2013 Annual Financial Report Financial Statements
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2013 Annual Financial Report Financial Statements in accordance with German Commercial Code (HGB) of Landwirtschaftliche Rentenbank as of 31.12.2013 Contents Combined Management Report .......................................... 1 Balance sheet .................................................................. 58 Income statement ............................................................ 60 Notes to the annual financial statements.............................. 62 Members of the Board of Managing Directors and Members of the Board of Supervisory Directors..................... 79 Statement of Management Responsibility............................. 83 Auditors’ Report ............................................................... 84 Report of the Board of Supervisory Directors........................ 85 Combined Management Report 1 2 Table of Contents General information on the Group ................................................... - 5 - Group structure ............................................................................ - 5 - Promotional mandate .................................................................... - 5 - Management system ..................................................................... - 5 - Economic report ........................................................................... - 7 - Macroeconomic and bank-specific environment ................................ - 7 - Business development ................................................................... - 9 - Net assets, financial position and results of operations .................... - 11 - Results of operations .................................................................. - 11 - Financial position ........................................................................ - 17 - Net assets ................................................................................. - 21 - Other key performance indicators ................................................. - 22 - Report on events after the balance sheet date ............................... - 23 - Report on expected developments and opportunities ....................... - 23 - Development of business and environment .................................... - 23 - Forecast of business development ................................................ - 25 - Opportunities and risks ............................................................... - 26 - Development in the current year .................................................. - 27 - Risk report................................................................................. - 27 - Organization of risk management ................................................. - 28 - Credit risks ................................................................................ - 29 - Market price risks ....................................................................... - 42 - Liquidity risks ............................................................................. - 47 - Operational risks ........................................................................ - 49 - 3 Regulatory and reputational risks ................................................. - 51 - Risk-bearing capacity – going concern approach ............................. - 52 - Risk covering potential ................................................................ - 52 - Risk scenarios ............................................................................ - 53 - Risk-bearing capacity – going concern approach ............................. - 55 - Inverse stress tests and economic downturn .................................. - 56 - Regulatory own funds ................................................................. - 56 - Financial reporting process .......................................................... - 56 - 4 The combined management report consists of the group management report of Landwirtschaftliche Rentenbank (Group in accordance with IFRS) and the management report of Landwirtschaftliche Rentenbank (Rentenbank in accordance with HGB). The combined management report was prepared pursuant to the provisions of Section 289 in conjunction with Sections 315 and 315a of the German Commercial Code (Handelsgesetzbuch, HGB) as well as in accordance with German Accounting Standard (GAS) 20. The difference between the Group and Rentenbank is minor, given the low significance of the consolidated subsidiaries LR Beteiligungsgesellschaft mbH (LRB), Frankfurt/Main, and DSV Silo- und Verwaltungsgesellschaft mbH (DSV), Frankfurt/Main. Therefore, the comments included in the combined management report generally also apply to both the Group and Rentenbank. In the section on results of operations, financial position and net assets, the disclosures specifically related to Rentenbank on the basis of HGB financial reporting are incorporated at the end of the corresponding section. General information on the Group Group structure Rentenbank is a public law institution directly accountable to the German federal government, with its registered office in Frankfurt/Main. It operates no branch offices. All material risks are concentrated in Rentenbank and are managed by Rentenbank on a group- wide basis. The Group comprises Rentenbank and three subsidiaries: LR Beteiligungsgesellschaft mbH (LRB), DSV Silo- und Verwaltungsgesellschaft mbH (DSV), and Getreide-Import Gesellschaft mbH (GIG). The business activities of subsidiaries are strictly limited. Rentenbank has issued a comfort letter to LRB. Subsidiaries are funded exclusively within the Group. Promotional mandate The Group's responsibilities are to promote the agricultural sector and rural areas based on Rentenbank's Governing Law. The Group’s business activities are directed towards fulfilling this promotional mandate. The Group’s risk structure is essentially defined by the framework established by Rentenbank's Governing Law and its statutes. As a promotional bank for the agricultural sector and rural areas, Rentenbank provides funds for a variety of investment projects. Within the framework of special promotional loans, the refinancing loans are granted according to the on-lending principle for projects in Germany in accordance with Rentenbank's competition neutrality. The range of products is geared towards manufacturing businesses in the agricultural and forestry sectors, viticulture and horticulture sectors as well as in aquaculture and fish farming. Rentenbank also provides funds for projects in the food industry and other upstream and downstream industries as well as investments in renewable energies and for rural infrastructure measures. Management system Rentenbank pursues the following objectives within the context of its business strategy: 5 • Optimize the implementation of the promotional mandate and continuous development of the promotional business • Provide promotional benefit from own funds • Generate an adequate operating result • Low risk tolerance The strategic objectives are presented on a segment-specific basis. The segments break down as follows: • Promotional Business The segment Promotional Business includes the promotional lending business, the securitized promotional business as well as long-term funding of the Group. As part of the promotional lending business, Rentenbank grants special promotional loans as well as standard promotional loans, e.g. in the form of promissory note loans. The transactions are conducted predominantly with other banks. The securitized promotional business primarily includes investments in securities to ensure Rentenbank‘s liquidity. Accordingly, and in particular, they serve to satisfy banking regulatory requirements regarding liquidity management. The Group does not hold securities or receivables with structured credit risks such as asset-backed securities, or collateralized debt obligations. • Capital Investment The Capital Investment segment includes investments of own funds reported on the balance sheet and non-current provisions. The investments are made primarily in securities and promissory note loans as well as registered debt securities of other banks. • Treasury Management Short-term liquidity and short-term interest rate risk are hedged and managed in the Treasury Management segment. A distinction is made between financial and other key performance indicators with regard to measures used to assess the strategic objectives within the internal management system. Financial key performance indicators include: • Operating result The business activities of Rentenbank are not primarily aimed at generating profits, but are based on business principles. These comprise the profitability of activities to ensure the Group's long-term ability to carry out promotional tasks. The operating result is used to establish a solid capital base, which is objected at complying with the increasing regulatory requirements as well as providing the funds necessary for growing demand for special promotional loans. Profitability and stable earnings are also a prerequisite for carrying out the promotional activities without having to rely on government subsidies. In this context, Rentenbank uses its high credit quality as a promotional state agency in combination with its capital market strategy in order to raise funds at favorable conditions. In addition, the promotional activities benefit from income generated from securitized 6 promotional business and from general promotional business as well as from the high cost efficiency level achieved in the processes within the Group. • Cost-income ratio The cost-income