrease)Increase/ inotherliabilities Increase inaccruedexpenseanddeferredIncrease income Increase/ (decrease)Increase/ inotherassets Change inderivativefinancialinstruments inprepayments(Increase) andaccruedincome Increase equivalents andcash incash before changesinassetsand Loss from investments insubsidiaries Change in impairment allowances Change inimpairment Amortisation ofintangible assets, depreciationAmortisation offixed assets Profit before interest taxationandminority Cash inflow from operating activities LVL 000’s FOR THE YEARS ENDED 31 DECEMBER 2005 2005 DECEMBER 31 ENDED YEARS THE FOR FLOWS CASH OF STATEMENTS corporate income tax liabilities Notes 32 32 (133,048) (126,791) (185,154) 298,828 152,640 146,188 204,190 206,631 (26,231) 212,353 131,695 75,046 41,301 Group (6,257) (2,441) (3,213) (1,079) (2,006) (2,625) 75,046 32,228 37,579 3,396 3,341 6,347 – – – – 2005 AND 2004 AND (139,962) (131,556) (168,373) 293,533 135,043 158,490 223,406 225,763 (24,785) 193,759 131,172 75,046 37,504 (2,988) (5,418) (2,357) (1,925) (1,013) (1,206) (1,332) (2,555) 75,046 58,623 34,286 Bank 3,339 5,773 – – – (223,647) (144,081) 152,640 107,465 269,986 45,175 21,693 21,314 24,754 33,586 (3,000) (6,710) (6,165) (3,440) (3,069) 34,568 66,564 18,305 18,660 Group 2,168 5,168 4,690 1,053 1,410 8,189 6,318 (43) 419 – 2004 ANNUAL REPORT (202,096) (144,318) 135,043 (10,178) 257,278 98,180 36,863 16,065 18,630 21,811 30,642 (3,000) (5,631) (3,181) (2,900) 31,874 59,382 18,202 17,124 2,168 5,168 4,904 7,938 5,580 Bank (69) 651 135 2005 – – 39 40 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT thousand. 18,559 LVL of value nominal its reached 2004 31 December at Comparative figures were restated retrospectively inaccordance withIAS8. as investment of value book been net the has that subsidiaries so of Bank the earnings of Retained equity method. the equity to reversed under for accounted longer no is companies subsidiary into investment 2005, from Starting IAS 27 “Consolidated andSeparate Financial Statements” accordance withtheprovisionsIn ofIFRS3: 31 Until goodwill. 2004,goodwillhadbeen: December for policy accounting the in change a in resulted has 2004) (revised 38 IAS and 2004) (revised 36 IAS related and 3 IFRS of adoption The IFRS 3 “Business Combinations” effectsThe ofthesechangesinpoliciesare principle below. described of thosestandards didnotresult insubstantialchangesto theGroup’s accountingpolicies, except for: 2005. adoption The January 1 after or on beginning foryears financial aremandatory and 2004 werein that amended IFRS those Groupadopted the 2005, In except thattheGroup 2005,issetoutbelow. for hasadopted revised thosenew/ standards financial years beginning mandatory 1 January onorafter A of summary the Group’s principal accounting policies, all of which have been applied consistently throughout the years ended 31 December 2005 and 2004, prepared intheformat required by theFinancial Commission (FCMC). andCapital Market Interpretations Standing and are disclosures Certain 2005. December Standards 31 at as effective (IASC), CommitteeStandardsAccounting standards and International Accountingthe approvedinterpretations byCommittee comprise International and which (IASB), (IFRS), Board Standards Accounting Standards International Reporting the Financial by approved International with interpretations in accordance prepared been have statements financial These and 199,700(167,450)depositcustomers. The mainshareholders oftheBankarecitizens Mr. Latvian andMr. Kargin Valery (seeNote 29). Viktor Krasovitsky holders card settlement (104,524) customers, 136,006 lease finance and loan (20,630) employees,20,710 (1,970) 2,120 had Bank the 2005, December 31 at As as well asprovides awiderangeofotherfinancialservices. local Treasury, State and lease the finance foreign exchangewith transactions. to The Bank offersdealing its clients also trust managementcards, and investment local performs and services, international banking payments, loans payment servicing long-term and issuing and institutions, credit short-term other and granting individuals customers, private customers, from corporate municipalities, deposits accepting include operation of areas main Bank’s The inNote 20. asdescribed sectors financialmarkets whichoperate invarious subsidiaries well – as Parexa subsidiary Group Representation Limited in London (United as acting Kingdom) the Bank’s representative office. The Bank owns also 25 other as (Bulgaria), Sofia and Tashkent(Azerbaijan), (Uzbekistan) Baku (Ukraine), Dnipropetrovsk and Kiev (Sweden), Tokyo(Japan), Stockholm (Germany), Frankfurt in offices: representative 8 operates Bank (Germany). The Berlin and in Tallin(Estonia) branches two and Latvia throughout and Riga in centres service client and branches (95) 90 of a total operating was Bank the 2005, December 31 at As Latvia. Riga, in located are branches main three and office head Bank’sThe AS Parex (hereinafter –theBank)wasregistered banka asajointstock company 1992. on14May The BankcommenceditsoperationsinJune1992. (Figures inparenthesis represent 2004orfor amounts asat31December theyear thenended.) ENDED YEAR THE FOR STATEMENTS FINANCIAL THE TO NOTES
– From theyear 2004onwards, ended31December goodwillistested annuallyfor aswell impairment, aswhenthere are indicationsofimpairment. 2004 hasbeeneliminated asat31December withacorresponding decrease– Accumulated inthecostofgoodwill; amortization – 2005; ofgoodwillfromThe 1January Group ceasedamortization – Assessed for ateachbalancesheetdate. anindicationofimpairment onastraight-line basis;and – Amortised – IAS27,whichhaschangedthemeasurement ofinvestments insubsidiaries. – IFRS3,IAS36and38,whichhave affected thetreatment ofgoodwill;
Changes inAccountingChanges Policies 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING SIGNIFICANT OF SUMMARY 2. 1. INFORMATION ON THE BANK THE ON INFORMATION 2005 31 DECEMBER 2005 DECEMBER 31 current period). the be may (which practicable is restatementretrospective which for period earliest the for equity and liabilities assets, of balances opening the restate shall entity the presented, periods prior more or one for information comparative on error an of effects period-specific the determine to impracticable is it When presented,restating presented. theopening balancesofassets,forperiod prior liabilitiesandequity theearliest period prior earliest the before occurred error the if or, occurred, error the which in presented period(s) prior the for amounts comparative the restating by discovery their after issue for authorised statements financial of set first the retrospectivelyin errors period prior material correct shall GroupThe The accompanying financial statements are inthousandsofLats(LVL reported '000). Where necessary, comparative figures have beenadjusted to conform withchangesinpresentation inthecurrent year. The 2007. Group willapplyIFRS7andtheamendmentto IAS1from beginning annualperiods 1January and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required1 by the IAS amendment of IASto 1. amendment The IFRS. under report introduces disclosures about the level of an entity’s capital and how that it manages capital. The Group assessed entities the of impact IFRS 7 and the amendment to IAS 1 disclosure all to and applicable Institutions, is Financial It Similar Presentation. and and Disclosure Banks Instruments: of Financial 32, Statements IAS Financial in the requirements in Disclosures 30, IAS replaces It risk. market to sensitivity of analysis including risk, market and risk liquidity risk, credit about disclosures minimum specified including instruments, financial from arising risks to exposure about IFRS 7 introduces new disclosures to improve the information about financial instruments.It requires the disclosure of qualitative and quantitative information IFRS 7 “Financial Instruments:Disclosures” andIAS1Amendment “Capital Disclosures” initial application,except for IFRS7 “Financial Disclosures” Instruments: andtheamendmentto IAS1. The Group that expects the adoption of the pronouncements listed above will have no significant on impact the Group’s financial statements in the of period IAS 39 IAS 19 IAS 1 The Group hasnotappliedthefollowing specificprovisionsInterpretations thathave ofIFRSsandIFRIC beenissuedbutare not yet effective: Profit from investments insubsidiaries expense Depreciation andamortization Net profit forthe year Statement ofincome Net profit for the year Unappropriated retained earnings Fair valuerevaluation reserve Total shareholders’ equity assets Intangible Investment into subsidiaries Balance sheet LVL 000’s The effectand of adoptionofthenew standardsrevised onthecorresponding figures as canbesummarised follows: IFRIC 4 IFRS 7
c) Error Corrections Currency b) Reporting a) Comparative Figures IFRSs andIFRICInterpretations Not Yet Effective (amended 2005) “Financial Recognition andMeasurement” Instruments: (Cash Flow HedgeAccountingForecast of Intragroup Transactions, Fair (amended 2004) “Employee Benefits”Gains and (Actuarial Losses, Group Plans andDisclosures); (amended 2005) “Presentation ofFinancial Statements” (Capital Disclosures); “Determining whether an Arrangement containsaLease”; whetheranArrangement “Determining “Financial Disclosures”; Instruments: Value regarding Contracts Option,Insurance Financial GuarantueeContracts); As reported 31.12.2004 (comparative) figures, theBank (16,452) (28,334) (1,609) (3,867) 18,369 16,452 5,841 3,318 Restatements (1,348) (1,404) 1,609 1,348 (261) (284) 150 190 ANNUAL REPORT Restated (15,104) (28,618) (3,717) 18,559 15,104 5,580 1,914 2005 – 41 42 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT an operatingleaseare recognized asexpensesonastraight-line basisover andincludedinto theleaseterm otheradministrative andoperatingexpenses. Leases of assets under which and the rewardsrisks of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under Operating –Group asLessee in accordance with accountingpolicies, usedfor theGroup’s property, plantandequipment. The depreciation for policy depreciable leased assets is consistent with the lessor’s normal depreciation for policy similar assets, and depreciation is calculated an from revenues earn to specifically incurred costs direct Initial amount oftheleasedasset. operating leaseare addedto thecarrying basis. straight-line a on term is lease lessees the to over provided income incentives rental of of cost reduction aggregate a The income.as recognized other as term lease the over basis straight-line is a leases on operating from income income of Lease statement asset. in the recognized of nature the to according sheets balance the in leases operating to subject assets presents Group The Operating –Group asLessor For ofthesefinancialstatements, thepurposes financelease receivables are includedinloansandadvances tocustomers. to theleaseterm produce during to return onthenetinvestments periods aconstantperiodic outstandinginrespectofthefinanceleases. inception of the lease to the fair value of the or,leased property if lower, at the present value of the minimum lease payments. The finance income is allocated the at equal amounts at liabilities and assets recognisedas areassets, owned to attached those to similar obligations and rights conferFinance which leases, Finance –Group asLessor longer no is it that probable thatsufficienttaxable extent part ofthe profit willbe availabledeferred incometaxasset toallow tobeutilised. allor the to reduced and date sheet balance each at reviewed is any, if asset, tax income corporate deferred of amount carrying The Bank’s fixedassets, on the depreciation and tax accounting ratesof revaluation ofsecurities, aswell asthetreatmentallowance andprovision impairment ofloans'collective for vacationpay reserve. from differing arise differences timing temporary principal The reverse. differences timing the when apply to expected are that rates tax the on based determined is tax income corporate deferred The method. liability the using assessed is statements financial these and returns tax the in items of recognition the of timing the differences in temporary from arising tax income corporate Deferred period. taxation the for Bank the by generated income taxable on (15%) 15% of rate the at applied is tax income corporate 2005 December 31 ended year the For foreign positions. currency of revaluation from loss or profit a as income of statement the in included is transaction the of date the to subsequent exchange of rates in change a from liabilities denominated inforeign currencies are translated into Latsattheofficialrate of exchange attheend oftheprevailing year. Any gainorloss resulting and assets Monetary transaction. the of date the at effective exchange of rates actual at Lats recordedin areforeign currencies in Transactions denominated liability. commissionsandfees are Other credited and/orcharged to incurred. thestatement ofincomeasearned/ or asset respective on the yield the effective to adjustment an deferred as recognised and are liabilities financial or assets financial of respect in Commissions Interest incomeandexpenseitems are recognised onanaccrualbasisusingtheeffective interest rate. loss resulting from transactions,are intra-group eliminated intheGroup’s financialstatements. Forinterestincluding transactions, intra-group and wellbalances as expenseunrealisedintra-group consolidation, andas of income profits purposes the and are consolidated in the Group’s financial statements on a line by line basis by adding together like items of assets and liabilities as well as income and expenses. The Bank’s subsidiaries are accounted in the Group’s financial statements under the equity method. The financial statements of AS Parex banka and its subsidiaries shares and voting rights, and accordingly, had the ability to exercise control. More detailed information on the Bank’s subsidiaries has beeninvestmentsnumberofDecembera hadBank312004,presentedtheand2005 subsidiaries, at As in directlyheldBankwhichthe inindirectlyinand Notethe ofmore50%than 20.
g) Taxation Foreign Translation Currency f) e) IncomeandExpenseRecognition d) BasisofConsolidation h) Leases 2005 financial instrument’s original effective interest rate. the at discounted flows cash future expected of value present the and amount carrying asset’s the between difference the as calculated is cost amortised at carried assets for loss impairment the of amount amount. The recoverable estimated its than greater is amount carrying its if impaired is asset financial A less any allowance for impairment. intent and ability to hold these investments to maturity. Held to maturity the positivefinancial assets are carried at cost amortised has both using the effective interestthe Group rate if method, tomaturity asheld classified are maturity fixed and payments determinable or fixed with assets financial Non-derivative Held to Maturity Investments prices. available market tradingfinancialassetsatfairvalueischargedThe directly resultto thestatement ofincome. ofre-measuring a pattern of short-term profit exists. taking Held for trading financial assets are initially recognised at cost and subsequentlyre-measured at fair value based on held for trading if they are either acquired for generating a profit from short-term fluctuations inprice or dealer’s margin, or are included in a portfolio in which as or loss”. classified are profit through assets value Financial fair at assets category“financial the in included are trading for held as classified assets Financial atFinancial Assets Fair Value through Profit and Loss on theday thatitistransferred by theGroup. Allotherpurchases orsalesare recognised asderivativeinstrumentsuntilsettlementoccurs. is asset an when date the is delivered to or by the Group.date Settlement day refers to the settlement recognition of an asset on the day The it is transferred accounting.to the Group and to the derecognitiondate of an asset, settlement using recognised are investments of sales and purchases way” “regularAll atacquisitionbasedontheguidelinesestablishedbydetermined theManagement. is categories the between investments of classification costs. The transaction attributable directly loss, or profit through value fair at the not investments of in case held-to-maturity receivables, plus, value, loans and fair loss, at measured or are profit they initially, recognised are through assets value financial When fair appropriate. as at assets, financial available-for-sale assets or investments, financial either as classified are 39 IAS of scope the in assets Financial The Group provisions recognisestothecontractual oftheinstrument. financialassetonitsbalancesheetwhen,andonlytheGroup becomesaparty of statement the in recognised costatthereversal date. valueoftheassetdoesnotexceed itsamortised is income, thatthecarrying to theextent loss impairment an of reversal subsequent Any reversed. is loss impairment recognised previously the recognised, was If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment legal procedures have beencompleted andtheamountoflossisfinallydetermined. When loans and advances cannot be recovered, they are written-off and charged against impairment allowance. They are not written-off until all the necessary interest duewillnotbecollected. orprincipal contractual the that believes otherwise Management the overdue,moreor or days 90 is interest due overdue, morecontractually or days 14 is principal due contractually which in balances credit other and loans as defined are institutions, banking including customers, from receivables and loans Non-performing yet quantifiable. not is allowance risk credit specific a which for but outstanding, balances receivables and loans certain from flows cash future the impact negatively might changes in risk, collateral values, current economic conditions and general or operating market events that have occurred prior to the balance sheet date and The collective impairment allowance is estimated based upon historical pattern of losses in the loan portfolio, as well as taking into account credit concentration into accountwhenestimatingpresentthe assetandistaken future valuesofexpected cashflows. of value realisable estimated the on based is loans with connection in held collateral of loan’s value the The balance. and outstanding rate interest effective loans’at the discounted flows future cash expected of value difference the present a between as original assessed is credit losses for impairment specific The been specificallyidentifiedthrough thespecific ofthosefinancialassets. review impairment of the loan portfolio relates to the losses, which experience indicates are present in the Gro
j) Financial Assets i) ImpairmentofLoans andReceivables ANNUAL REPORT 2005 43 44 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT and otherintangible assets. rights leasehold to relating costs capitalised software, as well as subsidiaries, of acquisition the from goodwill comprise accounts Group in assets Intangible amountsis differencerecognised inprofit inthe orloss. carrying respective the and liability, new a of recognition the and liability original the of a derecognition as treated is modification or exchange an such modified, substantially are liability existing an of terms the or terms, different substantially on lender same the from one another by replaced is liability financial existing an Where is derecognised isdischargedA financialliability orcancelledexpires. whentheobligationunderliability Financial Liabilities is limited to thelower ofthefairvaluetransferred assetandtheoptionexercise price. Group’sthe of extent involvementthe value,continuing fair at measured asset an on provision) similar or option cash-settled a (including option put written a of case the in that except repurchase, may Group the that asset transferred the of amount the is involvementGroup’s continuing the of extent the asset, transferred the on provision) similar or option cash-settled a (including option purchased and/or written a of form the takes involvement continuing Where of considerationthattheGroup couldberequired to repay. amount maximum the and asset the of amount carrying original lowerthe guaranteeovertransferredthe of measureda theat is formof asset the takes that the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all therisks and rewards of A financialasset (or, ofa group ofsimilarfinancialassets)is ofafinancialassetor part derecognised where where: applicable, apart Financial Assets for similarfinancialassets. of income and the asset is stated in the balance sheet at the recoverable amount calculated as discounted future cash flows using current interest market rate statement the tocharged is equity in recogniseddirectly been has that loss net cumulative impaired,the been investmenthas an of value the that evidence objective is there If sale. for available securities with trading from profit/(loss) as income of statement the in included is revaluation value fair accumulated related the of, disposed are securities the When expense. or income interest as treated is method rate interest effective the by determined cost amortised The result of fair value revaluation of available for sale securities is recognised in as equity a fair value revaluation reserve. The difference between the cost and brokers. of quotes or prices market available on based value fair at re-measured subsequently and cost at stated initially are assets financial sale forAvailable needs for orchangesininterest liquidity rates, are exchange prices classifiedas ratesavailable orequity for sale. three of the in any classified not preceding categories. The Group’s are or available for sale financial assets are intended to be held for an available-for-sale of undefined time, period which may be sold in response to as designated are that assets financial non-derivative those are assets financial sale for Available Available Financial Assets for Sale loans.Recoveriesare ofloanspreviously written-off credited thedecisiononwriting-off tothestatement ofincome.makes When loans and advances cannot be recovered, they are written-off and charged against impairment for possible credit losses. The management of the Group for asoff-balancesheetitems. accounted are they date settlement the till agreement contractual a signing of date Fromdate.the settlement their at recognisedare receivables and Loans process.as well asthrough theamortisation at amortised cost using the effective interest method.Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, Loans and receivables arefinancial assets withnon-derivative fixed or determinable payments that are not quoted Suchactive in assets an market. are carried Loans andReceivables
– – – k) Derecognition andLiabilities ofFinancial Assets l) IntangibleAssets and rewards oftheasset,buthastransferred control oftheasset. the Group either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks undera obligation to pay delay them infullwithoutmaterial to athird party ‘pass-through’ and arrangement; the Group has transferred its rights to receive cash flows from the asset, or retained the right to receive cash flows from the asset, but has assumed an assumed has but asset, the from flows cash receive to right the retained or asset, the from flows receivecash to rights transferredits has Group the to receivethe rights cashflows from theassethave expired; 2005 the statement of income on a systematic basis so that it is fully amortised by its maturity date. by itsmaturity the statement ofincomeonasystematic basissothatitis fullyamortised the Where income. of statement the in adjustment relates to recognised a hedged interest-bearing is financial instrumentdifference and the hedge instrumentthe is terminated or dedesignated,and the adjustment ishedged amortised to being The equity. risk in the to for relating accounted changes is value hedge fair for flow adjusted cash is effective item of hedged part the and income of statement the in immediately recognised is value fair to instrument hedging the re-measuring from loss or gain any accounting, hedge for conditions the meet which hedges), flow cash and value (fair hedges to relation In with arecognised oraforecasted assetorliability transaction. a recognised asset or and liability; (b) cash flow hedges which hedge exposure to variability in cash flows that is either attributable to a particular risk associated For the purposes of hedge accounting, hedges are classified intotwo categories: (a) fair value hedges which hedge the exposure to changes in the fair value of Hedge Accounting instruments are recognised inthestatement arise. ofincomeasthey financial other and swaps rate interest and currency contracts, rate exchange foreign forward outstanding of value fair the in changes from losses or Gains caption financialinstruments”.“Derivative The notionalamountsofthesefinancialinstruments inoff-balance sheetaccounts.are reported are in carried the balance sheet at their fair value. The fair value of these instruments is recognised on the balance sheet under designated assets and liabilities instruments financial other and swaps currency contracts, rate exchange foreign forward outstanding measurement, and recognition initial to Subsequent and otherfinancialinstruments. For theaccountingpurposes, allderivativesare classifiedas held andaccounted fortradingpurposes foras follows. instruments swap interestrate and foreigncurrency rate, exchangeforward for contracts to party a as engages Group the business, of course ordinary the In agreement. froman asset.Interest incomeorexpensearising outstandingsaleandrepurchase agreements isrecognised inthestatement ofincomeover ofthe theterm as included is transferor the to it by paid price purchase the Group’sbut the sheet, in balance included not are assets transferee,the the is Group the Where the transferee. remain on the Group’s balance sheet and are to subject the Group’s usual accounting policies, with the purchase receivedprice included as oweda liability to transferred transferor, assets the is Group the where agreements, repurchase and sale Under transactions. financing as for accounted are agreements These andrepairMaintenance costsare charged to thestatement ofincomeasincurred. estimated useful life onastraight ofthereconstructionworks the over amortised and capitalised are performance, and quality their improve which buildings, of costs renovation and reconstruction Certain depreciated. arenot construction under basis.Assetsstraight-line a on period contract remainingLeaseholdlease depreciatedimprovementsoverthe and are capitalised Depreciation iscalculated usingthestraight-line methodbasedontheestimated usefullife oftheasset. The following depreciation rates have beenapplied: the recoverable amount,the down assetiswritten respective valueofafixedto its assetislowerrecoverable thanitscarrying value. Fixed assets are recorded at historical cost less accumulated depreciation less any losses.impairment Fixed assets are reviewedperiodically for impairment. If and otherintangible assetsrangefrom 20%to 50%. Leasehold rights are overamortised the remaining lease contract on a straight-line basis. Annual rates amortisation applied on a straight-line basis to software for tested date, ateachreporting ormoreis impairment frequently ifevents orchangesincircumstances indicate thatthegoodwillmightbeimpaired. Goodwill losses. impairment accumulated any less cost at recorded is accounts Group in subsidiaries of acquisition the from arising Goodwill
Other fixed assets Other Transport vehicles Buildings Category o) Derivative Financial InstrumentsandHedging andRepurchase Agreements n) Sale m) Fixed Assets ‑line basis. 20% –33% 20% 2% Annual depreciation rate ANNUAL REPORT 2005 45 46 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT Board, requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of The preparation of financial statements in conformity withInternational FinancialReporting Standards, as published by theInternational Accounting Standards amounts andthere isanintention to settleonanetbasis, orto realize simultaneously. theassetandsettle liability Financial assets and liabilities are offset and the net amount is in the balancereported sheet when there is a legally enforceableright to set off the recognized with centralbanksandothercredit institutionslessdemanddepositsdueto othercredit institutions. For of the presentationpurpose in the statement of cash flows, cash and cash equivalents are defined as cash the amountsand comprising demand deposits securities, income fixed maturity deposits from customers, balancesdueto banks, approximates values. issueddebtsecurities theirmarket to held receivables, and loans banks, from due balances of values book the that believes Management The statements. financial the to notes the in disclosed separately are values fair such values, book their from materially differ liabilities and assets financial of values fair the Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length basis. Where, in the opinion of the Management, are notseparately includedinthebalancesheet.Funds undertrustmanagementare presented inthesefinancialstatements only for disclosure purposes. Funds managed by the Group on behalf of individuals, corporate customers, trusts and other institutions are not regarded as assets of the Group and, therefore, embodying economicbenefitswillbe required to settletheobligation,anda reliable estimate oftheamountobligationcanbemade. resources of outflow an that probable is it events, past of result a as obligation constructive or legal present a has Group the Provisionswhen recognisedare that adopted for loansandadvancesto inparagraph customers asdescribed with consistent is liabilities contingent and commitments financial sheet off-balance from arising losses possible against provisioning for methodology The Accordingly, ofthecontract. under theterms donotpresent they acommitmentorresult inanoutflow offundsuntilthecustomer defaults. customerfailuretoa perform the Financial of upon customers contingent of behalf paymentson Group creditlettersthe guaranteesof and tocommit make representdrawn amountsdonotnecessarily upon,thetotal contract future cashrequirements. revolvingand loans credits. haveCommitmentsgenerally may fixed expire commitments dates,clauses.being Since expiration without other termination or make to commitments contractual represent limits card credit or lines credit unutilised for commitments and advances and loans extend to Commitments Such credit. of letters commercial and guarantees financial commitments andcontingentliabilitiesare recordedlimits, inthefinancialstatements whenthecommitmentisestablished. card credit or lines credit unutilised for commitments advances, and loans extend to commitments comprising liabilities contingent and commitments financial sheet off-balance with involved is Group the business, of course ordinary the In using theeffective interest rate. cost and at anyamortised difference between net proceeds and value at redemption is recognised in the statement of income over the periodof borrowings In the balance sheet borrowings are recognised initially at cost provisionsofthe amounting to their issue proceeds net of transaction costs. Subsequently borrowings are contractual stated to the party a becomes the Group when, only and when, sheet instrument. its balance on liability financial recognises Group The Hedge accountingisdiscontinuedwhenthehedging instrumentexpires orissold, terminated orexercised, ornolongerqualifies for hedgeaccounting. to thestatement ofincomefor theperiod. Forhedges, forqualify not do which accounting,hedge from any hedgingthe of value fair directly arising the losses in areor changesinstrument gains taken
s) Trust Activities r) Provisions Sheet Financial Commitments and q) Off-balance Contingent Liabilities p) Borrowings w) Use of Estimates inthePreparation ofFinancial Statements v) Offsetting Equivalents andCash u) Cash t) Fair Values andLiabilities ofFinancial Assets 2005 r) below. As deemednecessary, theGroup’s reduced by utilisingderivativefinancialinstruments. isfurther risks exposure to market is presented inNote 36. positions. open fortotalGroup’s as The well as currencies individual in positions for open risk limits foreign toexposure Committeedetermines Thecurrency The Group’s exposure to foreign exchange rate fluctuations is also managed by the TreasuryDepartment and the Assets and LiabilitiesManagement Committee. The interest rate repricing analysisoftheGroup’s assetsand liabilities ispresented inNote 35. fromdeposits customers,of provideswellBank’sas as instruments.the for financial of guidelines derivative management of the use and investment portfolio analysis. Based on such analyses, the Group’s cost of funds and situation, market the sensitivity Committee sets benchmark rates and for lending to analysis customers and accepting duration analysis, gap include Committee the and Department Treasury the by used ToolsCommittee. Management Liabilities and Assets the by basis regular a on monitored is and Department Bank’sTreasury the by basis daily a on managed is risk rate interest Group’sto Theexposure foreign rates, interest in changes to due liabilities and/or assets of portfolio a instruments.exchange ofcommoditiesorequity rates andprice The Group ismainlyexposedto changesininterest rates andforeign of exchange rates. value market future the in uncertainty of risk financial the is risk Market balance sheet.AnalysisoftheGroup’s credit exposures ispresented inNotes 13, 14, 17,30and33. the in instruments, financial derivative including asset, financial each of amount carrying the representedby is Group’s risk Thecredit to exposure maximum throughout thecontractual relationship. proceduresmonitoring ofcounterparties ofthefinancialviability Back Bank’s the by out carried is limits rigorous exercising by as establishedwell as guarantees, and collaterals adequate obtaining with by reduced further is Group’s The risk Department. compliance credit to Office exposure of monitoring Daily basis. regular a on Committee Management Risk Bank’s the by monitored is limits of adequacy with The limits. such counterparties of duration of time the groups consideration into or taking segments, counterparty, geographical for individual as well per as characteristics, limits similar establishing by undertakes it risk credit of level the manages Group The Group. the within entities the for loss financial causing thus obligations, contractual its meet to willingness or ability counterparty’s a in uncertainty torelates risk Credit order toIn managetheabove oftheGroup risks, theManagement hasapproved below. managementpolicieswhichare summarised therisk briefly risk. liquidity and risk market risk, credit mainly include risks risks. financial financial Those various to exposed is Group the business, of course ordinary the In statements. Post-year-end events thatare notadjustingevents are disclosedinthenotes whenmaterial. financial the in reflected are events) (adjusting date sheet balance the at position Bank’s the about information additional provide that Post-year-endevents in thefinancialstatements, whendeterminable. Future events may occur, which will cause the assumptions used in arriving at the estimates to change. The effect of any changes in estimates will be recorded employee of liability estimated the for made vacation pay basedonunusedvacationsby employees upto thebalancesheetdate. is provision A employees. to accrue they when recognised are vacations regular to entitlements Employee circumstances. current reflect to receivables or loans of group a for data observable adjust to judgement experienced its uses Group flows. The cash future its scheduling when receivables and loans of group the in those to similar impairment of evidence objective and characteristics risk credit with assets for experience loss historical on based estimates uses group. Management the The in assets on defaults with correlate that conditions economic local or national group,or a in borrowers of status payment the in change adverse an been has there that indicating data observable the on based flows cash future in changes estimates any of amount the estimate to judgement experienced its uses impairment loss in cases where Group a borrower is in financial difficultiesThe and there are impairment. few available historical data relating assess to similarborrowers. Similarly, the to Group receivables and loans its reviews regularly Group The financial year. amountsofassetsandliabilitieswithinthenext adjustmentto ofcausingamaterial thecarrying risk significant a has that date sheet balance the at uncertainty
b) Market Risk Risk a) Credit Eventsx) Subsequent 3. SUMMARY OF FINANCIAL RISK MANAGEMENT POLICIES MANAGEMENT RISK FINANCIAL OF SUMMARY 3. ANNUAL REPORT 2005 47 48 FINANCIAL STATEMENTS SECTION NOTES – fees related to settlementcard operations Commission andfee expense: Total commission andfee income – other – cashcollection – letters ofcredit andguarantees fee for– service accountmaintenance commission – cashdisbursement/transaction – securities – financialconsulting fees * – review ofloanapplicationsandcollateral evaluation – interest onissueddebtsecurities – interest ondepositsfrom customers – interest onbalancesdueto credit institutionsandcentralbanks Interest expense: Total interest income – interest onotherfinancialinstruments – interest onfixed incomesecurities – interest onloansandadvancesto customers ANNUAL REPORT * Financial consultingfees fees comprise received financingtransaction. by theBankfor assistanceinarranging athird party Net commission andfee income Total commission andfee expense – brokerageandcustodian fees – fees related to correspondent accounts – payment transfer fee withsettlementcards– transactions Commission andfee income: LVL 000’s – interest onotherfinancialinstruments – interest onbalancesduefrom credit institutionsandcentralbanks Interest income: LVL 000’s assets andliabilitiesaswell asmemorandumitems are by theirremainingmaturities presented contractual inNote 34. Group’sGroup. The the by issued guarantees under as well as granted lines credit and loans deposits, overnight accounts, current from funds of withdrawal for calls potential the on based as well as commitments and liabilities outstanding including obligations, contractual Bank’s the of maturities the of analysis the on based determined is proportion Such deposits. short-term and instruments financial Group’sliquid the highly of in assets proportion predetermined a of allocation by and hand, on cash and banks with deposits demand of balances the in movements the of planning and monitoring stringent by managed is risk liquidity The losses. substantial incurring without due fall they when obligations financial its meet to Group the of ability the to relates risk Liquidity Net interest income Total interest expense
c) Liquidityrisk 4. INTEREST INCOME AND EXPENSE AND INCOME INTEREST 4. 5. COMMISSION AND FEE INCOME AND EXPENSE AND INCOME FEE AND COMMISSION 5. 2005 (32,425) (6,794) 32,528 25,734 (24,141) 78,899 46,474 Group Group (3,620) (1,028) (2,146) 11,094 (4,875) (1,914) (1,495) 19,711 51,636 1,089 2,497 2,894 3,124 9,548 1,776 5,776 305 393 669 915 2005 2005 (31,581) (23,074) (7,058) 72,515 40,934 22,991 30,049 (1,914) (5,098) (1,495) (1,721) (1,956) (3,381) 18,695 45,962 10,873 Bank Bank 1,776 6,082 2,172 2,894 2,941 8,352 390 611 886 930 – (19,848) (5,074) 18,823 23,897 (15,234) 58,518 38,670 (1,956) (2,548) (2,784) (1,830) 17,708 36,997 Group Group 1,084 1,628 2,047 8,227 8,915 (570) 3,555 309 447 814 426 258 – – 2004 2004 (19,153) (5,098) 16,514 21,612 (14,713) 54,096 34,943 (1,815) (2,361) (2,610) (1,830) 16,684 32,995 1,020 1,991 7,489 8,643 (922) 4,159 Bank Bank 308 447 790 924 258 – – – Total administrative expense Other administrative expense Other Insurance Real estateReal andothertaxes Security Representative officeexpense Office expense Office Consulting andprofessional fees EDP maintenance Rent forRent premises Non-refundable valueaddedtax Communications (telephone, telex, mail) Repairs andmaintenanceRepairs Travel andrepresentation Advertising, marketing andsponsorship Advertising, marketing Personnel expense LVL 000’s Total otheroperating income Other income Other Safety boxes rental income Dividends received Penalties received LVL 000’s Profit ontrading withfinancialinstruments, net (Loss) from tradingandrevaluation ofotherfinancialinstruments Profit from foreign exchange tradingand ofopenpositions revaluation Profit from disposalof available for salesecurities Profit from tradingandheld ofsecurities revaluation for tradingpurposes LVL 000’s
8. ADMINISTRATIVE EXPENSE ADMINISTRATIVE 8. 7. OTHER OPERATING INCOME OPERATING OTHER 7. 6. PROFIT ON TRADING WITH FINANCIAL INSTRUMENTS, NET INSTRUMENTS, FINANCIAL WITH TRADING ON PROFIT 6. 47,722 15,484 Group Group Group (1,054) 24,838 2,135 1,703 1,174 1,208 1,559 1,674 1,759 3,258 4,331 4,409 1,137 8,682 4,284 3,572 108 440 348 241 672 713 233 52 2005 2005 2005 41,539 13,833 (1,054) 21,298 1,625 Bank Bank Bank 1,017 1,360 1,661 1,564 3,045 4,259 4,156 1,069 7,270 4,112 3,505 887 164 298 239 540 963 248 264 88 44 38,800 13,227 20,660 Group Group Group 1,920 1,143 1,285 1,196 1,000 1,214 1,762 2,588 3,041 3,213 1,331 6,516 5,611 1,481 (381) 276 365 408 586 407 136 63 46 2004 2004 2004 ANNUAL REPORT 33,933 12,190 17,803 1,287 1,034 1,026 1,568 2,455 2,981 3,040 5,998 5,170 1,403 (381) Bank Bank Bank 681 188 334 408 530 973 853 239 136 872 59 40 2005 49 50 FINANCIAL STATEMENTS SECTION NOTES Total items Memorandum Other assets Other Change of allowance due to write-offs, net Change ofallowance dueto write-offs, Release Accrued interest income Fixed incomesecurities Loans andadvancesto customers LVL 000’s The following tableprovides aspecificationoftheallowance for credit losses: Total allowance for impairment at the endofyear During the year ended 31 December 2005, the average number of personnel employed by the Group and the Bank was 2,438 (2,216) and 2,060 (1,914), 2,060 and (2,216) 2,438 was Bank the and Group the by employed personnel of number average the 2005, December 31 ended year the During Personnel expensehasbeenpresented inthesefinancialstatements withinadministrative expense. to theBank. The total remuneration paid by theBankto themembersofCouncil andthe The Chairman of the Total personnelexpense Balances duefrom credit institutions exchange ratesEffect ofchangesincurrency Provision charged to thestatement ofincome, net Charge Total allowance at thebeginningofyear LVL 000’s An analysisofthechangeinallowances for ispresented impairment asfollows: respectively. ANNUAL REPORT contributions security Social forRemuneration work LVL 000’s Personnel expenseincludesremuneration benefitscosts. for andothershort-term to work contributions thepersonnelandrelated socialsecurity
10. IMPAIRMENT OF FINANCIAL ASSETS AND CHANGES IN IN CHANGES AND ASSETS FINANCIAL OF IMPAIRMENT 10. 9. PERSONNEL EXPENSE PERSONNEL 9.
2005 PREVIOUSLY ESTABLISHED IMPAIRMENT ALLOWANCES IMPAIRMENT ESTABLISHED PREVIOUSLY Management Management Board and the Chairman of the Council of Directors of the Bank have not received any remuneration in respect of their services (2,625) 22,866 24,838 22,866 34,054 Group Group Group (9,067) (5,347) 16,596 20,545 1,024 2,626 2,514 2,722 4,293 Management Management 106 504 31.12.2005 – 2005 2005 Board amounted to LVL 548(408)thousand. (2,555) 22,448 22,448 33,029 21,298 (8,530) (5,229) 16,178 17,717 Bank Bank Bank 1,024 2,626 2,514 2,674 3,581 106 504 – 34,054 34,054 25,865 20,660 (1,010) 22,894 17,029 Group Group Group 8,099 1,657 7,094 2,222 9,109 3,631 131 31.12.2004 56 38 52 2004 2004 33,029 33,029 25,091 17,803 21,917 14,761 7,957 1,657 7,094 2,201 8,672 3,042 (715) Bank Bank Bank (65) 104 56 46 Total deferred corporate income taxliability Employee vacationpay accrual allowanceCollective impairment Deferred taxassets: Revaluation of securities andderivatives ofsecurities Revaluation Deferred incometaxassetsandliabilitiescanbespecifiedas corporate follows: Accumulated excess oftaxdepreciation over accounting depreciation Deferred taxliabilities: LVL 000’s Total deferred income at taxliability theendofyear Charge to equity Charge to statement ofincome The movements indeferred canbespecifiedas incometaxliability corporate follows: *Standard rate for theyear 2005was15%(2004:15%). ended31December As at1January LVL 000’s Total corporate income taxexpense Tax reductions(donations andotherdeductions) Prior year adjustments differences,Non-temporary net Corporate income tax(at standard rate)* Adjusted profit before corporate income tax The reconciliation oftheBank’s andtheGroup’s profit pre-tax for the year incometaxexpense to thecorporate for the year may bespecifiedas follows: (Profit)/ lossfrom investments insubsidiaries Profit before incometax corporate LVL 000’s Total corporate income taxexpense Prior year adjustments Tax withheldabroad Deferred incometax Current incometax corporate LVL 000’s Corporate income tax expense comprises thefollowingCorporate incometaxexpensecomprises items:
11. TAXATION 11. 37,579 Group Group Group Group (1,067) (1,035) 37,579 4,365 5,637 4,365 1,249 3,974 (174) (154) (143) (237) (143) 608 608 600 905 534 – – – 2005 2005 2005 2005 34,286 (1,067) (1,035) 34,286 4,111 5,143 4,111 Bank Bank Bank Bank 1,208 3,764 (138) (147) (187) (187) 567 567 564 901 534 – – – 3 19,079 18,660 Group Group Group Group 2,206 2,862 2,206 1,287 2,207 (114) (769) (203) (599) (203) 905 905 (49) 501 342 766 419 210 (8) (8) 2004 2004 2004 2004 ANNUAL REPORT 17,124 17,124 2,020 2,569 2,020 1,283 2,020 (114) (769) (202) (599) (202) Bank Bank Bank Bank 901 901 501 342 761 210 (8) (8) 58 2005 – 51 52 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT countries. non-OECD registeredother institutions creditfromin due balances total the of (23%) for10% accounted (Lithuania) Parex Bankas subsidiary its Bank’swith The balances 100%and85%of total balancesduefromcomprised credit institutionsregistered andOECD, inLatvia respectively. balances Corresponding institutions. credit region OECD 7 and institutions credit Latvian 7 with deposits inter-bank had Bank the 2005, December 31 at As Less allowance (seeNote impairment 10) Total gross balances duefrom credit institutions Due from credit institutionsregistered countries inothernon-OECD Due from credit institutionsregistered inLatvia Due from credit institutionsregistered inOECDcountries LVL 000’s year, thereporting During the BankofLatvia. theBankwasincompliance withtheserequirements oftheBankLatvia. basis of attracted deposits. This compulsory reserve must be exceeded by a credit institution’s average monthly LVL balance on its correspondent account with According to the resolution of the Council of the Bank creditof Latvia, requirement institutions reserve should comply with the calculatedcompulsory on the Corporate incometax LVL 000’s The movements 2005canbespecifiedas intaxaccountsoftheBankduring follows: Total netbalances duefrom credit institutions Total anddepositswithcentral cash banks depositswithothercentralbanks Demand withtheBankofLatvia Deposits Cash LVL 000’s Total taxreceivable/ (payable) estateReal tax VAT Personal incometax contributions security Social Corporate incometaxwithheldabroad
13. BALANCES DUE FROM CREDIT INSTITUTIONS CREDIT FROM DUE BALANCES 13. 12. CASH AND DEPOSITS WITH CENTRAL BANKS BANKS CENTRAL WITH DEPOSITS AND CASH 12. 2005 Balance asat 31.12.2004 312,583 315,097 144,079 194,791 Group Group (2,514) 88,838 31,468 99,271 36,891 7,917 867 657 210 31.12.2005 31.12.2005 – – – – Calculated (12,465) 311,968 314,482 136,835 192,707 in 2005 (3,764) (2,514) (3,583) (4,735) 93,783 27,992 99,271 34,660 Bank Bank 2,904 (155) (534) 306 315,092 312,870 202,757 70,781 11,364 in 2005 (2,222) 87,418 24,917 34,346 31,103 Group Group 5,332 2,357 3,583 4,735 Paid 155 534 31.12.2004 31.12.2004 – Balance asat 31.12.2005 322,460 320,259 105,117 194,322 63,748 (2,201) 23,021 34,346 28,918 (234) (750) Bank Bank 484 516 – – – – 33) and the total credit exposure to all related parties, except for consolidated subsidiaries, may not exceed 15% of asdefined by theFCMC. December 2005,theBankwasincompliancewithaboveequity As at31 15% requirements. exceed not may subsidiaries, consolidated for except parties, related all to exposure credit total the and Note 33) (see (FCMC) Commission Market legislationThe banking Latvian requires that any credit exposure to a non-related mayentity not exceed 25% of as equity defined by the Financial and Capital ofnetloansand advancesto customersportfolio were ascollateralised classifiedas by deposits(seeNoteszero 26and 27). risk, As at 31 2005, December loans and advances totalling LVL 21,064 thousand (2004: LVL 20,753 thousand) or 2.4% (2004: 3%) of the Group’s and the Bank’s total outstanding balancesoftheaforementioned loansandthecorresponding depositsare notincludedin theBank’s balancesheet. State and Education of Treasury,Ministry the the of behalf on agent an as acts only Bank the Since loans. these torewards incident and risks all assumes fully and funding necessary the State arranged Treasury.the State has Treasuryand The Latvia of Republic the of Education of Ministry the of initiative the under issued are loans Student (2004: LVLthousand). thousand LVL 4,712 4,239 of amount total the in loans student issued has Bank the 2005, December 31 at As Total netloansandadvances to customers Less allowance (seeNote impairment 10) Total gross loansandadvances to customers Total otherloansandadvances Overdraft facilities Overdraft Due from investment andbrokeragefirms balancesonsettlementcardsDebit Factoring Finance leases(seeNote 15) as zero exposures, risk ascollateralised by deposits(seealsoNote 26). As at 31 December 2005, balances due from Latvian and non-OECD credit institutions totalling LVL 19,417 thousand (2004: LVL 39,188 thousand) were classified Term ascashcollateral, have deposits, serving beenclassifiedas “over 5 years andundated.” Total gross loansto customers Loans underreverse repurchase agreements creditUtilised lines loans Regular LVL 000’s Total netbalances duefrom credit institutions Less allowance (seeNote impairment 10) Total gross balances duefrom credit institutions Total term deposits over 5years andundated due within1–5years due within6–12months due within3–6months due within1–3months due within1month Term deposits withcredit institutions: Total demanddeposits deposits Overnight Correspondent accounts LVL 000’s
14. LOANS AND ADVANCES TO CUSTOMERS TO ADVANCES AND LOANS 14. 879,262 895,858 151,839 744,019 312,583 315,097 150,783 164,314 (16,596) 192,493 521,749 105,886 Group Group (2,514) 26,816 19,328 21,912 29,952 53,831 29,777 13,561 18,515 88,465 75,849 5,791 6,443 587 31.12.2005 31.12.2005 810,958 827,136 114,307 712,829 311,968 314,482 143,110 171,372 (16,178) 237,162 446,494 107,048 (2,514) 30,384 19,123 21,305 29,686 13,809 29,173 14,305 97,373 73,999 Bank Bank 5,791 7,495 8,471 – 312,870 315,092 182,719 132,373 691,693 714,587 123,366 591,221 162,880 (22,894) (2,222) 130,818 437,541 69,642 62,731 11,951 13,876 44,237 46,338 22,862 4,745 5,160 8,773 Group Group 6,964 401 760 31.12.2004 31.12.2004 ANNUAL REPORT 640,349 662,266 100,759 561,507 320,259 322,460 201,420 121,040 (21,917) 164,634 374,091 173,796 (2,201) 11,951 13,530 43,672 24,901 22,782 14,821 69,640 51,400 6,705 3,897 6,790 2,116 Bank Bank 2005 – 53 54 FINANCIAL STATEMENTS SECTION NOTES Public andreligious institutions Total gross loansandadvances to corporate customers Privately heldcompanies enterprises Municipality-owned enterprises State-owned Total netloansandadvances to customers Less allowance (seeNote impairment 10) Total gross loansandadvances to customers Private individuals Total netloansandadvances to customers Less allowance (seeNote impairment 10) Total gross loansandadvances to customers more than5years 1 –5years 6 –12months 3 –6months 1 –3months 1 month Falling duewithin: Local municipalities Government LVL 000’s Loans andadvancesby customer profile may bespecifiedas follows: date. falls dueatthefinalmaturity principal all that assumption the under prepared been has table above Accordingly, practical. the statements financial these in analysis such of presentation deem not did Management the analysis, an such of preparation in required effort extensive to Due loans. of period the during repayments scheduled the Currently, the Bank’s information system does not provide an analysis of outstanding loans and advances to customers by their remaining maturities considering ANNUAL REPORT Overdue LVL 000’s The tablebelow provides profile. thedivisionofoutstandingloansandadvancesto customers by maturity 2005 879,262 895,858 596,661 879,262 895,858 (16,596) (16,596) 285,124 558,298 371,527 312,817 Group Group 14,073 18,878 13,260 69,394 23,187 33,180 76,001 4,683 1,542 9,752 31.12.2005 31.12.2005 810,958 827,136 564,874 810,958 827,136 (16,178) (16,178) 248,411 534,216 335,041 297,225 13,851 17,326 60,280 20,658 31,656 72,860 Bank Bank 9,298 3,400 9,416 634 691,693 714,587 509,450 691,693 714,587 (22,894) (22,894) 190,575 451,845 331,015 251,821 14,562 29,029 23,431 29,021 28,850 27,364 36,704 Group Group 5,145 9,812 31.12.2004 31.12.2004 – 640,349 662,266 493,257 640,349 662,266 (21,917) (21,917) 154,569 438,393 334,786 216,159 14,440 29,029 22,426 19,635 24,129 23,835 34,387 3,409 9,335 Bank Bank – Total netloansandadvances to customers Less allowance (seeNote impairment 10) The following table represents a geographical profile of the portfolio of loans and advances to customers analysed by the place of customers’ reported customers’ reported of place the by analysed customers to residence: advances and loans of portfolio the of profile geographical a represents table following The Total gross loansandadvances to customers regionNon-OECD residents residentsLatvian OECD region residents LVL 000’s Total gross loansandadvances to corporate customers industries Other Agriculture andforestry Hotels, restaurants andentertainment Construction Electricity, gasandwater supply Financial intermediation Manufacturing Trade estateReal management Transport andcommunications LVL 000’s An industry analysis of the gross portfolio of loans and advances to corporate customers before provision for possible credit losses may be specified as specified be may losses credit possible for provision before follows: customers corporate to advances and loans of portfolio gross the of analysis industry An 879,262 895,858 596,661 (16,596) 276,319 510,945 108,594 113,802 176,034 Group Group 33,442 21,822 27,725 42,930 43,752 55,985 78,846 2,323 31.12.2005 31.12.2005 810,958 827,136 564,874 (16,178) 213,608 515,428 104,364 156,893 98,100 23,228 19,018 22,489 42,601 90,391 53,414 50,700 Bank Bank 1,776 691,693 714,587 509,450 (22,894) 208,417 416,987 174,312 89,183 30,812 15,030 29,780 35,900 42,038 45,160 56,173 75,896 Group Group 4,349 31.12.2004 31.12.2004 ANNUAL REPORT 640,349 662,266 493,257 (21,917) 158,977 417,603 158,034 85,686 24,856 11,874 24,800 35,536 77,348 43,828 47,812 65,156 4,013 Bank Bank 2005 55 56 FINANCIAL STATEMENTS SECTION NOTES Less allowance (seeNote impairment 10) Total gross fixed income securities funds Managed Less allowance (seeNote impairment 10) Total gross fixed income securities Held to maturity Available for sale Held for trading LVL 000’s all financialassetsare held as for trading)portfolio follows: Fixed income securities held by the Group and the Bank are classified between held to maturity, available for sale and fair value through profit and loss (where ultimate their by analysed not issuer. are they therefore, investments, these on information detailed possess not does Group The countries. OECD in registered institutions financial by investors of behalf on managed are that securities income fixed of portfolios certain Group’sin the share represent funds Managed Total netfixed income securities financialinstitutionbonds Other Corporate bonds Credit institutionbonds bonds Municipality Government bonds LVL 000’s Total netfixed income securities Total unearnedinterest income onfinance leases Long-term income unearned Short-term unearned income unearned Short-term LVL 000’s Total present value offinance leasepayments Other Manufacturing equipment Manufacturing ANNUAL REPORT estateReal Transport vehicles LVL 000’s
17. FIXED INCOME SECURITIES INCOME FIXED 17. 16. UNEARNED INTEREST INCOME ON FINANCE LEASES FINANCE ON INCOME INTEREST UNEARNED 16. 15. FINANCE LEASES BY TYPE OF ASSETS OF TYPE BY LEASES FINANCE 15. 2005 434,687 432,061 434,687 432,061 342,469 102,703 203,851 53,831 Group Group Group Group (2,626) (2,626) 68,040 24,178 37,161 15,945 67,407 40,568 8,698 7,620 4,518 4,180 2,702 4,183 6,378 31.12.2005 31.12.2005 31.12.2005 31.12.2005 414,316 411,690 414,316 411,690 339,973 199,113 13,809 (2,626) (2,626) 50,772 23,571 34,583 93,382 13,801 65,817 1,906 Bank Bank Bank Bank 7,620 1,113 1,536 6,159 5,799 793 315 305,852 305,852 298,758 298,758 245,328 120,173 46,338 (7,094) (7,094) 10,572 42,674 17,850 82,082 15,676 67,688 27,242 Group Group Group Group 5,070 9,661 3,248 1,822 9,577 8,577 942 31.12.2004 31.12.2004 31.12.2004 31.12.2004 281,216 281,216 274,122 274,122 223,213 115,352 24,901 (7,094) (7,094) 10,572 40,260 17,743 68,636 15,324 61,671 13,254 3,087 9,661 1,950 1,137 2,128 8,577 Bank Bank Bank Bank 942 Total netfixed income securities Less allowance (seeNote impairment 10) Total gross fixed income securities funds Managed financialinstitutionbonds (OECD) Other Corporate bonds(OECD andnon-OECD) Total credit institutionbonds Non-OECD OECD Latvia Credit institutionbonds: Total bonds municipality Non-OECD OECD bonds: Municipality Total government bonds Non-OECD OECD Latvia Government bonds: LVL 000’s The Group’s investments infixed are incomesecurities analysed by listed as andunlisted securities follows: Total gross fixed income securities funds Managed financialinstitutionbonds Other Corporate bonds Credit institutionbonds bonds Municipality Government bonds LVL 000’s The Group’s splitas fixed arefollows: incomesecurities further maturity 68,040 Held to 16,345 39,233 7,620 2,578 2,144 120 Available 342,469 163,160 for sale 34,583 71,178 13,801 59,747 31.12.2005 – 365,185 365,185 24,178 Held for 101,325 144,467 103,733 trading 15,180 36,041 35,480 15,945 15,945 67,407 24,046 41,830 Listed 1,458 7,540 5,254 1,531 – – – – – – 31.12.2005 434,687 102,703 203,851 Unlisted 37,161 15,945 67,407 66,876 69,502 (2,626) 59,384 27,959 31,425 7,620 7,620 1,120 1,378 Total – – – – – – – – 42,674 432,061 434,687 maturity 32,935 102,703 203,851 135,158 Held to 7,035 2,224 (2,626) 37,161 63,439 15,945 15,945 67,407 24,046 41,830 352 128 7,620 5,254 1,531 Total – – 245,328 Available 203,276 205,021 66,814 85,777 15,211 64,470 3,537 9,519 for sale (1,745) 56,843 55,364 20,417 33,012 15,674 15,674 67,688 22,714 39,816 Listed 9,452 1,935 5,158 31.12.2004 – – 31.12.2004 17,850 100,831 13,044 Unlisted Held for 95,482 trading 1,461 3,090 (5,349) 10,572 25,239 64,809 19,615 45,194 142 113 209 – – – – – – – 2 2 ANNUAL REPORT 305,852 120,173 298,758 305,852 10,572 82,082 15,676 67,688 120,173 9,661 (7,094) 10,572 82,082 40,032 78,206 15,676 15,676 67,688 22,714 39,816 9,661 1,935 5,158 Total Total 2005 – 57 58 FINANCIAL STATEMENTS SECTION NOTES Total shares andothernon-fixed income securities funds Managed Total foreign entities’ shares equity investors by financialinstitutions registered inOECDarea, suchinvestments are not analysed by theirultimate issuer. of behalf the on managed are which funds, managed investments under of specification enough detailed a possess not does Group the that fact the to Due Total shares andothernon-fixed income securities funds Managed Total shares equity entities corporate in non-OECD credit institutions in non-OECD entities in OECDcorporate in OECDfinancialentities entities corporate in Latvian financialinstitutions in Latvian shares:Equity LVL 000’s profit andloss(where allshares are held for trading)portfolio: through value fair and sale for available between securities income non-fixed Group’s other the and shares of classification the provides table following The shares are classifiedasinvestments inshares andothernon-fixed incomesecurities. and securities income fixed between portfolios’ composition on information sufficient possess not does Group the where funds, managed in Investments unlisted listed Foreign entities’ shares: equity unlisted ANNUAL REPORT Total entities’ Latvian shares equity listed entities’Latvian shares: equity LVL 000’s Total gross fixed income securities funds Managed financialinstitutionbonds Other Corporate bonds Credit institutionbonds bonds Municipality Government bonds LVL 000’s The following profile tableprovides oftheGroup’s amaturity December2005: fixed asat31 incomesecurities
18. FIXED INCOME SECURITIES BY MATURITY PROFILE MATURITY BY SECURITIES INCOME FIXED 18. 19. SHARES AND OTHER NON-FIXED INCOME SECURITIES INCOME NON-FIXED OTHER AND SHARES 19. 2005 1 month Within 944 944 – – – – – 1 –3months Available for sale 2,415 1,731 146 629 73 73 14 58 55 – – – – – – 1 3 –6months 31.12.2005 Held for trading 30,321 15,128 15,193 6,329 6,503 1,227 620 705 429 309 311 30,467 13,610 Group 15,201 13,003 1,656 1,188 – – – – – 607 468 31.12.2005 months 30,467 15,201 15,266 1,926 6 –12 Total 6,329 6,517 1,227 706 429 897 888 141 58 – – – 29,104 12,749 15,128 12,158 1,227 Bank 1,188 591 39 1 –5years Available 209,191 120,729 for sale 27,010 43,389 4,715 6,384 6,964 67 67 67 – – – – – 11,512 31.12.2004 Group More than 3,289 7,278 3,182 219,591 945 Held for 107 900 11,445 31.12.2004 trading 5 years 10,151 56,377 81,605 58,992 45 7,278 4,167 1,843 2,905 9,561 133 737 509 945 434,687 portfolio 102,703 203,851 11,429 11,512 37,161 15,945 67,407 3,259 7,278 4,234 1,843 7,231 3,166 7,620 Bank Total Total 939 133 804 509 945 900 93 39 to LVL 482thousand, whichasatrespective acquisitiondate approximated thefairvalueofnetassetsacquired. (“Парекс Лизинг”) (Minsk, Belarus), (“Экстролизинг”) (Moscow, Russia); (Moscow, (“Экстролизинг”) – countries CIS in companies leasing several acquired established/ Bank the 2005, During of ASParex Dzīvībawillbeproviding However, life insuranceservices. outby ASParex tilltheendofyear 2005nooperationshadbeencarried Dzīvība. Parex Dzīvība and SIA E&P Baltic Properties. As such, AS Parex Dzīvība and SIA E&P Baltic Properties are 100% indirectly owned by the Bank. operations The key (PAM).ment AS PAM – of capital sharesubsidiaries Theowned 100% two LVLbyforincreasedestablishing mostly was thousand.used 2,306 was funding The IPAS– entity one Parexinto mergedManage were Asset sabiedrība Parexpārvaldes and ieguldījumu Parex Parex Management entities Asset2005, Group In may bespecifiedas in subsidiaries follows: The Bank’s investments in subsidiaries are accounted in the Bank’s separate financial statements under the cost method.Movements in the Bank’s investments Balance asat 31December Acquisitions andinvestments (adjusted –Note 2) Balance asat1January Effect ofadoption standardsrevised (Note 2) reported) (asearlier Balance asat1January LVL 000’s
20. INVESTMENTS IN SUBSIDIARIES IN INVESTMENTS 20.
Parex Leasing and Factoring Ekspress leasing Ekspress (“Экспресс лизинг”) (St. Petersburg, Russia), Petersburg, (St. лизинг”) (“Экспресс (“Парекс Лизинг энд Факторинг”) (Baku, Azerbaijan). The total amount of investment amounted Parex Leasing Parex Lasca Leasing Lasca (“Парекс Лизинг”) (Moscow, Russia); (Moscow, Лизинг”) (“Парекс (“Ласка Лізинг”) (“Ласка 2005 21,547 18,559 2,988
(Kiev, Ukraine), Ukraine), (Kiev, – – ANNUAL REPORT 2004 Parex Leasing Parex Extroleasing 18,559 10,177 8,382 8,248 134 2005 - 59 60 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT UAB Parex sistema brokeriu SIA Parex brokerusistēma UAB Parex Faktoringas irLizingas OU Parex Leasing &Factoring UAB Parex Investiciju valdymas Parex Asset Management Parex Asset Management IPAS Parex Asset Management AS Parex pensijufonds atklātais AP Anlage&Privatbank AG AB Parex Bankas Company As 2005and2004,theBankheldfollowing at31December investments insubsidiaries: OOO Ekspress Lizing Lizing OOO Laska AS Parex Dzīvība SIA Parex līzingsunfaktorings SIA E&PBalticProperties SIA Parex Express Kredīts Calenia Investments Limited Regalite HoldingsLtd. IOOO Pareks Lizing OOO Pareks Lizing OOO Pareks LizingandFaktoring Lizingas. Any outstanding receivable balances from the aforementioned entity have been 100% provided for as at 31 December 2004. There has been no movement inrespectto the investment andreceivable 2005. outstandingbalances during been has There 2004. December 31 at as for provided 100% been have entity aforementioned the from balances receivable outstanding Any Lizingas. The Group’s loss from subsidiaries in 2004 in the amount of LVL 419 thousand ofrepresents the investment a write-off in unconsolidated subsidiary UAB Parex line basisbyitems addingtogether ofassetsandliabilitiesaswell like asincomeandexpenses. The financial statements of AS and its subsidiaries,Parex except banka for UAB Parex Lizingas, are consolidated in the Group’s financial statements on a line by Total investments insubsidiaries UAB Parex Lizingas Parex Group Representation Ltd. Parex Fund GlobalOpportunities OOO Ekstrolizing 2005 Lietuva Latvia Lithuania Estonia Lithuania Ukraine Russia Latvia Latvia Switzerland Lithuania of registration Country Russia Ukraine Latvia Latvia Latvia Latvia Cyprus Cyprus Azerbaijan Lithuania United Kingdom Antilles Netherlands Russia Byelorussia Russia Custom brokerageservices Custom brokerageservices Finance Finance Finance Finance Finance Finance Pension fund Banking Banking Business profile Finance Leasing Finance Finance Leasing Leasing Leasing Life insurance Leasing Leasing Representative office Finance Leasing Leasing Leasing capital in LVL 000’s Share 4,150 4,472 6,324 2,500 120 306 351 449 525 618 450 200 143 765 20 31 31 72 12 – – – 1 6 2 7 As at31.12.2005 The Bank’s share (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 91.7 91.7 99.6 51.0 % oftotal voting rights 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 91.7 91.7 99.6 Investment acquisition 31.12.2005 LVL 000’s 21,547 value in 4,151 9,677 4,981 110 282 313 287 451 200 613 222 141 76 26 11 – – – – – – – – – – 6 Investment acquisition 31.12.2004 LVL 000’s 18,559 value in 1,845 9,677 4,981 110 282 313 287 451 613 – – – – – – – – – – – – – – – – – Total netbookvalue offixed assets Prepayments for fixed assets Total fixed assetsexcluding prepayments Other fixed assets Other Transport vehicles Land andbuildings Leasehold improvements LVL 000’s As at 31December 2005 As at 1 January 2005 As at1January Net bookvalue As at 31December 2005 duetoReversal disposals Charge for theyear As at 1 January 2005 As at1January Accumulated amortisation As at 31December 2005 Disposals Additions As at 1 January 2005 As at1January Historical cost LVL 000’s Movements intheGroup’s intangible assetsexcluding prepayments for theyear 2005canbespecifiedas ended31December follows: Total netbookvalue ofintangible assets Prepayments for intangible assets Total intangible assetsexcluding prepayments intangible assets Other Software Total goodwillfrom acquisitionofsubsidiaries SIA Parex Līzings AB Parex Bankas AP Anlage &PrivatbankAP Anlage AG fromGoodwill acquisitionofsubsidiaries: LVL 000’s
22. FIXED ASSETS FIXED 22. 21. INTANGIBLE ASSETS INTANGIBLE 21. Goodwill fromGoodwill acquisitionof subsidiaries 1,404 1,148 2,552 1,404 1,148 2,552 – – – – 23,771 Group Group 23,647 12,055 2,805 7,000 2,795 1,797 2,773 1,359 1,404 1,246 124 123 31.12.2005 31.12.2005 32 10 35 Software 1,359 4,731 6,090 1,994 1,135 3,596 5,590 500 – – Other intangible Other 19,788 19,677 1,223 Bank Bank 6,004 2,370 9,507 1,796 1,220 1,218 111 – – – – 3 2 assets 10 27 37 (2) (3) 15 22 37 7 3 23,169 22,937 10,875 Group Group 3,497 7,751 2,524 1,787 3,413 1,994 1,404 1,246 232 123 excluding prepayments 31.12.2004 31.12.2004 84 15 35 Total intangible assets ANNUAL REPORT 19,452 19,239 2,773 5,906 8,679 1,914 6,946 2,230 8,276 1,787 3,413 1,142 4,766 8,179 1,831 1,817 Bank Bank 213 503 (2) (3) 83 14 2005 – – – – 61 62 FINANCIAL STATEMENTS SECTION NOTES As at 31December 2005 2005 As at1January Net bookvalue As at 31December 2005 duetoReversal disposals ANNUAL REPORT Charge for theyear 2005 As at1January Accumulated depreciation As at 31December 2005 Disposals Additions Historical cost LVL 000’s The following changesintheBank’s fixed assetsexcluding prepayments for fixed the assetsDecember2005: tookplaceduring yearended31 As at 31December 2004 Net bookvalue As at 31December 2004 Disposals Additions 2005 As at1January Historical cost LVL 000’s The following changesintheGroup’s fixed assetsexcluding prepayments for fixed the assetsDecember2005: tookplaceduring yearended31 As at 1 January 2005 As at1January 2004 As at1January duetoReversal disposals Charge for theyear 2004 As at1January Accumulated depreciation As at 31December 2004 Disposals Additions Historical cost LVL 000’s The following changesintheGroup’s fixed assetsexcluding prepayments for fixed the assetsDecember2004: tookplaceduring yearended31 As at 31December 2005 2005 As at1January Net bookvalue As at 31December 2005 duetoReversal disposals Charge for theyear 2005 As at1January Accumulated depreciation As at 31December 2005 As at 1 January 2004 As at1January 2005 improvements improvements improvements Leasehold Leasehold Leasehold 1,796 1,265 3,061 1,787 1,068 3,062 1,797 1,265 2,855 1,787 1,068 1,127 1,128 2,855 2,855 1,308 1,787 1,068 1,931 (293) (921) (921) (293) 490 445 623 490 924 – – Land andbuildings Land andbuildings Land andbuildings 11,050 10,875 12,390 12,055 13,787 12,390 10,956 12,257 10,875 9,507 1,543 1,515 1,732 8,276 1,369 1,539 9,645 1,515 1,531 1,301 (134) (176) (134) 175 218 217 309 (1) (3) (1) Transport vehicles Transport vehicles Transport vehicles 2,370 2,676 5,046 2,524 2,273 5,642 4,797 2,795 2,847 2,230 1,407 4,797 2,152 1,171 4,382 2,325 4,423 2,524 2,273 2,098 (264) (507) (544) (304) (562) (591) 788 878 719 965 Other fixed assets Other Other fixed assets Other Other fixed assets Other 18,209 24,213 16,890 24,641 26,541 19,541 (1,019) 15,765 16,890 24,641 22,711 13,553 21,693 6,004 7,751 7,000 6,946 2,919 3,272 2,337 8,140 7,751 3,619 3,644 3,264 (828) (835) (307) (316) (968) Total fixed assets Total fixed assets Total fixed assets prepayments prepayments prepayments excluding excluding excluding 19,677 23,693 43,370 23,647 25,385 49,032 22,937 21,746 44,683 (1,386) (2,397) (1,566) (2,636) (1,083) 19,239 20,354 39,593 22,729 21,746 44,683 40,304 22,937 17,575 4,725 6,174 6,985 5,025 5,462 5,205 (854) Total netotherassets Less allowance (seeNote impairment 10) Total gross otherassets Other assets Other Money intransit Money Repossessed assetsforRepossessed sale Spot exchange contracts LVL 000’s Total prepayments andaccrued income Less allowance (seeNote impairment 10) Total gross prepayments andaccrued income Other accruedincome Other Prepayments Accrued interest income LVL 000’s As at 31December 2004 2004 As at1January Net bookvalue As at 31December 2004 Reversal duetoReversal disposals Charge for theyear As at 1 January 2004 As at1January Accumulated depreciation As at 31December 2004 Disposals Additions As at 1 January 2004 As at1January Historical cost LVL 000’s The following changesintheBank’s fixed assetsexcluding prepayments for fixed the assetsDecember2004: tookplaceduring yearended31
24. OTHER ASSETS OTHER 24. 23. PREPAYMENTS AND ACCRUED INCOME ACCRUED AND PREPAYMENTS 23. improvements Leasehold 1,787 1,068 2,855 1,308 1,931 445 623 924 – – Land andbuildings 8,276 1,369 9,645 8,315 1,195 9,510 (176) 177 311 (3) 10,340 11,364 Group Group (1,024) 6,404 6,510 4,810 4,186 6,671 (106) 967 251 482 507 31.12.2005 31.12.2005 Transport vehicles 2,230 2,152 4,382 2,172 2,013 4,185 (544) (591) 683 788 10,362 (1,024) 3,860 3,966 9,338 Bank Bank 2,554 3,609 6,604 (106) 765 165 482 149 Other fixed assets Other 15,765 22,711 12,657 19,892 6,946 7,235 3,307 3,020 (199) (201) (1,657) Group Group 1,733 1,864 8,334 9,991 1,304 3,298 6,547 (131) 223 337 146 31.12.2004 31.12.2004 – Total fixed assets ANNUAL REPORT prepayments excluding 19,239 20,354 39,593 (1,657) 19,030 16,488 35,518 1,533 1,637 8,006 9,663 1,115 3,280 6,237 4,612 5,043 (104) (746) (968) Bank Bank 185 337 146 2005 – 63 64 FINANCIAL STATEMENTS SECTION NOTES dependent upontherepayment ofoutstandingbalancesduefrom credit institutionsandloansadvancesto customers. LVLtoLVL areamounting (2004: that institutions thousand credittothousand) 18,581 due 42,284 balances restricted held Bank the 2005, December 31 at As countries, respectively. non-OECD other in and Latvia in registered institutions credit to due balances total the of 77% and 94% comprised deposits vs above The countries. OECD As at 31 December 2005, the Bank had outstanding vs deposits due to 6 credit institutions registered in Latvia and 9 credit institutions registered in other non- 2005. 31 December at as countries OECD registeredin institutions credit to due balances Bank’stotal the of 96%) (2004: 92% comprises thousand), 117,000 EUR (2004: thousand 258,000 EUR to amounting loans, syndicated the of balance outstanding The annum. per 0.60% of margin a plus LIBOR month 6 of rate interest an bearing and 2006 July 3 on maturing N.V. Bank ING from loan syndicated other received bank the 2005, July 4 On annum. per 0.65% of margin a plus LIBOR month 6 of rate interest an bearing and 2006 February 14 on maturing Ltd. Bank Corporate Mizuho from loan syndicated a received Bank the 2005, February 15 On Total dueto credit institutions Total loansfrom credit institutions due within1–5years due within6–12months ANNUAL REPORT due within3–6months due within1–3months due within1month Loans from credit institutions: Total balancesrepayable ondemand deposits Overnight LVL 000’s The following tablepresents theGroup’s balancesdueto credit profile: institutionsaccording to maturity Total balances dueto credit institutionsandcentral banks countries other non-OECD Latvia OECD countries toDue credit institutionsregistered in: LVL 000’s (seealsoNote 30). the issuedEURdebtsecurities of amount outstanding the adjusts fixed it paymentsthe of coupon EURIBOR.of to effective the part and designated instrument was hedge derivative as The Based on Bank’s policies to keep a levelcertain of its debt at floating rates, the Bank engaged in interest rate swap transaction, whereby swapped a part certain June 2005,theBankissuedEurobonds intheamountofEUR100million. The debtmatures inJune2008andpays fixed interest of4.375% p.a. LVLof amount the in securities debt issued Bank the 2005, Marchmillion. 5 In paysfixedand matures 2008 March interestThedebt in 4.25% of p.a. Further, in Balances ondemand
26. BALANCES DUE TO CREDIT INSTITUTIONS AND CENTRAL BANKS BANKS CENTRAL AND INSTITUTIONS CREDIT TO DUE BALANCES 26. SECURITIES DEBT ISSUED 25. 2005 Due toDue credit institutionsregistered in: countries 197,735 196,290 139,221 53,917 OECD 1,374 1,778 1,445 1,445 – – 262,996 197,735 21,031 Group 18,005 16,225 44,230 21,031 Latvia 1,097 3,026 1,512 1,514 277 406 31.12.2005 – Other countries Other 258,764 188,992 44,230 39,136 33,202 49,746 20,026 Bank 5,930 5,094 4,809 285 – – 4 31.12.2005 262,996 172,250 253,431 139,627 50,801 55,018 61,070 25,103 86,077 Group 6,207 1,778 9,565 1,797 7,768 Total 31.12.2004 31.12.2004 172,250 162,663 121,736 83,307 33,542 50,514 44,514 54,759 24,804 83,100 3,967 6,000 Bank Total 560 360 details of the supporting documentation. details ofthesupporting Suspense liabilities comprise funds received by the Group and the Bank as at year end, but not transferred to ultimate beneficiaries due to unclear or incomplete Total otherliabilities Other liabilities Other Money intransit Money Spot exchange contracts of outstandingbalancesduefrom customers. As at 31 December 2005, the Bank held restricted deposits amounting to LVL 21,111 thousand (2004: LVL 18,390 thousand) that are dependent upon repayment The following tableprovides thesplitofdepositsfrom customers by theirplaceofresidence. Suspense liabilities LVL 000’s Total depositsfrom customers Non-residents residentsLatvian LVL 000’s Total depositsfrom customers Private individuals Privately heldcompanies Public andreligious institutions The following tablepresents depositsfrom customers according to customer profile: State-owned enterprises State-owned Financial institutions Municipalities Government LVL 000’s Total depositsfrom customers Total deposits term due inmore than5years due within1–5years due within6–12months due within3–6months due within1–3months due within1month Term deposits: deposits Demand LVL 000’s
28. OTHER LIABILITIES OTHER 28. 27. DEPOSITS FROM CUSTOMERS FROM DEPOSITS 27. 1,317,924 1,317,924 1,317,924 929,644 388,280 332,697 925,954 378,146 154,135 939,778 17,705 Group Group Group Group 24,106 17,172 21,284 92,096 74,087 34,892 6,491 9,124 1,633 6,281 8,922 2,792 1,652 457 31.12.2005 31.12.2005 31.12.2005 31.12.2005 1,252,015 1,252,015 1,252,015 859,814 392,201 311,976 881,334 357,083 146,645 894,932 23,851 18,306 22,167 87,860 71,342 29,062 7,497 Bank Bank Bank Bank 1,238 4,169 1,633 5,963 8,650 1,935 457 7 1,105, 571 1,105,571 1,105,571 787,808 317,763 265,703 765,346 230,807 874,764 11,648 14,769 15,360 26,523 15,204 67,164 45,229 33,239 68,691 Group Group Group Group 2,691 7,158 1,502 8,323 9,547 1,280 297 31.12.2004 31.12.2004 31.12.2004 31.12.2004 ANNUAL REPORT 1,058,256 1,058,256 1,058,256 739,067 319,189 248,876 733,750 217,608 840,648 17,090 15,360 26,523 13,385 64,689 42,605 29,695 65,961 7,574 1,817 3,952 1,501 7,961 8,696 1,273 Bank Bank Bank Bank 304 2005 65 66 FINANCIAL STATEMENTS SECTION NOTES Forwards financialcommitments Other Credit card commitments Unutilised credit linesandoverdraft facilities Loans granted notfullydrawn down Financial commitments: Total contingent liabilities Outstanding letters ofcredit Outstanding guarantees Contingent liabilities: LVL 000’s table provides December2005and2004. aspecificationofcontingentliabilitiesandfinancialcommitmentsoutstanding asat31 following The instruments. financial derivative and contracts exchange foreign commitments, financial liabilities, contingent comprise items Memorandum Total Other Total otherfinancialinstruments FRA Interest rate swaps Futures, sold financialinstruments: Other Total foreign exchange contracts Swaps Spot exchange Foreign exchange contracts: LVL 000’s assets.value oftheunderlying the represent instruments financial other of amounts notional The contracts. these under receivable amounts the represent contracts exchange foreign of amounts notional instruments. The financial derivative and foreigncontracts exchangeof values fair and amounts notional the presents followingtable The Financial commitments Viktor Krasovitsky ANNUAL REPORT Kargin Valery As 2005,theBankhad65(69)shareholders. at31December The respective shareholdings 2005and2004may asat31December bespecified as follows: each and, allwere 2005,they asat31December issuedandfullypaid. As 2005,theBankdidnotpossessany at31December ofitsown shares. LVLof value 1 par a haveshares All rights. voting without shares ordinary 4,394 thousand and rights voting with shares ordinary thousand 60,633 of consists capital share the statutes, Bank’s the with accordance In thousand. LVL65,027 was capital share paid-in and registeredBank’s the 2005, December 31 at As
30. MEMORANDUM ITEMS ITEMS MEMORANDUM 30. 29. PAID-IN SHARE CAPITAL SHARE PAID-IN 29. 2005 capital (LVL 000’s) 105,013 703,087 582,360 103,111 Paid-in share Group 95,098 17,616 7,028 2,887 31.12.2005 65,027 27,887 27,887 9,253 105,013 717,401 569,574 125,225 95,098 22,602 Notional amount Bank 2,887 7,028 paid-in capital 31.12.2005 % oftotal 100.00 14.22 42.89 42.89 805,001 529,098 182,884 25,592 17,350 93,019 Group 8,242 31.12.2004 – voting rights % oftotal 816,745 190,824 539,856 184,011 115,683 25,592 21,115 100.00 Group 37,344 37,797 17,350 92,878 18,503 8,242 2,612 45.99 45.99 Bank 8.02 31.12.2005 – – capital (LVL 000’s) (1,504) Paid-in share Group (1,479) (273) (252) 197,708 (21) (49) 31.12.2005 129,783 (4) 21,281 65,027 28 37,650 30,275 18,669 27,887 27,887 Bank 2,612 9,253 – (1,346) (1,321) (307) Bank (255) paid-in capital (21) (77) 31.12.2004 Fair value (4) 25 % oftotal 125,296 25,900 100.00 18,065 80,495 26,730 21,281 Group 4,619 14.22 42.89 42.89 31.12.2004 (2,006) (1,322) Group 6 (724) 141 (15) 156 31.12.2004 40 – voting rights % oftotal 127,825 (2,016) 25,888 100.00 (1,329) 18,065 86,561 23,193 21,269 4,619 45.99 45.99 (720) Bank Bank 141 8.02 (15) 156 33 – 6 total debt atfloatingrates. andinterest The issueddebtsecurities rate swaphave terms. thesamecritical Bank’s the of level certain maintain to used being is swap amount. The notional the on EURIBOR month 6 to equal rate variable a pays and 2.37% of interest of rate fixed a receives it whereby million EUR 100 of amount notional a with place in agreement swap rate interest an had Bank the 2005, December 31 At Hedging Total otherfinancialinstruments FRA Interest rate swaps Futures, sold Other financialinstruments: Other Total foreign exchange contracts Swaps Forwards Spot exchange Foreign exchange contracts: Financial commitments Other financialcommitments Other Credit card commitments Unutilised credit linesandoverdraft facilities Loans granted notfullydrawn down Financial commitments: Total contingent liabilities Outstanding letters ofcredit Outstanding guarantees The fairvalueonforeign exchangeispresented contracts inbalancesheetasfollows: 31 December 2005: 31 December at as residence reported party’s counter customer’s/ the on based Group’s items the memorandum of profile geographical a represents table following The Total financialinstruments Derivative assets Other LVL 000’s Contingent liabilities: LVL 000’s Group 1,046 564 482 31.12.2005 1,180 Bank 698 482 Assets Group 1,742 1,405 337 31.12.2004 countries 105,013 335,818 268,805 95,098 10,729 56,284 2,325 4,538 1,751 OECD 7,028 2,887 1,724 1,194 3,344 1,414 Bank 558 337 43 – (2,823) Group (2,366) (457) 163,135 31.12.2005 98,358 10,739 81,365 15,411 35,219 99,404 28,512 10,029 Latvia 1,582 710 – – – – – (2,833) Other non-OECD non-OECD Other (2,376) Bank (457) Liabilities countries 268,911 232,190 25,364 31,416 14,555 5,838 5,305 1,567 9,242 5,130 708 (3,607) (3,310) – – – – – Group (297) 31.12.2004 ANNUAL REPORT 105,013 703,087 190,824 (3,626) 582,360 103,111 115,683 21,115 (3,322) 95,098 17,616 37,344 37,797 18,503 7,028 2,887 2,612 (304) Bank Total 2005 – 67 68 FINANCIAL STATEMENTS SECTION NOTES Total equivalents andcash cash depositsduetoDemand othercredit institutions depositswithothercreditDemand institutions Cash anddemanddepositswithcentral banks LVL 000’s The tablebelow provides 2005and2004: abreakdown ofcash andcashequivalentsasat31 December Total liabilitiesundertrustmanagement agreements Investors ofinvestment funds Private individuals LVL 000’s The table below provides ananalysisofthecustomer profile onwhosebehalfthefundsare managed: Total assetsundertrustmanagement agreements Privately heldcompanies Total otherinvestments Other Financial institutions Shares estateReal ANNUAL REPORT Loans to financialinstitutions Loans to entities corporate withcreditDeposits institutions investments:Other Total investments infixed income securities funds Managed financialinstitutionbonds Other Corporate bonds Credit institutionbonds Foreign bonds municipality Government bonds Fixed income securities: LVL 000’s The tablebelow provides analysisofthefundsmanagedonbehalfcustomers by investment type: included initsbalancesheet. therefore,and,not trusteeare the of assets regardedas not are institutions other and trusts individuals, of behalf on trustee a by managed funds IFRS, Under
32. CASH AND CASH EQUIVALENTS CASH AND CASH 32. 31. FUNDS UNDER TRUST MANAGEMENT TRUST UNDER FUNDS 31. 2005 298,828 166,053 166,053 108,121 164,314 144,079 57,932 Group Group Group (9,565) 20,019 64,469 34,718 46,847 24,007 16,898 12,332 22,737 25,211 34,911 22,696 2,877 1,818 2,566 31.12.2005 31.12.2005 31.12.2005 – – 293,533 (14,674) 171,372 136,835 3,013 3,013 2,838 Bank Bank Bank 1,466 1,818 175 596 951 424 596 175 – – – – – – – – – 152,640 170,514 170,514 138,054 (50,514) 132,373 144,475 129,301 32,460 70,781 12,169 11,328 17,717 Group Group Group 2,542 3,148 2,295 2,676 1,781 3,850 1,364 7,625 634 123 31.12.2004 31.12.2004 31.12.2004 – 135,043 131,829 131,829 131,777 (49,745) 121,040 129,725 129,301 63,748 2,064 2,064 Bank Bank Bank 412 52 40 22 30 – – – – – – – – Capital (Equity/Total Ratio Adequacy charges) capital x8% Equity to be utilised in the capital adequacy ratio toEquity adequacy beutilisedinthecapital Total charges capital Derivatives counterparty risk capitalcharges risk counterparty Derivatives Equity position risk capitalcharge positionrisk Equity Fixed capital charge positionrisk incomesecurities Foreign to capitalcharge openpositionssubject currency undertheFCMC’sCapital adequacy requirements LVL 000’s Equity to be utilised in the capital adequacy ratio toEquity adequacy beutilisedinthecapital asperFCMC Total Tier 2 – fair value revaluation reserve (restricted to (restricted – fairvaluerevaluation55%) reserve Tier 2 Total Tier 1 – intangible assets(asdefined by FCMC) Less interest – minority – audited profit for the to dividenddistribution) year (notsubject to– audited dividenddistribution) retained (notsubject earnings – share premium – paid-inshare capital Tier 1 LVL 000’s Description 2004 are stated atamountsbefore restatements (seeNote 2)): Based on the guidelines set byforth the Financial and Commission, Capital the Markets has capital been adequacy calculated as follows (comparative data for by the1988BasleCommittee guidelinesis8%. capital Bank’s the whereas 12.2%), recommended adequacy capital (2004: minimum 12.8%). The (2004: 12.2% 11.7% was subsidiaries, in investmentsBank’s the was account into taking guidelines without ratio, adequacy Committee Basle on based ratio adequacy capital Group’s the 2005, December 31 at As andcalculated inaccordancesubsidiaries withtheFCMC’s requirements, was11.7%(2004: 12.5%). in investments Bank’s the account into taking without ratio, adequacy capital Bank’s the time, same the At 11.9%). (2004: 11.1% was requirements FCMC’s Group’sfinancial the both the with on accordance in ratio based Group’s adequacy the capital 2005, 31 December at As requirements entity. stand-alone a theregulatory as statements financial Bank’s with the and statements comply it should institutions, financial are which subsidiaries, has Bank the Since statements prepared accountingstandards weighted underLatvian of8%risk assets. financial Commission’s,on based ratio Markets Financial CapitalThe and adequacy capital regulator,a bank maintain the to banks regulationsrequireLatvian off-balance sheetexposures. the and assets of portfolio the Group’s the of arising from risks referssufficiency the to adequacy market Capital and risks capital resources the cover credit to Total credit capitalcharge risk
33. CAPITAL ADEQUACY CAPITAL 33.
Risk weighting Risk 8% Risk weighted balance 154,225 111,021 154,225 152,928 101,298 Group 11.1% (2,805) 33,214 44,786 12,694 65,027 1,297 4,087 3,394 2,125 1,297 117 31.12.2005 31.12.2005 12 151,822 104,031 151,822 150,445 11.7% (1,223) 95,121 30,175 43,772 12,694 65,027 1,377 Bank 3,882 3,250 1,661 1,377 117 – Risk weighted balance 121,150 121,150 119,023 81,170 11.9% (3,497) 76,926 16,452 28,334 12,694 65,027 Group 2,127 1,447 1,462 1,206 2,127 129 31.12.2004 31.12.2004 13 ANNUAL REPORT 121,316 121,316 119,189 77,651 12.5% (3,318) 73,587 16,452 28,334 12,694 65,027 2,127 1,438 1,453 1,044 2,127 Bank 129 2005 – 69 70 FINANCIAL STATEMENTS SECTION NOTES Capital (Equity/Total Ratio Adequacy charges) capital x8% ratio toEquity adequacy beutilisedinthecapital Total charges capital Derivatives counterparty risk’s capitalcharges counterparty Derivatives Equity position risk capitalcharge positionrisk Equity Fixed capitalcharge positionrisk incomesecurities Foreign to capitalcharge openpositionssubject currency undertheBasle’sCapital adequacy requirements LVL 000’s ratio toEquity adequacy beutilisedinthecapital asperBasleCommittee Total Tier 2 ANNUAL REPORT weighted to (restricted 1.25%ofrisk assets) reserve risk – portfolio – intangible assets(asdefined by Basle Committee) Less interest – minority – audited profit for the to dividenddistribution) year (notsubject to– audited dividenddistribution) retained (notsubject earnings – share premium – paid-inshare capital Tier 1 Description LVL 000’s at stated are 2004 for data (comparative follows as amounts beforecalculated restatements (seeNote 2)): been has adequacy capital the Committee, Basle the by forth set guidelines the on Based – fair value revaluation reserve (restricted to (restricted – fairvaluerevaluation55%) reserve Tier 2 Total Tier 1 Total credit capitalcharge risk 2005
Risk weighting Risk 8% Risk weighted balance 162,083 111,044 162,083 154,329 101,321 Group 11.7% (1,404) 33,214 44,786 12,694 65,027 7,754 4,087 3,394 2,125 6,457 1,297 117 31.12.2005 31.12.2005 12 159,462 104,783 159,462 151,668 12.2% 95,873 30,175 43,772 12,694 65,027 7,794 Bank 3,882 3,250 1,661 6,417 1,377 117 – – Risk weighted balance 128,599 128,599 121,116 84,038 12.2% (1,404) 79,794 16,452 28,334 12,694 65,027 Group 7,483 1,447 1,462 1,206 5,356 2,127 129 31.12.2004 31.12.2004 13 128,357 128,357 121,103 80,496 12.8% (1,404) 76,432 16,452 28,334 12,694 65,027 7,254 1,438 1,453 1,044 5,127 2,127 Bank 129 – 2005 and 2004 to maturity groupings2005 and2004to maturity basedonthetimeremaining dates. from thebalancesheetdate maturity to thecontractual Group’sobligations. the outstanding December allocates belowmeet 31 totable at Thefunds as raise itemsto memorandum and liabilities assets,necessary be may it which to extent the and risk liquidity of indicative is items memorandum as well as liabilities and assets of maturity the between relationship The Shares andothernon-fixed incomesecurities Fixed incomesecurities Loans andadvancesto customers Balances duefrom credit institutions Cash anddepositswithcentralbanks Assets As at 31December 2005 LVL 000’s Derivative financialinstruments Derivative Prepayments andaccruedincome Fixed assets assets Intangible that all principal falls due at the final maturity date. fallsdueatthefinalmaturity that allprincipal assumption the prepared under been Accordingly,Management. has abovetable the the by practical deemed not was statements financial these in analysis such of presentation analysis, an such of preparation in required effort extensive to Due loans. of period the during repayments scheduled the considering Currently, the Group’s and Bank’s information system does not provide an analysis of outstanding loans and advances to customers by their remaining maturities Total liabilitiesandshareholders’ equity Total liabilities Total assets As at 31December 2004 Financial commitments Contingent liabilities Memorandum items Total liabilitiesandshareholders’ equity Shareholders’ to shareholders attributable oftheBank equity interest Minority Total liabilities liabilities Other Provision for liabilitiesand charges Deferred incometaxliabilities Current incometaxliabilities Accrued expenseanddeferred income financialinstruments Derivative Issued debtsecurities fromDeposits customers Balances dueto credit institutionsandcentralbanks Liabilities Total assets assets Other
34.
ASSETS, LIABILITIES AND MEMORANDUM ITEMS BY MATURITY BY ITEMS MEMORANDUM AND LIABILITIES ASSETS, STRUCTURE 1,043,089 1,043,489 1,179,529 1,173,599 1,093,913 407,045 518,560 1 month 267,686 144,079 190,824 17,034 79,044 19,811 13,878 60,366 Within 7,398 3,820 2,014 944 361 109 772 741 – – – – – – months 38,488 38,488 30,966 90,954 90,954 55,699 32,531 18,515 34,892 55,018 2,220 2,079 1 –3 131 387 466 378 200 223 – – – – – – – – – – – months 46,165 46,165 41,081 78,186 78,186 37,632 22,786 13,561 74,087 2,183 1,778 3 –6 620 633 476 32 73 65 – – – – – – – – – – – – 150,725 150,725 233,942 233,942 months 139,627 39,591 72,452 68,627 92,096 6 –12 2,898 1,739 587 134 475 241 94 – – – – – – – – – – – 5 5 405,929 105,109 533,743 214,297 309,008 16,847 16,847 99,179 74,070 21,284 6,443 1,537 1,355 6,207 3,871 years 1 –5 307 656 73 35 16 – – – – – – – – – and undated Over 5years Over 128,767 499,869 160,546 624,250 211,082 367,266 158,079 13,360 23,771 2,380 2,455 5,791 2,805 1,652 120 608 183 12 12 55 – – – – – – – – – ANNUAL REPORT 1,424,481 1,298,094 1,424,481 1,842,336 1,684,245 1,842,336 1,317,924 432,061 879,262 312,583 144,079 190,824 158,079 262,996 30,467 23,771 21,115 17,705 74,070 10,340 2,805 7,695 2,366 6,404 Total 564 109 608 772 12 2005 71 72 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT Assets As at 31December 2005 LVL 000’s date. re-fixing interest closest the to date sheet balance the from remaining time the on based groupings maturity to 2004 and 2005 December 31 at as liabilities assets and liabilities. The interest rate risk is managed through sensitivethe activities interest of the Bank’s respective of Treasury dates department. The re-fixing table interest below allocates or the Group’s maturities within differences assets and of result a as risk rate interest encounter subsidiaries its and Bank the Interest rate risk is the sensitivity of the financial position of the Bank and its subsidiaries to the change in market interest rates.In the normal course of business, Derivative financialinstruments Derivative Shares andothernon-fixed incomesecurities Fixed incomesecurities Loans andadvancesto customers Balances duefrom credit institutions Cash anddepositswithcentralbanks Fixed assets assets Intangible Prepayments andaccruedincome Total assets assets Other Balances dueto credit institutionsandcentral Liabilities Accrued expenseanddeferred income financialinstruments Derivative Issued debtsecurities fromDeposits customers Deferred incometaxliabilities Current incometaxliabilities Other liabilities Other Provision for liabilitiesand charges Total liabilities Shareholders’ to sharehold attributable equity interest Minority Total liabilitiesandshareholders’ equity Interest rate swaps Futures Total assets As at 31December 2004 Total liabilities Futures Total liabilitiesandshareholders’ equity Interest rate swaps banks ers oftheBank
35. REPRICING MATURITY OF ASSETS AND LIABILITIES AND ASSETS OF MATURITY REPRICING 35. 2005 - 467,550 349,758 349,758 412,925 400,456 400,456 1 month 144,858 200,851 107,188 113,919 235,839 (5,160) 14,653 Within 5,930 – – – – – – – – – – – – – – – – – 322,333 284,851 284,851 194,160 (12,190) months 237,455 273,756 38,569 38,569 5,930 78,797 11,095 6,081 2,887 8,242 1 –3 – – – – – – – – – – – – – – – – 345,873 319,415 months 321,705 72,054 72,054 54,101 54,101 14,816 70,220 83,238 9,352 1,834 3 –6 – – – – – – – – – – – – – – – – – – – months 58,005 91,082 91,082 70,688 40,125 70,688 34,085 23,920 89,259 6 –12 1,823 – – – – – – – – – – – – – – – – – – – – – 254,271 112,336 112,336 163,604 158,979 21,182 21,182 (1,591) 87,184 74,070 37,082 17,350 8,108 1,184 years 1 –5 – – – – – – – – – – – – – – – – – More than 183,275 149,626 122,191 5 years (6,651) 61,084 1,269 1,269 13 13 13 – – – – – – – – – – – – – – – – – – – – – 211,029 774,151 932,242 144,626 711,829 838,216 733,675 158,079 bearing interest 30,467 14,004 82,727 36,891 23,771 10,340 11,221 17,705 3,056 2,805 6,404 7,695 2,366 Non- 564 772 109 608 12 – – – – – 1,842,336 1,684,245 1,842,336 1,424,481 1,298,094 1,424,481 1,317,924 432,061 879,262 312,583 144,079 262,996 158,079 30,467 23,771 10,340 74,070 17,705 2,805 6,404 2,366 7,695 Total 564 772 608 109 12 – – – – Effective interest 4.6% 6.4% 2.6% 1.6% 5.1% 2.1% 2.5% rate – – – – – – – – – – – – The following table provides an analysis of the Group’s assets and liabilities and shareholders’ equity as well as memorandum items outstanding as at 31 at as outstanding profile: 2005and2004by currency December items memorandum as well as shareholders’ equity and liabilities and Group’sassets the of analysis an provides table following The Assets LVL 000’s Derivative financialinstruments Derivative Shares andothernon-fixed incomesecurities Fixed incomesecurities Loans andadvancesto customers Balances duefrom credit institutions Cash anddepositswithcentralbanks Liabilities Total assets assets Other Prepayments andaccruedincome Fixed assets assets Intangible Balances dueto credit institutionsandcentralbanks Issued debtsecurities fromDeposits customers Derivative financialinstruments Derivative Current incometaxliabilities Accrued interest expenseanddeferred income Deferred incometaxliabilities Provision for liabilitiesand charges Minority interest Minority Total liabilities liabilities Other Shareholders’ equity Off-balance sheetclaimsarisingfrom foreign exchange forbalance items position sheet Net long/(short) Total liabilitiesandshareholders’ equity Swap exchange receivable Forward foreign exchange receivable Spot exchange receivable Off-balance sheetliabilities arisingfrom foreign exchange Total Spot exchange payable Exchange rates2005 appliedasat31December 2004 asat31December position Net long/(short) 2005 asat31December position Net long/(short) positionsonforeign exchange Net long/(short) Total Swap exchange payable Forward foreign exchange payable fixed rate, therefore, ofmanagingfor thepurpose foreign are positionsthey treated currency aspositionsin Euro. at Euro to pegged are currencies these of Both Krona. Estonian and Litas Lithuanian in positions long by off-set largely is Euro in position currency short The (LVL for 1foreign unit) currency
36. CURRENCY PROFILE CURRENCY 36. (71,889) (12,640) 325,475 239,273 397,364 115,479 114,013 208,685 158,079 (8,326) 66,947 56,524 19,980 12,420 58,941 LVL 63,563 3,384 1,302 8,051 3,343 3,566 2,665 5,000 2,230 3,370 6,152 8,006 2,664 1.00 552 772 608 662 36 12 58 – 844,140 830,654 830,654 231,375 249,076 270,530 337,818 210,146 775,190 172,900 190,819 (4,205) (17,701) 13,486 USD 15,219 52,106 12,169 46,306 53,028 2,116 7,482 2,945 0.593 2,467 5,229 891 – – – – – – – – – – – (19,376) 522,158 514,628 514,628 165,188 171,148 0.702804 379,435 190,961 249,532 142,606 141,637 EUR 92,314 30,407 10,588 69,070 21,942 22,106 (5,960) 7,530 1,570 6,214 2,878 2,388 2,677 7,405 322 640 – – – – – – – – – (12,829) (7,260) 18,454 31,283 31,283 80,514 74,945 GBP 11,975 30,985 62,963 17,551 16,943 58,002 (235) 4,395 1,043 1.021 5,569 356 672 140 10 75 83 – – – – – – – – – – – – 3 31,152 25,882 25,882 RUB 18,334 20,757 0.0206 (3,853) 4,558 5,270 4,512 1,417 6,479 3,510 1,645 4,995 4,381 705 679 352 104 130 592 113 177 47 – – – – – – – – – – – 2 100,957 158,358 200,256 144,950 183,074 42,525 42,525 (41,898) Other 58,432 23,628 16,534 43,010 33,670 10,601 32,775 13,091 6,697 1,819 3,744 7,369 1,331 4,215 9,193 4,091 422 844 138 136 841 12 73 – – – – – – ANNUAL REPORT 1,842,336 1,684,245 1,842,336 1,317,924 703,087 703,367 Total 432,061 879,262 312,583 144,079 262,996 158,079 103,111 582,360 580,577 105,227 (1,995) 30,467 10,340 23,771 74,070 17,705 17,616 17,563 (280) 6,404 2,805 7,695 2,366 (280) 564 772 608 109 12 2005 – – 73 74 FINANCIAL STATEMENTS SECTION NOTES ANNUAL REPORT Credit exposure to related parties: present oftheGroup’s theoutstandingbalancesandterms withrelated transactions parties. tables following The Group. the of companies associated as well as interest controlling a have they which in companies and relatives close their personnel, Related parties are defined as shareholders who have significant influence over the Group, members of the Council and Management Board, key Management oftheBankbelieves thatanyThe Management legalproceedings 2005willnotresult pendingasat31December lossesfor inmaterial theGroup. related to andabroad. itscustomers inLatvia proceedings legal of number the in involved also is Group The counterparties. interbank and customers credit defaulted from expenses and interestrelated the In course ordinary of business, the Bank has been involved in a number of legal proceedings to recover collateral or outstanding credit balances, as well as The Group andtheBankwasincompliancewithabove requirements 2005and2004. asat31December undertheFCMC’sof equity regulations) andthatthetotal foreign openpositionmay notexceed currency 20%ofequity. Note33 Bank’s(see the foreignof exceedeach 10% maynot equity legislationin requires positions open currency that banking Latvian The In the ordinary course of business, AS Parex apdrošināšanas kompānija, a related party to the Bank, undertakes insurance of the collaterals of loans and loans of collaterals the of insurance undertakes Bank, the advances granted by theBankto customers to party related a kompānija, apdrošināšanas Parex AS business, of course ordinary the In placement. The of majority the above deposits are long-term and have been placed with the Bank at rates significantly below interest the market rates at the time of their Total depositsfrom related parties Total credit exposure to related parties Financial commitmentsandoutstandingguarantees Loans andadvances
38. RELATED PARTIES RELATED 38. CLAIMS AND LITIGATION 37. 2005 . Subsequent to the end of the reporting year, Subsequentto theendofreporting ASParex apdrošināšanashasbeensoldto athird kompānija party. Amount inLVL 000’s, 31.12.2005 43,642 28,554 25,186 3,368 Average rate in 2005 19.5% 2.4% – Amount inLVL 000’s, 31.12.2004 28,760 17,258 14,589 2,669
fordefinition the Average rate in 2004 20.7% 1.4% – loan is Mizuho CorporateincludemostlyAsian BankLtd, banksandseveral Europeanloan isMizuho inAsian otherparticipants banksactive markets. of EUR 69.5 million. The loan has been issued for 1 year and it bears an interest rate of EURIBOR + 0.575%. The Mandated Lead Arranger and of underwriter the On 1 March 2006, the Bank received a syndicated loan from 32 banks in the amount of EUR 200 million, which effectively refinanced syndicatedprevious loan Business segments are notidentified by themanagementofGroup.Separation ofbusinesssegments would require unduecostandeffort. assetsandliabilitiesare presented**Segment according tothecompanies’ location. *Income isdefinedasatotalofgross interest and commission andfeeincome segments are generallymadeoncommercial andconditions. terms overheads corporate have General notbeenreallocated to geographical segments. and other countries (other subsidiaries). The type of products and services included in each reported segment are the same. Transactions between the business Forsegmentof analysis, purposes the Group’sthe were Latvia) in activities subsidiaries its geographicaland intomain Bank divided (the two segments: Latvia No ofemployees, endofperiods charge Impairment Depreciation andamortisation Capital expenditure (includingintangibles, Segment liabilities** Segment assets** Net profit before interest minority tax Income Profit before tax Total incomefrom customers* internal Total customers* incomefrom external excluding goodwill)
40. SUBSEQUENT EVENTS SUBSEQUENT 40. REPORTING SEGMENT 39. 1,611,580 1,777,804 102,148 30,727 (4,188) 34,915 2,154 2,715 5,801 3,467 6,786 2005 Latvia 1,242,517 1,371,758 15,539 (2,158) 17,697 75,488 2,011 8,799 5,859 1,251 5,809 2004 153,336 171,598 2,518 2,695 1,311 9,279 (177) 2005 284 546 702 7 Other 121,923 138,846 1,424 1,472 6,927 2004 (48) 205 310 459 500 50 (107,066) (80,671) (4,778) 2005 (31) Eliminations (31) – – – – – (66,346) (86,123) (1,301) (509) (509) 2004 – – – – – 1,684,245 1,842.336 111,427 33,214 (2,722) (4,365) 37,579 2,438 6,347 7,488 2005 – Group ANNUAL REPORT 1,298,094 1,424,481 16,454 (9,109) (2,206) 18,660 82,415 2,216 6,318 6,309 2004 2005 – 75 Ernst & Young Baltic SIA Ernst & Young Baltic SIA Kronvalda bulvåris 3-5 Kronvalda Boulevar 3-5 LV – 1010, Rîga LV-1010, Rîga Latvija Latvia Tålr.: 371 7 043-801 Phone: 371 7 043-801 Fakss: 371 7 043-802 Fax: 371 7 043-802 www.ey.com/lv www.ey.com/lv [email protected] [email protected]
AUDITORS' REPORT
To the shareholders of AS Parex banka
We have audited the accompanying consolidated financial statements of AS Parex banka and its subsidiaries (hereinafter – the Group) and the accompanying financial statements of AS Parex banka (hereinafter – the 76 Bank) for the year ended 31 December 2005, set out on pages 6 through 45, which comprise the balance sheet, the statements of income, cash flows and changes in equity and the related notes. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standarts on Auditing issued by the International Federation of Accountants. Those Standarts require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above give a true and fair view of the financial position of the Group and the Bank as of 31 December 2005, and of the results of their operations and their cash flows
AUDITORS’ REPORT for the year then ended in accordance with International Financial Reporting Standarts issued by the International Accounting Standarts Board.
Ernst & Young Baltic SIA License Nr. 17
Per Møller Diāna Krišjāne Personal ID code: 060567-14676 Personal ID code: 250873-12964 Member of the Board Latvian Sword Auditor Certificate No. 124
Riga, 3 March 2006
A Member of Ernst & Young Global
ANNUAL REPORT 2005