Banif – Banco Internacional do Funchal, S.A.
Financial Statements
Notes to the Financial Statements
31 December 2008
1
1 – BALANCE SHEET
BANIF - BANCO INTERNACIONAL DO FUNCHAL, S.A
BALANCE SHEET
31 DECEMBER 2008 AND 31 DECEMBER 2007
(amounts in Euro thousand)
31-12-2008 31-12-2007
Before Provisions Impairment and Net Net and Depreciation depreciation
Cash and balances at central banks 285.626 - 285.626 228.599 Due from other Banks 71.856 - 71.856 59.806 Trading securities 16.088 - 16.088 3.802 Other financial assets at fair value through profit or loss 198.863 - 198.863 82.103 Financial assets available for sale 61.475 (2.368) 59.107 12.113 Loans and advances to banks 985.436 (5) 985.431 861.154 Loans and advances to customers 7.736.921 (95.697) 7.641.224 6.338.978 Investment securities held to maturity - - - - Securities subject to repurchase agreements - - - - Derivatives held for hedging - - - - Non-Current assets available for sale 3.274 (170) 3.104 48.799 Investment Property - - - - Other tangible assets 100.229 (47.961) 52.268 41.187 Intangible assets 33.669 (27.016) 6.653 6.863 Investments in associates and affiliates excluded from Cons. Acc. 10 - 10 22.143 Current tax assets 11.529 - 11.529 467 Deferred tax assets 23.226 - 23.226 20.738 Other Assets 213.331 (7.670) 205.661 70.629 Total Assets 9.741.533 (180.887) 9.560.646 7.797.381
Deposits from central banks - - 647.728 - Trading liabilities - - 16.853 12.414 Financial liabilities at fair value through profit or loss - - 22.672 63.493 Deposits from other banks - - 2.168.442 2.053.814 Customer deposits and other loans - - 5.639.799 4.601.524 Debt securities in issue - - 44.068 67.489 Financial liabilities linked to transferred assets - - 225.358 260.055 Derivatives held for hedging - - - - Non-current liabilities available for sale - - - - Provisions - - 66.933 57.765 Current tax liabilities - - 4.333 11.761 Deferred tax liabilities - - 1.087 1.933 Instruments representing capital - - - - Other Subordinated liabilities - - 270.129 237.960 Other liabilities - - 107.063 82.650 Total liabilities - - 9.214.465 7.450.858
Share Capital - - 290.000 240.000 Issue Premiums - - 451 451 Other equity instruments - - - 50.000 Revaluation reserves - - 1.885 (80) Other reserves and retained earnings - - 38.576 30.079 (Treasury shares) - - - - Profit for the period - - 15.269 26.073 (Interim dividends) - - - - Total Equity - - 346.181 346.523
Total liabilities + Equity - - 9.560.646 7.797.381
2 2 – INCOME STATEMENT
BANIF - BANCO INTERNACIONAL DO FUNCHAL, S.A.
INCOME STATEMENT
31 DECEMBER 2008 AND 2007
(amounts in Euro thousand)
31-12-2008 31-12-2007
AAS AAS
Interest and similar income 695.728 505.215 Interest and similar expense (526.297) (352.481) Financial Margin 169.431 152.734 Dividend Income 2.629 3.229 Fees and commission income 57.893 50.773 Fees and commission expense (5.087) (4.848) Net gain or loss on financial assets and liabilities at fair value through profit or loss (3.679) 418 Net gain or loss on financial assets available for sale (594) 13.909 Net gain or loss on Foreign exchange 1.080 1.076 Net gain or loss from disposal of other assets (2.214) (8.447) Other gains or losses 19.582 20.465 Net Operating Income 239.041 229.309 Personnel Costs (87.245) (75.113) Overheads (71.895) (59.579) Depreciation for the year (10.089) (9.044) Provisions net of reinstatements and write-offs (5.541) (10.305) Value adjustments related to loans and advances to customers and receivables (44.665) (40.111) from other debtors (net of reinstatements and write-offs) Impairment losses on other financial assets net of reversals and recovery (2.122) (50) Impairment losses on other assets net of reversals and recovery (943) (499) Profit Before Tax 16.541 34.608 Taxes (1.272) (8.535) Current (4.333) (19.449) Deferred 3.061 10.914 Profit after tax 15.269 26.073 Of which: Profit after tax on discontinued operations - - Net Profit for the year 15.269 26.073
Accounts, Budget and Statistics Department The Board of Directors
3 3 – STATEMENT OF CHANGES IN EQUITY
BANIF - BANCO INTERNACIONAL DO FUNCHAL, S.A.
STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
31 DECEMBER 2008
(amounts in Euro thousand)
Share Treasury Issue Other Equity Revaluation Other Reserves and Profit for the Capital Shares Premiums Instruments ReservesRetained Earnings period Total Balances as at 31-12-2007 240.000 - 451 50.000 (80) 30.079 26.073 346.523 Allocation of 2007 net profit Transfer to reserves - - - - - 11.193 (11.193) - Dividends - - - - - (14.880) (14.880) Increase in share capital 50.000 - - (50.000) - - - - Financial Assets available for sale - - Gains and losses not realized in the period - - - - 2.638 - - 2.638 Reserves for deferred taxes - - Increase in the period - - - - (673) - - (673) Transitory Regimen notice nº 12/2001 - - - - - (2.696) - (2.696) Net profit for the period ------15.269 15.269 Balances as at 31-12-2008 290.000 - 451 - 1.885 38.576 15.269 346.181
Allocation of 2007 net profit 240.000 - 451 - 9.750 11.703 34.708 296.612 Transfer to reserves - - - - - 19.708 (19.708) - Dividends ------(15.000) (15.000) Supplementary capital subscriptions - - - 50.000 - - - 50.000 Available-for-sale financial assets Gains and losses not realized in the period - - - - (13.319) - - (13.319) Reserves for deferred taxes - Reversals in the period - - - - 3.489 - - 3.489 Net profit for the period - - - - - (1.332) - (1.332) Transitory regimen notice no.12/2001 - - - - - 26.073 26.073 Balances as at 31-12-2007 240.000 - 451 50.000 (80) 30.079 26.073 346.523 Accounts, Budget and Statistics Department The Board of Directors
4
4 – CASH FLOW STATEMENT
BANIF - BANCO INTERNACIONAL DO FUNCHAL, S.A.
CASH FLOW STATEMENT
31 DECEMBER 2008 AND 2007
(amounts in Euro thousand)
OPERATING ACTIVITIES 31-12-2008 31-12-2007 Operating Results: Net Profit for the period 15.269 26.073 Adjustments related to credit 44.665 40.111 Impairment of losses 3.065 549 Provisions for the period 5.541 10.305 Depreciation for the period 10.089 9.044 Allocations for income tax 1.272 8.535 Dividends (2.629) (3.229) Interest paid on subordinated bonds 14.960 10.610 92.232 101.998
Changes in Operating Assets and Liabilities (Increase) / decrease in trading assets (12.286) 27 (Increase) / decrease in financial assets at fair value through profit or loss (116.760) (28.746) (Increase) / Decrease in available-for-sale financial assets (48.970) 18.784 (Increase) / Decrease in loans and advances to other banks (124.276) (33.231) (Increase) / Decrease in loans and advances to customers (1.314.788) (1.079.184) (Increase) / Decrease in non-current assets held for sale 50.337 1.143 (Increase) / Decrease in other assets (171.250) (33.857) (Decrease) / increase in trading liabilities 4.439 5.849 (Decrease) / increase in other financial liabilities at fair value through profit or loss (40.821) (40.107) (Decrease) / Increase in deposits from central banks 647.728 0 (Decrease) / Increase in deposits from other banks (838.800) 538.244 (Decrease) / Increase in customer deposits 1.991.704 589.084 (Decrease) / Increase in debt securities in issue (23.421) (17.179) (Decrease) / Increase in asset-backed financial liabilities (34.697) (74.220) (Decrease) / Increase in other liabilities 28.085 (13.122) Income tax (23.097) (16.639) (26.873) (183.154)
Net cash from operating activities 65.359 (81.156)
INVESTMENT ACTIVITIES
Purchase of tangible assets (17.784) (17.320) Purchase of intangible assets (3.415) (1.082) Disposal of subsidiaries 20.735 0 Dividends received in the period 2.629 1.923 Net cash from investment activities 2.165 (16.479)
FINANCING ACTIVITIES
Dividends paid (14.880) (15.000) Issue of subordinated liabilities 40.000 25.103 Repurchased subordinated liabilities (8.607) - Interest paid on subordinated liabilities (14.960) (10.610) Increase in share capital 50.000 - Supplementary capital subscription (50.000) 50.000 Net cash from financing activities 1.553 49.493
69.077 (48.142) CHANGES IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of period 288.405 336.547 Effect of exchange rate on cash and cash equivalents - - Cash and cash equivalent at end of period (357.482) 288.405 69.077 (48.142)
BALANCE SHEET VALUE OF CASH AND CASH EQUIVALENTS Cash 48.522 43.348 Sight deposits with central banks 237.104 185.252 Sight deposits with other banks 41.653 24.351 Cheques to be collected 30.203 35.454 357.482 288.405
CASH AND CASH EQUIVALENTS NOT AVAILABLE FOR USE BY THE ENTITY -- Accounts, Budget and Statistics Department The Board of Directors 5
5 – NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2008 AND 2007, BANIF – BANCO INTERNACIONAL DO FUNCHAL, S.A.
(Figures in ‘000 Euros, unless otherwise stated)
1. GENERAL INFORMATION
Banif – Banco Internacional do Funchal (“Company”) is a limited liability corporation, with registered offices at Rua João de Tavira 40, 9000-509 Funchal, with the object of carrying on banking business, together with any accessory, connected or similar activities compatible with this business, as permitted by law.
The Company is wholly owned by Banif Comercial SGPS, SA, a sub-holding company of the Banif Financial Group (Group), whose parent company is Banif SGPS, SA, the entity which presents consolidated accounts for public use, which comply with the International Financial Reporting Standards (IAS/IFRS), as adopted in the European Union. The Company is therefore exempt from presenting consolidated financial statements.
On 29 January 2009, the Company’s Board of Directors examined the Balance Sheet and Income Statement as at 31 December 2008 and approved them for issue. On 09 March 2009, the Board of Directors gave its overall approval to the Management Report and the Financial Statements, which will be submitted for the approval of the Annual General Meeting of Shareholders on 31 March 2009.
2. ADOPTION OF NEW OR REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS
The following Standards took effect in 2009:
IAS 39 Financial Instruments: Recognition and Measurement Alterations to IAS 39 Financial Instruments: Recognition and Measurement and IFRS Financial Instruments: Disclosures. In the view of the exceptional market circumstances, these amendments make it possible to reclassify certain financial instruments from Financial Assets held for trading to Financial Assets held to maturity or Loans or Accounts Receivable. The Company did not use this faculty in the financial year of 2008.
IFRIC 11– Trading in treasury shares IFRIC 11 insofar as applicable to consolidated financial statements. This interpretation requires that agreements in which rights over the shares in the entity are assigned to employees be accounted for as share-based payment schemes, even when the entity purchases the instruments from an independent party, or the shareholders surrender the equity instruments necessary. As at 31 December 2008, the Company has no agreements of this nature.
IFRIC 12 – Service Concession Arrangements This interpretation, not yet adopted by the European Union, applies to concession operators and explains how to account for liabilities accepted and rights received under concession arrangements. This interpretation has no impact on the Company.
In Note 49 we describe the standards and interpretations most recently issued by the International Accounting Standards Board (IASB) but yet to take effect, where the Company has not opted for early adoption in its financial statements. 6
The Company does not expect that these standards and interpretations will have a significant impact on its financial statements.
3. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
3.1 Basis of presentation
The Company’s individual financial statements have been drawn up in accordance with the accounting policies defined by the Bank of Portugal, in Bank of Portugal Notice no. 1/2005, nos. 2 and 3, here referred to as the Adjusted Accounting Standards (AAS).
The AAS are based on the International Financial Reporting Standards (IAS/IFRS) as adopted, from time to time, by European Union Regulations, except in the following areas:
- valuation and provisions for lending; - employee benefits, where there is a period for deferral of the impacts of transition to IAS/IFRS; - the fair value option for valuation of tangible assets is eliminated.
The financial statements have been prepared on a historical cost basis, except for the revaluation of financial instruments. The principal accounting policies used are presented below.
3.2 Comparative information
Save as stated in Note 3.3 on “Impairment on equity instruments”, which require no adjustment in values for the period and in comparative values, the Company made no other alterations to accounting policies, meaning that in general the figures presented are comparable, in relevant aspects, with those for the previous financial year. In the comparative figures for 2007, a sum of 953,428 thousand euros relating to the financial institution Banif Finance, incorrectly classified in 2007 as a credit institution, has been reclassified out of Deposits by other banks and into Customer accounts and other loans. In “Non-current assets held for sale”, as established in Note 3.8, the Group transferred 64,584 thousand euros to “Other assets”, meaning that the comparison between the figures for the year and those for the previous year should be analyzed in conjunction with the information in Notes 12 and 17.
3.3 Use of estimates in the preparation of the Financial Statements
The preparation of financial statements requires the use of estimates and assumptions by the Company’s Management that affect the reported amounts of assets and liabilities, revenues and costs, together with the contingent liabilities disclosed. In making these estimates the Management used its judgement, together with the information available at the date of preparation of the financial statements. Consequently, future amounts effectively realized may differ from the estimates made.
The situations where the use of estimates is most significant are as follows:
Fair value of financial instruments
7 When the fair values of financial instruments cannot be marked to market, they are determined through the use of valuation techniques which include mathematical models (marked to model). The input data in these models is whenever possible observable market data, but when this is not possible, a degree of judgement is required to establish the fair values, namely as regards the level of liquidity, correlation and volatility.
Write-downs on customer lending and receivables from other debtors
Customer lending with overdue positions and total liabilities considered to be of a significant amount are subject to individual analysis in order to assess the need of recording impairment losses. This analysis involves estimating the value and timing of future flows. These estimates are based on assumption on a set of factors which may change in future and consequently alter impairment amounts. In addition, a collective impairment analysis is conducted by credit segments with similar characteristics and risks and impairment losses are determined on the basis of the historical performance of losses on the same type of assets.
Impairment on equity instruments
Available-for-sale financial assets are analyzed when there is objective evidence of impairment, and specifically when there is a significant or prolonged decline in fair values, below cost price. Determining when a degree of decline is considered “significant or prolonged” requires judgement. In this context, the Group considers that a decline in the fair value of an equity instrument of more than or equal to 30% (20% in 2007) or a decline over more than 1 year (6 months in 2007) may be considered as significant or prolonged. However, other factors are assessed, such as the volatility of asset prices. The alteration in the criteria for considering that objective evidence of impairment exists from 20% to 30% and from 6 months to 1 year reflects an appropriate adjustment in the light of the extraordinarily volatile conditions and lack of liquidity in the market, as contemplated by Circular 105/08/DSBDR or 18/12/2008 of the Bank of Portugal. This alteration has no impact on comparative data for the previous year
Retirement benefits
The level of liabilities relating to retirement benefits is determined through an actuarial assessment, which uses assumptions concerning discount rates, the expected returns on Pension Fund assets, future salary and pension increases and mortality tables. In view of the long term nature of pension plans, these estimates are subject to significant uncertainties. Note 41 sets out the assumptions used.
3.4 Foreign currency transactions
Foreign currency transactions are recorded on the basis of the exchange rates contracted on the transaction date. Monetary assets and liabilities expressed in foreign currency are translated to Euros at the exchange rate ruling at the balance sheet date. Non-monetary items, which are valued at fair value, are translated on the basis of the exchange rate ruling on the last valuation date. Non-monetary items which are carried at historical cost, are carried at the original exchange rate.
Exchange rate differences resulting from translation are recognized as gains or losses of the period in the income statement, except for those deriving from non- monetary financial instruments classified as available for sale, which are recorded against a specific item of shareholders’ equity until disposal of the asset.
3.5 Cash and cash equivalents 8 For the purposes of the statement of cash flows, cash and cash equivalents comprise national and foreign currency, in cash, sight deposits with central banks, sight deposits with other banks in Portugal and abroad and cheques drawn on other banks.
3.6 Investments in affiliates and associates
The account for “Investments in subsidiaries and associates” corresponds to holdings in the share capital of companies held by the Company on a lasting basis, in which the Company holds or controls the majority of the voting rights (subsidiaries) or exerts significant influence (associates). Significant influence is deemed to exist whenever the Company holds more than 20% of the voting rights, directly or indirectly. Investments in subsidiaries and associates are recorded at cost, less impairment losses, if any.
3.7 Financial instruments
3.7.1 Initial recognition and measurement of financial assets
Purchases and sales of financial assets which involve the delivery of assets in accordance with timeframes established by regulations or market conventions are recognized at the transaction date, i.e. at the date on which the commitment to purchase or sell is accepted. Derivative financial instruments are also recognized at the transaction date.
The classification of financial instruments on the initial recognition date depends on their characteristics and on the intention with which they are acquired. All financial instruments are initially measured at fair value plus costs directly attributable to purchase or issue, except in the case of assets and liabilities at fair value through profit or loss where these costs are recognized directly in profit or loss.
3.7.2 Subsequent measurement of financial assets
Held-for-trading financial assets
Held-for-trading financial assets and liabilities are those acquired with a view to sale in the short terms and realization of profits from price fluctuations or on the trader’s margin, including all derivatives not acquired for hedging operations.
After initial recognition, gains and losses generated by subsequent measurement at fair value are reflected in the profit or loss for the period. In derivatives, positive fair values are recorded under assets and negative fair values are recorded under liabilities. Interest and dividends or charges are recorded in the respective profit or loss accounts when the right to payment is established.
Financial assets at fair value through profit or loss
These accounts include financial assets and liabilities classified by the Company irrevocably on initial recognition as being at fair value through profit or loss, in accordance with the option provided for in IAS 39 (fair value option), provided the conditions stipulated for recognition are met, namely: i) the designation eliminates or significantly reduces accounting mismatches between measurement of financial assets and liabilities and recognition of the respective gains or losses
9 ii) the assets and liabilities are part of a group of assets or liabilities or both which is managed and its performance assessed on the basis of fair value, in keeping with a duly documented investment and risk management strategy; or iii) the financial instrument includes one or more embedded derivatives, except when the embedded derivatives do not significantly modify the cash flows involved in the contract, or when it is clear, with little or no analysis, that the embedded derivatives cannot be separated.
After initial recognition, gains and losses generated by subsequent measurement at fair value of financial assets and liabilities are reflected in the profit or loss for the period under “Profit or loss on assets and liabilities at fair value through profit or loss”.
The Company classifies under financial assets at fair value through profit or loss almost all the trading book for banking activities, which is managed and its performance assessed on the basis of fair value, except for strategic holdings and securities for which reliable valuations cannot be obtained.
Financial liabilities were designated as liabilities at fair value through profit or loss as they consist of debt instruments (subordinated and non-subordinated) with one or more embedded derivatives.
Available-for-sale financial assets
This item comprises instruments which may be disposed of in response to or in anticipation of liquidity needs or changes in interest rates, exchange rates or changes in their market price, and which the Company has not classified in any of the other categories. Accordingly, as at 31 December 2008, this account includes essentially holdings regarded as strategic and securities for which it is not possible to obtain reliable valuations.
After initial recognition they are subsequently measured at fair value, or else carried at cost if it is not possible to determine the fair value reliably, and the respective gains and losses are reflected under “Revaluation Reserves” through to sale (or recognition of impairment losses), at which point the accrued value is transferred to profit or loss of the period under “Profit or loss on available-for-sale financial assets”.
Interest on financial assets is calculated in accordance with the effective rate method and recognized in the income statement under “Interest and similar income”. Dividends are recognized in profit or loss, when the right to the respective payment is established, under “Earnings from equity instruments”. For debt instruments issued in foreign currencies, exchange rate differences are recognized in the income statement for the period under “Profit or loss on exchange rate revaluation”.
An analysis is conducted of the existence of evidence of impairment losses on available-for-sale financial assets at the reference date of each set of financial statements. Impairment losses are recognized in the income statement under “Impairment of other financial assets net of reversal and recovery”.
Loans and accounts receivable
Loans granted and accounts receivable are financial assets with fixed or determinable payments not listed in an active market, which are not assets acquired with the intention of selling in the short term (held for trading) or classified as financial assets at fair value through profit or loss when initially recognized (fair value option). This item consists essentially of lending to the Company’s clients.
10 When first recognized, these assets are recorded at their nominal value, which normally corresponds to the amount disbursed. Subsequently, these assets at recognized in the balance sheet at their nominal value less repayments and subject to the constitution of regulatory provisions, in accordance with Bank of Portugal Notice no. 3/95.
In the financial year ended, the Company wrote off loans granted or accounts receivable with a value of 31,631 thousand euros.
Interest on assets classified as loans and accounts receivable are recognized on an accruals basis, with commissions and other direct costs connected with the sourcing of the operation deferred and amortised over the lifetime of the loan. Interest matured and not collected is derecognized after 3 months, as required by Bank of Portugal Instruction no. 6/2005, except for interest on credits from or guaranteed by the entities indicated in para. 15 of Notice no. 3/95.
Deposits from other banks, Customer accounts and other loans, Debt securities in issue and Other subordinated liabilities
The other financial liabilities, which include essentially deposits from banks, customer accounts and debt issues not designated as financial liabilities at fair value through profit or loss, for which the contractual terms result in the obligation to deliver funds or financial assets to the holders, are recognized initially at the value of the funds received net of directly associated transaction costs, and subsequently valued at amortized cost, using the effective rate method. Depreciation is recognized in the income statement under “Interest and similar charges”.
Fair value
The fair value used in valuing trading financial assets and liabilities classified as being at fair value against profit or loss, and available-for-sale financial assets is determined in accordance with the following criteria:
• In the case of instruments traded on active markets, the fair value is determined on the basis of the closing price, the price of the last transaction made or the value of the last known bid;
• In the case of assets not traded on active markets, the fair value is determined using valuation techniques, which include the prices of recent transactions in equivalent instruments and other valuation methods normally used by the market (discounted cash flow, option valuation models, etc.);
Floating rate assets (e.g. shares) and their derivative instruments for which it is not possible to obtain reliable valuations are carried at acquisition cost, less impairment losses, if any.
Derivatives
In the course of its normal operations, the Company uses a number of derivative financial instruments both to satisfy its customers’ needs, and to manage its own interest rate positions or positions regarding other market risks. These instruments involve variable degrees of lending risk (maximum potential accounting loss due to possible default by borrowers on contractual obligations) and market risk (maximum potential loss due to alteration of the value of a financial instrument due to variations in interest rates, foreign exchange rates and listed prices).
11 The notional values of derivatives operations are used to calculate the flows to trade on contractual terms, possible in net terms, and although they constitute the most usual form of measurement used in these markets, they do not correspond to any quantification of the lending or market risk on the respective operations. For interest or exchange rate derivatives the lending risk is measured by the substitution cost at current market prices for the contracts in which a potential gain position is held (positive market value) in the event of the counterparty defaulting.
Derivatives embedded in other financial instruments are separated from the host instrument whenever their risks and characteristics are not closely related to those of the host contract and the entire contract is not recorded at fair value through profit or loss (fair value option).
Derivative instruments used by the Company in management of exposure to financial and market risks are accounted for in accordance with the criteria defined in IAS 39, provided they meet the eligibility requirements set by this standard, namely for recording of hedges of exposure to variation in the fair value of the hedged asset (“Fair value hedges”). Otherwise, derivatives are considered at their fair value as financial trading assets or liabilities, depending on whether their fair value is positive or negative.
The Company as a rule does not carry out short / long trading on these financial instruments. Derivative instruments have been used by the Company mainly in the following situations:
1. As a hedge against liabilities indexed to reference assets: in practice, the Company issues financial liabilities where interest and capital repayments are linked to the performance of a reference asset (shares, lending and interest rate, etc.) and makes the hedge by contracting OTC derivatives in order to transform these liabilities into Euribor indexed operations. These embedded derivatives are valued together with the financial liability (“fair value option”), classified under financial liabilities at fair value through profit or loss.
2. As a hedge against the risk of derivative operations with clients: the Company contracts OTC derivatives (cross currency swap, interest rate swap, equity swap, etc.) with clients whose risk is hedged by back-to-back operations with counterparties in the market.
3. As a hedge against the risk of financial assets with embedded derivatives, which are valued, overall, at fair value through profit or loss: the Company contracts back-to-back operations (cross currency swap, interest rate swap, etc.) with counterparties in the OTC derivatives market, to hedge against the risk involved in these assets.
4. Interest rate swaps related to credit and leasing securitisation operations carried out by the Company, with the swaps with significant risk (flat rate to floating rate) being hedged in full with counterparties in the market.
However, the financial statements do not consider any hedging operations, given that all existing derivatives were either classified as trading derivatives because they failed to meet the hedge accounting requirements of IAS 39, or else are associated with liabilities at fair value through profit or loss. Consequently, all derivatives are recorded under trading assets and liabilities.
3.7.3 Derecognition of financial assets and liabilities
Financial assets 12
A financial asset (or when applicable a part of a financial asset or part of a group of financial assets) is derecognized when:
I. the rights to receive cash flows from the asset expire; or II. the rights to receive cash flows have been transferred, or the Group has accepted the obligation to pay all the cash flows receivable, without significant delay, to third parties, under a pass-through agreement; and III. the risks and benefits of the assets have been substantially transferred, or the risks and benefits have not been transferred or retained, but control over the asset has been transferred.
When the rights to receive cash flows have been transferred or when a pass-through agreement has been entered into and not all the risks and benefits of the assets have been substantially transferred or retained, and control over the asset has also not been transferred, the financial asset is recognized to the extent of continued involvement, which is measured at the lesser of the original value of the assets and the maximum value of the payment which may be claimed from the Company.
When continued involvement takes the form of an option to purchase the transferred assets, the extent of continued involvement is the value of the asset which may be repurchased, save in the case of a sale option measurable at fair value, when the value of the continued involvement is limited to the lowest of the fair value of the asset and the price for exercise of the option.
Financial liabilities
A financial liability is derecognized when the underlying obligation expires or is cancelled. When an existing financial liability is replaced by another with the same counterparty on terms substantially different from those initially established, or the initial terms are substantially altered, such substitution or alteration is processed as derecognition of the original liability and recognition of a new liability, and any difference between the respective values is recognized in the profit or loss for the period.
Securitization operations
In conjunction with other Group entities, the Company has securitized consumer and mortgage lending, through disposal of these assets to special purpose entities (vehicles) constituted for this purpose. The credit securitization operations underway as at 31 December 2008, in which the Company took part as transferor of credits, are: - Atlantes Mortgages No. 1, carried out in 2003. - Atlantes Mortgages No. 2, carried out in 2008. - Atlantes Mortgages No. 3, carried out in 2008.
As a form of financing, these entities have issued debt instruments with different levels of subordination and remuneration. The Company holds residual interests in the securitized assets by holding securities of a residual nature.
As part of adoption of the AAS, as from 1/1/2005, these securitization operations were analyzed and it was concluded that they failed to meet the derecognition criteria established in IAS 39. Accordingly, the credits transferred through these securitization operations have been re-recognized in the balance sheet, under “Loans and advances to clients”.
13 3.7.4 Impairment and write-down relating to customer lending and receivables from other debtors
The Company assesses whether there is evidence of impairment in an asset or group of financial assets, as required by Bank of Portugal Instruction no. 7/2005. A financial asset is impaired if, and only if, there is evidence that the occurrence of an event (or events) has a measurable impact on the future cash flows expected from this asset or group of assets. Losses expected as the result of future events, irrespective of the likelihood of their occurring, are not recognized.
Write-downs relating to customer lending and receivables from other debtors are determined in accordance with the provisions of sub-paragraphs e) and f) of Article 3.2 of Bank of Portugal Notice no. 1/2005, in conjunction with Notice no. 3/95, as amended by Bank of Portugal Notice no. 3/2005.
Whenever in a subsequent period a reduction is recorded in the value of impairment losses attributed to an event, the amount previously recognized is reversed by adjusting the impairment losses account. The amount of the reversal is recognized directly in the income statement.
3.8 Non-current assets held for sale
Non-current assets are classified as held for sale whenever it is determined that their balance sheet value will be recovered through sale. This condition is only met when the sale is highly likely and the asset is available for immediate sale in its current state. The sale operation should take place within one year of classification in this category. An extension of the period in which it is required that the sale be concluded does not mean that an asset (or set of assets for sale) cannot be classified as held for sale, if the delay is caused by events or circumstances beyond the Company’s control, and if the commitment to sell the asset is maintained.
The Company records in this item essentially properties received as settlement of debts relating to lending.
The assets recorded in this category are valued at the lower of acquisition cost and fair value, determined by independent valuers, less costs to be incurred in the sale.
In cases where the assets classified in this category no longer meet the conditions for immediate sale, namely because more than 1 year has elapsed and the Company has received no reasonable offers, these assets are reclassified into “Other assets”, maintaining the measurement criterion as established in IAS 36 – Impairment of assets – paragraphs 7 to 17.
3.9 Other tangible fixed assets
The account for tangible fixed assets includes buildings in the Company’s use, vehicles and other equipment.
The buildings used by the Company in carrying on its business abroad are classified as buildings in the Company’s use. Buildings in the Company’s use are valued at historical cost, revalued in accordance with the relevant legal rules, less subsequent depreciation.
Other tangible fixed assets are recorded at cost, less subsequent depreciation and impairment losses. Repair and maintenance costs and other costs associated with use are recognized as costs when they occur.
14 Tangible assets are depreciated on a straight line basis, in accordance with their expected useful life, which is: Buildings [10 – 50] years Vehicles 4 years Other equipment [2 – 15] years
Tangible assets are derecognized when sold or when no further economic benefits may be expected from their use or sale. On the date of derecognition, the gain or loss calculated by the difference between the net sale value and the net accounting value is recognized in the income statement under “Other operating income”.
3.10 Intangible assets
Intangible assets, which correspond essentially to software, are recorded at acquisition cost, less accrued depreciation and impairment losses. Depreciation is recorded on a straight line basis, over the estimated useful life of the assets, which currently stands at between 3 and 4 years.
The depreciation period and method for intangible assets are reviewed at the end of each year. Changes in the estimated useful life or in the pattern of consumption of future economic benefits are treated as alterations to estimates. Depreciation is recognized in the respective income statement item.
Intangible assets may include internal capitalized expenses, namely those relating to in-house software development. To this end, expenses are only capitalized from the moment when the conditions established in IAS 38 (relating to the development phase) are met.
3.11 Tax on income
Costs relating to tax on income correspond to the sum of current taxes and deferred taxes.
Current taxes are determined on the basis of the tax rate in force.
The Company also records under deferred tax liabilities or assets sums relating to recognition of taxes payable/recoverable in future, deriving from temporary taxable/deductible differences, namely those relating to provisions temporarily not deductible for fiscal purposes, revaluations of securities and derivatives only taxable at the time of realization, the taxation rules on pension liabilities and liabilities relating to other employee benefits and capital gains not taxed due to reinvestment.
Deferred tax assets and liabilities are calculated and assessed on an annual basis, using the taxation rates expected to be in force at the date of reversal of the temporary differences, which correspond to the rates approved or substantially approved at the balance sheet date. Deferred tax liabilities are always recorded. Deferred tax assets are only recorded to the extent to which it is likely that there exist future taxable profits which will allow them to be used.
Taxes on income are recorded against the results for the period, except in situations where the events which gave rise to them are reflected in a specific equity account, namely, with regard to the value of available-for-sale financial assets. In this case, the fiscal effect associated with valuations is also reflected against equity, not affecting the profit or loss for the period.
3.12 Employee benefits
15 Employee benefit liabilities were recognized under the rules defined by IAS 19, and the transitional rules established by Bank of Portugal Notice 12/2001, as amended by Bank of Portugal Notices no. 4/2005, 12/2005 and 7/2008. Accordingly, the policies reflected in the accounts as at 31 December 2008 are as follows:
Pension liabilities
As a result of the Company Agreement reached with the unions in the sector in 2008, as described in Note 41, the Company is committed to three Pension Plans: - Pension Plan I, a defined benefit plan, whereby the Company finances its liability (i) for payment of invalidity and presumable invalidity retirement pensions and survivors’ pensions for employees covered by the defined benefits plan, complementing the Social Security system, and (ii) for future payment of compulsory contributions for post-employment health care to the Social Health Care Service (contribution rate of 6.5%), covering all its current employees and the pensioners under the Fund; - Pension Plan II, a defined contribution plan, under which the Company agrees to contribute each month a sum equivalent to 4.5% of the remuneration to which the plan applies, and an initial contribution paid up on the date of constitution of the Plan; - Pension Fund III, a defined contribution fund, under which the Company agrees to contribute each month a sum equivalent to 1.5% of the remuneration to which the plan applies.
The liability or assets recognized in the balance sheet in relation to defined benefit plans corresponds to the difference between the current value of pension liabilities and the fair value of the assets of the pension funds, considering adjustments relating to deferred actuarial gains and losses. The value of liabilities is determined on an annual basis by independent actuaries, using the projected unit credit method and actuarial assumptions regarded as appropriate. Liabilities are reviewed on the basis of a discount rate which reflects the market interest rate for high quality corporate bonds, denominated in the currency in which the liabilities are payable, with periods to maturity similar to those for settlement of pension liabilities
Gains and losses deriving from differences between the actuarial and financial assumptions used and the amounts effectively occurring as regards liabilities and pension fund earnings are deferred in an account on the assets or liabilities side (“corridor”), up to a limit of 10% of the lower of the current value of liabilities for past services or the value of the pension funds, with reference to the end of the current year, adjusted in accordance with the transitional rules established in Article 13-B of Notice 12/2001. Accrued actuarial gains and losses in excess of the corridor are recognized against results over the average remaining period of service of employees covered by the plan.
At the transition date, the Company adopted the possibility permitted by IFRS 1 of not recalculating deferred actuarial gains and losses from the beginning of the plans (normally known as the reset option).
In accordance with no. 13-A of Bank of Portugal Notice no. 12/2001, recognition in retained earnings of the impact, determined with reference to 31 December 2004, of transition to the accounting standards applicable to the Company (AAS) may be achieved through application of a plan for straight line amortization up to December 2009 (5 years), except for the part relating to post-employment health care liabilities, for which the amortisation plan can be up to 7 years. These periods were subsequently extended by 3 more years by Bank of Portugal Notice no. 7/2008, i.e. until 31 December 2012 and 31 December 2014, respectively.
16 Other long term benefits
In addition to pensions, the Company has other liabilities for employee benefits, including liabilities for length of service bonuses, under the CEA.
The liabilities for these benefits are also determined on the basis of actuarial valuations, in a way similar to that for pension liabilities.
3.13 Provisions and contingent liabilities
A provision is constituted when a present obligation (legal or constructive) exists, deriving from past events where the future outflow of resources is likely, and this may be reliably determined. The provision corresponds to the Company’s best estimate of the amounts which it may be necessary to disburse in order to settle the liability at the balance sheet date.
If the future outflow of resources is not likely, then this is a contingent liability. Contingent liabilities need only be disclosed, unless the possibility of an outflow of economic resources is remote.
3.14 Dividends
Dividends are recognized as liabilities and deducted from capital accounts when approved by shareholders. Dividends for the financial year approved by the Board of Directors after the date of the financial statements are disclosed in the Notes to the Financial Statements (Note 28).
3.15 Recognition of income and costs
In general, income and costs are recognized in accordance with the period when the operations took place, on the accruals basis, i.e. they are recorded to the extent to which they are generated, irrespective of the moment when charged or paid. Income is recognized insofar as it is likely that the economic benefits associated with the transaction will accrue to the Company and the value of the income item can be reliably measured.
For financial instruments measured at amortized cost and for financial instruments classified as “Available-for-sale financial assets”, interest is recognized using the effective rate method, which corresponds to the rate which discounts exactly the set of future cash receipts or payments up to maturity, or up to the next repricing date, for the net amount currently recorded for the financial asset or liability. When the effective interest rate has been calculated, future cash flows are estimated considering the contractual terms and considering all the other income or charges directly attributable to the contracts.
3.16 Recognition of dividends
Dividends are recognized when the right to their receipt is established.
3.17 Income and charges for services and commissions
The Company charges its customers commissions for the provision of a wide range of services. These include commissions for the provision of ongoing services, for which clients are usually debited periodically, or else commissions are charged for particular significant acts.
17 The commissions charged for services rendered during a given period are recognized over the lifetime of the service. Commissions related to a significant act are recognized at the time of the act in question.
3.18 Financial guarantees
In the normal course of banking business, the Bank provides financial guarantees, such as letters of credit, bank guarantees and documentary credits.
Financial guarantees are initially recognized as a liability, at fair value. This liability is subsequently stated at the amount of the estimate of future expenses for settling the obligation, at the balance sheet date. Commissions obtained for the provision of financial guarantees are recognized directly in results, under “Service and commission income”, during the lifetime of the guarantees.
4. SEGMENT REPORTING
In the Company’s segment reporting, with reference to 31 December 2007, the primary reporting format is by business segments, which include corporate finance, trading and sales, brokerage, retail banking, commercial banking, payments and settlements, custody, asset management and other business activities (residual item).
The secondary reporting format is by geographical areas in which the Company operates.
Business segments
PAYMENTS TRADING AND BROKERAGE RETAIL COMMERCIAL AND ASSET CATEGORY SALES (RETAIL) BANKING BANKING SETTLEMENTS CUSTODY MANAGEMENT OTHER TOTAL ASSETS Cash and balances at central and other banks 0 0 0 1.342.913 0 0 0 0 1.342.913 Trading securities 16.088 0 0 0 0 0 0 0 16.088 Available-for-sale financial assets 59.107 0 0 0 0 0 0 0 59.107 Loans and advances to customers (net) 0 0 4.108.320 3.532.904 0 0 0 0 7.641.224 Held-to-maturity investment securities 0 0 0 0 0 0 0 0 0 Other assets (of which): 221.852 0 38.805 877 0 0 0 239.780 501.314 Tangible assets 168 0 38.805 877 0 0 0 12.417 52.267 Intangible assets 934 0 0 0 0 0 0 5.719 6.653 TOTAL NET ASSETS 297.047 0 4.147.125 4.876.694 0 0 0 239.780 9.560.646
LIABILITIES Deposits from central and other banks 0 0 0 2.816.170 0 0 0 0 2.816.170 Customer accounts 0 0 5.220.304 419.495 0 0 0 0 5.639.799 Debt securities in issue 0 0 44.068 0 0 0 0 0 44.068 Other liabilities 531.840 0 66.949 0 0 0 0 115.639 714.428 TOTAL LIABILITIES 531.840 0 5.331.321 3.235.665 0 0 0 115.639 9.214.465
PAYMENTS TRADING AND BROKERAGE RETAIL COMMERCIAL AND ASSET CATEGORY SALES (RETAIL) BANKING BANKING SETTLEMENTS CUSTODY MANAGEMENT OTHER TOTAL Interest and similar income 192.333 0 256.975 246.420 0 0 0 0 695.728 Interest and similar expense -183.689 0 -150.260 -192.348 0 0 0 0 -526.297 Net interest income 8.644 0 106.715 54.072 0 0 0 0 169.431 Dividend income 2.629 0 0 0 0 0 0 0 2.629 Fee and commission income 1.573 1.470 25.157 28.367 712 614 0 0 57.893 Fee and commission expense -224 0 -485 -38 -4.340 0 0 0 -5.087 Income from assets and liabilities valued at fair value through profit or loss -3.679 0 0 0 0 0 0 0 -3.679 Income from available-for-sale financial assets -594 0 0 0 0 0 0 0 -594 Foreign exchange income 1.080 0 0 0 0 0 0 0 1.080 Income from disposal of other assets 0 0 -1.161 -1.053 0 0 0 0 -2.214 Other operating income -501 1.516 2.899 7.418 8.228 22 0 0 19.582 Operating revenue 8.928 2.986 133.125 88.766 4.600 636 0 0 239.041 Personnel costs -3.367 -222 -61.812 -20.822 -696 -96 -230 0 -87.245 Overheads -2.754 -204 -40.766 -27.229 -641 -88 -213 0 -71.895 Operating cash flows 2.807 2.560 30.547 40.715 3.264 452 -443 0 79.901 Depreciation in the period -659 -56 -6.728 -2.388 -175 -24 -59 0 -10.089 Provisions net of reinstatement and write-offs 0 0 -2.979 -2.562 0 0 0 0 -5.541 Corrections associated to loans and advances to customers and other debtors 0 0 -14.093 -30.572 0 0 0 0 -44.665 Impairment of other financial assets net of reversals and recovery 0 0 0 0 0 0 0 0 0 Impairment of other assets net of reversals and recovery -2.122 0 -507 -436 0 0 0 0 -3.065 Profits before tax and minority interests 26 2.504 6.240 4.757 3.089 428 -502 0 16.541 Taxes Current -7 -259 -1.627 -1.253 -809 -112 -266 0 -4.333 Deferred 5 183 1.149 885 572 79 188 0 3.061 Profit for the period 24 2.428 5.762 4.389 2.852 395 -580 0 15.269
18 Geographical segments
REST OF EUROPEAN CATEGORY PORTUGAL UNION TOTAL ASSETS Cash and balances at central and other banks 1.342.835 78 1.342.913 Trading securities 16.088 0 16.088 Available-for-sale financial assets 59.107 0 59.107 Loans and advances to customers (net) 7.641.224 0 7.641.224 Held-to-maturity investment securities 0 0 0 Other assets (of which): 499.980 1.334 501.314 Tangible assets 51.088 1.179 52.267 Intangible assets 6.636 17 6.653 TOTAL NET ASSETS 9.559.234 1.412 9.560.646
LIABILITIES Deposits from central and other banks 2.816.170 0 2.816.170 Customer accounts 5.639.799 0 5.639.799 Debt securities in issue 44.068 0 44.068 Other liabilities 710.898 3.530 714.428 TOTAL LIABILITIES 9.210.935 3.530 9.214.465
REST OF EUROPEAN CATEGORY PORTUGAL UNION TOTAL Interest and similar income 695.728 0 695.728 Interest and similar expense -526.297 0 -526.297 Net interest income 169.431 0 169.431 Dividend income 2.629 0 2.629 Fee and commission income 57.893 0 57.893 Fee and commission expense -5.082 -5 -5.087 Income from assets and liabilities valued at fair value through profit or loss -3.679 0 -3.679 Income from available-for-sale financial assets -594 0 -594 Foreign exchange income 1.080 0 1.080 Income from disposal of other assets -2.214 0 -2.214 Other operating income 19.568 14 19.582 Operating revenue 239.032 9 239.041 Personnel costs -85.890 -1.355 -87.245 Overheads -71.217 -678 -71.895 Operating cash flows 81.925 -2.024 79.901 Depreciation in the period -9.994 -95 -10.089 Provisions net of reinstatement and write-offs -5.541 0 -5.541 Impairment of loans and advances net of reversals and recovery -44.665 0 -44.665 Impairment of other financial assets net of reversals and recovery -2.122 0 -2.122 Impairment of other assets net of reversals and recovery -943 0 -943 Profits before tax and minority interests 18.660 -2.119 16.541 Taxes Current -4.333 0 -4.333 Deferred 3.061 0 3.061 Profit for the period 17.388 -2.119 15.269
5. CASH AND BALANCES WITH CENTRAL BANKS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Cash 48.522 43.348 In Euros 44.778 39.430 In foreign currency 3.744 3.918
Sight deposits with Bank of Portugal 237.104 185.251
285.626 228.599
Sight deposits with the Bank of Portugal include the deposits made to comply with the legal requirements on minimum cash resources. In accordance with Bank of Portugal Notice 7/94, of 19 October, the coefficient to be applied is 2% of eligible liabilities. These deposits have been interest bearing since 1 January 1999.
19 6. DUE FROM OTHER BANKS
This account breaks down as follows: Description 31-12-2008 31-12-2007
Cheques awaiting collection 30.204 35.455 In Portugal 30.066 35.365 Abroad 138 90
Sight deposits 41.652 24.351 In Portugal 18.664 14.895 Abroad 22.988 9.456
71.856 59.806
Cheques in course of collection from banks in Portugal at 31 December 2008 were cleared through the Clearing Chamber during the first few business days of January 2009.
7. TRADING SECURITIES
This account comprises derivative financial instruments, not classified under hedges:
Description 31-12-2008 31-12-2007 Fair Value Fair Value Notional Positive Negative Positive Negative Exchange rate contracts Forwards - Purchase 98.815 2.109 1.475 45 15 - Sale 98.206 Currency Swaps - Purchase 495.168 12.275 12.501 989 11.868 - Sale 496.476 Interest rate contracts Interest Rate Swaps 1.368.136 1.134 2.398 755 531 Equity / index contracts Equity / Index Swaps 10.000 570 479 2.013 0 Total 16.088 16.853 3.802 12.414
The fair value of derivative financial instruments is recognized in the balance sheet under separate asset and liabilities accounts. Positive fair value is recognized under “Trading securities” and negative value under “Trading liabilities”.
8. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Portuguese public debt 26.372 27.551 Non-subordinated public debt issued by residents 29.593 383 Non-subordinated public debt issued by non-residents - 29.732 Subordinated debt issued by non-residents - 10.190 Equity instruments issued by residents 141.703 5.890 Equity instruments issued by non-residents 1.195 8.357 198.863 82.103 20
Detailed breakdown as at 31 December 2008: Type Listed price Quantity Balance sheet value
Debt instruments Public debt OT JUL 3,95% 2009 100,90% 24.620.000 25.292 OT-MAIO 5,85% 2010 104,39% 1.000.000 1.080
Other Non-subordinated debt EMT 2005/2010 100,00% 382.000 383 BANIF LEASING 05/15 100,00% 6.000.000 6.207 BANIF INV TX VR 2016 100,00% 15.000.000 15.003 RENTIPAR 2008/2012 100,00% 8.000.000 8.000
Sub - Total 55.965
Equity instruments BRISA 5,35 360 2 EDP 2,70 1.175 3 FUTEBOL CLUBE DO PORTO 1,40 23.000 32 INAPA - Inv. Part. Gestão 0,34 35.693 12 BANIF IMOPREDIAL 7,12 12.720.059 90.609 BANIFUNDO EURO ACÇÕES 1,66 1.000.000 1.660 BNF IMOGEST FII-F 36,22 1.311.830 47.519 FUNDO CAPITAL DE RISCO CAPVEN 4.065,22 150 610 NEW ENERGY FUND-FEIF 50.251,12 25 1.256 RAIFFEISEN INT BK HL 19,30 1.000 19 EUROPEAN EQUITY FUND 53,71 2.500 134 BRAZILIAN BOND FUND 82,54 7.500 619 CONSERVATIVE STRATEGY FUND 64,22 5.000 321 AGGRESSIVE STRATEGY FUND 40,74 2.500 102 Sub - Total 142.898 TOTAL 198.863
The balance sheet value corresponds to the listed price and accrued interest.
Of the sum of 26,372 thousand euros in treasury bills, 25,696 thousand euros corresponds to “assets given as security”, in relation to irrevocable commitments to the Deposit Guarantee Fund, the Investor Compensation System and Intraday Credit with the Bank of Portugal.
As required by item c) 2 of Bank of Portugal Instruction 18/2005, securities maturing within one year are as follows:
Type Balance sheet value OT JUL 3,95% 2009 25.292 25.292
9. AVAILABLE FOR SALE FINANCIAL ASSETS
This account breaks down as follows:
21 Description 31-12-2008 31-12-2007
Securities Issued by residents 4.607 1.963 Equity instruments 4.607 1.963
Issued by non-residents 1.013.630 10.150 Equity instruments 0 10.134 Acquired in connection with securitization operations 1.013.557 10.134 Equity instruments 73 16
Securities stated in the balance sheet for deduction from "Asset-backed financial liabilities" (959.130) -
59.107 12.113 Detailed breakdown as at 31 December 2008:
Impairment Type Listed price Quantity Balance sheet value (Note 18)
ATLANTES MORTGAGE Nº1 1 6.877.648 9.258 (1.379) ATLANTES MTG Nº 2 CL A 1 327.767.206 328.176 - ATLANTES MTG Nº 2 CL B 1 18.400.000 18.427 - ATLANTES MTG Nº 2 CL C 1 7.500.000 7.513 - ATLANTES MTG Nº 2 CL D 1 16.125.000 16.190 (678) ATLANTES MTG Nº 3 CL A 1 558.600.000 563.249 - ATLANTES MTG Nº 3 CL B 1 41.400.000 41.765 - ATLANTES MTG Nº 3 CL C 1 23.700.000 28.978 - CENTRO DE EMPRESAS E INOVAÇÃO DA MADEIRA, LDA 5 800 4 - FINANGEST 675 526 355 (180) SIBS- SOC INTERBANCARIA DE SERVIÇOS,SA 4 34.479 136 - UNICRE- CARTÃO INTERNACIONAL DE CRÉDITO, SA 14 18.923 256 - VIA LITORAL, SA 699 4.750 3.320 - BENFICA SAD 2 20 0 - DIDIER & QUEIROZ, S.A. 3 50.000 148 (2) IMOVALOR 14 19.890 281 - MACEDO & COELHO 0 188 0- REAL SEGUROS 47 2.116,00 99 (129) SC BRAGA SAD 16 20 1 - PRETÓRIA - VIAGENS E TURISMOS LDA 1 5.736 6- GARVAL 1 250 0- LISGARANTE 1 250 0- NORGARANTE 1 250 0- SWIFT Soc Woeldwide Interbank Financial Telecomunications,SC 755 13 10 - VISA EUROPE 0 1 0- VISA CLASS C 25 2.533 63 - NYSE EURONEXT 19 101 2- SUB - TOTAL 1.018.237 (2.368) Securities stated in the balance sheet for deduction from "Asset-backed financial liabilities"
ATLANTES MTG Nº 2 CL A 1 327.767.206 328.176 - ATLANTES MTG Nº 2 CL B 1 18.400.000 18.427 - ATLANTES MTG Nº 2 CL C 1 7.500.000 7.513 - ATLANTES MTG Nº 3 CL A 1 558.600.000 563.249 - ATLANTES MTG Nº 3 CL B 1 41.400.000 41.765 -
959.130 -
TOTAL 59.107 (2.368)
The Atlantes MTG N.º2 CL A and Atlantes MTG N.º3 CL A securities are currently securing refinancing operations through the Eurosystem (liquidity operations) with the European Central Bank.
The Garval, Lisgarante and Norgarante securities are currently securing commitments to the company Garantia Mútua.
The securities issued by “Via Litoral, SA” are recorded at fair value. The fair values were estimated using discounted cash flows, analyzing the intrinsic value of the transaction, discounting at 31-12-08 cash flows expected in future, at a discount rate which reflects the risk involved, as per Note 40.
There are no securities maturing within one year.
22
10. DUE FROM BANKS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Interbank money market -- Loans In Portugal 448.621 394.974 Abroad 502.180 460.172 Other In Portugal 19.752 4.493 Abroad 14.883 1.521
Impairment losses (5) (6) 985.431 861.154
11. LOANS AND ADVANCES TO CUSTOMERS
This account breaks down as follows:
Lending Accounts 31-12-2008 31-12-2007
Lending to corporate customers Current accounts 1.940.156 1.468.699 Discount and other credits secured by effects 429.901 358.700 Loans 1.620.525 1.183.061 Overdrafts 99.043 80.552 Factoring 99.117 73.625 Other 125.070 66.974 Lending to private customers Mortgage lending 1.025.391 1.524.923 Consumer credit 241.247 216.552 Other purposes Loans 379.911 627.126 Current accounts 148.951 233.984 Discount and other credits secured by effects 25.851 29.259 Overdrafts 32.079 39.790 Other 56.288 41.794
Other credits and receivables (secured) 163.969 73.685
Customer lending - securitized 1.163.646 259.044
Overdue credit and interest 138.615 110.663
Income receivable 51.013 41.295 Expenses with deferred income 9.967 6.118 Revenue with deferred income (13.819) (13.711)
Provisions for overdue credit and doubtful debts (95.697) (83.155)
Total 7.641.224 6.338.978
Movements in the account for adjustments to loans and advances to customers and receivables – other debtors in 2008:
23 Balance at Reinstatement Balance at Description 31-12-2007 Increase Adjustment Use and write-offs 31-12-2008
Overdue credit 68.300 49.604 (473) (31.631) (1.294) 84.506 Doubtful debts 14.686 2.566 (19) - (6.126) 11.107 Country risk 169 158 - - (243) 84 Total 83.155 52.328 (492) (31.631) (7.663) 95.697
12. HELD-FOR-SALE NON-CURRENT ASSETS
Movement in the period
Impairment Impairment Balance at Transfers to other Other losses losses Balance at Category of asset31-12-2007 Acquisitions Disposals assets movements recognized reversed 31-12-2008
Property and equipment 48.799 24.874 (6.742) (64.584) 531 (323) 550 3.104
Total 48.799 24.874 (6.742) (64.584) 531 (323) 550 3.104
“Transfers to other assets” correspond to reclassifications of assets held for more than 1 year, where the Group has not received reasonable offers, due to the deterioration of market conditions. These reclassifications were made for the amounts for which these assets were stated, with no impact on profit or loss for the period or previous periods.
During the period to which the financial statements refer, a sum of 24,874 thousand euros was acquired through execution of guarantees.
13. OTHER TANGIBLE ASSETS
As stated in Note 3.9, buildings in the Company’s own use were recorded at fair value, reviewed every three years. These properties were last revalued as at 31.12.2006.
Movement during the period:
Balance at 31-12-2007 Increases Write- Depreciation Net Transfers offs Category of asset Accrued Acquisitio Revaluation in the period 31-12-2008 Gross (net) depreciation n (net) Property in the company's own use 666 64 - - - 7 152 443 Works in rented premises 24.926 11.414 9.194 - 12.023 2.435 - 32.294 Equipment 36.141 26.373 5.256 - 472 3.634 58 11.804 Art works ------Other tangible assets 7.333 4.756 534 - - 387 30 2.694 Property in the company's own use - in 137 - 109 - - - - 246 Rented premises - in progress 13.935 - 2.486 - (12.049) - - 4.372 Equipment - in progress 657 - 204 - (446) - - 415 Total 83.795 42.607 17.783 - - 6.463 240 52.268
There were no revaluations in prior periods in the period and there is no exceptional depreciation resulting from fiscal measures.
There are no tangible fixed assets on finance leases or operating leases.
14. INTANGIBLE ASSETS
Movement during the period:
24 Balance at 31-12-2007 Increases Depreciation Net Transfers Category of asset Accrued Acquisitio Revaluation Gross in the period 31-12-2008 depreciation n (net)
Research and development expenses 154 154 - - - - - Software 29.760 23.236 3.391 - - 3.626 6.289 Goodwill ------Formation costs ------Multiple period costs ------Intangible assets - in progress 340 - 24 - - - 364 Total 30.254 23.390 3.415 - - 3.626 6.653
No impairment losses were recorded in 2008 on intangible assets.
15. INVESTMENT IN ASSOCIATES
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Equity instruments In Portugal - 24.933 Abroad 10 12
Impairment - (2.802) 10 22.143
Detailed breakdown as at 31 December 2008:
Balance sheet value before Type impairment Impairment
Equity instruments
BANIF BRAZIL, LDA 9 - BANIF FINANCE Ltd 1 - 10 -
During the financial year of 2008, Banif – Banco Internacional do Funchal, SA disposed of Sociedade Banif (Açores) SGPS, SA for a price of 20,735 thousand euros. A loss of 1,395 thousand euros was recognized on this operation.
The company holds 20% of Banif Brazil, Lda and 100% of the share capital of Banif Finance, Ltd.
16. TAX ON INCOME
16.1 Deferred taxes
25 PREVIOUS END OF MOVEMENT IN PERIOD PERIOD PERIOD INCREASE REALIZATION/WRITE-OFF DESCRIPTION DEFERRED DEFERRED TAX (NET) EQUITY PROFITS EQUITY PROFITS TAX (NET)
Deferred tax assets 20.738 (28) 4.279 - (1.763) 23.226
Provision/Impairment not accepted for fiscal purposes 17.065 - 2.024 - (1.158) 17.931 Other risks and charges 102 - 0 - (2) 100 Impairment on lending 16.963 - 2.024 - (1.156) 17.831
Valuations not accepted for fiscal purposes 50 (28) 2.209 - (8) 2.223 Derivatives and financial liabilities at fair value through profit or loss 22 - - - (8) 14 Available-for-sale financial assets 28 (28) - - - 0 Financial assets at fair value through profit or loss - - 2.209 - - 2.209
Other 3.623 - 46 - (597) 3.072 Employee benefits 2.015 - 46 - (28) 2.033 Commissions 745 - - - (256) 489 Intangible assets 25 - - - (25) 0 Others 838 - - - (288) 550
Deferred tax liabilities (1.933) (700) - 1.001 545 (1.087)
Valuations not accepted for fiscal purposes (172) (645) - - 59 (758) Financial assets at fair value through profit or loss (172) - - - 59 (113) Available-for-sale financial assets - (645) - - - (645)
Other (1.761) (55) - 1.001 486 (329) Expenses with deferred charges - Pension Fund (1.182) (55) - 1.001 - (236) Pension fund (579) - - - 486 (93)
TOTAL 18.805 (728) 4.279 1.001 (1.218) 22.139
16.2 Reconciliation of normal tax rate with effective rate
CURRENT PERIOD CURRENT TAXES DEFERRED TAXES DESCRIPTION TAXABLE INCOME TAX TAXABLE INCOME TAX
Tax expense at legal rate Profits before tax and minority interests 16.541 - -- Corporation tax 4.333 - -- Deferred taxes (3.061) Net profit for the period 15.269 3.112 -- Legal rate of tax on income 24,3% - -- Add-ons to legal rate 1,2% - -- Normal tax burden 25,5% - --
Variations in assets (1.935) (493) 6.633 1.691 To add 221 56 (31) (8) To deduct (2.156) (550) 6.664 1.699
Non-deductible expenses 16.787 4.279 5.370 1.370 Fines 11 3 -- Tax on income 4.333 1.104 -- Non-deductible provisions 6.050 1.542 3.405 869 Non-deductible depreciation 33 8 -- Pension fund 1.868 476 1.973 503 Costs imputed to offshore branch 80 20 -- Fiscal gains 2.388 608,70 -- Accounting losses 2.024 516 (8) (2) Reinstatement of provisions Other (5.823) (1.484) 0 0 (123) (31) - - Non-taxable revenues (1.920) (489) - - Non-taxable dividends from subsidiaries and deduction for double taxation (2.354) (600) - - Intangible assets (95) (24) - - Overestimate (177) (45) - - Other (1.154) (294) - -
Fiscal effects of fiscal benefits (4.647) (1.185) 0 0
Earnings from Madeira Offshore Branch (2.917) (744) -- Other (1.730) (441) --
Taxable profit (fiscal loss) 16.590 4.229 - - Deduction of fiscal losses/fiscal benefits (63) (16) - - Fiscal loss ACE (63) (16) -- Taxable income 16.527 4.213 - - Total tax - 4.213 -- Total deductions from tax - (271) --
Corporation tax assessed - 3.942 -- Deduction at source and payment on account - (11.030) -- Corporation tax payable - (7.088) -- Separate taxation - 391 -- Total payable (for recovery) - (6.697) - - Total tax burden - 4.333 - - Charges / earnings for direct taxes - - - (3.061) Deferred taxes recognized in the period -- -(3.061) Effective rate of tax - - - 7,69%
26
The account for “Current tax assets” includes the sum of 467 thousand euros in corporation tax (IRC) to be recovered.
17. OTHER ASSETS
This account breaks down as follows:
Description 31-12-2008 31-12-2007 Gold 11 11 Other precious metals, coins and medals 232 272 Other receivables from residents 1 2 244 285
Subsidies receivable From the State 7.457 5.466 7.457 5.466
Shareholders' loans 5.015 5.015 Sundry debtors 54.492 16.824 Expenses relating to deferred charges - Pension fund 923 4.565 Pension fund (Note 40 d)) 6.210 8.147 Property 68.468 0 Other assets 70.522 32.942 205.630 67.493
Impairment (7.670) (2.615) 205.661 70.629
The sum of 68,468 thousand euros under “Property” refers to property reclassified out of “Non-current assets available for sale”, as per Note 3.2 and Note 16.
“Expenses with deferred cost – Pension fund” refers to the transitional rules provided for under Bank of Portugal Notice 12/2001.
18. IMPAIRMENT OF ASSETS
Movement in impairment of assets during the period:
Balance at Reinstatement Balance at Description 31-12-2007 Increase Transfers Use and write-offs 31-12-2008
Available-for-sale financial assets (Note 9) 392 2.123 - (147) - 2.368 Due from other banks (Note 10) 6 53 - - (54) 5 Held-for-sale non-current assets (Note 12) 4.813 323 (3.884) (531) (551) 170 Investment in subsidiaries, affiliates and joint ventur 2.802 - - (2.802) - - Other assets (Note 17) 2.615 1.372 3.884 - (201) 7.670 Total 10.628 3.871 - (3.480) (806) 10.213
19. DEPOSITS FROM CENTRAL BANKS
This account breaks down as follows:
31-12-2008 31-12-2007
Deposits from central banks 647.728 0 647.728 0
27 “Deposits from Central Banks” corresponds to refinancing operations with the European Central Bank (ECB), as part of liquidity-providing operations, secured by eligible assets, as described in Note 9 on securities issued in connection with securitization operations.
20. TRADING LIABILITIES
This account comprises the valuation (negative fair value) of derivative financial instruments, described in Note 7.
21. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Debt issues classified in this item present the following characteristics:
Description 31-12-2008 31-12-2007
Bonds 22.321 62.742 Financial charges 351 751 22.672 63.493
Issues repaid in the period ended 31-12-2008:
- Repayment of Caixa Banif SFE Rendimento dinâmico 2004-2008 with a value of 18 million US dollars.
- Early repayment of Caixa Banif SFE Step Up 2005 – 2010 with a value of 15 million US dollars.
- Repayment of Caixa Banif SFE Dólar – Multi Activos 2005 –2008 bonds with a value of 10 million US dollars.
Issues made in prior periods:
- On 28 February 2005, Banif – Banco Internacional do Funchal, SA issued 10 million Euros in five-year notes. Interest is payable annually, in arrears, as from the subscription date, on 28 February each year. The Bank has a call option, allowing for early repayment of the entire issue at its nominal value, at any interest payment date as from maturity of the 2nd coupon (28 February 2007), inclusive, provided it publishes this intention in the Euronext Lisbon official bulletin and in a widely-read newspaper, no less than thirty days in advance. The gross nominal interest rate is subject to evolution of an underlying basket including three equity indexes (S&P 500 Index, DJ Euro Stoxx 50 Index and Nikkei 225 Index), a commodity index (standard crude oil future) and a bond index (Citigroup World Government Bond index), with a minimum value of 1%.
- On 28 February 2005, Banif – Banco Internacional do Funchal SA, SFE issued 5 million US dollars in five-year notes. Interest is payable annually, in arrears, as from the subscription date, on 28 February each year. The Bank has a call option, allowing for early repayment of the entire issue at its nominal value, at any interest payment date as from maturity of the 2nd coupon (28 February 2007), inclusive, provided it publishes this intention in the Euronext Lisbon official bulletin and in a widely-read newspaper, no less than thirty days in advance. The gross nominal interest rate is subject to evolution of an underlying basket including three equity indexes (S&P 500 Index, DJ Euro Stoxx 50 Index and Nikkei 225 Index), a commodity index (standard crude oil 28 future) and a bond index (Citigroup World Government Bond index), with a minimum value of 1%.
- On 01 July 2005, Banif – Banco Internacional do Funchal, SA issued 10 million Euros in five-year notes. Interest is payable annually, in arrears, as from the subscription date, on 01 July each year. The Bank has a call option, allowing for early repayment of the entire issue at its nominal value, at any date as from the 2nd anniversary of the subscription date (23 May 2007), inclusive, provided it publishes this intention in the Euronext Lisbon official bulletin and in a widely- read newspaper, no less than thirty days in advance. Interest is paid at a flat rate of 1% per annum plus a variable percentage linked to the DJ Eurostoxx 50 index. In 2008, Banif, SA bought back 4.1 million euros of this issue.
- On 30 March 2006, Banif - Banco Internacional do Funchal SA, SFE issued 7.5 million euros in three-year notes. Interest is payable annually, in arrears, as from the subscription date, on 30 March each year. The gross nominal interest rate is 1% p.a.. At the date of maturity, the investor will be entitled to receive 50% of the performance of the best of 3 investment strategies (three indexes).
22. DUE FROM OTHER BANKS
Description 31-12-2008 31-12-2007
From banks in Portugal Interbank money market - 20.000 Deposits 146.300 191.985 Loans 435.545 101.235 Others - 3 581.845 313.223
From banks abroad Deposits 312.590 206.848 Loans 1.251.026 1.508.546 Others 5.492 6.125 1.569.108 1.721.519
Financial charges 17.489 19.072 2.168.442 2.053.814
23. LOANS AND ADVANCES TO CUSTOMERS
This account breaks down as follows:
29 Description 31-12-2008 31-12-2007
Deposits Sight 925.566 1.008.991 Term 4.244.788 3.343.031 Savings 88.574 113.850 Other 330.705 105.125 5.589.633 4.570.997
Other debits
Cheques and orders payable 3.199 7.048 Interest 46.967 23.479 50.166 30.527
5.639.799 4.601.524
24. LIABILITIES REPRESENTED BY SECURITIES
This account breaks down as follows (including accrued interest):
Description 31-12-2008 31-12-2007
Deposit certificates 43.419 66.563 Financial charges 649 926 44.068 67.489
25. FINANCIAL LIABILITIES RELATING TO TRANSFERRED ASSETS
This item breaks down as follows:
Description 31-12-2008 31-12-2007
Liabilities for assets not derecognized in securitization operations 225.358 260.055 225.358 260.055
The credit securitisation operations in which the Bank participated in conjunction with other Banif Financial Group entities, as a means of financing its current activities, were as follows:
- Atlantes Finance No. 1: November 1999 (repaid in August 2005) - Atlantes Finance No. 2: May 2002 (repaid in July 2008) - Atlantes Mortgage No. 1: February 2003 - Atlantes Mortgage No. 2: March 2008 - Atlantes Mortgage No. 3: October 2008
The securitization operations for consumer credit and leading, Atlantes Finance No. 1 and Atlantes Finance No. 2, in which the Bank was involved as originator, together with Banco Banif e Comercial dos Açores and Banif Go, terminated in August 2005 and July 2008 respectively, through exercise of the respective clean-up calls, early repayment options on bonds as soon as the underlying credit portfolio less to less than 10% of the initial amount.
Atlantes Mortgage No. 1, carried out in February 2003, was the first operation to involve the transfer of a portfolio of mortgage lending originated by the Bank, with a value of 500 million euros.
30 In order to carry out this operation, a Credit Securitization Fund was created with the name Atlantes Mortgage Finance No. 1 Fundo, managed by Navegator – Sociedade Gestora de Fundos de Titularização de Créditos, SA, and an Irish law vehicle, Atlantes Mortgage No. 1 Plc..
The fund issued securitization units subscribed in full by Atlantes Mortgage No. 1 plc, which made permitted it to finance the acquisition of the lending portfolio transferred by Banif and to set up a cash reserve of 5 million euros, necessary for this type of operation.
Atlantes Mortgage No. 1 plc then acquired all the securitization units from Atlantes Mortgage No. 1 Fundo, which acquisition was financed by the issue of Atlantes Mortgage No. 1 Bonds, Classes A, B, C, D and E.
The class A, B, C and D bonds, with quarterly interest payments pegged to the 3 month Euribor rate, were initially rated as follows by Standard & Poor’s, Moody’s and FitchRatings:
S&P Moody’s Fitch Nom. Value % Atlantes Mortgage N.1 Class A AAA Aaa AAA 462,500,000€ 92.5% Atlantes Mortgage N.1 Class B A A2 A 22,500,000€ 4.50% Atlantes Mortgage N.1 Class C BBB Baa3 BBB 12,500,000€ 2.50% Atlantes Mortgage N.1 Class D BB Ba2 BB 2,500,000€ 0.50%
In November 2008, the performance of the underlying credit portfolio and progressive repayment of the more senior tranche allowed Fitch to upgrade its rating for class B to A+, as at present.
Unlike Classes A, B and C, Atlantes Mortgage No. 1 Class E, with an initial nominal value of 15.4 million euros, are unrated residual interest bonds.
In July 2008, Atlantes Mortgage No. 2 was launched as an issue of securitized bonds, also collateralized by a portfolio of mortgage lending originated by Banif. However, in contrast to previous issues which had involved foreign based vehicles, Atlantes Mortgage No. 2 used a Credit Securitization Company (CSC) and not a fund as national vehicle, and dispensed with the normal second vehicle abroad, the bonds being issued by the actual CSC, under the existing legislative framework.
The credit securitization company used for this purpose was Gamma – Sociedade de Titularização de Créditos, SA (Gamma), incorporated in June 2006 and wholly owned by the Banif Group with the purpose of facilitating the execution of further securitization operations for credits originated inside or outside the Group.
In this issue, the bank transferred to Gamma a portfolio of mortgage lending with a value of 375 million euros. This acquisition, and the constitution of the necessary cash reserve, was financed by issue of the securitized bonds Atlantes Mortgage No. 2 Class A, B, C and D with a total nominal value of 391.1 million euros.
The class A, B and C bonds, with quarterly interest payments pegged to the 3 month Euribor rate, were rated as follows by Standard & Poor’s:
31 S&P Nominal Value % Atlantes Mortgage No.2 Class A AAA 349.100.000€ 93.09% Atlantes Mortgage No.2 Class B A 18.400.000€ 4.91% Atlantes Mortgage No.2 Class C BBB 7.500.000€ 2.00%
Unlike Classes A, B and C, Atlantes Mortgage No. 2 Class D, with an initial nominal value of 16,125,000 euros, are unrated residual interest bonds.
In late October 2008, a further operation was carried out. This was Atlantes Mortgage No. 3, an issue of securitized bonds, involving a portfolio of mortgage lending originated by the bank.
The structure was similar to that for Atlantes Mortgage No. 2, in other words, the bank transferred to Gamna a portfolio of mortgage lending, with a value in this case of 600 million euros. This acquisition, together with constitution of the necessary cash reserve, was financed through issue of the securitized bonds Atlantes Mortgage No. 2 Class A, B and C, with an aggregate nominal value of 623.7 million euros.
26. PROVISIONS AND CONTINGENT LIABILITIES
Balance at Reinstatement Balance at Description 31-12-2007 Increase Adjustment Use and write-offs 31-12-2008 General credit risks 53.292 6.079 4.512 - (106) 63.777 Judicial proceedings 888 175 - (70) (605) 388 Fiscal contingencies 2.325 - - - - 2.325 Other provisions 1.260 - - (815) (2) 443 Total 57.765 6.254 4.512 (885) (713) 66.933
In view of the high degree of uncertainty regarding the payment periods for the contingencies provided for, no time discount was considered.
Below we detail the nature of the obligations in question:
Description 31-12-2008 31-12-2007 Guarantees given (of which): Guarantees and sureties 1.750.691 505.217 Documentary credits opened 28.169 29.696 1.778.860 534.913
Description 31-12-2008 31-12-2007 Other contingent liabilities (of which): Assets given as security 914.380 21.357 Commitments to third parties (of which): Irrevocable commitments 368.666 721.406 Revocable commitments 717.518 506.236 2.000.564 1.248.999
Fiscal contingencies: a present obligations resulting from past events exists where the future outflow of resources relating to tax on profits is likely.
32 Provisions for guarantees and commitments: a present obligation resulting from past events exists where the future outflow of resources relating to the provision of guarantees and commitments is likely.
Guarantees provided correspond to the following nominal amounts recorded in memorandum accounts:
Contingencies and other commitments to third parties, not recognized in the Financial Statements as at 31 December 2008 and 31 December 2007 break down as follows
“Assets given as security” correspond to treasury bills, which secure irrevocable commitments to the Deposit Guarantee Fund, the Investor Compensation System and Intra-Day Credit from the Bank of Portugal, Sociedade Garantia Mútua and the European Central Bank.
27. OTHER SUBORDINATED LIABILITIES
This account consists of the following:
Description 31-12-2008 31-12-2007
Subordinated bonds and loans issued 278.736 237.960 Subordinated bonds reacquired (8.607) - 270.129 237.960
The debt issues classified in this account are as follows:
Issues during the period ended 31-12-2008:
- On 30 June 2008, Banif – Banco Internacional do Funchal SA, SFE contracted a subordinated loan of 15 million euros with an indeterminate duration, granted by Banif Finance. For interest payment periods prior to 28 December 2017 (the first call option date), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 3.0362% per annum. For each subsequent period, the issuer will pay a rate corresponding to the Euribor 3 month rate plus 4.0362% per annum.
- On 18 August 2008, Banif – Banco Internacional do Funchal, SA issued subordinated notes with a value of 25 million euros represented by 25 million 1,000 euros notes. Interest is paid half-yearly in arrears on 18 August and 18 February each year and for the first year the interest was calculated at 6.25%, with interest on subsequent coupons being indexed to the 6 month Euribor rate ruling on the second business day prior to each interest period, plus 1%. As from the 11th coupon (inclusive) ad through to the maturity date, the interest is payable at the Euribor 6 month rate plus 1.15%. The loan will be repaid at par in a single instalment, at the maturity date, although the Bank has a call option, provided it obtained prior consent from the Bank of Portugal, as from the 10th coupon (inclusive).
Issues in previous years:
- On 16 July 2001 Banif – Banco Internacional do Funchal, SA, issued subordinated cash bonds of 12,500 thousand euros represented by 12,500 certificates of 1,000 euros each The interest on these bonds matures at six month intervals and in arrears on 16 January and 16 July each year and were
33 calculated for the 1st coupon on the basis of a rate of 5.375% and for subsequent coupons in accordance with the Euribor 6 months rate in force on the second business day prior to the beginning of each six month period, plus 0.75%. The loan is to be repaid at par in one instalment, on 16 July 2011 but may however be paid back in advance on the Bank’s option (call option), with authorization from the Bank of Portugal, on maturity of the 10th, 12th, 14th 16th or 18th coupons, with no premium on the amount repaid. - On 30 December 2005, Banif – Banco Internacional do Funchal, SA issued subordinated bonds of 50,000 thousand euros. In the interest payment periods prior to 30 December 2010 (the first possible early repayment date, at the issuer’s option), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 0.75% per annum. For each subsequent period, the issuer will pay a rate corresponding to the 3 month Euribor rate plus 1.25% per annum. - On 22 June 2006, Banif – Banco Internacional do Funchal, SA issued subordinated notes of 75 million euros with an indeterminate duration. Interest is paid quarterly in arrears on 22 December, 22 March, 22 June and 22 September each year. The Bank will pay interest at a floating rate corresponding to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 1%. For each period subsequent to 22 December 2014, the interest rate will be equivalent to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 2% (step up of 1% on the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 1%). As from 22 December 2014, the subordinated notes may be repaid on the borrower’s initiative, in full or in part, at any interest payment date. - On 22 December 2006, Banif – Banco Internacional do Funchal, SA contracted a subordinated loan of 50 million euros, maturing on 22 December 2016. Interest is paid quarterly in arrears as from the disbursement date, on 22 December, 22 March, 22 June and 22 September each year. The Bank will pay interest at a floating rate corresponding to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 0.75%. For each period subsequent to 22 December 2011, the interest rate will be equivalent to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 1.25%. As from 22 December 2011, the subordinated notes may be repaid on the borrower’s initiative, in full or in part, at any interest payment date. - On 22 December 2007, Banif – Banco Internacional do Funchal SA, SFE contracted a subordinated loan of 50 million euros with an indeterminate duration, granted by Banif Finance. For interest payment periods prior to 22 December 2016 (the first call option date), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 1.37% per annum. For each subsequent period, the issuer will pay a rate corresponding to the Euribor 3 month rate plus 2.37% per annum.
28. OTHER LIABILITIES
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Creditors and other deposits 38.060 19.257 Other accruals and deferrals 69.003 63.393 107.063 82.650
34 29. SHAREHOLDERS’ EQUITY OPERATIONS
Shareholders’ equity accounts broke down as follows at 31 December 2008 and 31 December 2007:
Description 31-12-2008 31-12-2007 Equity 290.000 240.000 Issue premiums 451 451 Other equity instruments - 50.000 Revaluation reserves: Securities revaluation reserve 2.530 (108) Deferred tax reserve (645) 28 Legal reserve 14.483 11.876 Other reserves and retained earnings 24.093 18.203 (Treasury shares) - - Profit for the period 15.269 26.073 (Interim dividends) - - Total Equity 346.181 346.523
In the course of the financial year ended 31 December 2008, the Company distributed dividends of 14,880 thousand Euros for the financial year of 2007, corresponding to €0.31 per share.
The share capital is represented by 58,000,000 shares, with a nominal value of 5.00 € per share, and is fully paid up.
During the 1st half of 2008, the share capital was increased by 50 million euros, subscribed by Banif Comercial SGPS, SA, through capitalization of supplementary cash subscriptions previously paid up in full by the sole shareholder.
The revaluation reserves present an increase of 2,638 thousand euros, due to assessment of the fair value of Via Litoral (up by 2,643 thousand euros) and depreciation of the NYSE Euronext shares (down by 5 thousand euros).
An analysis of regulatory capital is presented in chapter III of the Management Report.
30. INTEREST AND SIMILAR INCOME AND INTEREST AND SIMILAR CHARGES
This item breaks down as follows:
35 31-12-2008 31-12-2007
Interest and similar income
Interest on liquid funds 5.602 4.768 Interests on funds due from banks 112.026 91.844 Interest on lending to customers 437.425 348.271 Interest on overdue credit 7.829 5.806 Interest and similar income from other assets 125.601 49.056 Commissions received associated with amortized cost 7.245 5.470 695.728 505.215
Interest and similar expense
Interest on deposits from central banks 6.950 - Interest on deposits from other banks 211.231 178.406 Interest on customer deposits 191.529 110.276 Interest on liabilities represented by securities, non-subordinated 4.710 5.378 Interest and similar expense on other financial liabilities 41.897 13.908 Interest on subordinated liabilities 14.959 10.610 Commissions paid associated with amortized cost 3.539 2.106 Other 51.482 31.797 526.297 352.481
31. INCOME FROM EQUITY INSTRUMENTS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Dividends on available-for-sale financial assets 551 1.321 Dividends on investments in subsidiaries 2.078 1.908 2.629 3.229
32. INCOME AND CHARGES RELATING TO SERVICES AND COMMISSIONS
This item breaks down as follows:
Description 31-12-2008 31-12-2007
Commission income
Guarantees provided 7.154 7.051 For other services rendered 22.715 21.211 Other commissions received 28.024 22.511 57.893 50.773
Commission expense
For other services received 4.530 4.354 Other commissions paid 557 494 5.087 4.848
33. PROFIT AND LOSS ON FINANCIAL OPERATIONS
This item breaks down as follows:
36 Description 31-12-2008 31-12-2007
Gains on financial operations Gains on other financial assets at fair value through profit or loss 4.478 3.722 Gains on trading assets 19.232 14.288 Losses in other financial assets at fair value through profit or loss -7.251 -3.860 Losses on available-for-sale financial assets -20.138 -13.732 -3.679 418
Gains on available-for-sale financial assets Gains on available-for-sale financial assets 109 15.019 Losses on available-for-sale financial assets -703 -1.110 -594 13.909 Foreign Exchange Gains Foreign Exchange Gains 37.543 5.253 Foreign Exchange Losses -36.463 -4.177 1.080 1.076
34. OTHER OPERATING INCOME
Other operating income breaks down as follows:
Description 31-12-2008 31-12-2007
Losses on disposal of customer credit 2.214 8.447 2.214 8.447
Income from disposal of other assets breaks down as follows:
Description 31-12-2008 31-12-2007 Other operating income Services 3.807 4.041 Recovery of credit and interest 7.814 8.386 Gains on other financial operations 1.812 3.695 Reembursement of expenses 12.940 9.945 Other 2.363 3.477 28.736 29.544
Other operating costs Membership fees and donations 543 452 Losses on disposal of loans to customers 934 3.044 Losses on other financial operations 912 640 Contributions to FGD and FGCAM 1.423 756 Other taxes 5.342 4.187 Other 9.154 9.079
35. PERSONNEL COSTS
This item breaks down as follows:
37 Description 31-12-2008 31-12-2007
Remuneration of directors and auditors 2.459 2.875 Remuneration of employees: Monthly pay 50.474 41.400 Holiday allowance 4.402 3.777 Christmas allowance 3.854 3.460 Lunch allowance 3.832 3.420 Other allowances 321 270 Other additional remuneration 1.624 1.784 64.507 54.111
Mandatory social charges: Charges on remuneration 14.934 13.335 Charges relating to pensions (Note 41 d)) 2.964 3.106 Other social charges 1.210 1.309 Other social charges 1.171 377 20.279 18.127 87.245 75.113
36. OVERHEADS
This item breaks down as follows:
Description 31-12-2008 31-12-2007
Specialist services 22.932 19.676 Rentals 15.493 13.574 Communications 8.187 7.500 Upkeep and repair 2.902 2.117 Advertising and publications 11.270 6.989 Water, power and fuel 2.921 2.476 Travel, accommodation and entertainment 1.701 1.363 Transport 1.509 1.073 Consumables 1.019 844 Insurance 660 674 Training 1.069 1.000 Other 2.232 2.293 71.895 59.579
37. EARNINGS PER SHARE
Basic earnings per share:
Description 31-12-2008 31-12-2007
Profit for the period 15.269 26.073
Weighted average number of shares in issue 55.534.247 48.000.000
Gain per share (€/share) 0,27 0,54
38. ASSETS ON OPERATING LEASES
Assets used under operating leases correspond to vehicles in the company’s own use.
38 Minimum future Contingent payments on non- Minimum rentals Other assets on cancellable operating payments on recognized in operating leases leases leases profit or loss
Residual maturity
Less than 1 year 602 1.142 194 1 to 5 years 2.590 749 254 More than 5 years - - - Total 3.192 1.891 448
39. FINANCIAL INSTRUMENTS RISK
An analysis of risks on financial instruments is presented in chapter II of the Management Report.
40. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments at fair value
Valuation techniques Market value or 31-12-2008 listed price Market analysis Other Total Assets
Trading assets - 16.088 - 16.088 Other financial assets at fair value through profit or loss 169.270 29.593 - 198.863 Available-for-sale financial assets 2 3.320 55.785 59.107
Liabilities
Trading liabilities - 16.853 - 16.853 Other financial assets at fair value through profit or loss - 22.672 - 22.672
Valuation techniques Market value or 31-12-2007 listed price Market analysis Other Total Assets
Trading assets - 3.802 - 3.802 Other financial assets at fair value through profit or loss 41.799 40.304 - 82.103 Available-for-sale financial assets 6 677 11.430 12.113
Liabilities
Trading liabilities - 12.414 - 12.414 Other financial assets at fair value through profit or loss - 63.493 - 63.493
Fair value is determined in line with the policies defined in Note 3.7.2..
Unlisted equity instruments recognized under available-for-sale financial assets at acquisition cost, due to the impossibility of a reliable valuation, are contained in the column headed “others” (1,360 thousand euros in 2008 and 1,296 thousand euros in 2007).
The valuation model for financial liabilities at fair value through profit or loss consists of the use of discounted cash flows, for the financial components, on the basis of a zero coupon interest rate curve, adjusted by the spread in the liability at the date of issue. The value of the embedded derivative is estimated on the basis of the amount that would be received of paid to settle the contract at the date in question, considering prevailing market conditions. The fair value of the instrument is therefore determined as the sum of the two components, financial and embedded derivative.
39 In the internal valuation models for trading securities and financial instruments at fair value through profit or loss, the market interest rates are determined on the basis of information disclosed by Bloomberg. Rates for up to one year are the market rates in the interbank money market, whilst rates for maturities of more than one year are obtained through listings for interest rate swaps. The interest rate curve obtained is then adjusted against the values of short term interest rate futures. Interest rates for specific maturities are determined by interpolation methods. The same interest rate curves are also used in projecting non-deterministic cash flows, such as benchmarks.
The interest rates used for determining the interest rate curve with reference to 31 December 2008, for EUR and USD, are as follows:
Currency Term EUR USD 1 day 2,05% 0,13% 7 days 2,25% 0,38% 15 days 2,32% 0,42% 1 month 2,53% 0,55% 2 months 2,78% 1,06% 3 months 2,83% 1,35% 4 months 2,89% 1,52% 5 months 2,96% 1,71% 6 months 3,03% 1,88% 7 months 3,03% 1,95% 8 months 3,03% 2,03% 9 months 3,03% 2,10% 10 months 3,00% 1,81% 11 months 2,98% 1,56% 1 year 2,95% 1,28% 2 years 2,68% 1,48% 3 years 2,96% 1,75% 4 years 3,10% 1,94% 5 years 3,25% 2,13% 6 years 3,36% 2,22% 7 years 3,48% 2,31% 8 years 3,57% 2,39% 9 years 3,65% 2,48% 10 years 3,74% 2,56% 20 years 3,88% 2,74% 30 years 3,57% 2,71%
The variation in the fair value of financial liabilities at fair value was 2,859 thousand euros in 2008 (1,194 thousand euros in 2007). The variation in the accrued fair value of financial liabilities at fair value was – 158 thousand euros in 2008 (2,635 thousand euros in 2007).
In the internal valuation models for available-for-sale financial assets the discounted cash flows method has been adopted, involving an analysis of the intrinsic value of the transaction, discounting, at the reference date, the projected cash flows at the discount rate reflecting the risk on the same (Via Litoral – Concessões Rodoviárias da Madeira, SA – TIR accionista = 12%).
Financial instruments at cost or amortized cost
40 2008
Balance sheet value Fair Value Assets
Due from banks 1.057.288 1.057.288 Lending and other receivables 7.641.224 7.641.224 Available-for-sale non-current assets 3.104 3.104
Liabilities
Deposits from other banks 2.168.442 2.168.442 Customer deposits and other loans 5.639.799 5.639.799 Debt securities in issue 44.068 44.068
2007 Balance sheet value Fair Value Assets
Due from banks 920.960 920.960 Lending and other receivables 6.338.978 6.338.978 Available-for-sale non-current assets 48.799 48.799
Liabilities
Deposits from other banks 3.007.242 3.007.242 Customer deposits and other loans 3.648.095 3.648.095 Debt securities in issue 67.489 67.489
For liquid assets, investments and lending with a maturity of less than one year, it was considered that the amount recorded in the balance sheet is a reliable approximation to its fair value. For lending with a maturity of more than one year at an indexed rate, it was also considered that the balance sheet value is a reliable approximation to the fair value. Given the relative unimportance of fixed rate lending with a maturity of more than on year, it was considered that the balance sheet value is an approximation to the fair value.
For deposits of up to one year or without a set maturity, which includes deposits without an associated interest rate, it was considered that the amount repayable at the reporting date is a reliable approximation to the fair value.
41. RETIREMENT BENEFIT OBLIGATIONS: LIABILITIES RELATING TO RETIREMENT AND SURVIVORS’ PENSIONS a) Company Agreement concluded in 2008 and changes to Pension Plan
In 2008, Banif – Banco Internacional do Funchal, SA (Company) concluded a Company Agreement (CA) with the banking sector unions making significant changes to the professional career structure and social security arrangements.
All Banif employees are now included in the General Social Security System (GSSS).
The pension fund and plan in place prior to approval of the Company Agreement assured compliance with the range of benefits stipulated in the Collective Labour Agreement (CLA) for the Banking Sector, as regards social security, namely in clauses 136 et seq.. This was a defined benefit (DB) plan, financed jointly by the Associate (Company) and the Participants (employees included under the provisions of clause 137-A of the CLA).
41
When the CA took effect on 1 October 2008, the pension fund was transformed into a hybrid fund with three pension plans, known as Pension Plans I, II and III.
Pension Plan I took over the provision assured by the former DB Pension Plan, covering not only pensioners – as follows directly from the applicable legislation – but also staff working for the company who, at 31 December 2006, were 5 or less years away from presumable invalidity retirement (65 years).
Pension Plan II, a defined contribution (DC) plan, covers all employees contracted for active service in the Company prior to 1 January 2007, who had not died, retired or left the company’s service prior to the date of the CA taking effect. In relation to these employees, the Associate defined not only a specific plan of monthly contributions in line with their respective salaries, and also made an initial contribution to be allocated to their respective individual accounts, calculated on the grounds of: (i) complementary old age pensions estimated in the assessment of liabilities conducted by the Pension Plan Actuary at 31 December 2006 and duly reported to the Portuguese Insurance Institute and the Bank of Portugal, and (ii) the current value of future contributions.
Pension Plan III, also a defined contribution (DC) plan, covered all employees contracted for active service in the Company after 1 January 2007, who had not died, retired or left the company up to the date on which the CA took effect. In relation to these employees, the Associate defined a specific plan of periodic monthly contributions in line with their respective salaries.
Plan II and Plan III started up on 1 October 2008, with the first of the contributions being made on the same date by the Associate and the Participants.
The transformation of the pension plan resulted in a material reduction in the number of current employees covered for the purposes of complementary invalidity and presumable invalidity retirement pensions and survivor’s pensions (promised benefits) under the Defined Benefit Plan. In order to assess the impact of this reduction, actuarial studies were conducted with reference to 1 October 2008; up to this date the Company recognized liabilities relating to the former Defined Benefit Plan, whilst after this date it recognized liabilities relating to Pension Plan I.
On the date of transformation of the Fund, the Company also recognized all the initial contributions to Pension Plan II (Defined Contribution). b) General description
As a result of the Company Agreement reached in 2008, as described in the preceding item, at 31 December 2008 Banif – Banco Internacional do Funchal, SA is committed to three Pension Plans:
- Pension Plan I, a defined benefit plan, whereby the Company finances its liability (i) for payment of invalidity and presumable invalidity retirement pensions and survivors’ pensions for employees covered by the defined benefits plan, complementing the Social Security system, and (ii) for future payment of compulsory contributions for post-employment health care to the Social Health Care Service (contribution rate of 6.5%), covering all its current employees and the pensioners under the Fund; - Pension Plan II, a defined contribution plan, under which the Company agrees to contribute each month a sum equivalent to 4.5% of the remuneration to which the plan applies, and an initial contribution paid up on the date of constitution of the Plan; 42 - Pension Fund III, a defined contribution fund, under which the Company agrees to contribute each month a sum equivalent to 1.5% of the remuneration to which the plan applies.
The Banif Pension Fund is a closed end fund with the purpose of financing the obligations provided for in the respective associated Pension Plans (Decree-Law 12/2006, of 20 January, which currently regulates the constitution, management and marketing of Pension Funds). The Fund was incorporated on 7 December 1989, under Decree-Law 396/86, of 25 November.
The fund is managed by Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA, which has subcontracted Banif – Banco de Investimento, SA for the financial management of the fund and valuation of the respective assets.
The most recent actuarial studies of the liabilities of the defined benefits plan was carried out with reference to the division date and 31 December 2008 and 2007, by the actuary Drª Ana Marta Vasa, of Watson Wyatt International Limited – Surcursal em Portugal.
As at 31 December 2008, the Defined Benefit Plan covered a population of 76 pensioners (66 in 2007) and 26 current employees (1,741 in 2007). c) Actuarial assumptions
The main actuarial and financial assumptions used for calculations are as follows:
2008 2007 31-12-2008 01-10-2008 Actuarial valuation method Unit Credit Projected Unit Credit Projected Unit Credit Projected Mortality table: - Men TV 73/77 TV 73/77 TV 73/77 - Women TV 88/90 TV 88/90 TV 88/90 Invalidity table EVK80 EVK80 EVK80 Discount rate 5,75% 6,00% 5,50% Rate of return on fund assets 5,75% 6,00% 5,50% Salary growth rate 4,00% 4,00% 4,00% Pension growth rate 2,00% 2,00% 2,00% Turnover rate Not applied Not applied Not applied
The discount rate is determined by using the interest rates on private debt bonds with a high credit quality (“AA”) with a maturity close to that corresponding to the liabilities to be financed. The maturity of the liabilities should be calculated on the basis of the average life expectancy weighted by the payments made to the fund, which in the case of the Banif Pension Fund is approximately 10 years.
The overall expected yield for the period reflects expected returns on fund assets at the end of the previous period, taking into consideration the characteristics of the fund portfolio and the investment policies.
No turnover rate is applied for the sake of prudence and because it cannot be reliably determined. d) Liabilities and cover
Liabilities recognized in the balance sheet and the impact of the division were as follows:
43 2008 2007 31-12-2008 01-10-2008 Division 01-10-2008 Current value of liabilities: Pensions currently payable 12.573 12.386 0 12.386 11.158 Past services of current staff 8.346 8.167 -42.185 50.352 52.413 SAMS charges 5.204 4.982 -4.882 9.864 9.996 Total 26.123 25.535 -47.067 72.602 73.567 Fair value of Plan assets -25.913 -28.217 -39.114 -67.331 -71.140 Deficit 210 -2.682 5.271 2.427 Unrecognized actuarial gains (losses) "Corridor" -4.235 -3.246 -5.984 -9.231 -9.327 "Corridor" surplus -2.185 -549 -1.013 -1.562 -1.247 Total -6.420 -3.796 -6.997 -10.793 -10.574 Liabilities (assets) recognized in balance sheet -6.210 -6.478 -5.522 -8.147 Net effect of the division and transformation of the Pension Fund: 956
The net effect of the division and transformation of the Pension Fund corresponds to:
- a gain, from the reduction in liabilities, of 47,067 thousand euros, less the proportional fraction of unrecognized liabilities (“corridor” and “corridor” surplus) of 6,903 thousand euros; - a loss due to the initial contribution to Pension Plan II (DC) of 39,114 thousand euros, corresponding to a reduction in the assets allocated to the define benefit plan.
Coverage of liabilities complies with the requirements of Bank of Portugal Notice 12/2001.
As at 31 December 2008, the current value of liabilities for future services stood at 3,051 thousand euros (57,946 thousand euros in 2007).
Of unrecognized actuarial losses, the sum of 2,612 thousand euros (7,357 thousand euros in 2007) is included in the corridor and the surplus, of 3,651 thousand euros (3,132 thousand euros in 2007), will be amortised over 1.8 years, corresponding to the average remaining working life of the plan participants.
At 31 December 2008, an increase, or reduction, of 1% in the contribution rate to the SHS would mean an increase in liabilities of 805 thousand euros (1,536 thousand euros at 31 December 2007) or a reduction of 797 thousand euros (1,536 thousand euros at 31 December 2007) and an increase in costs for the period (cost of current services and cost of interest) of 24 thousand euros (92 thousand euros at 31 December 2007), or a reduction of 25 thousand euros (79 thousand euros at 31 December 2007). e) Expenses recognised in the period
In the financial years of 2008 and 2007, the Company recognised the following costs relating to pension plans:
2008 2007 31-12-2008 01-10-2008 Cost of current services 245 2.959 3.339 Interest expense 383 3.035 3.444 Expected return -370 -2.858 -3.074 Actuarial losses recognized in the year 10 40 154 Charges borne by beneficiaries 0 -551 -756 Total expense for the period 268 2.625 3.106 i. Defined Benefits Plan, presenting separately the costs borne up to 1 October 2008 and thereafter: ii. Defined Contribution Pension Plans (Pension Plans II and III): the contributions made to these plans as from 1 October 2008 are recognized as costs for the period and total 800 thousand euros. 44 iii. Net effect of the division and transformation of the Pension Plan, as described in d) above, which corresponded to total reduction in costs of 1,050 thousand euros.
The cost of current services under the Defined Benefit Plan, relating to liabilities for pensions for Group directors, is nil (224 thousand euros in 2007), insofar as all of them retire due to presumable invalidity (65 years) in 2009. The fact that this precondition is not met does not invalidate the non-allocation of any amount by way of the cost or current services insofar as the liability to be funded is now to be calculated in line with total services.
The cost of contributions to Pension Plans II and III, for Group directors, stood at 2,160 thousand euros, for the initial contribution (amount allocated on transformation of the pension fund) and 11 thousand euros in normal contributions. f) Variation in current value of liabilities
Annual accrual of liabilities breaks down as follows, including the effect of division:
2008 2007 31-12-2008 Division 01-10-2008 Current value of opening liabilities 25.535 -47.067 73.567 72.499 Cost of current services 245 - 2.959 3.339 Interest expenses 383 - 3.035 3.444 Actuarial losses (gains) 351 - -6.287 -4.888 Pensions paid -391 - -672 -826 Current value of closing liabilities 26.123 -47.067 72.602 73.567 g) Variation in value of pension fund
Variation in fair value of fund assets:
2008 2007 31-12-2008 Division 01-10-2008 Opening value of fund 28.217 -39.114 71.140 65.881 Expected return 370 - 2.858 3.074 Actuarial (financial) (losses) gains -2.283 - -6.545 -2.169 Contribution paid to fund - - 551 5.180 Pensions paid to fund -391 - -672 -826 Closing value of fund 25.913 -39.114 67.331 71.140
Contributions of 551 thousand euros were made in 2008 (5,180 thousand euros in 2007), in cash.
In 2009, the Company expects to make contributions of 521 thousand euros.
As at 31 December 2008 and 2007, fund assets broke down as follows:
2008 2007 Value % Value % Shares 539 2,1% 5.036 7,1% Investment Funds 8.240 31,8% 36.732 51,6% Public Debt 0 0,0% 6.139 8,6% Miscellaneous bonds 3.275 12,6% 12.025 16,9% Property 9.332 36,0% 9.347 13,1% Money Market 4.293 16,6% 2.672 3,8% Other 235 0,9% -811 -1,1% Total 25.913 100,0% 71.140 100,0%
The Company, or other companies belonging to the same group, use let properties belonging to the Pension Fund, with a value of 6,049 thousand euros (6,049 thousand euros, in 2007).
Of the Fund’s assets at 31 December 2008, 1,875 thousand euros (2,439 thousand euros in 2007) corresponded to securities issued by the Company, or by other
45 companies belonging to the same group, and 3,825 thousand euros (2,067 thousand euros in 2007) corresponded to deposits with the Company, or other companies belonging to the same Group.
h) Benefits assured by life insurance
In addition to the pension fund, there are two insurance contracts providing annuities to cover the retirement pension of one pensioner, taken out with separate insurance companies, not belonging to the same group as the company. The insured pension is fixed, paid 14 times a year, and is 40% reversible on the death of the pensioner under the Pension Plan, the respective annual accruals being borne by the Pension Fund.
i) Other information
The main figures effectively recorded in the period were as follows, presented separately for the periods up to 1 October 2008 and thereafter:
2008 31-12-2008 01-10-2008 2007 Mortality table 0,06% 0,06% 0,12% Invalidity table 0,35% 0,35% 0,13% Rate of return on fund assets -11,66% -4,95% 1,39% Salary growth rate 4,01% 4,43% 6,56% Pension growth rate 11,87% 11,87% -0,30% Turnover rate 6,00% 2,97% 2,79%
The liabilities and value of the defined benefit fund over the last five years:
2008 2007 2006 2005 2004 Current value of liabilities 26.123 73.567 72.499 64.941 48.821 Value of fund 25.913 71.140 65.881 54.426 38.112 (Deficit) surplus -210 -2.427 -6.618 -10.516 -10.709 Actuarial (losses) gains on liabilities -351 4.888 -2.121 -11.033 -2.446 Actuarial (losses) gains on funds -2.283 -2.169 828 817 283
42. RELATED PARTY BALANCES AND TRANSACTIONS
Group companies Key management personnel Other entities 31-12-2008 31-12-2007 31-12-2008 31-12-2007 31-12-2007 31-12-2006
Credit and products 1.574.923 1.181.534 1.074 1.784 30.306 17.577 Financial assets 982.204 42.135 - - - - Other assets 44.055 5.431 - - - - Financial liabilities 205.912 198.228 - - - - Deposits 1.563.141 662.876 3.644 4.102 71.343 35.203 Other liabilities 3.0311.642-- -- Shareholder loans ------Guarantees given 20.541 8.894 - - 15.603 5.549 Interest and similar expense 155.761 64.099 81 88 3.101 4.408 Interest and similar income 149.186 57.288 26 28 455 352 Fees and commission income 3.239 5.340 - - - - Fees and commission expense 1.062 781 - - - - Financial results (486) 466 - - - - Overheads 13.804 11.334 - - - - Other results 3.634 1.440 - - - -
In addition the balance shown in the above table, the account for credit and products includes approximately 50 million euros relating to financial products issued by an associate, not placed with customers of the Group network at 31 December 2008.
Transactions with related parties are analyzed in accordance with the criteria applicable to similar operations and are carried out on arm’s length terms. These operations are subject to approval by the Executive Board. 46
In the period ended, no specific provisions were made for balances with related parties.
Remuneration of key management personnel:
Key management personnel 31-12-2008 31-12-2007 Short term benefits 2.410 2.830 Post-employment benefits (defined benefits) - 224 Severance benefits - 540 Share-based payments - -
Key management personnel
Sr. Comendador Horácio da Silva Roque Dr. Joaquim Filipe Marques dos Santos Dr. Carlos David Duarte de Almeida Dr. António Manuel Rocha Moreira Dr. Manuel Isidoro Martins Vaz Dr. José Marques de Almeida Dr. João Manuel da Silva Machado dos Santos
Dr. José António Machado de Andrade Engº Diogo António Rodrigues da Silveira Dr. João Paulo Pereira Marques de Almeida
Companies in the Banif Financial Group
Banif Comercial, SGPS, SA Banif (Açores) SGPS, SA Banif Finance, Ltd. Banco Banif & Comercial dos Açores, SA Banif & Comercial Açores, Inc San José Banif & Comercial Açores, Inc Fall River Investaçor SGPS, SA Investaçor Hoteis SA Açortur Investimentos Turísticos dos Açores, SA Turotel, Turismo e Hotéis dos Açores, SA Investimentos Turísticos e Similares e Apart-Hotel Pico Lda. Banif Go, Instituição Financeira de Crédito, SA Banif Rent - Aluguer Gestão e Comercio de Veículos Automóveis, SA Banif - Banco Internacional do Funchal (Brasil), SA Banif - Investimentos SGPS, SA Banif - Banco de Investimento, SA Banif Gestão Activos - Soc. Gestora de Fundos de Investimento Mobiliario, SA Banif Açor Pensões - Soc. Gestora Fundos Pensões, SA Banif Capital - Soc. de Capital de Risco, SA Centro Venture - Soc. Capital de Risco, SA Gamma - Soc. Titularização de Créditos, SA Numberone SGPS, Lda Banif International Asset Management Ltd. Banif Multifund Ltd Banif - Banco Internacional do Funchal (Cayman) Ltd Banif Internacional Holdings, Ltd Banif Financial Services, Inc Banif Finance (USA)
47 Banif Forfaiting Company, Ltd. Banif Trading, Inc. FINAB - International Corporate Management Services, Ltd Banif Securities, Inc. Econofinance, SA Banif Securities Holding, Ltd Banif ( Brasil), Ltd. Banif International Bank, Ltd Banif - Banco de Investimento (Brasil), SA Banif Corretora de Valores e Câmbio, SA Banif Nitor Asset Management SA Banif Private Equity, SA Banif - Imobiliária, SA Sociedade Imobiliária Piedade, SA BanifServ - Empresa de Serviços, Sistemas e Tecnologias de Informação A.C.E. Banif Bank (Malta) PLC Banco Caboverdiano de Negócios, SA Banif Holding (Malta) PLC
Other entities
Companhia de Seguros Açoreana Espaço Dez Banco Pueyo BankPime Inmobiliária Vegas Altas MCO2 Rentipar Financeira SGPS Renticapital - Investimentos Financeiros, SA SOIL SGPS, SA Habiprede - Sociedade de Construções, SA Mundiglobo - Habitação e investimento, SA Rentimundi - Investimento Imobiliário, SA Rentipar Indústria SGPS, SA Rentiglobo SGPS, SA Empresa Madeirense de Tabacos, SA SIET SAVOI, SA VITECAF - Fabrica Rações da Madeira, SA RAMA - Rações para Animais, SA SODIPRAVE - Soc. Dist. De Produtos Avícolas, SA Genius - Mediação de Seguros, SA FINPRO SGPS, SA Rentimedis - Mediação de Seguros, SA Aviatlântico – Avicultura, SA Rentipar Seguros SGPS Vestiban
43. POST-BALANCE SHEET EVENTS
At the date of approval of these Financial Statements by the Company’s Board of Directors, no event had taken place since 31 December 2008, the reference date for the said Financial Statements, which required any adjustment or change to the value of assets or liabilities.
With effect at 1 January 2009, Banco Banif e Comercial dos Açores was merged into Banif – Banco Internacional do Funchal, SA. 48
44. RECENTLY ISSUED STANDARDS AND INTERPRETATIONS NOT YET IN FORCE
Below we summarise the accounting standards and interpretations recently issued by the International Accounting Standards Board (IASB) and adopted by the European Union, but which have not yet taken effect and where the Company has not opted for early implementation in the preparation of its financial statements:
IAS 1 (Amended) – Presentation of Financial Statements In September 2007 the IASB issued an amended version of IAS 1 – Presentation of Financial Statements, application of which is mandatory as from 1 January 2009, early adoption being permitted.
Changes in relation to the current text of IAS 1:
The statement of financial position (formerly called the balance sheet) must be presented for the current period and the comparative period. Under the amended IAS 1, the statement of financial position has also to be presented for the start of the comparative period whenever an entity makes a retroactive restatement in the comparative accounts as the result of a change in accounting policy, correction of an error or reclassification of an item in the financial statements. In these cases, three statements of financial position are required, as compared to the two statements formerly.
As a result of the changes imposed by this revision, the users of financial statements will more easily be able to distinguish between variations in Group equity resulting from transactions with shareholders, as shareholders (e.g. dividends, transactions with treasury shares) and transactions with third parties, which are summarized in the statement of comprehensive income. In view of the nature of these changes (disclosures), the impact expected by the Company will be felt solely in terms of presentation, although at 31 December 2008 the exact content of these changes had not yet been determined.
IAS 23 (Amended) – Borrowing Costs In March 2007 the International Accounting Standards Board (IASB) issued a revised version of IAS 23 – Borrowing Costs, application of which is mandatory as from 1 January 2009, early adoption being permitted.
This standard defines that borrowing costs directly attributable to the cost of acquisition, construction or production of an asset (eligible asset) are capitalized as part of the respective cost. Accordingly, the option of these costs being recognized immediately as an expense is removed. The Company does not expect any impact from the introduction of this alteration.
IAS 32 (Revised) – Financial Instruments: Presentation – Puttable instruments and obligations arising on liquidation In February 2008 the International Accounting Standards Board (IASB) issued a revised version of IAS 32 – Puttable instruments and obligations arising on liquidation, application of which is mandatory as from 1 January 2009. In accordance with the current requirements of IAS 32, if a financial instrument gives the holder the right to put the instrument back to the issuer for cash or another financial asset, that instrument is classified as a financial liability. As a result of this review, certain financial instruments which currently meet the requirements for classification as financial liabilities will be reclassified as equity instruments if (i) they represent a residual interest in the net assets of an entity, (ii) the belong to a class of 49 instruments subordinate to any other class of instruments issued by the entity, and (iii) in the event of all the instruments in this class being subject to the same terms and conditions. An alteration has also been made to IAS 1 – Presentation of Financial Statements adding a new requirement for the presentation of puttable financial instruments and obligations arising from liquidation. The Company does not expect any impact from adoption of this standard.
IFRS 1 (amended) – First time adoption of the international financial reporting standards and IAS 27 – Consolidated and separate financial statements The changes to IFRS 1 First time adoption of the international financial reporting standards and IAS 27 Consolidated and separate financial statements take effect as from 1 January 2009. These changes allow entities adopting the IFRS for the first time in the preparation of their individual accounts to adopt as the deemed cost of their investments in subsidiaries, joint ventures and associates the respective fair value at the date of transition to IFRS or the balance sheet value determined within the previous accounting framework. The Company does not expect any impact from adoption of this standard.
IFRS 2 (Amended) – Share-based payment: Vesting Conditions This amendment to IFRS 2 has clarified that (i) vesting conditions are service conditions and performance conditions only and (ii) all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Company does not expect any impact from adoption of this standard.
IFRS 8 – Operating Segments The International Accounting Standards Board (IASB) issued IFRS 8 – Operating segments on 30 November 2006, which was then approved by the European Commission on 21 November 2007. Application of this standard is mandatory for periods starting on or after 1 January 2009. IFRS 8 – Operating Segments defines the presentation of information on the operating segments of an entity and also on services and products, geographical areas where the entity operates and major customers. This standard specifies how entities are to report their information in their annual financial statements, and will consequently alter IAS 34 – Interim Financial Reporting, with regard to the information to be selected for interim financial reporting. An entity will also have to make a description of the information presented by segment, namely results and operations, as well as a brief description of how the segments are constructed. In view of the nature of these alterations (disclosures), the impact anticipated by the Company will be felt solely in terms of presentation, although at 31 December 2008 the exact impact of these changes had not yet been determined.
IFRIC 13 – Customer Loyalty Programmes In July 2007, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 13 Customer Loyalty Programmes, taking mandatory effect for period starting on or after 1 July 2008, early adoption being permitted. This interpretation applies to customer loyalty programmes, where customers are assigned credits as part of a sale or of the provision of a service and the customers can exchange these credits in future for free or discounted services or goods. In view of the nature of the contracts covered by this Interpretation, the Company does not expect to feel any impact.
IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction In July 2007, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 14 which clarifies the provisions of International Accounting Standard 19 with regard to the measurement of a defined benefit asset, in the context of 50 defined benefit plans after retirement and for cases where there are minimum financing requirements. A defined benefit asset is the surplus of the fair value of the plan assets in the light of the present value of the defined benefit liability. IAS 19 limits the measurement of these assets to the present value of disposable economic benefits, either in the form of plan repayments or reductions to future contributions to the plan, which may be affected by minimum financing requirements. The effective date for application of this interpretation is 1 January 2009 and the Company does not expect any significant impact from application.
Annual Improvement Project In May 2008, the IASB published the Annual Improvement Project altering certain standards then in force. The effective date of the alterations varies from standard to standards, with application being mandatory for most in 2009. The main changes resulting from the Annual Improvement Plan are as follows: Alteration of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, with effect for periods starting on or after 1 July 2009. This alteration has clarified that all the assets and liabilities of a subsidiary should be classified as non-current assets held for sale under IFRS 5 if there is a plans for partial disposal of the subsidiary resulting in a loss of control. The Company does not expect any impact from adoption of this alteration. Alteration of IAS 1 Presentation of financial statements, taking effect as from 1 January 2009. The alteration clarifies that only certain financial instruments classified as trading instruments, and not all, are examples of current assets and liabilities. The Company does expect any impact from adoption of this alteration. Alteration to IAS 16 Property, plant and equipment, taking effect as from 1 January 2009. The alteration sets rules for classifying (i) revenues from the disposal of assets held for rental and subsequently sold and (ii) the same assets during the time from termination of the lease to the date of disposal. The Company does not expect any significant impact from adoption of this alteration. Alteration to IAS 19 Employee benefits, taking effect as from 1 January 2009. The alterations made clarify (i) the concept of the negative past service cost resulting from alteration of the defined benefits plan, (ii) the interaction between the expected return on assets and the plan administration costs, and (iii) the distinction between short and medium and long term benefits. The Company does not expect any significant impact from the adoption of this alteration. Alteration to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, taking effect as from 1 January 2009. This Alteration establishes that benefits from the obtaining of government loans at below-market interest should be measured as the difference between the fair value of the liability at the date of contracting, determined under IAS 39 Financial instruments: Recognition and measurement of the value received. This benefit should subsequently be recorded in accordance with IAS 20. The Company does not expect any impact from adoption of this alteration. Alteration to IAS 23 Borrowing Costs, taking effect as from 1 January 2009. The concept of borrowing costs has been altered so as to clarify that these costs should be determined in accordance with the effective rate method prescribed in IAS 39 Financial instruments: recognition and measurement, thereby eliminating the inconsistency between IAS 23 and IAS 39. The Company does not expect any impact from the adoption of this alteration. Alteration to IAS 27 Consolidated and separate financial statements, taking effect as from 1 January 2009. The alteration made to this standard means that in cases where investment in a subsidiary is recorded at fair value in the individual accounts, in accordance with IAS 39 Financial instruments: recognition and measurement, and this investment qualifies for classification as a non-current asset held for sale in accordance with IFRS 5 Non-current assets held for sale and discontinued operations, it should continue to be measured under the terms of IAS 39. This alteration will have no impact on the Company’s financial statements. 51 Alteration to IAS 28 Investments in Associates, taking effect as from 1 January 2009. The alterations made to IAS 28 were designed to clarify that (i) an investment in an associate should be treated as a single asset for the purposes of impairment tests t be carried out under IAS 36 Impairment of assets, (ii) any impairment loss to be recognized should not be allocated to specific assets, namely to good will and, (iii) that reversals of impairment are recorded as an adjustment to the balance sheet value of the associate provided that, and insofar as, the recoverable value of the investment increases. The Company does not expect any impact from the adoption of this alteration. Alteration to IAS 38 Intangible assets, with effect as from 1 January 2009. This alteration ahs determined that an expense with deferred cost, incurred in the context of promotional or advertising activities, can only be recognized in the balance sheet when an advance payment has been made for goods or services which will be received at a future date. Recognition should occur when the entity has the right of access to the goods and the services are received. This alteration is not expected to have a significant impact on the Company’s accounts. Alteration to IAS 39 Financial instruments: recognition and measurement, with effect as from 1 January 2009. These alterations consisted fundamentally of (i) clarifying that it is possible to reclassify instruments out from and into the category of at fair value through profit or loss in the case of derivatives whenever they start or end a hedging relationship in the form of a hedge for cash flow or new investment in an associate or subsidiary, (ii) alteration of the definition of financial instruments at fair value through profit or loss with regard to the category of the trading category, laying down that in the case of portfolios of financial instrument managed jointly or for which there is evidence of recent activities with a view to realizing short term gains, these portfolios should be classified as held for trading on first recognition, (iii) alteration of the requirements for documentation and effectiveness testing for hedges established in relation to the operating segments determined through application of IFRS 8 Operating Segments, and (iv) clarifying that measurement of a financial liability at amortized cost, after interruption of the respective fair value hedge, should be effected on the basis of the new effective rate calculated at the date of interruption of the hedging relationship. The Company does not expect any significant impact from adoption of this alteration. Alteration to IAS 40 Investment properties, taking effect as from 1 January 2009. As a result of this alteration, properties being built or developed with a view to subsequent use as investment properties will now be included under IAS 40 (having previously fallen under IAS 16 Property, Plant and Equipment). Such property under construction may now be recorded at fair value unless this cannot be reliably measured, in which case it is to be recorded at acquisition cost. The Company does not expect any significant impact from adoption of this alteration.
Recently issued accounting standards and interpretations not yet adopted by the European Union and consequently not yet in effect are described below:
IAS 39 (Amended) – Financial instruments: recognition and measurement – eligible hedged items The International Accounting Standards Board (IASB) has issued an amendment to IAS 39 financial instruments: recognition and measurements – eligible hedged items, application of which is mandatory as from 1 July 2009. This amendment clarifies the application of the existing principles which determine which risks or cash flows are eligible for inclusion in a hedging operation. The Company does not expect any significant impact from adoption of this standard.
IFRS 3 (revised) – Business combinations and IAS 27 (amended) Consolidated and separate financial statements
52 In January 2008 the International Accounting Standards Board (IASB) issued IFRS (3) – Business combinations, with mandatory effect in periods starting as from 1 July 2009, early adoption being permitted.
The main impact of the changes in these standards will be felt in: (i) the treatment of partial acquisitions, where noncontrolling interests (formerly called minority interests) may be measured at fair value (which also involves recognition of the goodwill attributable to noncontrolling interests) or as a portion, attributable to the noncontrolling interests, of the fair value of the net assets acquired (as currently required); (ii) step acquisition, where the new rules require, on calculation of goodwill, revaluation against profit or loss of the fair value of any noncontrolling interest held prior to the acquisition effected with a view to obtaining control; (iii) recording of costs directly related to acquisition of a subsidiary which are now directly imputed to profit or loss; (iv) contingent prices, where alterations in estimates over time are now recorded in profit or loss and do not affect goodwill and (v) alterations to the percentages of subsidiaries held not resulting in loss of control, which are now recorded as movements in equity. In addition, the alterations to IAS 27 also mean that accrued losses in a subsidiary will now be attributed to the noncontrolling interests (recognition of negative noncontrolling interests) and that, when a subsidiary is disposed of, with a view to losing control any noncontrolling interest retained is measured at fair value determined at the date of disposal. The Company does not expect any significant impact from adoption of this standard.
IFRIC 15 – Agreements for the Construction of Real Estate IFRIC 15 - Agreements for the construction of real estate – takes effect for periods starting on or after 1 January 2009. This interpretation contains guidelines for determining whether an agreement for construction of real estate comes under IAS 18 Revenue or IAS 11 Construction Contracts, and UAS 18 may eb expected to be applicable to wider range of transactions.
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation In July 2008, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 16 - hedges of a net investment in a foreign operation, which takes mandatory effect in periods starting on or after 1 October 2008, early adoption being permitted.
This interpretation clarifies that: hedges of an investment in a foreign operation can only be applied to exchange rate differences deriving from the translation of the financial statements of subsidiaries in their functional currency to the functional currency of the parent company, and only for an amount equal to or less than the net assets of the subsidiary; the hedge instrument may be contracted by any Group entity, except the entity to which the hedge relates; and when the hedged subsidiary is sold, the accrued gain or loss relating to the effective hedge component is reclassified into profit or loss. This interpretation permits an entity which uses the step consolidation method to choose an accounting policy which makes it possible to determine the accrued currency translation adjustment which is reclassified into profit or loss on the disposal of the subsidiary, just as it would do if it had adopted the direct consolidation method. This interpretation is to be applied prospectively. The Company does not expect that this interpretation will have an impact on its financial statements.
IFRIC 17 – Distributions of non-cash assets to owners 53 In November 2008 the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 17 – Distributions of non-cash assets to owners, with mandatory application in periods starting as from 1 July 2009, early adoption being permitted.
This interpretation sets out to clarify the accounting treatment of distributions of non- cash assets to owners. It lays down that distributions of non-cash assets are to be recorded at fair value, the difference in relation to the balance sheet value of the asset distributed being recognized in profit or loss on distribution. The Company does not expect this interpretation to have an impact on its financial statements.
IFRIC 18 – Transfers of Assets from Customers In November 2008 the International Financial Reporting Interpretations Committee (IFRIC) issue IFRIC 18 – Transfers of assets from customers, application of which is mandatory in periods starting on or after 1 July 2009, early adoption being permitted. This interpretation sets out to clarify the accounting treatment of agreements whereby an entity receives a customer’s assets for its own use and with a view to subsequently linking the customers to a network or providing customers with ongoing access to the supply of goods or services.
The interpretation clarifies: the terms on which an item of assets falls within the scope of this interpretation; recognition of the asset and its initial measurement; identification of the identifiable services (one or more services in exchange for the asset transferred); recognition of income; accounting for the transfer of cash from customers;
The Company does not expect this interpretation to have an impact on its financial statements.
54 5 – REPORT AND OPINION OF THE AUDIT BOARD
Shareholders,
1. As required by Article 420 g) of the Companies Code, the Audit Board has drawn up this report on its auditing work during 2008 and issues its opinion on the report, accounts and proposals submitted by the Directors of Banif – Banco Internacional do Funchal, SA.
2. As in previous years, the Audit Board has continued to concentrate on monitoring the Bank’s operations on a direct and permanent basis, maintaining frequent contact with the Directors and the Bank’s staff.
3. The Directors’ Report gives a detailed account of the Bank’s affairs during the financial year of 2008.
4. The Audit Board has examined the Report of the Official Auditors and the Legal Accounts Certificate issued by them, and we hereby declare our agreement with the same, for the purposes of Article 452.2 of the Companies Code.
5. In conclusion, the Audit Board recommends that the General Meeting:
a) Approves the Directors’ Report for the Financial Year ended on 31 December 2008. b) Approves the Accounts for the same financial year. c) Approves the proposal for the Distribution of Profits contained in the Directors’ Report, which accords with the relevant legal requirements (Article 97.1 of the General Rules on Credit Institutions and Finance Companies). d) Under the terms of Article 455 of the Companies Code, assesses the work of the Bank’s Directors and the Audit Board. e) Expresses its appreciation to the employees of the Bank, for the help they have given the company boards in the exercise of their duties.
Lisbon, 13 March 2009
Dr. FERNANDO MÁRIO TEIXEIRA DE ALMEIDA – Chairman
Dr. ANTÓNIO ERNESTO NETO DA SILVA
Dr. JOSÉ LINO TRANQUADA GOMES
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7 – LEGAL ACCOUNTS CERTIFICATE
INTRODUCTION
1. We have audited the financial statements attached of Banif – Banco Internacional do Funchal, SA, which comprise the Balance Sheet as at 31 December 2008 (which records a total of 9,560,646 thousand euros and total shareholders’ equity of 346,181 thousand euros, including a net profit of 15,269 thousand euros), the Income Statement, the Statement of Changes in Equity and the Statement of Cash Flows for the financial year then ended, and the corresponding notes to the financial statements.
RESPONSIBILITIES
2. It is the responsibility of the Directors of the Bank to prepare financial statements which give a true and fair view of the financial position of the Bank, the result of its operations and cash flows and to adopt appropriate accounting policies and criteria and to maintain an appropriate system of internal control.
3. It is our responsibility to express a professional and independent opinion, on the basis of our audit of the said financial statements.
SCOPE
4. Our audit was performed in accordance with the Audit Rules and Recommendations of the Order of Official Auditors, which require that the audit be planned and performed in such a way as to give a reasonable assurance that the financial statements are free from, or that they are not free from, material misstatement.
To this end our audit included:
- checking, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and an assessment of the estimates, based on judgments and criteria defined by the respective directors, used in preparing the financial statements; - an assessment of the suitability of the accounting policies adopted and disclosure of these policies, taking the circumstances into account; - checking whether or not the going concern principle is applicable; and - an assessment of the overall adequacy of the presentation of information in the consolidated financial statements.
5. Our audit also included checking that the financial information contained in the management report corresponds to the financial statements.
6. We believe that our audit gives us a reasonable basis on which to issue our opinion.
OPINION
56 7. In our opinion, the financial statements referred to above give a true and fair view, in all materially relevant aspects, of the state of affairs of Banif – Banco Internacional do Funchal, SA as at 31 December 2008 and the result of its operations and cash flows in the financial year then ended, in keeping with the Adjusted Accounting Standards as defined by the Bank of Portugal in Notice 1/2005.
Lisbon, 13 March 2009
ERNST & YOUNG AUDIT & ASSOCIADOS – SROC, SA Independent Audit Firm (no. 178) Represented by:
João Carlos Miguel Alves (ROC no. 896)
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