Annual Report 2007

Annual Report2007

European Investment Bank Group •European Investment Bank Group •European Investment Bank Group •European Investment Bank Group

Volume II Financial Report

Annual Report2007

European Investment Bank Group • European Investment Bank Group • European Investment Bank Group • European Investment Bank Group

Volume II Financial Report

The EIB Group’s 2007 Annual Report consists of three separate volumes:

-the Activityand Corporate ResponsibilityReport, presenting the EIB Group’s activityoverthe past year and futurepros- pects; -the Financial Report, presenting the financial statements of the EIB Group,the EIB,the Cotonou InvestmentFacility, the FEMIP Trust Fund and the EIF,along with the relatedexplana- tory annexes; -the Statistical Report, presenting in list form the projects financed and borrowings undertaken by the EIB in 2007, together with alist of the EIF’sprojects.Italso includes sum- marytables forthe year and over the last fiveyears.

TheAnnual Reportisalso available on the Bank’s website www.eib.org/report. EIB Group 2 Financial Report2007

EIB Group: keystatutoryfigures

European InvestmentBank

Activityin2007 (EUR m)

Signatures 47 820 European Union 41 431 Partner countries 6389

Projects approved 56 455 European Union 48 664 Partner countries 7791

Disbursements 43 420 From the Bank’s resources38852 From budgetaryresources4568

Resourcesraised (beforeswaps) 54 725(*) Communitycurrencies 32 835 Non-Communitycurrencies 21 890

Situation as at 31.12.2007

Outstandings Loans from the Bank’s resources324 753 Guarantees provided 165 Financing from budgetaryresources1785 Short, medium and long-termborrowings 254 221

Ownfunds 33 437 Balancesheet total 301 854 Net profit foryear 1633 Subscribed capital 164 808 of which paid in and to be paid in 8240

European InvestmentFund

Activityin2007

Signatures 1918 Venturecapital 521 Guarantees 1397

Situation as at 31.12.2007

Portfolio 15 971 Venturecapital 4388 Guarantees 11 584

(*) Resourcesraised under Ownfunds 965 the global borrowing Balancesheet total 1074 authorisation given by the Board Net profit foryear 50 of Directors for 2007, including ’pre-funding’ofEUR 77 million Subscribed capital 2770 completed in 2006 for 2007. of which paid in 554 Financial Report2007 3 EIB Group

Contents

Message from the President4 EIB StatutoryBodies 6 EIB Financing Activity8 EIB Borrowing Activity10 EIB TreasuryActivity15 EIF StatutoryBodies 17 EIF Activity18 Audit and Control20

EIB Group 23 ConsolidatedResults forthe Year 25 Financial Statements 26 IndependentAuditor’s Report95 Statementbythe Audit Committee 96

EIB 97 Results forthe Year 99 Financial Statements 100 IndependentAuditor’s Report147 Statementbythe Audit Committee 148

InvestmentFacility149 Financial Statements 150 IndependentAuditor’s Report166 Statementbythe Audit Committee 167

FEMIP Trust Fund 169 Financial Statements 170 IndependentAuditor’s Report177 Statementbythe Audit Committee 178

EIF 179 IndependentAuditor’s Report180 Statementbythe Audit Board181 Financial Statements 182

Addresses 227 EIB Group 4 Financial Report2007

Message from the President

Introducing the 2006 annual reportlast year,Iempha- and partner countries reached morethan EUR 6bn. In sised that2007 would be acritical year forthe European Turkey,the WesternBalkans and the Mediterranean part- InvestmentBank in the implementation of its new strat- ner countries,the European InvestmentBank is todaythe egy of taking morerisk formorevalue added.Ambitious most activeinternational financial institution. lending targets were set in the COP(CorporateOpera- tional Plan), notably as regards the use of the SFF (Struc- To supportthis lending,the EIB raised nearly EUR 55bn tured FinanceFacility). These targets were met and,in on the international capital markets – significantly more some cases,exceeded.For instance, the level of signa- than the EUR 48bn raised in 2006 – through 236 bond tures under the SFF reached morethan EUR 1.5bn, an issues in 23 currencies.The European InvestmentBank almost fivefold increase on 2006; at the same time,the remains one of the largest capital market issuers,and its EIB quadrupled its supportfor clean energy sources, sign- abilitytotap these markets has held up strongly in the ing loans of morethan EUR 2bn forrenewable energy faceofthe financial turbulencesincemid-2007. Quite projects.Anumber of new initiatives became operation- clearly,investors have been reassured by the EIB’s pru- al in partnership with the European Commission, in dentrisk managementpolicies and its first-class credit particular the RSFF (Risk Sharing FinanceFacilityfor Re- rating,underpinned by the qualityofthe Bank’s share- search). holders.

Outside the EU,agood startwas made in implementing Such results areatestimonytothe hardworkand profes- thenew external mandate granted by the EU Council for sionalism of its staff.They arealso agauge of the confi- the period 2007-2013. Although the corresponding Guar- denceofboth the shareholders and the Commission in anteeAgreementwith the Commission wassigned only the Bank’s abilitytodeliver on key EU policies and gener- in August,signatures in the enlargement, neighbouring atevalue added through its operations. Financial Report2007 5 EIB Group

cohesion of the European Union, during its fifty years of However, the Member States’and Commission’s trust brings operations it has gained significantexperienceinfinancing additional responsibilities and challenges,asisevident investmentprojects across awide range of sectors.Ithas from the 2008-10 COPapproved by the Bank’s Board. The supportedthe Union’s most importantachievements,fos- EIB will be expectedtocontinuetodeliver on its commit- tering Europe’s economic growth; it has taken up the chal- ments in the fields of convergence, transport(with arein- lenge of six enlargements,increasing its capital from one forced focus on priorityTEN projects), energy (especially billion units of accounttoEUR 164.8bn; and it playeda renewable energy and energy efficiency), the environment, major role in the run-up to the euro, launching initiatives the knowledge economy(i2i) and SME financing. thatpaved the wayfor the transition to asingle currency.

Concerning this last area, following aconsultation pro- Fiftyyears afterthe Treaty of Rome,the European adven- cess with its banking partners,public authorities and SME tureisonly just beginning.Itisnow vital to embracethe associations,the EIB Group is currently looking at ways in challenges of the 21st century: the environmental chal- which it can boost this supportstill further. lenge,and the fightagainst climate change; the scien- tific and industrial challenge to ensureEurope’s position TheEIB will also pursue its efforts to increase transpar- as amajor economic power; and the challenge of world encyand engage fully with civil society. In 2007, the Bank solidarity, combating povertyinother parts of the world. concluded its second formal public consultation exercise, TheEIB is eager to help Europe facethese challenges. on its anti-fraud and anti-corruption policy. In 2008, a thirdconsultation has been launched,this time on the Bank’s environmental and social rules forlending. Philippe Maystadt Presidentofthe European InvestmentBank Group

TheEuropean InvestmentBank can nowlook back on 50 years of activity. Setupin1958 to contributetothe integration, balanced developmentand economic and social EIB Group 6 Financial Report2007

EIB StatutoryBodies

Thecomposition of the Bank’s statutorybodies,the curricula vitae of their members and additional information on the remuneration arrangements areregularly updatedand posted on the EIB’s website: www.eib.org.

BoardofGovernors Chairman Tommaso PADOA-SCHIOPPA(Italy) Belgium Didier REYNDERS Ministredes Finances Bulgaria Plamen ORESHARSKI Minister forFinance Czech Republic MiroslavKALOUSEK Ministr financí Denmark Bendt BENDTSEN Økonomi- og erhvervsminister Germany Peer STEINBRÜCK Bundesminister der Finanzen Estonia IvariPADAR Rahandusminister Greece Georgios ALOGOSKOUFIS Minister of Economyand Finance Spain PedroSOLBES MIRA Vicepresidente Segundo del Gobierno yMinistrodeEconomíayHacienda France Christine LAGARDE Ministredel’Économie,del’industrie et de l’emploi Ireland Brian COWEN Minister forFinance Italy Tommaso PADOA-SCHIOPPAMinistrodell’Economia edelle Finanze Cyprus Charilaos STAVRAKIS Minister of Finance Latvia Atis SLAKTERIS Finanšu ministrs Lithuania Rimantas ŠADŽIUS Finansų ministras Luxembourg Jean-Claude JUNCKER Premier Ministre, Ministred’État, Ministredes Finances Hungary János VERES Pénzügyminiszter Malta LawrenceGONZI Prim Ministru Netherlands Wouter BOS Minister vanFinanciën Austria Wilhelm MOLTERER Bundesminister fürFinanzen Poland Jacek ROSTOWSKI MinistraFinansów Portugal Fernando TEIXEIRADOS SANTOS MinistrodeEstado edas Finanças Romania Varujan VOSGANIAN Ministrul Finanţelor Publice Slovenia Andrej BAJUK Minister za finance Slovakia Ján POČIATEK Minister financií Finland Mari KIVINIEMI Hallinto-jakuntaministeri Sweden Anders BORGFinansminister United Kingdom Alistair DARLING Chancellor of the Exchequer

Audit Committee Chairman Maurizio DALLOCCHIO Dean, SDABocconi School of Management, Holder of Lehman Brothers Chair of CorporateFinance, Bocconi University, Milan Members Constantinos KARMIOS Chief Accountant, Treasuryofthe Republic of Cyprus,Cyprus Ortwin KLAPPER Former Chief ExecutiveOfficer of Bank Austria Creditanstalt Leasing Group,Managing DirectorofMizuho Corp.Bank-BA Investment Consulting,Chairman of the Multilease Association, Brussels/Bratislava Observers Nikolaos PHILIPPAS AssistantProfessor and Member of the UniversitySenate,Universityof Piraeus,Greece, Member of the BoardofDirectors of Piraeus Port Authority ÉricMATHAYCompanyauditor,cabinet Bollen, Mathay&Co.,Brussels José RODRIGUES DE JESUS CharteredAuditor,Oporto

ManagementCommittee President Philippe MAYSTADT TheEIB’s Presidentalso chairs the Bank’s BoardofDirectors. Vice-Presidents Philippe de FONTAINE VIVE CURTAZ Torsten GERSFELT Simon BROOKS Carlos da SILVA COSTA Matthias KOLLATZ-AHNEN EvaSREJBER MartaGAJĘCKA Dario SCANNAPIECO

Situation at 11 March2008 Financial Report2007 7 EIB Group

BoardofDirectors

TheBoardofDirectors consists of 28 Directors,with one Directornominatedbyeach Member Stateand one by the European Commission. Thereare 18 Alternates,meaning thatsome of these positions will be shared by groupings of States. Furthermore, in order to broaden the BoardofDirectors’professional expertise in certain fields,the Boardisable to co-opt amaximum of six experts (three Directors and three Alternates), who participate in the Boardmeetings in an advisorycapacity, without voting rights.

Directors Olivier HENIN Directeur adjoint, responsable de la Cellule Marchésfinanciers internationaux, Ministère des Finances, Brussels Dimiter IVANOVSKI DeputyMinister,MinistryofFinance, Sofia ZdenĕkHRUBÝ Member of the BoardofDirectors of the EIB,Prague Sigmund LUBANSKI Kontorchef, Økonomi- og Erhvervsministeriet,Copenhagen Carsten PILLATH Ministerialdirektor,Abteilungsleiter Europapolitik im Bundesministerium der Finanzen, Berlin Aare JÄRVAN SecretaryGeneral,DepartmentofEUand International Affairs,MinistryofFinance, Tallinn Konstantinos MOUSOUROULIS SecretaryGeneral,MinistryofEconomyand Finance, Athens Isabel RIAÑOIBÁÑEZ Directora General,DirecciónGeneral de FinanciaciónInternacional,Ministerio de EconomíayHacienda, Madrid ClaireWAYSAND Chef du servicedes politiques macroéconomiques et des affaires européennes,direction générale du Trésor et de la politique économique,ministère de l’Économie,del’industrie et de l’emploi Kevin CARDIFF Second Secretary, Banking,Financeand International Division, DepartmentofFinance, Dublin Ignazio ANGELONI Direttoreper iRapporti finanziariinternazionali, Dipartimento del Tesoro, Ministerodell’Economia e delle Finanze, Rome Kyriacos KAKOURIS Senior Economic Officer,MinistryofFinance, Nicosia Irena KRUMANE StateSecretary, TheMinistryofFinanceofthe Republic of Latvia, Riga Miglė TUSKIENĖ Director, European Union and International Affairs Department, MinistryofFinance,Vilnius Gaston REINESCH Directeur général, Ministère des Finances,Luxembourg János ERŐSChief ExecutiveOfficer,Magyar Fejlesztési Bank Zrt.,Budapest VinceGRECH DirectorGeneral (Financial Administration), MinistryofFinanceand Economic Affairs,Valetta PimVAN BALLEKOM Financial Counsellor,PermanentRepresentation of the Netherlands to the EU,Brussels Kurt BAYERStellvertretender Generaldirektor fürWirtschaftspolitik und Internationale Finanzinstitutionen, Bundesministerium fürFinanzen, Vienna Katarzyna ZAJDEL-KUROWSKAUndersecretaryofState,MinistryofFinance, Warsaw M.-AlexandradaCOSTAGOMES MembrodoConselho de AdministraçãodoBEI, Lisbon Eugen TEODOROVICI SecretaryofState,MinistryofPublic Finance, Bucharest Sibil SVILAN Presidentofthe Boardand CEO,SID Bank Inc.,Ljubljana Katarina KASZASOVÁDirectorGeneral of the StateReporting Section, MinistryofFinance, Bratislava Tytti NORAS Lainsäädäntöneuvos,valtiovarainministeriö,Helsinki Kurt Arne HALL Finansråd,Internationella avdelningen, Finansdepartementet, Stockholm Stephen PICKFORD DirectorEurope,H.M. Treasury, FinanceDirectorate,London Klaus REGLING Director-General,Directorate-General forEconomic and Financial Affairs,European Commission, Brussels

Experts Pierre RICHARD Présidentduconseil d’administration, Dexia SA, Paris Rainer MASERAPresidente del Gruppo Istituzioni Finanziarie (GIF), Lehman Brothers,Rome TimothySTONE Chairman, Global Infrastructureand Projects Group,KPMG, London

Alternates Karl-Ernst BRAUNER Ministerialdirektor,Bundesministerium fürWirtschaftund Arbeit,Berlin Ralph MÜLLER Leiter des ReferatsHaushalt der Europäischen Union, Bundesministerium der Finanzen, Berlin BenoîtdelaCHAPELLE BIZOT Chef du bureau ”Stratégieetcoordination européenne”,Direction du Trésor et de la politique économique, ministère de l’Économie,del’industrie et de l’emploi, Paris Jean-Michel SEVERINO Directeur général, Groupe AgenceFrançaise de Développement, Paris Giampaolo BOLOGNA Dirigente,Direzione del Contenzioso Comunitario,Dipartimento del Tesoro, Ministerodell’Economia edelle Finanze, Rome PietroMASCI Direttoredell’Ufficio per le relazioni istituzionali conlaBanca europea per gli investimenti, Paesi del Mediterraneo edei Balcani, Dipartimento del Tesoro, Ministerodell’Economia edelle Finanze, Rome Jean-Christophe GRAY Head of EU Coordination and Strategy,HMTreasury, London Tamsyn BARTONHead of EU Department, Departmentfor International Development, London Alicia VARELA Subdirectora General,SubdirecciónGeneral de Instituciones Financieras Europeas,Ministerio de EconomíayHacienda, Madrid Rudolf de KORTEPlaatsvervangend lid vandeRaad vanBewind vandeEIB,Wassenaar Michael SOMERS Chief Executive, National TreasuryManagementAgency, Dublin tefan NANU General Director, General DepartmentofTreasuryand Public Debt,MinistryofEconomyand Finance, Bucharest Madis ÜÜRIKE Advisor to the MinistryofFinance, MinistryofFinance, Tallinn Kristina SARJO Finanssineuvos,Kv. toiminnot -yksikönpäällikkö,Rahoitusmarkkinaosasto, valtiovarainministeriö, Helsinki Zsuzsanna VARGADirectorGeneral,DepartmentofInternational Relations,MinistryofFinance, Budapest Andrej KAVČIČ Head of International FinanceDepartment, MinistryofFinance, Ljubljana (…) … DirkAHNER DirectorGeneral,Regional PolicyDirectorate-General,European Commission, Brussels

Alternate experts Óscar FANJUL Vicepresidente,Omega Capital S.L., Madrid Antoni SALA Advisor,Bank Gospodarstwa Krajowego,Warsaw Detlef LEINBERGER Mitglied des Vorstandes,Kredianstalt fürWiederaufbau,Frankfurt/Main; Mitglied des Verwaltungsrats des EIF

Situation at 11 March2008 EIB Group 8 Financial Report2007

EIB Financing Activity

In 2007, the European InvestmentBank (EIB) lentatotal Union. In the neighbouring countries it also provided of 47.8bn euros (1) in supportofthe objectives of the Euro- financetotalling 916m forprojects involving major pean Union: 41.4bn in the Member States of the Union transportarteries and 375m forenergy supplies. and EFTA, and 6.4bn in the partner countries. • In 2007, individual loans forcapital projects relating TheBank’s strategic orientations arereflectedinanumber to the environment amountedto14.6bn, accounting of objectives defined in the Bank’s CorporateOperation- for31%of total lending.The bulk of loans went to al Plan. Forthe period 2007-2009, six prioritystrategic projects in the European Union (13bn). Financing cen- objectives have been defined forfinancing operations in tred on the urban environment(5.6bn), combating the Member States of the European Union: economic and climate change (4.5bn), water treatmentand pollu- social cohesion and convergence; fostering innovation; tion reduction (4.3bn), and arange of projects involv- developing trans-European networksand their access ing natureconservation, environmental efficiencyand routes; protecting and improving the environment; sup- wastemanagement(123m). porting small and medium-sized enterprises (SMEs); and promoting secure, competitiveand sustainable energy • Supportfor investmentbySMEsisintended to give supplies. them easier access to credit,orevenequitycapital. In 2007, the EIB wasthus able to supportindirectly, • Economic and social cohesion and convergence in via commercial banks and investmentfunds,anesti- the European Union remains the Bank’s prime opera- mated162 000 or so SMEs within the Union. To that tional priority. In 2007, individual financing operations end,itgranted 5bn in the form of medium and long- aimed at reducing economic disparities between the term credit lines,enabling banks to lend to SMEs on regions totalled 22.2bn; activitypromoting conver- better terms, and its subsidiary, the EIF,provided genceinthe less developed regions accountedfor guarantees totalling 1.4bn to SMEs and invested 13.8bn. More than half of the projects were carried 521m via venturecapital funds. out in the transportand energy sectors. • Energy has been made aspecific priorityinthe COP • By fostering innovation,the EIB Group assists the de- forthe period 2007-2009. Projects meeting this ob- velopmentofaknowledge-based economy. Sincethe jectiveinvolvethe following: renewable energies; launch of the Innovation 2010 Initiative(i2i) in 2000, energy efficiency; research, developmentand inno- the Bank has already signed loans worth56bn. In 2007, vation; and securityofinternal and external supplies. it advanced atotal of 10.3bn in three areas: research, In 2007, the Bank provided loans totalling 6.8bn to developmentand innovation (7.2bn); education and supportprojects in the energy sector, including a training (1.3bn); and information and communications record 2.1bn forrenewable energy. technologies (1.6bn). TheEuropean InvestmentFund (EIF) also supports i2i by taking stakes in venturecap- TheBank operates in the partner countries of the Union ital funds (2). in accordancewith the lending mandatesrenewed by the Council in December 2006. In 2007, EIB backing forEU • Efficientcommunications and energy transfer networks developmentaid and cooperation policyinthe partner areakey factorineconomic integration. Since1993, the countries amountedto6.4bn. Bank has been supporting the developmentoftrans- European networks (TENs) and has become the leading • In South-Eastern Europe (3),wherethe Bank makes provider of long-termfunds forthese networkswithin loans to supporteconomic developmentand pro- the European Union. In 2007, the Bank lent7.4bn for moteaccession to the European Union, financing transportTENs and 1bn forenergy TENs in the European operations totalled 2.9bn.

(1) Unless otherwise indicated, all amounts areexpressed in EUR. (2) Seesection on EIF Activity. Financial Report2007 9 EIB Group

Financing 2003-2007: EUR 226bn 2007

2006

2005

2004

2003 European Union Partner Countries 02550

• In Eastern Europe,the Bank signed its first loans in TheBank’s new strategy is being implementedbyfocusing Moldova and Ukraine (230m provided to finance on riskier operations,inorder to increase the value added transportinfrastructure). of the financeprovided.The reservesspecifically dedicated to these operations aretaken either from the Bank’s own • Inthe Mediterranean countries,loans signed under the funds or from European Commission resources(Structured Facilityfor Euro-Mediterranean Investmentand Part- or Risk Sharing FinanceFacilities). Therewas asharpincrease nership (FEMIP) totalled 1.4bn, with increased support in this activityin2007, with outstanding loans morethan being giventothe privatesector. doubling from 1.1bn at end-2006 to 2.7bn at end-2007.

• In the Asian and Latin American countries,the amount signed came to 925m. In particular,the Bank signed a 500m frameworkloan in China to supportanumber of capital projects helping to reducegreenhouse gas emissions.

• TheEIB continued its lending operations in the Afri- can, Caribbean and Pacific (ACP)countries (756m) and South Africa (113m).

(3) Albania, Bosnia and Herzegovina, Croatia, Former YugoslavRepublic of Macedonia, Montenegro,Serbia and Turkey. EIB Group 10 Financial Report2007

EIB Borrowing Activity Aleading sovereign-class international debt issuer

Resilientfunding in turbulenttimes EUR: strong reception forbenchmarks

TheEIB’s funding activities were resilientduring the tur- In EUR atotal of 27 transactions were conductedin2007, moil thatovershadowedcapital markets in the course of raising EUR 20.5bn in all,or37.5 %ofthe total funding 2007, therebysustaining acontinued competitiveoffering programme forthe year.Four new euro-denominated of loan products.In2007, the Bank raised atotal of benchmarks or Euro Area ReferenceNotes (’EARN’TM)were EUR 55bn (4) via 236 transactions in 23 currencies,including issued,compared with the twotypically issued in recent four currencies in synthetic format. In September,inparal- years.This provided the largest source of benchmarkfund- lel with progress in its lending programme and loan dis- ing forthe Bank (EUR 16bn). Thetransactions were two bursements,the Bank increased its funding ceiling from EUR 5bn EARNs in 5and 10-year maturities,aswell as two EUR 50bn to EUR 55bn. Thefunding volume of EUR 55bn EUR 3bn EARNs,along 17-year and an innovative7-year wassignificantly larger than in the 2006 funding pro- issue,the latter offering anew benchmarkmaturitytothe gramme (EUR 48bn). market.Two of these EARNs were launched following the outbreak of severemarket turmoil over the summer. Such results were underpinned by the Bank’s top-quality credit standing and astrategic and responsiveapproach Thefavourable market reception forthe EARN benchmark to markets.The continuing supportfromEUsovereign transactions wassupportedbyaconsistentstrategic ap- shareholders remains acornerstone of the Bank’s credit proach, thathas delivered ahighly comprehensiveand standing. liquid yield curve.The Bank remained the only borrower to complementsovereigns with benchmarkissues of Themarket’s favourable overall reception forthe Bank in EUR 5bn sizeoutstanding in maturities from three years 2007 wasreflectedinanaward for Sovereign/Supra- to 30 years.Asofend-2007, EARNs outstandings reached national/Agency/Regional Issuer of the Year from the Inter- EUR 74bn across 15 issues. Structured bondsinEUR national Financing Review. amountedtoEUR 1.4bn (roughly 30%ofall EIB structures in 2007). In addition, aEUR 2bn targeted bond wasissued in the two-year segment.

Areliable benchmark Asignificantinnovation, reflecting EU leadership in tack- ling climate change,was the Climate Awareness Bond In this challenging environmentthe Bank benefited from (CAB) under the Bank’s EPOS (European Public Offering of thestrengthofits benchmarkprogrammes in its core cur- Securities) format – the second of its kind launched by the rencies (EUR, GBP and USD), which generated funding for EIB.This EUR-denominatedstructured issue offered a EUR 38bn (69%ofthe total). This represents asignificant unique combination of environmental features,including increase versus 2006 (EUR 28bn or 59 %). Benchmark earmarking of proceeds forprojects supporting cleaner funding in core currencies demonstrated the Bank’s bell- energy,aswell as an option to purchase and cancel CO 2 wether appeal,with benchmarkvolumes growing year allowances via the European Union’s Emissions Trading on year in each of the three core currencies.The strong Scheme.The CABalso offered avehicle forongoing EU fi- presenceacross the yield curve across all three currencies nancial market integration, as the first public bond offering (EUR, GBP and USD)remained astrong distinguishing across all 27 EU Member States,facilitatedbythe passport- feature. Targeted issues in the three core currencies in ing mechanism in the EU Prospectus Directive (5) and as- plain vanilla and structured format were substantial, sociatedEPOS documentation. Theissue wassyndicated amounting to EUR 8bn (EUR 12bn in 2006), with EUR and among an unusually large number of banks and reached USD issues providing the bulk of the volume. an exceptional sizefor astructured issue (EUR 600m).

(4) Volume of EUR 54.7bn raised under the global borrowing authorisation givenbythe BoardofDirectors for2007, including ’pre-funding’ofEUR 77m completed in 2006 for2007. (5) TheEuropean Public Offering of Securities,or“EPOS” format, wasfirst launched in 2006 and allows the Bank to leverage the EU Prospectus Directive, which sets out an efficientmechanism forthe“passporting”of prospectuses in the Member States of the European Union: aprospectus approved by the competentauthorityinone Member State(“home countryregulator”)can be used as avalid prospectus in anyother Member State(“host Member State”) without the need forany further prospectus approval (“mutual recognition”). Financial Report2007 11 EIB Group

Borrowing activity2003-2007: 245bn

2007

2006

2005 EUR

2004 GBP USD 2003 Others 0102030405060

GBP:largest non-gilt issuer Strong diversification: issuance in 23 currencies In GBP the Bank maintained its position as the largest non-gilt issuer,with atotal outstanding sterling debt rep- Outside the three core currencies,EUR 8.8bn wasraised in resenting over 9%of the total GBP non-gilt market at 16 other currencies.Inaddition, EUR 262.4m wasissued in end-2007 (6).The Bank made 58 transactions,raising ato- synthetic format in four additional currencies (booked un- tal of GBP 7.5bn (EUR 11bn) or 20.1 %ofthe total pro- der payment and settlementcurrencies in EUR and USD). gramme forthe year.During 2007, 13 differentmaturities were tapped and therewerethree newbenchmark lines across the yield curve (2011, 2019 and 2044). As of end-2007, the Bank’s sterling yield curve,which extends Innovation in other European to 2054, amountedtoGBP 39bn in 22 bonds. and neighbouring countrycurrencies

In addition, two newlong-datedinflation-linked issues were launched with maturities in 2017 and 2022, both Thelargest volume of issuanceinthis region wasinNordic based forthe first time on the gilt model in termsofma- currencies,for atotal of EUR 1.5bn. Anoteworthyresult turityand calculation methodology forcoupons and final wasthe Bank’s issuanceinSwedish krona (SEK), whereit redemptions. raised atotal of SEK 8.2bn (EUR 893m), nearly tripling the volume of 2006. TheBank strengthened and extended its SEK yield curve with new 17- and two28-year issues,both plain vanilla and inflation-linked,and the 28-year matur- USD: largest non-US issuer in Global format itywentbeyond the longest sovereigntenor.Issuancein other Nordic currencies included the Icelandic króna (ISK), TheBank remained the largest non-US issuer of Global Danish krone (DKK)and Norwegian krone (NOK). benchmarks,raising arecordvolume of USD 15bn (EUR 11.3bn). In USD,28transactions were executed rais- In Swiss francs (CHF), the Bank launched four transactions ing atotal of USD 19.1bn (EUR 14.4bn), or 26.3%ofthe with maturities between 2019 and 2036 (totalling total programme forthe year.FiveGlobal USD 3bn bench- CHF 725m/EUR 445m), reflecting the demand fortop- marks were issued across major maturities: 3-year (twice), qualitylong-datedbonds. 5-year and 10-year (twice). In aggregate this wasthe largest amountraised by the Bank in anysingle year through TheBank maintained its developmental activities in new the issuanceofUSD Global bonds.With its second 3-year and futureMember States and EU neighbouring coun- USD 3bn issue,the Bank reopened the benchmarkUSD trycurrencies.Volumes amountedtoEUR 1.5bn equiva- market fortriple-A rated issuers in the wake of the sum- lent, raised via 26 transactions,with Turkish lira(TRY) mer turmoil.2007 also sawasustained interest fornon- providing the bulk of the volume.Other issuancecurren- Global transactions,which included two7-year Eurodollar cies were Bulgarian leva(BGN), Hungarian forint (HUF), issues,raising in total USD 2.25bn (EUR 1.7bn). Structured Polish zloty(PLN), Romanian leu (RON) and Russian rou- transactions amountedtoUSD 1.8bn (EUR 1.3bn). ble(RUB).

(6) Source:Barclays Sterling Non-Gilt Index, 31 December 2007. EIB Group 12 Financial Report2007

In TRY, the Bank maintained its leading position. TheBank The NewZealand dollar (NZD)was amajor source of issued across 14 transactions foratotal of TRY2bn funding in 2007, generating EUR 1.3bn equivalent. Among (EUR 1.1bn). It launched a2-year TRY1bn benchmarkissue, high-grade borrowers,the Bank launched the largest the largest-eversingle tranche Eurobond (of TRY1bn), pro- fixed-ratetransaction in the “Kauri” bond market forfor- viding anew liquid referencefor the market.The Bank also eignissuers,aNZD 800m (EUR 439m) 5-year issue. issued aTRY 150m zero-coupon bond due 2022, which wasthe longest maturityinthe TRYEurobond market.

TheBank made its debut in the domestic market forRo- Americas (ex-US): recognition forbench- manian leu (RON), with aRON 300m (EUR 90m) 7-year mark sizeinCanada bond.This wasthe longest-dated and largest RONbond at the time of issuance. TheBank also built on its presence in the international Bulgarian leva(BGN) market with a In Canadian dollars (CAD), the Bank issued the largest new BGN 55m (EUR 28m) 5-year bond issue. 30-year foreign(“Maple”)transaction, forCAD 850m (EUR 560m), as well as some smaller similarly long-dated TheBank also made its debut in the non-synthetic Rus- transactions.Among high-grade borrowers,the Bank was sian rouble (RUB) market,wheretwo bonds were the first to issue apublicly marketed zero-coupon bond, launched: aRUB 2bn (EUR 57m) 10-year and aRUB 2bn thatattained benchmarkstatus.Total issuanceinthis cur- (EUR 57m) 5-year bond. rencyamountedtoCAD 1bn (EUR 659m).

In Latin America the Bank continued its issuanceactivities in Brazilian real (BRL) in synthetic format, raising an Japan and Asian/Pacific currencies: equivalentofEUR 185m across eighttransactions. leadership and scale

Among the non-core currencies in 2007, the largest source African currencies: of funding – and hencethe Bank’s fourth-largest currency developmental impactwidens – was Japanese yen (JPY), with JPY349bn (EUR 2.2bn) being raised.The Bank became the largest high-grade issuer of Global bonds in this currency. Thepublic JPYissuance, In 2007 the Bank launched 13 transactions in four Afri- supportedbyinternational demand from Europe and the can currencies totalling EUR 311m equivalent. This US, did brisk business,particularly in the first half of the underlines the scale and diversityofits developmental year.Ahighlightwas the issuanceofthe first fixed-rate role in the region’s capital markets,and provides astep- 5-year Global yenbond from asupranational since1992. ping stone towardspotential lending in local currency. This wasalso the largest yentransaction from aforeign The largestcontributor wasthe South African rand issuer in 2007 and wonanaward forYen Bond of the Year (ZAR) market,delivering EUR 234m equivalent. TheBank from the International Financing Review. issued forthe first time in Ghanaian cedi (GHS) and Mauritian rupee (MUR),inbothcases providing top- In Australian dollars (AUD)the Bank wasthe largest foreign qualityalternatives forinvestors in markets with very (“Kangaroo”)issuer,raising atotal of AUD1.6bn (EUR 941m). limited supply.InMUR, the EIB wasthe first non-domes- It attractedinterest early in the year with two10-year issues. tic issuer and provided anew benchmarkfor the market. It also re-opened the Kangaroo sectorinSeptember,fol- IssuanceinBotswanan pula (BWP), GHS and MUR lowing the outbreak of severemarket turbulence, with a (EUR 77m in total) wasinsynthetic format, with payment shorter-datedAUD 500m transaction. TheEIB wasthe only and settlementinEUR. issuer thatmanaged to keep transaction sizes of around AUD500m in the Kangaroo market in the second half of 2007. Financial Report2007 13 EIB Group

“Theway to buy Europe” Snapshot of the EIB as an issuer

Joint EU sovereign ownership underpins top-class credit qualityand means EIB bonds canbeseen as “the waytobuy Europe”.

TheEIB is one of the largest and most frequentborrowers in the international capital markets.In2007 it issued atotal of EUR 55bn.

Ownership by all EU sovereigns means EIB bonds offer aunique and diversified sovereign-class investment.

TheBank has been consistently ratedAaa/AAA/AAA by Moody’s/Standard&Poors/Fitch.

TheBank’s strategic approach to markets involves astrong focus on liquidityand transparency. It therefore offers comprehensivebenchmarkprogrammes in the Bank’s three core currencies (EUR, GBP and USD). Where possible and appropriate,italso builds abenchmarkpresenceinother currencies.Italso conducts tailor-made issuanceacross awide range of currencies and products.

TheBank has historically contributed to the developmentofcapital markets in currencies of new and future EU Member States,and selectedEUpartner countries.Hereissuanceinlocal currencies can supportthe developmentoflending activities. EIB Group 14 Financial Report2007

Borrowings signed and raised in 2007(7) vs.2006 (EUR million)

Before swaps: Afterswaps: 2007 2006 2007 2006 EUR 20 531 37.5%17439 36.3%42766 78.1%31820 66.2% BGN (*) 28 0.1% CZK 18 0.04%180.04% DKK 134 0.2%235 0.5%134 0.2%235 0.5% GBP 11 023 20.1%8392 17.5%6123 11.2%3067 6.4% HUF 108 0.2%110 0.2%108 0.2%970.2% PLN 27 0.1%320.1%270.1%320.1% RON 90 0.2% SEK 893 1.6%309 0.6%403 0.7%309 0.6% Total EU 32 835 60%26535 55% 49 562 91%35577 74% AUD 941 1.7%1840 3.8% BGN (*) 102 0.2% CAD 659 1.2% CHF 445 0.8%703 1.5% HKD 101 0.2% ISK 261 0.5%501 1.0% JPY 2198 4.0%1277 2.7% NOK 196 0.4%424 0.9%630.1%880.2% NZD 1344 2.5%933 1.9% RUB 115 0.2% TRY 1097 2.0%1095 2.3% USD 14 400 26.3%14225 29.6%5099 9.3%12305 25.6% ZAR 234 0.4%312 0.7%800.2% Total non-EU 21 890 40%21515 45% 5162 9% 12 473 26%

Total 54 725 100%48050 100% 54 725 100%48050 100%

(*) Bulgaria joined the EU on 1January2007.

(7) Resourcesraised under the global borrowing authorisation givenbythe BoardofDirectors for2007, including ’pre-funding’ofEUR 77m completed in 2006 for2007. Financial Report2007 15 EIB Group

EIB TreasuryActivity

Liquidityand portfolio management EUR 19.7bn (EUR 10.5bn net of short-term commitments). Operational bond portfolios and the investmentportfolio As at 31 December 2007, the Bank’s overall net liquidity amountedtoEUR 4bn (EUR 4.5bn in 2006). Thebreak- amountedtoEUR 14.5bn (EUR 16.9bn at year-end 2006), down of treasurynet liquidityatyear-end wasstable in representing aliquidityratio of 26.4 %, above the mini- comparison with 2006: 72.5%(73.3%) forthe operation- mum liquidityrequirementof25%of the forecast net al money market portfolio,12.9%(12.6%) forthe opera- cash requirementfor the following calendar year.The tional bond portfolios and 14.6 %(14.1 %) forthe 2007 monthly average net global liquidityamountedto investmentbond portfolio. EUR 18.6bn, i.e.30% less than the 2006 level of EUR 26.4bn. On ayearly basis the average liquidityratio was29%,but it decreased sharply in the last twomonths of the year,mainly due to an acceleration of loan dis- Market developmentand treasury bursements,surpassing the disbursementforecast. financial result

Thecomponentportfolios of the operational treasurycan be described as follows: The2007 environmentwas extremely challenging forall investors,and the second half wasone of the most vola- • Ashort-term money market portfolio (A1), designed tile trading periods in recent memory. Therumblings in fordaily liquiditymanagementin13differentcurren- the US sub-prime mortgage market resulted by the end cies,whose benchmarks arebased on the indexofthe of the summer in afull-blown liquiditycrisis.Due to daily daily 1-month EURIBID/LIBID forassets and the index negativeheadlines and profit warnings by banks,market of the daily 1-month EURIBOR/LIBOR forliabilities. participants became extremely cautious and unwilling to lend to each other except forveryshortmaturities. • An operational money market portfolio (A2), designed to diversify the credit risk profile and enhancethe As aresult of this,market spreads widened enormously money market performanceinthe core currencies,i.e. and official EURIBOR and LIBOR fixings borelittle rele- EUR, GBP and USD,with abenchmarkindexedtothe vancetothe daily reality. Coordinatedcentral bank action daily 3-month EURIBID/LIBID. to provide extraliquiditytothe markets,mainly in the course of December,managed to ease pressureonmoney • Acredit spread portfolio (B1), designed to enhance market interest ratesaround the year-end. overall treasuryperformance, with abenchmarkindexedtothe daily 3-month EURIBOR/LIBOR. Allmarket participants reassessed credit and liquidityrisk. ABCP suffered by far the most in termsofvolume drop, • An alternativeinvestmentportfolio (B2), invested in spread widening and negativeheadlines.The ABS market capital guaranteed structured products with coupons wasalso impactedbyasystematic repricing of all struc- indexedtothe performanceofselectedfunds of tured credit risk;the European primaryABS market was hedge funds. mainly closed from the thirdquarterof2007 onwards, with the steady negativenewsflowabout the scope of the • Aglobal fixed-income portfolio (B3), with abench- sub-prime mortgage crisis preventing the market from markbased on the iBoxxEurozone 1to3-year Gov- reopening firmly,with originators reluctanttoissue at ernmentBond Index. these high spreads.

• An investmentbond portfolio,which is being phased While the ECB referencerate remained unchanged at 4% out. during the year,the Federal Reserve,mindful of the risks of recession to the US economy, cut its referencefed Short-term gross liquidityheld in the money market port- funds rate no less than three times during the course of folios decreased at year-end from EUR 20.8bn in 2006 to 2007, to arrive at an end-of-year level of 4.25%. EIB Group 16 Financial Report2007

Thetreasuryfinancial results can be considered satisfac- ket losses.Both of these portfolios invest in AAA-rated ABS tory against this background.The 30%fall in the average and highly-rated securities issued by financial institutions treasury holdings in 2007 vs.2006 resulted in areduction and,toasmall extent, corporates.Intotal,the unrealised in thefinancial income of the operational portfolios from losses included in the 2007 profit and loss account EUR 934.7m to EUR 720.9m (-23%). amountedtoEUR 16.7m. However, all of the portfolios had apositiveaccounting result,and none of the assets in Some portfolios,notably the credit spread portfolio B1 these portfolios were downgraded.Barring adefault by (5.2%oftreasuryassets at year-end) and to amuch lesser the issuers,these unrealised losses will be recovered at extent the medium-termmoney market portfolio A2 (7.5% maturity. Furthermore, earnings from the short-term port- of treasuryassets), were affectedbythe widening credit folio (72.5 %oftreasuryassets) morethan offset these spreads and their assets showedunrealised mark-to-mar- negativeresults. Financial Report2007 17 EIB Group

EIF StatutoryBodies

Thecomposition of the Fund’s statutorybodies,the curricula vitae of their members and additional information on the remuneration arrangements areregularly updatedand posted on the EIF’s website: www.eif.org. TheEIF is managed and administered by the following three authorities: • the General Meeting of all shareholders (EIB,European Commission, 31 financial institutions); • the BoardofDirectors; • the Chief Executive, Mr Francis CARPENTER.

BoardofDirectors

Chairman Philippe MAYSTADT President, European InvestmentBank,Luxembourg

Members Marc AUBERGER Directeur GénéralDélégué,CDC Capital Investissement Philippe de FONTAINE VIVE CURTAZ Vice-President, European InvestmentBank,Luxembourg Kurt Arne HALL DirectorGeneral,MinistryofFinance, International Department, Stockholm David McGLUE Director, Directorate forFinancial Operations,Programme Managementand Liaison with the EIB Group,Directorate-General forEconomic and Financial Affairs,European Commission, Luxembourg Ralph MÜLLER Ministerialrat, Leiter des ReferatsHaushalt der EU und der EIB Gruppe,Bundesministerium der Finanzen, Berlin Heinz ZOUREK Director-General,Directorate-General forEnterprise and Industry, European Commission, Brussels

Alternates Thomas HACKETT DirectorGeneral,Directorate forOperations in the European Union and Candidate Countries, European InvestmentBank,Luxembourg Rémy JACOB DirectorGeneral,Strategy and CorporateCentre, European InvestmentBank,Luxembourg Gaston REINESCH DirectorGeneral,MinistryofFinance, Luxembourg Isabel RIAÑOIBÁÑEZ General Directorfor International Finance, MinistryofEconomyand Finance, Spain Jean-Marie MAGNETTE Head of Unit,Liaison with EIB Group and New Financial Instruments,Economic and Financial Affairs Directorate-General,European Commission, Luxembourg Dirk AHNER Director-General,Directorate-General forRegional Policy, European Commission Detlef LEINBERGER Mitglied des Vorstandes,KfW Bankengruppe,Frankfurt/Main

Audit Board

Chairman Christian-Johann RÁKOS DirectorGlobal Financial Services,Bank Austria Creditanstalt,Vienna

Members Raimundo POVEDAANADÓN Former DirectorGeneral,Banking PolicyDirectorate,Bank of Spain, Madrid (retired in 2000) Tony MURPHY Head of Internal Audit Unit,European Commission, DG ECFIN

Situation at 10 March2008 EIB Group 18 Financial Report2007

EIF Activity

Signatures 2003-2007 While the EIF’s venturecapital instruments aim to improvethe equityenvironmentfor SMEs,itisequally im- 3000 portanttotarget the debt environment, as manySMEs 2500 seek financethrough this moretraditional route. By 2000 operating through guarantees and securitisation, the EIF can improvethe availabilityand termsofdebt forben- 1500 eficiarySMEs and the lending capacityoffinancial inter- 1000 mediaries. 500 In late 2007, the European Commission gave the EIF a 2003 2004 2005 2006 2007 mandate to manage aEUR 1.1bn facilityunder the Com- Guarantees Venturecapital petitiveness and Innovation FrameworkProgramme (CIP), which will cover the period 2007-2013. Itsobjec- tives will remain comparable to those of its predecessor TheEIF is the European body specialised in SME financing. MAP(the Multiannual Programme forEnterprise and It is owned by the EIB (66 %) and the European Union, Entrepreneurship 2001-2006), namely to generateeco- through the European Commission (25 %). It is also the nomic growth and create morejobs as well as boost only EU institution thatenables public or privatebanks productivity, competitiveness and innovation in the EU. and financial institutions (31 from 17 countries) to have a TheCIP,however,was designed to be amoreambitious shareholding (9 %). In 2007 the EIF welcomed four new programme,asitshould cover awider geographical area shareholders.The Croatian Bank forReconstruction and and will extend the range of instruments to include new Development(HBOR) became the EIF’s first shareholder in SME market segments and products (for example,mez- Croatia, evidenceofthe EIF’s continuing commitmentto zanine products). supporting economic developmentinthe region. Scottish Enterprise,Scotland’s main economic developmentagen- cy,Raiffeisen International Bank-Holding AG,the interna- Venturecapital operations tional armofexisting shareholder Raiffeisen Zentralbank Oesterreich AG (RZB), and NRW.BANK,the development bank forNorth Rhine-Westphalia, also joined in 2007. As shown in the chartabove,the level of EIF disbursements has been steadily increasing.The reduction in the With shareholders taking apositiveview of the EIF’s long- number of new signatures in 2007 can be explained by term prospects,itwas decided in 2007 to increase the the factthatthe CIP programme wasimplementedonly Fund’s capital by 50 %toEUR 3bn, therebyensuring its towardsthe end of 2007 and by the less satisfactory mar- financial self-sufficiencyuntil 2013. TheEIB,asthe largest ket conditions,which actedasaconstraintoninvestors, EIF shareholder,demonstrated its ongoing commitment while allowing the EIF to playasignificantrole in support- to supporting European SMEs by exercising its shareof ing new or repeatventurecapital operations. the capital increase in full. Even so,in2007 the EIF signed venturecapital agreements TheEIF supports SMEs by means of venturecapital and foroverEUR 521m (8),while total venturecapital commit- guaranteeinstruments,using either its ownfunds or ments amountedtoEUR 4.4bn at the end of the year.With those available through mandatesgiven to it by the EIB, investments in some 270 funds,the EIF remains aleading the European Union or other thirdparties.Complement- playerinEuropean venturecapital and small to mid-cap ing the EIB’s productoffering,which has hitherto focused funds.This is due not only to the scale and scope of its in- on traditional loan finance, the EIF thus has acrucial role vestments,but also to its catalytic role.Byapplying its ’qual- to playthroughout the value chain of enterprise creation, itystamp’tofunds by typically taking a10%to 20%stake, from the earliest stages of intellectual property develop- the EIF encourages commitments from awide range of in- mentthrough to mid-stage SME funds. vestors,particularly in the privatesector. In 2007, the Fund

(8) EIF activities areaccountedfor separately and not included in the EIB’s lending figures. Financial Report2007 19 EIB Group

VC Activity(in EUR m) GuaranteeActivity(in EUR m)

800 1800 700 1500 600 1200 500 400 900

300 600 200 300 100 0 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Signatures Disbursements Ownfunds EU mandates continued to broaden its investmentstrategy beyond EIF guaranteeoperations amountedtoEUR 1.4bn in 2007, early-stage funds by adding mid-stage funds and investing while the total guaranteeportfolio stood at EUR 11.6bn in technology transfer,with the objectiveoffacilitating the at year-end,comprising 190 transactions.Commitments commercialisation of research. of EUR 7.3bn were made using European Commission mandates.

As forventurecapital,the decline in activityisdue to the Portfolio guaranteeactivity factthatimplementation of the new EU CIP mandate did not startuntil towardsthe end of 2007. TheEIF offers twomain productlines forits SME guaranteeactivity: credit insuranceand credit enhancement.

TheEIF’s credit insuranceinvolves guaranteeorcounter- TheJointEuropean Resourcesfor Microto guaranteeschemes forportfolios of SME or microcredit Medium Enterprises (JEREMIE) initiative loans or leases,wherethe Fund takes up to 50 %ofthe credit risk of everyindividual loan or lease in the portfolio. Theeffectistoprovide loss mitigation capital relief to the TheEIF is not concerned solely with financing but also counterparty,thus creating scope forextending further with improving access to finance. ItsJEREMIE programme, SME loans. which improves SME access to the EU Structural Funds,is an importantnew area being developed on anationwide TheEIF credit enhancementactivitysupports the securi- or regional basis in several EU countries. tisation of SME loans and leases pooled by financial institutions in order to sell them on the capital markets .In During 2006 and 2007, JEREMIE conductedsome 40 gap 2007, EIF credit enhancementactivitybacked by ownre- analyses in 27 Member States.Implementation, i.e.the sourcesreached new levels in termsofboth volumes and developmentofprogrammes forSMEs supportedbythe number of deals,asthe EIF enteredintonew credit en- Structural Funds,isunder preparation in several countries. hancementtransactions foralmost EUR 1.4bn, spread Memoranda of Understanding have already been signed across alarge number of countries.Three of the EIF cred- with the SlovakRepublic and Bulgaria; the first JEREMIE it enhancementoperations in 2007 were jointoperations funding agreements were signed with GreeceinJune with the EIB as the senior investor. 2007 and Romania in February2008. EIB Group 20 Financial Report2007

Audit and Control

Audit Committee – TheAudit Committee is an independent Inspectorate General – TheInspectorate General forthe EIB statutorybody,appointedby, and answerable directly to, Group comprises three independentcontrol functions,to the BoardofGovernors.Incompliancewith formalities and which the Bank attaches greatimportance. procedures defined in the Statuteand Rules of Procedure, the Audit Committee’s role is to verify thatthe Bank’s opera- Internal audit.Cateringfor audit needs at all levels of man- tions have been conductedand its books kept in aproper agementofthe EIBGroup andactingwiththe guarantees manner and to obtain assuranceonthe effectiveness of the of independenceand of professional standards conferred internal controlsystems,risk managementand internal ad- upon it by its Charter, Internal Audit examines and evaluates ministration. TheAudit Committee has overall responsibility the relevanceand effectiveness of the internal controlsys- forthe auditing of the Bank’s accounts.The Committee pro- tems and the procedures involved.Itisalso finalising the vides statements each year on whether the financial state- introduction and maintenanceofaninternal controlframe- ments,aswell as anyother financial information contained work covering all key operational activities of the Group. in the annual accounts drawnupbythe BoardofDirectors, Action Plans agreed with the Bank’s departments areacata- give atrue and fair view of the financial position of the Bank, lyst forimproving procedures and strengthening controls. the EIB Group,the InvestmentFacilityand the FEMIP Trust Hence, Internal Audit reviewsand tests controls in critical Fund.The Governors take noteofthe statements by the banking,information technology and administrativeareas Committee and of the conclusions in the annual reports of on arotational basis using arisk-based approach. the Audit Committee when reviewing the Annual Reportof Ex post evaluation.Expost evaluations cover the EIB’s activi- the BoardofDirectors. ties and have been extended to the Group through the evaluation of the venturecapital activities of the EIF and an In fulfilling its role,the Committee meets with representa- interimevaluation of the FEMIP Trust Fund.The evaluation tives of the other statutorybodies,reviewsthe financial studies and reports enable the EIB Group to learnfrompast statements and accounting policies,takes noteofthe work experience. Ex post evaluations arepublished on the web- performed by the internal auditors,oversees and supervises siteofthe Bank (or EIF), therebycontributing to the transpar- the external auditors,safeguards the independenceand encyand accountabilityofthe EIB Group. integrityofthe external audit function, and coordinatesau- Fraud investigations.Under internal procedures to combat dit work in general.Regular meetings with the Bank services fraud,the InspectorGeneral has authoritytoconductinquir- andreviewsofinternal and external reports enable the Com- ies into allegations of possible fraud or corruption involving mittee to understand and monitor howManagementis EIB funds.The Bank mayalso call upon external assistance providing foradequate and effectiveinternal controlsys- or experts in accordancewith the requirements of the in- tems,risk managementand internal administration. quiry, and worksclosely with the services of the European Anti-Fraud Office(OLAF). In addition, the InspectorGeneral External Auditors – Theexternal auditors reportdirectly to provides,when required,anindependentrecourse mecha- the Audit Committee,which is empoweredtodelegate the nism forinvestigating complaints thatthe European Om- day-to-day work concerning the audit of the financial state- budsman considers to be outside his remit. ments to them. TheAudit Committee designatedthe firm Ernst &Young in 2004, afterconsultation with the Manage- ComplianceOffice – TheOfficeofthe Group Chief Compli- mentCommittee.The contract will expireonthe date on anceOfficer (OCCO)identifies the compliancerisk of anyof which the BoardofGovernors approves the 2008 financial the members of the EIB Group,assesses or advises on com- statements.The external auditors arenot allowedtocarry pliance-relatedquestions by expressing opinions or making out anyworkofanadvisorynatureoract in anyother ca- recommendations either upon request or on its owninitia- pacitythatcould compromise their independencewhen tive, monitors the risk and reports it.Morespecifically,OCCO performing their audit tasks.Asummaryofservices pro- is responsible forthe observanceofguidelines,policies and vided by the external auditors and the associatedfees is procedures adopted from time to time by the members of published each year by the Bank,inaccordancewith best the EIB Group on money laundering,fraud and terrorism and practice. actively promotes the complianceofthe members of the EIB Financial Report2007 21 EIB Group

Group with current best standards of good professional governanceissues.This structureensures thatthe overall practice, with the codes of conductand with compilations strategic and financial planning and reporting processes are of best practices. reviewed with the aim of coordinating the achievementof the Bank-wide objectives and ultimately thatthe results ManagementControl – Within the Strategy and Corporate achieved aremonitored.Key tools include the Corporate Centre Directorate,the Strategy,ManagementControl and Operational Plan, financial accounting and controlsystems, Financial ControlDepartmentbrings together the functions and the budget and associatedcontrol systems.Asuiteof responsible formanagementcontrol – namely strategy, integratedreports facilitatesevaluation of the financial situ- budget and associatedanalyses,partnership coordination, ation in relation to strategy,institutional and operational financial controland process improvement, plus European objectives and business plans.ManagementControl pro- CourtofAuditors relationship management – and integrates vides an opinion on internal proposals to the Management them with functions responsible formacroeconomic re- Committee thathaveastrategic,budgetary/financial,cor- search and corporateresponsibilitypolicies and corporate porateresponsibilityororganisational impact.

EIB Group – Financial Statements 23 EIB Group

EIB Group Financial Statements EIB Group 24 Financial Report2007 EIB Group – Financial Statements 25 EIB Group

ConsolidatedResults forthe Year

TheEIB Group balancesheet total increased slightly and Positiveimpacts: the profit to be appropriateddecreased during the year 2007. Theresult of the Group forthe reporting date stands • Thenet result of interest and similar income and at EUR 843 million, compared to an ordinaryconsolidated charges stands at EUR 1863 million for2007, i.e.a result of EUR 2260 million for2006, representing ade- positiveimpactonthe result of EUR 173 million (items crease of EUR 1416 million. It should be noted thatan 1and 2ofthe Income Statement – see NoteM). additional contribution from the sum released from the • General administrativeexpenses (see NoteQ)de- Fund forgeneral banking risks amounting to EUR 975 mil- creased, having apositiveimpactonthe result of lion produced afinal balanceonthe consolidatedprofit EUR 6million. This wasmainly due to areduction in and loss accountofEUR 3235 million forthe year ended expenses relating to the Group’s defined-benefit 31 December 2006. post-employmentschemes under IAS 19, as compared with 2006. Themain contributing factors influencing the con- solidatedresult either positively or negatively areas • Allother profit and loss items gave rise to an overall follows: net increase of EUR 30 million.

Negativeimpacts:

• Theresult on financial operations,which mainly comprises the net results on derivatives,loans and borrowings,with application of the fair value option under IAS 39, decreased by EUR 1393 million (see NoteN). Themajor impactisthe decrease relatedtoborrowings designatedatfair value and their relatedswaps forEUR 1295 million. This decrease mainly stems from the widening of credit spreads in the capital markets as aconsequenceofthe flighttoqualitythattook placeafter the sub-prime crisis.Indeed,the market priceofEIB bonds decreased much less than the market priceofthe associatedhedging swaps,generating an unrealised book loss.Ofcourse,sincethe intention of the Group is to hold these financial instruments until maturity, it is expectedthatthis book loss will be neutralised when the cash flows of the bonds and the hedging swaps areunwound. • Thecredit loss expense,together with the movements in the specific provision forcredit risk,resulted in aloss of EUR 17 million, compared with aprofit of EUR 102 million in 2006, anegativeimpactofEUR 120 million. • Theimpairmentlosses on shares and other variable- yield securities resulted in anegativeimpactof EUR 113 million (see NoteE). EIB Group 26 Financial Report2007

Consolidatedbalancesheet as at 31 December 2007 (in EUR ’000)

Assets 31.12.2007 31.12.2006

1. Cash in hand,balances with centralbanks and post officebanks 27 318 14 676 2. Treasurybills eligible forrefinancing with centralbanks (NoteB) 2273 135 2701 696 3. Loans and advances to credit institutions a) repayable on demand 286 263 209 752 b) other loans and advances (NoteC) 15 816 580 14 598 326 c) loans (NoteD) 112 323 909 115 846 949 128 426 752 130 655 027 4. Loans and advances to customers a) loans (NoteD) 156 435 308 141 770 309 b) specific provisions (NoteD) -37050 -82417 156 398 258 141 687 892 5. Debt securities including fixed-income securities (NoteB) a) issued by public bodies 580 386 719 292 b) issued by other borrowers 10 435 661 10 572 110 11 016 047 11 291 402 6. Shares and other variable-yield securities (NoteE) 2078 830 1671 533 7. Intangible assets (NoteF) 3972 5131 8. Property,furnitureand equipment(NoteF) 285 720 219 884 9. Other assets a) sundrydebtors (NoteH) 145 445 248 683 b) positivereplacementvalues (Notes Q, S, U) 9060 783 8782 117 9206 228 9030 800 10. Subscribed capital and receivable reserves called but not paid (NoteX) 1061 503 1444 700 11. Prepayments and accrued income 30 658 80 726

Total Assets 310 808 421 298 803 467

Theaccompanying notes form an integralpartofthese consolidatedfinancial statements EIB Group – Financial Statements 27 EIB Group

Liabilities 31.12.2007 31.12.2006

1. Amounts owed to credit institutions (NoteI) a) with agreed maturitydates or periods of notice 341 757 218 967 341 757 218 967 2. Debts evidenced by certificates(NoteJ) a) debt securities in issue 259 280 003 251 742 473 b) others 892 400 1090 202 260 172 403 252 832 675 3. Other liabilities a) sundrycreditors (NoteH) 1429 085 1311 427 b) sundryliabilities (NoteH) 37 457 39 739 c) negativereplacementvalues (Notes Q, S, U) 12 945 900 9903 281 14 412 442 11 254 447 4. Accruals and deferredincome (NoteG) 270 724 344 285 5. Provisions a) Pension plans and health insurancescheme (NoteK) 1038 545 945 254 1038 545 945 254

Total Liabilities 276 235 871 265 595 628

6. Capital (NoteX) -Subscribed 164 808 169 163 653 737 -Uncalled -156 567 760 -155 471 050 8240 409 8182 687 7. Consolidatedreserves a) reserve fund 16 480 817 16 365 374 b) additional reserves 6067 178 2511 342 22 547 995 18 876 716 8. Funds allocatedtostructured financefacility 1250 000 1250 000 9. Funds allocatedtoventurecapital operations 1690 940 1663 824 10. Profit forthe financial year: Before appropriation from Fund forgeneral banking risks 843 206 2259 612 Appropriation forthe year from Fund forgeneral banking risks (NoteL) 0975 000 Profit to be appropriated 843 206 3234 612

Total Equity 34 572 550 33 207 839

Total Liabilities &Equity 310 808 421 298 803 467 EIB Group 28 Financial Report2007

Consolidatedincome statement forthe year ended 31 December 2007 (in EUR ’000)

31.12.2007 31.12.2006

1. Interest and similar income (NoteM) 14 051 950 13 521 846 2. Interest expense and similar charges (NoteM) -12188 607 -11831 731 3. Income from shares and other variable-yield securities 68 247 29 869 4. Feeand commission income (NoteP) 85 924 89 298 5. Feeand commission expense (NoteP) -1842 -589 6. Result on financial operations (NoteN) -676 792 716 303 7. Other operating income (NoteO) 26 526 28 881 8. General administrativeexpenses (NoteQ) -365 980 -372 156 a) staff costs (NoteK) -280 100 -298 220 b) other administrativecosts -85880 -73936 9. Depreciation and amortisation (NoteF) -20027 -18257 a) intangible assets -2984 -3250 b) tangible assets -17043 -15007 10. Credit loss expense -17465 102 191 11. Impairmentlosses on shares and other variable-yield securities (NoteE) -118 728 -6043 12. Profit forthe period 843 206 2259 612 13. Transfer from (+) /to(-) the fund forgeneral banking risks (NoteL) 0 975 000 14. Profit to be appropriated 843 206 3234 612

Theaccompanying notes form an integralpartofthese consolidatedfinancial statements. EIB Group – Financial Statements 29 EIB Group 0 0 ted unds nf ions. 02 659 59 612 90 851 230 654 nsolida at ow 22 co tal mber 2006. To ce his capital increase, De apital oper 02 02 re ar fo ye ec eoft be 59 612 59 612 46 884 59 612 33 207 839 46 884 30 745 568 843 206 843 206 entur 22 22 12 22 12 fit of the appropriation ro dtov onsequenc te ac 000 000 00 0- 000 0- As ve ser re nds alloca 202 659 290 851 mania. sP Fu Ro ve he ser he amounts outstanding as of 31 re rt stot fo ve 09 her AFS ser ditional Ot 55 50 000 34 612 27 116 Ad Re 53 816 357 526 01 423 154 867 18 801 648 377 843 206 34 572 550 686 884 es: Bulgaria and -2 32 21 17 54 Stat ditional Ad mber 01 0- he Me fund mt ve isions (EUR’000 172 932) ew ro 115 443 57 489 ov on df Pr Reser tw re neral Ge 00 00 09 dto ions nd butions of apital te at ri 55 sa ca 27 116 ec 63 824 16 365 374 79 333 16 365 374 90 940 16 480 817 nt -1 ve ur oper co 16 16 16 nt ser ve nds allo Re Fu he wn funds 000 dto eoft mber 2006 has been transfer virtue of the cility nance te ce Fa Fi by ca 50 000 250 000 do De 250 000 12 ured 31 ct nds allo te at ru Fu St ions 000 01 at eneral 75 000 60 000 500 000 rg fo -9 EUR’000 164 808 169, nd to apital oper ments. Fu nsolida banking risks (**) te ec ur nt co ve pital ca inancial sta 096 710 df llable -1 55 471 050 975 000 56 567 760 55 471 050 915 000 500 000 te Ca -1 -1 -1 aid-in capital (EUR’000 57 722), and also their shar nsolida 00 0000 000 0000000 00000000 00 0000 0000000 00000000 eofP co pital lue adjustments on ca va 54 432 hese Subscribed 11 ements in their shar toft 163 653 737 164 808 169 163 653 737 to ar ov lp buted ar profit. ri tegra (*) sulting from the ye mber 2007 (in EUR ’000) ves nt re (***) profit profit nt co ce ves ves ser an in ’s ’s re es re ar ar 007 De ser ser rm ye ye re re tofm fo Stat y2 ar ar lue lue 007, the subscribed capital increased from EUR’000 163 653 737 ye ye mber UR’000 27 116 va va y2 Me ar ar men tofE additional additional ye ye ew ar ended 31 anuar to to appropriation of cur on ye mpanying notes 1J bution of Bulgaria and re tw amoun ri at fo cco ate he 31 December 2006 31 December 2007 propriation of prior propriation of prior 31 December 2005 nt mania as of Januar As Be the An ansfer ansfer from additional ansfer rt ea Ap Tr Tr Changes in fair during the Net profit of the At Co Ro Ap Tr Changes in fair during the Net profit of the At At fo St Th (***) (**) (*) EIB Group 30 Financial Report2007

ConsolidatedCash Flow Statement as at 31 December 2007 In EUR ’000

31.12.2007 31.12.2006 A. Cash flows from operating activities: Profit forthe financial year 843 206 2259 612 Adjustments: Unwinding of the discountrelating to capital and reserve called,but not paid in -45663 -61508 Allowancetoprovision forguarantees issued 0-30 969 Depreciation and amortisation on tangible and intangible assets 20 027 18 257 Impairmentlosses on venturecapital operations 118 728 12 190 Decrease/Increase in accruals and deferredincome -73561 10 493 Decrease/Increase in prepayments and accrued income 57 845 -34009 Investmentportfolio amortisation -17454 -18180 Changes in replacementvalues on derivatives others than those associatedwith borrowings and loans -1526 786 -272 582 Profit on operating activities -623 658 1883 304 Net loans disbursements -39910 416 -35391 121 Repayments 19 984 413 21 143 605 Effects of exchange rate changes on loans 8104 408 3778 695 Increase in prepayments and accrued income on loans -219 593 -72258 Adjustmentofloans (fair value option) 899 229 1268 470 Changes in replacementvalues on derivatives associatedwith loan -777 549 -1323 349 Decrease/Increase in operational portfolio 1090 330 -7200 Increase in venturecapital operations -153 690 -160 886 Impairmentlosses on loans and advances -45367 -210 083 Increase in shares and other variable-yield securities -49207 -29913 Decrease/Increase in other assets 103 238 -67359 Increase/Decrease in other liabilities 213 740 -140 234 Net cash from operating activities -11384 122 -9328 329 B. Cash flows from investing activities: Securities matured during the year 328 790 444 272 Purchases of securities 0-323 639 Increase in asset backed securities -1995 637 -943 224 Purchase of property,furnitureand equipment -82879 -54778 Purchase of intangible fixed assets -1825 -2235 Net cash from investing activities -1751 551 -879 604 C. Cash flows from financing activities: Issue of borrowings 54 678 538 45 549 825 Redemption of borrowings -35348 649 -39904 317 Effects of exchange rate changes on borrowings and swaps -8408 498 -4709 148 Adjustments of borrowings (fair value option) -553 677 -6299 275 Changes in replacementvalues on derivatives associatedwith borrowings 1368 022 4302 267 Decrease/Increase in accrual and deferredincome on borrowings and swaps 157 800 -253 792 Paid in by Member States 630 824 300 996 Increase/Decrease in commercial paper 514 480 -207 278 Increase/Decrease in amounts owed to credit institutions 122 790 -174 081 Net cash from financing activities 13 161 630 -1394 803 EIB Group – Financial Statements 31 EIB Group

Summarystatementofcash flows: Cash and cash equivalents at beginning of financial year 18 296 391 29 899 127 Net cash from: (1) operating activities -11384 122 -9328 329 (2) investing activities -1751 551 -879 604 (3) financing activities 13 161 630 -1394 803 Cash and cash equivalents at end of financial year 18 322 348 18 296 391 Cash analysis: Cash in hand,balances with centralbanks and post officebanks 27 318 14 676 Bills maturing within three months of issue 2192 187 3473 637 Loans and advances to credit institutions: Accounts repayable on demand 286 263 209 752 Term deposit accounts 15 816 580 14 598 326 18 322 348 18 296 391

Theaccompanying notes form an integralpartofthese consolidatedfinancial statements. EIB Group 32 Financial Report2007

European InvestmentBank Group Notes to the consolidatedfinancial statements as at 31 December 2007

NoteA–Significantaccounting policies Bank and arepresentedunder item 6. Result on financial operations in the consolidatedincome statementand under item 3. Other liabilities -b)sundrycreditors (Note A.1. Basis of preparation A.4.21) in the consolidatedbalancesheet.

Statementofcompliance Assets held in an agencyorfiduciarycapacityare not assets of the Group and arereportedinNoteW. TheEuropean InvestmentBank (the “Group”)consolidatedfinancial statements (the “Financial Statements”) A.2. Significantaccounting judgements and estimates have been prepared in accordancewith international financial reporting standards (IFRS), as endorsed by the European Union. In preparing the Financial Statements,the Management Committee is required to make estimatesand assump- Theaccounting policies applied areinconformity, in all tions thataffectreportedincome,expenses,assets,liabil- material respects,with the general principles of the ities and disclosureofcontingentassets and liabilities. Directive86/635/EEC of the Council of the European Useofavailable information and application of judge- Communities of 8December 1986 on the annual accounts mentare inherentinthe formation of estimates. Actual and consolidatedaccounts of banks and other financial results in the futurecould differ from such estimatesand institutions,asamended by Directive2001/65/EC of 27 the differences maybematerial to the Financial State- September 2001 and by Directive2003/51/EC of 18 June ments. 2003 on the annual and consolidatedaccounts of certain types of companies,banks and other financial institutions Themost significantuse of judgements and estimates and insuranceundertakings (the “Directives”). However, areasfollows: the Financial Statements do not include anymanagement report. TheGroup prepares an ActivityReportwhich Fair value of financial instruments is presentedseparately from the Financial Statements and its consistencywith the Financial Statements is not Wherethe fair values of financial assets and financial li- audited. abilities recorded on the balancesheet cannot be derived from activemarkets,they aredetermined using avariety Basis of consolidation of valuation techniques thatinclude the use of mathe- matical models.The input to these models is taken from TheFinancial Statements comprise those of the European observable markets wherepossible,but wherethis is not InvestmentBank (the“Bank”or the“EIB”)having its regis- feasible,adegreeofjudgementisrequired in establishing teredofficeat100, boulevardKonrad Adenauer and those fair values.The judgements include considerations of of its subsidiary, the European InvestmentFund (the liquidityand model inputs such as correlation and volatil- “Fund” or the “EIF”), having its registered officeat43, av- ityfor longer datedderivatives. enue J.F. Kennedy,Luxembourg. Thefinancial statements of the Fund areprepared forthe same reporting year as Impairment losses on loans and advances the Bank,using consistentaccounting policies. TheGroup reviewsits problem loans and advances at Afteraggregation of the balancesheets and income each reporting date to assess whether an allowancefor statements,all intra-group balances,transactions,income impairmentshould be recorded in the consolidatedin- and expenses resulting from intra-group transactions are come statement. In particular,judgementbymanage- eliminated. mentisrequired in the estimation of the amountand timing of futurecash flows when determining the level The Bank holds 65.78%(2006: 61.20%) of the subscribed of allowancerequired. capitalofthe EIFand thereforehas appliedthe principles pronounced by IAS 27 in preparing consolidatedfinancial Such estimatesare based on assumptions about a statements.Hence, the Group combines the financial number of factors and actual results maydiffer,resulting statements of the EIB and the EIF line by line by adding in futurechanges to the allowance. In addition to spe- together like items of assets,liabilities,equity, income and cific allowanceagainst individually significantloans and expenses. advances,the Bank also makes acollectiveimpairment test on exposures which, although not specifically iden- Minorityinterests representthe portion of profit or loss tified as requiring aspecific allowance, have agreater risk and net assets not owned,directly or indirectly,bythe of default than when originally granted. EIB Group – Financial Statements 33 EIB Group

Valuation of unquoted equityinvestments They did howevergiverise to additional disclosures,including in some cases,revisions to accounting policies. Valuation of unquoted equityinvestments is normally based on one of the following: • IFRS 7Financial Instruments: Disclosures • IAS 1Amendment-Presentation of Financial State- • recent arms length market transactions; ments • current fair value of another instrumentthatissub- • IFRIC 9ReassessmentofEmbedded Derivatives stantially the same; • IFRIC 10 InterimFinancial Reporting and Impairment. • the expectedcash flows discountedatcurrent rates applicable foritems with similar termsand risk char- Theprincipal effects of these changes areasfollows: acteristics; or • other valuation models. IFRS 7Financial Instruments: Disclosures:

Thedetermination of the cash flows and discountfactors This standardrequires disclosures thatenable users of the forunquoted equityinvestments requires significantesti- Financial Statements to evaluate the significanceofthe mation. TheGroup calibrates the valuation techniques pe- Group’s financial instruments and the natureand extent riodically and tests them forvalidityusing either prices from of risks arising from those financial instruments.The new observable current market transactions in the same instru- disclosures areincluded throughout the financial statement or from other available observable market data. ments.While therehas been no effectonthe financial position or results,comparativeinformation has been As at 31 December 2007, therewerenodifferences be- revised whereneeded. tween the transaction priceatinitial recognition and the fair value thatwould be determined at thatdateusing IAS 1Presentation of Financial Statements: the valuation technique mentioned above. This amendmentrequires the Group to make new disclo- Impairment of equityinvestments sures to enable users of the financial statements to evalu- atethe Group’s objectives,policies and processes for TheGroup treats available-for-sale equityinvestments as managing capital.These new disclosures areshown in impaired when therehas been asignificantorprolonged NoteX.3. decline in the fair value belowits cost or whereother objectiveevidenceofimpairmentexists.The determination IFRIC 9Reassessment of Embedded Derivatives: of whatis“significant”or“prolonged”requires judgement. TheGroup treats “significant” generally as 20 %ormore IFRIC 9statesthatthe date to assess the existenceofan and “prolonged” greaterthan 6months.Inaddition, the embedded derivativeisthe date thatanentityfirst be- Group evaluatesother factors,including normal volatility comes aparty to the contract,with reassessmentonly if in shareprice forquoted equities and the futurecash flows thereisachange to the contract thatsignificantly modi- and the discountfactors forunquoted equities. fies the cash flows.

Pension and other post employment benefits IFRIC 10 Interim Financial Reporting and Impairment:

Thecost of defined benefit pension plans and other post TheGroup adopted IFRIC Interpretation 10 as of 1Janu- employmentmedical benefits is determined using actu- ary2007, whichrequires thatanentitymust not reverse arial valuations.The actuarial valuation involves making an impairmentloss recognised in aprevious interimpe- assumptions about discountrates, expectedratesofre- riod in respectofgoodwill or an investmentineither an turnonassets,future salaryincreases,mortalityratesand equityinstrumentorafinancial asset carried at cost. futurepension increases.Due to the long term natureof these plans,such estimatesare subjecttosignificantun- Standards issued but not yeteffective: certainty. Thefollowing IFRS and IFRIC interpretations were issued with an effectivedatefor financial periods beginning on A.3. Changes in accounting policies or after1January2008. TheGroup has chosen not to early adopt these standards and interpretations before Theaccounting policies adopted areconsistentwith their effectivedates. those of the previous financial year except as follows: IFRS 8Operating Segments: TheGroup has adopted the following new and amended IFRS and IFRIC interpretations during the year.Adoption This standardistobeapplied forannual periods beginning of these revised standards and interpretations did not on or after1January2009. This standardrequires disclo- have anyeffectonthe financial performanceorposition sureofinformation about the Group’s operating segments of the Group. and replaced the requirementtodetermine primaryand EIB Group 34 Financial Report2007

secondaryreporting segments of the Group.The Group TheGroup conducts its operations in euro, in the other cur- plans to adopt this standardatits effectivedate. rencies of the Member States and in non-EU currencies.

IFRIC 14 IAS 19 – TheLimit on aDefined Benefit Asset, Itsresourcesare derived from its capital,borrowings and Minimum Funding Requirements and their Interaction: accumulatedearnings in various currencies and areheld, invested or lentinthe same currencies. This interpretation is to be applied forannual periods beginning on or after1January2008. Theinterpretation ad- Foreigncurrencytransactions aretranslated, in accord- dresses howtoassess the limit under IAS 19 Employee ancewith IAS 21, at the exchange rate prevailing on the Benefits,onthe amountofthe surplus thatcan be recog- date of the transaction. nisedasanasset,inparticular,when aminimum funding requirementexists.The Group plans to adopt this interpre- Monetaryassets and liabilities denominatedincurrencies tation at its effectivedateoratthe date of endorsement other than in euroare translatedintoeuroatthe ex- by the European Union, if later, and does not anticipate change rate prevailing at the balancesheet date.The gain anysignificantimpacts on its financial statements. or loss arising from such translation is recorded in the consolidatedincome statement. IAS 23 – Amendment – Borrowing costs: Non-monetaryitems thatare measured in termsofhis- This standardistobeapplied forannual periods begin- torical cost in aforeigncurrencyare translatedusing the ning on or after1January2009. This amendmentelim- exchange ratesatthe datesofthe initial transactions. inatesthe option of expensing all borrowing costs and Non-monetaryitems measured at fair value in aforeign requires borrowing costs to be capitalized if they aredi- currencyare translatedusing the exchange ratesatthe rectly attributable to the acquisition, construction or pro- date when the fair value wasdetermined. duction of aqualifying asset.Accordingly,borrowing costs will be capitalized on qualifying assets with acom- Exchange differences on non-monetaryfinancial assets mencementdateafter 1January2009. TheGroup plans areacomponentofthe change in their fair value.De- to adopt this revised standardatits effectivedateorat pending on the classification of anon-monetaryfinancial the date of endorsementbythe European Union, if later, asset,exchange differences areeither recognized in the and does not anticipate anysignificantimpacts on its income statementorwithin the equityreserves. financial statements. Exchange differences arising on the settlementoftrans- IAS 27R – Consolidated Financial Statements: actions at rates differentfromthose at the date of the transaction, and unrealised foreignexchange differences This standardisapplicable forannual periods beginning on unsettled foreigncurrencymonetaryassets and liabil- on or after1July 2009 and must be adopted simultane- ities,are recognized in the consolidatedincome state- ously with the adoption of IFRS 3R. Therevised IAS 27 will ment. requireentities to accountfor changes in the ownership of asubsidiary, which does not result in the loss of con- Theelements of the consolidatedincome statementare trol,asanequitytransaction and thereforewill not give translatedintoeuroonthe basis of the exchange rates rise to again or loss in income.Inaddition losses incurred prevailing at the end of each month. by asubsidiarywill be required to be allocatedbetween the controlling and non-controlling interests,evenifthe A.4.2. Derivatives losses exceed the non-controlling equityinvestmentin the subsidiary. Finally on loss of controlofasubsidiary, Allderivativeinstruments of the Group aremeasured at entities will be required to re-measuretofair value any fair value through profit and loss accountonthe con- retained interest,which will impactthe gain or loss rec- solidatedbalancesheet and arereportedaspositiveor ognised on the disposal linked to the loss of control. The negativereplacementvalues.Fair values areobtained Groupplans to adopt this revised standardatits effective from quoted market prices,discountedcash flowmodels date or at the date of endorsementbythe European Un- and option pricing models,which consider current mar- ion, if laterand does not anticipate anysignificantim- ket and contractual prices forthe underlying instrument, pacts on its financial statements. as well as time value of money,yield curve and volatility of the underlying.

A.4. Summaryofsignificantaccounting policies TheGroup uses derivativeinstruments mainly forhedg- ing market exposureonborrowings and lending transac- A.4.1. Foreign currencytranslation tions,and also as partofits asset and liabilitymanagement activities to manage exposures to interest rate and for- TheFinancial Statements arepresentedineuro(EUR), as eigncurrencyrisk,including exposures arising from fore- the functional currencyand the unit of measurefor the cast transactions.The Group applies the amended Fair capital accounts and forpresenting its Financial State- Value Option of IAS 39 when balancesheet items,to- ments. gether with one or morederivativetransactions meet the EIB Group – Financial Statements 35 EIB Group

eligibilitycriteriaofthe amended Fair Value Option, more Fees earned from services thatare provided over acertain in particular when asignificantreduction of the account- period of time arerecognised on an accrual basis over the ing mismatchisthus obtained. serviceperiod.Fees earned from providing transaction- type services arerecognized when the servicehas been TheGroup currently does not use anyofthe hedge ac- completed.Fees or components of fees thatare perform- counting possibilities available under IAS39. ancelinked arerecognized when the performancecriteria arefulfilled.Issuancefees and redemption premiums or Themajorityofthe Group’s swaps areconcluded with a discounts areamortised over the period to maturityof view to hedging specific bond issues.The Group enters the relatedborrowings,unless those borrowings are into currencyswaps,inwhich, at inception, the proceeds measured at fair value,inwhich case the recognition in of aborrowing areconverted into adifferentcurrency, the consolidatedincome statementisimmediate. mainly as partofits resource-raising operations and, thereafter, the Group will obtain the amounts needed to A.4.6. Securities lending servicethe borrowing in the original currency. In April2003, the Group signed an agreementfor secur- Macro-hedging swaps used as partofasset/liabilityman- ities lending with NorthernTrust Global Investmentact- agementare marked to market (fair value) using internal ing as an agenttolend securities from the Investment valuation models.Ingeneral,derivativeinstruments Portfolio,B1“Credit Spread”portfolio and B3“Global Fixed transactedaseconomic hedges aretreated in the same income”portfolio. wayasderivativeinstruments used fortrading purposes, i.e.realized and unrealized gains and losses arerecog- Securities lentare recorded at the amountofcash col- nized in Result on financial operations.Accrued interest lateralreceived,plus accrued interest.Securities received on derivatives is partofthe fair value recorded in the con- as collateralunder securities lending transactions arenot solidatedincome statementand in the consolidatedbal- recognized in the consolidatedbalancesheet unless con- ancesheet. trol of the contractual rights thatcomprise these securities received is gained.Securities lentunder securities Aderivativemay be embedded in a “host contract”.Such lending transactions arenot derecognised from the con- combinations areknown as hybrid instruments and arise solidatedbalancesheet unless controlofthe contractual predominantly from the issuanceofcertain structured rights thatcomprise these securities transferredisrelin- debt instruments.Ifthe host contract is not carried at fair quished.The Group monitors the market value of the value with changes in fair value reportedinthe consoli- securities lentonadaily basis and provides or requests datedincome statement, the embedded derivativeis additional collateralinaccordancewith the underlying separated from the host contract and accountedfor as a agreement. stand-alone derivativeinstrumentatfair value if,and only if,the economic characteristics and risks of the embedded Fees and interest received or paid arerecorded as interest derivativeare not closely relatedtothe economic charac- income or interest expense,onanaccrual basis. teristics and risks of the host contract and the embedded derivativeactually meets the definition of aderivative. A.4.7. Treasurybills and other bills eligible forrefinancing with centralbanks and debt securities includ- A.4.3. Financial assets ing fixed-income securities and other variable-yield securities Financial assets areaccountedfor using the settlement date basis. With aview to clarifying managementofits liquid assets and consolidating its solvency, the Group has established A.4.4. Cash and Cash Equivalents the following portfolio categories:

TheGroup defines cash equivalents as short-term,highly A.4.7.1. Held for trading portfolio liquid securities and interest-earning deposits with original maturities of 90 days or less. Theheld fortrading portfolio (see Operational portfolio B3 in NoteB)comprises listed debt securities issued and A.4.5. Feeincome guaranteed by financial establishments,which areowned by the Group (“long” positions). Securities held in this TheGroup earns feeincome from adiverse range of serv- portfolio aremarked to market in the consolidatedbal- ices it provides to its customers.Fee income can be ancesheet,any gain or loss arising from achange in fair divided into twobroad categories: value being included in the consolidatedincome statementinthe period in which it arises. • income earned from services thatare provided over acertain period of time,for which customers aregen- Gains and losses realized on disposal or redemption and erally billed on an annual or semi-annual basis,and unrealized gains and losses from changes in the fair value • income earned from providing transaction-type of trading portfolio assets arereportedasNet trading services. income in the account “Result on financial operations”. EIB Group 36 Financial Report2007

Interest income on trading portfolio assets is included in Committee determines the appropriate classification of interest income. its investments at the time of the constitution of aportfolio,financial instruments within one portfolio have al- Thedetermination of fair values of trading portfolio as- ways the same classification. Available-for-sale financial sets is based on quoted market prices in activemarkets investments maybesold in response to or in anticipation or dealer pricequotations,pricing models (using assump- of needs forliquidityorchanges in interest rates, credit tions based on market and economic conditions), or man- quality, foreignexchange ratesorequityprices. agement’sestimates, as applicable. Available forsale financial investments arecarried at fair A.4.7.2. Held-to-maturityportfolio value.They areinitially recognised at fair value plus transaction costs.Unrealised gains or losses arereported Theheld-to-maturityportfolio comprises the Group’s In- in consolidatedreservesuntil such investmentissold, vestmentportfolio and the operational portfolio A1 of EIB collectedorotherwise disposed of,oruntil such invest- (see NoteB). mentisdetermined to be impaired.Ifanavailable for sale investmentisdetermined to be impaired,the cumu- TheInvestmentportfolio consists of securities purchased lativeunrealised gain or loss previously recognised in with the intention of holding them to maturity. These se- ownfunds is included in consolidatedincome statement curities areissued or guaranteed by: forthe period.Afinancial investmentisconsidered impaired if its carrying value exceeds the recoverable • Governments of the European Union, G10 countries amount. Quoted financial investments areconsidered and their agencies; impaired if the decline in market pricebelowcost is of • Supranational public institutions,including multi- such amagnitude thatrecoveryofthe cost value cannot national developmentbanks. be reasonably expectedwithin the foreseeable future. Fornon-quoted equityinvestments,the recoverable These securities areinitially recorded at the purchase amountisdetermined by applying recognized valuation price, or moreexceptionally the transfer price. Thediffer- techniques. encebetween entryprice and redemption value is amortised proratatemporis over the remaining lifeofthe Financial assets arederecognised when the righttore- securities. ceivecash flows from the financial assets have expired or wherethe Group has transferredsubstantially all risks and TheGroup has decided to phase out the investmentport- rewardsofownership.Ondisposal of an available forsale folio of the Bank,byceasingtoinvest the redemption investment, the accumulatedunrealised gain or loss in- proceeds of matured securities in the portfolio. cluded in ownfunds is transferredtoconsolidatedin- come statementfor the period.Gains and losses on TheOperational portfolios A1 of the Group areheld for disposal aredetermined using the average cost method. the purposeofmaintaining an adequate level of liquidity Interest and dividend income on available-for-sale finan- in the Group and comprise money market products with cial investments areincluded in “interest and similar in- amaximum maturityoftwelvemonths,inparticular, come” and “income from securities with variable yield”. treasurybills and negotiable debt securities issued by Interest on available-for-sale debt securities and other credit institutions.The securities areheld until their final fixed income securities calculatedusing the effectivein- maturityand presentedinthe Financial Statements at terest method is recognised in the income statement. their amortized cost. Dividends on equityinvestments arerecognised in the income statementwhen the Group’s righttoreceivepay- TheAsset Backed Securities portfolio mainly consists of mentisestablished. obligations in the form of bonds,notes or certificatesissued by aSpecial Purpose Vehicle (SPV)oratrust vehicle. Thedetermination of fair values of available forsale These securities areclassified as held to maturityand re- financial investments is generally based on quoted mar- corded at purchase price. Value impairments areaccount- ket ratesinactivemarkets,dealer pricequotations, ed for, if these areother than temporary. discountedexpectedcash flows using market ratescom- mensuratewith the credit qualityand maturityofthe A.4.7.3. Available for sale portfolio investmentorbased upon review of the investee’s financial results,condition and prospects including compari- Theavailable forsale portfolio comprises the securities of sons to similar companies forwhich quoted market the operational money market portfolio A2 and of the prices areavailable. operational bond portfolios B1 and B2 (see NoteB), the operational portfolio of the Fund,shares,other variable- Venturecapital operations and participating interests yield securities and participating interests (see NoteB). held representmedium and long-terminvestments and Securities areclassified as available forsale wherethey aremeasured at fair value,byusing fair value measure- do not appropriately belong to one of the other catego- menttechniques including entityinputs,inabsenceof ries of financial instruments recognised under IAS 39, i.e. liquid market prices,commonly used by market partici- “held fortrading”or“held-to-maturity”.The Management pants.However,some areaccountedfor at cost when the EIB Group – Financial Statements 37 EIB Group

fair value cannot be reliably measured.The natureof A.4.8.1. Interest on loans those investments is such thatanaccuratefair value can be determined only upon realization of those invest- Interest on loans originatedbythe Group is recorded in ments.The estimation by the Group of afair value for the consolidatedincome statement(interest and similar venturecapital investments forwhich the method and income) and on the consolidatedbalancesheet (loans timing of realization have not yetbeen determined is and advances) on an accruals basis. thereforeconsidered to be inappropriate in those in- stances.All venturecapital operations aresubjecttore- A.4.8.2. Reverse repurchase andrepurchase operations view forimpairment. (reverse repos andrepos)

TheGroup assesses at each balancesheet date whether Areverse repurchase (repurchase) operation is one under thereisany objectiveevidencethatafinancial asset or a which the Group lends (borrows)liquid funds to (from) a group of financial assets is impaired.Afinancial asset or credit institution which provides (receives) collateralin agroup of financial assets is deemed to be impaired if, the form of securities.The twoparties enterintoanir- andonlyif, thereisobjective evidenceofimpairmentas revocable commitmenttocompletethe operation on a aresult of one or moreeventsthathas occurredafter the date and at aprice fixed at the outset. initial recognition of the asset (an incurred “loss event”) andthatloss event(or events) has an impactonthe esti- Theoperation is based on the principle of deliveryagainst matedfuturecash flows of the financial asset or the group payment: the borrower(lender) of the liquid funds trans- of financial assets thatcan be reliably estimated. fers the securities to the Group’s (counterparty’s)custodian in exchange forsettlementatthe agreed price, which gen- In the case of equityinvestments classified as available- erates areturn(cost) forthe Group linked to the money for-sale,this would include asignificantorprolonged market. decline in the fair value of the investments belowits cost. Wherethereisevidenceofimpairment, the cumulative This type of operation is considered forthe purposes of loss measured as the differencebetween the acquisition the Group to be aloan (borrowing) at aguaranteed rate cost and the current fair value,less anyimpairmentloss of interest.Generally treatedascollateralized financing on thatfinancial asset previously recognised in the con- transactions,they arecarried at the amounts of cash ad- solidatedincome statementisremovedfromequityand vanced or received,plus accrued interest and areentered recognised in the income statement. Impairmentlosses on the assets side of the consolidatedbalancesheet un- on equityinvestments arenot reversed through the con- der item 3. Loans and advances to credit institutions -b) solidatedincome statement; increases in their fair value other loans and advances (on the liabilities side of the afterimpairmentare recognised directly in equity. In con- consolidatedbalancesheet under item 1. Amounts owed trast,ifinasubsequentperiod,the fair value of adebt to credit institutions -a)with agreed maturitydates or instrumentclassified as available-for-sale increases and periods of notice). the increase can be objectively relatedtoanevent occurring afterthe impairmentloss wasrecognised,the impair- Securities received under reverse repurchase agreements mentloss is reversed through the income statement. and securities delivered under repurchase agreements arenot recognized in the consolidatedbalancesheet or A.4.8. Loans and advances to credit institutions and derecognized from the consolidatedbalancesheet,un- customers less controlofthe contractual rights thatcomprise these securities is relinquished.The Group monitors the market Loans and receivable include loans wheremoney is pro- value of the securities received or delivered on adaily vided directly to the borrower. Aparticipation in aloan basis,and provides or requests additional collateralinac- from another lender is considered to be originatedbythe cordancewith the underlying agreements. Group,provided it is funded on the date the loan is originatedbythe lender. Interest earned on reverse repurchase agreements and interest incurredonrepurchase agreements is recognized Loans and receivable arerecognized in the assets of the as interest income or interest expense,overthe lifeof Group when cash is advanced to borrowers.They areini- each agreement. tially recorded at cost (their net disbursed amounts), which is the fair value of the cash giventooriginate the A.4.8.3. Fees on loans loan, including anytransaction costs,and aresubsequently measured at amortized cost using the effective Front-end fees and commitmentfees aredeferredinac- interest rate method. cordancewith IAS 18, together with the relateddirectcosts of originating and maintaining the commitment, and are Whereloans meet the eligibilitycriteriaofthe amended recognised as an adjustmenttothe effectiveyield,being Fair Value Option and have been designatedasatFair recorded in the consolidatedincome statementoverthe Value through Profit and Loss,they aremeasured at their period from disbursementtorepaymentofthe related fair value.The fair value measurementtechnique used is loan. If the commitmentexpires without the loan being based on adiscountedcash flowtechnique. drawndown, the feeisrecognised as income on expiry. EIB Group 38 Financial Report2007

A.4.8.4. Interest subsidies to the prior estimateswill result in achange in the provision forcredit losses and be charged or credited to cred- Interest subsidies received in advance(see NoteG)are it loss expense.Anallowancefor impairmentisreversed deferredinaccordancewith IAS 18, and arerecognised only when the credit qualityhas improved such thatthere as an adjustmenttothe effectiveyield,being recorded in is reasonable assuranceoftimely collection of principal theconsolidatedincome statementoverthe period from and interest in accordancewith the original contractual disbursementtorepaymentofthe subsidized loan. termsofthe claim agreement. Awrite-off is made when allorpartofaclaim is deemed uncollectible or forgiven. A.4.9. Credit loss expense Write-offsare charged against previously established provisions forcredit losses or directly to credit loss expense An allowancefor credit losses is established if thereisob- and reducethe principal amountofaclaim. Recoveries in jectiveevidencethatthe Group will be unable to collect partorinfull of amounts previously written off arecred- all amounts due on aclaim according to the original con- ited to credit loss expense. tractual termsorthe equivalentvalue.A“claim” means a loan, acommitmentsuch as aletter of credit,aguarantee, Upon impairmentthe accrual of interest income based acommitmenttoextend credit,orother credit product. on the original termsofthe claim is discontinued,and is replaced by an accrual based upon the impaired value; in An allowancefor credit losses is reportedasareduction addition, the increase of the presentvalue of impaired of thecarrying value of aclaim on the consolidatedbal- claims due to the passage of time is reportedasinterest ancesheet,whereas foranoff-balancesheet item such as income. acommitmentaprovision forcredit loss is reportedin Other liabilities.Additions to the allowances and provi- A.4.9.2. Collectiveimpairment sions forcredit losses aremade through credit loss expense. In addition to specific allowances against individually significantloans and advances,the Group also makes a A.4.9.1. Impairment allowances relatedtoindividual collectiveimpairmenttest on exposures which, although loans andadvances not specifically identified as requiring aspecific allowance, have agreater risk of default than when originally Impairmentlosses have been made forindividual loans granted.This collectiveimpairmenttest is based on any and advances outstanding at the end of the financial year deterioration in the internal rating of the groups of loans and presenting objectiveevidenceofrisks of non-recov- or investments sincethey were granted or acquired.These eryofall or partoftheir amounts according to the origi- internal ratings take into consideration factors such as nal contractual termsorthe equivalentvalue.Changes to anydeterioration in counterparties risk,values of collater- these provisions areentered on the consolidatedincome als or securities received,and sectorial outlook,aswell as statementas“Credit loss expense”.Allowances and provi- identified structural weaknesses or deterioration in cash sions forcredit losses areevaluatedonthe following flows.Asat31December 2007, therewas no need fora counterparty specific based principle. collectiveimpairmentallowance, following this process.

Aclaim is considered impaired when the Management A.4.9.3. Guarantees Committee determines thatitisprobable thatthe Group will not be able to collectall amounts due according to In the normal course of business,the Group issues various the original contractual termsorthe equivalentvalue. formsofguarantees to supportsome institutions. Individual credit exposures areevaluatedbased upon the borrower’scharacter, overall financial condition, resourc- Under the existing rules,these guarantees do not meet es and paymentrecord, the prospects forsupportfrom the definition of an insurancecontract(IFRS 4Insurance anyfinancially responsible guarantors and,whereappli- Contracts) and areaccountedfor under IAS 39 Financial cable,the realizable value of anycollateral. Theestimated Instruments: Recognition and Measurement, either as recoverable amountisthe presentvalue of expectedfu- “Derivatives” or “Financial Guarantees”,depending on turecash flows,which mayresult from restructuring or their features and characteristics as defined by IAS 39. liquidation. Impairmentismeasured and allowances for credit losses areestablished forthe differencebetween Theaccounting policyfor Derivatives is disclosed under the carrying amountand its estimatedrecoverable NoteA.4.2. amountofany claim considered as impaired.The amount of the loss is the differencebetween the asset’s carrying Financial Guarantees areinitially recognised at fair value amountand the presentvalue of expectedfuturecash in the consolidatedbalancesheet under item 3c.Other flows discountedatthe financial instrument’soriginal liabilities -sundryliabilities,being the premium received. effectiveinterest rate. Subsequenttoinitial recognition, the Group’s liabilities Allimpaired claims arereviewed and analysed at least under each financial guaranteeare measured at the high- semi-annually.Any subsequentchanges to the amounts er of 1) the amountinitially recognized less,when appro- and timing of the expectedfuturecash flows compared priate,cumulativeamortization recognized in accordance EIB Group – Financial Statements 39 EIB Group

with IAS 18 and 2) the best estimate of expenditurere- date,intangible assets arereviewed forindications of im- quired to settle anypresentfinancial obligation arising as pairmentorchanges in estimatedfuturebenefits.Ifsuch aresult of the guaranteeinaccordancewith IAS 37. indications exist,ananalysis is performed to assess whether the carrying amountisfully recoverable.Awrite- Anyincrease in the liabilityrelating to financial guaran- down is made if the carrying amountexceeds the recov- teeistaken to the consolidatedincome statementin erable amount. “Credit loss expense”.The premium received is recognised in the consolidatedincome statementin“Feeand Internally developed softwaremeeting these criteria is car- commission income” on the basis of an amortization ried at cost less accumulateddepreciation calculatedon schedule in accordancewith IAS 18 over the lifeofthe the straight-line basis over three years from completion. financial guarantee. Software purchased is depreciatedonthe straight-line A.4.10. Property, furnitureand equipment basis over its estimatedlife(2to5years).

Property,furnitureand equipmentinclude land,Group- A.4.12. Pension plans and health insurancescheme occupied properties and other machines and equipment. TheGroup operates defined benefit pension plans to Property,furnitureand equipmentare carried at cost less provide retirementbenefits to substantially all of its staff. accumulateddepreciation and accumulatedimpairment TheGroup also provides certain additional post-employ- losses. menthealthcarebenefits to former employees in EIB. These benefits areunfunded,asdefined by IAS 19. The Property,furnitureand equipmentare reviewed periodi- cost of providing benefits under the plans is determined callyfor impairment. separately foreach plan using the projectedunit credit actuarial valuation method.Actuarial gains and losses Land and buildings arestatedatacquisition cost less ac- arerecognised as income or expense over the expected cumulateddepreciation. Thevalue of the Group’s head- average remaining working lives of the employees par- quarters building in Luxembourg-Kirchbergand its ticipating in the plans.The charge to the consolidated buildings in Luxembourg-Hamm, Luxembourg-Weimer- income statementinrespectofthe defined benefit pen- shof andLisbonisdepreciated on the straight-line basis sion plan is based on the current servicecost and other as set out below. actuarial adjustments as determined by qualified external actuaries. Officefurnitureand equipmentwere, until end-1997, de- preciatedinfull in the year of acquisition. With effectfrom A.4.12.1. Pension planfor staff 1998, permanentequipment, fixtures and fittings,furniture,officeequipmentand vehicles have been recorded TheBank’s main pension plan is adefined benefit pension in the consolidatedbalancesheet at their acquisition cost, plan funded by contributions from staff and from the less accumulateddepreciation. Bank which covers all employees.

Depreciation is calculatedonthe straight-line basis over the Commitments forretirements benefits arevalued at least estimatedlifeofeach item purchased,asset out below: everyyear using the projectedunit credit method,inorder to ensurethatthe liabilityentered in the accounts is • Buildings in Kirchberg, adequate.The results of the latest valuation areasat Hamm and Weimershof -30years 30 September 2007, with an extrapolation to 31 Decem- • Building in Lisbon -25years ber 2007. Themain actuarial assumptions used by the actuaryare set out in NoteK.Actuarial surpluses and • Permanentequipment, deficits arespread forwardoverthe average expected fixtures and fittings -10years remaining servicelives of the plan activeparticipants. • Furniture-5years • Officeequipmentand vehicles -3years Themain pension plan of the EIF is adefined benefit plan funded by contributions from staff and from the EIF A.4.11. Intangible assets which covers all employees.All contributions of the EIF and its members of staff aretransferredtothe EIB for Intangible assets comprise computer software. Software management. Thetransferredfunds allocatedtothe pen- developmentcosts arecapitalized if they meet certain sion plan areinvested forbythe Group,following the criteria relating to identifiability, to the probabilitythat rules and principles applied by EIB forits ownstaff pen- futureeconomic benefits will flowtothe enterprise,and sion plan. to the reliabilityofcost measurement. A.4.12.2. Health insurance plan Intangible assets arerecognized as assets and areamortized using the straight-line basis over their estimated TheBank has set up its ownhealth insuranceplan forthe useful economic life. At each consolidatedbalancesheet benefit of staff and ManagementCommittee at retire- EIB Group 40 Financial Report2007

mentage,financed by contributions from the Bank and solidatedincome statementand in the liabilities caption its employees.Aspecific provision is set aside on the lia- including the underlying debt instruments in the con- bilityside of the consolidatedbalancesheet.The Fund solidatedbalancesheet. has subscribed to ahealth insurancescheme with an insurancecompanyfor the benefit of staff at retirement A.4.14. Fund forgeneral banking risks age,financed by contribution from the Fund and its employees. Until 31 December 2005 the Group identified,asasepa- rate balancesheet item, the amounts it decided to put Theentitlementtothese benefits is based on the employ- aside to cover risks associatedwith loans and other finan- ees remaining in serviceuptoretirementage and the cial operations,having regardtothe particular risks completion of aminimum serviceperiod.The expected attached to such operations. costs of these benefits areaccrued over the period of employment, using amethodology similar to thatfor defined Starting from 2006, the Group no longer identifies such benefit pension plans.The health insuranceliabilities are separatebalancesheet item. Thedecision to release it determined based on actuarial calculations as per the completely does not affectthe abilityofthe Group to same datesasthe pension plans. cover its risks.The Group will continue to computethe amountcorresponding to the general banking risks,for A.4.12.3. Pension planfor members of the Management internal and disclosurepurposes (see NoteL), according Committee to the existing methodology.

Therelatedprovision shown on the liabilityside of the Theamountcorresponding to the general banking risks Group’sbalancesheet is determined,asfor all plans,in with respecttooperations of the Structured FinanceFacil- conformitywith IAS 19. Benefits arebased on years of ityisdisclosed in “Fund allocatedtoStructured Finance serviceand apercentage of final gross base salaryasde- Facility”on the consolidatedbalancesheet. fined under the plan. A.4.15. Funds allocatedtoventurecapital operations A.4.13. Debts evidenced by certificates and to the Structured FinanceFacility

Debts evidenced by certificatesare initially measured A.4.15.1. Funds allocatedtoventure capital operations at cost,which is the fair value of the consideration received.Transaction costs and net premiums (discounts) This item comprises the amountofappropriations from areincluded in the initial measurement. Subsequent the annual result of the Group,determined each year by measurementisatamortised cost,and anydifference the BoardofGovernors to facilitate instruments provid- between net proceeds and the redemption value is rec- ing venturecapital in the contextofimplementing the ognised in the consolidatedincome statementover European Council Resolution on Growth and Employ- the period of the borrowings using the effectiveyield ment. method.Whereborrowings meet the eligibilitycriteria of the amended Fair Value Option and have been des- A.4.15.2. Funds allocatedtothe StructuredFinance ignatedasatFair Value through Profit and Loss,they are Facility measured at their fair value.The fair value measurement technique used,inthe case of absenceofliquid market This item comprises the amountofappropriations from prices,isadiscountedcash flowtechnique,using cur- the annual result of the Group,determined each year rent yield curves. by the BoardofGovernors to facilitate implementation of operations with agreater degreeofrisk forthis new Combined debt instruments thatare relatedtonon-EIB type of instrument. Value adjustments on venturecapi- equityinstruments,foreignexchange or indices arecon- taland structured financeoperations areaccountedfor sidered structured instruments.For all the debt instru- in the profit and loss account. Upon appropriation of ments including embedded derivatives,the Group has the Group’s result,such value adjustments aretaken concluded areversed swap agreementtofully hedge the into consideration fordetermining the amounts to be exposure. recorded in the “Funds allocatedtoventurecapital operations”and“Funds allocatedtothe Structured Finance It is the Group policytohedge the fixed interest rate risk Facility”accounts. on debt issues and to apply the amended Fair Value Op- tion when this results in asignificantreduction of an ac- A.4.16. Taxation counting mismatch. Theeffectissuch thatthe carrying value of the thus electeddebt instruments is adjusted for TheProtocolonthe Privileges and Immunities of the Eu- changes in fair value rather than carried and accrued at ropean Communities,appended to the Treaty of 8April cost (see Notes Rand T). 1965 establishing aSingleCouncil and aSingle Commis- sion of the European Communities,stipulatesthatthe Interest expense on debt instruments is included in the assets,revenues and other property of the Group are account“interest expense and similar charges”in the con- exempt from all directtaxes. EIB Group – Financial Statements 41 EIB Group

A.4.17.Prepayments and accrued income -Accruals TheEIF is also empoweredtoissue guarantees in its own and deferred income name but on behalf and at the risk of the European Com- munityaccording to the Fiduciaryand Management These accounts comprise: Agreementconcluded with the European Community (“SME GuaranteeFacility”). • Prepayments and accrued income: expenditurein- curredduring the financial year but relating to asub- A.4.20. Assets held forthirdparties sequentfinancial year,together with anyincome not disclosed in the reporting value of the underlying Assets held forthirdparties,asset out below, represent financial instrumentwhich, though relating to the trust accounts opened and maintained in the name of the financial year in question, is not due until afterits ex- Group entities but forthe benefit of the Commission. piry. Sums held in these accounts remain the property of the • Accruals and deferredincome: income received be- Commission so long as they arenot disbursed forthe fore the balancesheet date but relating to asubse- purposes set out in relation to each project. quentfinancial year,together with anycharges not disclosed in the reporting value of the underlying • Underthe Growth and EnvironmentPilot Project, the financial instrumentwhich, though relating to the EIF provides afreeguaranteetothe financial interme- financial year in question, will be paid only in the diaries forloans extended to SME’swith the purpose course of asubsequentfinancial year (principally in- of financing environmentally friendly investments. terest on borrowings). Theultimate risk from the guaranteerests with the EIF and the guaranteefee is paid out of European Union A.4.18. Interest income and expenses budget funds. Interest income and interest expense arerecognised in • Under the SME GuaranteeFacilityand the MAPGuar- the income statementfor all interest bearing instruments anteeprogramme (followedbythe CIP programme), on an accrual basis using the effectiveinterest method the EIF is empoweredtoissue guarantees in its own based on the actual purchase priceincluding directtrans- name butonbehalfofand at the risk of the Commis- action costs.This is amethod of calculating the amortised sion. cost of afinancial asset and allocating the interest income • Under the ETFStart-Up Facilityand the MAPEquity over the relevantperiod.The effectiveinterest rate is the programme (followedbythe CIP programme), the EIF rate thatexactly discounts estimatedfuturecash receipts is empoweredtoacquire, manage and dispose of ETF through the expectedlifeofthe financial instrumentto start-up investments,inits ownname but on behalf thenet carrying amountofthe financial asset.Interest is of and at the risk of the Commission. recognised on impaired loans through unwinding the discountused in the presentvalue calculations applied Thesupportcurrently provided by the Seed Capital Ac- to expectedfuturecash flows. tion is aimed at the long-termrecruitmentofadditional investmentmanagers by the venturecapital funds to in- In addition to interest and commission on loans,deposits crease the number of qualified personnel and to reinforce and other revenue from the securities portfolio,this head- the capacityofthe venturecapital and incubatorindus- ing includes the indemnities received by the Group in tries to caterfor investments in seed capital. respectofearly loan reimbursements prepayments made by its borrowers. TheInvestmentFacility, which is managed by the EIB,has been established within the frameworkofthe Cotonou In accordancewith the provisions of the International Agreementoncooperation and developmentofthe Accounting StandardIAS 39 -Financial Instruments: Rec- African, Caribbean and Pacific Group of States and the ognition and Measurement-the Group takes immedi- European Union and its Member States on 23 June 2000. ately into the consolidatedincome statementthe TheEIB prepares separatefinancial statements forthe indemnities received forearly reimbursementofloans InvestmentFacility. at the time of derecognition of those relatedloans instead of depreciating the indemnities over the remain- TheCommission entrusted financial managementofthe ing lifeofloans. GuaranteeFund to the EIB under an agreementsigned between the twoparties in November 1994. TheEIB prepares A.4.19. Fiduciaryoperations separatefinancial statements forthe GuaranteeFund.

PursuanttoArticle 28 of its Statutes,the EIF acquires, TheFemip Trust Fund,which is also managed by the EIB, manages and disposes of investments in venturecapital wasset up to enhancethe existing activities of the EIB in enterprises,inits ownname but on behalf and at the risk the Mediterranean Partner Countries,with the supportof of the European Community, according to Fiduciaryand anumber of donor countries and with aview to directing ManagementAgreements concluded with the European resourcestooperations in certain prioritysectors through Community(“ETFStart-up Facility”)and “High Growth the provision of technical assistanceand risk capital.The and InnovativeSME Facility(GIF), under twoprograms EIB prepares separatefinancial statements forThe Femip knownasGIF1 and GIF2). Trust Fund. EIB Group 42 Financial Report2007

TheRisk-Sharing FinanceFacility(the“RSFF”)has been es- • the sundrydebtors relatedtoreceipts on loans to be tablished within the frameworkofthe Co-operation Agree- identified amounting to EUR ’000 95 694 as at 31 De- ment, enteredintoforce on this 5th of June 2007, between cember 2006 arereclassified under loansand advanc- the European Commission on behalf of the European Com- es to credit institutions; munityand the European InvestmentBank.The EIB is • the sundrycreditors relatedtohealth insuranceplan setting up the RSFF,aninstrumentaimed at fostering in- amounting to EUR ’000 74 830 as at 31 December vestmentfor Europe in research, technological develop- 2006 areclassified under Provision; mentand demonstration, as well as innovation, in particu- • the net interest income on derivatives amounting to lar in the privatesector. TheEIB prepares separatefinancial EUR’000 1438 205 as at 31 December 2006 arereclas- statements forthe Risk-Sharing FinanceFacility. sified under interest and similar income; TheHeavily Indebted Poor Countries (HIPC)Initiative(the • the payable legs and receivable legs of FX forwards “Initiative”)isaninternational debt relief mechanism that and FX swaps arenetted forEUR’000 5553 790 under provides special assistancetothe world’spoorest coun- other assets,positivereplacementvalues and other tries.Itwas launched in 1996 following aproposal from liabilities,negativereplacementvalues. the WorldBank and the International MonetaryFund A.4.23. Accounting foroperating leases (IMF). Theprincipal objectiveofthe initiativeistoreduce the debt burden of poor countries to sustainable.The EIB Leases of assets under which all the risks and benefits of prepares separatefinancial statements forthe Heavily ownership areeffectively retained by the lessor areclas- Indebted Poor Countries Initiative. sified as operating leases.Payments made under operating leases arecharged to the consolidatedincome TheEU-Africa InfrastructureTrust Fund (the “Trust Fund”) statementonastraight-line basis over the period of the has been createdwithin the frameworkofthe Trust Fund lease. When an operating lease is terminatedbeforethe Agreementbetween TheEuropean Commission on behalf lease period has expired,any paymentrequired to be of the European CommunityasFounding Donor and the made to the lessor by wayofpenaltyisrecognised as an European InvestmentBank as Manager,also open to Mem- expense in the period in which the termination takes ber States of the European Union which subsequently ac- place. cede to this agreementasDonors.On9February2006, the European Commission and the European InvestmentBank A.4.24. Compound financial instruments with multiple signed aMemorandum of Understanding (the “MoU”)to embedded derivatives promotejointly the EU-Africa InfrastructurePartnership and,inparticular,toestablish asupporting EU-Africa Infra- As at 31 December 2007, the Group does not have any structureTrust Fund.The EIB prepares separatefinancial compound financial instrumentwith multiple embedded statements forthe EU-Africa InfrastructureTrust Fund. derivatives.

A.4.21. Commitmenttopurchase EIF shares A.4.25. Dividend income

Under the termsofareplacementsharepurchase under- Dividends arerecognised in the income statementwhen taking in respectofthe 948 shares held by EIF’s minority the entity’srighttoreceivepaymentisestablished. shareholders (2006: 776 shares), the EIB is offering to buy these on an annual basis.The exercise priceisdetermined on the basis of the audited annual accounts of EIF and corresponds to the partofeach shareinthe called capital of EIF,increased by the sharepremium account, the statutoryreserves, the fair value reserve,the retained earnings and profit of the year,net of the dividend decided by the EIF’s General Meeting.The commitmenttopurchase is shown in the consolidatedbalancesheet as adebt item under sundrycreditors (see also NoteH).

A.4.22. Reclassification of prior year figures

Wherenecessary, certain prior-year figures have been reclassified to conformwith changes to the current year’s presentation forcomparativepurpose.Main reclassifica- tions comprise:

• the sundrycreditors relatedtoVentureCapital current accountamounting to EUR ’000 44 528 as at 31 De- cember 2006 arereclassified under loans and advances to credit institutions,repayable on demand; EIB Group – Financial Statements 43 EIB Group

NoteB–Debt securities portfolio (in EUR ’000)

In addition to the asset backed securities,which representacquisitions of interest pools of loans or receivables in connection with securitization transactions,the debt securities portfolio is made up of trading financial assets (Portfolio B3), available-for-sale financial assets (portfolios A2, B1, B2 and operational portfolio-EIF) and financial assets held-to-maturity (Portfolio A1 and Investmentportfolio). Thedetail of each portfolio is as follows as at 31 December 2007 and 2006:

31.12.2007 31.12.2006

Treasurybills eligible forrefinancing with centralbanks (listed) 2273 135 2701 696 Debt securities including fixed-income securities (of which EUR ’000 2860 459 unlisted in 2007 and EUR ’000 1597 397 in 2006) 11 016 047 11 291 402

13 289 182 13 993 098

At 31.12.2007 Classification Book value Market value

Group Investmentportfolio Held-to-maturity2576 805 2591 180 Operational moneymarket portfolios: -money market securities with amax. 3month maturityA1Held-to-maturity2192 187 2192 187 -money market securities with amax. 18 month maturityA2Available forsale 1753 857 (1) 1753 857 Operational bond portfolios: -B1-Credit Spread Available forsale 1241 142 (2) 1241 142 -B2-AlternativeInvestmentAvailable forsale 161 724 (3) 161 724 -B3-Global FixedIncome Trading 504 572 504 572 Operational portfolio – EIF Available forsale 128 937 (4) 128 937 Asset backed securities (NoteD) Held-to-maturity4729 958 4702 566

13 289 182 13 276 165

(1) including unrealised loss of EUR ’000 -1237 (2) including unrealised loss of EUR ’000 -15389 (3) including unrealised gain of EUR ’000 11 724 (4) including unrealised loss of EUR ’000 -598

At 31.12.2006 Classification Book value Market value

Group Investmentportfolio Held-to-maturity2895 917 2896 500 Operational moneymarket portfolios: -money market securities with amax. 3month maturityA1Held-to-maturity3473 637 3473 637 -money market securities with amax. 18 month maturityA2Available forsale 2685 855 (1) 2685 855 Operational bond portfolios: -B1-Credit Spread Available forsale 1305 043 (2) 1305 043 -B2-AlternativeInvestmentAvailable forsale 155 315 (3) 155 315 -B3-Global FixedIncome Trading 691 918 691 918 Operational portfolio – EIF Available forsale 51 092 (4) 51 092 Asset backed securities (NoteD) Held-to-maturity2734 321 2734 321

13 993 098 13 993 681

(1) including unrealised loss of EUR ’000 -864 (2) including unrealised loss of EUR ’000 -356 (3) including unrealised gain of EUR ’000 5315 (4) including unrealised gain of EUR ’000 149

TheGroup enters into collateralized securities lending transactions thatmay result in credit exposureinthe eventthat the counterparty to the transaction is unable to fulfill its contractual obligations.The Group controls credit risk associated with these activities by monitoring counterparty credit exposureand collateralvalues on adaily basis and requiring additional collateraltobedeposited with or returned to the Group when deemed necessary.

Thesecuritylending activityamounts to EUR ’000 936 629 at the end of December 2007 (2006: EUR ’000 927 972). EIB Group 44 Financial Report2007

NoteC–Loans and advances to credit institutions (other loans and advances) (in EUR ’000)

TheGroup enters into collateralized reverse repurchase and repurchase agreements transactions thatmay result in credit exposureinthe eventthatthe counterparty to the transaction is unable to fulfill its contractual obligations.The Group controls credit risk associatedwith these activities by monitoring counterparty credit exposureand collateralvalues on adaily basisand requiring additional collateraltobedeposited with or returned to the Group when deemed necessary.

31.12.2007 31.12.2006

Term deposits 11 205 010 9027 130 Tripartitereverse repos (*) 4611 570 5571 196

15 816 580 14 598 326

(*) These operations arecarried out with athird-party custodian who undertakes,onthe basis of aframeworkcontract, to guaranteecompliancewith the contractual termsand conditions,notably with respectto: -deliveryagainst payment, -verification of collateral, -the collateralmarginrequired by the lender which must alwaysbeavailable and adequate,with the market value of the securities being verified daily by the said custodian, -organisation of substitutecollateralprovided thatthis meets all the contractual requirements.

NoteD–Summarystatementofloans (in EUR ’000)

D.1. Aggregate loans granted

Aggregate loans granted comprise both the disbursed and undisbursed portions of loans.The analysis is as follows:

To intermediary Directly to final Total 2007 Total 2006 credit institutions beneficiaries

Disbursed portion 112 323 909 156 435 308 268 759 217 257 617 258 Undisbursed loans 12 341 869 41 264 752 53 606 621 53 571 902

Aggregate loans granted124 665 778 197 700 060 322 365 838 311 189 160

31.12.2007 31.12.2006

Aggregate loans granted 322 365 838 311 189 160 Asset backed securities portfolio (NoteB)4729 958 2734 321

Aggregate loans including asset backed securities portfolio (NoteD.3) 327 095 796 313 923 481

D.2. Credit losses due to impairmentonloans and advances to customers

Aspecific provision is createdagainst all F-graded loans,aswell as against E-graded ones when an impairmentloss is assessed.The amountofsuch provisioning reflects the differencebetween the loan’s nominal value and the present value of all the expectedfuturecash flows generated by the impaired asset.

Movements in the specific provision aretabulatedbelow:

31.12.2007 31.12.2006

Specific provision at beginning of the year 82 417 292 500 Allowance(+) /Release (-) during the year -44244 (*) -210 404(**) Foreignexchange adjustment-1123 321

Specific provision at end of the year 37 050 82 417

(*) the amountofEUR ’000 44 244 comprises an amountofEUR ’000 64 917 which wasreleased following the sale,during 2007, of loan assets forwhich an impairmentloss wasestablished.The sale of those loan assets resulted in arealised loss of EUR ’000 61 490. (**) the amountofEUR ’000 210 404 comprises an amountofEUR ’000 189 171 which wasreleased following the sale,during 2006, of loan assets forwhich an impairmentloss wasestablished.The sale of those loan assets resulted in arealised loss of EUR ’000 109 816. EIB Group – Financial Statements 45 EIB Group

Thespecific provision forcredit losses is associatedtofinancial assets classified as Loans and receivables.

Theaccrued interest on impaired loans as at 31 December 2007 amounts to EUR ’000 7838 (2006: EUR ’000 7110). As at 31 December 2007, thereisnorelatedcollateralheld forimpaired loans.

D.3. Geographical breakdown of lending by countryinwhich projects areallocated

Loans forprojects within the Union and relatedloans

Countries and territories in Number Aggregate Undisbursed Disbursed % % which projects arelocated of loans loans granted portion portion of total 2007 fin. year 2006

Spain 603 48 224 303 4574 687 43 649 616 14.85 %14.65% Germany794 46 835 841 1577 160 45 258 681 14.42 %15.00% Italy 543 40 513 361 4740 443 35 772 918 12.48 %12.51% France387 34 189 863 4361 024 29 828 839 10.53 %10.81% United Kingdom 200 26 284 577 3896 262 22 388 315 8.09 %8.88% Portugal 245 17 215 588 2028 687 15 186 901 5.30 %5.37% Greece138 13 142 910 1683 972 11 458 938 4.05%4.08% Poland 120 12 006 945 3822 194 8184 751 3.70%3.41% Czech Republic 84 7666 580 2793 805 4872 775 2.36%2.12% Austria 180 6682 627 307 000 6375 627 2.06%2.07% Hungary846313 692 1899 437 4414 255 1.94%1.72% Finland 99 5623 611 749 467 4874 144 1.73%1.77% Belgium 75 5119 622 755 080 4364 542 1.58%1.53% Netherlands 52 4290 983 1376 113 2914 870 1.32%1.47% Romania 57 4122 025 2360 255 1761 770 1.27%1.33% Sweden 68 3537 501 720 225 2817 276 1.09%1.09% Ireland 60 3425 935 625 399 2800 536 1.05%1.10% Denmark633123 593 467 841 2655 752 0.96%1.10% Slovenia 41 2223 882 744 000 1479 882 0.68%0.56% Bulgaria 26 1849 490 1445 737 403 753 0.57%0.26% Cyprus 27 1315 054 527 800 787 254 0.40%0.40% SlovakRepublic 33 1095 579 355 219 740 360 0.34%0.38% Luxembourg32732 435 132 893 599 542 0.23%0.26% Latvia 23 490 100 50 000 440 100 0.15%0.16% Lithuania 13 169 403 94 000 75 403 0.05%0.06% Estonia 13 159 997 25 000 134 997 0.05%0.08% Malta 455818 47 700 8118 0.02%0.01%

Total 4064 296 411 315 42 161 400 254 249 915 91.27%92.18%

Loans forprojects outside the Union

Countries and territories in which Number Aggregate Undisbursed Disbursed % % projects arelocated of loans loans granted portion portion nominal 2007 nominal 2006

ACPCountries/OCT122 1563 180 750 216 812 964 0,48%0,43% South Africa 32 935 707 266 091 669 616 0,29%0,32% Euro-Mediterranean Partnership Countries 217 9756 518 3998 045 5758 473 3,00%2,92% South-East European Countries 176 11 188 758 4761 739 6427 019 3,45%2,79% Russia and WesternNewly IndependentStates5309 421 233 332 76 089 0,10%0,03% EFTACountries 21 1600 781 121 792 1478 989 0,49%0,50% Asia and Latin American Countries 73 2987 708 1314 006 1673 702 0,92%0,83%

Total 646 28 342 073 11 445 221 16 896 852 8,73%7,82% EIB Group 46 Financial Report2007

Geographical breakdown of lending by region in which projects areallocated

Countries and territories in which Number Aggregate Undisbursed Disbursed % % projects arelocated of loans loans granted portion portion nominal 2007 nominal 2006

Loans forprojects within the Union and relatedloans 4064 296 411 315 42 161 400 254 249 915 91,27%92,18% Loans forprojects outside the Union 646 28 342 073 11 445 221 16 896 852 8,73%7,82% IAS 39 2342 408 02342 408

TOTAL 2007 4710 327 095 796 (*) 53 606 621 273 489 175 100,00%

TOTAL 2006 4745 313 923 481 53 571 902 260 351 579 100,00%

(*) Aggregate loans including asset backed securities

NoteE–Shares and other variable-yield securities (in EUR ’000)

This item comprises:

VentureCapital EBRD Shares Shares acquired Infrastructure TOTAL Operations following Funds loan assets restructuring

Cost At 1January2007 1490 262 157 500 (1) 43 113 23 447 1714 322 Net additions 153 690 010192 39 067 202 949 Foreignexchange adjustments 00-520-52

At 31 December 2007 1643 952 157 500 53 253 62 514 1917 219

Unrealised Gains /Losses At 1January2007 215 582 141 040 00356 622 Net additions /releases 245 094 64 454 19 926 -6346 323 128

At 31 December 2007 460 676 205 494 19 926 -6346 679 750

Impairment At 1January2007 -378 253 0-21 158 (3) 0-399 411 Net additions -118 728 00 0-118 728

At 31 December 2007 -496 981 0-21 158 0-518 139

Net book value

At 31 December 2007 1607 647 362 994 52 021 (2) 56 168 2078 830

At 31 December 2006 1327 591 298 540 21 955 23 447 1671 533

(1) Theactual capital paid in by the Group in respectofits subscription of EUR ’000 600 000 to the capital of the EBRD amounts to EUR ’000 157 500 at 31 December 2007 (2006: EUR ’000 157 500). TheGroup holds 3.03%ofthe subscribed capital. (2) Thetotal number of ordinaryEurotunnel shares held by the Group as at 31 December 2007 is 1474 279, valued at EUR 17 691 348. Thetotal number of Eurotunnel bonds redeemable in shares (ORA)held by the Group as at 31 December 2007 is 105 450, valued at EUR 18 377 452. Afterthe restructuring of the 28th June 2007, the Group holds 78 971 193 warrants valued at EUR 15 952 181 in the balancesheet at year-end.The total number of Eurotunnel shares held by the Group as at 31 December 2006 is 58 971 193, equivalenttoEUR ’000 21 955. (3) As at 31 December 2006, the depreciation in fair market value of the shares held in Eurotunnel wasrecognised in the consolidatedincome statement as this investmentwas considered impaired. EIB Group – Financial Statements 47 EIB Group

NoteF–Property,furniture, equipmentand intangible assets (in EUR ’000)

Land Luxembourg Lisbon Furnitureand Total property, Total buildings building equipment furnitureand intangible equipment assets

Historical cost At 1January2007 10 415 252 682 349 57 243 320 689 7040 Additions 065868 017011 82 879 1825 Disposals 000-6987 -6987 -3 326

At 31 December 2007 10 415 318 550 349 67 267 396 581 5539

Accumulateddepreciation At 1January2007 0-77 180 -294 -23 331 -100 805 -1 909 Depreciation 0-4895 -14 -12 134 -17 043 -2 984 Disposals 0006987 6987 3326

At 31 December 2007 0-82 075 -308 -28478 -110 861 -1567

Net book value

At 31 December 2007 10 415 236 475 41 38 789 285 720 3972

At 31 December 2006 10 415 175 502 55 33 912 219 884 5131

Allofthe land and buildings areused by the Group forits ownactivities.The Luxembourgbuildings categoryincludes cost relating to the construction of the new building foranamountofEUR ’000 171 710 (2006: EUR ’000 105 843), which will be completed in 2008.

Forsubsequentmeasurementpurposes the Group uses the“cost model”under IAS 16.

NoteG–Accruals and deferred income (in EUR ’000)

Accruals and deferredincome 31.12.2007 31.12.2006

-Interest subsidies received in advance (1) 186 622 209 438 -Other 84 102 134 847

270 724 344 285

(1) Part of the amounts received from the European Commission through EMS (European MonetarySystem) arrangements has been made available as a long-termadvancewhich is enteredonthe liabilities side under item Accruals and deferredincome,and comprises: •amounts in respectofinterest subsidies forloans granted forprojects outside the Union, under Conventions signed with the ACPStatesand Protocols concluded with the Mediterranean Countries; •interest subsidies,concerning certain lending operations put in placewithin the Union from the Group’s ownresources, made available in conjunction with the EMS under Council Regulation (EEC)No1736/79 of 3August 1979 and in conjunction with the financial mechanism established by the EFTA Countries under the EFTAAgreementsigned on 2May 1992; •amounts received in respectofinterest subsidies forloans granted from EC resourcesunder Council Decisions 78/870/EEC of 16 October 1978 (New CommunityInstrument), 82/169/EEC of 15 March1982 and 83/200/EEC of 19 April1983 and under Council Regulation (EEC)No1736/79 of 3August 1979 as amended by Council Regulation (EEC)No2790/82 of 18 October 1982. EIB Group 48 Financial Report2007

NoteH–Sundrydebtors,sundrycreditors and sundryliabilities (in EUR ’000)

Sundrydebtors 31.12.2007 31.12.2006

-Loan instalments receivable 56 115 167 797 -Staff housing loans and advances (*) 21 917 26 406 -Advances on salaries and allowances 2825 10 492 -Commission receivable on guarantees and venturecapital operations 13 777 4505 -Other 50 811 39 483

145 445 248 683

Sundrycreditors 31.12.2007 31.12.2006

-European Communityaccounts: -For Special Section operations and relatedunsettled amounts 367 531 416 478 -Deposit accounts 517 441 428 025 -Optional SupplementaryProvidentScheme (NoteK)185 626 187 532 -Commitmentofpurchase of minorityinterests (**) 338 102 266 149 -Other 20 385 13 243

1429 085 1311 427

Sundryliabilities 31.12.2007 31.12.2006 -Financial guarantees issued in respectofventurecapital operations 20 619 24 407 -Provision foremployees’departureindemnities 16 838 15 332

37 457 39 739

(*) TheGroup has enteredintoarrangements with an external financial institution, wherebypermanently employedstaff members maybegranted staff loans in accordancewith the Bank’s staff regulations.The same interest rates, termsand conditions areapplicable to all said employees. (**) As at31December 2007, the portion of minorityinterests on the balancesheet amounts to EUR 338 million (2006: EUR 266 million) and on the con- solidatedresult (NoteN)amounts to EUR 17 million (2006: EUR 19 million). Under the termsofreplacementsharepurchase undertaking in respectof the 948 shares held by EIF’s minorityshareholders (2006: 776 shares), the Bank is offering to buy these at an exercise priceofEUR 319 million (2006: EUR 247 million) determined on the basis of the audited 2006 annual accounts net of the dividend decided by the EIF’s General Meeting.

NoteI–Amounts owed to credit institutions with agreed maturitydates or periods of notice (in EUR ’000)

31.12.2007 31.12.2006

Short-term borrowings 338 720 212 892 Amounts due to EBRD including promissorynotes issued in respectofpaid-in capital of EBRD 3037 6075

341 757 218 967 EIB Group – Financial Statements 49 EIB Group

NoteJ–Debts evidenced by certificatesasat31December (in EUR ’000)

In its financing activity, one of the Group’s objectives is to alignits funding strategy with the funds required forthe loans granted,notably in termsofcurrencies.The belowtable discloses the details per currencyofdebts outstanding at 31 December 2007, together with the cumulatednotional amountofcurrencyswaps associatedwith the debts issued, whosegoal is to transformthe initial currencyofthe debt into anew currencyinline with the currencyofthe loan. The last column of the table indicatesthe total amountofdebts per currency, taking into accountthe economic effectbrought by the currencyswaps in order to disclose anet exposureper currencyofthe debts outstanding at 31 December 2007.

BORROWINGS CURRENCYSWAPS NETAMOUNT

RECEIVABLE

PAYABLE OUT- AVERAGE OUT- AVERAGE DUE DATES 31.12.2006 31.12.2007 OUT- OUT- IN STANDING AT RATE STANDING AT RATE STANDING AT STANDING AT 31.12.2006 31.12.2007 31.12.2006 31.12.2007

EUR 101 037 680 4.12 106 548 588 4.04 2008/2057 -2011 066 -1667 912 99 026 614 104 880 676 GBP 58 233 751 5.28 59 387 205 5.21 2008/2054 -17691 932 -18302 492 40 541 819 41 084 713 DKK 402 360 2.40 536 315 2.86 2010/2026 00402 360 536 315 SEK 1235 012 4.31 1851 401 4.24 2008/2028 -165 922 -636 175 1069 090 1215 226 CZK 1193 006 4.68 952 562 5.09 2008/2030 -154 630 -159 606 1038 376 792 956 HUF 1187 592 7.57 1062 153 7.17 2008/2015 -907 574 -648 327 280 018 413 826 PLN 594 075 6.12 662 295 6.05 2008/2026 -101 168 -107 854 492 907 554 441 BGN 153 390 4.14 181 511 5.35 2009/2012 -153 390 -181 511 00 MTL23294 3.80 23 294 3.80 2009/2009 -23294 -23294 00 SIT 16 692 4.75 00.00 -16692 000 SKK 116 926 4.84 121 261 4.79 2012/2028 00116 926 121 261 RON00.00 83 155 7.00 2014/2014 0-83 155 00 USD 60 291 687 4.40 58 410 692 4.52 2008/2045 -19619 710 -25074 313 40 671 977 33 336 379 CHF 3288 692 3.12 2955 218 2.75 2008/2036 -1120 169 -1525 956 2168 523 1429 262 JPY6619 308 1.15 6982 434 1.51 2008/2047 -6042 000 -6814 744 577 308 167 690 NOK 782 957 4.99 760 241 4.67 2008/2025 -600 874 -508 922 182 083 251 319 CAD261 763 5.80 976 045 4.92 2008/2045 -196 322 -906 836 65 441 69 209 AUD3592 062 5.45 4026 888 5.61 2008/2021 -3592 062 -4026 888 00 HKD 1038 975 4.24 334 498 5.09 2008/2019 -365 206 -203 836 673 769 130 662 NZD 2142 056 6.25 3369 954 6.62 2008/2014 -2142 056 -3369 954 00 ZAR 1254 633 8.97 1167 340 8.53 2008/2018 -731 395 -726 625 523 238 440 715 MXN 135 967 9.13 61 772 8.63 2009/2015 -135 967 -61772 00 TWD375 134 1.03 255 830 0.33 2008/2013 -375 134 -255 830 00 TRY2034 897 12.64 2659 580 14.14 2008/2022 -2034 897 -2659 580 00 ISK 563 728 7.53 739 935 8.38 2008/2011 -563 728 -739 935 00 RUB 00.00 111 154 6.50 2012/2017 0-111 154 00 Fair Value Option Adjustment (IAS 39) 6257 038 5951 082

Total 252 832 675 260 172 403 EIB Group 50 Financial Report2007

NoteK–Pension plans and health insurancescheme (in EUR ’000)

TheGroup operates 3defined benefit pension plans.The Group also provides certain post-employmenthealthcareben- efitstoformer employees of EIB.These benefits areunfunded as defined by IAS19. Thecost of providing benefits under the plans is determined separately foreach plan using the projectedunit credit actuarial valuation method.Actuarial valuation took placeat30September 2007 and wasrolled forwardto31December 2007.

An additional plan is not included in the figures below: it is the Optional SupplementaryProvidentScheme (a contribu- tory defined benefit pension plan). Thecorresponding amountofEUR 186 million (2006: EUR 188 million) is enteredunder “Sundrycreditors”(NoteH).

Net benefit expense (recognized in consolidatedincome statement) as at 31 December 2007:

EIB Pension Management EIF Pension Health InsuranceTotal 2007 Committee Pension

Net current servicecost (1) 27 708 1035 1258 4388 34 389 Interest cost on benefit obligation (2) 48 633 1353 477 4174 54 637 Amortization of unrecognized past servicecost (1) 0075 075 Special termination benefits (1) 4267 0004267 Recognition of actuarial (gains)/losses (1) 15 003 253 0954 16 210

Net benefit expense 95 611 2641 1810 9516 109 578

Net benefit expense (recognized in consolidatedincome statement) as at 31 December 2006:

EIB Pension Management EIF Pension Health InsuranceTotal 2006 Committee Pension

Net current servicecost (1) 28 507 1549 867 3853 34 776 Interest cost on benefit obligation (2) 41 517 1205 376 3782 46 880 Amortization of unrecognized past servicecost (1) 28 484 631 0029 115 Special termination benefits (1) 3363 0003363 Recognition 18 828 582 133 1420 20 963 of actuarial (gains)/losses (1)

Net benefit expense 120 699 3967 1376 9055 135 097

(1) Recognised in General administrativeexpenses (2) Recognised in Interest expense and similar charges

Benefit liabilities as at 31 December 2007:

EIB Pension Management EIF Pension Health InsuranceTotal 2007 Committee Pension

Benefit obligation 1046 162 30 239 12 628 87 088 1176 117 Unrecognised net actuarial losses -136 626 -1718 -646 -3293 -142 283

Net liability909 536 28 521 11 982 83 795 1033 834 (1)

Unrecognised net actuarial losses will be recognised,from2008 onwards, according to the average remaining servicelife of the participants of each plan, in accordancewith IAS 19. EIB Group – Financial Statements 51 EIB Group

Benefit liabilities as at 31 December 2006:

EIB Pension Management EIF Pension Health InsuranceTotal 2006 Committee Pension

Benefit obligation 1031 399 29 202 9928 89 796 1160 325 Unrecognised net actuarial losses -202 839 -1 734 -999 -13 716 -219 288

Net liability828 560 27 468 8929 76 080 941 037 (1)

Movements in the benefit (asset)/liabilityduring the year ended 31 December 2007 areasfollows (in EUR ’000):

EIB Staff Management EIF Staff Health Total Pension Plan Committee Pension Plan InsurancePlan Pension Plan

At 1January2007 828 560 27 468 8929 76 080 941 037 Net benefit expense 95 611 2641 1810 9516 109 578 Benefit payments net of employeecontributions -14635 -1588 1243 -1801 -16781

At 31 December 2007 909 536 28 521 11 982 83 795 1033 834 (1)

At 31 December 2006 828 560 27 468 8929 76 080 941 037 (1)

(1) This amountexcludes indemnities 2007: EUR ’000 4711 (2006: EUR ’000 4217) thatare not subjecttoIAS 19 actuarial valuations.

Theprincipal assumptions used in determining pension and post-employmentbenefit obligations forthe Group’s plans areshown below:

2007 2006

in%in% Discountrate forpension plans 5.52 4.76 Discountrate forhealth insuranceplans 5.52 4.76 Futuresalaryincrease (including inflation) 4.00 3.50 Futurepension increases 2.00 1.50 Healthcarecost increase rate 4.00 3.50 Actuarial tables LPP 2005 LPP 2000

Thetable belowshows the sensitivityofboth benefit expenses for2007 and defined benefit obligation as at 31 December 2007 of the Health InsurancePlan to a1%increase and decrease in the healthcarecost increase rate:

1%increase 1%decrease

Benefit expenses 2894 -2172 Defined benefit obligation 21 948 -17 130

Thetable belowshows the actuarial experience(gain)/loss forthe differentPlans for2006 to 2007:

EIB Pension Management EIF Pension Health InsuranceTotal Committee Pension

2007 19 790 1481 1230 -6151 16 350 2006 35 011 -197 430 1629 36 873 EIB Group 52 Financial Report2007

Thetable belowshows the evolution of the Defined Benefit Obligation during the year under review:

EIB Pension Management EIF Pension Health InsuranceTotal Committee 2007 Pension

Obligation at the beginning of the year 1031 399 29 202 9928 89 796 1160 325 Net current servicecost 27 708 1035 1258 4388 34 389 Employeecontributions 10 246 0682 010928 Interest cost 48 633 1353 477 4174 54 637 Benefit payments -24881 -1588 561 -1801 -27709 Experience(gain)/loss 19 790 1481 1656 -6151 16 776 Assumption (gain)/loss -71000 -1244 -1934 -3318 -77496 Special termination benefits 4267 0004267

Benefit obligation as at 31 December 2007 1046 162 30 239 12 628 87 088 1176 117

NoteL–Fund forgeneral banking risks (in EUR ’000)

Movements in the Fund forgeneral banking risks aretabulatedbelow:

31.12.2007 31.12.2006

Fund at beginning of the year 0975 000 Appropriatedfor the year 0-975 000

Fund at end of the year 00

In line with NoteA.4.14, the Group no longer identifies the fund forgeneral banking risks as aseparatebalancesheet item but continues to computethe amountcorresponding to this fund,according to last year methodology fordisclosure purpose.

Evaluation of the amountrepresentativeofgeneral banking risks: 31.12.2007 31.12.2006

Fund at beginning of the year 1000 000 (*) 1000 000 (**) (*) Of which EUR ’000 113 000 forStructured FinanceFacilityoperations (**) Of which EUR ’000 40 000 forStructured FinanceFacilityoperations

As at 31 December 2007, the general provisioning ratesbyLoan Grading categories areasfollows:

Loan Grading Provisioning rate for2007 Provisioning rate for2006

A° 0.00%0.00% A+ 0.10%0.10% A- 0.20%0.20% B+ 0.30%0.30% B- 0.50%0.50% C1.00%1.00% D+ 2.00%2.00% D- 3.00%3.00% E+ 10.00%10.00% E- 25.00%25.00% EIB Group – Financial Statements 53 EIB Group

NoteM–“Interest and similar income” and“Interest expense and similar charges” (in EUR ’000)

M.1. Netinterest income

31.12.2007 31.12.2006

Interest and similar income Loans and advances to credits institutions and customers 13 252 385 11 381 994 Treasurybills eligible forrefinancing with centralbanks and debt securities including fixed-income securities 709 903 583 418 Derivatives (1) 01438 205 Interest subsidy from the E.U. 46 893 53 857 Cash in hand,balances with centralbanks and post officebanks 344 1975 Other 42 425 62 397

TOTAL 14 051 950 13 521 846

Interest expense and similar charges Debts evidenced by certificates-12 059 580 -11724 949 Derivatives (1) -7626 0 Interest on thirdparty mandates-42 610 -39955 Amounts owed to credit institutions -14098 -9782 Other -64693 -57045

TOTAL -12188 607 -11831 731

Net interest income 1863 343 1690 115

Thetable belowsets out the net interest income relating to each class of financial assets and liabilities.

31.12.2007 31.12.2006

Interest and similar income Trading 19 289 1457 440 Designatedatfair value through profit and loss 645 422 460 461 Held to maturity527 869 346 987 Loans and receivables (2) 12 665 166 11 058 953 Available forsale 148 541 135 154 Non financial assets 45 663 62 851

TOTAL 14 051 950 13 521 846

Interest expense and similar charges Trading -9592 -10676 Designatedatfair value through profit and loss -10412 549 -10117 942 Other financial liabilities -1657 092 -1606 558 Non financial liabilities -109 374 -96555

TOTAL -12188 607 -11831 731

Net interest income 1863 343 1690 115

(1) Theinterest income and expenses on derivatives arenetted and amounttoEUR ’000 -7 626 as at 31 December 2007 (EUR ’000 1438 205 as at 31 December 2006). (2) Including in this class of financial asset accrued interests on impaired loans as at 31 December 2007 which amounttoEUR ’000 7832 (2006: EUR ’000 7110). EIB Group 54 Financial Report2007

M.2. Geographical analysis of“Interest and similar income”

31.12.2007 31.12.2006

Germany2356 560 2064 696 Spain 1833 671 1383 077 Italy 1456 260 1109 762 France1437 073 1268 043 United Kingdom 1211 146 1049 415 Portugal 698 928 637 323 Greece533 178 514 423 Austria 292 310 231 919 Poland 287 992 213 364 Finland 227 245 183 542 Hungary197 499 124 049 Belgium 187 366 156 679 Czech Republic 180 895 145 099 Denmark152 085 157 826 Netherlands 151 539 148 943 Ireland 137 067 124 705 Sweden 123 075 106 849 Romania (2) 81 155 0 Slovenia 57 535 43 865 SlovakRepublic 35 134 41 617 Luxembourg34002 36 915 Cyprus 29 550 25 426 Bulgaria (2) 17 465 0 Latvia 16 017 11 773 Estonia 6753 5688 Lithuania 5204 7621 Malta 348 339

Total 11 747 052 9792 958

Outside the European Union (2) 795 520 792 035

12 542 572 10 584 993

Income not analysed (1) 1509 378 2936 853

14 051 950 13 521 846

(1) Income not analysed: 1. Revenue from investmentportfolio securities and ABS portfolio 289 436 210 086 2. Revenue from operational bond portfolios 80 419 55 463 3. Revenue from operational money market portfolio 340 001 317 914 4. Revenue from money-market operations 808 378 926 863 5. Unwinding of interest income from the presentvalue adjustmentofpaid-in capital and reserve receivable 45 663 61 508 6. Adjustmentonearly repayments of loans -54519 -73186 7. Net interest income on derivatives 01438 205 1509 378 2936 853

(2) Theinterest and similar income of the twoNew Member States in 2006 were included in“Outside the European Union» EIB Group – Financial Statements 55 EIB Group

NoteN–Result on financial operations (in EUR ’000)

N.1. Pernatureofresult

31.12.2007 31.12.2006

Net result on derivatives under the fair value option 345 960 120 214 Net result on loans and associatedswaps under the fair value option -147 208 135 554 Net result on borrowings and associatedswaps under the fair value option -896 103 398 952

-697 351 654 720

Value adjustmentonoperational treasuryportfolio -1466 -8845 Minorityinterest (Notes A.4.21 and H) -17316 -18955 Foreignexchange gain/loss 37 334 93 116 Other financial operations 2007 -3733

TOTAL -676 792 716 303

N.2. Percategoryofassets and liabilities

31.12.2007 31.12.2006

Financial assets available-for-sale 0847 Financial assets designatedatfair value through profit and loss -949 088 -1180 487 Financial liabilities designatedatfair value through profit and loss 493 328 6136 450 Financial instruments held fortrading -208 496 -4223 349 Other -12536 -17158

-676 792 716 303

NoteO–Other operating income (in EUR ’000)

31.12.2007 31.12.2006

Income from advisoryactivities 20 369 14 402 Reversal of previous years’unutilized accruals 3597 4426 Other 2560 10 053

26 526 28 881

NoteP–“Feeand commission income” and“Feeand commission expense” (in EUR ’000)

P. 1. Feeand commission income

31.12.2007 31.12.2006

Commission on InvestmentFacility – Cotonou 32 756 33 912 Commission on other European Communityinstitutions and EU countries 44 755 38 539 Commission on financial guarantees 8413 16 847

85 924 89 298

P. 2. Feeand commission expense

31.12.2007 31.12.2006

Commission expense -1842 -589 EIB Group 56 Financial Report2007

NoteQ–General administrativeexpenses (in EUR ’000)

31.12.2007 31.12.2006

Salaries and allowances (*) -171 690 -173 330 Welfarecontributions and other social costs -108 410 -124 890

Staff costs -280 100 -298 220

Other general and administrativeexpenses -85880 -73936

-365 980 -372 156

(*) Of which the amountfor members of the ManagementCommittee is EUR ’000 2655 at 31 December 2007 and EUR ’000 2597 at 31 December 2006.

Thenumber of persons employedbythe Group was1569 at 31 December 2007 (1 475 at 31 December 2006).

NoteR–Derivativefinancial instruments ments with 3-month coupon paymentand reset frequency. Thus,the Group eliminatesinterest-rateand/or exchange R.1. Usage of derivativefinancial instruments risk,while retaining,asintended,the credit risk.

Interest rate and currencyswaps allowthe Group to In the funding activityofthe Group modify the interest ratesand currencies of its borrowing portfolio in order to accommodate requests from its cli- TheGroup uses derivatives mainly as partofits funding ents and also to reducefunding costs by exchanging its strategy in order to bring the characteristics,interms of advantageous access conditions to certain capital mar- currencies and interest rates, of the funds raised into line kets with its swap counterparties.The use of derivatives with those of loans granted and also to reducefunding by the Bank is limited to the hedging of individual trans- costs.Ituses also long-termswaps to hedge certain treas- actions in the area of borrowing and treasuryactivities urytransactions and forALM purposes. and,toaminor degree, to asset and liabilitymanagement. Long-termderivativetransactions arenot used fortrading, but only in connexion with fund-raising and forthe In the liquiditymanagementofthe Group reduction of market risk exposure. TheGroup enters into short-term currencyswapcontracts Allinterest rate and currencyswaps linked to the bor- in order to adjust currencypositions in its operational rowing portfolio have maturities matching the corre- treasuryinrelation to its benchmarkcurrency, the euro, sponding borrowings and arethereforeofalong-term and to caterfor demand forcurrencies in conjunction nature. with loan disbursements.

Thederivatives most commonly used are: Thenotional amountofshort-term currencyswaps and shorttermforward stood at EUR 4841 million at 31 De- cember 2007, against EUR 5602 million at 31 December Currencyswaps 2006. Currencyswaps arecontracts under which it is agreed to convertfunds raised through borrowings into another Long-termfutures arealso used by the Group to adjust currencyand,simultaneously,aforward exchange con- the medium-term(2years) interest rate exposureofits tractisconcluded to re-exchange the twocurrencies in treasurybond portfolios.The notional amountoflong- the futureinorder to be able to repaythe funds raised on term futures stood at EUR 419 million at 31 December the due dates. 2007 (2006: EUR 561 million).

Interest rate swaps In the Asset LiabilityManagementofthe Group

Interest rate swaps arecontracts under which, generally, TheGroup’s policyaims to maintain ahigh and stable it is agreed to exchange floating-rateinterest forfixed- level of income as well as to safeguardthe economic rate interest or viceversa. value of the Group.

Asset swaps Accordingly,the Group:

Asset swaps arearranged forinvestments in bonds thatdo • has adopted an ownfunds investmentprofile ensur- nothavethe desired cash-flowfeatures.Specifically,swaps ing astable and high flowofincome; areused to convertinvestments into floating-rateinstru- EIB Group – Financial Statements 57 EIB Group

• manages residual interest rate risks in relation to this R.2. Fair value of derivativefinancial instruments investmentprofile. With aview to managing residual interest rate risks,the Thetable belowshows the net fair value of derivative Group operates natural hedges in respectofloans and financial instruments,recorded as assets or liabilities borrowings or concludes global hedging operations (in- (between those whose fair value is based on quoted mar- terest rate swaps). ket prices,thosewhosevaluation technique whereall the model inputs areobservable in the market and those Macrohedging swaps used as partofasset/liabilityman- wherethe valuation techniques involves the use of non- agementare marked to market (fair value) in accordance market observable inputs) together with their nominal with IAS 39. amounts.The nominal amounts indicate the volume of transactions outstanding at the year end and areindica- tiveofneither the market risk nor the credit risk.

Derivatives by valuation method as at 31 December 2007 (in EUR million)

Quoted market priceValuation techniques Valuation techniques Total – market observable – non observable inputs market inputs

Notional Net fair Notional Net fair Notional Net fair Notional Net fair amount value amount value amount value amount value

Derivatives relatedtoborrowings 00204 219 2573 18 931 -1353 223 150 1220 Derivatives relatedtoloans 0039 627 -176 2718 -228 42 345 -404 Derivatives relatedtoassets portfolio 0064 -1 0064 -1 Derivatives relatedto Asset LiabilityManagement0054675 -4686 0054 675 -4686 Derivatives relatedto asset backed securities 00132 100132 1 Forwardforeignexchange contracts004841 -18004841 -18 Futures contracts419 30000419 3 OvernightindexedSwaps 006000 2006000 2 Guarantees associatedtoderivatives 00001268 -2 1268 -2

Total 419 3309 558 -2305 22 917 -1583 332 894 -3885

Derivatives by valuation method as at 31 December 2006 (in EUR million)

Quoted market priceValuation techniques Valuation techniques Total – market observable – non observable inputs market inputs

Notional Net fair Notional Net fair Notional Net fair Notional Net fair amount value amount value amount value amount value

Derivatives relatedtoborrowings 00192 033 3471 19 210 -1010 211 243 2461 Derivatives relatedtoloans 0029 298 -1069 1427 -3130725 -1100 Derivatives relatedtoassets portfolio 00126 -2 00126 -2 Derivatives relatedto Asset LiabilityManagement0061586 -2425 188 -1061774 -2435 Derivatives relatedto asset backed securities 0018 10018 1 Forwardforeignexchange contracts005602 -48005602 -48 Futures contracts561 30000561 3 Guarantees associatedtoderivatives 0000876 -1 876 -1

Total 561 3288 663 -7221701 -1052 310 925 -1121

Quoted prices forEIB’s derivativetransactions arenot available in the market.For such instruments the fair values are estimatedusing valuation techniques or models,based whenever is possible on observable market data prevailing at the balancesheet date. EIB Group 58 Financial Report2007

Thefair value of swap transactions is computed using the income approach, applying valuation techniques to convert futureamounts to asingle presentamount(discounted). Theestimate of fair value is based on the value indicatedby marketplace expectations about those futureamounts.Valuation techniques can range from simple discountedknown cashflows to complexoption models.The valuation models applied areconsistentwith accepted economic methodologies forpricing financial instruments,and incorporatethe factors thatmarket participants consider when setting a price.

Foraportion of derivativetransactions,internal estimatesand assumptions mightbeused in the valuation techniques when the market inputs arenot directly available.

NoteS–Fair value of financial assets and liabilities (in EUR million) Thetables belowset out acomparison by categoryofthe carrying amounts and fair values of the Group’s financial assets and financial liabilities thatare carried in the financial statements.The tables do not include the fair values of non-financial assets and non-financial liabilities.

Carrying Fair value Unrecognized Carrying Fair value Unrecognized value 2007 2007 gain/loss value 2006 2006 gain/loss 2007 2006

Financial assets Loans and receivables 241 329 224 381 -16948 240 043 225 154 -14889 Financial assets held fortrading 9566 9566 09474 9474 0 Financial assets designated at fair value through P/L 43 523 43 523 032315 32 315 0 Financial assets – Available forsale 5364 5364 05868 5868 0 Financial assets – Held to maturity9499 9486 -139104 9105 1 Financial liabilities Financial liabilities held fortrading 12 946 12 946 09903 9903 0 Financial liabilities designated at fair value through P/L 231 449 231 449 0221 386 221 386 0 Financial liabilities measured at amortised cost 29 065 29 836 -771 31 666 32 805 -1139

Total unrecognized change in unrealised fair value -17732 -16027

Thefollowing describes the methodologies and assumptions used to determine the fair value of the financial assets and the financial liabilities.

Assets forwhich fair value approximatescarrying value

Forfinancial assets and financial liabilities thatare liquid or having ashorttermmaturity(less than three months), it is assumed thatthe carrying amounts approximate to their fair value.

Assets recorded at fair value

Published pricequotations in an activemarket arethe first source fordetermining the fair value of afinancial instrument. Forinstruments without an available market pricethe fair values areestimatedusing valuation techniques or models, based whenever is possible on observable market data prevailing at the balancesheet date.

Thefair value of such instruments is determined by using valuation techniques to convertfutureamounts to asingle presentamount(discounted). Theestimate of fair value is based on the value indicatedbymarketplaceexpectations about those futureamounts.Valuation techniques can range from simple discountedknown cashflows to complexoption models.The valuation models applied areconsistentwith accepted economic methodologies forpricing financial instruments,and incorporatethe factors thatmarket participants consider when setting aprice.Internal estimatesand assumptions mightbeused in the valuation techniques when the market inputs arenot directly available. EIB Group – Financial Statements 59 EIB Group

Thefollowing tables showananalysis of financial assets and financial liabilities recorded at fair value,between those whose fair value is based on quoted market prices,those whose valuation technique whereall the model inputs areobservable in the market and those wherethe valuation techniques involves the use of non-market observable inputs.

Quoted Valuation Valuation Total 2007 market price techniques techniques 2007 – market – non market observable observable Positivefair Negativefair Total input 2007 input 2007 value value

Financial assets Financial assets held fortrading 508 8563 495 9566 09566 Financial assets designated at fair value through P/L 040576 2947 43 580 -5743523 Financial investments – Available forsale 2090 1039 2235 5364 05364

Total 2598 50 178 5677 58 510 -5758453

Financial liabilities Financial liabilities held fortrading 010866 2080 012946 12 946 Financial liabilities designated at fair value through P/L 203 353 16 147 11 949 -738 232 187 231 449

Total 203 353 27 013 14 029 -738 245 133 244 395

Quoted Valuation Valuation Total 2006 market price techniques techniques 2006 – market – non market observable observable Positivefair Negativefair Total input 2006 input 2006 value value

Financial assets Financial assets held fortrading 695 8155 624 9474 09474 Financial assets designated at fair value through P/L 032202 113 32 359 -4432315 Financial investments – Available forsale 4045 20 1803 5868 05868

Total 4740 40 377 2540 47 701 -4447657

Financial liabilities Financial liabilities held fortrading 08227 1676 09903 9903 Financial liabilities designated at fair value through P/L 201 671 10 508 9207 -697 222 083 221 386

Total 201 671 18 735 10 883 -697 231 986 231 289

Change in fair value of financial instruments desig- EUR 70 million using morefavourable assumptions for natedatfair value through profit and loss using a 31 December 2006. valuation technique based on non marketobservable input,due to alternativeassumptions Financial assets designatedatfair value through Thepotential effectofusing reasonable possible alterna- profit and loss tivenon market observable assumptions as input to valuation techniques from which the fair values of finan- Included in financial asset designatedatfair value cial instruments designatedatFVPL aredetermined has through profit and loss is aportfolio of loans hedged by been quantified as areduction of approximately EUR 32 Interest RatesSwaps and CurrencySwaps. million using less favourable assumptions and an increase of approximately EUR 75 million using morefa- Themaximum credit exposureofthe loans and advances vourable assumptions for31December 2007 and a to customers and to credit institutions designatedatfair reduction of approximately EUR 21 million using less fa- value through profit and loss amounts to EUR 43 523 mil- vourable assumptions and an increase of approximately lion (2006: EUR 32 315 million). Thecumulativechange in EIB Group 60 Financial Report2007

fair value of the loans attributable to change in credit risk counterparty default and arising on credit exposure of Group’s counterparts amounts to again of EUR 2.98 in all forms, including settlementrisk; million (2006: gain of EUR 0.45 million) and the change • Market risk -exposuretoobservable market variables forthe current year is again of EUR 2.53 million (2006: such as interest rates, exchange ratesand equitymar- gain of EUR 0.45 million). Thechanges in fair value of ket prices; financial assets designatedatfair value through profit • Liquidityand fundingrisk -the risk thatthe Group is and loss attributable to changes in credit risk have been unable to fund assets or meet obligations at areason- calculatedbydetermining the change in the Expected able priceor, in extreme situations,atany price. Credit Loss on these loans. Within the Group,the managementand controlofrisks No credit derivatives have been concluded to hedge the is handledseparately by each entity. As aconsequence, credit risk of the financial assets designatedatfair value risk managementinformation presentedinthis notewill through profit and loss. distinguishbetween the Bank and the Fund.

Financial liabilities designatedatfair value through T.1. Risk ManagementOrganisation profit and loss

The financial liabilities designatedatfair value through T.1.1. Risk ManagementOrganisation of the Bank profit and loss aredebts evidenced by certificatesissued by the Group and hedged by Interest Rate Swaps and TheBank aligns its risk managementsystems to changing CurrencySwaps. economic conditions and evolving regulatory standards. It adapts them on an ongoing basis as best market prac- Duetothe solid membership supportand the Group’s ticedevelops.Systems areinplacetocontrol and report prudentfinancial policies,the Group’s credit ratings and on the main risks inherentinits operations,i.e.credit, the outlooks published by all the referencerating agen- market and operational risks. cies did not change during the last years.Inthis context, thecumulativechanges in fair value of financial liabilities TheBank applies best market practiceinorder to analyse designatedatfair value through profit and loss attribut- and manage risks so as to obtain the strongest protection able to changes in the Group’s credit risk and the change forits assets,its financial result,and consequently its of the current year aren’t material in 2006. capital.While the Bank is not subjecttoregulation, it aims to comply in substancewith the relevantEUbanking di- Because of the actual “subprime crisis” and the subse- rectives and the recommendations of the banking super- quent“flighttoquality”of investors on the securitization visors of the EU Member States,EUlegislation and the and bond market,therehas been an improvementin competentsupranational bodies,such as the Basel Com- the perception of credit risk of the Group with respect mittee on Banking Supervision (BCBS). to other players in the Capital Markets,thatcan be seen in the substantial change in the credit spreads of the Thefollowing sections disclose the credit,market and Group with an importantimpactonthe prices of quot- liquidityrisks to which the Bank is exposed on its activi- ed borrowings.The change in fair value of its quoted ties performed on ownresources. financial liabilities designatedatfair value through profit and loss attributable to change on credit risk of TheRisk ManagementDirectorate (RM) has,sinceNovem- the Group,which amountedtoavalue adjustmentof ber 2003, initially been structured around twodepart- EUR 1024 million as at 31 December 2007 in accord- ments – namely the Credit Risk (CRD)and the ALM, ancewith IAS 39, has been calculatedbydetermining Derivatives,Financial and Operational Risk (FRD)Depart- the result of the changes in the quoted fair value minus ments – and aCoordination Division. In 2006, the Bank the changes in fair value due to market risk based on formalised credit risk policies forown resource operations valuation techniques. outside the European Union, expanding CRD’s remit.To preparefor post-signaturemanagementofriskier trans- Theamountthatthe Group would contractually be re- actions resulting from its “take-more-risk” strategy,the quested to payatmaturityoffinancial instruments des- Bank createdin2007 the Transaction Management&Re- ignatedatfair value through profit and loss is EUR 5186 structuring departmentwithin RM. In doing so,the Bank million less than the carrying amount. will separatethe EU-post signatureoperational activity from thatofproviding second opinions. NoteT–Risk management RM independently identifies,assesses,monitors and re- This notepresents information about the Group’s expo- ports the credit,market and operational risks to which the suretoand its managementand controlofrisks,inpar- Bank is exposed in acomprehensiveand consistentway ticular the primaryrisks associatedwith its use of financial and under aconsistentapproach. Within acommonly instruments.These are: defined framework, wherebythe segregation of duties is preserved, RM is independentofthe FrontOffices. • Credit risk -the risk of loss resulting from clientor TheDirectorGeneral of RM reports,for credit,market and EIB Group – Financial Statements 61 EIB Group

operational risks,tothe designatedVice-President. The With respecttoexposures arising from the Bank’s lending designatedVice-Presidentmeets regularly with the Audit and borrowing operations,the main principle of the Committee to discuss topics relating to credit,market and Bank’s financial risk policyisthereforethatall material operational risks.Heisalso responsible foroverseeing risk financial risks arehedged. reporting to the ManagementCommittee and the Board of Directors. Following best market practice, all new types of transaction introducing operational or financial risks must be To supportthe implementation of the Bank’s risk policies, authorised by the ManagementCommittee,after the ap- tworisk-orientedcommittees have been created. proval of the New Products Committee,and aremanaged within approved limits. TheCredit Risk AssessmentGroup (CRAG) is ahigh-level forum fordiscussing relevantcredit risk issues arising in T.1.1.3. Sustainabilityofrevenue andself-financing the course of the Bank’s activities and foradvising the capacity ManagementCommittee on these.Its members arethe Directors General of the Operations,Projects,Risk Man- TheBank’s ALM policyforms an integralpartofthe agement, Financeand Legal Affairs Directorates. The Group’s overall financial risk management. It reflects the CRAG is intended to complement, and does not replace, expectations of the three main stakeholders of the Bank the existing case-by-case review of lending operations, (i.e.the Bank’s shareholders,the Bank’s borrowers and the which remains centraltothe loan approval process. financial markets) in termsofstabilityofearnings,pres- ervation of the economic value of ownfunds,and the An ALM Committee (ALCO),made up of the Directors self-financing of the Bank’s growth in the long term. General of the Operations,Financeand Risk Management Directorates,provides ahigh-level forum fordebating the To achievethese aims,the ALM policyemploys medium Bank’s ALM policyand formaking proposals in this field to long-termindexation forthe investmentofown funds to the ManagementCommittee.Itpromotes and facili- to promotestabilityofrevenues and enhanceoverall re- tatesthe dialogue among the Directoratesrepresented turns.This indexation policyimplies an exposuretome- in it,while providing awider perspectiveon, and enhanc- dium to long-termyields and is not influenced by any ing their understanding of,the main financial risks. short-term viewsontrends in interest rates.

T.1.1.1. Risk measurement andreporting system This is accomplished by targeting aduration forthe Bank’s ownfunds of between 4.5-5.5 years. TheBank’s risks aremeasured using amethod which reflects both expectedlosses likely to arise in normal cir- T.1.2. Risk ManagementOrganisation of the Fund cumstances and unexpectedlosses,which areanestimate of the ultimate actual loss based on aportfolio model. VentureCapital and Garantees operations forboth enti- Themodels make use of probabilities derived from sta- ties of the Group aremanaged by the Fund.The mandate tistics based on historical experiences observedinfinan- of the Fund is to supportsmall and mid-sizeenterprise cial markets.The Bank also runs worst case scenarios that (SME) financefor start-up,growth anddevelopment would arise in the eventthatextreme events which are within European Union objectives forSME. unlikely to occur do,infact, occur. TheFund aligns its risk managementsystems to changing Information on the risk measures described above are economic conditions and evolving regulatory standards. presentedand explained to the ManagementCommittee It thereforeadapts them on an ongoing basis as best mar- on aquarterlybasis and to the BoardofDirectors twicea ket practices develop.Credit,market and operational year.The reports include aggregate credit exposures, systems areinplacetocontrol and reportonthe main credit concentration analyses,VaR, liquidityratios and risk risks inherenttoits operations. profile changes. Risk Managementand Monitoring (RMM) independently T.1.1.2. The Bank’s financial risk tolerance reports directly to the Chief Executive. This segregation of duties and the “four-eyes” principle ensures an unbi- As apublic institution, the Bank does not aim to make ased review of the Fund’s business activities.Moreover, profits from speculativeexposures to financial risks,sets within the EIB Group context, RMM operates in close con- its financialrisk tolerancetoaminimum level as defined tactwith the European InvestmentBank’s Risk Manage- by approved limits,and applies aconservativefinancial mentDirectorate,particularly with regardtoGroup risk framework. exposurerelating to guaranteeoperations,the venture capital operations under the Bank’s Risk Capital Mandate As aconsequence, the Bank does not view its treasuryor (RCM) and general EIF policymatters. funding activities as profit-maximising centres, even though performanceobjectives areattached to those RMM is divided into twomain areas: venturecapital and activities.Investmentactivities areconductedwithin the forportfolio guarantees &securitisation activities.Each primaryobjectiveofprotection of the capital invested. of these encompass aRisk Managementteam and an Ad- EIB Group 62 Financial Report2007

ministration and Monitoring team, adding to atotal of T.2. Credit risk four teams within RMM. T.2.1. Credit risk policies TheFund’s treasurymanagementhas been outsourced to the Bank under atreasurymanagementagreement Credit risk concerns mainly the Group’s lending activityand, signed by both parties and it is carried out according to to alesser extent, treasuryinstruments such as fixed-income EIF treasuryguidelines. securities held in the investmentand operational portfolios, certificatesofdeposit and interbank term deposits as well T.1.2.1. Risk assessment venture capital as the derivatives transactions of the Group and the Fund’s guaranteetransactions funded by ownresources. No cred- Forits venturecapital business,overthe last years,the it risk is attached to the Group’s venturecapital operations, Fund staff has developed atool-set to design, manage which areperformed entirely through equityparticipations and monitor portfolios tailored to the dynamics of this and are, hence, only exposed to market risk. market place, going beyond the typical and often-simplistic recipe of investing only in topquartile funds.This tool- TheEIB’s policies on credit risk areapproved by the Bank’s set is based on an internal model,the Grading-based governing bodies.They set out minimum credit qualitylev- Economic Model (“GEM”), which allows the Fund to better els forboth borrowers and guarantors in lending operations assess andverify funds’valuations and expectedperform- and identify the types of securitythatare deemed accept- ance. This effort, supportedbythe developmentofapro- able.They also detail the minimum requirements which prietaryITsystemand an integratedsoftware(frontto loan contractsmust meet in termsofkey legal clauses and back), improves the investmentdecision-making process other contractual stipulations to ensurethatthe Bank’s po- and the managementofthe portfolio’sfinancial risks and sition ranks at least as high as thatofother senior lenders, of liquidity. with prompt access to securitywhen required.Inaddition, via acounterpartand sectorlimit system, the credit policies Under its venturecapital operations,the Fund is afund ensureanacceptable degreeofdiversification in the Bank’s of funds,taking minorityequityparticipations in funds loan portfolio.The Bank’s limit system drawsits inspiration managed by independentteams in order to catalyse fur- from the traditional prudential regulations on concentration ther commitments from awide range of investors.The and large exposuremanagementcontained in the EU bank- Group’s venturecapital (“VC”)operations include investing directives,though the Bank generally adopts amore ments in early-stage and seed capital,but also increas- restrictiveapproach to risk-taking than commercial banks. ingly in well-established funds targeting mid- and They also set out the minimum credit qualityofcounterpar- later-stage investments,which, generally speaking,have ties of derivatives and treasurytransactions as well as the alower risk profile. contractual frameworkfor each type of transaction.

T.1.2.2. Risk assessment guarantees As regards lending,treasuryand derivatives operations, credit risk is managed by the independentRisk Manage- TheFund extends portfolio guarantees to financial inter- mentDirectorate (RM) under the directresponsibilityof mediaries involved in SME financing,and by taking on the the ManagementCommittee.The Bank has thus estab- risk faced by those institutions,itfacilitatesaccess to lished an operationally independentstructurefor deter- funding,and,inturn, it helps to financeSMEs. mining and monitoring credit risk.

Forits guarantee&securitisation business,overthe last TheFund manages exposures and risk taking in the frame years,the Fund’s staff has developed atool-set to ana- of conservativepolicies deriving from statutoryprovi- lyse portfolio guaranteeand structured financial trans- sions and Credit Risk PolicyGuidelines approved by the actions in line with best market practices.Beforethe Fund’s BoardofDirectors or guidelines as set out under Fund enters legally into aguaranteetransaction, Guar- mandates. antees &Securitisation, within the Investments department, assigns an internal rating to each new ownrisk Credit policies undergo periodic adaptations to incorpo- guaranteetransaction in accordancewith the Fund’s rate evolving operational circumstances and respond to Credit Risk PolicyGuidelines.The rating is based on in- new mandatesthatthe Bank mayreceivefromits share- ternal models,which analyse and summarise the trans- holders. action’s credit quality(expectedloss concept), considering not only quantitativeparameters but also Managementofcredit risk is based,firstly,onthe degree qualitativeaspects.Guaranteetransactions aremoni- of credit risk vis-à-vis counterparties and,secondly,onan toredregularly,atleast quarterly. analysis of the solvencyofcounterparties. EIB Group – Financial Statements 63 EIB Group

T.2.2. Maximum exposuretocredit risk without taking into accountany collateraland other credit enhancements

Thetable belowshows the maximum exposuretocredit risk forthe components of the balancesheet,including derivatives.The maximum exposureisshown gross,beforethe effectofmitigation through the use of collateralagreements.

Maximum exposure2007 Maximum exposure2006 (in EUR million) (in EUR million)

Financial assets Loans and receivables 241 329 240 043 Financial assets held fortrading 9566 9474 Financial assets designatedatfair value through P/L 43 523 32 315 Financial assets – Available forsale 5364 5868 Financial assets – Held to maturity9499 9104 Non financial assets 466 555

Total 309 747 297 359

Off-balance-sheet Contingentliabilities 3773 3119 Commitments -Undisbursed loans 53 607 53 572 -Undisbursed VentureCapital operations 1421 1406 -Other 771 564

Total 59 572 58 661

Total credit risk exposure369 319 356 020

Wherefinancial instruments arerecorded at fair value,the amounts shown above representmaximum risk exposurethat could arise in the futureasaresult of change in values.

Formoredetail on the maximum credit exposuretocredit risk foreach class of financial instrument, references shall be made to the specific notes.

T.2.3. Credit risk on loans • as an aid to afiner and morequantitativeassessment of lending risks T.2.3.1. Credit risk measurement for loans andadvances • as help in distributing monitoring efforts to customers andcredit institutions • as adescription of the loan’s portfolio qualityatany givendate In line with best practiceinthe banking sector, an inter- • as abenchmarkfor calculating the annual additions nal loan grading system (based on the expectedloss to the Fund forgeneral banking risks methodology) is implementedfor lending operations. This has become an importantpartofthe loan apprais- • as one input in risk-pricing decisions based on the al process and of credit risk monitoring,aswell as pro- expectedloss. viding areferencepointfor pricing credit risk when appropriate. Thefollowing factors enterintothe determination of an LG: Theloan grading (LG) system comprises the methodologies,processes,databases and IT systems supporting the i) Theborrower’screditworthiness: RM/CRD independ- assessmentofcredit risk in lending operations and the ently reviewsborrowers and assesses their creditwor- quantification of expectedloss estimates. It summarises thiness based on internal methodologies and external alargeamountofinformation with the purpose of offer- data. ing arelativeranking of loans’credit risks.Atthe EIB,LGs ii) Thedefault correlation: it quantifies the chances of reflectthe presentvalue of the estimatedlevel of the“ex- simultaneous financial difficulties arising forboth the pectedloss”,this being the productofthe probabilityof borrowerand the guarantor. Thehigher the correla- default of the main obligors,the exposureatrisk and the tion between the borrowerand the guarantor’sde- loss severityinthe case of default.LGs areused forthe fault probabilities,the lowerthe value of the following purposes: guaranteeand thereforethe lowerthe LG. EIB Group 64 Financial Report2007

iii) Thevalue of guaranteeinstruments and of securities: principal to the Group aregraded Fand aspecific pro- this value is assessed on the basis of the combination vision is applied. of the issuer’s creditworthiness and the type of instru- mentused. Generally,loans internally graded D- or beloware placed iv) Thecontractual framework: asound contractual on the WatchList.However,under the Structured Finance frameworkwill add to the loan’s qualityand enhance Facility(SFF) and the Special Femip Envelope (SFE), a its internal grading. limited amountofcredit exposures with an original LG of D- or less can be accepted.Adedicatedreserve of v) Theloan’s duration: all else being equal,the longer EUR 1250m is set aside to meet the higher credit risks the loan, the higher the risk of incurring difficulties in implied by such operations. the servicing of the loan. Aloan’s expectedloss is computed by combining the five In addition to the deal-by-deal analysis of each loan, the elements discussed above.Depending on the level of this Group,using an external credit softwarepackage,also de- loss,aloan is assigned to one of the following LG classes velops aportfolio view of credit exposures,integrating the listed below. concentration and correlation effects createdbythe de- pendenceofvarious exposures on common risk factors.By APrime qualityloans: thereare three sub-categories. adding aportfolio dimension of credit risks,itispossible to A° comprises EU sovereignrisks,thatisloans granted complementthe LG’s deal-by-deal approach and thus pro- to – or fully,explicitly and unconditionally guaran- vide afiner and morecomprehensiverisk assessmentof teed by – Member States wherenorepaymentdif- the credit risks in the Group’s loan book.The EIB has also ficulties areexpected. A+ denotes loans granted to developed an internal rating methodology (IRM) to deter- (or guaranteed by)entities other than Member mine the internal ratings of all its counterpartexposures. States,with no expectation of deterioration over Themethodology is based on asystemofscoring sheets. their duration. BHigh qualityloans: these representanassets class T.2.3.2. LoanssecuredbyGuaranteesofthe Community with which the EIB feels comfortable,although ami- budget or the Member States nor deterioration is not ruled out in the future. B+ and B- areused to denotethe relativelikelihood of the Loans outside the Community(apartfromRisk Sharing possibilityofsuch deterioration occurring. loans and article 18 Facilities,and those falling under the PreAccession Facility, the Mediterranean Partnership Fa- CGood qualityloans: an example could be unsecured cility, the Energy SustainabilityFacilityand the EFTAFacil- loans to solid banks and corporates with a7-year ity) are, in the last resort, secured by guarantees of the bullet,orequivalentamortising,maturityatdis- bursement. Communitybudget or the Member States (the Guaran- tees). In South Africa, Latin America and Asia, Southern DThis rating class represents the borderline between Mediterranean, EasternEurope,SouthernCaucasus and “acceptable quality”loans and those thathaveexpe- Russia the guaranteeisprovided by the Community, and rienced some difficulties.This watershed in loan in African, Caribbean and Pacific (ACP) countries as well grading is moreprecisely determined by the sub- as OCTs,the loans arebenefiting from the Member States classifications D+ and D-.Loans ratedD-require guarantee. Operations focus primarily on the infrastruc- heightened monitoring. ture, energy and the environmentsectors,aswell as sup- EThis LG categoryincludes loans thatinthe course of porting SMEs through credit lines to intermediaries their lives have experienced severeproblems and (Global Loans). their sliding into asituation of loss cannot be exclud- ed.For this reason, they requirecareful,close and high In accordancewith the termsofthe Guarantees,the Com- monitoring.The sub-classes E+ and E- differentiate munityand the Member States secureupto65%,75% the intensityofthis special monitoring process,with and 100%ofapool of signed 1 operations,which -inview those operations graded E- being in aposition where of the traditionally lowdisbursed vs.signed operations thereisastrong possibilitythatdebt servicecan not ratio outside the EU -result in an effectivefull coverage of be maintained on atimely basis and thereforesome the Group’s disbursed exposure. Forthis reasons,the form of debt restructuring is required,possibly lead- Group deems the credit risk associatedtoeach individual ing to an impairmentloss. loan as fully risk covered and thereforethe Guaranteed FF(fail) denotes loans representing unacceptable risks. portfolio is not included in the section T.2.3 analysing the F-graded loans can only arise out of outstanding credit risk exposureofthe Group’s lending activities. transactions thathaveexperienced,after signature, unforeseen, exceptional and dramatic adverse cir- Falling into this category, the total amountofloans signed cumstances.All operations wherethereisaloss of as at 31 December 2007 amounts to EUR 23 809 million

(1) Underthe newGuaranteeAgreementwith the Commission signed on 1and 29 August 2007, all Communityguaranteed operations signed on and after 17 April2007 shall be covered up to 65 %of“the aggregate amountofcredits disbursed”.Asof31December 2007, the disbursed exposureunder the newGuaranteeAgreementamountedtoEur 93.38million. Theresidual risk borne by the Group in connection with operations shall be assessed and monitored by the Group yearly,onaportfolio basis,starting 2008. In addition, underwriting and monitoring of such operations arebased on the funda- mental credit rules and procedures. EIB Group – Financial Statements 65 EIB Group

(2006: EUR 23 374 million) including an undisbursed cording to generally accepted criteria, based on the qual- amountofEUR 9180 million (2006: EUR 9473 million). ityofthe borrower, the guaranteeand,whereappropriate, the guarantor. T.2.3.3. Analysis of lending credit risk exposure In detail,the tables belowshowthe maximum exposure In order to limit the credit risk on its loan portfolio,the to credit risk on loans (the repayable on demand and Group lends only to counterparties with demonstrated other loans and advances to credit institutions arenot creditworthiness over the longer term and sound guar- included) signed and disbursed as well as the partofthe antees. exposurethathas been signed but not disbursed yetfor all exposurewherethe Group is at risk,excepted the loans In order to efficiently measureand manage credit risk on secured by guarantees of the Communitybudget or the loans,the Group has graded its lending operations ac- Member States.

2007 Guarantor Total Signed not (in EUR million) disbursed disbursed CorporateBank Public State

Corporate36944 26 912 4750 14 089 82 695 15 270 Bank 14 691 39 342 41 100 9922 105 055 10 399 Borrower Public 4173 1094 26 011 16 965 48 243 11 782 State00018 138 18 138 6975

Total disbursed 55 808 67 348 71 861 59 114 254 131 44 426

Signed not disbursed 9691 8780 12 798 13 157 44 426

2006 Guarantor Total Signed not (in EUR million) disbursed disbursed CorporateBank Public State

Corporate32382 25 664 4084 14 709 76 839 18 119 Bank 15 123 38 991 42 194 11 342 107 650 9216 Borrower Public 4318 1316 21 390 15 291 42 315 11 776 State00016 911 16 911 4989

Total disbursed 51 823 65 971 67 668 58 253 243 715 44 100

Signed not disbursed 10 175 9614 12 719 11 592 44 100

T.2.3.3.1. Credit qualityonloans

Theoverall credit qualityofrisk portfolio continues to presentanexcellentprofile,with loans internally graded AtoC representing 97.2%ofthe loan portfolios as at 31 December 2007, compared with 96.8%atend-2006. Theshareofloans internally graded D+, the lowest acceptable internal grading forstandardloan operations,was 1.8%(2006: 2.7%) of the loan portfolio,corresponding to EUR 5.3 billion (2006: EUR 7.8 billion).

To mitigate credit risk,the Group uses,amongst others,the following instruments:

• Guarantees issued by thirdparties of acceptable credit quality • Financial collaterals • Mortgages,claims on revenues etc.

Allcredit risk mitigation instruments accepted by the Bank have been defined in the Credit Risk PolicyGuidelines. EIB Group 66 Financial Report2007

Credit qualityanalysis pertypeofborrower

Thetables belowshowthe credit qualityanalysis of the Group’s loans portfolio as at 31 December 2006 and 31 December 2007 by the Loan Grading application, based on the exposures signed (disbursed and undisbursed).

2007 Sovereign (*) High Grade Standard Min. Accept. High Risk Past Due/ Total (in EUR million) Grade Risk Impaired (**)

A0, PAto B- CD+D-and below (*)

Corporate15158 56 860 18 041 5289 2226 390 97 964 Bank 8155 101 640 5297 19 343 0115 454 Borrower Public 18 657 40 532 836 00060025 State22874 02240 00025114

TOTAL 64 844 199 032 26 414 5308 2569 390 298 557

2006 Sovereign (*) High Grade Standard Min. Accept. High Risk Past Due/ Total (in EUR million) Grade Risk Impaired (**)

A0, PAto B- CD+D-and below (*)

Corporate16187 53 112 17 319 7139 965 236 94 958 Bank 9442 99 326 7809 155 133 0116 865 Borrower Public 17 129 35 432 1269 261 0054 091 State21208 0493 200 0021 901

TOTAL 63 966 187 870 26 890 7755 1098 236 287 815

(*) Including loans guaranteed by EU Member States as well as loans under the Pre-Accession Facility (**) As at 31 December 2006 and 31 December 2007, the Group holds no past due loans.Furthermore, during the 2006 and 2007 years,the Group did not take possession of collateralithold as securityonpast due loans.

During the 2006 and 2007 years,therewerenodefaults or breaches on existing loans payable and the Group does not maintain anyrestructured loans in its risk portfolio.

With the decision in favour of the Internal Ratings Based approach of Basel II, the Group has introduced an internal rating methodology in 2006. Aconsiderable amountofthe counterparts have already been ratedaccording to this model.The table belowshows abreakdown of the Group’s loan portfolio by the rating of the borrower, based on the internal rating, whereavailable.Incases whereaninternal rating is not available yet, the external rating has been used forthis analysis. EIB Group – Financial Statements 67 EIB Group

Credit risk exposurefor each internal risk rating

Thetable shows both the exposures signed (disbursed and undisbursed), as well as the risk-weightedexposures,based on an internal methodology thatthe Group uses forlimit management.

Rating Grade Moody’s 1-yhistory 2007 2006 equiv.grade Def. rate (in EUR million) (in EUR million)

Exposures Weighted Exposures Weighted Signed Exposures (1) Signed Exposures (1)

No rating available n/a n/a 0% 002838 1072 Internal Rating 11Aaa0%27812 2405 30 573 2491 2+ Aa10%30677 3100 23 229 4913 Internal 2Aa2 0% 33 930 14 415 36 070 11 033 Rating 2 2- Aa30%30273 12 070 32 651 13 720 3+ A1 0% 36 459 14 476 34 945 12 502 Internal 3A20%32497 11 650 34 750 13 781 Rating 3 3- A3 0% 28 876 16 218 12 913 9128 4+ Baa1 0% 30 513 16 136 38 343 15 805 Internal 4Baa2 0% 5681 2561 3130 1657 Rating 4 4- Baa3 0% 31 711 15 856 28 912 12 270 5+ Ba1 0% 1405 823 1715 1604 Internal 5Ba2 0% 1568 1114 962 480 Rating 5 5- Ba3 0% 1411 736 968 436 6+ B1 0% 4940 1921 5638 2046 Internal 6B20%93747425 Rating 6 6- B3 0% 623 312 00 Internal Rating 77C0%8814104 16

TOTAL 298 557 113 881 287 815 102 979

T.2.3.3.2. Risk concentrations of maximum exposuretocredit risk on loans TheGroup’s loans portfolio can be analysed by the following geographical regions (based on the countryofthe borrower):

2007 (in EUR million) 2006 (in EUR million)

Exposures Signed WeightedExposures (1) Exposures Signed WeightedExposures (1)

EU (*) 291 519 110 866 282 530 100 410 Thereof : -Germany46523 12 268 47 103 11 721 -Spain 47 188 12 408 44 998 11 498 -Italy 40 061 19 392 38 945 17 242 -France33632 14 956 33 055 14 137 -United Kingdom 25 550 17 946 26 246 17 242 ENLARGEMENT COUNTRIES (**) 4207 1753 2813 1267 PARTNER COUNTRIES (***) 2831 1262 2472 1302

TOTAL 298 557 113 881 287 815 102 979

(1) Risk-weights arepercentages (from 0%to 100%) applied to the outstanding nominal amounts of loans or other credit exposures (e.g.deposits,derivatives and securities). They depend on the perceived credit risk representedboth by the types of claims and by the natureofthe main obligatororguarantor. The main risk-weights are0%(Member States,German and Austrian Länder), 20%(public institutions), 50%(banks) and 100%(corporates), or broadly those applied within the 1988 BIS Capital Accord and EU Capital AdequacyDirective. (*) Including loans outside the EU approved by the BoardofGovernors according to Article 18 of the Bank’s Statuteaswell as loans in EFTAcountries (**) EnlargementCountries as per end 2006 include Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYROM, Romania, Serbia and Montenegro,and Turkey. (***) Loans in Partner Countries include loans under the Mediterranean Partnership Facility, the Pre-Accession Facility, and Risk Sharing loans. EIB Group 68 Financial Report2007

Acritical elementofrisk managementistoensureadequate diversification of credit exposures.The Group tracks its global exposurebyindustry(shown in the following table), paying particular attention to industries thatmightbecyclical, volatile or undergoing substantial changes.

An industrysectoranalysis of the Group’s loan portfolio (based on the industrysectorofthe borrower) is as follows:

2007 (in EUR million) 2006 (in EUR million)

Exposures Signed WeightedExposures (1) Exposures Signed WeightedExposures (1)

Energy 24 240 17 771 21 897 15 360 Transport32806 10 158 33 634 9902 Telecommunications 662 355 562 216 Waterand sewerage 10 011 5795 9835 6227 Miscellaneous Infrastructure2465 902 2237 882 Agriculture, forestryand fisheries 45 23 90 45 Industry13759 11 119 13 375 8961 Services 210 513 66 327 202 553 59 974 Health and education 4056 1431 3632 1412

TOTAL 298 557 113 881 287 815 102 979

Theprinciple of risk diversification is at the core of sound banking practices.The Group places limits on the maximum amountthatcan be lenttoasingle borrower, group of debtors or sectors.Inaddition, it follows the evolution of credit risk concentration using the concept of Credit Value at Risk (CVaR). This is done using atool forassessing portfolio risk duetochanges in debt value caused by changes in obligor credit quality. Importantly,this methodology assesses risk within the full contextofaportfolio and addresses the correlation of credit qualitymoves across obligors.This allows the Group to directly calculate the diversification benefits or potential over-concentrations across the portfolio.

Thetable belowshows the concentration indexesthe Group follows as at 31 December 2006 and 31 December 2007:

End-of-Period 2007 2006

Largest Nominal and Risk-WeightedGroup Exposures (*) Nominal Exposures (%of EIB Loan Portfolio) -Top 38.2%8.5% -Top 511.7%12.1% -Top 10 18.8%19.4% Number of Exposures (%of EIB OwnFunds) -over10% 13 13 -over15% 66 -over20% 23

Number of SSSR Exposures over 5%of EIB OwnFunds (**) 23

Sum of all Large Risk-WeightedExposures (%of EIB OwnFunds) (***) 85%86%

(*) Including also the net market exposureoftreasuryoperations (**) The terms “single signature” and “single risk” (or forbrevity, “unsecured” or “SSSR”)loans areused to indicate those lending operations wherethe EIB, irrespectiveofthe number of signatures provided,has no genuine recourse to an independentthirdparty,ortoother formsofautonomous security. (***) TheEIB defines aLarge Individual Exposureasaconsolidatedgroup exposurethat, when computed in risk-weightedterms,isatorabove 5%of the EIB’s ownfunds.This definition applies to single individual borrowers or guarantors,excluding loans to Member States and loans fully covered by an explicit guaranteefrom, or secured by bonds issued by,Member States. EIB Group – Financial Statements 69 EIB Group

T.2.3.4. Collaterals on loans

Among other credit mitigantinstruments,the Group also uses pledges of financial securities.These pledges areformalized through aPledge Agreement, enforceable in the relevantjurisdiction. TheGroup does not have righttosell or repledge them. Theportfolio of collaterals received in pledge contractsamounts to EUR 11 123 million (2006: EUR 8940 million).

Thefair value of the portfolio of collateralreceived by the Group under pledge contractsthatthe Group is allowedtosell or repledge amounts to EUR 3446 million (2006: EUR 2629 million). None of these collaterals has been sold or re-pledged to thirdparties.

T.2.4. Credit risk on treasurytransactions

T.2.4.1. Credit risk measurement on treasurytransactions Treasuryinvestments aredivided into three categories: (i) monetarytreasuryassets,with the primaryobjectiveofmain- taining liquidity; (ii) operational bond portfolios,asasecond liquidityline; and (iii) an investmentportfolio composed of EU sovereignbonds.InSeptember 2006, the ManagementCommittee decided to gradually phase out the investment portfolio (see A.4.7.2.).

Credit risk policyfor treasurytransactions is monitored through the attribution of credit limits to the counterparts for monetaryand bond transactions and short-term derivatives.The weightedexposurefor each counterpartmust not exceed the authorised limits.

Thetables belowprovide an illustration of the credit exposureofthe Group various treasuryportfolios as at 31 December 2007 and 31 December 2006:

Credit Risk Exposures as at 31 December 2007 (in EUR million) (based on book values)

Shortterm Long term external rating Total external rating

A-1+/P-1

A1 Portfolio max Maturity3months Deposits 0604454 6691 011205 Triparty Reverse Repos 002504 2108 04612 Discountpapers,Bonds 576 0417 1063 136 2192 A2 Portfolio max Maturity18months 40 060948 706 1754

Total MonetaryTreasuryAssets 616 60 7435 10 810 842 19 763

Repartition 3% 0% 38%55% 4% 100%

B1 Portfolio 0011 296 934 1241 B2 Portfolio 000109 53 162 B3 Portfolio 0075 151 279 505 BH Portfolio (futures) 000303 EIF -AFS 00016 113 129

Total Operational Bond Portfolios 0086 575 1379 2040

Repartition 0% 0% 4% 28%68% 100%

InvestmentPortfolio 054308 697 1518 2577

Repartition 0% 2% 12%27% 59%100%

Assets backed securities 0056 186 4488 4730

Repartition 0% 0% 1% 4% 95%100%

Total TreasuryFunds 616 114 7885 12 268 8227 29 110

Repartition 2% 0% 27%42% 29%100% EIB Group 70 Financial Report2007

Credit Risk Exposures as at 31 December 2006 (in EUR million) (based on book values)

Shortterm Long term external rating Total external rating

A-1+/P-1

A1 Portfolio max Maturity3months Deposits 0463048 5770 163 9027 Triparty Reverse Repos 001181 4390 05571 Discountpapers,Bonds 2848 0116 473 37 3474 A2 Portfolio max Maturity18months 00135 1245 1306 2686

Total MonetaryTreasuryAssets 2848 46 4480 11 878 1506 20 758

Repartition 14%0%22% 57%7%100%

B1 Portfolio 000267 1038 1305 B2 Portfolio 000102 53 155 B3 Portfolio 0069 193 430 692 BH Portfolio (futures) 000303 EIF -AFS 002049 51

Total Operational Bond Portfolios 0071 565 1570 2206

Repartition 0% 0% 3% 26%71% 100%

InvestmentPortfolio 0124 333 885 1554 2896

Repartition 0% 4% 11%31% 54%100%

Assets backed securities 00067 2667 2734

Repartition 0% 0% 0% 2% 98%100%

Total TreasuryFunds 2848 170 4884 13 395 7297 28 594

Repartition 10%1%17% 47%25% 100%

Thecredit risk associatedwith treasury(the securities T.2.4.2. Collateralontreasurytransactions portfolio,commercial paper,termaccounts,etc.) is rigorously managed through selecting first-class counterpar- Part of treasurytransactions aretripartitereverse repur- ties and issuers. chase agreements,for an amountofEUR 4612 million (2006: EUR 5571 million). These transactions aregov- Limits governing the structureofthe securities portfolio erned by aTripartiteAgreementGuidelines and areim- and outstanding treasuryinstruments have been laid plementeddepending on the acceptabilityofcollateral down by Management, in particular on the basis of the and valuations parameters.The exposureisfully collater- ratings awarded to counterparties by the rating agencies alized,with daily margincalls.The market value of the (these limits arereviewed regularly by the Risk Manage- collateralportfolio is monitored and additional collateral mentDirectorate). is requested when needed in accordancewith the underlying agreement. As partofits treasurymanagementactivities,the Group holds investments in capital guaranteed notes,the cou- TheBank also makes use of master netting agreements pons of which embed options on the performanceof with counterparties. funds of hedge funds.Asat31December 2007, the total nominal amountofsuch notes,thatare partofthe op- As partofthe TripartiteAgreements,the Group has re- erational bond portfolio stood at EUR 150 million (market ceived securities thatitisallowedtosell or re-pledge.The value of EUR 162 million). fair value of the securities accepted under theses terms EIB Group – Financial Statements 71 EIB Group

as at December 31, 2007 amounts to EUR 4611 million alised. TheGroup has the rightofearly termination if the (2006: EUR 5886 million). None of these securities has rating drops belowacertain level. been sold or re-pledged to thirdparties in 2006 and 2007. During the 2006 and 2007 years,the Group did not take Limits have been set in terms of: possessionofany of the above mentioned collaterals. • Total net presentvalue of derivatives exposurewith a T.2.4.3. Securities lending activity counterparty; • Unsecured exposuretoacounterparty; Themarket value of the bonds lentinthe securities lending activities is at the end of 2007 of EUR 965 million • Specific concentration limits expressed as nominal (2006: EUR 936 million). These transactions aregoverned amount. by an agreementsigned with NorthernTrust and the ex- Alllimits aredynamically adapted to the credit qualityof posurearising from these transactions is fully collateral- thecounterparty. ised,with daily margincalls. Monitoring: As partofthe securities lending agreement, the Group receives securities,itisallowedtosell or repledge.The fair Thederivatives portfolio is regularly valued and compared value of the collateralportfolio at 31 December 2007, ac- against limits. cepted under these terms, amounts to EUR 992 million (2006: EUR 964 million). None of these securities has been Collateralisation: sold or re-pledged to thirdparties in 2006 and 2007. • Derivatives exposureexceeding the limit forunse- T.2.5. Credit risk on derivatives cured exposureiscollateralised by cash and first-class bonds. T.2.5.1. Credit risk policies for derivatives • Very complexand illiquid transactions requirecollat- eralisation over and above the current market value. Therisk policyfor derivativetransactions is based on the definition of eligibilityconditions and rating-relatedlim- • Both the derivatives portfolio with individual coun- itsfor swap counterparts.Inorder to reducecredit expo- terparties and the collateralreceived areregularly sures,the Group has signed Credit SupportAnnexeswith valued,with asubsequentcall foradditional collateral or release. the majorityofits swap counterparts and receives collaterals when the exposureexceeds certain contractually Theamountofcollateralrequired depends on an assess- defined thresholds. mentofthe credit risk of the counterparty.Guidelines are implementedregarding the acceptabilityofcollaterals Thecredit risk with respecttoderivatives lies in the loss and valuations parameters. which the Group would incur were acounterparty unable to honour its contractual obligations. Themain types of collateralobtained arecash or securities.

In view of the special natureand complexityofthe de- Themarket value of the collateralismonitored and ad- rivatives transactions,aseries of procedures has been put ditional collateralisrequested when needed in accord- in placetosafeguardthe Bank against losses arising out ancewith the underlying agreement. of theuse of such instruments. T.2.5.2. Credit risk measurement for derivatives Contractual framework: Thecredit risk associatedwith derivatives varies accord- Allthe Group’s long-termderivatives transactions arecon- ing to anumber of factors (such as interest and exchange cluded in the contractual frameworkofMaster Swap rates) and generally corresponds to only asmall portion Agreements and,wherenon-standardstructures arecov- of their notional amount. ered,ofCredit SupportAnnexes, which specify the conditions of exposurecollateralisation. These aregenerally Thenotional amountisaderivative’sunderlying contract accepted and practised contract types. amountand is the basis upon which changes in the value of derivatives aremeasured.Itprovides an indication of Counterparty selection: the underlying volume of business transactedbythe Group but does not provide anymeasureofrisk.The ma- Theminimum rating at the outset is set at A1, but excep- jorityofderivatives arenegotiatedastoamount, tenor tionally certain counterparties ratedA2/A3 have also and price, between the Group and its counterparties, been authorised,all their exposures being fully collater- whether other professionals or customers (OTC). EIB Group 72 Financial Report2007

In the Group’s case,whereonly mutually agreed deriva- Group’s favour if all the relevantcounterparties of the tives arenegotiated, the credit risk is evaluatedonthe Group were to default at the same time,and transactions basis of the“current exposure”method recommended by could be replaced instantaneously.Negativereplacement the Bank forInternational Settlements (BIS). Hence, the value is the cost to the Group’s counterparties of replac- credit risk is expressed in termsofthe positivefair value ing all their transactions with the Group wherethe fair or replacementvalue of the contracts, increased by the value is in their favour if the Group were to default.The potential risks (add-on), contingentonthe duration and total positiveand negativereplacementvalues arein- type of transaction, weightedbyacoefficientlinked to cluded in the consolidatedbalancesheet separately. the categoryofcounterparty (BIS Iweightedrisk). Thefollowing table reports the nominal amountofthe port- Positivereplacementvalue represents the cost to the folio of Derivatives covered by ISDAagreements,aswell as Group of replacing all transactions with afair value in the the exposuremeasured through the BIS Imethodology.

End of period 2007 (EUR million) 2006 (EUR million)

Nominal Value of outstanding Derivatives 331 207 309 488 Total BIS ICredit Risk Equivalent(afternetting) 5101 5002 WeightedBIS ICredit Risk Equivalent(afternetting) 1007 985 Gross Exposure(afternetting) 2012 2206 Total Net Market Exposure (1) 670 606 (1) Positiveexposurenet of collaterals received.

TheNet Market Exposureisthe net presentvalue of aswapportfolio net of collateral, if this amountispositive; in the case theamountisnegative, the Net Market Exposureisnull.Itrepresents ameasureofthe losses the Bank could incur in case of default of the counterparty,after application of netting and using the collateral.

TheBIS Credit Risk Equivalentisthe sum of the Net PresentValue of the swap plus an Add-On equal to the Notional Amount multiplied by acoefficientdependentonthe structureofthe swap and its maturity(according to the Basel Agreement), meant to cover potential futureincreases in exposures due to changing market conditions over the residual lifeofthe swap.

Themajor partofderivatives transactions areconcluded with counterparties ratedatleast A1. With exceptional conditions of over-collateralisation, counterparties ratedA2orA3havebeen also accepted.Consequently,most of the portfolio is concentrated on counterparties ratedA1orabove.

Grouped Ratings Percentage of Nominal Net Market Exposure CRE BIS ISwaps (in EUR million) (in EUR million)

Moody’s or equivalentrating 2007 2006 2007 2006 2007 2006

Aaa3.3%5.5%0064 186 Aa1toAa3 86.1%74.2%649 563 4366 3843 A1 8.7%16.0%1941504 601 A2 to A3 1.9%4.3%22165 370 Non-rated 0.0%0.0%0022

Total 100.0%100.0%670 606 5101 5002

Thefollowing tables showthe maturities of currencyswaps (excluding short-term currencyswaps) and interest rate swaps, sub-divided according to their notional amountand the associatedcredit risk:

Currencyswaps at 31.12.2007 less than 1year to 5years to morethan Total 2007 (in EUR million) 1year 5years 10 years 10 years

Notional amount8326 30 182 19 480 12 965 70 953 Net discountedvalue -1012 -1766 -2021 -315 -5114 Credit risk (BIS Iweighted) 53 423 311 277 1064

Currencyswaps at 31.12.2006 less than 1year to 5years to morethan Total 2006 (in EUR million) 1year 5years 10 years 10 years

Notional amount8888 23 471 15 784 11 148 59 291 Net discountedvalue -1215 -908 -447 -6 -2576 Credit risk (BIS Iweighted) 49 250 256 289 844 EIB Group – Financial Statements 73 EIB Group

Interest rate swaps at 31.12.2007 less than 1year to 5years to morethan Total 2007 (in EUR million) 1year 5years 10 years 10 years

Notional amount27759 83 255 70 634 67 863 249 511 Net discountedvalue (*) 198 689 -411 724 1200 Credit risk (BIS Iweighted) 76 361 571 903 1911

Interest rate swaps at 31.12.2006 less than 1year to 5years to morethan Total 2006 (in EUR million) 1year 5years 10 years 10 years

Notional amount37278 84 434 61 385 60 691 243 788 Net discountedvalue 178 156 -1175 2148 1307 Credit risk (BIS Iweighted) 70 334 327 1085 1816 (*) Thenet discountedvalue of Credit Default Swaps (CDS) has been included with the rest of derivatives,sinceaccording to IAS39, CDS aretreated as derivatives,however,these transactions have not been included in the BIS computations,sinceinthe Basel AgreementBIS I, they areassimilatedto guarantees and their capital charge is computed in the loan portfolio.

As at 31 December 2007, notional amounts of verse Dual Currency. Their ’fair value’isEUR -219 million. EUR 419 million (2006: EUR 561 million) of futures con- These transactions areverydependentonthe exchange tracts and EUR nil of ForwardRateAgreements (2006: rate USD/JPYand have embedded options allowing foran EUR 823 million), with respectivefair values of early termination. An appreciation of 5%of the USD with EUR 2.9 million (2006: EUR 2.6 million) and EUR nil (2006: respecttoJPY will imply a’fair value’ofEUR -187 million, EUR 0.2 million) and amaturityless than 1year areout- thatis, an increase of EUR 32 million. At the same time it standing. increases the probabilityoftheir early termination by the counterparty.The rest of structured deals include avari- TheGroup does not generally enterintoany options con- etytransactions dependentoninterest rates, FX rates, tracts in conjunction with its risk hedging policy. How- inflation rates, stock indexesand IR volatilities. ever,aspartofits strategy of raising funds on the financial markets at alesser cost,the Bank enters into borrowing Generally,thereisareduced credit risk on these swaps, contractsencompassing notably interest rate or stock because securityexists in the form of regularly monitored exchange indexoptions.Such borrowings areassociated collateral. entirely with swap contractswith oppositemarket risk. T.2.5.3. Collateralreceived for derivativetransactions The“fair value”of“plain vanilla”swap transactions is their market value.For structured deals,the“fair value”is com- As partofthe ISDAand AFB agreements,the Group puted using the income approach, using valuation tech- has received securities and cash thatitisallowedtosell niques to convertfutureamounts to asingle present or repledge.The fair value of the securities accepted un- amount(discounted). Theestimate of fair value is based der theses termsasat31December 2007 amounts to on the value indicatedbymarketplaceexpectations EUR 1550 million (2006: EUR 2002 million) of which none about those futureamounts.Internal estimatesand as- has been sold or re-pledged to thirdparties. sumptions mightbeused in the valuation techniques when the market inputs arenot directly available. During the 2006 and 2007 years,the Group did not take possessionofany of these collaterals. Alloption contractsembedded in, or linked with, borrowings arenegotiatedoverthe counter. From the portfolio Thecollateralreceived forderivatives business amounts of structured deals with embedded options,222 swaps to EUR 1550 million (2006: EUR 2002 million, with the amounting to EUR 3318 million of notional arePower Re- following composition:

Swap Collateral(in EUR million)

Moody’s or Bonds Cash Total 2007 equivalentrating Govt Supranational AgencySecured Bonds (Pfandbriefe)

Aaa865 0000865 Aa1toAa3 400004 A1 224 0000224 BelowA1124 0000124 Non-Rated 0000333 333

Total 2007 1217 000333 1550 EIB Group 74 Financial Report2007

Swap Collateral(in EUR million)

Moody’s or Bonds Cash Total 2006 equivalentrating Govt Supranational AgencySecured Bonds (Pfandbriefe)

Aaa1095 28 0501128 Aa1toAa3 21 000021 A1 590 0000590 BelowA150000050 Non-Rated 0000213 213

Total 2006 1756 28 05213 2002

T.3. Liquidityrisk es of liquidityfromthe deposits of clients,nor recourse to centralbanks.The Bank pre-finances its commitments Funding liquidityrisk is the volatilityinthe economic to avoid being forced to borrow, or to sell assets,when it value of,orinthe income derived from, the Group’s posi- does not have access to resourcesatadesirable cost tions due to inabilitytomeet paymentobligations out of level.Furthermore, adequate levels of liquiditycontribute readily available liquid resources. Such an inabilitymay to the Bank’s financial stabilityand investors and rating forcethe Group to borrowatunattractiveconditions.As agencies payspecial attention to it. such, the funding liquidityrisk forthe Group is relatedto the cost of borrowing and to capital market conditions. TheBank further assures sound managementofliquidity risk by maintaining asufficientlevel of liquid assets,and T.3.1. Liquidityrisk management by spreading the maturitydates of its placements according to the forecasts of liquidityneeds.Liquidityrisk policy also incorporates afloor on treasurylevels.The Bank ’s Liquidityrisk management of the Bank year-end total liquidityratio (defined as atarget percent- Themain objectiveofliquiditypolicyistoassurethatthe age of annual projectednet cash flows)must at all times Bank can alwaysmeet its paymentobligations punctually exceed 25%ofthe average forecast net annual cash flows and in full.The Bank manages the calendar of its new issues forthe following year. so as to maintain the global level of liquiditywithin the chosen range.Liquidityplanning takes into accountthe Bank Liquidityrisk management of the Fund needs to serviceits debt,disbursements on loans and cash flows from the loan portfolio.Italso takes into accountthe Theliquidityrisk is managed in such away as to protect sizeable amountofsigned but undisbursed loans,whose the value of the paid-in capital,ensureanadequate level disbursementtakes placeatthe borrower’srequest. of liquiditytomeet possible guaranteecalls,private equitycommitments and administrativeexpenditureand Liquidityrisk is managed prudently as,incontrast to com- earnareasonable returnonassets invested with due mercial banks,the Bank does not have the natural sourc- regardtominimisation of risk. EIB Group – Financial Statements 75 EIB Group

T.3.2. Liquidityrisk measurement(in EUR million)

Thetable hereafteranalyses the assets and liabilities of the Group by maturityonthe basis of the period remaining between the consolidatedbalancesheet date and the contractual maturitydate(based on contractual undiscountedcash flows).

Assets and liabilities forwhich thereisnocontractual maturitydateare classified under“Maturityundefined”.

Maturity not more 3months to 1year to morethan maturity Fair value Total (at31December 2007) than 3 1year 5years 5years undefined adjustment 2007 months

ASSETS Cash in hand,balances with centralbanks and post officebanks 27 000 0027 Treasurybills eligible for refinancing with centralbanks 65 180 1060 968 002273 Other loans and advances: -Current accounts 286 000 00286 -Others 15 793 24 00 0015 817 16 079 24 00 0016 103 Loans and advances to: -Credit institutions 1686 6246 41 948 61 335 01109 112 324 -Customers 1949 7358 43 376 102 498 01217 156 398 3635 13 604 85 324 163 833 02326 268 722 Debt securities including fixed-income securities 2400 1160 3733 3723 0011 016 Positivereplacementvalues 0000 09061 9061 Other assets 00003606 03606

Total assets 22 206 14 968 90 117 168 524 3606 11 387 310 808

LIABILITIES Amounts owed to credit institutions 339 210 00342 Debts evidenced by certificates13796 30 034 87 234 123 157 05951 260 172 Negativereplacementvalues 0000 012946 12 946 Capital,reservesand profit 000034 572 034572 Other liabilities 00002776 02776

Total liabilities 14 135 30 036 87 235 123 157 37 348 18 897 310 808

Contingentliabilities 00003773 03773 Commitments 000055 799 055799

Total OffBalanceSheet 000059 572 059572 EIB Group 76 Financial Report2007

Maturity not more 3months to 1year to morethan maturity Fair value Total (at31December 2006) than 3 1year 5years 5years undefined adjustment 2006 months

ASSETS Cash in hand,balances with centralbanks and post officebanks 15 000 0015 Treasurybills eligible for refinancing with centralbanks 119 169 1253 1161 002702 Other loans and advances: -Current accounts 210 000 00210 -Others 14 570 28 00 0014 598 14 780 28 00 0014 808 Loans and advances to: -Credit institutions 2226 6051 41 002 65 303 01265 115 847 -Customers 1459 7046 39 935 91 411 01837 141 688 3685 13 097 80 937 156 714 03102 257 535 Debt securities including fixed-income securities 4157 1543 3138 2447 0611 291 Positivereplacementvalues 0000 08782 8782 Other assets 00003670 03670

Total assets 22 756 14 837 85 328 160 322 3670 11 890 298 803

LIABILITIES Amounts owed to credit institutions 213 330 00219 Debts evidenced by certificates20123 21 579 97 551 107 323 06257 252 833 Negativereplacementvalues 0000 09903 9903 Capital,reservesand profit 000033 208 033208 Other liabilities 00002640 02640

Total liabilities 20 336 21 582 97 554 107 323 35 848 16 160 298 803

Contingentliabilities 00003119 03119 Commitments 000055 542 055542

Total OffBalanceSheet 000058 661 058661

The “investmentportfolio” [NoteB]consists mainly of T.4.1. Market risk management fixed-income securities issued by first-class counterparties,largely bonds issued by Member States,acquired Market risk for the Bank : with the intention of holding them until final maturity. Seealso NoteA.4.7. As is the case with the “four-eyesprinciple” applied in lending activities via the Bank’s credit policies,sothe Some of the borrowings and associatedswaps include market risk policyofthe Bank establishes thatthe Risk early termination triggers or call options granted to the managementDirectorate shall provide an opinion with investors or the hedging swap counterparties.Certain respecttoall financial activities of the Group thatintro- liabilities could thereforeberedeemed at an earlier stage ducematerial market risks,and with respecttofinancial than their maturitydate. transactions thatmay create credit risk,such as treasury hedgingorderivatives operations. If all calls were to be exercised at their next contractual exercise date,cumulatedearly redemptions forthe Market risks areidentified,measured,managed and re- period 2009 -2010 would amounttoEUR 18.3 billion. portedaccording to aset of policies and procedures up- datedonaregular basis called the “Financial Risk and ALM PolicyGuidelines”(FRPG). Thegeneral principles un- T.4. Market risk derpinning these policies aredescribed below.

Market risk is the risk thatthe net presentvalue of future Stress testing is awidely used method to analyse the im- cash flows of financial instruments will fluctuate due to pactofpossible scenarios on the Bank’s earnings and changes in market variables such as interest rates, foreign economic value of ownfunds,especially when analysis exchange ratesand equityprices. of historical market movements areviewed to be insuf- EIB Group – Financial Statements 77 EIB Group

ficienttoassess futurerisks.Scenarios applied mayrelate portfolio consists of EU sovereignsecurities with maturi- to changes in market rates(interest rates, FX rates, ties up to 10Y and aims at tracking the iBOXX EUR spreads,equitypricesetc.), liquidityconditions,orto 1-3 YEAR Eurozone SovereignIndex. TheBHportfolio also worst-case events thatmay impactthe former,such as called ’Bond Hedge Portfolio’, which contains all the de- sudden and adverse macroeconomic changes,simultane- rivatives transactions,isused to hedge/fine-tune the in- ous default of sizeable obligors,widespread system fail- terest rate exposureresulting from the treasuryasset ures and the like. allocation decisions.

Stress testing is performed on aregular basis and the re- TheIRrisk taken in the trading portfolio B3 and the sults of the change in the economic value of the Bank and hedging portfolio BH is quantified using the Value-at- of the change of the earnings profile is reportedwithin Risk (VaR) methodology.The VaRmeasureestimatesthe the Bank’s market risk measurementprocess. loss thatthe portfolio is expectednot to exceed over a giventime horizon with adefined level of confidence. Market risk for the Fund: TheBank measures the VaRofthe B3 and BH portfolios using a99%confidencelevel and aone-day time hori- TheFund’s market risk exposurearises mainly in the form zon. TheVaR computation is based on the so-called Risk- of interest rate risk attached to cash and cash equivalent metrics methodology,which assumes alinear positions as well as investments in debt securities.Ap- dependencybetween the changes in portfolio or posi- proximately 50 %ofthese assets held have an average tion values and the underlying risk factors.Given the duration of up to 5years,therebysafeguarding the Fund natureofthe positions held in the B3 and BH portfolios against the substantial fluctuations in its long term rev- (i.e.bonds and hedging futures), the Bank deems this enues. assumption appropriate to measureits exposuretointerest rate risk.Volatilityand correlation data aresup- T.4.2. Interest rate risk plied by an external data provider (Datametrics) and are based on historical market data, which could lead to Interest rate risk is the volatilityinthe economic value of, under (over) estimate the VaRwhenever market volatil- or in the income derived from, the Group’s positions due ityincreases (decreases). As of December 31, 2007, the to adverse movements in market yields or the term struc- interest rate VaRofthe B3 and BH portfolios stood at tureofinterest rates. Exposuretointerest rate risk occurs EUR 0.22 million (2006: EUR 0.19 million). when thereare differences in repricing and maturity characteristics of the differentasset,liabilityand hedge T.4.2.2. Interest rate risk for the Ownfunds of the Group instruments. (Economic perspective)

Interest rate risk management for the Bank: EIB’s ALM strategy aims at maintaining abalanced and sustainable revenue profile as well as limiting the volatil- In measuring and managing interest rate risk,the Bank ityofthe economic value of the Bank.Aclear preference refers to the relevantkey principles of the Basel Commit- has been giventothe revenue profile in lightofthe ob- teefor Banking Supervision (BCBS). Themain sourcesof jectiveofself-financing of the Bank’s growth, and given interest rate risk are: repricing risk,yield curve risk,basis the existing accounting principles.This overall objective risk and spread risk.Aninterest rate risk thatisparticu- is achieved through acombination of:Investing EIB’s larly relevantfor the Bank is spread risk.Spread risk is the ownfunds according to amedium to long term invest- volatilityinthe economic value of,orinthe income de- mentprofile,implying an ownfunds duration target of rivedfrom, the Bank’s positions due to movements in the 4.5 – 5.5 years. funding or lending spread of the Bank. Apartfromthe duration target forown funds,the Bank’s TheBank manages its global structural interest rate posi- balancesheet should be match-funded with respectto tion via adedicatedportfolio.The majorityofthe financial currencyand interest rate characteristics.However,small risk indicators and controls in use at the Bank apply to this deviations areauthorised foroperational reasons.The net portfolio.Financial indicators and controls forthe rest of residual positions thatarise from outstanding operations the activities outside this portfolio only relate to the risks, aremanaged within pre-set limits to constrain market risk which arenot transferredtoitvia the transfer pricing sys- to minimum levels. tem, and which thereforeremain with their respective activities,such as the equityrisk in the venturecapital In order to measureand manage its interest rate risk po- activityorthe interest rate or credit risks taken in those sition, the Bank uses NPV sensitivityindicators,which treasuryportfolios predominantly managed foryield- quantify the impactonall cash flows resulting from shifts enhancementpurposes. in interest rates. Thesensitivityfigures arepresentedper currencyand fortenors ranging within specified “time T.4.2.1. Interest rate risk for the Bank’s trading portfolios buckets”. (excluding financial assets andfinancial liabilities designatedatfairvalue through profit andloss) Thefollowing table displays,for the main currencies,the sensitivityofall the positions of the Group except the Thetrading portfolio managed by the Treasurydepart- trading portfolio B3 and the relatedhedging portfolio BH mentismade up of the B3 and the BH portfolios.The B3 as at 31 December 2007 and 31 December 2006: EIB Group 78 Financial Report2007

At 31/12/2007 Sensitivityofthe economic value of ownfunds (EUR million)

CurrencyIncrease [0-1y ][2-3y ][4-6y ][7-11y ][12-20y ][+20y ]Total in bp

EUR +100 -57-200 -418 -604 -335 2-1612 GBP +752-5 11 -8 1-8-7 USD +500-2 -2 -12-2-9-27

At 31/12/2007 Sensitivityofthe economic value of ownfunds (EUR million)

CurrencyDecrease [0-1y ][2-3y ][4-6y ][7-11y ][12-20y ][+20y ]Total in bp

EUR -100 57 204 436 657 388 -3 1739 GBP -75-25-129-1 10 9 USD -5002212 21028

At 31/12/2006 Sensitivityofthe economic value of ownfunds (EUR million)

CurrencyIncrease [0-1y ][2-3y ][4-6y ][7-11y ][12-20y ][+20y ]Total in bp

EUR +100 -49-193 -403 -576 -349 12 -1558 GBP +75-210-43-5 -5 -3 USD +5010-2-660-1

At 31/12/2006 Sensitivityofthe economic value of ownfunds (EUR million)

CurrencyDecrease [0-1y ][2-3y ][4-6y ][7-11y ][12-20y ][+20y ]Total in bp

EUR -100 49 194 403 577 349 -121560 GBP -752-104-3 553 USD -50-10 26-6 01

The2006 figures in above table arederived from sensitiv- increases (decreases). More generally,VaR does not purport ityfigures computed on a “+1 basis point” shiftscenario. to measurethe worst loss thatcould be experienced.For The2007 figures,computed on anew risk system, are this reason, the VaRiscomplementedbyregular stress test- based on curvesincorporating the full magnitude of the ing.Asat31December 2007, the VaRofthe Group amount- shifts,allowing abetter representation of the interest rate ed to EUR 124 million (2006: EUR 86 million). sensitivityofown funds. Among the financial instruments in the Bank’s portfolio, TheRisk Managementdepartmentquantifies the VaRof some deals (borrowings and associatedswaps) maybe ownfunds (for all positions including the B3 and BH port- redeemed beforethey get to maturity. folios and based on both IR and FX factors) and reports it to the ManagementCommittee forinformation. At cashflows level all such borrowings arefully hedged by swaps so thatthey can be considered being synthetic TheBank measures the VaRofthe Group’s positions using a floating rate notes.Uncertainty arises from the maturity 99%confidencelevel and aone-day time horizon. TheVaR of such positions indexedtoLibor/Euribor as they might computation is based on the so-called Riskmetrics method- be called beforetheir final maturity. ology,which assumes alinear dependencybetween the changes in portfolio or position values and the underlying Belowisasummaryofthe features of the Bank’s callable risk factors.Given the natureofthe positions held by the portfolio as of 31 December 2006 and 31 December 2007, Group,the Bank deems this assumption appropriate to wherethe total nominal amount, the average natural ma- measureits exposuretointerest rate risk.Volatilityand cor- turityand the average expectedmaturity(both weighted relation data arecomputed internally on the basis of his- by the nominal amountofthe concerned transactions) torical market data. Theuse of historical data could lead to areshown per funding currencyand per main risk factor under (over) estimate the VaRwhenever market volatility involved: EIB Group – Financial Statements 79 EIB Group

By funding currency(afterswap):

31/12/2007 PayCurrency

CZK EUR GBP PLN SKK TWDUSD Total

EUR PayNotional (EUR million) -295 -7191 -148 -57-69 -40-14 033 -21833 Average maturitydate14/01/2016 24/07/2018 23/09/2035 05/05/2026 14/08/2023 27/12/2010 14/01/2030 15/01/2026 Average expected maturity06/02/2013 13/12/2016 17/05/2012 20/04/2020 24/05/2018 26/07/2010 21/04/2017 04/02/2017

31/12/2006 PayCurrency

CZK EUR GBP JPYPLN SKK USD Total

EUR PayNotional (EUR million) -313 -6799 -30-41 -20-34 -8787 -16024 Average maturitydate23/10/2015 30/10/2017 23/09/2035 22/01/2032 05/05/2026 29/08/2023 01/08/2023 14/01/2021 Average expected maturity17/11/2010 14/04/2016 01/03/2011 11/04/2023 19/12/2018 25/08/2016 10/02/2014 01/01/2015

By risk factorinvolved:

31/12/2007 Risk factor Total

FX level IR curve level IR curve shape

EUR PayNotional (EUR million) -3582 -15418 -2833 -21833 Average maturitydate20/12/2031 11/06/2025 19/10/2021 15/01/2026 Average expectedmaturity20/09/2025 28/06/2014 15/05/2020 04/02/2017

31/12/2006 Risk factor Total

FX level IR curve level IR curve shape

EUR PayNotional (EUR million) -4122 -9263 -2639 -16024 Average maturitydate07/07/2031 03/03/2016 02/10/2021 14/01/2021 Average expectedmaturity02/06/2017 02/05/2012 01/08/2020 01/01/2015

T.4.2.3. Interest rate risk management for the Group accrual basis and is calculatedunder the ’’ongoing’’ as- (Earnings perspective) sumption that, over the time horizon analysed,the Bank realizes the new loan business forecasted in the Corpo- Thesensitivityofthe Earnings quantifies the amountof rate Operational Plan, maintains exposures within ap- net interest income thatwould change during the next proved limits and executes monetarytrades to refinance 12 months if all interest rate curvesrise by one percent- funding shortages or invest cash excesses.Accounting age pointordecrease by one percentage point. Such earnings aresimulatedonmonthly time steps,assuming exposurestems from the mismatchbetween interest rate thatall the fixed rate items carry their contractual rate repricing periods,volumes and ratesofassets and liabili- and thatall floating rate items aresubjecttointerest rate ties thatEIB accepts within the approved limits. repricings according to the interest rate scenario applied in the simulation. Themonetarytrades to refinance With the positions in placeasof31December 2007, the funding shortages or invest cash excesses carry rates Earnings would increase by EUR 11.2 million (2006: 11.1 equal to the money market ratesprevailing according million) if interest rate increase by 100 basis points and to the interest rate scenario applied in the simulation. In decrease by EUR 11.6 million (2006: 9.9 million) if interest line with the current practiceofthe Bank,the model rates decrease by 100 basis points. uses the hypothesis thatsimulatedearnings arenot distributed to the shareholders,but areused to refi- TheEIB computes the sensitivitymeasurewith adedi- nancethe Bank’s business.The administrativecosts are catedsoftwarethatsimulatesearnings on adeal by deal projectedaccording to the forecasts of the Corporate basis.The sensitivityofthe Earnings is measured on an Operational Plan. EIB Group 80 Financial Report2007

Thesensitivityofthe EIF is computed by taking into con- TheGroup’s is exposed to FX risk whenever thereisacur- sideration the coupon repricings of all the positions rencymismatchbetween its assets and liabilities.FXrisk presentinthe EIF treasuryportfolio managed by the EIB also comprises the effectofunexpectedand unfavoura- on adeal by deal basis.Each fixed rate asset is assumed ble changes in the value of futurecash flows caused by to be reinvested at maturityinanew asset with the same currencymovements,such as the impactofFXrate residual lifeofthe previous one as of end of year’s date. changes on the Group’s futurelending intermediation Positions in floating rate assets areassumed to have quar- revenue. terlyrepricings. TheGroup’s objectiveistoeliminate exchange risk by re- T.4.3. Foreign exchange risk (in EUR million) ducing net positions per currencythrough operations on the international foreignexchange markets.AnFXhedg- TheFXrisk is the volatilityinthe economic value of,orin ing programwas set up in 2004 in order to protectthe the income derived from, the Group’s positions due to knownloan margins in USD and in GBP forthe next adverse movements of FX rates. 3years.

T.4.3.1. Exchange position

Currency EUROPounds Other Sub-Total Total 2007 US Dollars (at31December 2007) Sterling currencies except Euros

ASSETS Cash in hand,balances with centralbanks and post officebanks 1260026 27 Treasurybills eligible for refinancing with centralbanks 2273 00002273 Other loans and advances: -Current accounts 233 11 23 19 53 286 -Others 9418 1649 4008 742 6399 15 817 9651 1660 4031 761 6452 16 103 Loans and advances to: -Credit institutions 63 423 20 280 25 703 2918 48 901 112 324 -Customers 120 875 17 678 9761 8084 35 523 156 398 184 298 37 958 35 464 11 002 84 424 268 722 Debt securities including fixed-income securities 7783 1861 1146 226 3233 11 016 Positivereplacementvalues 9061 00009061 Other assets 2960 289 191 166 646 3606

Total assets 216 027 41 794 40 832 12 155 94 781 310 808

LIABILITIES Amounts owed to credit institutions 291 051051 342 Debts evidenced by certificates: -Debt securities in issue 111 133 59 473 58 752 29 921 148 146 259 279 -Others 207 613 073686 893 111 340 60 086 58 752 29 994 148 832 260 172 Negativereplacementvalues 67 516 -18353 -18069 -18148 -54570 12 946 Capital,reservesand profit 34 572 000034 572 Other liabilities 2319 63 94 300 457 2776

Total liabilities 216 038 41 796 40 828 12 146 94 770 310 808

Net position as at 31.12.2007 -11-24911 EIB Group – Financial Statements 81 EIB Group

Currency EUROPounds Other Sub-Total Total 2006 US Dollars (at31December 2006) Sterling currencies except Euros

ASSETS Cash in hand,balances with centralbanks and post officebanks 1140014 15 Treasurybills eligible for refinancing with centralbanks 2702 00002702 Other loans and advances: -Current accounts 170 5161940210 -Others 8126 196 4772 1504 6472 14 598 8296 201 4788 1523 6512 14 808 Loans and advances to: -Credit institutions 62 318 21 997 29 438 2094 53 529 115 847 -Customers 104 993 17 371 11 778 7546 36 695 141 688 167 311 39 368 41 216 9640 90 224 257 535 Debt securities including fixed-income securities 7313 1876 2053 49 3978 11 291 Positivereplacementvalues 8782 00008782 Other assets 3108 300 197 65 562 3670

Total assets 197 513 41 759 48 254 11 277 101 290 298 803

LIABILITIES Amounts owed to credit institutions 215 0404219 Debts evidenced by certificates: -Debt securities in issue 104 117 58 985 61 200 27 441 147 626 251 743 -Others 305 599 0186 785 1090 104 422 59 584 61 200 27 627 148 411 252 833 Negativereplacementvalues 57 373 -17916 -13048 -16506 -47470 9903 Capital,reservesand profit 33 208 000033 208 Other liabilities 2299 88 98 155 341 2640

Total liabilities 197 517 41 756 48 254 11 276 101 286 298 803

Net position as at 31.12.2006 -4 3014

T.4.3.2. Foreign exchange risk management

In compliancewith its statutes,the Bank actively hedges its FX risk exposures.

Themain objectiveofthe Bank’s FX risk managementpolicyistominimise the impactofavariation of FX ratesonthe P&L accountbykeeping FX positions within the limits approved by the ManagementCommittee.

Thefollowing tables reportthe effectofapossible movementofFXrate (against the euro) on the net presentvalue of the Group positions denominatedinGBP and USD (for EIF the analysis waslimited to the treasuryportfolios) as at 31 Decem- ber 2007 and 31 December 2006:

CurrencyChange in FX rate Effectonthe economic value of ownfunds (EUR million) 2007

USD +15% +68 GBP +5% +13

CurrencyChange in FX rate Effectonthe economic value of ownfunds (EUR million) 2006

USD +15% +15 GBP +5% -10 EIB Group 82 Financial Report2007

T.4.4. Equitypricerisk

Equityprice risk is the risk thatthe fair values of equities decrease as the result of changes in the levels of equityindices and the value of individual equityinvestments.

Equitypricerisk management for the Bank

Equityprice risk is not arisk thatthe Bank actively takes as apartofits mission. Equityprice risk is limited to those strate- gicactivities approved by the BoardofDirectors (venturecapital investments made by the Fund on behalf of the Bank and on its ownresources; equity-like investments in the Structured FinanceFacility; participation in the EBRD)and shares thathavebeen received in the contextofafinancial restructuring of apublicly-quoted or privately held companythe Group has lentto. In consideration of the exceptionalityofsaid investments,the Bank generally segregatesthese exposures from the rest of the balancesheet by using of specific provisions such as capital reserves. These activities aresubjectto special formsofmonitoring and the resulting exposures aresupportedbysound capitalisation.

Thevalue of privately held equitypositions is not readily available forthe purposes of monitoring and controlonacon- tinuous basis.For such positions,the best indications available include prices forsimilar assets and the results of any relevantvaluation techniques.These value indications must be used in compliancewith recommended best practices.

TheeffectonOwn Funds forthe Group (as aresult of achange in the fair value of equityinvestments at 31 December 2006 and 31 December 2007) due to areasonable possible change in equityindices,with all other variables held constant is as follows:

(in EUR ’000) Change in equity EffectonOwn Funds Change in equity EffectonOwn Funds price2007 2007 in EUR ’000 price2006 2006 in EUR ’000 % %

VentureCapital Operations +10126 310 (3) +10102 759 EBRD shares +1037205 +1029854 Eurotunnel +65 (2) 31 819 n/a (1) n/a (1) InfrastructureFunds +105617 +102345 (1) As of 31 December 2006, the Group held atotal number of 58 971 193 Eurotunnel shares,for avalue of EUR 21 955 023. As market prices were not available sinceApril 28, 2006 and the shares were subjecttoarestructuring process,areasonably possible change in the relevantrisk variable could not be reliably estimated. (2) 65 percent corresponds to one annualised standarddeviation of the daily returns of the Eurotunnel Shares on the quoted market.One annualised standarddeviation has been applied to calculate the sensitivityofall the Eurotunnel positions (shares,Warrantsand ORAs)held by the Bank as of 31 December 2007. (3) ThesensitivityofVentureCapital operations is calculatedbythe EIF based on the market risk of the positions on the public market.

T.5. Operational risk Themanagementofoperational risk is performed at all levels within the organisation and is aresponsibilityofall the various departments of the Group.The Risk ManagementDirectorate is responsible fordefining the operational risk frameworkand relatedpolicies while the responsibilityfor implementing the frameworkaswell as day-to-day operational risk managementlies with the Group’s operational departments.

TheBank employs an assessmentmethodology thattakes into accountall available information including loss history, results of risk self-assessmentand the business and controlenvironmentthrough aset of Key Risk Indicators (KRIs) organ- ised in an Operational Risk Scorecard. Astatistical model and aValue at Risk calculation engine completethe operational risk environment. TheEIF is currently in the process of rolling out its ownoperational risk methodology which will be consistentwith thatofthe Bank.

Information concerning operational risk events,losses and KRIs,and updatesonthe activities of the New Products Com- mittee,are regularly forwarded to the Bank’s senior managementand to the ManagementCommittee. EIB Group – Financial Statements 83 EIB Group

NoteU–Accounting classifications and fair values of financial assets and liabilities (in EUR million)

Thetable belowsets out the Group’s classification of each class and categoryofassets and liabilities.

31 December 2007 NoteTrading Designated Held-to- Loans and Available- Other Non financial Total at fair value maturity receivables for-sale financial assets/ carrying through P/L liabilities liabilities amount

Cash in hand,balances with centralbanks and post officebanks 0002700027 Debt securities portfolio B505 09499 03285 0013 289 Loans and advances to credit institutions and to customers C/D 043523 0241 302 00 0284 825 Shares and other variable-yield securities E0 00 02079 002079 Intangible assets F0 00 00044 Property,furnitureand equipmentF000000 286 286 Other assets H/S 9061 00 000145 9206 Prepayments and accrued income 000000 31 31

9566 43 523 9499 241 329 5364 0466 309 747

Amounts owed to credit institutions I0 00 00342 0342 Debts evidenced by certificatesJ0231 449 00028723 0260 172 Other liabilities H/S 12 946 00 0001466 14 412 Accruals and deferred income G0 00 000271 271 Provisions K0 00 0001039 1039

12 946 231 449 00029065 2776 276 236 EIB Group 84 Financial Report2007

31 December 2006 NoteTrading Designated Held-to- Loans and Available- Other Non financial Total at fair value maturity receivables for-sale financial assets/ carrying through P/L liabilities liabilities amount

Cash in hand,balances with centralbanks and post officebanks 0001500015 Debt securities portfolio B692 09104 04197 0013 993 Loans and advances to credit institutions and to customers C/D 032315 0240 028 00 0272 343 Shares and other variable-yield securities E0 00 01671 001671 Intangible assets F0 00 00055 Property,furnitureand equipmentF000000 220 220 Other assets H/S 8782 00 000249 9031 Prepayments and accrued income 000000 81 81

9474 32 315 9104 240 043 5868 0555 297 359

Amounts owed to credit institutions I0 00 00219 0219 Debts evidenced by certificatesJ0221 386 00031447 0252 833 Other liabilities H/S 9903 00 0001352 11 255 Accruals and deferred income G0 00 000344 344 Provisions K0 00 000945 945

9903 221 386 00031666 2641 265 596 EIB Group – Financial Statements 85 EIB Group

Thetable belowsets out the fair value of each of the Group’s classes and categories of assets and liabilities.

Fair value is set to book value,for non financial assets and non financial liabilities.

31 December 2007 Trading Designated Held-to- Loans and Available- Other Non Total Fair at fair value maturity receivables for-sale financial financial value through P/L liabilities assets/ liabilities

Cash in hand,balances with centralbanks and post officebanks 00027 00027 Debt securities portfolio 505 09486 03285 0013 276 Loans and advances to credit institutions and to customers 043523 0224 354 000267 877 Shares and other variable-yield securities 00002079 002079 Intangible assets 00000044 Property,furnitureand equipment000000286 286 Other assets 9061 00000145 9206 Prepayments and accrued income 00000031 31

9566 43 523 9486 224 381 5364 0466 292 786

Amounts owed to credit institutions 00000342 0342 Debts evidenced by certificates0231 449 00029 494 0260 943 Other liabilities 12 946 000001466 14 412 Accruals and deferred income 000000271 271 Provisions 0000001039 1039

12 946 231 449 00029 836 2776 277 007 EIB Group 86 Financial Report2007

31 December 2006 Trading Designated Held-to- Loans and Available- Other Non Total Fair at fair value maturity receivables for-sale financial financial value through P/L liabilities assets/ liabilities

Cash in hand,balances with centralbanks and post officebanks 00015 00015 Debt securities portfolio 692 09105 04197 0013 994 Loans and advances to credit institutions and to customers 032315 0225 139 000257 454 Shares and other variable-yield securities 00001671 001671 Intangible assets 00000055 Property,furnitureand equipment000000220 220 Other assets 8782 00000249 9031 Prepayments and accrued income 00000081 81

9474 32 315 9105 225 154 5868 0555 282 471

Amounts owed to credit institutions 00000219 0219 Debts evidenced by certificates0221 386 00032 586 0253 972 Other liabilities 9903 000001352 11 255 Accruals and deferred income 000000344 344 Provisions 000000945 945

9903 221 386 00032 805 2641 266 735 EIB Group – Financial Statements 87 EIB Group

Thetable belowsets out the maximum exposuretocredit risks of each of the Group’s classes and categories of assets and liabilities.

31 December 2007 Trading Designated Held-to- Loans and Available- Other Non Total at fair value maturity receivables for-sale financial financial maximum through P/L liabilities assets/ Exposure liabilities

Cash in hand,balances with centralbanks and post officebanks 00027 00027 Debt securities portfolio 505 09499 03285 0013 289 Loans and advances to credit institutions and to customers 046200 0292 232 000338 432 Shares and other variable-yield securities 00002079 002079 Intangible assets 00000044 Property,furnitureand equipment000000286 286 Other assets 9061 00000145 9206 Prepayments and accrued income 00000031 31

9566 46 200 9499 292 259 5364 0466 363 354

31 December 2006 Trading Designated Held-to- Loans and Available- Other Non Total at fair value maturity receivables for-sale financial financial maximum through P/L liabilities assets/ Exposure liabilities

Cash in hand,balances with centralbanks and post officebanks 00015 00015 Debt securities portfolio 692 09104 04197 0013 993 Loans and advances to credit institutions and to customers 034757 0291 158 000325 915 Shares and other variable-yield securities 00001671 001671 Intangible assets 00000055 Property,furnitureand equipment000000220 220 Other assets 8782 00000249 9031 Prepayments and accrued income 00000081 81

9474 34 757 9104 291 173 5868 0555 350 931 EIB Group 88 Financial Report2007

NoteV–Segmentreporting

TheGroup considers thatlending constitutes its prime main business segmentand venturecapital operations to be its secondarymain business segment: its organisation and entiremanagementsystems aremainly designed to supportthe lending and ventureCapital business.

Consequently,the determining factors forsegmentreporting are:

• primarydetermining factor: lending and venturecapital as the main business segments; • secondarydetermining factor: lending in termsofgeographical spread.

Information to be disclosed under the heading of geographical segmentreporting is giveninthe following notes:

• interest and similar income by geographical area (NoteM.2); • lending by countryinwhich projects arelocated(NoteD.3); • tangible and intangible assets by countryoflocation (NoteF).

NoteW–Commitments,ContingentLiabilities,pledged assets and other memorandum items (in EUR ’000)

TheGroup utilizes various lending-relatedfinancial instruments in order to meet the financial needs of its customers.The Group issues commitments to extend credit,standbyand other letters of credit,guarantees,commitments to enterinto repurchase agreements,noteissuancefacilities and revolving underwriting facilities.Guarantees representirrevocable assurances,subjecttothe satisfaction of certain conditions,thatthe Group will make paymentinthe eventthatthe customer fails to fulfill its obligation to thirdparties.

Thecontractual amountofthese instruments is the maximum amountatrisk forthe Group if the customer fails to meet its obligations.The risk is similar to the risk involved in extending loan facilities and is monitored with the same risk control processes and specific credit risk policies.

Theassets pledged by the Group arestrictly forthe purpose of providing collateralfor the counterparty and amountas at December 31, 2007 to EUR 1.61 million (2006: EUR 1.89 million) in relation to its activities on Futures (classified as Held to Maturity) and to EUR 965 million (2006: EUR 851 million) in relation to its Securities Lending activities (classified as Held to maturity, AFS, and trading). Thepledged assets will be returned to the Group when the underlying transaction is ter- minatedbut,inthe eventofthe Group’s default,the counterparty is entitled to apply the collateralinorder to settle the liability. EIB Group – Financial Statements 89 EIB Group

As at December 31, 2007 and 2006, commitments,contingentliabilities and other memorandum items were as follows (in nominal amounts and in EUR ’000):

31.12.2007 31.12.2006

Commitments: EBRD capital (NoteE) -uncalled 442 500 442 500 Undisbursed loans (NoteD) -credit institutions 12 341 869 11 247 729 -customers 41 264 752 42 324 173 53 606 621 53 571 902 Undisbursed venturecapital operations (NoteE)1420 516 1406 469 Undisbursed infrastructurefunds (NoteE)233 620 121 283 Undisbursed investmentfunds (NoteE)95000 0 Guarantees: In respectofloans granted by thirdparties 3757 557 3099 816 In respectofventurecapital operations 15 463 19 056 Fiduciaryoperations (NoteA.4.19) 7700 241 7671 940 Assets held on behalf of thirdparties (NoteA.4.20) CIP/SMEG 2007 35 255 0 CIP/GIF 2007 36 448 0 SME GuaranteeFacility71886 80 051 European Technology Facility28510 79 689 MapEquity91773 121 348 GuaranteeFund treasurymanagement1152 974 1379 698 InvestmentFacility – Cotonou 1077 418 710 544 Mapguarantee118 671 115 906 Seed Capital Action 185 185 PreparatoryAction 17 2035 Special Section 1785 151 1982 216 RSFF 132 154 0 EU-Africa 41 549 0 HIPC 43 221 0 FEMIP 32 911 29 841 Bundesministerium fürWirtschaftund Technologie 19 7 4648 142 4501 520 Special deposits forserviceofborrowings (*) 129 428 193 872 Securities portfolio Securities receivable 0146 285 Interest-rateswapand deferredrate-setting contracts(NoteR&T) 249 510 574 243 788 117 Currencyswapcontracts payable (NoteR&T) 80 992 893 67 706 110 Currencyswapcontracts receivable (NoteR&T) 75 549 044 64 658 046 Putoption granted to EIF minorityshareholders (NoteA.4.21) 319 045 237 141 Borrowings arranged but not yetsigned 401 574 313 396 Swaps arranged but not yetsigned 94 0 Securities lent(NoteB)936 629 927 972 Futurecontracts (NoteR&T) 419 307 561 346 Forwardrate agreements (NoteR&T) 0822 861 FX Forwards (NoteR&T) 245 330 234 647 Overnightindexedswaps (NoteR&T) 6000 000 0 Credit default swaps 97 843 15 751 (*) This item represents the amountofcoupons and bonds due,paid by the Group to the paying agents,but not yetpresentedfor paymentbythe holders of bondsissued by the Group. EIB Group 90 Financial Report2007

NoteX–Capital and Reserves X.2. Subscribed capital and receivable reserves, called but not paid

X.1. Sharecapital and sharepremium As aconsequenceofthe increase in subscribed capital from EUR 150 000 000 000 to EUR 163 653 737 000 as at 1May, TheEuropean InvestmentBank (EIB), the financing institu- 2004, the total amounttobepaid to capital and reservesby tion of the European Union, wascreated by the Treaty of the tennew member States thatjoined on 1May 2004 and Rome of 25 March1957. Themembers of the EIB arethe Spain of EUR 2408 million (composed of an amountofEUR Member States of the European Union, who have all sub- 683 million forthe capital and an amountofEUR 1725 mil- scribed to the Bank’s capital. lion forthe reserves) is equally spread over 8instalments: 30 September 2004, 30 September 2005, 30 September 2006, New Member States or Member States thatincrease their 31 March2007, 30 September 2007, 31 March2008, 30 Sep- shareinthe Bank’s subscribed capital paytheir partofthe tember 2008 and 31 March2009. Theinstalments up to and called capital plus their partofthe reserves, provisions including 30 September 2007 have been entirely settled. equivalenttoreservesand connexedamounts,normally in several equal instalments in the course of aplurian- As at 1January2007, the subscribed capital has increased nual period.The Accession Treaties and/or the Boardof from EUR 163 653 737 000 to EUR 164 808 169 000, by Governors decisions to increase the Bank’s capital estab- virtue of the contributions of twonew Member States that lish the specific modalities of such payments,including joined on 1January2007: Bulgaria and Romania. As acon- the calculation of the shareofthe new Member States in sequenceofthis capital increase,the twonew Member the Bank’s capital,which is normally based on the na- States had to contributetotheir shareofPaid-in capital tional GDP figures officially published by Eurostat. (EUR 57,7 million), and also their shareofthe Reservesand General Provisions (EUR 172,9 million) forthe amounts Voting powers in the Bank’s BoardofGovernors and outstanding as of 31 December 2006. Thetotal amountto BoardofDirectors areestablished partly on the shareof be paid has been equally spread over 8instalments: 31 capital subscribed by each Member State, partly on dif- May2007, 31 May2008, 31 May2009, 30 November 2009, ferent criteria, set forthinArticles 10 and 12 of the Bank’s 31 May2010, 30 November 2010, 31 May2011 and 30 statute, applied jointly or exclusively depending on the November 2011. Theinstalments up to and including 31 specific voting procedure. Voting powers in the Bank’s May2007 have been entirely settled. ManagementCommittee arenot based on the Bank’s capital criterion. Therelatednet receivable from the Member States is shown in the consolidatedbalancesheet as follows under Withdrawal from the status of EU Member Stateordecrease the caption Subscribed capital and receivable reserves, of the subscribed capital amountfor aMember Stateare called butnot paid: not foreseen by the legal provisions currently in force.

In EUR ´000 31.12.2007 31.12.2006

Subscribed capital called but not paid (nominal value) 306 514 426 679 Net presentvalue adjustment-11 648 -17090

Subscribed capital called but not paid (carrying value) 294 866 409 589

Receivable reserve called but not paid (nominal value) 798 295 1078 300 Net presentvalue adjustment-31 658 -43189

Receivable reserve called but not paid (carrying value) 766 637 1035 111

1061 503 1444 700 EIB Group – Financial Statements 91 EIB Group

X.3. Capital management

Even though the EIB is not subjecttoformal supervision, it has generally voluntarily submitted to major EU banking regulations and adopted market“best practice”.Inparticular,this applies to the new banking regulation (“Basel II”), issued in 2004 by the Basel Committee on Banking Supervision, approved by the EU and the Member States in 2006, and applied in Internal Rating Based EU financial institutions since1January2008 (2006/48/EC as of 14 June 2006).

Theimplementation of the“Advanced Internal Ratings Based Approach (Advanced IRB)”forcredit risk and Advanced Meas- urementApproach (AMA)for operational risk has been done under the technical assistanceofthe Commission de Surveil- lanceduSecteur Financier (CSSF).

In addition to the monitoring of Basel II minimum capital requirements,stress tests assess the sensitivityofcapital requirements to changes in the macroeconomic environmentand in the activities of the Group.

Theresulting estimate of the Basel II ratio at end-2007 is 37%tobecompared with the minimum 8%ratio.

NoteY–Conversion rates Thefollowing conversion rateswereused forestablishing the balancesheets at 31 December 2007 and 31 December 2006:

31.12.2007 31.12.2006

NON-EURO CURRENCIES OF EU MEMBER STATES Pound sterling 0.733350 0.6715 Danish kroner 7.4583 7.4560 Swedish kronor 9.4415 9.0404 Cyprus pound 0.585274 0.57820 Czech koruna 26.628 27.485 Estonian kroon 15.6466 15.6466 Hungarian forint 253.73 251.77 Lithuanian litas 3.4528 3.4528 Latvian lats 0.6964 0.6972 Maltese lira0.4293 0.4293 Polish zloty3.5935 3.8310 Slovakkoruna 33.583 34.435 NON-COMMUNITYCURRENCIES United States dollars 1.4721 1.3170 Swiss francs 1.6547 1.6069 Japanese yen164.93 156.93 Canadian dollars 1.4449 1.5281 Australian dollars 1.6757 1.6691 Hong Kong dollars 11.4800 10.2409 New Zealand dollars 1.9024 1.8725 Iceland krona 91.90 93.13 Moroccan dirham 11.3203 11.1256 Mauritania ouguiya364.72 351.51 Norvegian krone 7.9580 8.2380 South African rand 10.0298 9.2124 EIB Group 92 Financial Report2007

NoteZ–Post-BalanceSheet Events

On aproposal from the ManagementCommittee,the BoardofDirectors reviewed these consolidatedFinancial Statements on 11 March2008 and decided to submit them to the Governors forapproval at their meeting to be held on 3June 2008.

STATEMENT OF SPECIAL SECTION (1) as at 31 December 2007 (in EUR ’000)

ASSETS 31.12.2007 31.12.2006

Turkey From resourcesofMember States Disbursed loans outstanding (2) 14 631 17 657 Mediterranean Countries From resourcesofthe European Community Disbursed loans outstanding 150 859 161 441 Risk capital operations -amounts to be disbursed 170 085 151 609 -amounts disbursed 218 050 210 891 388 135 362 500

Total (3) 538 994 523 941

African, Caribbean and Pacific State and Overseas Countries and Territories From resourcesofthe European Community Yaoundé Conventions Loans disbursed 17 626 18 700 Contributions to the formation of risk capital -amounts disbursed 419 419

Total (4) 18 045 19 119

Lomé Conventions Operations from risk capital resources: -amounts to be disbursed 144 405 260 064 -amounts disbursed 1056 938 1147 689 1201 343 1407 753 Operations from other resources -amounts to be disbursed 7274 9838 -amounts disbursed 4864 3908 12 138 13 746

Total (5) 1213 481 1421 499

TOTAL 1785 151 1982 216 EIB Group – Financial Statements 93 EIB Group

LIABILITIES 31.12.2007 31.12.2006

Funds under trust management Under mandate from the European Communities -Financial Protocols with the Mediterranean Countries 368 909 372 332 -Yaoundé Conventions 18 045 19 119 -Lomé Conventions 1056 938 1147 689 -Other resourcesunder the Lomé Conventions 4864 3908 1448 756 1543 048 Under mandate from Member States 14 631 17 657

Total 1463 387 1560 705

Funds to be disbursed On loans and risk capital operations in the Mediterranean countries 170 085 151 609 On operations from risk capital resourcesunder the Lomé Conventions 144 405 260 064 On operations from other resourcesunder the Lomé Conventions 7274 9838

Total 321 764 421 511

TOTAL 1785 151 1982 216

Forinformation: Total amounts disbursed and not yetrepaid on loans on special conditions made available by the Commission in respect of whichthe Bank has accepted an EC mandate forrecovering principal and interest: a)Under the First,Second and ThirdLomé Conventions: at 31.12.2007 =764 994 (at31.12.2006: 835 003) b)Under Financial Protocols signed with the Mediterranean Countries: at 31.12.2007 =115 476 (at31.12.2006:122 412)

Note(1): TheSpecial Section wasset up by the BoardofGovernors on 27 May1963: under aDecision taken on 4August 1977 its purpose wasredefined as being thatofrecording financing operations carried out by the European Investment Bank forthe accountofand under mandate from thirdparties.However,for the InvestmentFacilityunder the Cotonou AgreementseparateFinancial Statements arepresented. In addition, since2005, the EIB also prepares financial statements of differenttypes forother mandates.

TheStatementofSpecial Section reflects amounts disbursed or to be disbursed,less cancellations and repayments,under mandate from the European Communities and the Member States.Noaccountistaken in the StatementofSpecial Sec- tion of provisions or value adjustments,which mayberequired to cover risks associatedwith such operations.Amounts in foreigncurrencyare translatedatexchange ratesprevailing on 31 December.

Note(2): Initial amountofcontracts signed forfinancing projects in Turkey under mandate,for the accountand at the risk of Member States.

Initial amount: 405 899 add: exchange adjustments 21 784 less: cancellations 215 repayments 412 837 -413 052

14 631 EIB Group 94 Financial Report2007

Note(3): Initial amountofcontracts signed forfinancing projects in the Maghreb and Mashreq countries,Malta, Cyprus, Turkey and Greece(EUR 10 million lentprior to accession to the EC on 1January1981) under mandate,for the account and at the risk of the European Community.

Initial amount: 841 007 less: exchange adjustments 13 109 cancellations 62 118 repayments 226 786 -302 013

538 994

Note(4): Initial amountofcontracts signed forfinancing projects in the AssociatedAfrican States,Madagascar and Mau- ritius and the Overseas Countries,Territories and Departments (AASMM-OCTD) under mandate,for the accountand at the risk of the European Community:

-loans on special conditions 139 483 -contributions to the formation of risk capital 2503 Initial amount: 141 986 add: capitalised interest 1178 exchange adjustments 9839 11 017 less: cancellations 1758 repayments 133 200 -134 958

18 045

Note(5): Initial amountofcontracts signed forfinancing projects in the African, Caribbean and Pacific States and the Over- seas Countries and Territories (ACP-OCT)under mandate,for the accountand at the risk of the European Community:

Loans from risk capital resources: -conditional and subordinatedloans 3121 877 -equityparticipations 120 984 Initial amount: 3242 861 add: capitalised interest 7372

less: cancellations 578 112 repayments 1420 980 exchange adjustments 49 798 -2 048 890 1201 343

Loans from other resources: Initial amount: 17 838 less: cancellations 2690 repayments 2824 exchange adjustments 186 -5 700 12 138

1213 481 EIB Group – Financial Statements 95 EIB Group

IndependentAuditor’s Report

To the chairman of the Audit Committee of EUROPEAN INVESTMENT BANK Luxembourg

We have audited the accompanying consolidatedfinancial ancewhether the consolidatedfinancial statements are statements of the European InvestmentBank,which show free from material misstatement. aprofit to be appropriatedofEUR 843.206 million and a total balancesheet of EUR 310,808.421 million and which An audit involves performing procedures to obtain audit comprise the consolidatedbalancesheet as at December evidenceabout the amounts and disclosures in the con- 31, 2007, the consolidatedincome statement, the statement solidatedfinancial statements.The procedures selected of movements in consolidatedown funds,the consolidated depend on the judgementofthe“Réviseur d’Entreprises”, cash flowstatementfor the year then ended,and asum- including the assessmentofthe risks of material misstate- maryofsignificantaccounting policies and other explana- mentofthe consolidatedfinancial statements,whether tory notes to the consolidatedfinancial statements. due to fraud or error. In making those risk assessments, the“Réviseur d’Entreprises”considers internal controlrel- ManagementCommittee’s responsibilityfor the con- evanttothe entity’spreparation and fair presentation of solidatedfinancial statements the consolidatedfinancial statements in order to design audit procedures thatare appropriate in the circum- TheManagementCommittee is responsible forthe prepa- stances,but not forthe purpose of expressing an opinion ration and fair presentation of these consolidatedfinancial on the effectiveness of the entity’sinternal control. statements in accordancewith International Financial Re- porting Standards and with the general principles of the An audit also includes evaluating the appropriateness of Directives of the European Union on the annual accounts accounting policies used and the reasonableness of ac- and consolidatedaccounts of certain type of companies, counting estimatesmade by the ManagementCommit- banks and other financial institutions and insuranceun- tee, as well as evaluating the overall presentation of the dertakings.This responsibilityincludes: designing,imple- consolidatedfinancial statements.Webelievethatthe menting and maintaining internal controlrelevanttothe audit evidencewehaveobtained is sufficientand ap- preparation and fair presentation of consolidatedfinancial propriate to provide abasis forour audit opinion. statements thatare free from material misstatement, whether due to fraud or error, selecting and applying ap- Opinion propriate accounting policies,and making accounting estimatesthatare reasonable in the circumstances. In our opinion, the consolidatedfinancial statements give atrue and fair view of the consolidatedfinancial position Responsibilityofthe“Réviseur d’Entreprises” of the European InvestmentBank as of December 31, 2007, of its consolidatedfinancial performance, of its Ourresponsibilityistoexpress an opinion on these con- movements in consolidatedown funds and of its consoli- solidatedfinancial statements based on our audit.We datedcash flows forthe year then ended in accordance conductedour audit in accordancewith International with International Financial Reporting Standards and with Standards on Auditing as adopted by the Luxembourg the general principles of the Directives of the European “Institut des Réviseurs d’Entreprises”.Those standards Union on the annual accounts and consolidatedaccounts requirethatwecomply with ethical requirements and of certain types of companies,banks and other financial plan and perform the audit to obtain reasonable assur- institutions and insuranceundertakings.

March 12, 2008 ERNST &YOUNG Société Anonyme Réviseur d’Entreprises

Alain KINSCH BernardLHOEST EIB Group 96 Financial Report2007

TheAudit Committee

TheAudit Committee reports to the BoardofGovernors, • received assurancefromthe ManagementCommittee the following statementbeing communicatedtothe Gov- concerning the effectiveness of the internal control ernors prior to their approval of the Annual Reportand structureand internal administration, the financial statements forthe past financial year. and considering

Statementbythe Audit Committee on the EIB con- • the consolidatedfinancial statements forthe financial solidatedfinancial statements year ending on 31 December 2007 as drawnupbythe BoardofDirectors at its meeting on 11 March2008, TheCommittee,instituted in pursuanceofArticle 14 of the Statuteand Article 25 of the Rules of Procedureofthe • thatthe foregoing provides areasonable basis forits European InvestmentBank forthe purpose of verifying statementand, thatthe operations of the Bank areconductedand its • Articles 22, 23 &24ofthe Rules of Procedure, books kept in aproper manner,having to the best of its knowledge and judgement: • designatedErnst &Young as external auditors,reviewed their audit planning process,examined and confirms thatthe consolidatedfinancial statements,com- discussed their reports, prising the consolidatedbalancesheet,the consolidated • noted thatthe opinion of Ernst &Young on the con- income statement, the statementofmovements in consolidatedfinancial statements of the European Invest- solidatedown funds,the consolidatedcash flowstate- mentBank forthe year ended 31 December 2007 is mentand the notes to the consolidatedfinancial unqualified, statements give atrue and fair view of the financial position of theBankasat31December 2007 in respectofits • convened on aregular basis with the Heads of Directo- ratesand relevantservices,met regularly the Head of assets and liabilities,and of the results of its operations Internal Audit and discussed the relevantinternal audit and cash flows forthe year then ended. reports,and studied the documents which it deemed necessarytoexamine in the discharge of its duties,

Luxembourg, 12 March 2008 TheAudit Committee

M. DALLOCCHIO C. KARMIOS O. KLAPPER EIB – Financial Statements 97 EIB Group

EIB Financial Statements EIB Group 98 Financial Report2007 EIB – Financial Statements 99 EIB Group

Results forthe Year

TheBank’s profit forthe financial year 2007 stands at tivecosts,while staff costs increased slightly by some EUR 1633 million, which, compared to an ordinaryresult 3.6%orEUR 9.8 million. of EUR 1591 million for2006, represents an increase of EUR 43 million or 3%.Itshould be noted thatanaddi- Other salient facts: tional contribution from the sum released from the Fund forgeneral banking risks amounting to EUR 975 million • Thevolume of disbursed loans increased by 18 %to produced afinal balanceonthe profit and loss accountof EUR 43.4billion. EUR 2566 million forthe year ended 31 December 2006. • Thevolume of loan signatures increased by 4%to EUR 47.8 billion. Operating income increased by EUR 127 million to EUR 1684 million, whereas interest income,atEUR 1872 • Thevolume of borrowings beforeswaps cashed in the million, rose by EUR 109 million. calendar year 2007 increased by 21%versus 2006 to EUR 54.5 billion.

Themain factors influencing the results either posi- • TheBank issued aClimate Awareness Bond forEUR 600 tively or negatively areasfollows: million. Theproceeds of the bond were earmarked for futureprojects in the fields of renewable energy and energy efficiency, therebysupporting climate protec- Positiveimpacts: tion. In 2007, the proceeds were placed in asegregated sub-portfolio invested in money market instruments • Theaverage interest rate on outstanding loans in- within the EIB’s treasury, pending disbursement. As at creased by 0.58 percentage points to 4.86%, whereas 31 December 2007, EUR 108.2 million had been commit- the average interest rate on outstanding debt in- tedtoprojects and EUR 2million had been disbursed. creased by 0.61 percentage points to 4.64%. • Theaverage interest rate on outstanding treasuryas- Appropriation of the result forthe year 2007 in 2008: sets increased by 0.42 percentage points to 4.32%. On the basis of the EIB 2007 statutoryaccounts and acting • Thevalue adjustmentonventurecapital operations on aproposal from the ManagementCommittee,the provided aprofit of EUR 22.1 million, against aprofit BoardofDirectors recommends thatthe BoardofGover- of EUR2.2 millionin2006. nors appropriate the balanceofthe profit and loss account • An amountofEUR 64.9 million wasreleased following forthe year ended 31 December 2007, which amounts to the restructuring,during 2007, of loan assets forwhich EUR 1633 460 081, to the Additional Reserves. aspecific provision wasestablished.This amount compares favourably with the credit loss expense of It is recommended thatanamountofEUR 1500 000 000 EUR 61.5 million resulting from the restructuring. be transferredfromthe Additional Reservestothe Funds allocatedtothe Structured FinanceFacility. Negativeimpacts: It is also recommended thatanamountofEUR 73 364 730 • Value adjustments on loans amountedtoEUR 19.6 resulting from the value adjustmentonventurecapital op- million, up from EUR 3.8 million in 2006. erations be transferredfromthe Additional Reservestothe Thecost of general administrativeexpenses,deprecia- Funds allocatedtoventurecapital operations.Following this tions,amortisations and extraordinarycharges increased transfer,the balanceofthe Funds allocatedtoventurecapi- by EUR 22.9 million or 6%to EUR 379 million. This was tal operations will amounttoEUR 1764 304 801 and the due mainly to an EUR 11.3 million rise in other administra- Additional ReservestoEUR 5305 876 121. EIB Group 100 Financial Report2007

Balancesheet as at 31 December 2007 (in EUR ’000)

Assets 31.12.2007 31.12.2006

1. Cash in hand,balances with centralbanks and post officebanks 27 318 14 676 2. Treasurybills eligible forrefinancing with centralbanks (NoteB) 2126 591 2551 274 3. Loans and advances to credit institutions a) repayable on demand 264 388 183 956 b) other loans and advances (NoteC) 15 476 020 14 497 629 c) loans (NoteD.1) 111 215 441 114 581 860 126 955 849 129 263 445 4. Loans and advances to customers a) loans (NoteD.1) 155 222 398 140 034 385 b) specific provisions (NoteD.3) -41550 -86917 155 180 848 139 947 468 5. Debt securities including fixed-income securities (NoteB) a) issued by public bodies 451 974 548 751 b) issued by other borrowers 10 068 851 10 278 098 10 520 825 10 826 849 6. Shares and other variable-yield securities (NoteE) 1395 666 1223 151 7. Participating Interests (NoteE) 479 272 276 989 8. Intangible assets (NoteF) 3972 5131 9. Property,furnitureand equipment(NoteF) 280 257 214 597 10. Other assets a) sundrydebtors (NoteH) 125 211 238 804 125 211 238 804 11. Subscribed capital and receivable reserves, called but not paid (NoteY) 1104 809 1504 979 12. Prepayments and accrued income (NoteI) 3653 733 3090 211

Total Assets 301 854 351 289 157 574

Off-balance-sheet items 31.12.2007 31.12.2006

Commitments -EBRD capital (NoteE) -uncalled 442 500 442 500 -EIF capital (NoteE) -uncalled 1457 600 979 200 -Undisbursed loans (Notes Dand W) -credit institutions 12 341 869 11 247 729 -customers 41 264 752 42 324 173 53 606 621 53 571 902 -Undisbursed venturecapital operations (NoteE) 1252 992 1255 633 -Undisbursed infrastructurefunds (NoteE) 233 620 121 283 -Undisbursed investmentfunds (NoteE) 95 000 0 Guarantees (NoteD) -Inrespectofloans granted by thirdparties 149 779 48 500 -Inrespectofventurecapital operations 15 463 19 056 EIF treasurymanagement 799 946 543 168 GuaranteeFund treasurymanagement 1152 974 1379 698

Theaccompanying notes form an integralpartofthese financial statments EIB – Financial Statements 101 EIB Group

Liabilities 31.12.2007 31.12.2006

1. Amounts owed to credit institutions (NoteJ) a) with agreed maturitydates or periods of notice 341 718 218 927 341 718 218 927 2. Debts evidenced by certificates(NoteK) a) debt securities in issue 253 328 921 245 485 435 b) others 892 400 1090 202 254 221 321 246 575 637 3. Other liabilities a) sundrycreditors (NoteH) 1141 002 1144 477 b) sundryliabilities 16 838 15 332 c) foreignexchange neutralization on currencyswap contracts(NoteK) 5458 234 3062 164 6616 074 4221 973 4. Accruals and deferredincome (Notes Gand I) 5030 476 4478 135 5. Provisions forliabilities and charges a) pension plans and health insurancescheme (NoteL) 1097 574 979 827 b) provision forguarantees issued in respectofventure capital operations 5781 5781 1103 355 985 608 6. Capital (NoteY) -Subscribed 164 808 169 163 653 737 -Uncalled -156 567 760 -155 471 050 8240 409 8182 687 7. Reserves a) reserve fund 16 480 817 16 365 374 b) additional reserves 5245 781 2649 498 21 726 598 19 014 872 8. Funds allocatedtostructured financefacility 1250 000 1250 000 9. Funds allocatedtoventurecapital operations 1690 940 1663 824 10. Profit forthe financial year 1633 460 2565 911

Total Liabilities 301 854 351 289 157 574

Off-balance-sheet items 31.12.2007 31.12.2006

Special deposits forserviceofborrowings (NoteS) 129 428 193 872 Securities receivable 0 146 285 Nominal value of interest rate swap contracts(NoteV.1) 249 510 574 243 788 117 Nominal value of currencyswapcontracts payable (NoteV) 80 992 893 67 706 110 Nominal value of currencyswapcontracts receivable (NoteV) 75 549 044 64 658 046 Nominal value of credit default swaps 97 843 15 751 Nominal value of put option granted to EIF minorityshareholders (NoteE.2) 319 045 237 141 Borrowings arranged but not yetsigned 401 574 313 396 Swaps arranged but not yetsigned 94 0 Securities lending (NoteB) 858 762 842 740 Futures contracts(NoteV) 419 307 561 346 Forwardrate agreement 0 822 861 FX forward(NoteV) 245 330 234 647 Nominal value of overnightIndexedswaps (NoteV) 6000 000 0 EIB Group 102 Financial Report2007

StatementofSpecial Section (1) as at 31 December 2007 (in EUR ’000)

Assets 31.12.2007 31.12.2006

Turkey From resourcesofMember States Disbursed loans outstanding(2) 14 631 17 657 Mediterranean Countries From resourcesofthe European Community Disbursed loans outstanding 150 859 161 441 Risk capital operations - amounts to be disbursed 170 085 151 609 - amounts disbursed 218 050 210 891 388 135 362 500

Total (3) 538 994 523 941

African, Caribbean and Pacific Statesand Overseas Countries and Territories From resourcesofthe European Community -Yaoundé Conventions Loans disbursed 17 626 18 700 Contributions to the formation of risk capital - amounts disbursed 419 419

Total (4) 18 045 19 119

-Lomé Conventions Operations from risk capital resources: -amounts to be disbursed 144 405 260 064 -amounts disbursed 1056 938 1147 689 1201 343 1407 753 Operations from other resources -amounts to be disbursed 7274 9838 -amounts disbursed 4864 3908 12 138 13 746

Total (5) 1213 481 1421 499

TOTAL 1785 151 1982 216 EIB – Financial Statements 103 EIB Group

Liabilities 31.12.2007 31.12.2006

Total 1463 387 1560 705

Total 321 764 421 511

TOTAL 1785 151 1982 216

Forinformation:

Total amounts disbursed and not yetrepaid on loans on special conditions made available by the Commission in respect of whichthe Bank has accepted an EC mandate forrecovering principal and interest: a)Under the First,Second and ThirdLomé Conventions: at 31.12.2007 =764 994 (at31.12.2006: 835 003) b)Under Financial Protocols signed with the Mediterranean Countries: at 31.12.2007 =115 476 (at31.12.2006:122 412)

Note(2): Initial amountofcontracts signed forfinancing projects in Turkey under mandate,for the accountand at the risk of Member States.

Initial amount: 405 899 add: exchange adjustments 21 784 less: cancellations 215 repayments 412 837 -413 052

14 631 EIB Group 104 Financial Report2007

Initial amount: 841 007 less: exchange adjustments 13 109 cancellations 62 118 repayments 226 786 -302 013

538 994

18 045

Loans from risk capital resources: -conditional and subordinatedloans 3121 877 -equityparticipations 120 984 Initial amount: 3242 861 add: capitalised interest 7372

less: cancellations 578 112 repayments 1420 980 exchange adjustments 49 798 -2048 890 1201 343

Loans from other resources: Initial amount: 17 838 less: cancellations 2690 repayments 2824 exchange adjustments 186 -5700 12 138

1213 481 EIB – Financial Statements 105 EIB Group

Profit and Loss Account forthe year ended 31 December 2007 (in EUR ’000)

31.12.2007 31.12.2006

1. Interest and similar income [NoteN] 14 271 925 13 735 253 2. Interest and similar charges [NoteN] -12400 153 -11972 175 3. Income from securities with variable-yield 73 552 33 343 a) income from participating interests 11 980 10 376 b) income from shares and variable-yield securities 61 572 22 967 4. Commission income [NoteO] 64 487 53 443 5. Commission expense [NoteO] -10382 -9046 6. Result on financial operations [NoteP] -9835 -3030 7. Other operating income [NoteQ] 27 616 23 598 8. General administrativeexpenses [NoteR] -359 916 -338 847 a) staff costs [NoteL] -279 255 -269 481 b) other administrativecosts -80661 -69366 9. Depreciation and amortization [NoteF] -19021 -17193 a) intangible assets -2984 -3250 b) tangible assets -16037 -13943 10. Result on sale of loans and advances -61490 -109 816 11. Value adjustments on loans and advances [NoteD.3] 44 244 185 404 12. Value adjustments on shares and other variable-yield 11 530 8374 securities and participating interests [NoteE] 13. Release from provision forguarantees issued 903 1603 14. Release from fund forgeneral banking risks [NoteM] 0 975 000 15. Profit forthe financial year 1633 460 2565 911

Theaccompanying notes form an integralpartofthese financial statements. EIB Group 106 Financial Report2007

OwnFunds and Appropriation of Profit

As at 1January2007, the subscribed capital has increased from EUR ’000 163 653 737 to EUR ’000 164 808 169, by virtue of the contributions of twonew Member States: Bulgaria and Romania.

As aconsequenceofthis capital increase,the twonew Member States had to contributetotheir shareofPaid-in capital (EUR ’000 57 722), and also their shareofthe Reservesand General Provisions (EUR ’000 172 932) forthe amounts outstanding as of 31 December 2006.

At its annual meeting on 5June 2007, the BoardofGovernors decided the following appropriation of the balanceofthe profit and loss accountfor the year ended 31 December 2006, which amountedtoEUR ’000 2584 026 (including the contribution of the twonew Member States to their shareofprofit and loss accountfor the year ended 31 December 2006 foranamountofEUR ’000 18 115):

-EUR ’000 2584 026, as an increase to the account’Additional Reserves’

An amountofEUR ’000 27 116 resulting from the value adjustmentonventurecapital operations has also been transferred to the Funds allocatedtoventurecapital operations from the Additional Reserves. Following the transfer,the Funds allocatedtoventurecapital operations amounttoEUR ’000 1690 940 and the Additional ReservestoEUR ’000 5245 781.

Statementofmovements in ownfunds (in EUR ’000) 31.12.2007 31.12.2006

ShareCapital -Subscribed capital 164 808 169 163 653 737 -Uncalled -156 567 760 -155 471 050 -Called capital 8240 409 8182 687 -Less: Capital called but not paid -306 514 -426 679 -Paid in capital 7933 895 7756 008 Reservesand profit forthe year: Reserve Fund -Balanceatbeginning of the year 16 365 374 16 365 374 -Payable by Member States 115 443 0 -Balanceatend of the year 16 480 817 16 365 374 -Less: Receivable from Member States -798 295 -1078 300 -Paid-in balanceatend of the year 15 682 522 15 287 074 Additional reserves -Balanceatbeginning of the year 2649 498 1995 112 -Appropriation of prior year’s profit 2584 026 888 877 -Payable by Member States 39 373 0 -Transfer to/from Funds allocatedtoventurecapital operations -27116 15 509 -Transfer to Funds allocatedtostructured financefacility 0 -250 000 -Balanceatend of the year 5245 781 2649 498 Fund forgeneral banking risks -Balanceatbeginning of the year 0 975 000 -Appropriation of current year’s profit 0 0 -Transfer to current year’s profit 0 -975 000 -Balanceatend of the year 0 0 Funds allocatedtostructured financefacility -Balanceatbeginning of the year 1250 000 500 000 -Appropriation of prior year’s profit 0 500 000 -Transfer from additional reserves 0 250 000 -Balanceatend of the year 1250 000 1250 000 Funds allocatedtoventurecapital operations -Balanceatbeginning of the year 1663 824 1679 333 -Transfer from/toAdditional reserves 27 116 -15509 -Balanceatend of the year 1690 940 1663 824 Profit forthe financial year 1633 460 2565 911

Total ownfunds 33 436 598 31 172 315

Theaccompanying notes form an integralpartofthese financial statments EIB – Financial Statements 107 EIB Group

StatementofSubscriptions to the Capital of the Bank as at 31 December 2007 (in EUR)

Member States Subscribed capital Uncalled capital (*) Paid-in and to be paid-in capital at 31.12.2007 (**) GERMANY26649 532 500 25 316 065 017 1333 467 483 FRANCE 26 649 532 500 25 316 065 017 1333 467 483 ITALY26649 532 500 25 316 065 017 1333 467 483 UNITED KINGDOM 26 649 532 500 25 316 065 017 1333 467 483 SPAIN 15 989 719 500 15 191 419 977 798 299 523 NETHERLANDS 7387 065 000 7018 606 548 368 458 452 BELGIUM 7387 065 000 7018 606 548 368 458 452 SWEDEN 4900 585 500 4655 556 231 245 029 269 DENMARK 3740 283 000 3553 721 865 186 561 135 AUSTRIA 3666 973 500 3483 624 843 183 348 657 POLAND 3411 263 500 3240 700 325 170 563 175 FINLAND 2106 816 000 2001 475 188 105 340 812 GREECE 2003 725 500 1903 781 233 99 944 267 PORTUGAL 1291 287 000 1226 879 033 64 407 967 CZECH REPUBLIC 1258 785 500 1195 846 225 62 939 275 HUNGARY1190 868 500 1131 325 075 59 543 425 IRELAND 935 070 000 888 429 814 46 640 186 ROMANIA 863 514 500 820 338 775 43 175 725 SLOVAK REPUBLIC 428 490 500 407 065 975 21 424 525 SLOVENIA 397 815 000 377 924 250 19 890 750 BULGARIA 290 917 500 276 371 625 14 545 875 LITHUANIA 249 617 500 237 136 625 12 480 875 LUXEMBOURG187 015 500 177 687 377 9328 123 CYPRUS 183 382 000 174 212 900 9169 100 LATVIA 152 335 000 144 718 250 7616 750 ESTONIA 117 640 000 111 758 000 5882 000 MALTA 69 804 000 66 313 800 3490 200

TOTAL 164 808 169 000 156 567 760 550 8240 408 450

(*) Could be called by decision of the BoardofDirectors to such extent as mayberequired forthe Bank to meet its obligations towardsthose who have made loans to it. (**) RefertoNoteYfordetails on the paymentschedule on capital to be paid-in.

Theaccompanying notes form an integralpartofthese financial statements. EIB Group 108 Financial Report2007

Cash Flow Statementasat31December 2007 (in EUR ’000)

31.12.2007 31.12.2006

A. Cash flows from operating activities: Profit forthe financial year 1633 460 2565 911 Adjustments: Transfer from Fund forgeneral banking risks 0 -975 000 Value adjustments on tangible and intangible assets 19 021 17 193 Value adjustments on shares and other variable yield securities and participating interests -11530 -8374 Increase/Decrease in accruals and deferredincome 552 341 77 350 Increase in prepayments and accrued income -563 522 -624 550 Investmentportfolio amortisation -13303 -17886 Profit on operating activities 1616 467 1034 644 Net loans disbursements -39910 415 -35391 121 Repayments 19 984 413 21 143 605 Effects of exchange rate changes on loans 8104 408 3778 695 Decrease in treasuryportfolios 1180 112 6445 Increase in venturecapital operations -111 778 -132 330 Specific provisions on loans and advances -45367 -185 083 Increase in shares and other variable yield securities -49207 -23766 Decrease/Increase in other assets 113 593 274 134 Net cash from operating activities -9117 774 -9494 777 B. Cash flows from investing activities: Purchases/Sales of EIF shares -202 283 3168 Securities matured during the year 278 346 395 894 Purchases of securities (investmentportflios) 0 -249 029 Increase in asset backed securities -1986 532 -937 679 Increases in property,furnitureand equipment -81697 -54165 Increases in intangible fixed assets -1825 -2235 Net cash from investing activities -1993 991 -844 046 C. Cash flows from financing activities: Issue of borrowings 54 678 538 45 549 825 Redemption of borrowings -35348 649 -39904 317 Effects of exchange rate changes on borrowings &swaps -9802 615 -6456 245 Paid in by Member States 630 824 300 996 Increase/Decrease in commercial paper 514 480 -207 278 Increase/Decrease in amounts owed to credit institutions 122 791 -174 098 Increase/Decrease in other liabilities 115 778 -349 447 Net cash from financing activities 10 911 147 -1240 564 Summarystatementofcash flows: Cash and cash equivalents at beginning of financial year 18 166 313 29 745 700 Net cash from: (1) operating activities -9117 774 -9494 777 (2) investing activities -1993 991 -844 046 (3) financing activities 10 911 147 -1240 564 Cash and cash equivalents at end of financial year 17 965 695 18 166 313 Cash analysis (excluding investmentand hedging portfolios): Cash in hand,balances with centralbanks and post officebanks 27 318 14 676 Bills maturing within three months of issue [NoteB;See A1 portfolio] 2197 969 3470 052 Loans and advances to credit institutions: Accounts repayable on demand 264 388 183 956 Term deposit accounts 15 476 020 14 497 629 17 965 695 18 166 313

Theaccompanying notes form an integralpartofthese financial statements. EIB – Financial Statements 109 EIB Group

European InvestmentBank Notes to the financial statements as at 31 december 2007

NoteA–Significantaccounting policies Itsresourcesare derived from its capital,borrowings and accumulatedearnings in various currencies and areheld, invested or lentinthe same currencies. A.1. Accounting standards Foreigncurrencytransactions aretranslatedatthe ex- Theunconsolidatedfinancial statements (the ’Financial change rate prevailing on the date of the transaction. Statements’) of the European InvestmentBank (the ’Bank’ or ’EIB’) have been prepared in accordancewith the gen- TheBank’s assets and liabilities denominatedincurren- eral principles of the Directive86/635/EEC of the Council cies other than in euroare translatedatclosing exchange of the European Communities of 8December 1986 on the ratesprevailing at the balancesheet date.The gain or loss annual accounts and consolidatedaccounts of banks and arising from such translation is recorded in the profit and other financial institutions (the ’Directive’), as amended loss account. by Directive2001/65/EC of 27 September 2001 and by Directive2003/51/EC of 18 June 2003 on the annual and Theelements of the profit and loss accounts aretrans- consolidatedaccounts of certain types of companies, latedintoeuromonthly on the basis of the exchange banks and other financial institutions and insuranceun- ratesprevailing at the end of each month. dertakings (the ’Directives’). However, the Financial State- ments do not include anymanagementreport. TheBank A.3. Derivatives prepares an ActivityReportwhich is presentedseparately from the Financial Statements and its consistencywith the Financial Statements is not audited. TheBank uses derivativeinstruments,i.e.mainly currency and interest rate swaps,aspartofits asset and liability On aproposal from the ManagementCommittee,the management activities to manage exposures to interest BoardofDirectors decided on 11 March2008 to submit rate and foreigncurrencyrisks,including exposures aris- the Financial Statements to the Governors forapproval at ing from forecast transactions. their meeting on 3June 2008. Themajorityofthe Bank’s swaps areconcluded with a In preparing the Financial Statements,the Management view to hedging specific bond issues.The Bank enters Committee is required to make estimatesand assump- into currencyswaps,inwhich, at inception the proceeds tions thataffectreportedincome,expenses,assets,liabil- of aborrowing areconverted into adifferentcurrency, ities and disclosureofcontingentassets and liabilities. mainly as partofits resource-raising operations,and, Useofavailable information and application of judge- thereafter, the Bank will obtain the amounts needed to mentare inherentinthe formation of estimates. Actual servicethe borrowing in the original currency. The results in the futurecould differ from such estimatesand amounts corresponding to these operations arebooked the resulting differences maybematerial to the Financial as off-balancesheet items at the date of the transaction. Statements. TheBank also enters into currency, interest rate and over- TheBank also publishes consolidatedFinancial Statements nightindexswaps as partofits hedging operations on as of the same date as the annual financial statements. loans or forthe global ALM position. Thecorresponding interest is accountedfor on aproratatemporis basis. Thenominal amounts of these swaps arebooked as off- A.2. Foreign currencytranslation balancesheet itemsatthe date of the transaction.

In accordancewith Article 4(1) of its Statute, the EIB uses TheBank also enters into short-term currencyswapcon- the euro, the single currencyofthe Member States partici- tracts in order to adjust currencypositions in its opera- pating in the thirdstage of Economic and MonetaryUnion, tional treasuryinrelation to its benchmarkcurrency, the as the unit of measurefor the capital accounts of Member euro,and to caterfor demand forcurrencies in conjunc- States and forpresenting its Financial Statements. tion with loan disbursements.

TheBank conducts its operations in the currencies of its TheBank also enters into credit default swaps as partofits Member States,ineuroand in non-Communitycurren- credit risk mitigation. Thecorresponding amounts arebooked cies. as off-balancesheet items at the date of the transaction. EIB Group 110 Financial Report2007

A.4. Financial assets portfolio areavailable forsale and presentedinthe accounts at the lowerofcost or market value.Value adjust- Financial assets areaccountedfor using the settlement ments arerecorded under item 6. Result on financial date basis. operations in the profit and loss account.

Treasurybills appear on the assets side of the balance A.5. Cash and Cash Equivalents sheet under item 2. Treasurybills eligible for refinancing with central banks. TheBank defines cash equivalents as short-term,highly liquid securities and interest-earning deposits with origin- Negotiable debt securities issued by credit institutions al maturities of 90 days or less. appear on the assets side of the balancesheet under item 5. Debt securities including fixed-income securities - b) issued by other borrowers. A.6. Treasurybills and other bills eligible forrefinancing with centralbanks and debt securities including fixed- • Operational bond portfolios B1, B2 and B3 income securities TheB1’Credit Spread’portfolio comprises floating-rate With aview to clarifying managementofits liquid assets and fixed-ratebonds issued or guaranteed by national and consolidating its solvency, the Bank has established governments,supranational institutions,financial institu- the following portfolio categories: tions and corporations with amaximum residual maturity of 5years.Asat31December 2005, the securities in A.6.1. Investmentportfolio the portfolio were presentedinthe financial statements at their amortised cost and were held until their final ma- Theinvestmentportfolio consists of securities purchased turity. As from 1July 2006, the securities were converted with the intention of holding them to maturity. These se- into available forsale securities,and the relatedrealised curities areissued or guaranteed by: result from the conversion has been recognized in the 2006 profit and loss accountunder item 6. Result on finan- • Governments of the European Union, G10 countries cial operations. Thesecurities arepresentedinthe finan- and their agencies; cial statements at the lowerofcost or market value.Value • Supranational public institutions,including multi- adjustments arerecorded under item 6. Result on financial national developmentbanks. operations in the profit and loss account.

These securities areinitially recorded at purchase priceor TheB2’Alternativeinvestment’portfolio comprises capi- moreexceptionally at transfer price. Value impairments tal guaranteed notes,byissuers which meet the Bank’s areaccountedfor,ifthese areother than temporary. The Treasuryinvestmentcriteriaand with coupons linked to differencebetween entryprice and redemption value is the performanceofunderlying Funds of Hedge Funds accountedfor proratatemporis over the remaining lifeof with initial maturities of approximately fiveyears.The se- the securities. curities areavailable forsale and presentedinthe accounts at the lowerofcost or market value.Value In 2006, the Bank decided to phase out the investmentport- adjustments arerecorded under item 6. Result on financial folio.Sincethen, the Bank did not make anynew addition operations in the profit and loss account. to the investmentportfolio and will keep the existing portfolio lines until final maturityupon which the redemption TheB3’Global Fixedincome’portfolio comprises listed proceeds of such matured securities will be invested in the securities with amaximum residual maturityof10years, operational portfolios described in paragraph A.6.2. issued and guaranteed by financial institutions.Securities held in this portfolio aremarked to market value in the A.6.2. Operational portfolios balancesheet; the corresponding value adjustmentis recorded under item 6. Result on financial operations in • Operational money market portfolios A1 and A2 the profit and loss account.

In order to maintain an adequate level of liquidity, the A.6.3. Asset Backed Securities Bank purchases money market products with amaximum maturityoftwelvemonths,inparticular Treasurybills and This portfolio mainly consists of obligations in the form negotiable debt securities issued by credit institutions. of bonds,notes or certificatesissued by aSpecial Purpose Thesecurities in the A1 portfolio areheld until their final Vehicle (SPV)oratrust vehicle.These securities areclas- maturityand presentedinthe financial statements at sified as held to maturityand recorded at purchase price. their nominal value.Value impairments areaccountedfor, Value impairments areaccountedfor,ifthese areother if these areother than temporary. Thesecurities in the A2 than temporary. EIB – Financial Statements 111 EIB Group

A.7. Securities lending Under aTripartiterepo acustodian/clearing agencyar- ranges forcustody,clearing and settlementofrepos trans- In April2003, the Bank signed an agreementfor securities actions between the Bank and athirdparty.They operate lending with NorthernTrust Global Investmentacting as under astandardglobal master purchase agreementand an agenttolend securities from the InvestmentPortfolio, provides fordeliveryagainst paymentsystem, substitu- the B1 ’Credit Spread’portfolio and the B3 ’Global Fixed tion of securities,automatic marking to market,reporting income’portfolio. and daily administration by single agencywhich takes careofthe risk on itself and automatic rollovers while does Securities lentare recorded at the amountofcash col- not insist on disclosing the identities by counterparties. lateralreceived,plus accrued interest as an off balancesheet item. Securities received as collateralunder This type of operation is considered forthe purposes of securities lending transactions arenot recognized in the the Bank to be aloan (borrowing) at aguaranteed rate of balancesheet unless controlofthe contractual rights that interest.They arecarried at the amounts of cash advanced comprise these securities received is gained.Securities or received,plus accrued interest and areentered on the lentare not derecognised from the balancesheet unless assets side of the balancesheet under asset item 3. Loans controlofthe contractual rights thatcomprise these se- and advances to credit institutions – b) other loans and ad- curities transferredisrelinquished.The Bank monitors the vances or liability item 1. Amounts owedtocredit institu- market value of the securities lentonadaily basis and tions – with agreed maturitydates or periods of notice. provides or requests additional collateralinaccordance with the underlying agreements. Interest earned on reverse repurchase agreements and interest incurredonrepurchase agreements is recognised Fees and interest received or paid arerecorded as interest as interest income or interest expense,overthe lifeof income or interest expense,onanaccrual basis. each agreement.

A.8. Loans and advances to credit institutions and cus- A.8.4. Interest subsidies tomers Interest subsidies received in advance(see NoteG)are deferredand recognised in the profit and loss account A.8.1. Loans and advances over the period from disbursementtorepaymentofthe subsidised loan. Loans and advances areincluded in the assets of the Bank at their net disbursed amounts.Specific value adjust- A.9. Shares,other variable-yield securities and par- ments have been made forloans and advances outstand- ticipating interests ing at the end of the financial year and presenting risks of non-recoveryofall or partoftheir amounts.Such value adjustments areheld in the same currencyasthe asset to A.9.1. Shares and other variable-yield securities which they relate.Value adjustments areaccountedfor in the profit and loss accountas’Value adjustments on loans Shares and other variable-yield securities arerecorded at and advances’and aredeductedfromthe appropriate as- acquisition cost.Atthe balancesheet date,their carrying set items on the balancesheet. value is adjusted to the lowerofcost or market value.The Bank acquires shares and other variable-yield securities when A.8.2. Interest on loans it enters into venturecapital operations or infrastructure funds under the Structured FinanceFacility(see NoteA.15). Interest on loans is recorded in the profit and loss account on an accruals basis,i.e.overthe lifeofthe loans.Onthe Investments in venturecapital enterprises,infrastructure balancesheet,accrued interest is included in ’Prepay- funds and investmentfunds representshares and other ments and accrued income’under assets.Value adjust- variable-yield securities acquired forthe longer term in the ments to interest amounts on these loans aredetermined normal course of the Bank’s activities and areinitially on acase-by-case basis by the Bank’s Managementand shown in the balancesheet at their original purchase cost. recorded under ’Specific provisions’under assets togeth- Based on the reports received from fund managers up to er with the relevantline item under assets. the balancesheet date,the portfolios of investments are valued on aline-by-line basis at the lowerofcost or attrib- A.8.3. Reverse repurchase and repurchase operations utable netasset value (’NAV’), thus excluding anyattribut- (reverse reposand repos) able unrealised gain thatmay be prevailing in the portfolio. Theattributable NAVisdetermined through applying ei- TheBank enters into tripartitereverse repos forthe pur- ther the Bank’s percentage ownership in the underlying pose of optimising credit risk usage involved in assets vehicle to the NAVreflectedinthe most recent reportor, to held in operational portfolios. the extent available,the value per shareatthe same date, EIB Group 112 Financial Report2007

submitted by the respectiveFund Manager.The attribut- Internally developed softwaremeeting these criteria is car- able NAVisadjusted foreventshaving occurredbetween ried at cost less accumulateddepreciation calculatedon the date of the latest available NAVand the balancesheet the straight-line basis over three years from completion. date to the extent thatsuch adjustmentisconsidered to be material.Unrealised losses due solely to administrativeex- Software purchased is depreciatedonthe straight-line penses and managementfees of venturecapital,infrastruc- basis over its estimatedlife(2to5years). turefunds and investmentfunds in existencefor less than twoyears at the balancesheet date arenot taken into con- A.12. Pension plans and health insurancescheme sideration in determining the attributable NAV.

A.12.1. Pension plans A.9.2. Participating interests

Participating interests held representmedium and long-term TheBank’s main pension scheme is adefined benefit pen- investments and areaccountedfor at cost.Value impairments sion scheme funded by contributions from staff and from areaccountedfor,ifthese areother than temporary. the Bank which covers all employees.All contributions of the Bank and its staff areinvested in the assets of the Bank.These annual contributions areset aside and ac- A.10. Property, furnitureand equipment cumulatedasaspecific provision on the liabilities side of the Bank’s balancesheet,together with annual interest. Property,furnitureand equipmentinclude land,Bank- occupied properties,other machines and equipment. Commitments forretirementbenefits arevalued at least everyyear using the projectedunit credit method,inor- Land and buildings arestatedatacquisition cost less ac- der to ensurethatthe provision enteredinthe accounts cumulateddepreciation. Thevalue of the Bank’s head- is adequate.The latest valuation wascarried out as at 30 quarters building in Luxembourg-Kirchbergand its September 2007, but updatedasat31December 2007 buildings in Luxembourg-Hamm, Luxembourg-Weimers- with an extrapolation (roll forwardmethod) forthe last hof and Lisbon is depreciatedonthe straight-line basis as three months of 2007. Themain actuarial assumptions set out below. used by the actuaryare set out in NoteL.Actuarial surpluses do not influenceprovisioning and deficits result in Permanentequipment, fixtures and fittings,furniture, of- an additional specific provision. ficeequipmentand vehicles have been recorded in the balancesheet at their acquisition cost,less accumulated Themain pension scheme of the European Investment depreciation. Fund (’EIF’) is adefined benefit scheme funded by contributions from staff and from the EIF which covers all Depreciation is calculatedonthe straight-line basis over employees.The scheme enteredintoforce in March2003, the estimatedlifeofeach item purchased,asset out be- replacing the previous defined contribution scheme.The low: funds allocatedtothe pension scheme areinthe custody of and invested by the EIB,following the rules and prin- • Buildings in Kirchberg, ciples applied by EIB forits ownpension scheme. Hamm and Weimershof 30 years • Building in Lisbon 25 years A.12.2. Health insurancescheme • Permanentequipment, TheBank has set up its ownhealth insurancescheme for fixtures and fittings 10 years the benefit of staff,financed by contributions from the • Furniture5years Bank and its employees.The health insurancescheme is • Officeequipmentand vehicles 3years managed under the same principles as the pension scheme.The latest valuation wascarried out as at 30 Sep- Worksofart aredepreciatedinfull in the year of acquisi- tember 2007. tion. A.12.3. TheManagementCommittee pension plan A.11. Intangible assets TheManagementCommittee pension plan is adefined benefit pension scheme funded by contributions from the Intangible assets comprise computer software. Software Bank only which covers all ManagementCommittee mem- developmentcosts arecapitalized if they meet certain bers.All contributions of the Bank areinvested in the assets criteria relating to identifiability, to the probabilitythat of the Bank.These annual contributions areset aside and futureeconomic benefits will flowtothe enterprise and accumulatedasaspecific provision on the liabilities side of to the reliabilityofcost measurement. the Bank’s balancesheet,together with annual interest. EIB – Financial Statements 113 EIB Group

A.13. Debts evidenced by certificates A.15.2. Funds allocatedtoventurecapital operations

Debts evidenced by certificatesare presentedinthis ac- This item comprises the cumulativeamountofappro- countattheir redemption amounts.Transaction costs and priations from the annual result of the Bank,determined premiums/ discounts areamortized in the profit and loss each year by the BoardofGovernors to facilitate instru- accountonastraightline basis over the lifeofthe debt ments providing venturecapital in the contextofimple- through ’accruals and deferred income’ or ’prepayments menting the European Council Resolution on Growth and and accrued income’. Employment.

Interest expense on debt instruments is included in ’In- Value adjustments on venturecapital and structured fi- terest and similar charges’ in the profit and loss ac- nanceoperations areaccountedfor in the profit and loss count. account. Upon appropriation of the Bank’s result,such value adjustments aretaken into consideration fordetermining the amounts to be recorded in ’Fundsallocated to A.14. Fund forgeneral banking risks and provision for structured financefacility’ and ’Fundsallocated to venture guarantees issued capital operations’.

A.14.1. Fund forgeneral banking risks A.16. Taxation Until 31 December 2005, the Bank identified,asasepa- rate balancesheet item, the amounts it decided to put TheProtocolonthe Privileges and Immunities of the Eu- aside to cover risks associatedwith loans and other finan- ropean Communities,appended to the Treaty of 8April cial operations,having regardtothe particular risks at- 1965 establishing aSingleCouncil and aSingle Commis- tached to such operations. sion of the European Communities,stipules thatthe assets,revenues and other property of the Bank areexempt Starting from 2006, the Bank no longer identifies such from all directtaxes. separate balancesheet item. Thedecision to release it completely does not affectthe abilityofthe Bank to cov- A.17. Prepayments and accrued income – Accruals and er its risks.The Bank continues to computethe amount deferred income corresponding to the general banking risks forinternal and disclosurepurposes (see NoteM), according to the existing methodology. These accounts comprise:

Theamountcorresponding to the general banking risks Prepayments and accrued income: Expenditureincurred with respecttooperations of the Structured FinanceFacil- during the financial year but relating to asubsequentfi- ityisdisclosed in ’Funds allocatedtoStructured Finance nancial year,together with anyincome which, though Facility’ on the balancesheet. relating to the financial year in question, is not due until afterits expiry(principally interest on loans). A.14.2. Provision forguarantees issued Accruals and deferredincome: Income received before This provision is intended to cover risks inherentinthe the balancesheet date but relating to asubsequentfi- Bank’s activityofissuing guarantees in favour of financial nancialyear,together with anycharges which, though intermediaries or issued in respectofloans granted by relating to the financial year in question, will be paid only thirdparties.Aprovision forcredit losses is established if in the course of asubsequentfinancial year (principally there is objectiveevidencethatthe Bank will have to in- interest on borrowings). cur acredit loss in respectofagiven guaranteegranted.

A.18. Interest and similar income A.15. Funds allocatedtostructured financefacility and to venturecapital operations In addition to interest and commission income on loans and deposits and other revenue from the securities A.15.1. Funds allocatedtostructured financefacility portfolio,the ’Interest and similar income’ includes the indemnities received by the Bank forprepayments This item comprises the cumulativeamountofappro- made by its borrowers.Inorder to maintain equivalent priations from the annual result of the Bank,determined accounting treatmentbetween income on loans and each year by the BoardofGovernors to facilitate the im- the cost of borrowings,the Bank amortises prepayment plementationofoperations with agreater degreeofrisk indemnities received over the remaining lifeofthe loans forthis new type of instrument. concerned. EIB Group 114 Financial Report2007

A.19. Managementofthird-party funds munityand the European InvestmentBank.The EIB is setting up the RSFF,aninstrumentaimed at fostering A.19.1. EIF treasury investmentfor Europe in research, technological developmentand demonstration, as well as innovation, in par- TheEIF treasuryismanaged by the Bank in accordance ticular in the privatesector. TheEIB prepares separate with the treasurymanagementagreementsigned be- financial statements forthe Risk-Sharing FinanceFacility. tween the twoparties in December 2000. A.19.6. Heavily Indebted Poor Countries (HIPC)Ini- A.19.2. GuaranteeFund tiative

TheCommission entrusted financial managementofthe TheHIPC Initiative(the ’Initiative’)isaninternational debt GuaranteeFund to the EIB under an agreementsigned relief mechanism thatprovides special assistancetothe between the twoparties in November 1994. world’spoorest countries.Itwas launched in 1996 following aproposal from the WorldBank and the Internation- A.19.3. InvestmentFacility al MonetaryFund (IMF). Theprincipal objectiveofthe initiativeistoreducethe debt burden of poor countries TheInvestmentFacility, which is managed by the EIB,has to sustainable.The EIB prepares separatefinancial state- been established within the frameworkofthe Cotonou ments forthe HIPC Initiative. Agreementoncooperation and developmentofthe African, Caribbean and Pacific Group of States and the A.19.7. EU-AfricaInfrastructureTrust Fund (the ’Trust European Union and its Member States on 23 June 2000. Fund’) TheEIB prepares separatefinancial statements forthe InvestmentFacility. TheTrust Fund has been createdwithin the frameworkof the Trust Fund Agreementbetween TheEuropean Com- A.19.4. Femip Trust Fund mission on behalf of the European CommunityasFound- ing Donor and the European InvestmentBank as TheFemip Trust Fund,which is also managed by the EIB, Manager,also open to Member States of the European wasset up to enhancethe existing activities of the EIB in Union which subsequently accede to this agreementas the Mediterranean Partner Countries,with the supportof Donors.On9February2006, the European Commission anumber of donor countries and with aview to directing and the European InvestmentBank signed aMemoran- resourcestooperations in certain prioritysectors through dum of Understanding (the ’MoU’)topromotejointly the the provision of technical assistanceand risk capital.The EU-Africa InfrastructurePartnership and,inparticular,to EIB prepares separatefinancial statements forthe Femip establish asupporting EU-Africa InfrastructureTrust Fund. Trust Fund. TheEIB prepares separatefinancial statements forthe Trust Fund. A.19.5. Risk-Sharing FinanceFacility A.20. Reclassification of prior year figures TheRisk-Sharing FinanceFacilityhas been established within the frameworkofthe Co-operation Agreement, enteredintoforce on this 5th of June 2007, between The Certain prior-year figures have been reclassified to con- European Commission on behalf of the European Com- form with the current year’s presentation.

NoteB–Debt securities portfolio (in EUR ’000)

In addition to asset backed securities,which representacquisitions of interests pools of loans or receivables in connection with securitisation transactions,the debt securities portfolio is composed of the investmentportfolio,the operational money market portfolios A1 and A2 and the operational bonds B1 ’Credit Spread’, B2 ’AlternativeInvestment’and B3 ’Global Fixedincome’portfolios.The detail of these portfolios and their classification as at 31 December 2007 and 2006 areasfollows:

31.12.2007 31.12.2006

Treasurybills eligible forrefinancing with centralbanks (listed) 2126 591 2551 274 Debt securities including fixed-income securities (of which EUR ’000 2860 459 unlisted in 2007 and EUR ’000 1597 397 in 2006) 10 520 825 10 826 849

12 647 416 13 378 123 EIB – Financial Statements 115 EIB Group

At 31.12.2007 Classification Purchase Book Premiums/ Value at final Market price value Discounts to maturity value be amortized Investmentportfolio Held to Maturity2148 726 2121 399 -32066 2089 333 2142 477 Operational money market portfolios: -A1: money market securities Held to Maturity with amax. 3month maturity 2197 969 2197 969 02197 969 2197 969 -A2: money market securities Available forsale with amax. 18 month maturity 1745 057 1741 989 01744 880 1743 820 Operational bond portfolios: -B1: Credit Spread Available forsale 1247 822 1232 342 01247 925 1232 433 -B2: AlternativeInvestmentAvailable forsale 150 000 150 000 0150 000 161 724 -B3: Global FixedIncome Trading 496 862 494 789 0494 200 494 789 Asset backed securities [NoteD] Held to Maturity4708 928 4708 928 04708 928 4702 566

12 695 364 12 647 416 -32066 12 633 235 12 675 778

At 31.12.2006 Classification Purchase Book Premiums/ Value at final Market price value Discounts to maturity value be amortized Investmentportfolio Held to Maturity2427 072 2386 442 -38510 2347 932 2455 978 Operational money market portfolios: -A1: money market securities Held to Maturity with amax. 3month maturity 3470 052 3470 052 03470 052 3470 052 -A2: money market securities Available forsale with amax. 18 month maturity 2673 394 2672 224 02672 010 2672 530 Operational bond portfolios: -B1: Credit Spread Available forsale 1297 378 1296 718 01296 677 1297 022 -B2: AlternativeInvestmentAvailable forsale 150 000 150 000 0150 000 155 315 -B3: Global FixedIncome Trading 689 674 680 290 0684 300 680 290 Asset backed securities [NoteD] Held to Maturity2722 397 2722 397 02722 397 2718 430

13 429 967 13 378 123 -38510 13 343 368 13 449 617

TheBank enters into collateralized securities lending transactions thatmay result in credit exposureinthe eventthatthe counterparty to the transaction is unable to fulfill its contractual obligations.The Bank controls credit risk associatedwith these activities by monitoring counterparty credit exposureand collateralvalues on adaily basis and requiring additional collateraltobedeposited with or returned to the Bank when deemed necessary.

Thesecuritylending activityamounts to EUR ’000 858 762 at the end of December 2007 (2006: EUR ’000 842 740). EIB Group 116 Financial Report2007

NoteC–Loans and advances to credit institutions – other loans and advances (in EUR ’000)

TheBank enters into collateralized reverse repurchase and repurchase agreements transactions thatmay result in credit exposureinthe eventthatthe counterparty to the transaction is unable to fulfill its contractual obligations.The Bank controls credit risk associatedwith these activities by monitoring counterparty credit exposureand collateralvalues on a daily basis and requiring additional collateraltobedeposited with or returned to the Bank when deemed necessary.

31.12.2007 31.12.2006

Term deposits 10 883 383 8957 707 Tripartitereverse repos (*) 4592 637 5539 922

15 476 020 14 497 629

NoteD–Summarystatementofloans and guarantees

D.1. Aggregate loans granted (in EUR ’000)

Aggregate loans granted comprise both the disbursed and undisbursed portions of loans.The analysis is as follows:

To intermediary Directly to final Total 2007 Total 2006 credit institutions beneficiaries

Disbursed portion 111 215 441 155 222 398 266 437 839 254 616 245 Undisbursed loans 12 341 869 41 264 752 53 606 621 53 571 902

Aggregate loans granted123 557 310 196 487 150 320 044 460 308 188 147

Asset backed securities portfolio [NoteB]4708 928 2722 397

Aggregate loans including asset backed securities portfolio NoteWß 324 753 388 310 910 544

D.2. Statutoryceiling on lending and guaranteeoperations (in EUR million)

Under the termsofArticle 18 (5) of the Statute, the aggregate amountoutstanding at anytime of loans and guarantees granted by the Bank must not exceed 250%ofits subscribed capital.

Thepresentlevel of capital implies aceiling of EUR 412 billion (2006: EUR 409 billion) in relation to aggregate loans and guarantees furnished; these currently total EUR 328 billion and arebroken down as follows:

31.12.2007 31.12.2006

Aggregate loans granted 320 044 308 188 Aggregate venturecapital operations 2716 2605 Aggregate guarantees furnished in respectofloans granted by thirdparties 165 68 and venturecapital operations Aggregate asset backed securities portfolio 4709 2722 Aggregate infrastructurefunds 296 145 Aggregate investmentfunds 95 0

328 025 313 728 EIB – Financial Statements 117 EIB Group

D.3. Specific provision forloans (in EUR ’000)

Movements in the specific provision aredetailed below:

31.12.2007 31.12.2006

Provision at beginning of the year 86 917 272 000 Usefor the year -64917 (*) -189 171 (**) Allowanceduring the year 20 673 3767 Foreignexchange adjustment-1123 321

Provision at end of the year 41 550 86 917

(*) TheamountofEUR ’000 64 917 wasreleased following the sale during 2007 of loan assets forwhich aspecific provision has previously been established. Thesale of those loan assets resulted in arealized loss of EUR ’000 61 490. (**) TheamountofEUR ’000 189 171 wasreleased following the sale during 2006 of loan assets forwhich aspecific provision has previously been established. Thesale of those loan assets resulted in arealised loss of EUR ’000 109 816.

NoteE–Shares and other variable-yield securities and participating interests

E.1. Shares and other variable-yield securities

This item comprises (in EUR ’000):

VentureCapital EBRD Shares Shares acquired Infrastructure TOTAL Operations following Funds loan assets restructuring

Cost At 1January2007 1351 203 157 500 43 113 23 447 1575 263 Net additions 111 778 010192 39 067 161 037 Foreignexchange adjustments 00-520-52

At 31 December 2007 1462 981 157 500 53 253 62 514 1736 248

Value adjustments At 1January2007 -330 954 0-21 158 0-352 112 Net additions /releases 22 087 0-4211 -6346 11 530

At 31 December 2007 -308 867 0-25 369 -6346 -340 582

Net book value

At 31 December 2007 1154 114 157 500 27 884 56 168 1395 666

At 31 December 2006 1020 249 157 500 (1) 21 955 (2) 23 447 1223 151

(1) TheamountofEUR ’000 157 500 (2006: EUR ’000 157 500) corresponds to the capital paid in by the Bank as at 31 December 2007 with respecttoits subscription of EUR ’000 600 000 to the capital of the EBRD. TheBank holds 3.03%ofthe subscribed capital. As at 31 December 2007 the shareofunderlying net equityofthe Bank in EBRD amounts to EUR 368.8 million (2006: 299.4 million). This is based on the audited 2006 financial statements prepared in accordancewith International Financial Reporting Standards.

In EUR million %held Total ownfunds Total net result Balancesheet EBRD (31.12.2005) restated3.03 9881 1522 28 384 EBRD (31.12.2006) 3.03 12 172 2389 30 691

(2) Thetotal number of ordinaryEurotunnel shares held by the Bank as at 31.12.07 is 1474 279, valued at EUR 17 691 348. Thetotal number of Eurotunnel bonds redeemable in shares (ORA)held by the Bank as at 31.12.07 is 105 450, valued at EUR 10 191 857. Afterthe restructuring of the 28th June 2007, the Bank holds 78 971 193 warrants valued at EUR 0inthe balancesheet at year-end. EIB Group 118 Financial Report2007

As at 31 December 2007, concerning the investmentfunds,thereisnoamountdisbursed.

Theundisbursed amounts disclosed on Off-balance-sheet arerespectively:

• forventurecapital operations EUR ’000 1252 992, • forinfrastructurefunds EUR ’000 233 620, • forinvestmentfunds EUR ’000 95 000.

E.2. Participating interests

Theaccount’participating interests’for an amountofEUR ’000 479 272 (2006 EUR ’000 276 989) corresponds to the capi- talpaidinbythe Bank in respectofits subscription which amounts to EUR ’000 1822 000 (2006: EUR ’000 1224 000) to the capital of the European InvestmentFund,with its registered officeinLuxembourg.

TheBank holds 65.78%(2006 – 61.20%) of the subscribed capital of the EIF.Asat30June 2007, the subscribed capital of the EIF has increased from EUR 2billion to EUR 2.77 billion. At the EIF Annual General Meeting of Shareholders held on 7 May2007, it wasdecided to issue 1000 new shares,identical to the 2000 existing ones (nominal value EUR 1million each, paid in ratio of 20%) between the 30 June 2007 and 30 June 2010. Outofthe 1000 new shares,770 were subscribed on 31 December 2007, and forthe remainder thereisanoption forsubscription over the next 3years.The Bank has decided to subscribe 609 new shares on 30 June 2007, explaining the increase in its relativeshareholding.

By 30 June 2010, all shares not subscribed by the other shareholders will be subscribed by the Bank.

During 2007, the Bank sold atotal of 11 EIF shares.With regardtothe remaining 948 EIF shares,the EIB is offering to buy these shares at anytime from the EIF’s other shareholders under aReplacementSharePurchase Undertaking at aprice per shareofEUR ’000 337. This pricecorresponds to the partofeach shareinthe called capital of the EIF,increased by the sharepremium account, the statutoryreserves, the disclosed unrealised gains in venturecapital operations,the profit broughtforward and the profit of the year and decrease by the dividend forthe 2006 financial year.Given thatthe dividend forthe year 2006 will still be due to the other shareholders,the dividend decided has been deductedfromthe pricede- termined as described above.

Thenominal value of the put option granted to EIF minorityshareholders,shown as an off – balancesheet item, EUR ’000 319 045 (2006 EUR ’000 237 141) has been calculatedonthe basis of the 2006 audited EIF statutoryaccounts. EIB – Financial Statements 119 EIB Group

NoteF–Property,furniture, equipmentand intangible assets (in EUR ’000)

Land Luxembourg Lisbon Furnitureand Total property, Total buildings building equipment furnitureand intangible equipment assets

Historical cost At 1January2007 10 085 247 850 349 52 499 310 783 7040 Additions 065867 015830 81 697 1825 Disposals 000-6749 -6749 -3326

At 31 December 2007 10 085 313 717 349 61 580 385 731 5539

Accumulateddepreciation At 1January2007 0-75 687 -294 -20205 -96186 -1909 Depreciation 0-4734 -14-11 289 -16037 -2984 Disposals 0006749 6749 3326

At 31 December 2007 0-80 421 -308 -24745 -105 474 -1567

Net book value

At 31 December 2007 10 085 233 296 41 36 835 280 257 3972

At 31 December 2006 10 085 172 163 55 32 294 214 597 5131

Allofthe land and buildings areused by the Bank forits ownactivities.The Luxembourgbuildings categoryincludes cost relating to the construction of the new building forEUR ’000 171 710 (2006: EUR ’000 105 843), expectedtobecom- pleted in 2008.

NoteG–Interest subsidies received in advance

Part of the amounts received from the European Commission through EMS (European MonetarySystem) arrangements has been made available as along-termadvancewhich is enteredonthe liabilities side under item 3. Other liabilities -a) interest subsidies received in advance, and comprises:

• amounts in respectofinterest subsidies forloans granted forprojects outside the Union, under Conventions signed with the ACPStatesand Protocols concluded with the Mediterranean Countries; • interest subsidies,concerning certain lending operations put in placewithin the Union from the Bank’s ownresources,made available in conjunction with the EMS under Council Regulation (EEC)No1736/79 of 3August 1979 and in conjunction with the financial mechanism established by the EFTACountries under the EFTAAgreementsigned on 2May 1992; • amounts received in respectofinterest subsidies forloans granted from EC resourcesunder Council Decisions 78/870/ EEC of 16 October 1978 (New CommunityInstrument), 82/169/EEC of 15 March1982 and 83/200/EEC of 19 April1983 and under Council Regulation (EEC)No1736/79 of 3August 1979 as amended by Council Regulation (EEC)No2790/82 of 18 October 1982. EIB Group 120 Financial Report2007

NoteH–Sundrydebtors and sundrycreditors (in EUR ’000)

Sundrydebtors 31.12.2007 31.12.2006

-Loan instalments receivable 56 115 167 797 -Staff housing loans and advances (*) 21 917 26 406 -Advances on salaries and allowances 2817 10 492 -Other 44 362 34 109

125 211 238 804

Sundrycreditors 31.12.2007 31.12.2006

-European Communityaccounts: -For Special Section operations and relatedunsettled amounts 367 531 416 478 -Deposit accounts 517 441 428 025 -Optional SupplementaryProvidentScheme NoteLß 185 626 187 532 -Transitoryaccountonloans 44 938 95 694 -Other 25 466 16 748

1141 002 1144 477

(*) The Bank has enteredintoarrangements with an external financial institution, wherebypermanently employedstaff members maybegranted staff loans in accordancewith the Bank’s staff regulations.The same interest rates, termsand conditions areapplicable to all said employees.

NoteI–Prepayments and accrued income – Accruals and deferred income (in EUR ’000)

31.12.2007 31.12.2006

Prepayments and accrued income: Interest and commission receivable 2415 383 2209 892 Deferred borrowing charges 810 120 538 062 Swaps receivable 393 177 305 989 InvestmentFacility’scommission receivable 32 756 33 912 Other 2297 2356

3653 733 3090 211

Accruals and deferred income: Interest and commission payable 3045 726 2889 142 Deferred loan proceeds 203 713 258 232 Deferred borrowing proceeds 1235 930 919 042 Swaps payable 274 300 115 341 HIPC initiative48683 50 460 Personnel costs payable 7607 5266 Interest subsidies received in advance NoteGß 186 622 209 438 Other 27 895 31 214

5030 476 4478 135

NoteJ–Amounts owed to credit institutions with agreed maturitydates or periods of notice (in EUR ’000)

31.12.2007 31.12.2006

Short-term borrowings 338 681 212 852 Promissorynotes issued in respectofpaid-in capital of EBRD 3037 6075

341 718 218 927 EIB – Financial Statements 121 EIB Group

NoteK–Debts evidenced by certificatesasat31December (in EUR ’000)

In its financing activity, one of the Bank’s objectives is to alignits funding strategy with the funds required forthe loans granted,notably in termsofcurrencies.The belowtable discloses the details per currencyofdebts outstanding at 31 De- cember 2007, together with the cumulatednotional amountofcurrencyswaps associatedwith the debts issued,whose goal is to transformthe initial currencyofthe debt into anew currencyinline with the currencyofthe loan. Thelast column of the table indicatesthe total amountofdebts per currency, taking into accountthe economic effectbroughtby the currencyswaps in order to disclose anet exposureper currencyofthe debts outstanding at 31 December 2007.

BORROWINGS CURRENCYSWAPS NETAMOUNT

RECEIVABLE

PAYABLE OUT- AVERAGE OUT- AVERAGE DUE DATES 31.12.2006 31.12.2007 OUT- OUT- IN STANDING AT RATE STANDING AT RATE STANDING AT STANDING AT 31.12.2006 31.12.2007 31.12.2006 31.12.2007

Total 246 575 637 254 221 321 -58745 188 -68796 671 187 830 449 185 424 650

Theredemption of certain borrowings is indexedtostock exchange indexes(historical value: EUR 600 million). Allsuch borrowings arehedged in full through swap operations. EIB Group 122 Financial Report2007

NoteL–Provisions forliabilities and charges – pension plans and health insurancescheme (in EUR ’000)

TheDefined Benefit Obligation in respectoffutureretirementand health insurancebenefits wasvalued as at 30 Septem- ber 2007 by an independentactuaryusing the projectedunit credit method.The actuarial valuation wasupdatedasat 31 December 2007 with an extrapolation (’roll forward’method) forthe last 3months of 2007, using the prevailing market ratesof31December 2007 and following assumptions (for the staff pension and medical plan):

• adiscountrate of 5.52%(2006: 4.76%) fordetermining the actuarial presentvalue of benefits accrued in the pension and health insuranceschemes,corresponding to 14.19 year duration (2006: 14.9 year duration); • in the lightofpast experience, the Bank estimatesthatthe overall expectedremuneration of post-employmentre- servesare set at arate of 1.5%above the discountrate mentioned above.Asaconsequence, the final discountrate used is 7.02%(2006: 6.26%); • aprogressiveretirementbetween the age of 55-65 (2006: retirementatthe age of 62); • acombined average impactofthe increase in the cost of living and career progression of 4%(2006: 3.5%); • probable resignation of 3%up to age 55 (same as 2006); • arate of adjustmentofpensions of 2%per annum (2006 :1.5%); • use of the LPP 2005 actuarial tables (2006: LPP 2000); • amedical cost inflation rate of 4%per annum (2006: 3.5%).

Theprovisions forliabilities and charges forthese schemes areadjusted when needed (NoteA.12.1) according to the actuarial valuation, as per the tables below. These adjustments have been accountedfor in 2007 and aredisclosed in the Profit and Loss accountunder staff costs.

Thestaff pension and the ManagementCommittee pension plans provision areasfollows (in EUR ’000):

31.12.2007 31.12.2006

Staff Pension Plan: Provision at beginning of the year 872 501 764 628 Payments made during the year -32909 -28191 Provision foractuarial deficit 00 Contribution arising from measures with asocial character13300 10 800 Annual contributions and interest 128 193 125 264

Sub Total 981 085 872 501

ManagementCommittee Pension Plan 31 739 31 175

Provision at 31 December 1012 824 903 676

Theabove figures do not include the liabilitytowardsmembers of staff in respectofthe Optional SupplementaryProvident Scheme (a contributorydefined benefit pension scheme). Thecorresponding amountofEUR 186 million (2006: EUR 188 million) is classified under ’Sundrycreditors’[NoteH].

Thehealth insurancescheme provision is as follows (in EUR ’000):

31.12.2007 31.12.2006

Staff Pension Plan: Provision at beginning of the year 76 151 67 671 Payments made during the year -7204 -6474 Contribution arising from measures with asocial character665 1000 Annual contributions and interest 15 138 13 954

Provision at 31 December 84 750 76 151 EIB – Financial Statements 123 EIB Group

NoteM–Fund forgeneral banking risks (in EUR ’000)

Movements in the Fund forgeneral banking risks aredetailed below:

31.12.2007 31.12.2006

Fund at beginning of the year 0975 000 Transfer forthe year 0-975 000

Fund at end of the year 00

In line with NoteA.14.1, the Bank no longer identifies the fund forgeneral banking risks as aseparatebalancesheet item but continues to computethe amountcorresponding to the fund,accordingly to last year methodology fordisclosure purpose.

Evaluation of the amountrepresentativeofgeneral banking risks: 31.12.2007 31.12.2006

1000 000 (*) 1000 000 (**) (*) Of which EUR ’000 113 000 forStructured FinanceFacilityoperations (**) Of which EUR ’000 40 000 forStructured FinanceFacilityoperations

NoteN–’Interest and similar income’and ’Interest and similar charges’

N.1. Netinterest income (in EUR ’000)

31.12.2007 31.12.2006

Interest and similar income Cash in hand,balancewith centralbanks and post officebanks 344 1029 Treasurybills eligible forrefinancing with centralbanks and debt securities including 562 551 fixed income securities 686 369 Loans and advances to credits institutions and customers 13 343 188 11 508 792 Derivatives 01438 205 Other 242 024 224 676

TOTAL 14 271 925 13 735 253

Interest expense and similar charges Amounts owed to credit institutions -14098 -9782 Debts evidenced by certificates-12 059 580 -11724 949 Derivatives -7626 0 Other -318 849 -237 444

TOTAL -12400 153 -11972 175

Net interest income 1871 772 1763 078 EIB Group 124 Financial Report2007

N.2. Geographical analysis of ’Interest and similar income’ (in EUR ’000)

31.12.2007 31.12.2006

Germany2356 560 2064 696 Spain 1833 671 1383 077 Italy 1456 260 1109 762 France1437 073 1268 043 United Kingdom 1211 146 1049 415 Portugal 698 928 637 323 Greece533 178 514 423 Austria 292 310 231 919 Poland 287 992 213 364 Finland 227 245 183 542 Hungary197 499 124 049 Belgium 187 366 156 679 Czech Republic 180 895 145 099 Denmark152 085 157 826 Netherlands 151 539 148 943 Ireland 137 067 124 705 Sweden 123 075 106 849 Romania(2) 81 155 0 Slovenia 57 535 43 865 SlovakRepublic 35 134 41 617 Luxembourg34002 36 915 Cyprus 29 550 25 426 Bulgaria(2) 17 465 0 Latvia 16 017 11 773 Estonia 6753 5688 Lithuania 5204 7621 Malta 348 339

Total 11 747 052 9792 958

Outside the European Union (2) 795 520 792 035

Total 12 542 572 10 584 993

Income not analysed (1) 1729 353 3150 260

Total 14 271 925 13 735 253

(1) Income not analysed: •Revenue from Investmentportfolio and ABS portfolios 265 949 189 174 •Revenue from Operational bond portfolios 80 419 55 463 •Revenue from Operational money-market portfolios 340 001 317 914 •Revenue from money-market operations 1042 984 1149 504 •Net interests income on derivatives 01438 205 1729 353 3150 260

(2) Theinterest and similar income of the twoNew Member States in 2006 were included in ’Outside the European Union’ EIB – Financial Statements 125 EIB Group

NoteO–’Commission income’and ’Commission expense’ (in EUR ’000)

[items 4and 5ofthe profit and loss account] 31.12.2007 31.12.2006

Commission income InvestmentFacility/Cotonou 32 756 33 912 Other Communityinstitutions 31 731 19 531 64 487 53 443

Commission expense -10382 -9046

NoteP–Result on financial operations (in EUR ’000)

[item 6ofthe profit and loss account] 31.12.2007 31.12.2006

Value adjustmentonoperational treasuryportfolio -20621 -11214 Gain and loss on long-termfutures 1725 5848 Foreignexchange gain/loss 4634 5530 Other financial operations 4427 -3 194

-9835 -3030

NoteQ–Other operating income (in EUR ’000)

[item 7ofthe profit and loss account] 31.12.2007 31.12.2006

Income from advisoryactivities 20 369 14 402 Reversal of previous years’unutilized accruals 3597 4426 Other 3650 4770

27 616 23 598

NoteR–General administrativeexpenses (in EUR ’000)

[item 8ofthe profit and loss account] 31.12.2007 31.12.2006

Salaries and allowances (*) -154 373 -145 715 Welfarecontributions and other social costs -124 882 -123 766

Staff costs -279 255 -269 481

Other general administrativeexpenses -80661 -69366

-359 916 -338 847

Thenumber of persons employedbythe Bank was1441 at 31 December 2007 (1 369 at 31 December 2006). (*) of which the amountfor members of the ManagementCommittee is EUR ’000 2655 at 31 December 2007 and EUR ’000 2597 at 31 December 2006.

NoteS–Special deposits forserviceofborrowings

This item represents the amountofcoupons and bonds due,paid by the Bank to the paying agents,but not yetpresented forpaymentbythe holders of bonds issued by the Bank. EIB Group 126 Financial Report2007

NoteT–Fair value of financial instruments

TheBank recordsbalancesheet financial instruments on the basis of their historical cost in foreigncurrency(apartfrom the operational portfolio)representing the amountreceived in the case of aliabilityorthe amountpaid to acquirean asset.The fair value of the financial instruments (mainly loans,treasury, securities and borrowings afterlong-terminterest rate or currencyswaps) enteredunder assets and liabilities compared with their accounting value is shown in the table below:

ASSETS LIABILITIES

At 31 December 2007 (in EUR million) Net accounting Fair value Accounting value Fair value value Loans 271 147 272 580 Investmentportfolio 2121 2142 Liquid assets 12 462 12 476 Borrowings afterswaps 251 367 251 906

Total 2007 285 730 287 198 251 367 251 906

ASSETS LIABILITIES

At 31 December 2006 (in EUR million) Net accounting Fair value Accounting value Fair value value Loans 257 339 260 188 Investmentportfolio 2386 2456 Liquid assets 14 575 14 660 Borrowings afterswaps 241 833 245 081

Total 2006 274 300 277 304 241 833 245 081

NoteU–Financial risk management

This section presents information about the Bank’s exposuretoand its managementand controlofrisks,inparticular the primaryrisks associatedwith its use of financial instruments.These are:

• credit risk, • interest rate risk, • liquidityrisk, • exchange rate risk.

U.1. Credit risk

Credit risk concerns mainly the Bank’s lending activityand,toalesser extent, treasuryinstruments such as fixed-income securities held in the investmentand operational portfolios,certificatesofdeposit and interbank term deposits.

Thecredit risk associatedwith the use of derivatives is also analysed hereafterinthe ’Derivatives’section [NoteV].

Managementofcredit risk is based,firstly,onthe degreeofcredit risk vis-à-vis counterparties and,secondly,onan analysis of the solvencyofcounterparties.

As regards lending,treasuryand derivatives operations,credit risk is managed by an independentRisk Management Directorate under the directresponsibilityofthe ManagementCommittee.The Bank has thus established an operation- allyindependent structurefor determining and monitoring credit risk. EIB – Financial Statements 127 EIB Group

U.1.1. Loans

In order to limit the credit risk on its loan portfolio,the Bank lends only to counterparties with demonstrated creditworthiness over the longer term and sound guarantees.

In order efficiently to measureand manage credit risk on loans,the Bank has graded its lending operations according to generally accepted criteria, based on the qualityofthe borrower, the guaranteeand,whereappropriate,the guarantor.

Thestructureofguarantors and borrowers relating to the loan portfolio as at 31 December 2007 is analysed below(in EUR million), including undisbursed portions:

Within the European Union

Guarantor (1) Member Public Zone ’A’ Corporates Total 2007 Total 2006 Borrower States institutions banks Member States 24 925 00024 925 21 468 Public institutions 19 441 35 088 1291 3878 59 698 53 525 Zone ’A’banks 11 444 42 727 43 713 16 850 114 734 116 054 Corporates 15 928 6530 30 435 44 059 96 952 93 831

Total 2007 (1)(2)(3)(4) 71 738 84 345 75 439 64 787 296 309

Total 2006 (1)(2)(3)(4) 68 786 79 888 74 921 61 283 284 878

(1) This amountincludes loans forwhich no formal guaranteeindependentfromthe borrowerand the loan itself wasrequired foratotal of EUR 90 063 million as at 31 December 2007 (2006: EUR 73 905 million), the borrower’slevel of solvencyitself representing adequate security. In the eventofcertain occurrences,appropriate contractual clauses ensurethe Bank’s righttoaccess independentsecurity. (2) This amountincludes loans (2007: EUR 3102 million, 2006: EUR 2763 million) in risk-sharing operations (3) This amountincludes loans granted under the Facilities (2007: EUR 3186 million, 2006: EUR 2730 million). Loans granted under the Facilities arenot secured by guarantees of the Communitybudget or the Member States.Therefore, lending under the Facilities is from the Bank’s ownresourcesand at the Bank’s ownrisk. (4) This amountdoes not include asset backed securities (2007: EUR 4709 million, 2006: EUR 2722 million).

Loans outside the European Communities (apartfromthose under the Pre-Accession Facilityand the Mediterranean Partnership Facility – the ’Facilities’) are, in the last resort, secured by guarantees of the European Communities budget or the Member States (loans in the ACPCountries and the OCT).Inall regions (South Africa, non-member Mediterranean Countries,Central and EasternEurope,Asia and Latin America), apartfromthe ACPCountries and the OCT, in the case of loans secured by asovereignguarantee, all risks are, in the last resort, covered by the European Communities budget.

Theagreements decided by the Council of the European Union on 14 April1997 (Decision 97/256/EC)introduced the concept of risk sharing wherebycertain bank loans aresecured by third-party guarantees with respecttothe commercial risk,the budgetaryguaranteeapplying in the case of political risks solely arising from currencynon-transferability, expro- priation, warand civil disturbance.

Outside the European Union

Secured by:31.12.2007 31.12.2006

Member States 1567 1339 Communitybudget 25 270 (*) 24 735 (*)

Total 26 837 26 074

(*) of which EUR 3102 million in risk-sharing operations as explained above (2006: EUR 2763 million). EIB Group 128 Financial Report2007

LOANS FOR PROJECTS OUTSIDE THE UNION (in EUR million) (including loans in the new Member States beforeaccession) BREAKDOWN OF LOANS BY GUARANTEE AS AT 31 DECEMBER

Outstanding Outstanding AGREEMENT 31.12.2007 31.12.2006

75%Member Statesglobal guarantee -ACP/OCTGroup 3 rd Lomé Convention 4 12 -ACP/OCTGroup 4 th Lomé Convention 200 290 -ACP/OCTGroup 4 th Lomé Convention/2 nd Financial Protocol 586 657 Total 75%Member Statesglobal guarantee790 959 75%Member Statesguarantee -Cotonou partnership agreement 777 380 Total 75%Member Statesguarantee777 380

Total Member States guarantee1567 1339

100%Communitybudget guarantee -South Africa -300m -BGDecision 19.06.95 62 103 -ALA I-750m 145 177 -ALA interim(100%guarantee) -153m 22 40 -CEEC -1bn -BGDecision 29.11.89 127 169 -CEEC -3bn -BGDecision 02.05.94 730 930 -CEEC – 700m -BGDecision 18.04.91 17 36 -Russia – 100 m-2001-2005 79 84 -Russia – 500 m-2004-2007 230 0 Total 100%Communitybudget guarantee1412 1539 75%Communitybudget guarantee -Mediterranean Protocols 1180 1431 -Yugoslavia – Art.18 (1984) 3 3 -Yugoslavia -1st Protocol 5 6 -Yugoslavia -2nd Protocol 40 71 -Slovenia -1st Protocol 71 81 Total 75%Communitybudget guarantee1299 1592 70%Communitybudget guarantee -South Africa -375m -Decision 29.01.97 165 197 -ALA II – 900m 200 313 -ALA interim(70%guarantee: risk sharing) -122m 21 35 -Bosnia-Herzegovina -100m 99/2001 92 97 -Euromed (EIB) -2310m -Decision 29.01.97 1016 1162 -FYROM -150m – 1998/2000 126 133 -CEEC -3520m -Decision 29.01.97 1790 2022 Total 70%Communitybudget guarantee3410 3959 65%Communitybudget guarantee -South Africa -825m – 7/2000-7/2007 705 690 -ALA III – 2480m – 2/2000-7/2007 1329 1528 -ALA Decision – 2/2007-12/2013 304 0 -Euromed II -6520m – 2/2000-1/2007 5787 6024 -South EasternNeighbours – 9185m -2/2000-7/2007 8513 8458 -Turkey special action – 450m – 2001-2006 347 356 -Turkey TERRA- 600m -11/1999-11/2002 570 589 -PEV MED 1/2/2007-31/12/2013 1205 0 -Pre-Accession – 8700m -2007-2013 389 0 Total 65%Communitybudget guarantee19149 17 645

Total Communitybudget guarantee25270 24 735

TOTAL 26 837 26 074 EIB – Financial Statements 129 EIB Group

Collateralonloans (EUR million)

Among other credit mitigantinstruments,the Bank also uses pledges of financial securities.These pledges areformalized through aPledge Agreement, enforceable in the relevantjurisdiction. Theportfolio of collateralreceived in pledge contracts amounts to EUR 11 123 million, with the following composition:

Loan Financial Collateral(in EUR million) (1)

Moody’s or Bonds Equities & Cash Total equivalent Funds 2007 rating Govt Supra- AgencySecured Bank and ABS national Bonds Corpo- (Pfand- rate briefe, Bonds Cedulas)

Aaa972 40260 398 616 002250 Aa1toAa3 1583 0012 1604 146 003345 A1 1055 0001062 0002117 BelowA11619 02101051 0002691 Non-Rated 0000195 0102 423 720

Total 2007 5229 421272 4310 762 102 423 11 123

(1) Bonds arevalued at their market value.

Loan Financial Collateral(in EUR million) (1)

Moody’s or Bonds Equities & Cash Total 2006 equivalent Funds rating Govt Supra- AgencySecured Bank and ABS national Bonds Corpo- (Pfand- rate briefe, Bonds Cedulas)

Aaa1192 677139 336 610 002360 Aa1toAa3 1168 000913 0002081 A1 1668 0576 0658 0002902 BelowA11002 00055 0001057 Non-Rated 0000236 0151 153 540

Total 2006 5030 6653 139 2198 610 151 153 8940

(1) Bonds arevalued at their market value.

Abreakdown of disbursed loans outstanding,including assets backed securities (in EUR million) at 31 December according to the sectors in which borrowers areengaged is set out below:

Maturity

Sector :not more 1year to 5years morethan 5years Total 2007 Total 2006 than 1year

Energy 2165 10 508 13 876 26 549 24 658 Transport3245 17 139 64 853 85 237 80 413 Telecommunications 1146 4169 2742 8057 7861 Water, sewerage 1063 4719 10 019 15 801 15 695 Miscellaneous infrastructure1029 3874 11 432 16 335 15 639 Agriculture, forestry, fisheries 20 108 110 238 238 Industry1847 8852 4926 15 625 15 138 Services 360 2869 7963 11 192 8469 Global loans 6126 32 254 38 097 76 477 75 632 Health, education 321 2695 12 620 15 636 13 596

TOTAL 2007 17 322 87 187 166 638 271 147

TOTAL 2006 16 881 81 978 158 480 257 339 EIB Group 130 Financial Report2007

U.1.2. Treasury Thecredit risk associatedwith treasury(securities,commercial paper,termaccounts,etc.) is rigorously managed through selecting first-class counterparties and issuers.

Limits governing the structureofthe securities portfolio and outstanding treasuryinstruments have been laid down by Management, in particular on the basis of the ratings awarded to counterparties by the rating agencies (these limits are reviewed regularly by the Risk ManagementDirectorate).

Thetable belowprovides apercentage breakdown of the credit risk associatedwith the securities portfolio and treasury instruments in termsofthe credit rating of counterparties and issuers (as at 31 December):

Moody’s or equivalentrating Securities portfolio%Treasuryinstruments%

Long-term rating: 2007 2006 2007 2006 -Aaa 55 53 4 2 -Aa1 to Aa3 41 40 61 68 -A1toA3 4 7 32 18 BelowA3 0 0 0 0 Short-term rating: -A-1+P-1 0 0 3 12

Total 100 100 100 100

As partofits treasurymanagementactivities,the Bank holds investments in capital guaranteenotes,the coupons of which embed options on the performanceoffunds of hedge funds.At31December 2007, the total nominal amountofsuch notes stood at EUR 150 million and arepartofthe Securities portfolio.

CollateralonTreasurytransactions (EUR million)

Part of the Treasurytransactions aretripartitereverse repos,for an amountofEUR 4593 million (2006: EUR 5540 million). These transactions aregoverned by aTripartiteAgreement, the exposureisfully collateralised,with daily margincalls.The market value of the collateralportfolio at 31 December 2007 amounts to EUR 4611 million (2006: EUR 5886 million), with the following classification:

TripartiteAgreements Collateral(in EUR million)

At 31.12.07 Bonds Total 2007 Moody’s or Govt Supra- AgencySecured Bank and ABS equivalentrating national Bonds Corporate (Pfandbriefe, Bonds Cedulas)

Aaa667 206 5212 269 444 1803 Aa1toAa3 653 062341036 01785 A1 345 0140144 26 529 BelowA1370 000124 0494 Non-Rated 0000000

Total 2007 2035 206 81 246 1573 470 4611 EIB – Financial Statements 131 EIB Group

TripartiteAgreementCollateral(in EUR million)

At 31.12.06 Bonds Total 2006 Moody’s or Govt Supra- AgencySecured Bank and ABS equivalentrating national Bonds Corporate (Pfandbriefe, Bonds Cedulas)

Aaa281 699 68 40 806 1243 3137 Aa1toAa3 206 0113 02094 72420 A1 12 000226 1239 BelowA13000060 090 Non-Rated 0000000

Total 2006 529 699 181 40 3186 1251 5886

U.1.3. Securities lending

Themarket value of the bonds lentinthe securities lending activities amounts to EUR 888 million at 31 December 2007 (2006: 851 million). These transactions aregoverned by an agreementsigned with NorthernTrust Global Investment, the exposureisfully collateralised,with daily margincalls.The market value of the collateralportfolio at 31 December 2007 amounts to EUR 912 million (2006: 877 million), with the following classification:

Securities Lending Collateral(in EUR million)

At 31.12.07 Bonds Total 2007 Moody’s or Govt Supra- AgencySecured Certificate Time Deposit equivalentrating national Bonds of Deposits (Pfandbriefe, Cedulas)

Aaa755 00014 0769 Aa1toAa3 0000799 106 A1 0000023 23 BelowA1000014 014 Non-Rated 0000000

Total 2007 755 00035 122 912

Securities Lending Collateral(in EUR million)

At 31.12.06 Bonds Total 2006 Moody’s or Govt Supra- AgencySecured Certificate Time Deposit equivalentrating national Bonds of Deposits (Pfandbriefe, Cedulas)

Aaa457 00027 9493 Aa1toAa3 13 00018 224 255 A1 200027 100 129 BelowA10000000 Non-Rated 0000000

Total 2006 472 00072 333 877 EIB Group 132 Financial Report2007

U.2. Interest rate risk

TheBank has established an organisational structurefor the asset-liabilityfunction, applying best practices in the financial industry, and,inparticular,anAsset-LiabilityManagementCommittee (ALCO) under the directresponsibilityofthe Bank’s ManagementCommittee.Accordingly,ithas decided on an asset-liabilitymanagementstrategy which involves maintaining an ownfunds duration of around 5years,therebysafeguarding the Bank against substantial fluctuations in its long- term revenues.

As aresult of the above objectiveofanown funds duration equal to around 5years,anincrease in interest ratesof0.01% on all currencies would result in adecrease of EUR 17.3 million in the net presentvalue of the Bank’s ownfunds.

Thefollowing table illustrates the Bank’s exposuretointerest rate risk.The table shows interest rate sensitiveassets and liabilitiesclassifiedasafunctionoftheir re-pricing in each of the indicatedintervals and not on the accounting carrying amount:

Reindexation interval(in EUR million)

At 31.12.2007 not more 3months 6months 1year more Total than to 6months to 1year to 5years than 5years 31.12.2007 3months

Assets: Loans 166 227 10 769 3656 41 030 49 465 271 147 Net liquidity 10 820 111 416 2321 915 14 583 177 047 10 880 4072 43 351 50 380 285 730 Liabilities: Borrowings afterswaps 181 325 6985 1716 25 881 35 460 251 367

Interest rate risk -4278 3895 2356 17 470 14 920

At 31.12.2006 not more 3months 6months 1year more Total than to 6months to 1year to 5years than 5years 31.12.2006 3months

Assets: Loans 162 379 6169 5075 33 479 50 237 257 339 Net liquidity 14 095 -322 161 1865 1162 16 961 176 474 5847 5236 35 344 51 399 274 300 Liabilities: Borrowings afterswaps 177 230 4381 1791 24 168 34 263 241 833

Interest rate risk -756 1466 3445 11 176 17 136 EIB – Financial Statements 133 EIB Group

U.3. Liquidityrisk

Thetable hereafteranalyses assets and liabilities by maturityonthe basis of the period remaining between the balance sheet date and the contractual maturitydate.

Assets and liabilities forwhich thereisnocontractual maturitydateare classified under ’Maturityundefined’.

LiquidityRisk (in EUR million)

Maturity(at 31.12.2007) not more 3months 1year more maturity Total 2007 than to 1year to 5years than 5years undefined 3months

ASSETS Cash in hand,central banks and post officebanks 27 000 027 Treasurybills eligible forrefinancing with centralbanks 47 159 995 926 02127 Other loans and advances: -Current accounts 264 000 0264 -Others 15 452 24 00 015476 15 716 24 00 015740 Loans: -Credit institutions 1686 6246 41 948 61 335 0111 215 -Customers 1949 7358 43 376 102 498 0155 181 3635 13 604 85 324 163 833 0266 396 Debt securities including fixed-income securities 2404 1095 3510 3512 010521 Other assets 00007043 7043

Total assets 21 829 14 882 89 829 168 271 7043 301 854

LIABILITIES Amounts owed to credit institutions 339 210 0342 Debts evidenced by certificates13796 30 034 87 234 123 157 0254 221 Foreignexchange neutralization on currencyswapcontracts 16 1091 2010 2341 05458 Capital,reservesand profit 000034 541 34 541 Other liabilities 00007292 7292

Total liabilities 14 151 31 127 89 245 125 498 41 833 301 854 EIB Group 134 Financial Report2007

Maturity(at 31.12.2006) not more 3months 1year more maturity Total 2006 than to 1year to 5years than 5years undefined 3months

ASSETS Cash in hand,central banks and post officebanks 15 000 015 Treasurybills eligible forrefinancing with centralbanks 100 142 1191 1118 02551 Other loans and advances: -Current accounts 184 000 0184 -Others 14 470 28 00 014498 14 654 28 00 014682 Loans: -Credit institutions 2226 6051 41 002 65 303 0114 582 -Customers 1555 7046 39 935 91 411 0139 947 3781 13 097 80 937 156 714 0254 529 Debt securities including fixed-income securities 4149 1508 2955 2215 010827 Other assets 00006554 6554

Total assets 22 699 14 775 85 083 160 047 6554 289 158

LIABILITIES Amounts owed to credit institutions 213 330 0219 Debts evidenced by certificates20123 21 579 97 551 107 323 0246 576 Foreignexchange neutralization on currencyswapcontracts 1325 35 919 783 03062 Capital,reservesand profit 000032 677 32 677 Other liabilities 00006624 6624

Total liabilities 21 661 21 617 98 473 108 106 39 301 289 158

The’investmentportfolio’[NoteB]consists mainly of fixed-income securities issued by first-class counterparties,largely bonds issued by Member States,acquired with the intention of holding them until final maturity. Seealso NoteA.6.1.

Some of the borrowings and associatedswaps include early termination triggers or call options granted to the investors or the hedging swap counterparties.Certain liabilities could thereforeberedeemed at an earlier stage than their maturitydate.

If all calls were to be exercised at their next contractual exercise date,cumulatedearly redemptions forthe period 2008 -2010 would amounttoEUR 18.3 billion. EIB – Financial Statements 135 EIB Group

U.4. Foreign exchange rate risk

Thesourcesofforeignexchange rate risk aretobefound in the margins on operations and in general expenses incurred in non-eurocurrencies.The Bank’s objectiveistoeliminate exchange risk by reducing net positions per currencythrough operations on the international foreignexchange markets.

An FX hedging programexists in order to protectthe knownloan margins in USD and in GBP forthe next 3years.

Foreign exchange position (in EUR million)

Currencyat31.12.2007 Euro Pounds US Dollars Other Sub-Total Total 2007 Sterling currencies except Euro

ASSETS Cash in hand,central banks and post officebanks 1260026 27 Treasurybills eligible forrefinancing with centralbanks 2127 000 02127 Other loans and advances: -Current accounts 218 8201846264 -Others 9110 1640 3987 739 6366 15 476 9328 1648 4007 757 6412 15 740 Loans: -Credit institutions 62 636 20 112 25 567 2900 48 579 111 215 -Customers 119 940 17 504 9690 8047 35 241 155 181 182 576 37 616 35 257 10 947 83 820 266 396 Debt securities including fixed-income securities 7295 1858 1143 225 3226 10 521 Other assets 5131 871 353 688 1912 7043

Total assets 206 458 42 019 40 760 12 617 95 396 301 854

LIABILITIES Amounts owed to credit institutions 291 051051 342 Debts evidenced by certificates: -Debt securities in issue 106 341 58 774 58 411 29 802 146 987 253 328 -Others 207 613 073686 893 106 548 59 387 58 411 29 875 147 673 254 221 Foreignexchange neutralization on currencyswapcontracts 60 027 -18352 -18069 -18148 -54569 5458 Capital,reservesand profit 34 541 000 034541 Other liabilities 5062 986 363 881 2230 7292

Total liabilities 206 469 42 021 40 756 12 608 95 385 301 854

Net position as at 31.12.2007 -11 -2 49 EIB Group 136 Financial Report2007

Currencyat31.12.2006 Euro Pounds US Dollars Other Sub-Total Total 2006 Sterling currencies except Euro

ASSETS Cash in hand,central banks and post officebanks 1140014 15 Treasurybills eligible forrefinancing with centralbanks 2551 000 02551 Other loans and advances: -Current accounts 151 2131833184 -Others 8063 195 4740 1500 6435 14 498 8214 197 4753 1518 6468 14 682 Loans: -Credit institutions 61 412 21 814 29 278 2078 53 170 114 582 -Customers 103 540 17 212 11 684 7511 36 407 139 947 164 952 39 026 40 962 9589 89 577 254 529 Debt securities including fixed-income securities 6849 1873 2056 49 3978 10 827 Other assets 4948 813 397 396 1606 6554

Total assets 187 515 41 923 48 168 11 552 101 643 289 158

LIABILITIES Amounts owed to credit institutions 215 040 4219 Debts evidenced by certificates: -Debt securities in issue 100 733 57 634 60 292 26 827 144 753 245 486 -Others 305 599 0186 785 1090 101 038 58 233 60 292 27 013 145 538 246 576 Foreignexchange neutralization on currencyswapcontracts 48 677 -17193 -12528 -15894 -45615 3062 Capital,reservesand profit 32 677 000 032677 Other liabilities 4914 885 396 429 1710 6624

Total liabilities 187 521 41 925 48 164 11 548 101 637 289 158

Net position as at 31.12.2006 -6 -2 44 EIB – Financial Statements 137 EIB Group

NoteV–Derivatives • Derivatives credit risk mitigation policy: Thecredit risk with respecttoderivatives lies in the loss, Derivatives arecontractual financial instruments,the which the Bank would incur whereacounterparty would value of which fluctuatesaccording to trends in the un- be unable to honour its contractual obligations. derlying assets,interest rates, exchange ratesorindices. In view of the special natureand complexityofthe derivatives transactions,aseries of procedures has been put V.1. As partoffunding and hedging activity in placetosafeguardthe Bank against losses arising out of theuse of such instruments. TheBank uses derivatives mainly as partofits funding strategy in order to bring the characteristics of the funds • Contractual framework: raised,interms of currencies and interest rates, into line Allthe EIB’s long-termderivatives transactions arecon- with those of loans granted and also to reducefunding cluded in the contractual frameworkofMaster Swap costs.Ituses also long-termswaps to hedge certain treas- Agreements and,wherenon-standardstructures arecov- urytransactions and forALM purposes. ered,ofCredit SupportAnnexes, which specify the conditions of exposurecollateralisation. These aregenerally Long-termderivatives transactions arenot used fortrad- accepted and practised contract types. ing,but only in connexion with fund-raising and forthe reduction of market risk exposure. • Counterparty selection: Theminimum rating at the outset is set at A1, but excep- Allinterest rate and currencyswaps linked to the borrow- tionally certain counterparties ratedA2/A3 have also ing portfolio have maturities matching the corresponding been authorised,all their exposures being fully collater- borrowings and arethereforeofalong-termnature. alised.The EIB has the rightofearly termination if the rating drops belowacertain level. Thederivatives most commonly used are: • Limits: • Currencyswaps; Limits have been set in termsof: • Interest rate swaps; -Total net presentvalue of derivatives exposurewith • Asset swaps. acounterparty; -Unsecured exposuretoacounterparty; V.1.1. Currencyswaps -Specific concentration limits expressed as nominal Currencyswaps arecontracts under which it is agreed to amount. convertfunds raised through borrowings into another currencyand,simultaneously,aforward exchange con- Alllimits aredynamically adapted to the credit qualityof tractisconcluded to re-exchange the twocurrencies in thecounterparty. the futureinorder to be able to repaythe funds raised on the due dates. • Monitoring: Thederivatives portfolio is regularly valued and compared V.1.2. Interest rate swaps against limits.

Interest rate swaps arecontracts under which, generally, • Collateralisation: it is agreed to exchange floating-rateinterest forfixed- -Derivatives exposureexceeding the limit forunse- rate interest or viceversa. cured exposureiscollateralised by cash and first- class bonds. V.1.3. Asset swaps -Verycomplexand illiquid transactions requirecol- Asset swaps arearranged forinvestments in bonds,in- lateralisation over and above the current market cluded in the B1 portfolio,thatdonot have the desired value. cash-flowfeatures.Specifically,swaps areused to convert investments into floating-rateinstruments with 3-month -Both the derivatives portfolio with individual coun- coupon paymentand reset frequency. Thus,the Bank terparties and the collateralreceived areregularly eliminatesinterest-rateand/or exchange risk,while re- valued,with asubsequentcall foradditional col- taining,asintended,the credit risk. lateralorrelease.

Interest rate or currencyswaps allowthe Bank to modify Thecredit risk associatedwith derivatives varies according the interest rate and currencystructureofits borrowing to anumber of factors (such as interest and exchange rates) portfolio in order to accommodate requests from its cli- and generally corresponds to only asmall portion of their ents and also to reducefunding costs by exchanging its notional value.Inthe Bank’s case,whereonly mutually advantageous access conditions to certain capital mar- agreed derivatives arenegotiated, the credit risk is evalu- kets with its counterparties. ated on the basis of the ’current exposure’ method recom- EIB Group 138 Financial Report2007

mended by the Bank forInternational Settlements (BIS). Thefollowing tables showthe maturities of currency Hence, the credit risk is expressed in termsofthe positive swaps (excluding short-term currencyswaps – see Note ’fair value’orreplacementvalue of the contracts, increased V.2) and interest rate swaps,sub-divided according to by the potential risks,contingentonthe duration and type their notional amountand the associatedcredit risk.The of transaction, weightedbyacoefficientlinked to the cat- notional amountsare disclosed off balancesheet. egoryofcounterparty (BIS Iweightedrisk).

Currencyswaps at 31.12.2007 less than 1year to 5years to morethan Total 2007 (in EUR million) 1year 5years 10 years 10 years

Notional amount8326 30 182 19 480 12 965 70 953 Net discountedvalue -1012 -1766 -2021 -315 -5114 Credit risk (BIS Iweighted) 53 423 311 277 1064

Currencyswaps at 31.12.2006 less than 1year to 5years to morethan Total 2006 (in EUR million) 1year 5years 10 years 10 years

Notional amount8888 23 471 15 784 11 148 59 291 Net discountedvalue -1215 -908 -447 -6 -2576 Credit risk (BIS Iweighted) 49 250 256 289 844

Interest rate swaps at 31.12.2007 less than 1year to 5years to morethan Total 2007 (in EUR million) 1year 5years 10 years 10 years

Notional amount27759 83 255 70 634 67 863 249 511 Net discountedvalue (*) 198 689 -411 724 1200 Credit risk (BIS Iweighted) 76 361 571 903 1911

Interest rate swaps at 31.12.2006 less than 1year to 5years to morethan Total 2006 (in EUR million) 1year 5years 10 years 10 years

Notional amount37278 84 434 61 385 60 691 243 788 Net discountedvalue (*) 178 156 -1175 2148 1307 Credit risk (BIS Iweighted) 70 334 327 1085 1816

(*) Thenet discountedvalue of Credit Default Swaps (CDS) has been included with the rest of derivatives (according to IAS39, CDS aretreated as derivatives). However, these transactions have not been included in the BIS computations,sinceinthe Basel AgreementBIS I, they areassimilatedtoguarantees and their capital charge is computed in the loan portfolio.

Notional amounts of EUR 419 million of futures contracts, with fair values of EUR 2.9 million and amaturityless than 1year areoutstanding as at 31 December 2007.

TheBank does not generally enterintoany options contractsinconjunction with its risk hedging policy. However, as part of its strategy of raising funds on the financial markets at alesser cost,the Bank enters into borrowing contractsencompassing notably interest rate or stock exchange indexoptions.Such borrowings areentirely covered by swap contracts to hedge the corresponding market risk.

Tabulatedbeloware the number and notional amounts of the various types of options embedded in borrowings:

Option embedded Stock exchange indexSpecial structurecoupon or similar

2007 2006 2007 2006 2007 2006 Number of transactions 429 448 31322 282 Notional amount(in EUR million) 18 433 19 523 600 30 20 817 18 533 Net discountedvalue (in EUR million) -969 -739 -232-187 -452 EIB – Financial Statements 139 EIB Group

The’fair value’of’plain vanilla’swaptransactions is their market value.For structured deals,the ’fair value’iscomputed using the income approach, using valuation techniques to convertfutureamounts to asingle presentamount(discounted). Theestimate of fair value is based on the value indicatedbymarketplaceexpectations about those future amounts.Internal estimatesand assumptions mightbeused in the valuation techniques when the market inputs arenot directly available.

Alloption contractsembedded in, or linked with, borrowings arenegotiatedoverthe counter. From the portfolio of structured deals with embedded options,222 swaps amounting to EUR 3318 million of notional arePower Reverse Dual Currency. Their ’fair value’isEUR -219 million. These transactions areverydependentonthe exchange rate USD/JPYand have embedded options of earlier termination. An appreciation of 5%of the USD with respecttoJPY will imply a’fair value’ofEUR -187 million, thatisanincrease of EUR 32 million as well as an increase of the probabilityoftheir early exercise.The rest of structured deals include avarietyoftransactions dependentoninterest rates, FX rates, inflation rates, stock indexesand IR volatilities.

Generally,thereisareduced credit risk on these swaps,because securityexists in the form of regularly monitored collateral.

Collateral(EUR million)

Thecollateralreceived forderivatives business amounts to EUR 1550 million, with the following composition:

Swap Collateral(in EUR million)

Bonds Moody’s or Cash Total 2007 equivalentrating Govt Supranational AgencySecured Bonds (Pfandbriefe)

Aaa865 0000865 Aa1toAa3 400004 A1 224 0000224 BelowA1124 0000124 Non-Rated 0000333 333

Total 2007 1217 000333 1550

Swap Collateral(in EUR million)

Bonds Moody’s or Cash Total 2006 equivalentrating Govt Supranational AgencySecured Bonds (Pfandbriefe)

Aaa1095 28 0501128 Aa1toAa3 21 000021 A1 590 0000590 BelowA150000050 Non-Rated 0000213 213

Total 2006 1756 28 05213 2002 EIB Group 140 Financial Report2007

Ratings exposuretable: Themajor partofnew derivatives transactions areconcluded with counterparties ratedatleast A1.With exceptional conditions of over-collateralisation, counterparties ratedA2orA3havebeen also accepted.Conse- quently,most of the portfolio is concentrated on counterparties ratedA1orabove.

Grouped Ratings Percentage Net Market Exposure CRE BIS2 Swaps of Nominal (in EUR million) (in EUR million)

Moody’s or equivalentrating 2007 2006 2007 2006 2007 2006 Aaa3.3%5.5%0064 186 Aa1toAa3 86.1%74.2%649 563 4366 3843 A1 8.7%16.0%1941504 601 A2 to A3 1.9%4.3%22165 370 Non-rated 0.0%0.0%0022

Total 100.0%100.0%670 606 5101 5002

TheNet Market Exposureisthe net presentvalue of aswapportfolio net of collateral, if positive(zero if negative). It represents ameasureofthe losses the Bank could incur in case of default of the counterparty,after application of netting and using the collateral.

TheBIS Credit Risk Equivalentisthe sum of the Net PresentValue of the swap plus an Add-On equal to the Notional Amount multiplied by acoefficientdependentonthe structureofthe swap and its maturity(according to the Basel Agreement), meanttocover potential futureincreases in exposures due to changing market conditions over the residual lifeofthe swap.

V.2. As partofliquiditymanagement

TheBank also enters into short-term currencyswapcontracts in order to adjust currencypositions in its operational treasuryinrelation to its benchmarkcurrency, the euro, and to caterfor demand forcurrencies in conjunction with loan disbursements.

Thenotional amountofshort-term currencyswaps and shorttermforwardsstood at EUR 4941 million at 31 December 2007,against EUR 5602 million at 31 December 2006.

Thenotional amountofOvernightindexedswaps stood at EUR 6000 million at 31 December 2007 (nil at 31 December 2006).

Long-termfutures arealso used by the Bank to adjust the medium-term(2y) interest rate exposureofits treasurybond portfolios.The notional amountoflong-termfutures stood at EUR 419 million at 31 December 2007 (2006: EUR 561 million). EIB – Financial Statements 141 EIB Group

NoteW–Geographical breakdown of lending by countryinwhich projects areallocated (in EUR ’000)

W.1. Loans forprojects within the Union

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 Spain 603 48 224 303 4574 687 43 649 616 14.85%14.65% Germany794 46 835 841 1577 160 45 258 681 14.42%15.00% Italy 543 40 513 361 4740 443 35 772 918 12.48%12.51% France387 34 189 863 4361 024 29 828 839 10.53%10.81% United Kingdom 200 26 284 577 3896 262 22 388 315 8.09%8.88% Portugal 245 17 215 588 2028 687 15 186 901 5.30%5.37% Greece138 13 142 910 1683 972 11 458 938 4.05%4.08% Poland 120 12 006 945 3822 194 8184 751 3.70%3.41% Czech Republic 84 7666 580 2793 805 4872 775 2.36%2.12% Austria 180 6682 627 307 000 6375 627 2.06%2.07% Hungary846313 692 1899 437 4414 255 1.94%1.72% Finland 99 5623 611 749 467 4874 144 1.73%1.77% Belgium 75 5119 622 755 080 4364 542 1.58%1.53% Netherlands 52 4290 983 1376 113 2914 870 1.32%1.47% Romania 57 4122 025 2360 255 1761 770 1.27%1.33% Sweden 68 3537 501 720 225 2817 276 1.09%1.09% Ireland 60 3425 935 625 399 2800 536 1.05%1.10% Denmark633123 593 467 841 2655 752 0.96%1.10% Slovenia 41 2223 882 744 000 1479 882 0.68%0.56% Bulgaria 26 1849 490 1445 737 403 753 0.57%0.26% Cyprus 27 1315 054 527 800 787 254 0.40%0.40% SlovakRepublic 33 1095 579 355 219 740 360 0.34%0.38% Luxembourg32732 435 132 893 599 542 0.23%0.26% Latvia 23 490 100 50 000 440 100 0.15%0.16% Lithuania 13 169 403 94 000 75 403 0,05%0.06% Estonia 13 159 997 25 000 134 997 0.05%0.08% Malta 455818 47 700 8118 0.02%0.01%

Total 4064 296 411 315 42 161 400 254 249 915 91.27% 92.18% EIB Group 142 Financial Report2007

W.2. Loans forprojects outside the Union

W.2.1. ACPCountries/OCT

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 Madagascar 1260 000 260 000 0 Ghana 5137 886 106 829 31 057 Nigeria 3121 265 65 424 55 841 Mauritius 13 120 509 79 153 41 356 Namibia 10 91 967 091967 Regional – West Africa 385154 085154 Dominican Republic 482052 80 000 2052 Mozambique 676109 076109 Lesotho 448947 14 300 34 647 Swaziland 346297 19 503 26 794 Kenya 445660 045660 Zambia 245249 31 187 14 062 Barbados 544031 11 250 32 781 Regional – Caribbean 242753 27 453 15 300 Senegal 241002 15 000 26 002 Botswana 537106 037106 Jamaica 636970 036970 Regional – Africa 227724 027724 ACPGroup 326056 026056 Fiji Islands 124500 24 500 0 Mauritania 221760 021760 Cape Verde118 721 018721 Zimbabwe 613142 013142 Benin 113000 13 000 0 Bahamas 211080 011080 SaintVincentand TheGrenadines 28497 1462 7035 Trinidad and Tobago 37875 07875 SaintLucia 37220 1155 6065 Gabon 14928 04928 French Polynesia 22686 02686 Malawi 12635 02635 British Virgin Islands 31961 01961 Côte-d’Ivoire11911 01911 New Caledonia and Dependencies 21396 01396 Papua New Guinea 11373 01373 Regional PTOM 11238 01238 Grenada 11042 01042 Cayman Islands 1534 0534 Belize1461 0461 Falkland Islands 1281 0281 Tonga 1141 0141 Netherlands Antilles 161061

Sub-total 122 1563 180 750 216 812 964 0.48%0.43% EIB – Financial Statements 143 EIB Group

W.2.2. South Africa

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 South Africa 32 935 707 266 091 669 616

Sub-total 32 935 707 266 091 669 616 0.29%0.32%

W.2.3. Euro-Mediterranean Partnership Countries

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 Egypt 42 2461 290 485 343 1975 947 Morocco 49 2358 545 924 500 1434 045 Tunisia 54 2269 510 927 438 1342 072 Syria11998 124 620 921 377 203 Lebanon 24 825 251 532 197 293 054 Israel 5414 261 395 000 19 261 Jordan 22 315 791 67 646 248 145 Gaza-West Bank 778816 45 000 33 816 Algeria 334930 034930

Sub-total 217 9756 518 3998 045 5758 473 3.00%2.92%

W.2.4. South-East European Countries

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 Turkey 76 7546 577 2837 448 4709 129 Croatia 22 1280 806 680 404 600 402 Serbia 37 1203 355 642 268 561 087 Bosnia-Herzegovina 21 725 374 440 350 285 024 Albania 12 248 614 141 829 106 785 FYROM6149 032 19 440 129 592 Montenegro 235000 035000

Sub-total 176 11 188 758 4761 739 6427 019 3.45%2.79%

W.2.5. Russia and Western Newly IndependentStates

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 Ukraine 1200 000 200 000 0 Russia 379421 3332 76 089 Moldova 130000 30 000 0

Sub-total 5309 421 233 332 76 089 0.10%0.03%

W.2.6. EFTACountries

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 Norway10958 761 99 792 858 969 Island 10 374 298 22 000 352 298 Switzerland 1267 722 0267 722

Sub-total 21 1600 781 121 792 1478 989 0.49%0.50% EIB Group 144 Financial Report2007

W.2.7. Asia and Latin American Countries

Countries and territories Number of Aggregate Undisbursed Disbursed %of % in which projects arelocated loans loans granted portion portion total 2007 fin. year 2006 China 51035 289 744 463 290 826 Brazil 17 572 882 181 290 391 592 SriLanka4153 207 64 000 89 207 Indonesia 4127 051 38 290 88 761 Peru 4125 358 16 318 109 040 Philippines 6123 619 67 196 56 423 Vietnam 395266 30 000 65 266 Mexico394 298 094298 Colombia 188010 15 345 72 665 Pakistan 481985 081985 Argentina 479518 079518 Panama 261106 27 141 33 965 Regional -Andean Pact 252647 40 000 12 647 Regional -Central America 350990 35 590 15 400 Maldives 146721 16 152 30 569 Equator134 756 034756 Laos 133002 033002 Thailand 128427 028427 Uruguay328 071 18 221 9850 Bangladesh 122302 022302 Honduras 120000 20 000 0 Costa Rica 117205 017205 India 115998 015998

Sub-total 73 2987 708 1314 006 1673 702 0.92%0.83%

Total 646 28 342 073 11 445 221 16 896 852 8.73% (1) 7.82%

TOTAL 4710 324 753 388 53 606 621 271 146 767 (2) 100.00%100.00%

(1) 7.77%excluding Pre-Accession Facility. (2) including asset backed securities [NoteBand D.1] EIB – Financial Statements 145 EIB Group

NoteX–Conversion rates

Thefollowing conversion rateswereused forestablishing the balancesheets at 31 December 2007 and 31 December 2006:

31.12.2007 31.12.2006

NON-EURO CURRENCIES OF EU MEMBER STATES

Pound sterling 0.733350 0.6715 Swedish kronor 9.4415 9.0404 Czech koruna 26.628 27.485 Polish zloty3.5935 3.8310 Hungarian forint 253.73 251.77 Slovakkoruna 33.583 34.435 Danish kroner 7.4583 7.4560 Cyprus pound 0.585274 0.57820

NON-COMMUNITYCURRENCIES

United States dollars 1.4721 1.3170 Japanese yen164.93 156.93 Swiss francs 1.6547 1.6069 South African rand 10.0298 9.2124 Norvegian krone 7.9580 8.2380 Franc CFA655.96 655.96 Moroccan dirham 11.3203 11.1256 Mauritania ouguiya364.72 351.51 Canadian dollars 1.4449 1.5281 Jordanian dinar 1.0327 0.9322 Australian dollars 1.6757 1.6691 Samoan tala 3.4613 3.3927 Swozililangeni 9.9358 9.1518 Dominican peso 48.220 43.257 Rwanda franc 789.32 719.05

NoteY–Subscribed capital and receivable reserves, called but not paid

As aconsequenceofthe increase in subscribed capital from EUR 150 000 000 000 to EUR 163 653 737 000 as at 1May,2004, the total amounttobepaid to capital and reservesbythe tennew member States thatjoined on 1May 2004 and Spain of EUR 2408 million (composed of an amountofEUR 683 million forthe capital and an amountofEUR 1725 million forthe reserves) is equally spread over 8instalments: 30 September 2004, 30 September 2005, 30 September 2006, 31 March2007, 30 September 2007, 31 March2008, 30 September 2008 and 31 March2009. Theinstalments up to and including 30 Septem- ber 2007 have been entirely settled.

As at 1January2007, the subscribed capital has increased from EUR 163 653 737 000 to EUR 164 808 169 000, by virtue of the contributions of twonew Member States thatjoined on 1January2007: Bulgaria and Romania. As aconsequenceofthis capital increase,the twonew Member States had to contributetotheir shareofPaid-in capital (EUR 57.7 million), and also their shareofthe Reservesand General Provisions (EUR 172.9 million) forthe amounts outstanding as of 31 December 2006. Thetotal amounttobepaid has been equally spread over 8instalments: 31 May2007, 31 May2008, 31 May2009, 30 Novem- ber 2009, 31 May2010, 30 November 2010, 31 May2011 and 30 November 2011. Theinstalments up to and including 31 May 2007 have been entirely settled.

Therelatednet receivable from the Member States is shown in the balancesheet as follows under the caption Subscribed capital and receivable reserves, called but not paid:

(InEUR´ 000):

31.12.2007 31.12.2006 Receivable reservescalled but not paid: 798 295 1078 300 Subscribed capital called but not paid: 306 514 426 679 1104 809 1504 979 EIB Group 146 Financial Report2007

NoteZ–Relatedparty – European InvestmentFund

Relatedparty transactions with the European InvestmentFund aremainly relatedtothe managementbythe Bank of the EIF treasury, the IT,the pension fund and other services on behalf of the EIF.Inaddition, the European InvestmentFund manages the venturecapital activityofthe Bank.The amounts included in the financial statements and relating to the European InvestmentFund aredisclosed as follows:

(in EUR´ 000) 2007 2006

ASSETS Sundrydebtors 1567 4218

Total assets 1567 4218

LIABILITIES SundryCreditors 14 090 11 299

Total liabilities 14 090 11 299

PROFIT AND LOSS ACCOUNT Commission expenses -8540 -8457 Other operating income 1446 1292 General administrativeexpenses 3821 4515

Total profit and loss account-3273 -2650

OFF BALANCE SHEET EIF capital -uncalled 1457 600 979 200 EIF treasurymanagement799 946 543 168 Nominal value of put option granted to EIF minorityshareholders 319 045 237 141

Total off balancesheet 2576 591 1759 509 EIB – Financial Statements 147 EIB Group

IndependentAuditor’s Report

To the chairman of the Audit Committee of EUROPEAN INVESTMENT BANK Luxembourg

We have audited the accompanying financial statements to obtain reasonable assurancewhether the financial of the European InvestmentBank,which showaprofit statements arefreefrommaterial misstatement. of EUR 1,633.460 million and atotal balancesheet of EUR 301,854.351 million and which comprise the bal- An audit involves performing procedures to obtain audit ancesheet as at December 31, 2007, the profit and loss evidenceabout the amounts and disclosures in the financial account, the statementofSpecial Section, the ownfunds statements.The procedures selecteddepend on the judge- and appropriation profit,the statementofsubscriptions mentofthe “Réviseur d’Entreprises”,including the assess- to the capital of the Bank,the cash flowstatementfor mentofthe risks of material misstatementofthe financial the year then ended,and asummaryofsignificantac- statements,whether due to fraud or error. In making those counting policies and other explanatory notes to the risk assessments,the “Réviseur d’Entreprises” considers in- financial statements. ternal controlrelevanttothe entity’spreparation and fair presentation of the financial statements in order to design ManagementCommittee’s responsibilityfor the finan- audit procedures thatare appropriate in the circumstances, cial statements but not forthe purpose of expressing an opinion on the effectiveness of the entity’sinternal control. TheManagementCommittee is responsible forthe preparation and fair presentation of these financial statements An audit also includes evaluating the appropriateness of in accordancewith the general principles of the Directives accounting policies used and the reasonableness of ac- of the European Union on the annual accounts and con- counting estimatesmade by the ManagementCommit- solidatedaccounts of certain type of companies,banks tee, as well as evaluating the overall presentation of the and other financial institutions and insuranceundertak- financialstatements.Webelievethatthe audit evidence ings.This responsibilityincludes: designing,implementing we have obtained is sufficientand appropriate to provide and maintaining internal controlrelevanttothe prepara- abasis forour audit opinion. tion and fair presentation of financial statements thatare free from material misstatement, whether due to fraud or Opinion error, selecting and applying appropriate accounting policies,and making accounting estimatesthatare reasonable In our opinion, the financial statements give atrue and in the circumstances. fair view of the financial position of the European Invest- mentBank as of December 31, 2007, of its financial per- Responsibilityofthe“Réviseur d’Entreprises” formance, of its ownfunds and appropriation profit,ofits statementofSpecial Section, of its subscriptions to the Ourresponsibilityistoexpress an opinion on these finan- capital of the Bank and of its cash flows forthe year then cial statements based on our audit.Weconductedour ended in accordancewith the general principles of the audit in accordancewith International Standards on Audit- Directives of the European Union on the annual accounts ing as adopted by the Luxembourg“Institut des Réviseurs and consolidatedaccounts of certain types of companies, d’Entreprises”.Those standards requirethatwecomply banks and other financial institutions and insuranceun- with ethical requirements and plan and perform the audit dertakings.

March 12, 2008 ERNST &YOUNG Société Anonyme Réviseur d’Entreprises

Alain KINSCH BernardLHOEST EIB Group 148 Financial Report2007

TheAudit Committee

TheAudit Committee reports to the BoardofGovernors, and considering the following statementbeing communicatedtothe Gov- ernors prior to their approval of the Annual Reportand • the financial statements forthe financial year ending the financial statements forthe past financial year. on 31 December 2007 as drawnupbythe Boardof Directors at its meeting on 11 March2008,

Statementbythe Audit Committee on the Bank un- • thatthe foregoing provides areasonable basis forits consolidatedfinancial statements statementand, • Articles 22, 23 &24ofthe Rules of Procedure, TheCommittee,instituted in pursuanceofArticle 14 of the Statuteand Article 25 of the Rules of Procedureofthe to the best of its knowledge and judgement: European InvestmentBank forthe purpose of verifying thatthe operations of the Bank areconductedand its confirms thatthe activities of the Bank areconductedin books kept in aproper manner,having aproper manner,inparticular with regardtorisk managementand monitoring; • designatedErnst &Young as external auditors,reviewed their audit planning process,examined and has verified thatthe operations of the Bank have been con- discussed their reports, ductedand its books kept in aproper manner and thatto this end,ithas verified thatthe Bank’s operations have been • noted thatthe opinion of Ernst &Young on the finan- carried out in compliancewith the formalities and proce- cial statements of the European InvestmentBank for dures laid down by the Statuteand Rules of Procedure; the year ended 31 December 2007 is unqualified, • convened on aregular basis with the Heads of Direc- confirms thatthe financial statements,comprising the bal- toratesand relevantservices,met regularly the Head ance sheet,the statementofspecial section, the profit and of Internal Audit and discussed the relevantinternal loss account, the statementofown funds and appropria- audit reports,and studied the documents which it tion of profit,the statementofsubscriptions to the capital deemed necessarytoexamine in the discharge of its of the Bank,the cash flowstatementand the notes to the duties, financialstatements give atrue and fair view of the finan- • received assurancefromthe ManagementCommittee cial position of the Bank as at 31 December 2007 in re- concerning the effectiveness of the internal control spectofits assets and liabilities,and of the results of its structureand internal administration, operations and cash flows forthe year then ended.

Luxembourg, 12 March 2008 TheAudit Committee

M. DALLOCCHIO C. KARMIOS O. KLAPPER InvestmentFacility – Financial Statements 149 EIB Group

InvestmentFacility Financial Statements EIB Group 150 Financial Report2007

Income statement Forthe year 2007 (in EUR ’000)

NotesYear to Year to 31.12.2007 31.12.2006

Interest and similar income 5 46 580 23 816 Interest and similar expense 5 (1 218) (2 493)

Netinterest and similar income 45 362 21 323

Net fees and commission income 61396 4366

Netfees and commission income 1396 4366

Net result on financial operations 7(8005) (283) Impairmentcharge forcredit loss 11 (2 770) (1 693) Member States special contribution to general administrativeexpenses 832756 33 913 General administrativeexpenses 8(32 756) (33 913)

Profit forthe year 35 983 23 713

Balancesheet At 31 December 2007 (in EUR ’000)

Notes2007 2006

ASSETS Cash and cash equivalents 9184 772 190 780 Derivativefinancial instruments 10 25 279 8592 Loans and receivables 11 572 530 338 997 Of which accrued interest 10 779 3784 Financial investments -available-for-sale 12 Equityinvestment-available-for-sale 109 363 66 449 Amounts receivable from contributors 13 181 183 103 913 Other assets 14 4291 1813

Total Assets 1077 418 710 544

LIABILITIES AND EQUITY LIABILITIES Derivativefinancial instruments 10 841 119 Deferred income 15 18 030 7908 Amountowedtothirdparties 16 131 152 134 425 Other liabilities 17 916 1911

Total Liabilities 150 939 144 363

EQUITY FacilityMember States Contribution called 18 830 000 515 000 Retained earnings 77 167 41 184 Fair value reserve 19 312 9997

Total Equity926 479 566 181

Total Liabilities and Equity1077 418 710 544

Theaccompanying notes form an integralpartofthese financial statements. InvestmentFacility – Financial Statements 151 EIB Group

Statementofchanges in equity As at 31 December 2007 (in EUR ’000)

Forthe year ended 31 December 2007 Facility Retained Fair value reserve Total Equity Member States earnings on AFS investments Contribution

At 1January2007 515 000 41 184 9997 566 181 Net changes in equityinvestments -available-for-sale 9315 9315 FacilityMember States contribution called during the year 315 000 315 000 Profit forthe year 35 983 35 983 Changes in contributors’resources 315 000 35 983 9315 360 298

At 31 December 2007 830 000 77 167 19 312 926 479

At 1January2006 370 000 17 471 6443 393 914 Net changes in equityinvestments -available-for-sale 3554 3554 FacilityMember States contribution called during the year 145 000 145 000 Profit forthe year 23 713 23 713 Changes in contributors’resources 145 000 23 713 3554 172 267

At 31 December 2006 515 000 41 184 9997 566 181

Theaccompanying notes form an integralpartofthese financial statements. EIB Group 152 Financial Report2007

Cash flowstatement As at 31 December 2007 (in EUR ’000)

2007 2006

OPERATING ACTIVITIES Profit forthe financial year 35 983 23 713 Adjustments Impairmentonequityinvestmentavailable-for-sale 366 130 Impairmentonloans 2770 1693 Interest capitalised (6 747) (4 303) Increase in accruals and deferredincome 4150 8038 Profit on operating activities beforechanges in operating assets and liabilities 36 522 29 271 Net loan disbursements (286 028) (157 004) Repayments 34 214 3585 Fair value movementonderivatives (15 965) (14 057) Increase in prepayments and accrued income on loans (1 062) Increase in equityinvestments available-for-sale (43 143) (31 965) Proceeds from equityinvestments available-for-sale 8248 25 Increase in other assets (2 456) (1 014) Increase in other liabilities (518) 1463 Net cash flows from operating activities (269 126) (170 758) FINANCING ACTIVITIES Paid in by FacilityMember States 315 000 145 000 Increase /(decrease) in amountreceivable from contributors (77 271) (11 458) Net increase in amountpayable from interest subsidies (3 273) 17 312 Increase in amountpayable to thirdparties (538) 1458 Net cash flows from/(used in) financing activities 233 918 152 312

Netincrease in cash and cash equivalents (35 208) (18 446)

Cash and cash equivalents at beginning of financial year 190 780 194 916 Effectofexchange rate changes on loans and equityinvestments 29 200 14 310

Cash and cash equivalents at end of financial year 184 772 190 780

Theaccompanying notes form an integralpartofthese financial statements. InvestmentFacility – Financial Statements 153 EIB Group

InvestmentFacility Notes to the financial statements

1. General information fair values.The judgments include considerations of liquidityand model inputs such as correlation and volatil- TheInvestmentFacilityhas been established within the ityfor longer datedderivatives. frameworkofthe Cotonou Agreement(the “Agreement”) on co-operation and developmentassistancenegotiated Impairment losses on loans and receivables between the African, Caribbean and Pacific Group of States (the“ACPStates”)and the European Union and its Member TheInvestmentFacilityreviewsits problem loans and re- States on 23 June 2000 and revised on 25 June 2005. ceivables at each reporting date to assess whether an allowancefor impairmentshould be recorded in the income TheInvestmentFacilityismanaged by the European In- statement. In particular,judgmentbymanagementisre- vestmentBank (the “EIB” or the “Bank”). Under the terms quired in the estimation of the amountand timing of future of the AgreementuptoEUR 2,200 million forACP and cash flows when determining the level of allowancere- EUR 20 million forOCT (as agreed by the Council Decision quired.Such estimatesare based on assumptions about a of 27 November 2001 on the association of the Overseas number of factors and actual results maydiffer,resulting in Countries and Territories with the European Community) futurechanges to the allowance. In addition to specific al- maybeallocatedtofinancethe InvestmentFacility. With- lowanceagainst individually significantloans and receiva- in the frameworkofthe Agreement, the EIB also man- bles,the InvestmentFacilityalso makes acollective ages loans granted from its ownresources. Allother impairmentallowanceagainst exposures which, although financial resourcesand instruments under the Agreement not specifically identified as requiring aspecific allowance, areadministered by the European Commission. have agreater risk of default than when originally granted. This collectiveallowanceisbased on anydeterioration in 2. Significantaccounting policies the internal rating of the loan or investmentsinceitwas granted or acquired.These internal ratings take into consideration factors such as anydeterioration in countryrisk, 2.1. Basis of preparation industry, and technological obsolescence, as well as identified structural weaknesses or deterioration in cash flows. In line with the InvestmentFacilityManagementAgree- mentthe preparation of the financial statements of the Valuation of unquoted available-for-sale equityinvestments Facilityisguided by International Public Sector Account- ing Standards or International Financial Reporting Stand- Valuation of unquoted available-for-sale equityinvest- ards,asappropriate.The Facility’sfinancial statements ments is normally based on one of the following: have been prepared on the basis of the following significant accounting principles: • recent arms length market transactions; • current fair value of another instrumentthatissub- stantially the same; 2.2. Significantaccounting judgments and estimates • the expectedcash flows discountedatcurrent rates applicable foritems with similar termsand risk char- Thepreparation of financial statements requires the use acteristics; or of certain critical accounting estimates. It also requires managementtoexercise its judgmentinthe process of • other valuation models. applying the InvestmentFacility’saccounting policies. Theareas involving ahigher degreeofjudgmentorcom- Thedetermination of the cash flows and discountfactors plexity, or areas whereassumptions and estimatesare forunquoted available-for-sale equityinvestments re- significanttothe financial statements aredisclosed. quires significantestimation. TheInvestmentFacility calibrates the valuation techniques periodically and tests Themost significantuse of judgments and estimates them forvalidityusing either pricefromobservable cur- areasfollows: rent market transactions in the same instrumentorfrom other available observable market data. Fair value of financial instruments Impairment of available-for-sale financial investments Wherethe fair values of financial assets and financial liabilities recorded on the balancesheet cannot be derived TheInvestmentFacilitytreatsavailable-for-sale equity from activemarkets,they aredetermined using avariety investments as impaired when therehas been asignifi- of valuation techniques thatinclude the use of mathe- cantorprolonged decline in the fair value belowits cost matical models.The input to these models is taken from or whereother objectiveevidenceofimpairmentexists. observable markets wherepossible,but wherethis is not Thedetermination of whether adecline is significantor feasible,adegreeofjudgmentisrequired in establishing prolonged is based on ajudgmental appreciation. EIB Group 154 Financial Report2007

2.3. Change in accounting policies the cash giventooriginate the loan, including anytransaction costs,and aresubsequently measured at amor- Theaccounting policies adopted areconsistentwith tized cost,using the effectiveyield method,less any those used in the previous financial years. provision forimpairmentoruncollectability.

2.4. Summaryofsignificantaccounting policies Available-for-sale financial investments Available-for-sale financial investments arethose which Thebalancesheet represents assets and liabilities in de- aredesignatedassuch or do not qualify to be classified creasing order of liquidityand does not distinguish be- as designatedatfair value through profit or loss,held-to- tween current and non-current items. maturityorloans and receivables.They include equity instruments, investments in venturecapital funds and 2.4.1. Foreign currencytranslation other debt instruments.

TheInvestmentFacilityuses the Euro (EUR) forpresenting Afterinitial measurement, available-for-sale financial its financial statements,which is also the functional and investments aresubsequently carried at fair value.Note presentational currency. the following details forthe fair value measurementof equityinvestments,which can not be derived from active Foreigncurrencytransactions aretranslated, in accord- markets: ancewith IAS 21, at the exchange rate prevailing on the date of the transaction. a. Venturecapital funds

Monetaryassets and liabilities denominatedincurrencies Thefair value of each venturecapital fund will be based other than in Euro aretranslatedintoEuroatthe ex- on the Net Asset Value (NAV),reportedbythe fund,if change rate prevailing at the balancesheet date.The gain calculatedbased on international valuation standards. or loss arising from such translation is recorded in the TheInvestmentFacilitymay howeverdecide to adjust income statement. the NAVreportedbythe fund if thereare issues thatmay affectthe valuation. Non-monetaryitems thatare measured in termsofhis- torical cost in aforeigncurrencyare translatedusing the If no internationally recognized fair valuation standardis exchange ratesatthe datesofthe initial transactions. applied,the valuation will be conductedonthe basis of Non-monetaryitems measured at fair value in aforeign the underlying portfolio. currencyare translatedusing the exchange ratesatthe date when the fair value wasdetermined. b. Direct equityinvestments

Exchange differencesarising on the settlementoftrans- Thefair value of the investmentwill be based on the actions at rates differentfromthose at the date of the latest set of financial statements available,re-using,if transaction, and unrealized foreignexchange differences applicable,the same model as the one used at the acqui- on unsettled foreigncurrencymonetaryassets and liabil- sition of the participation. ities,are recognized in the income statement. Unrealized gains or losses on equityinvestments arere- Theelements of the income statementare translatedinto portedinequityuntil such investments aresold,collected Euro on the basis of the exchange ratesprevailing at the or disposed of,oruntil such investmentare determined end of each month. to be impaired.Ifanavailable-for-sale investmentisdetermined to be impaired,the cumulativeunrealized gain 2.4.2. Cash and cash equivalents or loss previously recognized in equityisincluded in the income statement. TheInvestmentFacilitydefines cash equivalents as current accounts or short-term deposits with original matu- Forunquoted investment, the fair value is determined by rities of three months or less. applying recognized valuation technique.These investments areaccountedfor at cost when the fair value can- 2.4.3. Financial assets other than derivatives not be reliably measured.

Financial assets areaccountedfor using the settlement Guarantees date basis. Financial guarantees areinitially recognized at fair value Loans in the balancesheet under item “Financial guarantees”. Subsequenttoinitial recognition, the InvestmentFacility’s Loans originatedbythe InvestmentFacilityare recog- liabilities under each guaranteeare measured at the nized in the assets of the InvestmentFacilitywhen cash higher of the amortized premium and the best estimate is advanced to borrowers.They areinitially recorded at of expenditurerequired to settle anyfinancial obligation cost (net disbursed amounts), which is the fair value of arising as aresult of the guarantee. InvestmentFacility – Financial Statements 155 EIB Group

Anyincrease in the liabilityrelating to financial guaran- ously recognized in the income statement) is removed tees is taken to the income statementunder item“Impair- from equityand recognized in the income statement. mentcharge forcredit loss”.The premium received is Impairmentlosses on available-for-sale financial invest- recognized in the income statementunder item“Net fee ments arenot reversed through the income statement; and commission income”using the effectiveinterest rate increases in their fair value afterimpairmentare recog- method over the lifeofthe guarantee. nized directly in equity.

2.4.4. Impairmentoffinancial assets Forheld-to-maturityinvestments the InvestmentFacility assesses individually whether thereisobjectiveevidence TheInvestmentFacilityassesses at each balancesheet forimpairment. If thereisobjectiveevidencethatanimpair- date whether thereisany objectiveevidencethatafinan- mentloss has been incurred, the amountofthe loss is meas- cial asset is impaired.Afinancial asset or agroup of finan- ured as the differencebetween the asset’s carrying amount cial assets is deemed to be impaired if,and only if,there and the presentvalue of the estimatedfuturecash flows. is objectiveevidenceofimpairmentasaresult of one or Thecarrying amountofthe asset is reduced and the amount moreeventsthathas occurredafter the initial recognition of the loss is recognised in the income statement. If,ina of the asset (an incurred“loss event”)and thatloss event subsequent year,the amountofthe estimatedimpairment has an impactonthe estimatedfuturecash flows of the loss decreases because of an eventoccurring afterthe im- financial asset or the group of financial assets thatcan be pairmentwas recognised,any amountformerly charged are reliably estimated. Evidenceofimpairmentmay include credited to the“Net result on financial operations”. indicationsthatthe borroweroragroup of borrowers is experiencing significantfinancial difficulty, default or de- TheEuropean InvestmentBank’s Risk Managementre- linquencyininterest or principal payments,the probabil- viewsfinancial assets forimpairmentatleast onceayear. itythatthey will enterbankruptcy or other financial Resulting adjustments include the unwinding of the dis- reorganization and whereobservable data indicate that countinthe income statementoverthe lifeofthe asset, thereisameasurable decrease in the estimatedfuture and anyadjustments required in respectofareassess- cash flows,such as changes in arrears or economic condi- mentofthe initial impairment. tions thatcorrelate with defaults. 2.4.5. Derivativefinancial instruments Forthe loans outstanding at the end of the financial year and carried at amortized cost,impairments aremade when Derivatives include cross currencyswaps and cross cur- presenting objectiveevidenceofrisks of non recoveryof rencyinterest rate swaps. all or partoftheir amounts according to the original contractual termsorthe equivalentvalue.Ifthereisobjective In the normal course of its activity, the InvestmentFacility evidencethatanimpairmentloss has been incurred, the mayenter into swap contractswith aview to hedge spe- amountofthe loss is measured as the differencebetween cific lending operations,denominatedinactively traded the assets carrying amountand the presentvalue of esti- currencies other than the Euro,inorder to offset anygain matedfuturecash flows.The carrying amountofthe asset or loss caused by foreignexchange rate fluctuations. is reduced through the use of an allowanceaccountand the amountofthe loss is recognized in the income state- However, the InvestmentFacilityhas not enteredintoany ment. Interest income continues to be accrued on the re- hedge accounting transactions as at 31 December 2007. ducedcarrying amountbased on the effectiveinterest rate Therefore, all derivatives aremeasured at fair value of the asset.Loans together with the associatedallowance through the income statement. Fair values arederived arewritten off when thereisnorealistic prospectoffuture primarily from discountedcash-flowmodels,option- recovery. If,inasubsequentyear,the amountofthe esti- pricing models and from thirdparty quotes. matedimpairmentloss increases or decreases because of an eventoccurring afterthe impairmentwas recognized, Derivatives arerecorded at fair value and carried as assets the previously recognized impairmentloss is increased or when their fair value is positiveand as liabilities when reduced by adjusting the allowanceaccount. their fair value is negative. Changes in the fair value of derivativefinancial instruments areincluded in“Net result TheInvestmentFacilityconducts credit risk assessments on financial operations”. based on which thereisnoneed foracollectiveimpair- mentprovision. 2.4.6. Contributions

Forthe available-for-sale financial investments,the In- Contributions from Member States arerecognized as re- vestmentFacilityassesses at each balancesheet date ceivable in the balancesheet on the date of the Council whether thereisobjectiveevidencethataninvestment Decision fixing the financial contribution to be paid by is impaired.Objectiveevidencewould include asignifi- the Member States to the InvestmentFacility. cantorprolonged decline in the fair value of the invest- mentbelowits costs.Wherethereisevidenceof 2.4.7. Interest income on loans impairment, the cumulativeloss (measured as the differencebetween the acquisition cost and the current fair Interest on loans originatedbythe InvestmentFacilityis value,less anyimpairmentloss on thatinvestmentprevi- recorded in the profit and loss account(“Interest and similar EIB Group 156 Financial Report2007

income”)and on the balancesheet (“Loan and receivables”) 2.4.10. Fees,commissions and dividends on an accrual basis using the effectiveinterest rate,which is the rate thatexactly discounts estimatedfuturecash pay- Fees received in respectofservices provided over ape- ments or receipts through the expectedlifeofthe loan to riod of time arerecognized as income as the services are the net carrying amountofthe loan. Oncethe recorded provided.Commitmentfees aredeferredand recognized value of aloan has been reduced due to impairment, inter- in income using the effectiveinterest method over the est income continues to be recognized using the original period from disbursementtorepaymentofthe related effectiveinterest rate applied to the new carrying amount. loan.

2.4.8. Interest subsidies Dividends relating to available-for-sale equityinvestments arerecognized when received. As partofits activity, the InvestmentFacilitymanages interest subsidies on behalf of the Member States. 2.4.11. Taxation

Thepartofthe Member States contributions allocatedto TheProtocolonthe Privileges and Immunities of the Eu- the paymentofinterest subsidies is not accountedfor in ropean Communities,appended to the Treaty of 8April the InvestmentFacility’sequitybut is classified as an 1965 establishing aSingleCouncil and aSingle Commis- amountowedtothirdparties. sion of the European Communities,stipulatesthatthe assets,revenues and other property of the Institutions of 2.4.9. Interest income on treasury the Union areexempt from all directtaxes.

Under the termsofthe InvestmentFacilityand according 2.4.12. Reclassification of prior years figures to the Financial Regulation applicable to the 9th Euro- pean DevelopmentFund,the funds received by the EIB Wherenecessary, certain prior years figures have been on behalf of the InvestmentFacilityare recorded in an reclassified to conformtochanges to the current year’s accountinthe Commission’s name.Interest on these de- presentation forcomparativepurpose. posits,placed by the InvestmentFacilitywith the EIB,is not accountedfor by the InvestmentFacilityasitispay- 3. Risk management able directly to the European Commission.

Reflows,being repaymentofprincipal,interest or com- 3.1. Credit risk missions stemming from financial operations,and interest calculatedonthese reflows areaccountedfor within This section presents financial information about the in- theInvestmentFacility. vestments made by the Facility.

3.1.1. Exposuredisbursed by natureofborrower (in EUR ’000)

Thetable hereafteranalyses the InvestmentFacilityexposuredisbursed by natureofborrower.

2007 2006

Banks/ Financial Institut.190 218 88 951 Proj.Fin. /Struct. Op.320 670 227 231 Sovereign58852 23 235 VentureCapital Fund 65 583 34 551 Corporates 35 791 27 694

Total 671 114 401 662

3.1.2. Exposuredisbursed by natureofinstrument (in EUR ’000)

Thetable hereafteranalyses the InvestmentFacilityexposuredisbursed by natureofinvestmentinstrumentused.

2007 2006

Senior Loans (exposuredisbursed) 409 765 226 392 of which Global Loans 144 265 96 841 SubordinatedLoans and Quasi Equity151 986 108 821 Equity109 363 66 449

Total 671 114 401 662 InvestmentFacility – Financial Statements 157 EIB Group

3.1.3. Risk concentrations of the exposuredisbursed to credit risk (in EUR ’000)

Thetable belowanalyses the InvestmentFacilityexposuredisbursed by sector.

2007 2006

Global loans 104 418 61 663 Energy 107 096 38 291 Industry235 274 184 475 Services 165 683 72 699 Transports 9199 Water, sewerage 2000 Agriculture, fisheries,forestry7590 9349 Agencyagreements 39 854 35 185

Total 671 114 401 662

3.2. Liquidityrisk and funding management

3.2.1. Analysis of financial liabilities by remaining contractual maturities (in EUR ’000)

Thetable belowsets out the Facility’sassets and liabilities by relevantmaturitygroupings based on the remaining period to the contractual maturitydate.

Financial liabilities Up to 3months 3to12months 1to5years Over 5years Total

ASSETS Cash and cash equivalents 184 772 184 772 Derivativefinancial instruments 433 11 803 13 043 25 279 Loans and receivables 7735 3082 85 010 476 703 572 530 Financial investments -available-for-sale Equityinvestment-available-for-sale 109 363 109 363 Amounts receivable from contributors 181 183 181 183 Other assets 3783 508 4291

Total assets 377 473 3515 96 813 599 617 1077 418

LIABILITIES Derivativefinancial instruments 532 5140 164 841 Deferred income 18 030 18 030 Amountowedtothirdparties 131 152 131 152 Other liabilities 408 508 916

Total liabilities 132 092 51400 18 702 150 939

Net liquidityposition at 31 December 2007 245 476 3510 96 673 580 914 926 479

Net liquidityposition at 31 December 2006 162 115 1518 17 272 385 276 566 181 EIB Group 158 Financial Report2007

3.3. Market risk

Asensitivityanalysis to be prepared foreach type of market risk:

3.3.1. Interest rate risk (in EUR ’000)

Thetable belowsummarizes the InvestmentFacility’sexposuretointerest rate risk through its investments.

2007 2006

Fixedrate interest 291 468 170 790 Floating rate interest 270 283 164 423

Total 561 751 335 213

3.3.2. Currencyrisk (or Foreign exchange risk) (in EUR ’000)

EUR USD CADACP/OCTCurrencies Total

ASSETS Cash and cash equivalents 178 097 6675 184 772 Derivativefinancial instruments 24 609 670 25 279 Loans and receivables 277 084 264 765 30 681 572 530 Financial investments -available-for-sale Equityinvestment-available-for-sale 31 697 63 906 3397 10 363 109 363 Amounts receivable from contributors 181 183 181 183 Other assets 711 2722 858 4291

Total assets 693 381 338 738 3397 41 902 1077 418

LIABILITIES Derivativefinancial instruments 841 841 Deferred income 18 030 18 030 Amountowedtothirdparties 131 152 131 152 Other liabilities 408 508 916

Total liabilities 150 431 508 150 939

Equity FacilityMember States Contribution called 830 000 830 000 Retained earnings 77 167 77 167 Fair value reserve 7094 5570 6857 (209) 19 312

Total equity914 261 5570 6857 (209) 926 479

Currencyposition as at 31 December 2007 (371 311) 333 168 (3 460) 41 603

Currencyposition as at 31 December 2006 (244 924) 206 935 3797 34 192

COMMITMENTS Undisbursed loans and equityinvestments 573 913 183 408 757 321 Guarantees drawn10116 10 116 CONTINGENT LIABILITIES Guarantees undrawn113 875 113 875 InvestmentFacility – Financial Statements 159 EIB Group

4. Segmentinformation

In accordancewith IAS 14, the primarysegmentofthe InvestmentFacilityisbusiness operation and the secondary segmentisgeographical.

4.1. By business segment (in EUR ’000)

Theactivityofthe InvestmentFacilityisdivided into twomain business segments on aworldwide basis:

• Bankingoperations – incorporating investments in projects which aremade with the purpose of supporting investments of privateand commercially run public sectorentities.The main investmentproducts areloans,available-for-sale equityinvestments and financial guarantees. • Treasuryactivities – including investing surplus liquidityand managing the InvestmentFacilityforeignexchange risk.

At 31 December 2007 TreasuryBanking Total

Revenue from segments 5365 43 638 49 003 Expenses and charges from segments (9 442) (3 578) (13 020)

Profit forthe year 35 983

Segmentassets 213 436 682 798 896 234 Unallocatedassets 181 184

Total assets 1077 418

Segmentliabilities 1241 18 546 19 787 Unallocatedliabilities 131 152

Total liabilities 150 939

Other segmentinformation Contingentliabilities and commitments 881 312 881 312

At 31 December 2006 TreasuryBanking Total

Revenue from segments 2098 26 084 28 182 Expenses and charges from segments (2 646) (1 823) (4 469)

Profit forthe year 23 713

Segmentassets 200 186 406 445 606 631 Unallocatedassets 103 913

Total assets 710 544

Segmentliabilities 1247 8691 9938 Unallocatedliabilities 134 425

Total liabilities 144 363

Other segmentinformation Contingentliabilities and commitments 939 594 939 594 EIB Group 160 Financial Report2007

4.2. By geographical segment (in EUR ’000)

TheInvestmentFacility’sactivities aredivided into fiveregions forinternal managementpurposes.

At 31 December 2007 Revenues (*) Total assets Total liabilities Contingentliabilities and commitments

Caribbean and Pacific 4881 63 089 102 658 Centraland EasternAfrica 4560 114 401 15 837 414 592 Regional Africa and ACPStates4253 77 923 163 377 SouthernAfrica and Indian Ocean 16 787 216 175 707 82 803 West Africa and Sahel 9631 187 602 2003 117 882 Others (**) 418 228 132 392

Total 40 112 1077 418 150 939 881 312

At 31 December 2006 Revenues (*) Total assets Total liabilities Contingentliabilities and commitments

Caribbean and Pacific 4217 42 558 69 801 Centraland EasternAfrica 2216 57 161 8155 296 819 Regional Africa and ACPStates2536 54 944 192 882 SouthernAfrica and Indian Ocean 12 990 161 006 51 124 241 West Africa and Sahel 2502 75 509 150 255 851 Others (**) 319 366 136 007

Total 24 461 710 544 144 363 939 594

(*) Revenues representthe net profit on the InvestmentFacility’soperational activity(i.e.interest and similar income,interest subsidies,net feeand com- missionincome, credit loss expense and impairmentlosses on financial investments).

(**) Under geographical segment “Others” areconsidered the amountpayable to or receivable from the Member States or the European InvestmentBank and the InvestmentFacilitycash and cash equivalent.

5. Net interest income (in EUR ’000)

Themain components of interest and similar income areasfollows:

2007 2006

Cash and shorttermfunds 5755 2098 Loans and receivables 40 192 21 556 Interest subsidies 633 162

Total interest and similar income 46 580 23 816

Themain components of interest and similar expense areasfollows:

2007 2006

Duetobanks (441) Derivativefinancial instruments (738) (2 483) Remuneration paid to EC (39) Other (10)

Total interest and similar expense (1 218) (2 493) InvestmentFacility – Financial Statements 161 EIB Group

6. Net feeand commission income (in EUR ’000)

Themain components of net feeand commission income areasfollows:

2007 2006

Loans and receivables 1136 4168 Financial guarantees 260 198

Total feeand commission income 1396 4366

7. Net result on financial operations (in EUR ’000)

Themain components of net result on financial operations areasfollows:

2007 2006

Fair value movementonderivatives 15 965 14 057 Foreignexchange (24 631) (14 210) Dividend income from financial investments Equityinvestments – available-for-sale -Quoted -Unquoted 24 Gains less losses from financial investments Equityinvestments – available-for-sale 637 (130)

Net result on financial operations (8 005) (283)

8. General administrativeexpenses (in EUR ’000)

General administrativeexpenses representthe actual costs incurredbythe European InvestmentBank (the “EIB”)for managing the InvestmentFacilityless income generated from standardappraisal fees directly charged by the EIB to clients of the InvestmentFacility.

2007 2006

Actual cost incurredbythe EIB (34 260) (35 413) Income from appraisal fees charged to clients of the Facility1504 1500

Net general administrativeexpenses (32 756) (33 913)

Under Council Decision of 8April 2003, the Member States agreed to cover in full the expenses incurredbythe EIB forthe managementofthe InvestmentFacilityfor the first 5years of the 9th European DevelopmentFund.

9. Cash and cash equivalent (in EUR ’000) Forthe purposes of the cash flowstatement, cash and cash equivalents comprise the following balances with less than three months maturityfromthe date of acquisition.

The cash and cash equivalents can be broken down between the funds received from the Member States and not yet disbursed and the funds from the InvestmentFacility’soperational and financial activities.

2007 2006

Member States contributions received and not yetdisbursed 23 566 69 720 Funds from the Facility’sfinancial and operational activities 161 206 121 060

Cash and cash equivalents 184 772 190 780 EIB Group 162 Financial Report2007

10. Derivativefinancial instruments (in EUR ’000)

At 31 December 2007 Assets Liabilities Notional amount

Cross currencyswaps 16 433 (729) 114 124 Cross currencyinterest rate swaps 8176 (112) 137 261 Warrants 670 1350

Total 25 279 (841)

At 31 December 2006 Assets Liabilities Notional amount

Cross currencyswaps 6165 (119) 114 597 Cross currencyinterest rate swaps 2427 86 963

Total 8592 (119)

11. Loans and receivables (in EUR ’000)

Global loans Senior loans Subordinatedloans Total

At 1January2007 96 840 129 550 108 823 335 213 Impairment(2770) (2 770) Change in amortised cost (378) (580) (64) (1 022) Disbursement155 013 111 242 19 773 286 028 Interest capitalised 446 33 6268 6747 Repayments (13 310) (15 405) (5 499) (34 214) Foreignexchange difference(15 325) (10 693) (2 213) (28 231) At 31 December 2007 223 286 211 377 127 088 561 751 Accrued interest income 10 779

Loans and receivables at 31 December 2007 572 530

At 1January2006 50 314 61 279 82 416 194 009 Impairment(1693) (1 693) Change in amortised cost (350) 34 (316) Disbursement55467 79 375 22 162 157 004 Interest capitalised 4303 4303 Repayments (3 585) (3 585) Foreignexchange difference(5356) (9 061) (92) (14 509) At 31 December 2006 96 840 129 550 108 823 335 213 Accrued interest income 3784

Loans and receivables at 31 December 2006 338 997

At 31 December 2007, 2operations were impaired foratotal of EUR 4,4 million, of which 1,7 million were already accountedfor as per 31 December 2006, at the ratesprevailing at this date. InvestmentFacility – Financial Statements 163 EIB Group

12. Financial investments

12.1. Equityinvestments – available-for-sale (in EUR ’000)

Themain components of available-for-sale equityinvestments areasfollows:

Equityinvestments available-for-sale 2007 2006

At 1January66449 30 886 Movementinfair value 9315 3554 Impairment(366) (130) Disbursement43143 31 965 Proceeds (8 248) (25) Foreignexchange difference(930) 199

At 31 December 109 363 66 449

13. Amounts receivable from contributors (in EUR ’000)

Themain components of amounts receivable from contributors areasfollows:

2007 2006

Contribution called but not paid 148 427 70 000 Special contribution to general administrativeexpenses 32 756 33 913

Total amountreceivable from contributors 181 183 103 913

14. Other assets (in EUR ’000)

Themain components of other assets areasfollows:

2007 2006

Interest on loans not yetcollected397 551 Amounts receivable from EIB 3386 814 Financial guarantees 508 448

Total amountofother assets 4291 1813

15. Deferred income (in EUR ’000)

Themain components of deferredincome areasfollows:

2007 2006

Deferred interest subsidies 17 947 7687 Deferred commissions on loans and receivables 83 221

Total deferred income 18 030 7908 EIB Group 164 Financial Report2007

16. Amountowedtothirdparties (in EUR ’000)

Themain components of amountowedtothirdparties areasfollows:

2007 2006

Net general administrativeexpense payable to EIB 32 756 33 913 Interest subsidies not yetdisbursed 98 396 100 512

Total amountowedtothirdparties 131 152 134 425

17. Other liabilities (in EUR ’000)

Themain components of other liabilities areasfollows:

2007 2006

Remuneration repayable to the Commission with regardtothe Contribution account27538 Amountrepayable to EIB 925 Financial guarantees 508 448 Other 381

Total amountofother liabilities 916 1911

18. InvestmentFacilityMember StatesContribution called (in EUR ’000)

Member States Contribution to Contribution to Total contributed Called and not the Facility interest paid (*) subsidies

Austria 21 995 3180 25 175 4505 Belgium 32 536 4704 37 240 6664 Denmark17762 2568 20 330 3638 Finland 12 284 1776 14 060 2516 France201 690 29 160 230 850 41 310 Germany193 888 28 032 221 920 39 712 Greece10375 1500 11 875 2125 Ireland 5146 744 5890 1054 Italy 104 082 15 048 119 130 21 318 Luxembourg2407 348 2755 493 Netherlands 43 326 6264 49 590 8874 Portugal 8051 1164 9215 1649 Spain 48 472 7008 55 480 9928 Sweden 22 659 3276 25 935 4641 United Kingdom 105 327 15 228 120 555

Total 830 000 120 000 950 000 148 427

(*) On 20 December 2007, the Council fixed the amountoffinancial contributions to be paid by each Member Stateby21January2008. InvestmentFacility – Financial Statements 165 EIB Group

19. Contingentliabilities and commitments (in EUR ’000)

2007 2006

Commitments Undisbursed loans 669 117 779 241 Undisbursed commitmentinrespectofequityinvestments 88 204 88 552 Guarantees drawn10116 7925 Contingentliabilities Guarantees undrawn113 875 63 876

Total 881 312 939 594

20. Subsequentevents

Therehavebeen no material post balancesheet events which could requiredisclosureoradjustmenttothe 31 December 2007 financial statements.

On aproposal from the ManagementCommittee,the BoardofDirectors reviewed these financial statements on 11 March 2008 and decided to submit them to the BoardofGovernors forapproval at their meeting to be held on 3June 2008. EIB Group 166 Financial Report2007

IndependentAuditor’s Report

To the chairman of the Audit Committee of EUROPEAN INVESTMENT BANK Luxembourg

We have audited the accompanying financial statements of to obtain reasonable assurancewhether the financial the InvestmentFacility, which showaprofit of KEUR 35,983 statements arefreefrommaterial misstatement. and atotal balancesheet of KEUR 1,077,418 and which comprise the balancesheet as at December 31, 2007, the An audit involves performing procedures to obtain audit income statement, the statementofchanges in equity, the evidenceabout the amounts and disclosures in the financial cash flowstatementfor the year then ended,and asum- statements.The procedures selecteddepend on the judg- maryofsignificantaccounting policies and other explana- mentofthe “Réviseur d’Entreprises”,including the assess- tory notes. mentofthe risks of material misstatementofthe financial statements,whether due to fraud or error. In making those ManagementCommittee’s responsibilityfor the finan- risk assessments,the “Réviseur d’Entreprises” considers in- cial statements ternal controlrelevanttothe entity’spreparation and fair presentation of the financial statements in order to design TheManagementCommittee of the European Investment audit procedures thatare appropriate in the circumstances, Bank is responsible forthe preparation and fair presenta- but not forthe purpose of expressing an opinion on the tion of these financial statements in accordancewith the effectiveness of the entity’sinternal control. measurementand recognition principles as described in Note2ofthe accompanying financial statements.This re- An audit also includes evaluating the appropriateness of sponsibilityincludes: designing,implementing and main- accounting policies used and the reasonableness of ac- taining internal controlrelevanttothe preparation and fair counting estimatesmade by the ManagementCommit- presentation of financial statements thatare free from ma- tee, as well as evaluating the overall presentation of the terial misstatement, whether due to fraud or error; select- financialstatements.Webelievethatthe audit evidence ing and applying appropriate accounting policies; and we have obtained is sufficientand appropriate to provide making accounting estimatesthatare reasonable in the abasis forour audit opinion. circumstances. Opinion Responsibilityofthe“Réviseur d’Entreprises” In our opinion, the financial statements give atrue and fair Ourresponsibilityistoexpress an opinion on these finan- view of the financial position of the InvestmentFacilityas cial statements based on our audit.Weconductedour of December 31, 2007, of its financial performance, of its audit in accordancewith International Standards on Audit- changes in equityand of its cash flows forthe year then ing as adopted by the Luxembourg“Institut des Réviseurs ended in accordancewith the measurementand recogni- d’Entreprises”.Those standards requirethatwecomply tion principles as described in Note2ofthe accompanying with ethical requirements and plan and perform the audit financial statements.

March 12, 2008 ERNST &YOUNG Société Anonyme Réviseur d’Entreprises

Alain KINSCH BernardLHOEST InvestmentFacility – Financial Statements 167 EIB Group

TheAudit Committee

TheAudit Committee reports to the BoardofGovernors, and considering the following statementbeing communicatedtothe Gov- ernors prior to their approval of the Annual Reportand • the financial statements forthe financial period ending on 31 December 2007 as drawnupbythe Board the financial statements forthe past financial year. of Directors at its meeting on 11 March2008,

Statementbythe Audit Committee on the Investment • thatthe foregoing provides areasonable basis forits Facilityfinancial statements(1) statementand,

TheCommittee,instituted in pursuanceofArticle 14 of • Articles 22, 23 &24ofthe Rules of Procedure, the Statuteand Article 25 of the Rules of Procedureofthe European InvestmentBank forthe purpose of verifying to the best of its knowledge and judgement: thatthe operations of the Bank areconductedand its confirms thatthe activities of the InvestmentFacilityare books kept in aproper manner,having conductedinaproper manner,inparticular with regard to risk managementand monitoring; • designatedErnst &Young as external auditors,reviewed their audit planning process,examined and has verified thatthe operations of the InvestmentFacility discussed their reports, have been conductedand its books kept in aproper man- • noted thatthe opinion of Ernst &Young on the finan- ner and thattothis end,ithas verified thatthe Investment cial statements of the InvestmentFacilityfor the year Facility’soperations have been carried out in compliance ended31December 2007 is unqualified, with the formalities and procedures laid down by the Stat- uteand Rules of Procedure; • convened on aregular basis with the Heads of Direc- torates and relevantservices,and studied the docu- confirms thatthe financial statements,comprising the ments which it deemed necessarytoexamine in the balancesheet,the income statement, the statementof discharge of its duties, changes in equity, the cash flowstatementand the notes to the financial statements give atrue and fair view of the • received assurancefromthe ManagementCommittee financial position of the InvestmentFacilityasat31De- concerning the effectiveness of the internal control cember 2007 in respectofits assets and liabilities,and of structureand internal administration, the results of its operations forthe year then ended.

Luxembourg, 12 March 2008 TheAudit Committee

M. DALLOCCHIO C. KARMIOS O. KLAPPER

(1) TheFinancial Regulation applicable to the 9th European DevelopmentFund in Article 112 with regardtothe operations managed by the European In- vestmentBank statesthatthese operations shall be subjecttothe audit and discharge procedures laid down in the Statuteofthe Bank forall of its operations.Onthis basis,the Audit Committee issues the above statement.

FEMIP Trust Fund – Financial Statements 169 EIB Group

FEMIP Trust Fund Financial Statements EIB Group 170 Financial Report2007

Income statement Forthe year ended 31 December 2007 (in EUR ’000)

NotesYear to Year to 31.12.2007 31.12.2006

Interest and similar income 1229 842

Netoperating income 1229 842

General administrativeexpenses 3(87) (686) Projects financed 4(229) (1 090) Net gain and loss on financial assets and liabilities designatedatfair value through profit or loss 8(9)

Total operating expenses (325) (1 776)

NetProfit/Loss of the financial year 904 (934)

Balancesheet At 31 December 2007 (in EUR ’000)

Notes2007 2006

ASSETS Cash and cash equivalents 32 450 29 841 Financial assets designatedatfair value through profit or loss (Equityinvestments) 8461 0

Total Assets 32 911 29 841

LIABILITIES AND EQUITY LIABILITIES EQUITY Contributions called 533716 31 550 Retained earnings (805) (1 709)

Total Equity32911 29 841

Total Liabilities and Equity32911 29 841

Theaccompanying notes form an integralpartofthese financial statements. FEMIP Trust Fund – Financial Statements 171 EIB Group

Statements of changes in equity (in EUR ’000)

Issued capital Retained earnings Total equity

At 1January2007 31 550 (1 709) 29 841 Contributions called during the year 2166 02166 Profit forthe year 0904 904 Changes in contributors’resources 2166 904 3070

At 31 December 2007 33 716 (805) 32 911

Issued capital Retained earnings Total equity

At 1January2006 28 800 (775) 28 025 Contributions called during the year 2750 02750 Loss forthe year 0(934) (934) Changes in contributors’resources 2750 (934) 1816

At 31 December 2006 31 550 (1 709) 29 841

Cash flowstatement (in EUR ’000)

2007 2006

OPERATING ACTIVITIES Profit forthe financial year Interest and similar income 1229 842 General administrativeexpenses (87) (110) Projects financed (229) (1 090) Profit on operating activities beforechanges in operating assets and liabilities 913 (358) Increase in financial investments designatedatfair value through profit or loss (470) 0 Net cash flows from operating activities 443 (358) FINANCING ACTIVITIES Paid in by contributors 2166 2750 Net cash flows from/(used in) financing activities 2166 2750

Netincrease in cash and cash equivalents 2609 2392

Cash and cash equivalents at beginning of financial year 29 841 27 449

Cash and cash equivalents at end of financial year 32 450 29 841

Theaccompanying notes form an integralpartofthese financial statements. EIB Group 172 Financial Report2007

TheFEMIP Trust Fund Notes to the financial statements

1. General information These financial statements arepresentedinEuro, which is also its functional currency. Forthe preparation of the In March2002, the Barcelona European Council decided financial statements,assets and liabilities denominated to enhancethe existing activities of the European Invest- in currencies other than the Euro aretranslatedintoEuro mentBank (the“Bank”or“EIB”)inthe Mediterranean Part- at the spot ratesofexchange prevailing on the balance ner Countries through the creation of the Facilityfor sheet date.The gain or loss arising from such translation Euro-Mediterranean Investmentand Partnership (the is recorded in the income statement. Theelements of the “FEMIP”). TheCouncil’s overall objectivewas to“stimulate income statementare translatedintoEuromonthly on privatesectordevelopmentinthe Mediterranean Partner the basis of the exchange ratesprevailing at the end of Countries,inorder to facilitate ahigher level of econom- each month. ic growth consistentwith the growth of the labour force in the region”. 2.2. Significantaccounting judgments and estimates TheEuropean Council of 12 December 2003 endorsed the conclusions reached on 25 November 2003 by the ECOFIN Thepreparation of financial statements in conformity Council to reinforce the FEMIP within the Bank,leading with IFRS requires the use of certain critical accounting to the creation of a “reinforcedFEMIP”.Inparticular,the estimates. It also requires managementtoexercise its ECOFIN Council decided to strengthen the FEMIP opera- judgmentinthe process of applying the Fund’s account- tions with anumber of features and instruments in sup- ing policies.The areas involving ahigher degreeofjudg- portofthe privatesector, including the establishmentof mentorcomplexity, or areas whereassumptions and atrust fund allowing resourcestocomplementonavol- estimatesare significanttothe financial statements are untarybasis the Bank’s ownresourcesaswell as the finan- disclosed. cial resourcesprovided to the Bank by the European Communitybudget. Themost significantuse of judgments and estimates areasfollows: TheBank and anumber of donor countries enteredinto discussions to establish atrust fund (the “FEMIP Trust Fair value of financial instruments Fund”or the“Fund”)dedicatedtothe Mediterranean Part- ner Countries,directing resourcestooperations in certain Wherethe fair values of financial assets and financial lia- prioritysectors which can be enhanced through the pro- bilities recorded on the balancesheet cannot be derived vision of technical assistanceormade viable via arisk from activemarkets,they aredetermined using avariety capital operation. of valuation techniques thatinclude the use of mathe- matical models.The input to these models is taken from By adecision dated14October 2004, the Bank’s Boardof observable markets wherepossible,but wherethis is not Directors approved the Rules relating to the establish- feasible,adegreeofjudgmentisrequired in establishing mentand administration of the FEMIP Trust Fund (the fair values.The judgments include considerations of “Rules”). liquidityand model inputs such as correlation and volatil- ityfor longer datedderivatives. In line with Article 6.01(b)ofthe Rules“the financial year of the FEMIP Trust Fund shall be the calendar year,except Valuation of unquoted equityinvestments forthe first financial period,which shall begin with reception of the first contribution and end on 31 December Valuation of unquoted equityinvestments is normally 2005.” based on one of the following:

2. Significantaccounting policies • recent arms length market transactions; • current fair value of another instrumentthatissub- stantially the same; 2.1. Basis of preparation • the expectedcash flows discountedatcurrent rates applicable foritems with similar termsand risk char- TheFund’s financial statements have been prepared in acteristics; or accordancewith International Financial Reporting Stand- ards (IFRS) as adopted by the European Union. • other valuation models. Thedetermination of the cash flows and discountfactors These financial statements cover the year to 31 December forunquoted equityinvestments requires significantesti- 2007 with the comparatives covering the year to 31 De- mation.The Fund calibrates the valuation techniques pe- cember 2006. riodically and tests them forvalidityusing either pricefrom FEMIP Trust Fund – Financial Statements 173 EIB Group

observable current market transactions in the same instru- Financial investments mentorfromother available observable market data. Afterinitial measurement, financial investments aresubsequently carried at fair value through profit or loss as 2.3. Change in accounting policies they only concerninvestments in associates. IAS 28 au- thorizes Investments Funds to record investments done Theaccounting policies adopted areconsistentwith in associatesatfair value in accordancewith IAS 39 and those used in the previous year except as follow: variations of fair value through profit or loss.

As of 1January2007, the FEMIP Trust Fund adopted IFRS 7 Notethe following details forthe fair value measurement Financial Instruments-disclosures which requireaspecific of equityinvestment: disclosureofthe significanceofthe financials instruments position and performanceofthe fund and the natureand a. Venturecapital funds the extent of risks arising from the detention of such financial instruments.Adescription of howthose risks aremon- Thefair value of each venturecapital fund will be based itored by the fund should also be disclosed. on the Net Asset Value (NAV),reportedbythe fund,if calculatedbased on international valuation standards At the closing date,the financial instruments held by the recognized to be compliantwith IFRS. TheFund may fund concerns mainly cash deposit and an equityinvest- howeverdecide to adjust the NAVreportedbythe fund ment(insignificant), which aresubjecttoaverylow risk if thereare issues thatmay affectthe valuation. of value. If no internationally recognized fair valuation standards As aresult,non significantadditional disclosures are areapplied,the valuation will be conductedonthe basis made from previous years by the Fund. of the underlying portfolio.

2.4. Summaryofsignificantaccounting policies b. Direct equityinvestments Thefair value of the investmentwill be based on the lat- Thebalancesheet represents assets and liabilities in est set of financial statements available,re-using,ifap- decreasing order of liquidityand does not distinguish plicable,the same model as the one used at the between current and non-current items. acquisition of the participation.

2.4.1. Contributions Unrealized gains or losses on equityinvestments arerecorded in the income statement. Contributions,net of banking charges,are recognised in the balancesheet on the date when paymentofacontri- Forunquoted investment, the fair value is determined by bution by acontributor is received. applying recognized valuation technique.These investments areaccountedfor at cost when the fair value can- 2.4.2. Disbursements foroperations not be reliably measured.

Disbursements relatedtooperations financed by the 2.4.5. Taxation FEMIP Trust Fund arerecorded as expenditures in the income statementasprojects financed over the year during TheProtocolonthe Privileges and Immunities of the Eur- which the services arereceived. opean Communities,appended to the Treaty of 8April 1965 establishing aSingleCouncil and aSingle Commis- 2.4.3. Cash and cash equivalents sion of the European Communities,stipulatesthatthe assets,revenues and other property of the Institutions of Forthe purpose of the cash flowstatement, cash and cash the Union areexempt from all directtaxes. equivalents comprise balances with less than three months’ maturityfromthe date of acquisition, which areavailable 3. General administrativeexpenses foruse at shortnoticeand which aresubjecttoinsignifi- cantrisk of changes in value.This definition includes bal- General administrativeexpenses aredirectly relating to the ances of cash and current accounts with the Bank.The Fund and include an administrativeand operation support liquid assets of the FEMIP Trust Fund,deposited with the and financial managementfee payable to the Bank (here- Bank,are remunerated based on the Euro OvernightIndex afterreferredtoasthe managementfee). This is atotal fixed Average (EONIA)and areall denominatedinEUR. feeof4%ofthe total amountofthe net contributions made available to the FEMIP Trust Fund forsuch activities over a 2.4.4. Financial assets other than derivatives period of servicetobeterminatedinDecember 2007.

Financial assets areaccountedfor using the settlement Such feeshall be payable out of the amountofthe net con- date basis. tributions at the time the contribution is actually paid in. EIB Group 174 Financial Report2007

4. Projects financed

Four disbursements fortechnical assistanceoperations and other programmes were made in 2007 totalling EUR 228 579 (2006: 8disbursements foranamountofEUR 1090 149), these being:

• EUR 65 381 &EUR 7474 – Morocco Study on promotion of long term privatesavings; • EUR 55 292 – Regional Study on CDM projectidentification in FEMIP countries; • EUR 32 000 – Regional Review of existing trade financeservices; • EUR 68 432 – FEMIP Internship Program.

5. Contributions

Contributions received and expectedtobereceived in futureyears aredetailed below:

Member States Received up to 2007 (EUR) To be received post 2007 (*) (EUR) TOTAL(EUR)

Austria 999 950 0999 950 Belgium 1000 000 01000 000 Cyprus 700 000 300 000 1000 000 European Commission 1000 000 01000 000 Finland 999 950 0999 950 France4000 000 04000 000 Germany2000 000 02000 000 Greece2000 000 02000 000 Ireland 500 000 500 000 1000 000 Italy 2500 000 02500 000 Luxembourg1000 000 01000 000 Malta 1000 000 01000 000 Netherlands 2000 000 02000 000 Portugal 1000 000 01000 000 Spain 10 000 000 010000 000 United Kingdom 3015 891 03015 891

Total at 31 December 2007 33 715 791 800 000 34 515 791

Total at 31 December 2006 31 549 950 1950 000 33 499 950

(*) Conditional on the continuation of the FEMIP Trust Fund by common agreementofthe Assembly of Donors. FEMIP Trust Fund – Financial Statements 175 EIB Group

6. LiquidityPosition (in EUR ’000)

Thetable belowprovides an analysis of assets,liabilities and contributors’resourcesintorelevantmaturitygroupings based on the remaining period from the balancesheet date to the contractual maturitydate. It is presentedunder the most prudentconsideration of maturitydates.Therefore, in the case of liabilities the earliest possible repaymentdateis shown, whilefor assets it is the latest possible repaymentdate.

Those assets and liabilities thatdonot have acontractual maturitydateare grouped together in the“Maturityundefined” category.

Up to 3months EUR Maturityundefined EUR Total EUR

Assets Placements with the Bank 32 450 032450 Financial investments at fair value through profit or loss 0461 461

Total Assets 32 450 461 32 911

Equity Total Equity0(32 911) (32 911)

Total Equity0(32 911) (32 911)

Net liquidityposition at 31 December 2007 32 450 (32 450) 0

Cumulativenet liquidityposition at 31 December 2007 32 450 00

Cumulativenet liquidityposition at 31 December 2006 29 841 00

7. Interest Rate Risk

TheFEMIP Trust Fund is exposed to an interest rate risk through its cash and cash equivalents deposited with the Bank, and remunerated based on the Euro OvernightIndexAverage (EONIA).

8. Equityinvestments – at fair value through profit or loss (in EUR ’000)

Themain components of the equityinvestments areasfollows:

2007 2006

At 1January2007 00 Movementinfair value 00 Impairment00 Change in amortized cost 00 Disbursement470 0 Interest capitalised 00 Repayments 00 Foreignexchange difference(9) 0

At 31 December 2007 461 0 EIB Group 176 Financial Report2007

9. Commitments (in EUR ’000)

TheFund’s commitments areasfollows:

2007 2006

Commitments Undisbursed commitmentinrespectofequityinvestments 1530 0

Total 1530 0

10. Subsequentevents

Therehavebeen no material post-balancesheet events,which would requiredisclosureoradjustmenttothe financial statements as at 31 December 2007.

TheFEMIP Trust Fund Assembly of Donors has approved these financial statements by tacit procedureonorbefore7March 2008.

On aproposal from the ManagementCommittee of the Bank,the BoardofDirectors of the Bank received these financial statements on 11 March2008 who decided to submit them to the Governors forapproval at their meeting to be held on 3June 2008. FEMIP Trust Fund – Financial Statements 177 EIB Group

IndependentAuditor’s Report

To the chairman of the Audit Committee of EUROPEAN INVESTMENT BANK Luxembourg

We have audited the accompanying financial statements to obtain reasonable assurancewhether the financial of TheFEMIP Trust Fund,which showaprofit of KEUR 904 statements arefreefrommaterial misstatement. and atotal balancesheet of KEUR 32,911 and which comprise the balancesheet as at December 31, 2007, the in- An audit involves performing procedures to obtain audit come statement, the statements of changes in equity, the evidenceabout the amounts and disclosures in the finan- cash flowstatementfor the year then ended,and asum- cial statements.The procedures selecteddepend on the maryofsignificantaccounting policies and other explana- judgmentofthe“Réviseur d’Entreprises”,including the as- tory notes. sessmentofthe risks of material misstatementofthe financial statements,whether due to fraud or error. In making ManagementCommittee’s responsibilityfor the finan- those risk assessments,the“Réviseur d’Entreprises”consid- cial statements ersinternal controlrelevanttothe entity’spreparation and fair presentation of the financial statements in order to de- TheManagementCommittee of the European Investment signaudit procedures thatare appropriate in the circum- Bank is responsible forthe preparation and fair presenta- stances,but not forthe purpose of expressing an opinion tion of these financial statements in accordancewith Inter- on the effectiveness of the entity’sinternal control. national Financial Reporting Standards and with the general principles of the Directives of the European Union An audit also includes evaluating the appropriateness of on the annual accounts and consolidatedaccounts of cer- accounting policies used and the reasonableness of ac- tain type of companies,banks and other financial institu- counting estimatesmade by the ManagementCommit- tions and insuranceundertakings.This responsibility tee, as well as evaluating the overall presentation of the includes: designing,implementing and maintaining inter- financial statements.Webelievethatthe audit evidence nal controlrelevanttothe preparation and fair presentation we have obtained is sufficientand appropriate to provide of financial statements thatare free from material misstate- abasis forour audit opinion. ment, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting Opinion estimatesthatare reasonable in the circumstances. In our opinion, the financial statements give atrue and fair Responsibilityofthe“Réviseur d’Entreprises” view of the financial position of TheFEMIP Trust Fund as of December 31, 2007, of its financial performance, of its Ourresponsibilityistoexpress an opinion on these finan- changes in equityand of its cash flows forthe year then cial statements based on our audit.Weconductedour ended in accordancewith International Financial Reporting audit in accordancewith International Standards on Audit- Standards and with the general principles of the Directives ing as adopted by the Luxembourg“Institut des Réviseurs of the European Union on the annual accounts and con- d’Entreprises”.Those standards requirethatwecomply solidatedaccounts of certain types of companies,banks and with ethical requirements and plan and perform the audit other financial institutions and insuranceundertakings.

March 12, 2008 ERNST &YOUNG Société Anonyme Réviseur d’Entreprises

Alain KINSCH BernardLHOEST EIB Group 178 Financial Report2007

TheAudit Committee

TheAudit Committee reports to the BoardofGovernors, and considering the following statementbeing communicatedtothe Gov- ernors prior to their approval of the Annual Reportand • the financial statements forthe year ended 31 De- the financial statements forthe past financial year. cember 2007 as drawnupbythe BoardofDirectors at its meeting on 11 March2008,

Statementbythe Audit Committee on the FEMIP Trust • thatthe foregoing provides areasonable basis forits Fund financial statements(1) statementand,

TheCommittee,instituted in pursuanceofArticle 14 of • Articles 22, 23 &24ofthe Rules of Procedure, the Statuteand Article 25 of the Rules of Procedureofthe European InvestmentBank forthe purpose of verifying to the best of its knowledge and judgement: thatthe operations of the Bank areconductedand its confirms thatthe activities of the FEMIP Trust Fund are books kept in aproper manner,having conductedinaproper manner,inparticular with regard to risk managementand monitoring; • designatedErnst &Young as external auditors,reviewed their audit planning process,examined and has verified thatthe operations of the FEMIP Trust Fund discussed their reports, have been conductedand its books kept in aproper man- • noted thatthe opinion of Ernst &Young on the finan- ner and thattothis end,ithas verified thatthe FEMIP Trust cial statements of the FEMIP Trust Fund forthe year Fund’s operations have been carried out in compliance ended 31 December 2007 is unqualified, with the formalities and procedures laid down by the Stat- uteand Rules of Procedure; • convened on aregular basis with the Heads of Direc- torates and relevantservices,and studied the docu- confirms thatthe financial statements,comprising the bal- ments which it deemed necessarytoexamine in the ancesheet,the income statement, the statementofchanges discharge of its duties, in equity, the cash flowstatementand the notes to the financial statements give atrue and fair view of the financial posi- • received assurancefromthe ManagementCommittee tion of the FEMIP Trust Fund as at 31 December 2007 in concerning the effectiveness of the internal control respectofits assets and liabilities,and of the results of its structureand internal administration, operations forthe year then ended.

Luxembourg, 12 March 2008 TheAudit Committee

M. DALLOCCHIO C. KARMIOS O. KLAPPER

(1) Theconditions with regardtothe approval of Financial Statements of the FEMIP Trust Fund contained in the Rules Relating to the Establishmentand Administration of the FEMIP Trust Fund state thatthatthe Financial Statements shall be subjecttothe presentation and approval laid down in the Statute of the Bank forits ordinaryoperations.Onthis basis,the Audit Committee issues the above statement. EIF – Financial Statements 179 EIB Group

EIF Financial Statements EIB Group 180 Financial Report2007

IndependentAuditor’s Report

To the Audit Board of the EUROPEAN INVESTMENT FUND 43, avenue J. F. Kennedy L-2968 Luxembourg

Following our appointmentbythe Audit Board, we have the assessmentofthe risks of material misstatementof audited the accompanying financial statements of the the financial statements,whether due to fraud or error. European InvestmentFund,which comprise the balance In making those risk assessments,the “Réviseur sheet as at December 31, 2007, and the income state- d’Entreprises” considers internal controlrelevanttothe ment, statementofchanges in equityand cash flow entity’spreparation and fair presentation of the financial statementfor the year then ended,and asummaryof statements in order to designaudit procedures thatare significantaccounting policies and other explanatory appropriate in the circumstances,but not forthe purpose notes.The financial statements as of and forthe year of expressing an opinion on the effectiveness of the en- ended December 31, 2006 were audited by another audi- tity’sinternal control. torwho has expressed an unqualified opinion on his reportdated April2,2007. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of ac- Managementresponsibilityfor the financial statement counting estimatesmade by the Management, as well as evaluating the overall presentation of the financial state- TheManagementisresponsible forthe preparation and ments. fair presentation of these financial statements in accordancewith International Financial Reporting Standards as We believethatthe audit evidencewehaveobtained is adopted by the European Union. This responsibility sufficientand appropriate to provide abasis forour audit includes: designing,implementing and maintaining opinion. internal controlrelevanttothe preparation and fair presentation of financial statements thatare free from Opinion material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; In our opinion, the financial statements give atrue and and making accounting estimatesthatare reasonable in fair view of the financial position of European Investment the circumstances. Fund as of December 31, 2007, and of its financial per- formanceand its cash flows forthe year then ended in Responsibilityofthe“Réviseur d’Entreprises” accordancewith International Financial Reporting Stand- ards as adopted by the European Union. Ourresponsibilityistoexpress an opinion on these financial statements based on our audit.Weconductedour ERNST &YOUNG audit in accordancewith International Standards on Société Anonyme Auditing as adopted by the “Institut des Réviseurs Réviseur d’Entreprises d’Entreprises”.Those standards requirethatwecomply with ethical requirements and plan and perform the au- Luxembourg, 12 March 2008 dit to obtain reasonable assurancewhether the financial statements arefreefrommaterial misstatement.

An audit involves performing procedures to obtain audit evidenceabout the amounts and disclosures in the financial statements.The procedures selecteddepend on the judgementofthe“Réviseur d’Entreprises”,including Alain KINSCH EIF – Financial Statements 181 EIB Group

StatementbyThe Audit Board

TheAudit Board, set up pursuanttoarticle 22 of the Stat- considering Articles 17, 18 and 19 of the Rules of Procedure, utes of the European InvestmentFund (EIF) to audit annually the accounts of the EIF herebyconfirms

• having designatedERNST &YOUNG Société Anonyme • thatthe financial operations of the EIF have been car- Réviseur d’Entreprises as external auditor of the ried out in compliancewith the formalities and pro- Fund, cedures laid down in the Statutes,the Rules of Procedureand the guidelines and directives from • acting in accordancewith the customarystandards of time to time adopted by the BoardofDirectors; the audit profession, • thatthe financial statements,comprising the balance • having studied the financial statements and such sheet,income statements,cash flowstatement, state- documents which it deemed necessarytoexamine in mentofchanges in equity, and notes to the accounts the discharge of its duties, of theEuropean InvestmentFund,giveatrue and fair view of the financial position of the EIF in respectof • having examined and discussed the reportdated 12 its assets and liabilities,and of the results of its opera- March2008 drawnupbyERNST &YOUNG Société tions forthe financial year under review. Anonyme Réviseur d’Entreprises,

• noting thatthis reportgives an unqualified opinion on the financial statements of ElF forthe financial period ending 31 December 2007,

Luxembourg, 12 March 2008 TheAudit Board

Raimundo Poveda AnadónChristian-Johann Rákos Tony Murphy EIB Group 182 Financial Report2007

Balancesheet as at 31 December 2007 (expressed in EUR)

Notes31.12.2007 31.12.2006

ASSETS Cash and cash equivalents 4.1 291 604 538 52 866 663 Investments: Debt securities and other fixed income securities 4.2 522 470 401 517 033 602 Shares and other variable income securities 4.3 167 876 521 133 668 178 690 346 922 650 701 780 Guarantees operations 3.5 Financial guarantees receivables 48 592 549 38 281 429 Derivatives 435 130 145 529 49 027 679 38 426 958 Other assets 4.6 33 072 223 19 922 245 Intangible assets 4.4 1161 484 831 630 Property,plantand equipment4.5 8245 595 8611 983

TOTAL ASSETS 1073 458 441 771 361 259

LIABILITIES Financial liabilities 5.1 Financial guarantees payables 63 430 281 56 907 239 Derivatives 2014 394 1289 229 65 444 675 58 196 468 Retirementbenefit obligations 5.2 13 232 407 10 178 908 Other liabilities 5.3 9416 044 10 466 196

Total Liabilities 88 093 126 78 841 572

EQUITY Sharecapital 5.4 Subscribed 2770 000 000 2000 000 000 Uncalled (2 216 000 000) (1 600 000 000) 554 000 000 400 000 000 SharePremium 117 909 669 12 770 142 Statutoryreserve 5.5 104 329 810 84 899 624 Retained earnings 5.5 136 353 969 126 638 689 Fair value reserve 5.6 22 369 530 19 635 766 Profit forthe financial year 5.5 50 402 337 48 575 466

TOTAL EQUITY985 365 315 692 519 687

TOTAL EQUITYand LIABILITIES 1073 458 441 771 361 259

Thenotes on pages 186 to 225 areanintegralpartofthese financial statements. EIF – Financial Statements 183 EIB Group

Income statement forthe year ended 31 December 2007 (expressed in EUR)

Notes31.12.2007 31.12.2006

Net interest and similar income 8.1 30 231 070 23 645 288 Income from securities Income from investments in shares and other variable income securities 4.3 6674 654 6902 149 Net income from guarantees operations 8.2 21 349 024 16 288 735 Commission income 8.3 29 072 382 26 277 510 Net loss on financial operations 8.4 (1 908 880) (524 335) Other operating income 18 955 9062 General administrativeexpenses 8.5 Staff costs: -wages and salaries (17 317 160) (14 614 519) -social securitycosts (2 130 900) (1 123 415) (19 448 060) (15 737 934) Other administrativeexpenses (6 665 063) (5 862 253) (26 113 123) (21 600 187) Depreciation of property,plantand equipmentand intangible assets 4.4 &4.5 (1 219 062) (1 277 236) Impairmentlosses on available-for-sale investments 4.2 &4.3 (7 702 683) (1 145 520)

Profit forthe financial year 50 402 337 48 575 466

Thenotes on pages 186 to 225 areanintegralpartofthese financial statements. EIB Group 184 Financial Report2007

Cash Flow Statement forthe year ended 31 December 2007 (expressed in EUR)

Notes31.12.2007 31.12.2006

A. Cash Flow from Operating Activites: Profit forthe financial year (*) 50 402 337 48 575 466 Increase /(decrease) in accrued interest on debt securities 4.2 465 186 (409 283) Interest received from debt securities (17 648 283) (11 590 400) Impairmentondebt securities and other fixed income securities 4.2 197 156 0 Increase in shares &other variable income securities 4.3 (28 789 755) (18 381 494) Impairmentonshares &other variable income securities 4.3 8393 697 1121 222 Depreciation forintangible assets,property,plantand equipment4.4; 4.5 1219 062 1277 236 Increase in Other assets 4.6 (13 149 978) (4 739 287) Increase in retirementfor benefit obligations 5.2 3053 499 2074 474 Decrease effectiveinterest on debt securities portfolio (4 187 074) (269 688) Decrease /Increase in Other liabilities 5.3 (1 050 152) 4192 453 Decrease in amortisation of financial guarantees (3 788 076) (1 705 378) Increase /(decrease) in fair value of Derivatives 435 564 (4 029 930) Net Cash from Operating Activities (4 446 817) 16 115 391 B. Cash Flow from Investing activities Purchase of intangible assets 4.4 (892 952) (292 856) Net movements on purchase of property,plantand equipment4.5 (289 576) (319 987) Interest received from debt securities 17 648 283 11 590 400 Increases in debt securities &other fixed income securities (12 990 590) (30 304 066) Net Cash from Investing Activities 3475 165 (19 326 509) C. Cash Flow from Financing Activities Dividends paid 5.5 (19 430 000) (17 144 000) Capital increase 259 139 527 0 Net Cash from Financing Activities 239 709 527 (17 144 000)

SummarystatementofCash Flows: Cash &cash equivalents at beginning of financial year 52 866 663 73 221 781 Net Cash from: Operating activities (4 446 817) 16 115 391 Investing activities 3475 165 (19 326 509) Financing activities 239 709 527 (17 144 000) Cash &cash equivalents at the end of financial year 4.1 291 604 538 52 866 663 (*) Profit forthe financial year includes dividends received of EUR 6674 654 (2006: EUR 6902 149)

Thenotes on pages 186 to 225 areanintegralpartofthese financial statements. EIF – Financial Statements 185 EIB Group tal uity To Eq 09 831) 733 764 67 259 139 527 (19 430 000) 0( 02 re he fo rt be fo ar fit 48 575 466 48 575 466 50 402 337 50 402 337 36 747 573) (17 144 000) Ye (48 575 466) propriation Pro Ap 0 0( 00 ve lue va 09 830) 733 764 ir Reser 67 Fa 02 0( 15 280 59 226 Earnings Retained 97 24 00 ve utory at Reser St 19 430 186 17 144 346 are Sh mium Pre are pital Sh Ca 400 000 000 12 770 142 67 755 278 124 179 463400 000 26 000 345 596 12 770 142 36 747 573 84 899 624 667 798 052 126 638 689 19 635 766554 000 000 48 575 466 117 909 669 104 692 329 519 810 687 136 353 969 22 369 530 50 402 337 985 365 315 ments. te pital llable Ca Ca (1 600 000 000) 0000000 0000000 00000 00000 0000 0000 uity pital hese financial sta Ca Eq 00 000 000 (1 600 000 000) 70 000 000 (2 216 000 000) toft 00 000 000 Subscribed ar 20 27 20 lp ra te 5.6 5.5 5.4 770 000 000 (616 000 000) 154 000 000 105 139 527 eg No nt eani hanges in mber 2007 (expressed in EUR) 225 ar profit ’s profit ce to ’s ar De ar ye tofC ye ar ar 1/12/2006 1/12/2007 1/01/2006 ve ve Ye Ye ser ser men ar ended 31 re re he he rt rt ye easat3 easat3 easat0 ssue lue lue fo fo otes on pages 186 ividend ividend ei va va ate he .d propriation of prior .d propriation of prior lanc lanc lanc ir ir en ofit ofit rt Ba Ba inc Pr Pr inc Ba Fa Fa Ap Ap Shar fo St Th EIB Group 186 Financial Report2007

European InvestmentFund Notes to the accounts forthe year ended 31 December 2007 (expressed in EUR)

1. General “previous GAAP”.Since2006, the Fund’s financial state- mentshavebeen prepared in accordancewith Interna- TheEUROPEAN INVESTMENT FUND (hereafterthe “Fund” tional Financial Reporting Strandards,asissued by the or“EIF”)was incorporated on 14 June 1994, in Luxembourg, International Accounting Standards Board(IASB) and as an international financial institution. Theaddress of its endorsed by the European Union (IFRS). registered officeis43, avenue J.F. Kennedy Luxembourg. Thefinancial statements have been prepared under the Theprimarytask of the Fund,while providing adequate historical cost convention, as modified by the revaluation returnonequity, is to contributetothe pursuit of Euro- of available-for-sale financial assets,financial assets and pean Communityobjectives through financial liabilities at fair value through profit or loss including all derivativecontracts which arevalued at • the provision of guarantees to financial institutions fair-value. thatcover credits to small and medium sized entities (”SME”); Thepreparation of financial statements in conformitywith • the acquisition, holding,managing and disposal of IFRS requires the use of certain critical accounting estimates. equityparticipations; It also requires managementtoexercise its judgementin the process of applying the Fund’s policies.The areas involv- • the administration of special resourcesentrusted by ing ahigher degreeofjudgementorcomplexity, or areas thirdparties,and whereassumptions and estimatesare significanttothe fi- • relatedactivities. nancial statements,are disclosed in moredetail below. Use TheFund operates as apartnership of which the members of available information and application of judgementare arethe European InvestmentBank (hereafterthe “EIB”), inherentinthe formation of estimates. Actual results in the the European Union, representedbythe Commission of futurecould differ from such estimatesand the differences the European Communities (the “Commission”), and a maybematerial to the financial statements. group of financial institutions of Member States of the European Union and of one acceding state.The members Statementofcompliance of the Fund shall be liable forthe obligations of the Fund only up to the amountoftheir shareofthe capital subscribed and not paid in. TheFund’s financial statements have been prepared in accordancewith International Financial Reporting Thefinancial year of the Fund runs from January1toDe- Standards (IFRS). cember 31 each year.

2.2. Foreign currencytranslation TheEIB has amajorityshareholding in the Fund.Conse- quently the Fund is included in the consolidatedaccounts of the EIB Group.The consolidatedaccounts maybe TheEuro(EUR) is the functional and presentation cur- obtained from the registered officeofthe EIB at 100, rency. boulevardKonrad Adenauer,L-2950 Luxembourg. Non-monetaryitems,which include “Intangible assets” TheFund’s financial statements have been authorised for and“Tangible assets”denominatedinaforeigncurrency, issue by the BoardofDirectors on 10 March2008. arereportedusing the exchange rate at the date of the transaction (historical cost). Exchange differences on non- 2. Significantaccounting policies and ba- monetaryfinancial assets areacomponentofthe change in their fair value.Depending on the classification of a sis of preparation non-monetaryfinancial asset,exchange differences are either recognized in the income statementorwithin the 2.1. Basis of preparation equityreserves.

TheFund’s Financial statements were until 31 December Monetaryitems,which include all other assets and liabil- 2005 prepared in accordancewith the general principles ities expressed in acurrencyother than EUR arereported of the Council Directiveofthe European Communities using the closing foreignexchange rate ruling on the 86/635/EEC of 8December 1986 as amended by the date of the closureofthe financial statements,asissued Council Directive2001/65/EC of 27 September 2001 relat- by the European CentralBank.The exchange differences ing to the annual accounts and consolidatedaccounts of are recognised in the income statementinthe period in banks and other financial institutions referenced as the whichtheyarise. EIF – Financial Statements 187 EIB Group

Income and charges in foreigncurrencies aretranslated differencebetween the acquisition cost and the current into EUR at the exchange rate ruling on the date of the fair value,less anyimpairmentloss on thatfinancial asset transaction. previously recognised in the income statement – is removedfromreservesand recognised in the income statement. Impairmentlosses on equityinstruments pre- 2.3. Investments viously recognised in the income statementare not reversed through the income statement. In contrast,ifina 2.3.1. Classification and Measurement subsequentperiod,the fair value of adebt instrument classified as AFSincreases and the increase can be objec- Classification tively relatedtoanevent occurring afterthe impairment loss wasrecognised,the impairmentloss is reversed TheFund classifies the investments in debt securities and through the income statement. shares in the categoryAvailable ForSale financial assets (“AFS”). Theclassification of the investments is deter- 2.3.2. Investments in shares and other variable in- mined at initial recognition. come securities

AFS financial assets arenon-derivativefinancial instru- Investments in venturecapital funds areincluded in ments thatare either designatedinthis categoryatinitial “Shares and other variable income securities”.They are recognition or not classified in anyother categories. acquired forthe longer term in the normal course of the Fund’s activities. Initial recognition and derecognition a) Categories of venture capital investments: Purchases and sales of AFS financial assets areinitially recognised on trade-date. They areinitially recognised at Fair value considerations: fair value plus transaction costs.Fair value consideration is explained in the section below. Under the valuation technique,the fair value of venture capital funds is achieved by applying the aggregatedNet Financial assets arederecognised when the righttore- Asset Value (NAV) method.This valuation method implic- ceivecash flows from the financial assets has expired or itly assumes thatifthe NAVs of underlying funds can be wherethe EIF has substantially transferredall risks and considered as equivalenttothe fair value as determined rewardsofownership. under IAS 39, then the aggregation of the NAVs of all funds will itself be equivalenttothe fair value as deter- Subsequent measurement mined under IAS 39. If IAS 39 rules have not been fol- lowed, other guidelines mightbeacceptable (for example AFS financial assets aresubsequently measured at fair the international privateequityand venturecapital valu- value.Changes in fair value of financial assets classified ation guidelines,IPEVCVG, as established by the EVCA, as AFS aredirectly recognised in the fair value reserve in the BVCA and AFIC)which will need moredetailed mon- the equitysection of the balancesheet,until the financial itoring and review. asset is derecognised or impaired.Atthis time,the cumu- lativegain or loss previously recognised in equityisrec- In accordancewith this method,the funds areclassified ognised in income statement. into three categories:

Interest on AFS debt securities and other fixed income • CategoryI–funds thathaveadopted the fair value securities is calculatedusing the effectiveinterest method requirements of IAS 39 or IPEVCVG forwhich aspe- is recognised in the income statements.Dividends on eq- cific review is performed to ensurethatthe NAVisa uityinvestments arerecognised in the income statement reliable estimation of fair value. when the Fund’s righttoreceivepaymentisestablished. • CategoryII–funds thathaveadopted other valuation guidelines (such as the former 2001 EVCA)orstand- Differences from currencytranslation from non-monetary ards thatcan be considered as in line with IAS 39 a items,such as equityinstruments,are recognised in the specific review is performed to ensurethatthe NAVis fair value reserve in equity. areliable estimation of fair value. • CategoryIII –funds thathavenot adopted the fair Impairment of financial assets value requirements of IAS 39 or anyother valuation guidelines in line with IAS 39. EIF assesses at each balancesheet date whether thereis objectiveevidencethatafinancial asset or agroup of fi- b) Impairment considerations: nancial assets is impaired.For equitysecurities,asignificantorprolonged decline in the fair value of the security Thefund’s valuation committee assesses unrealized loss- belowits cost is considered in determining whether the es forimpairment, unrealised gains resulting from the fair securities areimpaired.Ifany such evidenceexists forAFS value measurementare recognised in fair value reserve financial assets,the cumulativeloss – measured as the and unrealised losses forimpairmentsoastodetermine EIB Group 188 Financial Report2007

whether they arerecognised as impairmentlosses in the under this exemption. In this case,the holding in the joint income statementoraschanges in the fair value reserve. ventures areupon initial recognition designatedasatfair Thedecline in value will be estimatedassignificantor value through profit and loss and measured at fair value in prolonged only when funds aregraded P-D. accordancetoIAS 39, with changes in fair value recognised in profit and loss in the period of the change. Investments belonging to categoryIII arevalued at cost less impairmentwith anyunrealised losses booked 2.4. Classification and measurementofguaranteeop- through profit and loss.Ifaninvestmentisdeemed to be erations impaired as reflectedinoperational status grades OC-OD the amountofimpairmentiscalculatedbased on amatrix of fixed impairmentpercentages in tranches of 25%de- Initial recognition and classification pending on the operational and performancegrading of the respectivefunds. EIFhas undertaken aclassification analysis of each guar- anteecontracttodetermine if the definition of afinancial Thefair value attributable NAVisdetermined through ap- guaranteeinaccordancewith IAS 39.9 is fulfilled.Finan- plying either the Fund’s percentage ownership in the cial guaranteecontracts arecontracts thatrequirethe underlying vehicle to the net asset value reflectedinthe issuer to make specified payments to reimburse the hold- most recent reportor, to the extent available,the precise er foraloss it incurs because aspecified debtor fails to sharevalue at the same date,submitted by the respective make payments when due in accordancewith the terms Fund Manager.Inorder to bridge the interval between of adebt instrument. If one of the definition criteria is not the last available NAVand the year-end reporting period, met,the contract is considered as aderivative. amonitoring procedureisperformed and if necessarythe reportedNAV is adjusted. In accordancewith the classification, the guarantees contracts areclassified either as financial guarantees or as 2.3.3. Investments in debt securities and other fixed derivatives. income securities Financial guarantees measurement: Debt securities and other fixed-income securities are categorised as follows: Financial guarantees areinitially recognised at fair value plus transaction costs thatare directly attributable to the • floating rate notes with maturities exceeding one year issuanceofthe financial guarantees.Atinitial recognition, and fixed rate noteother than commercial papers are the fair value corresponds to the Net PresentValue (NPV) included in the“InvestmentPortfolio”. of expectedpremium inflows.EIF has developed amod- • floating rate notes and commercial paper with matu- el to estimate the NPV.This calculation is performed at rities of less than one year areincluded in the “Short the starting date of each transaction and is recognised term portfolio”. in the asset side as“Financial Guarantees receivables”and in the liabilities side as“Financial guarantees payables”. Securities held by the Fund areall listed on arecognised market.Consequently,the fair value of financial instru- Subsequenttoinitial recognition, the EIF’s liabilities under ments is based on bid prices at the balancesheet date. such guarantees aremeasured at the higher of:

Premiums paid over the maturityvalue,discounts received • the amountdetermined in accordancewith IAS 37 Provi- in comparison to the maturityvalue of securities and inter- sions,Contingentliabilities and ContingentAssets; and ests on securities arecalculatedusing the effectiveinterest • the amountinitially recognised less,when appropri- method and arerecognised in the income statement. ate, cumulativeamortisation recognised in accordancewith IAS 18 Revenue. 2.3.4. InvestmentinInterest in JointVentures EIF’samortisation of the amountinitially recognised is in Jointventures arecontractual agreements wherebyEIF line with the risk profile of the transactions,namely aslow and other parties undertake an economic activitythat linear amortisation over the first twothirdofthe Weight- is subjecttojointcontrol.The jointcontrol is the con- ed Average Life(WAL) of the transaction, followedby tractually agreed sharing of controloveraneconomic aquicker linear amortisation down to zero at expected activity, and exists only when the strategic financial and maturitydate. operating decisions relating to the activityrequirethe unanimous consentofthe parties sharing the control Thebest estimate of expenditureisdetermined in accord- (the venturers). ancewith IAS 37 (provisions,contingentliabilities and contingentassets). Guaranteeprovisions correspond to Investments in ajointventureshall be accountedfor using the cost of settling the obligation, the expectedloss, proportionate consolidation, or,the equitymethod.How- which is estimatedbased on all relevantfactors and in- ever,asanalternative, EIF has electedtouse the venture formation existing at the balancesheet date. capital and similar entities exemption and not consolidate EIF – Financial Statements 189 EIB Group

Anyincrease or decrease in the liabilityrelating to finan- 2.5.2. Property, Plantand Equipment cial guarantees is taken to the income statementunder “Net income from guarantees operations”. Property,plantand equipmentinclude buildings and other machines and equipment; they arestatedatcost Derivatives measurement: minus accumulatedamortisation and impairmentlosses. Property,plantand equipmentare reviewed forindica- Guaranteetransactions,which do not comply with the tions of impairmentatthe balancesheet date. definition of afinancial guaranteecontract, areregarded as derivatives in termsofIAS 39. Aderivativeisafinancial Amortisation is calculatedonastraight-line basis over the instrumentorother contract whereits value changes in following estimateduseful lives: response to the change in aspecified underlying,itre- • Buildings: 30 years quires no initial net investmentoraninitial net invest- mentthatissmaller than would be required forother • Fixtures and Fittings: 3to10years types of contractsthatwould be expectedtohavea • OfficeEquipment: 3to5years similar response to changes in market factors; and it is • Computer Equipmentand Vehicles: 3years settled at afuturedate. At initial recognition and subse- quentmeasurement, derivatives aremeasured at fair value.The best approach forfair value will in this case be 2.6. Employeebenefits the market price. However, operations in which EIF actas guarantors aretypically illiquid.HenceEIF has derived a 2.6.1. Post-employmentbenefits measurementbased on an alternativevaluation technique using as much market information as possible.The Pension fund fair value of derivatives equals to the net of the NPV of expectedpremium inflowand the cost of settling the TheEIF operates an unfunded pension plan of the defined exposure. benefit type as defined by IFRS, providing retirement benefits based on final salary. Thecost of providing this At initial measurement, the fair value equals zero.Subse- benefit is calculatedusing the projectedunit credit actu- quenttoinitial measurement, derivatives arere-measured arial valuation method. to fair value at each balancesheet date.All derivatives are carried as financial assets when fair value is positiveand Actuarial gains and losses have been recognised using a as financial liabilities when fair value is negative. Gains and faster method than the corridor approach, thatisgains losses arising from changes in the fair value of derivatives and losses areamortised over the average remaining areimmediately recognised in the income statement. working lifeofthe population through the profit and loss account.

2.5.Property, plantand equipmentand Intangible as- TheFund’s defined benefit scheme wasinitiatedinMarch sets 2003 to replacethe previous defined contribution scheme.The scheme is funded by contributions from 2.5.1. Intangible Assets staff and the EIF.These funds aretransferredtothe EIB formanagementwith the Bank’s ownassets and appear Intangible assets arecomposed of internally generated on the Fund’s balancesheet as an asset under the cap- softwareand purchased computer software, and they are tion“other assets”. accountedfor at cost net of accumulatedamortisation and of impairmentlosses. Thecharge forthe year,actuarial gains and losses,and the total defined benefit obligation arecalculatedannually Directcosts associatedwith the developmentofsoftware by qualified external actuaries. arecapitalised provided thatthose costs areseparately identifiable,thatthe softwareprovides afuturebenefit Health insurancescheme to the Fund and the cost can be reliably measured.Main- tenancecosts arerecognised as expenses during the pe- TheFund has subscribed to ahealth insurancescheme riod in which they occur.However costs to develop with an insurancecompanyfor the benefit of staff at retire- additional functionalities arerecognised as separatein- mentage,financed by contributions from the Fund and its tangible assets.Intangible assets arereviewed forindica- employees.The entitlementisofadefined benefit type tors of impairmentatthe balancesheet date. and is based on the employeeremaining in serviceupto retirementage and the completion of aminimum service Intangible assets areamortised using the straight-line period.The expectedcosts of this benefit areaccrued over method over the following estimateduseful lives: the period of employment, using amethodology similar to thatfor defined benefit pension plans.The health insur- • Internally developed software: 3years anceliabilities aredetermined based on actuarial calcula- • Software:2to 5years tions as per the same datesasthe pension fund. EIB Group 190 Financial Report2007

2.6.2. Shortterm employeebenefits 2.11. Leases

Employeeentitlements to annual leave arerecognised Theleases enteredintobyEIF as alessee areoperating when they accrue to employees.Aprovision is made for leases under which all the risks and benefits of ownership the estimatedliabilityfor outstanding annual leave as a areeffectively retained by the lessor.Payments made un- result of services rendered by employees up to the bal- der operating leases arecharged to the income statement ancesheet date. on astraight-line basis over the period of the lease.

2.6.3. Other long-term employeebenefits When an operating lease is terminatedbeforethe lease period has expired,any paymentrequired to be made to An accrual forother long-termemployeebenefit costs the lessor by wayofpenaltyisrecognised as an expense relating to the period is included in the Income statement in the period in which termination takes place. under caption“Staff Costs”,resulting in aprovision forthe estimatedliabilityatthe balancesheet date. 2.12. Accounting Estimatesand Judgements

2.7. Interest income and expenses Thepreparation of financial statements in conformity with IFRS requires the use of certain accounting estimates. Interest income and interest expense arerecognised in TheEIF makes estimatesand assumptions thataffectthe the income statementfor all interest bearing instruments reportedamounts of assets and liabilities within the next on an accrual basis using the effectiveinterest method financialyear.Estimatesand judgments arecontinually based on the actual purchase priceincluding directtrans- evaluatedand based on historical experienceand other action costs.This is amethod of calculating the amortised factors.Actual results maydiffer from those estimates cost of afinancial asset and allocating the interest income and judgmental decisions. over the relevantperiod.The effectiveinterest rate is the rate thatexactly discounts estimatedfuturecash receipts Judgements and estimatesare principally made in the through the expectedlifeofthe financial instrumentto following areas: thenet carrying amountofthe financial asset. • Impairmentofavailable-for-sale equityinvestments (see note2.3.1); 2.8. Income from Guarantees operations • Determination of fair values of equityinvestments (see note2.3.2); Income from guarantees operations and guarantees com- • Determination of the values of financial guarantees missions mainly includes: and the fair value of derivatives (see note2.4); • Guarantees commissions received on derivatives con- • Provision forrisk on guaranteeoperations; tracts and net income arising from changes in the fair • Actuaries’assumptions relatedtothe measurement value of derivatives; of pension liabilities (see note2.6.1 and 5.2). • Interest income on the discounting of the expected premium inflows and anydecrease in the liabilityre- 2.13. NewStandards lating to financial guarantees payables contracts(due to amortisation of the initially recognised amount). Theaccounting policies adopted areconsistentwith those of the previous financial year except as follows: 2.9. Feeand commission income TheFund has adopted the following new and amended IFRS This section is mainly made-up of fees and commissions and IFRIC interpretations during the year.Adoption of these on mandates and advisoryactivities. revised standards and interpretations did not have anyef- fect on the financial performanceorposition of the Fund. Fees and commissions aregenerally recognised on an ac- They did howevergiverise to additional disclosures. crual basis when the servicehas been provided.Portfolio and managementadvisoryand servicefees arerecog- • IFRS 7Financial Instruments: Disclosures nised based on the applicable servicecontracts,usually • IAS 1Amendment-Presentation of Financial State- on atime-apportionate basis.Asset managementfees ments relatedtoinvestmentfunds arerecognised rateably over the period in which the serviceisprovided. Theprincipal effects of these changes areasfollows:

IFRS 7Financial Instruments: Disclosures: 2.10. Dividend income This standardrequires disclosures thatenable users of the Dividends arerecognised in the income statementwhen financial statements to evaluate the significanceofthe the entity’srighttoreceivepaymentisestablished. Fund’s financial instruments and the natureand extent of EIF – Financial Statements 191 EIB Group

risks arising from those financial instruments.The new capital and forportfolio guarantees &securitisation ac- disclosures areincluded throughout the financial state- tivities.Each of these encompasses aRisk Management ments.While therehas been no effectonthe financial team and an Administration and Monitoring team, add- position or results,comparativeinformation has been ing to atotal of four teams within RMM. RMM covers own revised whereneeded. resources, fully public mandates(RCM, G&E,SME GF (1998, 2001, 2007), Jeremie,ERP Dachfonds), and non-fully pub- IAS 1Presentation of Financial Statements: lic mandates(Dahlia, Neotec).

This amendmentrequires the Fund to make new disclo- In general,RMM’s functions comprehend the collection of sures to enable users of the financial statements to evalu- information (information gathering,checking,and input- atethe Fund’s objectives,policies and processes for ting), the aggregation and analysis of information managing capital.These new disclosures areshown in (assessmentoffinancial risks,valuations,and cash flow Note5.4 and 5.5 of the financial statement. projections),risk reporting,and advice. Themain challenges andlimitations to fulfil these functions arethe complex- Thefollowing new standards were issued with an effective ityofstructureoftransactions in relatively opaque markets, date forfinancial periods beginning on or after1January the absenceoftransparentmarket values,and the long- 2007 butare notapplicabletothe Fund: term natureofthe business (up to 10 years and more).

• IFRIC 8Scope of IFRS 2 Generally,EIF aims to controlits financial risks by creat- • IFRIC 9ReassessmentofEmbedded Derivatives ing awell-diversified portfolio within the constraints imposed by shareholders or mandates. Exposures and • IFRIC 10 InterimFinancial Reporting and Impairment risk-taking is monitored against predetermined toler- Thefollowing IFRS and IFRIC interpretations were issued ances as determined by the Boardofdirectors,senior with an effectivedatefor financial periods beginning on managementorasset under mandates. Thebasis foran or after1January2008. TheFund has chosen not to early effectiverisk managementprocess is the identification adopt these standards and interpretations at their effec- and analysis of existing and potential risks inherentin tivedate. When applicable to the Fund,the Fund’s plans anyproduct. to adopt these interpretations at their effectivedateorat the date of endorsementbythe European Union, if later, RMM covers EIF’s VC and portfolio guarantee&securitisa- and does not anticipate anysignificantimpacts on its fi- tion activities,monitors risk regularly on individual trans- nancial statements. actions as well as on aportfolio level,and assesses new and existing transactions.For this purpose,RMM: • IFRS 8Operating Segments • IFRIC 11 IFRS 2-Group and TreasuryShareTransactions • reviewsthe risk managementmethodologies,processes,and instruments used in Investments; • IFRIC 12 ServiceConcession Arrangements • issues independentopinions on all transaction pro- • IFRIC 13 Customer LoyaltyProgrammes posals; • IFRIC 14 IAS 19 – TheLimit on aDefined Benefit Asset, • independently reviewsinternal ratings (portfolio guar- Minimum Funding Requirements and their Interaction antees)/grades (VC) assigned by Investments; and • IAS 23 – Amendment – Borrowing costs • checks limits.

3.2. VentureCapital 3. Financial Risk Management 3.2.1. Background: 3.1. OverviewofEIF Risk Management Forits venturecapital business,overthe last years,EIF EIF alignsits risk managementsystems to changing eco- staff has developed atool-set to design, manage and nomic conditions and evolving regulatory standards.It monitor portfolios tailored to the dynamics of this market thereforeadapts them on an ongoing basis as best mar- place, going beyond the typical and often-simplistic rec- ket practices develop.Credit,market and operational ipe of investing only in topquartile funds.This tool-set is systems areinplacetocontrol and reportonthe main basedonaninternal model,the Grading-based Econom- risks inherenttoits operations. ic Model (“GEM”), which allows EIF to better assess and verify funds’valuations and expectedperformances.This Risk Managementand Monitoring (RMM) independently effortsupportedbythe developmentofaproprietaryIT reports directly to the Chief Executive. This segregation system and an integratedsoftware(fronttoback) im- of duties and the “four-eyes” principle ensures an unbi- proves the investmentdecision process and the manage- ased review of EIF’s business activities.Moreover, within mentofportfolio’s financial risks and of liquidities. the EIB Group context, RMM operates in close contact with the European InvestmentBank’s Risk Management Interaction between Investments and risk management Directorate.RMM is divided into twomain areas: venture includes flash reports to highlight“hot spots”in the port- EIB Group 192 Financial Report2007

folio and an internal grading methodology to determine the monitoring coverage and intensityaswell as the range for the expectedperformance.

Thegrading is defined as follows:

Expectedperformancegrade

P-AAtthe time of the grading the fund’s rank falls into the first quartile of the peer group.

P-BAtthe time of the grading the fund’s rank falls into the second quartile of the peer group.

P-CAtthe time of the grading the fund’s rank falls into the thirdquartile of the peer group.

P-DAtthe time of the grading the fund’s rank falls into the fourth quartile of the peer group.

Operational Status Grade

O-ANoadverse signals or information so far.

O-BPresenceofsignals or information that – if no appropriate measures arequickly put in place – would be atypical forafirst quartile fund.Absenceofsignals or information thatwould be inconsistentwith an expectedsecond quartile performance. O-C Presenceofsignals or information that – if no appropriate measures arequickly put in place – would be atypical foranabove average fund.Absenceofsignals or information thatwould be inconsistentwith an expectedthirdquartile performance. O-DEventsthatifnoappropriate measures arequickly put in place, will result in asub-standardperform- anceoreveninafailureorcollapse of the privateequityfund.

Valuation reviewunder IFRS 3.2.2. Portfolio overview: Part of the monitoring is the valuation review forventure Under its venturecapital operations,EIF is afund of funds, capital funds under IFRS. This process includes different taking equityparticipations in funds.The dearth of avail- steps to get whatiscalled Operational Adjustment: able funds forventurecapital financing makes EIF’s role particularly meaningful in this area. EIF’s minoritystakes • Collecting financial quarterlyreports sentbythe fund in funds have catalyzed commitments from awide range managers as basis forvaluation. of investors.EIF’s venturecapital (“VC”)operations are • Assessing whether valuations areinline with IPEVCVG. mainly focused on early-stage and seed capital,with 40% EIF produces monitoring templatesthatcapture of the portfolio destined forinvestments at those stages events relevantfor valuation, such as: in 2007. However, the portfolio is also expanding in well- established mid- and later-stage investments,which, gen- • “Flash reviews”of regular financial reporting received erally speaking,havealower risk profile. from venturecapital funds. • Monitoring visits. Allmandates • Anysignificantinformation with potential evaluation impact. At the end of 2007, the EIF’s total venturecapital investments amountedtoEUR 4.4 billion in termsofsignatures. • Subsequentevents. Theinvestments were made in 273 funds and helped mo- • Classification of funds: depending on the outcome of bilizetotal capital of over EUR 26 billion with other inves- the monitoring described above,funds will be judged tors.The majorityofEIF’s venturecapital activities are as IFRS compliantornot.Following the analysis per- carried out on behalf of the EIB under the EUR 4billion formed above,the funds areclassified into three cat- Risk Capital Mandate (RCM). Total signatures using EIB egories as described in note2.3.2. resourcesreached about EUR 3.5 billion. TheFund also • Valuation Committee sign-off:The Valuation Commit- manages venturecapital investments on behalf of the EC teecomprises the Chief Executiveand the Directorof under G&E,MAP and sincerecently CIP mandates. The Operations.Based on the documentation provided cumulativeportfolio thatEIF manages under MAPwas (financial reporting received from venturecapital EUR 314 million at the end of December 2007. funds and monitoring notes) the Valuation Committee has to give its sign-off to validate the classification. TheFund has also put in placejointinvestmentfacilities • Determine impairmentfor CategoryIII based on the with four public and/or privatepartners. gradings of the funds.Apercentage of provisioning is applied to the net paid in. EIF ownresources

As aconclusion, EIF portfolio managementsystems are At the end of 2007, own-risk venturecapital commitment not mechanical exercises,rely on the judgementofexpe- (i.e.commitments giventounderlying funds to invest) rienced staff. amountedtoEUR 413 million. EIF maintains abalanced EIF – Financial Statements 193 EIB Group

portfolio with afocus on technology-orientedearly-stage the profit and loss in case of impairmentorthrough the and general mid- and later-stage funds.EIF does not di- fair value reserve,which formspartofEIF’s shareholder’s rectly acquireparticipations in companies,but instead equity. Consequently,net disbursed own-risk funds (at invests in selectedventurecapital funds,with the private cost) of EUR 164 million (vs. EUR 139 million at the end of sectorinvestors providing at least 50 %ofthe equity. All 2006) arevalued at EUR 168 million in EIF’s 2007 balance investments aredone one apari-passu basis with other sheet (vs. EUR 134 million at the end of 2006). investors,granting then no specific rights (or obligations) to EIF.All of the EIF’s risk existing from its own-risk VC op- 3.2.3. Significanceoffinancial instruments forfinan- erations is fully covered by shareholders’equity. As asub- cial position and performance ceiling,venturecapital commitments maynot exceed 50% of shareholders’equity, equivalenttoEUR 482 602 190 at Activities year-end 2007. Of the EUR 413 million of own-risk funds committed at thattime,EUR 246 million had been In termsofactivities,2007 represents arecordyear forthe disbursed.Venturecapital investments areevaluated EIF venturecapital portfolio.All figures,signatures,dis- quarterlyaccording to the IPEVCVG. Following the meth- bursements and reflows have exceeded historical yearly odology described in the Background part, EIF records figures: value adjustments on aline by line basis,either through

EIF yearly cash flowactivity(EUR m)

Signatures Disbursements Capital Repayments Income &Dividends

70.6 47.6 18.9 6.7

Value adjustments including impairments have increased by EUR 9.5 million.

Theproportion of funds considered as impaired have increased from 10%to16%of the EIF portfolio (see table) based on committed funds.

VentureCapital assets not impaired vs.impaired (EUR m)

Signatures

Funds Dec2006 Dec2007 +/-

Not impaired 317.6 348.0 +9.6%

Impaired 34.9 65.3 +87.1%

Impair.(%ofsign.) 10%16% +6.0%

Diversification TheEIF own-resource portfolio can be considered as well diversified.Asof31December 2007, EIF has committed EUR 413 millions in 155 privateequityfunds with the biggest exposureamounting to EUR 15.0m (4%oftotal signatures). These PE funds have invested in morethan 1000 investees.

In termsofvintage year,sectorand stage the portfolio is well balanced,illustrated by the followings split by signatureas at 31 December 2007: EIB Group 194 Financial Report2007

Vintage year (signatures) in EUR m

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Split per sector(signatures) in percentage Split per stage (signatures) in percentage 5% Special Structure/ FoF 3% 10 % 2% Seed Life Science Balanced PE

20 % Mid-Market PE 23 % 35 % Start-Up/ ICT -Life Science 42 % Early Stage Generalist 10 % (Non-Tech.) Small CapPE

25 % 5% 7% Growth/ ICT 13 % Expansion VC Replacement Balanced VC Capital

Finally,interms of maturity, the EIF portfolio is still young.Its commitmentweightedaverage age has increased from 3.9 years in 2006 to 4.2 years in 2007. EIF – Financial Statements 195 EIB Group

3.3. Portfolio Guarantees &Securitisation • assessing the expectedevolution of each guarantee operation in termsofits performancecompared to ex- ante estimatesset prior to signatureofthe operation; 3.3.1. Background: • assessing whether the level of capital allocation and EIF extends portfolio guarantees to financial intermediar- general provisions made foreach operation areade- ies involved in SME financing,and by taking on the risk quate and to propose,ifdeemed necessary, specific faced by those institutions,ithelps facilitate funding ac- provisions forindividual loss items; cess,and in turn, it helps to financeSMEs. • establishing and maintaining of the Watchlist (for transactions ratedbelowBa2) in accordancewith the Forits guarantee&securitisation business,overthe last internal guidelines (Watch-listed cases requireamore years,EIF staff has developed atool-set to analyse port- importantmonitoring and jointinternal decisions to folio guaranteeand structured financial transactions in be taken by an operational committee consisting of line with best market practices.BeforeEIF enters legally staff from the Guarantees &Securitisation Division, into aguaranteetransaction, Guarantees &Securitisation, RMM and the Legal Service(WatchList Operational within the Investments department, assigns an internal Committee)); rating to each new ownrisk guaranteetransaction in accordancewith the EIF Credit Risk PolicyGuidelines.The • analysis of the GuaranteePortfolio as awhole (Port- rating is based on internal models,which analyse and folio Review); summarise the transaction’s credit quality(expectedloss • on-sitemonitoring visits; concept), considering not only quantitativeparameters • valuation of portfolio guarantees in line with IFRS but also qualitativeaspects. accounting rules (financial guarantees &derivatives).

Capital allocation and pricing arefunctions of the ex- 3.3.2. Portfolio overview: pectedloss,i.e.they arerisk adjusted and consequently vary according to the assigned rating.Overthe past years Of the EUR 11.58 billion (“bn”)guaranteecommitments EIF’s conservativecapital allocation rules have already at the end of December 2007, EUR 4.27bn (of which out- considered the Basel II ideas and will be adjusted in line standing is EUR 3,487 bn) (38 %) arefor “ownrisk” activi- with Basel II. ties.The remaining EUR 7.3bn (62 %) relate to “trust” activities on behalf of the EC. These trust activities include As the rating is based on amodel,RMM – in the course EUR 4.9 bn under MAPand EUR 2.4 bn under the SME of the independentopinion process and in line with the GuaranteeFacility(SME GF) which in turnisunder the Model Review Procedure – conducts amodel review for umbrella of MAP(replaced by CIP in-2008). each new rating,aswell as sample checks of updated ratings.The purpose of this procedureistoreducethe EIF’s own-risk operations arebased on three product model risk and to establish guidelines applicable forthe types: official EIF internal rating models.Itdefines,inter alia, thateach basic model has to be independently reviewed • Credit EnhancementProducts accountedfor 94.6%of within EIF and thatassumptions to adjust basic model total own-risk outstanding guarantees (EUR 3.3bn) as forindividual transactions in the course of the rating of end-2007. Credit enhancementisthe EIF’s core own- process have to be documented, and reviewed by risk guaranteeactivity, accounting forEUR 1.4bn of RMM. own-risk signatures in 2007. Credit enhancementserves as an unconditional debt serviceguarantee(or as a Atransaction is eligible if the assigned rating falls be- credit default), covering aspecific tranche of aSME loan tween Aaa-B1. It is EIF’s intention to maintain an average portfolio,with amaximum weightedaverage term of rating portfolio of minimum Baa3. OnceEIF guarantees a 15 years.The guaranteeiscalled upon oncealoss threshold has been reached in the relevanttranche. particular tranche,the individual internal rating assigned to such atranche is reviewed quarterlyupon closing.Fur- • Credit InsuranceProducts accountedfor 4.9%ofall thermore, the principle of “monitoring by exception” is own-risk outstanding guarantees (EUR 171.2m) as of applied.Ifthereisanevent which could cause an upgrade end-2007. In these cases,the fund guarantees up to or adowngrade of atranche an analysis and further 50%ofaloan or loan portfolio extended to SMEs by review is triggered. afinancial institution. Almost 40 %ofthis portfolio (EUR63m) consists of the Growth and Environment Theguaranteetransactions aremonitored regularly.The Programme sponsored by the EU. monitoring process includes: • Structured InvestmentVehicles accountedfor 0.5% of own-risk outstanding guarantees (EUR 15.7m) at • ongoing risk review of each existing guarantee end-2007. In this instance, the EIF guarantees specific operation; tranches (EUR10m–EUR50m) of SIVs. These funds are • checking complianceofcontractual obligations by set up to make mezzanine or equityinvestments in the relevantcounterparty (e.g.timely reporting,com- SMEs thatwould not normally qualify forbank financ- pliancewith eligibilitycriteria, verification of financial ing and thereforepresentahigher risk than typical covenants,timely paymentoffees due,etc.); special-purpose vehicles. EIB Group 196 Financial Report2007

3.3.3. Significanceoffinancial instruments forfinan- of the portfolio,carrying an average internal rating of cial position and performance ’Ba1’,while the safest guaranteefacilities were credit insurance(’A2’) and credit enhancement(’Baa1’). TheperformanceofEIF’s guaranteeportfolio has been quitestrong because of careful projectselection and a At the end of 2007, 82%ofthe transactions reviewed had keen eyetoavoid excessiverisk. a “neutral” outlook (“performanceasexpected”); 13 %- had apositiveoutlook (“rating upgrade is likely”), and a End of 2007, the qualityofthe overall portfolio relatedto fewtransactions had anegativeoutlook (“possible rating the number of transactions wasatinvestment-grade downgrade”). level (89.2 %against 89.7 %atend-2006). Theweighted average internal rating wasBaa1 (of which 76%was con- Thetotal exposureatrisk (commitmentdeductedofrepay- firmed by rating agencies and the remaining relied on the ments) forEIF’s ownrisk guarantees amounts to EUR 3.607m fund internal rating.). SIVsrepresentedthe riskiest portion with the following split:

Exposureatrisk (commitment WeightedAverage Rating %oftotal minus repayment); in mEUR

2007 2006 2007 2006 2007 2006 Credit EnhancementBaa1 Baa1 3367 2652 93.34%86.90% Credit InsuranceA2A2212 367 5.86%12.00% SIV Ba1 Ba1 25 28 0.70%0.90% Defaulted DD 330.10%0.10%

Total 3607 3050 100.00%99.90%

In 2007, no new contract wasclassified as defaulted. Thetreasuryismanaged in such away as to protectthe Sinceinception, guarantees have been called-upon on value of the paid-in capital to ensureanadequate level 23 deals foratotal amountpaid of EUR16.7m which in of liquiditytomeet possible guaranteecalls,privateeq- aggregatedaccountedfor 0.4%oftotal commitments at uitycommitments and administrativeexpenditureand end-2007. earnareasonable returnonassets invested with due regardtominimisation of risk. Theportfolio’s overall weightedaverage lifewas stabilised at 4.9 years in 2007, compared with 5.2 years at end- 3.4.2. Portfolio overview: 2006. Thetreasuryportfolio is split into four distinctsubport- While EIF’s guaranteeportfolio is still relatively young, folios: meaning thatresults to date maynot be indicativeoffu- tureperformance, no meaningful deterioration of asset • the operational portfolio (containing short-term in- qualityisexpected. struments with amaximum duration of six months); • the investmentportfolio (made up of long-termdebt instruments with amaximum duration of six years); 3.4. Treasury • the hedging portfolio (floating-rateinstruments); 3.4.1. Background: • acash portfolio. Theportfolio’s average maturityis3.79 years (2006: 3.4 Treasurymanagementhas been outsourcedtoEIB under years). atreasurymanagementagreementsigned by both parties and it is carried out according to EIF treasuryguidelines. 3.4.3. Significanceoffinancial instruments forfinancial position and performance EIF’s operations arenot cash driven, and arealmost exclusively based on shareholders’equity, which is the basis for In recent years,the EIF core business has increasingly sur- VC investments and capital allocation forguarantees. passed treasuryasthe main income provider,accounting Consequently,EIF does not borrowfunds. for66%of total income in 2007, down from 68%in2006. EIF – Financial Statements 197 EIB Group

3.5. Natureand extent of risks arising from financial instruments

Thefollowing table provides information relating to the categories of financial instruments:

31.12.2007 Loans and Fair value Available Financial Other Non- Total Fair Receivable through forsale guarantees financial financial value profit and liabilities assets / loss liabilities Cash &cash equivalents 291 604 538 00000291 604 538 291 604 538 Investments: Debt securities and other fixed income securities 00522 470 401 00 0522 470 401 522 470 401 Shares and other variable income securities 01599 263 166 277 258 00 0167 876 521 167 876 521 Guarantee operations Financial guarantees receivables 00048 592 549 0048 592 549 48 592 549 Derivatives 0435 130 0000435 130 435 130 Other assets [note4.6] 19 739 594 000013332 629 33 072 223 33 072 223 Intangible assets 000001161 484 1161 484 1161 484 Property,plantand 000008245 595 8245 595 8245 595 equipment

Total Assets 311 344 132 2034 393 688 747 659 48 592 549 022739 708 1073 458 441 1073 458 441

Financial liabilities: Financial guarantees payables 0060 031 682 03398 599 63 430 281 63 430 281 Derivatives 02014 394 00002014 394 2014 394 Retirementbenefit obligations 0000013232 407 13 232 407 13 232 407 Other liabilities [note5.3] 00001357 583 8058 461 9416 044 9416 044

Total Liabilities 02014 394 060031 682 1357 583 24 689 467 88 093 126 88 093 126

31.12.2006 Loans and Fair value Available Financial Other Non- Total Fair Receivable through forsale guarantees financial financial value profit and liabilities assets / loss liabilities

Total Assets 63 022 731 682 292 650 165 017 38 281 429 019209 789 771 361 258 771 361 258

Total Liabilities 01289 229 050991 539 3456 479 23 104 325 78 841 572 78 841 572 EIB Group 198 Financial Report2007

3.5.1. Credit risk

Credit risk concerns mainly the EIF Guaranteeactivityand,toalesser extent, treasuryinstruments such as fixed income securities and floating rate notes held in the AFS portfolio,commercial papers and deposits.The Fund uses appropriate instruments,policies,and processes to manage the credit risk.

Thetables belowshowthe maximum exposuretocredit risk without taking into accountany collateral(in EUR) :

Split by classes of balancesheet and Offbalancesheet

Maximum Maximum exposure2007 exposure2006

Cash and cash equivalent291 604 538 52 866 663 Investments Debt securities and other fixed income securities 522 470 401 517 033 602 Guarantees operations Financial guarantees payables 60 031 682 50 991 539 Derivatives 1579 264 1143 700

Total BS 875 685 885 622 035 504

Guarantees 3606 967 244 3038 293 307 FiduciaryOperations 10 467 106 367 10 301 018 906 Assets held on behalf of thirdparties 423 136 577 368 776 504

Total OffBS14497 210 188 13 708 088 717

Total Credit Risk Exposure15372 896 074 14 330 124 221

A) Venture Capital

ForEIF ownrisk venturecapital portfolio,thereisnocredit exposureasinvestments arealwaysdone through an equity participation. As such, EIF is only exposed to market risk.

B) Portfolio Guarantees &securitisation

Credit risk arises mainly from EIF’s guaranteetransactions funded by ownresources.

This risk is managed by conservativerisk managementpolicies covered by the statutoryand Credit Risk PolicyGuide- lines.

Thestatutes of the fund limit own-risk guarantees to 3.0x subscribed capital,which amountedtoEUR 3.0 bn at end-2007. Hence, the EUR 4.27 bn committed at end-2007 waswell belowthe statutorylimit of EUR 9.0 bn.

TheEIF Credit Risk PolicyGuidelines ensurethatEIF continues to develop adiversified guaranteeportfolio in termsof productrange,geographic coverage,counterparty exposure, obligor exposure, industryconcentration and also set out thecapital allocation rulesbased on theratings of the exposures.

Concentration risk is limited because of the granular natureofEIF’s transactions; typically the underlying portfolios are highly diversified in termsofsingle obligor concentration, sectors,and also with regardtoregional diversification.

To cover concentration risk,EIF has strictlimits (based on capital allocation) forindividual transactions and on originator level (maximum aggregate exposures fororiginators and originatorgroups).

Endof2007, EIF’soverall ownrisk guaranteeportfolio wasspread over 19 countries.The largest nominal individual coun- trynet exposures were Italy,Belgium, Germanyand UK,which jointly accountedfor 51 %oftotal guaranteecommitments. EIF – Financial Statements 199 EIB Group

OwnFunds guarantees: Exposures at risk by countryend-2007:

CountryCcy 2007 EUR m2007 share2006 share

Austria EUR 40.1%0.2% Belgium EUR 473 13.1%7.0% Bulgaria EUR 50 1.4%1.6% DenmarkDKK;EUR 164 4.5%3.3% Finland EUR 17 0.5%0.7% FranceEUR 60 1.7%1.6% GermanyEUR 379 10.5%15.1% GreeceEUR 61 1.7%1.6% Ireland EUR 40.1%0.1% Italy EUR 495 13.7%19.7% LuxembourgEUR 00.0%0.0% Netherlands EUR 144 4.0%1.3% Non EU EUR 20 0.5%0.6% PanEU&Multi EUR 527 14.6%15.0% Poland PLN 79 2.2%1.8% Portugal EUR 279 7.7%8.7% Spain EUR 228 6.3%8.1% Sweden SEK 144 4.0%5.0% United Kingdom GBP;EUR 480 13.3%8.6%

TOTAL 3607 100%100%

Compensating controls track exposures on asectoralba- performsadditional on-sitemonitoring visits to ensure sis: in the contextofEIF’s ownrisk guarantee&securitisa- compliancewith procedures and processes during the tion operations,industrysectorexposures areanalysed transaction life. Stress-test scenarios forthe portfolio of on adeal-by-deal basis through their impactonthe rat- guarantees,including extreme case assumptions,are car- ings assigned by EIF to each transaction/tranche.For in- ried out onceayear to determine the abilityofthe capital stance, dependentonthe financial model to analyse the base to sustain adverse shocks. transaction, sectorexposures can be reflectedindiver- sityscoresorcan be indirectly captured through the as- Actual performanceonthe guaranteeoperations to date sumption on default rate volatility, as akey model input has been very satisfactory,reflecting the high credit qual- variable.Inaddition, sectorexposures areanalysed in the ityofexposures,the diversification of assets and the contextofeach deal using qualitativemeasures such as granularityofthe portfolio. current status and forecast forsectors with high concentrations in the portfolio.Exceptionally,some deals have a C) Treasury concentrated exposureinthe same (broad) sector. This is typically captured through increased credit enhancement TheFund is exposed to residual credit risk relating to its (e.g.subordination) to the benefit of EIF.Typically,deals liquid assets portfolio.However,the EIF adheres to con- with replenishing features have portfolio criteria, such as servativecredit investmentguidelines and internal limits. maximum single obligor,maximum top5obligors,and Foreach portfolio under the EIF’s management, the eligi- maximum industryconcentration levels.All together help bilitycriteriafor counterparts arefixed according to their to model industryconcentration and portfolio correlation. natureand credit quality(as measured by their external Furthermore, the consideration of sectorexposures is agencyrating), while limits arefixed according to coun- partofEIF’s overall portfolio analysis. terparts’own funds.

Counterparty risk is mitigatedbythe qualityofEIF coun- Anycurrencyarbitrage not directly required to carry out terparties which areusually major market players.EIF EIF’s operations is ruled out by the statutes. EIB Group 200 Financial Report2007

Thefollowing tables outline the credit qualitybyinvestmentgrade of the Fund’s debt securities as on 31 December 2007 and2006, basedonexternal ratings.Figures arepresentedwithout accrued interests.

AFS -Debt securities and other fixed income securities 31.12.2007 31.12.2006

Rating AmountinEUR In percentage AmountinEUR In percentage

AAA 379 388 527 74.18%348 853 074 69.01% AA1 12 541 320 2.45%17609 306 3.48% AA2 23 278 108 4.55%54620 328 10.80% AA3 38 649 549 7.56%15303 760 3.03% AA+ 00.00%5488 722 1.09% A1 11 247 280 2.20%00.00% A2 41 417 450 8.10%38915 833 7.70% A3 00.00%10026 260 1.98% BAA1 4811 728 0.94%00.00% NR * 98 579 0.02%4743 997 0.94% P1** 00.00%9969 276 1.97%

Total 511 432 541 100%505 530 556 100%

(*) Non-rated (**) Short-term rating,equivalentof(Aaa-A2) EIF – Financial Statements 201 EIB Group

3.5.2. Liquidityrisk

Theliquidityrisk is closely relatedtothe Fund’s solvencyand to the confidencethatcreditors have in the Fund to meet its commitments.The treasuryismanaged in such away as to protectthe value of the paid-in capital,ensureanadequate level of liquiditytomeet possible guaranteecalls,privateequitycommitments and administrativeexpenditureand earn areasonable returnonassets invested with due regardtominimisation of risk.

Thetable belowshows the Fund’s assets and liabilities classified into relevantmaturitygroupings based on the remaining period to the contractual maturitydate. It is presentedusing the most prudentexpectation of maturitydates.Therefore, in thecaseofliabilities theearliestpossible repaymentdateisshown, while forassets it is the latest possible repaymentdate.

Maturityat31.12.2007 (in EUR) Not more 3months to 1year to More than Undefined Total than 3 1year 5years 5years Maturity months Cash and cash equivalent291 604 538 000 0291 604 538 Investments Debt securities and other fixed income securities 26 263 700 73 880 810 226 810 079 195 515 812 0522 470 401 Shares and other variable income securities 3078 893 13 081 039 72 402 857 79 313 732 0167 876 521 Guarantees operations Financial guarantees 216 154 189 504 34 575 841 13 611 050 048592 549 Derivatives 00370 924 64 206 0435 130 Other assets 13 554 019 04144 063 15 374 141 033072 223 Intangible assets 592 51 068 1109 825 001161 484 Property,plant&equipment4394 29 275 415 656 7796 269 08245 594

Total assets 334 722 290 87 231 696 339 829 245 311 675 210 01073 458 440

Financial liabilities Financial guarantees 59 597 785 858 48 122 186 14 462 639 063430 281 Derivatives 0582 930 436 844 994 620 02014 394 Retirements benefit obligations 00013232 407 013232 407 Other liabilities 1880 898 2844 388 50 000 4640 758 09416 044 Equity0000985 365 315 985 365 315

Total liabilities 1940 495 4213 176 48 609 030 33 330 424 985 365 315 1073 458 440

Net liquidityposition at 31.12.2007 332 781 794 83 018 520 291 220 215 278 344 785 (985 365 315) 0 Cumulativeliquidityposition at 31.12.2007 332 781 794 415 800 314 707 020 529 985 365 315 00 Commitments 29 100 371 49 405 259 106 032 678 228 749 142 0413 287 450 Guarantees 228 885 425 192 150 747 2361 417 882 825 324 501 03607 778 555

Total OffBS257 985 796 241 556 006 2467 450 560 1054 073 643 04021 066 005

Maturityat31.12.2006 (in EUR) Not more Less than 1to5years More than Undefined Total than 3 1year 5years Maturity months

Total Assets 161 088 156 295 140 502 315 132 601 771 361 259

Total Liabilities 10 288 265 37 881 440 30 671 867 692 519 687 771 361 259

Net liquidityposition at 31.12.2006 150 799 891 257 259 062 284 460 734 (692 519 687) 0 Cumulativeliquidityposition at 31.12.2006 150 799 891 408 058 953 692 519 687 0 Commitments 9592 704 150 896 433 192 017 221 0352 506 358 Guarantees 729 950 791 1699 266 134 622 098 783 03051 315 708 EIB Group 202 Financial Report2007

Guarantees issued on behalf of the EIF areanalysed with referencetotheir maturityasfollows:

Drawn Undrawn Total 31.12.2007 Total 31.12.2006 EUR EUR EUR EUR

Up to fiveyears 462 218 868 42 879 931 505 098 799 469 835 256 From fivetoten years 1328 407 368 43 087 734 1371 495 102 1150 074 290 From tentofifteen years 1018 783 583 29 022 657 1047 806 240 742 670 397 Over fifteen years 683 378 414 0683 378 414 688 735 765

3492 788 233 114 990 322 3607 778 555 3051 315 708

Theamountdisclosed in respectofissued guarantees lifecontract. Afterthe first closing it is difficult foranin- represents the total commitmentwhich refers to both the vestor to get out from its position except if it can find a drawnand un-drawnprincipal amounts of the underlying buyer through the secondarymarket. loans and,ifrelevant, to the presentvalue of the flowof futureinterest payments covered by the guarantees. B. Portfolio Guarantees &securitisation

Of the above total amount, EUR 1627 750 (2006: EUR 3 ThenatureofEIF’s capital structureand the capital charge 304 323) has been issued in favour of the EIB. limits defined in the EIF Credit Risk PolicyGuidelines ensures ahigh degreeofliquiditytocover unexpected Thedrawn down portion of the guarantees issued in- losses arising from the guaranteeactivity. cludes an amountofEUR 811 311 representing the presentvalue of futureinterest forguarantees contracts Thetotal capital charge forguarantees is limited to 50% in default (2006: EUR 1106 129). of shareholders’equity.

A. Venture Capital At year-end 2007 the capital charge represented54%of the limit versus 66 %in2006. Thereduction in the limit Theprivateequitymarket is by naturenot liquid as the utilisation is mainly due to EIF net capital increase of EUR vehicles areclosed-end funds with in general a10-year 266m paid in 2007.

31.12.2007 31.12.2006

Capital Charges EURm: 259 221 Capital Ceiling :483 337 Utilisation: 54%66% Headroom: 224 116 Commitments EURm: 4268 3801 Guarantees Drawn: 4153 3690 Guarantees Undrawn: 115 110 Maximum Exposure: 3607 3038 AggregatedGuaranteecalls: 16.7 15.5

C. Treasury A. VentureCapital

At the end of 2007, 74.18%ofthe Fund’s liquid asset ex- Venturecapital being an equityproduct, sensitivityto posurewas awarded ’AAA’- status.14.56 %wererated interest rate is not performed. ’AA’-entities and only 0.02%werenot rated. In view of the qualityofthe securities held (averaging ’AA+’), liquidity B. Portfolio Guarantees &securitisation risk on this portfolio is not significant. Fortransactions in which EIF acts as guarantorare typi- 3.5.3. Market risk cally in no liquid markets and representativemarket prices arenot available.Hence, EIF has developed amark- to-model approach to value these transactions,using 1. Market Risk-Interest rate risk external and internal ratings,information from the regu- More than half of the Fund’s income and operating cash larmonitoring, and discountedcash-flowanalysis. flows areindependentofchanges in market interest rates. TheFund’s interest rate risk arises mainly from cash &cash Thevalue of guaranteetransactions classified as Financial equivalents positions as well as investments in debt se- Guarantees arenot subjecttofluctuations on interest rate curities. during transactions’lifesincevaluations arecarried under IAS 37 provisions rules. EIF – Financial Statements 203 EIB Group

Thevalue of guaranteetransactions classified as Deriva- ing to EUR 73,9m represent28.5 %oftotal guarantee tives (which do not comply with all the definition criteria capital allocation charges (EUR 259 m). of afinancial guaranteecontractinterms of IAS 39) are valued monthly and current market interest ratesare in- C. Treasury putted in the model. Approximately 50%ofthe cash and cash equivalents held However, the interest ratesused by the model areonly have an average duration of up to 5years,therebysafe- applied to calculate the presentvalue of expectedpremi- guarding the Fund against the substantial fluctuations in ums.Fluctuations on presentvalue arethen included on its long term revenues. the guaranteefair value and recognized in the P&L. The interest rate impactonthe underlying rating model of Moreover,operations of aspeculativenatureshall not be these transactions is not measured. authorised.Investmentdecisions arebased on the interest ratesavailable in the market at the time of investment. In- At the end of 2007, ownrisk guarantees transactions clas- terest rate expectations shall not be taken into account. sified as “Derivative” amounts to EUR 1.27bn and represents 30.2 %oftotal guaranteecommitments (EUR Thefollowing table illustrates the Fund’s exposuretoin- 4.27bn). Capital allocation charges forderivatives amount- terest rate risk (figures arepresentedatfair value):

At 31.12.2007 (in EUR) Fixedrate Variable rate Total

Less than 3months 1to5years More than 3months to 1year 5years

Cash &cash equivalents 291 604 538 0000291 604 538 AFS -Debt securities and other fixed income securities 26 263 699 73 880 810 179 547 928 165 071 575 77 706 389 522 470 401

Total 317 868 237 73 880 810 179 547 928 165 071 575 77 706 389 814 074 939

Percentage 39.05%9.08%22.06%20.28%9.55%100.00%

At 31.12.2006 (in EUR) Fixedrate Variable rate Total

Less than 3months 1to5years More than 3months to 1year 5years

Cash &cash equivalents 52 866 663 000052 866 663 AFS -Debt securities and other fixed income securities 36 514 743 37 176 930 172 822 899 219 928 170 50 590 860 517 033 602

Total 89 381 406 37 176 930 172 822 899 219 928 170 50 590 860 569 900 265

Percentage 15.68%6.52%30.33%38.59%8.88%100.00%

Theaverage effectiveinterest rate on term deposit in EUR is 4.05%for the year 2007 (2006: 2.89%). Theaverage effective interest rate on the AFS securities portfolio in EUR is 4.54%for 2007 (2006: 4.55%).

Sensitivityanalysis applied to the positions of the EIF treasurymanaged by the EIB as at 31 December 2007 and 31 December,2006

Sensitivityofeconomic value of ownfunds (EUR millions)

Sensitivityofearnings

Thesensitivityofthe earnings is an estimate of the the change during the next 12 months in the earnings of the EIF treasuryportfolio managed by the EIB if all interest rate curvesrise by one percentage pointordecrease by one percentage point. Thesensitivitymeasureiscomputed by taking into consideration the coupon repricings of all the positions present in the portfolio on adeal by deal basis.Each fixed rate asset is assumed to be reinvested at maturityinanew asset with the same residual lifeofthe previous one as of 31.12.2007. Positions in floating rate assets areassumed to have quarterly repricings.With the positions in placeasof31.12.06, the earnings of the EIF treasuryportfolio would increase by EUR 0.79 million if interest rate increase by 100 basis points and decrease by the same amountifinterest ratesdecrease by 100 basis points.With the positions in placeasof31.12.07, the earnings of the EIF treasuryportfolio would increase by EUR 2.8 million if interest rate increase by 100 basis points and decrease by the same amountifinterest ratesdecrease by 100 basispoints. EIB Group 204 Financial Report2007

Sensitivityofeconomic value of ownfunds

31/12/2007 Increase in Bp [0-1y] [2y-3y] [4y-6y] [7y-11y] [12y -20y] [+20y ]Total

EUR +100 -1 -2 -6 -6 00-15 USD +750000000 GBP +500000000

Sensitivityofeconomic value of ownfunds

31/12/2007 Decrease in Bp [0-1y] [2y-3y] [4y-6y] [7y-11y] [12y -20y] [+20y ]Total

EUR -100 12660015 USD -750000000 GBP -500000000

Sensitivityofeconomic value of ownfunds

31/12/2006 Increase in Bp [0-1y] [2y-3y] [4y-6y] [7y-11y] [12y -20y] [+20y ]Total

EUR +100 -1 -2 -6 -9 00-18 USD +750000000 GBP +500000000

Sensitivityofeconomic value of ownfunds

31/12/2006 Decrease in Bp [0-1y] [2y-3y] [4y-6y] [7y-11y] [12y -20y] [+20y ]Total

EUR -100 12690018 USD -750000000 GBP -500000000

Value at Risk

TheVaR estimatesthe potential negativechange in the value of aportfolio at agiven confidencelevel and over aspecified time horizon. As of 31.12.07, the value-at-risk of the EIF treasuryportfolio wasEUR 1.6 million (EUR 1.2 million as of 31.12.06). It wascomputed on the basis of the Riskmetrics VaRmethodology,using aconfidencelevel of 99%and a1day time horizon. This means thatthe VaRfigurerepresents the maximum loss over aone-day horizon such thatthe probabil- itythatthe actual loss will be larger is 1%.The choiceofthe Riskmetrics VaRmethodology has some limitations because it assumesthatthe portfolio exposures arelinear and thatthe futuremovements in the risk factors will followaNormal distribution. More generally,VaR does not purporttomeasurethe worst loss thatcould happen.

2. Market risk:Foreign currencyrisk

Thefollowing section provides information on the risk thatfair values and futurecash flows of financial assets fluctuate due to changes in foreignexchange rates.

TheFund’s objectiveistoreduceexchange risk by limiting its investmentinout-currency. TheFund’s capital is denomi- natedinEUR and the majorityofits assets and liabilities areinthatcurrency. EIF – Financial Statements 205 EIB Group

Thetable belowshows the exchange positions (in EUR) of EIF’s main assets and liabilities.

At 31.12.2007 (in EUR) EUR Pound US Dollars Other Sub total Total Sterling currencies except EUR

Cash and cash equivalent285 336 884 2277 354 2587 459 1402 841 6267 654 291 604 538 Investments Debt securities and other fixed income securities 522 470 401 0000522 470 401

Shares and other variable income securities 122 267 894 35 053 480 5150 527 5404 620 45 608 627 167 876 521 Guarantees operations Financial guarantees 42 896 428 1859 782 03836 339 5696 121 48 592 549 Derivatives 299 215 135 915 00135 915 435 130 Other assets 33 072 223 000033 072 223 Intangible assets 1161 484 00001161 484 Property,plant&equipment8245 594 00008245 594

Total assets 1015 750 123 39 326 531 7737 986 10 643 801 57 708 318 1073 458 441

Financial liabilities Financial guarantees 53 202 974 7108 765 03118 541 10 227 306 63 430 281 Derivatives 1261 934 752 460 00752 460 2014 394 Retirements benefit obligations 13 232 407 000013 232 407 Other liabilities 9416 044 00009416 044

Total liabilities 77 113 359 7861 225 03118 541 10 979 766 88 093 126

Commitments 299 555 513 90 517 442 11 754 636 11 459 859 113 731 937 413 287 450 Guarantees 2857 823 627 393 727 589 0356 227 339 749 954 928 3607 778 555

Total OffBS3157 379 140 484 245 031 11 754 636 367 687 198 863 686 865 4020 254 693

At 31.12.2006 (in EUR) EUR Pound US Dollars Other Sub total Total Sterling currencies except EUR

Total assets 715 658 388 41 400 751 8022 505 6279 615 55 702 871 771 361 259 Total liabilities 73 605 429 3566 351 01669 793 5236 144 78 841 572 Commitments 245 959 407 85 541 275 13 138 952 7866 724 106 546 951 352 506 358 Guarantees 2445 247 952 262 419 014 0343 648 742 606 067 756 3051 315 708

Total OffBS2691 207 359 347 960 289 13 138 952 351 515 466 712 614 707 3403 822 066 EIB Group 206 Financial Report2007

A. VentureCapital As assets in the EIF balancesheet arerecorded at the historical cost (e.g.for each separateoperations (disburse- On the venturecapital side,at31December 2007, cur- ments and capital repayments) with the exchange rate at rencyexposurefor the investments funds can be split as the end of the month preceding the operation), they follows: 3% need to be readjusted at the exchange rate of 31 Decem- USD ber 2007. 2% 1% For2007, changes in foreignexchange ratesfor shares SEK DKK and other variable income amounttoEUR -4 083 903 out of which EUR 3195 734 have been recorded in the fair value reserve. 21 % GBP Thesensitivityanalysis performed belowincludes 4 scenarios: 1. An increase/decrease of 15%ofUSD vs.the euro

2. An increase/decrease of 5%of GBP vs.the euro

Theother currencies arenot tested separately as their weightinthe total exposureisbelow5%and anychange 73 % would then have no material impact. EUR

(as%ofthe total fair value,EUR 168 million)

Foreignexchange rate risk

USD +15%USD -15%

Profit &loss account(EUR) Equity(Fair value reserve)(EUR) Profit &loss account(EUR) Equity(Fair value reserve)(EUR) 0(842 710) 0842 710

GBP +10%GBP -10%

(487 116) (1 404 834) 487 116 1404 834

Closing ratesatbalancesheet date were (1 EUR/CCY): ly the exposureatthe fund level,asillustrated by the graph below: DKK 7.4583 GBP 0.73335 SEK 9.4415 1% USD 1.4721 6% 5% SEK Asia 2% US Zone 7% It has to be noted however, thatthese impacts aremeas- 0% CHF CEE ured at the fund level (impactonthe net asset values 1% Other 2% denominatedinout-currency). Thereforethey do not take NOK DKK 0% into accountindirectpotential effects on the underlying Israël investments (investee companies) which could be in out- currencies.Inpracticemost of the fund managers tryto hedge the positions they could have in currencydifferent 21 % of the fund main currencies. GBP

However, the underlying investments arealso well diversified and the indirectexposureofEIF is following broad-

55 % EU Zone EIF – Financial Statements 207 EIB Group

B. Portfolio Guarantees &securitisation

TheOwn Risk guarantees portfolio is mainly denominatedinEUR. As of end-2007, 80.5%ofcommitments (89%ofFair Value) were in EUR. TheGBP is the main foreigncurrencyexposureand represented10.1%ofcommitments (3%ofFair Value). Thereforethis risk is limited and characterizedbyalow volatilityofEUR/GBP (4.6%for the period 2000-2007).

OwnRisk Portfolio breakdowns by currencyand Assets Fair Value at 31.12.2007:

Commitments breakdown Breakdown of Assets Fair Value

10.1 % 8% GBP 4.3 % Other Ccy DKK 3.2 % 3% SEK GBP 80.5 % EUR 1.9 % PLN

89 % EUR

EIF is monitoring its non-Euroexposure, performsregular estimatedbyregressing returns on an asset against a stress tests,with regardtocurrencyrisk (impactonunex- public market index. pectedloss). Additional capital charges on non-EUR exposures areassumed and the outcome is compared with While public market managers can rely on reliable statistical the available headroom. Analyses aredone on whatpo- data to supporttheir analysis,privateequityand in particular tential actions arerequired in order to limit the foreign venturecapital lacks such data. Indeed,the analysis of private exchange risk exposure. ForTrust operations the ex- equityreturns,volatilityand correlations is limited by the change risk is typically borne by the EIF counterparties. relatively shorttime series of the publicly available data, In some cases specific budgetaryallocations can be made which arenot fully representativeofthe market.Most of all, in order to mitigate the risk taken by the intermediary. data does not fully capturethe uncertainty of the asset class. RelatedtoTrust activities no currencyexposures emerge Furthermore, as the standardperformancemeasureused for on behalf of EIF. privateequityfunds,the IRR, is capital-weighted, while for thepublic market assets,itistraditionally time-weighted, an C. Treasury analysis of correlation between privateequityand other asset classes is not possible without significantadjustments and No risk is taken regarding EIF’s debt securities’portfolio, thereforeinduces potentially importantbiases. as all investments in debt securities and other fixed income securities aredenominatedinEUR. Included in the To circumvent this issue,the EIF uses the Listed Private above exchange positions arethe financial assets classi- Equity(LPE) indices (LPXindices). This indexfamily is pub- fied by currency. It shows thatrisk regarding foreigncur- lished by LPXGmbH and provide abasis forvarious pri- rencyexchange ratesisinsignificant. vateequitysub-markets,including:

• LPXEurope: the most actively traded LPE companies 3. Market risk:public market risk covered by LPXthatare listed on aEuropean exchange, A. VentureCapital • LPXBuyout: the most actively traded LPE companies Thespecificities of privateequityasset class make the use covered by LPXwhose business model consists main- of traditional approaches to market risk analysis difficult ly in the appropriation of buyout capital or in the in- to apply.Market risk analysis requires the estimation of vestmentinsuch funds,and the correlation between the assessed asset class and the • TheLPX Venture: the most actively traded LPE compa- public market.This can be done based on the capital as- nies covered by LPXwhose core business lies mainly set pricing model.This model requires estimating the in the provision of venturecapital or in the investment beta, i.e.ameasureofrisk relativetothe market,which is in venturecapital funds. EIB Group 208 Financial Report2007

Thebetas of these indices can be used as aproxy forthe sensitivityofthe economics valuation of EIF’s PE investmentto market prices.

Beta StartdateOct 04 -Nov 07 Startdate-Nov 07 Delta

LPXEurope 31/12/1993 0.945 0.679 0.266 LPXVenture31/12/1993 1.365 0.992 0.373 LPXBuyout 31/12/1997 0.906 0.509 0.397

Average 1.072 0.727 0.345

Using betas from LPXEurope and applying it on all the operations without anystage distinction and assuming market pricemovements of ±10%, EIF’s PrivateEquityinvestments’economics value would be impactedasfollows:

Public market risk:ALL PRIVATEEQUITY

+10%-10%

Beta 0.7 Beta 0.7

Final Sensitivity: +7% Final Sensitivity: -7%

Profit &loss account(EUR) Equity(Fair value reserve)(EUR) Profit &loss account(EUR) Equity(Fair value reserve)(EUR) 763 904 10 145 958 (774 731) (10 242 830)

Beta 1.0 Beta 1.0

Final Sensitivity: +10% Final Sensitivity: -10%

Profit &loss account(EUR) Equity(Fair value reserve)(EUR) Profit &loss account(EUR) Equity(Fair value reserve)(EUR) 1053 572 14 528 423 (1 106 759) (14 634 733)

Average

908 738 12 337 191 (940 745) (12 438 782)

Sum

13 245 929 (13 379 527)

Using betas from LPXVentureand buyout and applying it on all the operations depending on their stages (Buyout or venturecapital) and assuming market pricemovements of ±10%, EIF’s PE investments’economics value would be impactedasfollows:

Public market risk:BYSTAGE

+10%-10%

MinBeta BO: 0.5 /VC: 1.0 MinBeta BO: 0.5 /VC: 1.0

Final Sensitivity: +5%/+10%Final Sensitivity: -5%/-10%

Profit &loss account(EUR) Equity(Fair value reserve)(EUR) Profit &loss account(EUR) Equity(Fair value reserve)(EUR) 995 770 11 214 418 (995 770) (11 311 305)

MaxBeta BO: 0.9 /VC: 1.4 MaxBeta BO: 0.9 /VC: 1.4

Final Sensitivity: +9%/+14%Final Sensitivity: -9%/-14%

Profit &loss account(EUR) Equity(Fair value reserve)(EUR) Profit &loss account(EUR) Equity(Fair value reserve)(EUR) 1385 287 17 054 411 (1 441 507) (17 164 142) EIF – Financial Statements 209 EIB Group

Forall these simulations,the final sensitivity(i.e beta x Quoted investments +/- 10%) is applied to the net asset value giving an adjusted net asset value,which is then compared to the net At the end of 2006, the fair value of the investments in paid.The calculatedvalue adjustmentwill then be re- venturecapital funds amounts to EUR 168 million out of corded following the methodology described in the which EUR 19 million or 11.7% areunderlying invested “background”part. indirectly in quoted companies.Itisthen possible for these specific investments to do amorein-depth and These results can only be seen as indications of the po- directanalysis of the impactofpublic market on their tential sensitivity. Indeed,despitethe notions of fair value, valuation. Forthis simulation, the fair value of each quot- privateequity – like real estate,art or antiques – is an ed underlying investees is re-assessed.With the informa- appraised asset class,valued not by the consensus of tion provided by the fund managers,(value,price per manymarket players in an activeand efficientmarket but share, number of shares), prices from Bloombergasof31 by fewexperts,normally the fund managers who value December 2007 areincreased or decreased by 10%. The each investmentbased on their viewsofthe investment’s differenceinvaluation obtained is then multiplied by EIF earnings potential and/or comparisons with other invest- interest held in the fund and this final differenceisde- ments and following normally industryvaluation guide- ductedoradded to each PE fund valuation to get the final lines,such as the IPEVones,which arewidely used fund value adjustments.The value adjustmenttreatment within EIF’s portfolio as legally required forthe new op- will then followthe methodology for“operational”adjust- erations. ments.

Shares and other variable income securities (note4.3)

Public market risk

+10% -10%

Profit &loss account(EUR) Equity(Fair value reserve)(EUR) Profit &loss account(EUR) Equity(Fair value reserve)(EUR) 39 932 1426 330 (39 932) (1 426 330)

3.6. Fair Value of Financial Assets and Financial Liabilities

Table setting out acomparison by categories of the carrying amounts and fair values of the Fund’s financial assets and liabilities:

Carrying amount2007 Fair value 2007 Carrying amount2006 Fair value 2006

Financial assets Loans and receivables 311 344 132 311 344 132 63 022 731 63 022 731 Financial investments -AFS 687 335 660 687 335 660 649 665 005 649 665 005 Financial assets designated at fair value through P&L 2034 393 2034 393 682 292 682 292 Financial guarantees 48 592 549 48 592 549 38 281 429 38 281 429

TOTAL 1049 306 734 1049 306 734 751 651 457 751 651 457

Financial liabilities Financial guarantees 60 031 682 60 031 682 50 991 539 50 991 539 Financial liabilities designated at fair value through P&L 2014 394 2014 394 1289 229 1289 229 Other liabilities 1357 583 1357 583 3456 479 3456 479

TOTAL 63 403 659 63 403 659 55 737 247 55 737 247

Thefinancial liabilities designatedatfair value through profit and loss consisting of the guarantees operations are EUR 62 046 076. Thechange forthe current year is again of EUR 289 601 (2006: gain of EUR 5167) included in the captions “Net income from guarantees operations”. EIB Group 210 Financial Report2007

Table showing an analysis of financial assets and liabilities recorded at fair value according to howthe fair value is determined

At 31.12.2007 Quoted market Valuation techniques - Total non market observable input

Financial assets Loans and receivables 311 344 132 0311 344 132 Financial investments -AFS 526 040 135 161 295 525 687 335 660 Financial assets designated at fair value through P&L 02034 393 2034 393 Financial guarantees 048592 549 48 592 549

837 384 267 211 922 467 1049 306 734

Financial liabilities Financial guarantees 060031 682 60 031 682 Financial liabilities designated at fair value through P&L 02014 394 2014 394

062046 076 62 046 076

At 31.12.2006 Quoted market Valuation techniques - Total non market observable input

Financial assets Loans and receivables 63 022 731 063022 731 Financial investments -AFS 521 118 795 128 546 209 649 665 004 Financial assets designated at fair value through P&L 0682 292 682 292 Financial guarantees 038281 429 38 281 429

584 141 527 167 509 930 751 651 456

Financial liabilities Financial guarantees 050991 539 50 991 539 Financial liabilities designated at fair value through P&L 01289 229 1289 229

052280 768 52 280 768

Fair value of derivativefinancial instruments

Valuation techniques -non market observable input

Derivatives Fair value at 31.12.20007 (EUR) Fair value at 31.12.20006 (EUR)

Negativevalue of Derivatives (2 014 394) (1 289 229) Positivevalue of Derivatives 435 130 145 529

At 31.12.2007 (1 579 264) (1 143 700)

Derivatives nominal value amounts to EUR 1268 070 381 (2006: EUR 876 022 764). EIF – Financial Statements 211 EIB Group

4. Detailed disclosures relating to asset headings

4.1. Cash and cash equivalents

Cash and cash equivalents aredefined as short-term assets,highly liquid securities.They include cash at bank and in hand, interest earning deposits with original maturities of 3months or less and bank overdrafts.Bank overdrafts areshown within financial liabilities under current liabilities on the balancesheet.

Theremaining lifeofcash and cash equivalents is as follows:

31.12.2007 31.12.2006 EUR EUR

Repayable on demand 21 874 539 25 796 170 Up to three months 269 729 999 27 070 493

291 604 538 52 866 663

Theeffectiveinterest rate on short-term bank deposits is 4.05% (2006: 2.89%). These deposits have an average maturity of38days(2006: 29 days).

4.2. Debt securities and other fixed-income securities

TheFund’s portfolio includes money market funds and other money market instruments; long-termdebt instruments e.g. bonds,notes and other obligations.

Debt securities and other fixed-income securities areanalysed as follows:

31.12.2007 31.12.2006 EUR EUR

Short-term Portfolio 014456 143 InvestmentPortfolio 522 470 401 502 577 459 of which accrued interests 11 037 860 11 503 046

522 470 401 517 033 602

Debt securities and other fixed-income securities held by the Fund areall listed on an activemarket.Figures above are presentedatfair value.

TheFund participatesaslender in aSecurities Lending and Borrowing Programme with three counterparties,the market value of securities lentatyear-end amounts to EUR 77 319 235 (2006: EUR 85 091 001). Derecognition criteria in accordancewith IAS 39 arenot fulfilled. EIB Group 212 Financial Report2007

Movementindebt securities and other fixed income securities:

31.12.2007 31.12.2006 EUR EUR

Fair value at 1January517 033 602 504 361 053 Additions 104 291 000 91 155 772 Disposals (91 300 412) (60 851 706) Effectiveinterest rate adjustement3721 889 678 970 Change in Fair value reserve (11 078 522) (18 310 487) Impairment(197 156) 0

Fair value at 31 December 522 470 401 517 033 602

Thetotal amountoffair value changes thathas been recognised in equityduring the year 2007 is EUR – (7 521 129) (2006: EUR 3557 393).

As at end of March2007 impairmentfor an amountofEUR 197 156 has been recorded corresponding to 2/3 of its carrying value as at December 31, 2007. In 2006, no impairmentlosses on debt securities and other fixed income securities categorised as AFS had been booked.

4.3. Shares and other variable income securities

Shares and other variable income securities include investments in venturecapital funds and areanalysed as follows:

31.12.2007 31.12.2006 EUR EUR

Investmentatcost at 1January139 026 112 120 644 616 Additions 47 694 091 39 146 739 Disposals (18 904 337) (20 765 243) Investmentatcost at 31 December 167 815 866 139 026 112 Value Adjustmentat1January(5392 075) (15 269 533) Value AdjustmenttoFair value reserve 17 008 019 11 022 978 Impairment (7 505 527) (1 145 520) Value Adjustmentat31December 4110 417 (5 392 075) Foreignexchange adjustmentat1January34141 (567 834) Value AdjustmenttoFair value reserve (3 195 734) 577 679 Impairment (888 169) 24 296 Foreignexchange adjustmentat31December (4 049 762) 34 141

167 876 521 133 668 178

Investments in venturecapital funds representequityinvestments and relatedfinancing structures.

During the year,dividends in the amountofEUR 6674 654 (2006: 6902 149) were paid to the fund.They areshown under the caption“Income from investments in shares and other variable income securities”in the income statement.

Thecumulatedfair value changes on these investments,which arerecorded in the fair value reserve,inaccordancewith the valuation method described in note2.3.2, amounttoEUR 17 008 019 (2006: EUR 11 022 978).

Thecumulatedunrealised foreignexchange loss arising from the revaluation of venturecapital funds at year-end closing ratesamounts to EUR 3195 734 (2006: gain of EUR 577 678).

Investments belonging to the CategoryIII aremeasured at cost less impairment, as no reliable fair value is available.These amounttoEUR 247 500 (2006: EUR 247 500).

TheFair Value as at 31 December 2007 includes an amountofEUR 1599 263 relatedtoInvestmentinjoint-venture. After initial recognition at fair value,changes in fair value arerecognized in the income statement. EIF – Financial Statements 213 EIB Group

4.4. Intangible assets

Internally Generated Purchased Software Total Software EUR EUR EUR

At 01.01.2006 Cost 2069 580 335 705 2405 285 Accumulateddepreciation (853 585) (334 333) (1 187 918)

Net book amount1215 995 1372 1217 367

Opening net book amount1215 995 1372 1217 367 Additions 251 486 41 369 292 855 Depreciation charge (666 572) (12 020) (678 592)

Closing net book amount2006 800 909 30 721 831 630

At 01.01.2007 Cost 2321 066 377 074 2698 140 Accumulateddepreciation (1 520 157) (346 353) (1 866 510)

Net book amount800 909 30 721 831 630

Opening net book amount800 909 30 721 831 630 Additions 773 516 119 436 892 952 Depreciation charge (508 645) (54 453) (563 098)

Closing net book amount2007 1065 779 95 704 1161 484

At 31.12.2007 Cost 3094 582 496 510 3591 092 Accumulateddepreciation (2 028 802) (400 806) (2 429 608)

Net book amount1065 780 95 704 1161 484

Therewerenoindications of impairmentofintangible assets in either 2007 or 2006. EIB Group 214 Financial Report2007

4.5. Property, plantand equipment

Land & Fixtures & Office Computer Other Fixed Buildings Fittings Equipment Equipment Vehicles Assets Total EUR EUR EUR EUR EUR EUR EUR

At 01.01.2006 Cost 8590 527 357 469 768 516 506 773 84 073 8764 10 316 122 Accumulated depreciation (390 696) (215 081) (440 124) (295 509) (84 073) 0(1425 483)

Net book amount8199 831 142 388 328 392 211 263 08764 8890 640

Opening net book amount8199 831 142 388 328 392 211 263 08764 8890 640 Additions 00169 882 150 106 00319 988 Depreciation charge (374 150) (24 951) (87 009) (112 534) 00(598 645)

Closing net book amount2006 7825 681 117 437 411 266 248 835 08764 8611 983

At 01.01.2007

Cost 8590 527 357 469 938 398 656 879 84 073 8764 10 636 110 Accumulated depreciation (764 846) (240 032) (527 133) (408 043) (84 073) 0(2024 127)

Net book amount7825 681 117 437 411 266 248 835 08764 8611 983

Opening net book amount7825 681 117 437 411 266 248 835 08764 8611 983 Additions 00115 737 173 839 00289 576 Disposals 000237 909 00237 909 Depreciation charge (374 150) (24 951) (94 224) (162 637) 00(655 963)

Closing net book amount2007 7451 531 92 486 432 779 497 946 08764 8483 505

At 31.12.2007

Cost 8590 527 357 469 1054 136 592 808 84 073 8764 10 687 777 Accumulated depreciation (1 138 996) (264 984) (621 357) (332 771) (84 073) 0(2442 181)

Net book amount7451 531 92 486 432 779 260 037 08764 8245 595

Therewerenoindications of impairmentofproperty,plantand equipmentineither 2007 or 2006. EIF – Financial Statements 215 EIB Group

4.6. Other Assets

Other assets aremade up of the following:

31.12.2007 31.12.2006 EUR EUR

Accounts receivable relating to pensions managed by the EIB 13 294 567 9709 504 Advanced payments 8220 26 830 Accrued commission on managementfees &other income 14 572 826 6095 465 Other debtors 5196 610 4090 446

33 072 223 19 922 245

Accounts receivables relating to pensions managed by the EIB: Following the introduction of adefined benefit pension scheme in 2003 (see note 2.6), contributions from staff and the Fund areset aside to cover futureobligations.The assets of the scheme aretransferredtothe EIB formanagementand investmentonbehalf of the Fund.See also note5.2.

5. Detailed disclosures relating to liabilityand equityheadings

5.1. Financial liabilities

Themovements relating to financial guarantees payables areset out below:

Financial Guarantees Payables 2007 2006 EUR EUR

Balanceat1January56907 239 51 673 280 Additions 23 195 710 16 138 074 Transfer relating to SME guarantees 366 472 686 021 Utilisation of the financial guarantees (896 303) (1 769 290) Financial guarantees amortisation (note2.4) (16 142 837) (9 820 846)

Balanceat31December 63 430 281 56 907 239

ThebalanceofEUR 63 430 281 (2006: EUR 56 907 239) includes aprovision foranamountofEUR 3398 599 (2006: EUR 5915 700).

Derivatives 2007 2006 EUR EUR

Balanceat1January1289 229 5313 992 Fair value changes 725 165 (4 024 763)

Balanceat31December 2014 394 1289 229

5.2. Retirementbenefit obligation

Theretirementbenefit obligation consists of the pension scheme and the health insurancescheme as follows:

Retirementbenefit obligations 31.12.2007 31.12.2006 EUR EUR

Pension scheme 11 982 407 8928 908 Health insurancescheme 1250 000 1250 000

13 232 407 10 178 908 EIB Group 216 Financial Report2007

Commitments in respectofretirementbenefits as at 31 December 2007 have been valued in February2008 by an independentactuaryusing the projectedunit credit method.The calculations arebased on the following main assumptions:

Principal Assumptions 2007 2006

Discountrate forobligations 5.52%4.76% Rate of futurecompensation increases 4.00%3.50% Rate of pension increases 2.00%1.50% Actuarial tables Swiss BVG2005 Swiss BVG2000

Thepension commitmentasevaluatedinthe independentactuaryreportdated February2008 amounts to EUR 11 982 000. As of December 2007, the Fund has allocatedEUR 12 456 911 to the provisions relating to pensions to ensurefull coverage of the commitments.

Thehealth insuranceobligation wasmeasured by afull actuarial calculation at the end of 2007 and the existing liabilityfound to be appropriate so no cost wasrecorded in the year.From2008 the health insurancewill have annual cost under IAS 19.

Themovements in the“retirementbenefit obligations”areasfollows:

Benefit Liabilities EIF Pension Health Insurance Total 2007 as at 31.12.2007 EUR EUR

Presentvalue of funded obligation 000 Presentvalue of unfunded obligation 12 628 000 1120 000 13 748 000 Unrecognised net actuarial gains/losses (646 000) 130 000 (516 000)

Net liability11982 000 1250 000 13 232 000

Benefit Liabilities EIF Pension Health Insurance Total 2006 as at 31.12.2006 EUR EUR

Presentvalue of funded obligation 000 Presentvalue of unfunded obligation 9928 000 1250 000 11 178 000 Unrecognised net actuarial gains/losses (999 000) 0(999 000)

Net liability8929 000 1250 000 10 179 000

Net Periodic Benefit Cost EIF Pension Health Insurance Total 2007 as at 31.12.2007 EUR EUR

Currentnet servicecost 1258 000 01258 000 Interest cost 477 000 0477 000 Amortisation of unrecognised gains/losses 75 000 075000

Net Benefit Expense 1810 000 01810 000

Net Periodic Benefit Cost EIF Pension Health Insurance Total 2006 as at 31.12.2006 EUR EUR

Currentnet servicecost 867 000 0867 000 Interest cost 376 000 0376 000 Amortisation of unrecognised gains/losses 133 000 0133 000

Net Benefit Expense 1376 000 01376 000 EIF – Financial Statements 217 EIB Group

Changes in Defined Benefit Obligation EIF Pension Health Insurance Total 2007 as at 31.12.2007 EUR EUR

Defined benefit obligation, Beginning of year 9928 000 1250 000 11 178 000 Net servicecost 1258 000 01258 000 Interest cost 477 000 0477 000 Employeecontributions 682 000 0682 000 Benefits Paid 561 000 0561 000 ExperienceGain /(Loss) 1656 000 293 000 1949 000 Gain /(Loss) due to assumption changes (1 934 000) (423 000) (2 357 000)

Defined benefit obligation 12 628 000 1120 000 13 748 000

Changes in Defined Benefit Obligation EIF Pension Health Insurance Total 2006 as at 31.12.2006 EUR EUR

Defined benefit obligation, Beginning of year 8635 000 1250 000 9885 000 Net servicecost 867 000 0867 000 Interest cost 376 000 0376 000 Employeecontributions 513 000 0513 000 Benefits Paid 185 000 0185 000 ExperienceGain /(Loss) 430 000 0430 000 Gain /(Loss) due to assumption changes (1 078 000) 0(1078 000)

Defined benefit obligation 9928 000 1250 000 11 178 000

5.3. Other Liabilities

31.12.2007 31.12.2006 EUR EUR

Trade creditors 775 000 4936 054 Other taxation and social securitycosts 1182 33 504 Other payables 8639 862 5496 638

9416 044 10 466 196

Other liabilities aremainly composed of the following elements:

Trade Creditors mainly includes amounts payable to the SMEGF and other sundryitems.

Other payables include amounts relating to accrued fees forprofessional services.Italso includes treasurymanagement fees,accruals forEIF staff compensation and aprovision relatedtoderivatives foratotal amountofEUR 1657 366 (2006: EUR 534 696). EIB Group 218 Financial Report2007

5.4. ShareCapital

Theauthorised capital amounts to EUR 3bn, divided into 3000 shares with anominal value of EUR 1000 000 each of which 2770 have been issued.The shares confer rights of ownership of the assets of the Fund as described in Article 8of its Statutes.Shareholders areentitled to anydistribution of net profits,which is limited by the requirements of the statu- tory reserve.

TheEIF’s authorised sharecapital wasincreased by 50% to EUR 3bnafter aunanimous vote by shareholders at the Annual General meeting.New shares were issued on the 30th June 2007 as follows:

Authorised Shares at 01.01.07 2000

New shares 30.06.07 New shares issued 770 Shares authorised but not yetissued 230

Authorised shares at 31.12.07 3000

Theauthorised and subscribed sharecapital of EUR 2770 000 000 representing 2770 shares is called and paid in foran amountofEUR 554 000 000 representing 20% of the authorised and subscribed sharecapital.

Further payments of the subscribed but not paid in capital need the approval by the General meeting of shareholders.

Thesubscribed sharecapital is detailed as follows:

31.12.2007 31.12.2006 EUR EUR

Subscribed and paid in (20%) 554 000 000 400 000 000 Subscribed but not yetcalled (80%) 2216 000 000 1600 000 000

2770 000 000 2000 000 000

Thecapital is subscribed as follows:

31.12.2007 31.12.2006 Number of shares Number of shares

European InvestmentBank 1822 1224 European Commission 691 600 Financial Institutions 257 176

2770 2000

5.5. Statutoryreserve and retained earnings

Under the termsofArticle 27 of its Statutes,the Fund is required to appropriate to astatutoryreserve at least 20% of its annual net profit until the aggregate reserve amounts to 10% of subscribed capital.Such reserve is not available for distribution.

Aminimum amountofEUR 10 080 467 is required to be appropriatedin2008 with respecttothe financial year ended December 31, 2007. Movements in reservesand profit broughtforward aredetailed as follows:

Statutoryreserve Retained earnings Profit forthe financial EUR EUR year EUR

Balanceatthe beginning of the financial year 84 899 624 126 638 689 48 575 466 Dividend paid 00(19 430 000) Other allocation of last financial year profit 19 430 186 9715 280 (29 145 466) Profit forthe financial year 0050 402 337

Balanceatthe end of financial year 104 329 810 136 353 969 50 402 337 EIF – Financial Statements 219 EIB Group

TheGeneral Meeting of Shareholders of 7May 2007 approved the distribution of adividend amounting to EUR 19 430 000 relating to the year 2006 (2005: EUR 17 144 000), corresponding to EUR 9715 per share.

5.6. Fair value reserve

Thefair value reserve includes the followings:

31.12.2007 31.12.2006 EUR EUR

Fair value reserve on debt securities and other fixed income securities (7521 128) 3557 393 Fair value reserve on shares and other variable income securities 29 890 658 16 078 373

22 369 530 19 635 766

6. Commitments

Commitments representinvestments in venturecapital funds committed and not yetdisbursed amounting to EUR 167 523 540 at current rate(2006: EUR 150 836 248).

7. Disclosures relating to off-balancesheet items

7.1. TEN Guarantees

TEN infrastructureguaranteeoperations,complementarytoEIB’s activities,havebeen transferredtothe latter.The relevant contract wassigned with the EIB on December 7, 2000. TheEIB receives the benefits of the transferredportfolio,but also bearsthe ultimate risk of the transactions,the Fund remaining merely aguarantorofrecord.

Drawn Undrawn Total 2007 Total 2006 EUR EUR EUR EUR

Up to fiveyears 112 831 414 0112 831 414 146 468 721 From fivetoten years 119 187 366 16 750 000 135 937 366 183 301 353 From tentofifteen years 182 155 122 0182 155 122 161 170 743 Over fifteen years 45 345 263 045345 263 76 270 734

459 519 165 16 750 000 476 269 165 567 211 551

Thedrawn down portion of the guarantees issued includes (MAP) and SMEG 2007 under the Competitiveness and an amountofEUR 19 014 126 (2006: EUR 19 935 442) rep- Innovation FrameworkProgramme), the Fund is empow- resenting the presentvalue of futureinterest covered by ered to issue guarantees in its ownname but on behalf guarantees. and at the risk of the Commission.

Under the ETFStart-Up Facility(ESU 1998, ESU 2001 un- 7.2. Assets held forthirdparties der the Multi-Annual Programme forenterprises (MAP) and GIF 2007 under the Competitiveness and Innovation Assets held forthirdparties,asset out below, representtrust FrameworkProgramme), the Fund is empoweredtoac- accounts opened and maintained in the name of the Fund quire, manage and dispose of ETFstart-up investments, butfor the benefit of the Commission, the EIB and the Ger- in itsown name but on behalf and at the risk of the Com- man Federal MinistryofEconomics and Technology (Bundes- mission. ministerium fürWirtschaftund Technologie “BMWi”). Sums held in these accounts remain the property of the Commis- Thesupportprovided by the Seed Capital Action is aimed sion, the EIB and the BMWisolong as they arenot disbursed at the long-termrecruitmentofadditional investment forthe purposes set out in relation to each programme. managers by the venturecapital funds to increase the number of qualified personnel and to reinforce the capac- Under the SME GuaranteeFacility(SMEG 1998, SMEG ityofthe venturecapital and incubatorindustries to cater 2001 under the Multi-Annual Programme forenterprises forinvestments in seed capital. EIB Group 220 Financial Report2007

Within the contextofits venturecapital activity, the Fund Under the ERP-EIF Dachfond agreement, initiatedin2004, manages on behalf and at the risk of the EIB the Euro- the Fund manages venturecapital activityonbehalf,and pean Technology Facilities (ETF) 1and 2, which have been at the risk of the BWMi. implementedbythe Fund since1998. TheFund is managing aEuropean Commission facility, Within the frameworkofthe Risk Capital Mandate signed the PreparatoryAction Facility(PA 2004 and PA 2005), on with the EIB in 2000, the EIF took over the EIB’s existing behalf of the EIB Group.The facilityisparticularly target- venturecapital portfolio,with further investments being ing microlending and will be used forgrantstofinance funded as partofthe “Innovation 2000 Initiative” of the technical assistancetoSMEs,which must be coupled with EIB. an EIF guaranteeoranEIB global loan.

31.12.2007 31.12.2006 EUR EUR

PreparatoryAction Facility2004 16 767 2035 024 SMEG 1998 (SME Guarantee1998) 71 885 622 80 045 053 ESU 1998 (ETF Start-up 1998) (*) 28 509 679 32 566 875 Seed Capital Action 185 233 185 176 SMEG 2001 (MAP Guarantee) 118 671 399 115 905 351 ESU 2001 (MAP Equity) (*) 91 773 212 93 386 930 CIP/ SMEG 07 35 255 356 0 CIP/ GIF 07 36 447 745 0 Trust accounts with the Commission (**) 382 745 013 324 124 409 Trust accounts with the EIB 40 372 364 44 528 353 Trust accountwith the BWMi 19 198 123 742

423 136 575 368 776 504

(*) Thefigures above do not include the net cash flowinventurecapital,ofEUR 44 597 618 forESU 1998 (2006: EUR 47 867 842) and EUR 53 806 983 forESU 2001 (2006: EUR 26 073 020) made on behalf of the Commission thatare included in 8.3. (**) Thetrust accounts with the Commission include cash at bank,money market balances,investments in securities at nominal value and the relevantsecurity accruals.They do not representafinal valuation of the relevantprogrammes.

7.3. Fiduciaryoperations

PursuanttoArticle 28 of its Statutes,the Fund mayaccept the tasks of administering special resourcesentrusted to it by thirdparties.Inexecution of this article,the Fund manages and disposes of investments in venturecapital funds,inits ownname but on behalf and at the risk of

• the EIB,inaccordancewith European Technology Facility, European Technology Facility2and Transfer,Implementation and ManagementofRisk Capital Investments (Risk Capital Mandate)agreements, • the Commission, in accordancewith ETFStart-Up Facility, the High Growth and InnovativeSME Facilityand Seed Capital Action agreements,and • the German MinistryofEconomics and Technology (Bundesministerium fürWirtschaftund Technologie “BMWi”), in accordancewith ERP-EIF Dachfond agreement. TheFund is also empoweredtoissue guarantees in its ownname but on behalf and at the risk of the Commission according to the Fiduciaryand ManagementAgreementconcluded with the Commission (SME GuaranteeFacility). However, the EC programmes areonly liable foracontractedpercentage of the full signatureamounts shown below, up to the limit of the agreed budgetaryallocation. EIF – Financial Statements 221 EIB Group

Fiduciaryoperations concluded pursuanttothe Fiduciaryand ManagementAgreements areanalysed as follows:

31.12.2007 31.12.2006 EUR EUR

Guarantees committed on behalf of the Commission Under the SMEG 1998 (*) Drawn2407 638 575 2332 846 185 Undrawn1664 115 93 010 423 Under the SMEG 2001 (*) Drawn4629 662 857 3661 541 835 Undrawn276 876 349 1247 116 128 Under the SMEG 2007 (*) Drawn00 Undrawn00 Investments made on behalf of the Commission (**) Under ESU 1998: Net disbursed 55 992 520 62 098 578 Undrawn8727 939 14 569 689 Under ESU 2001: Net disbursed 57 584 408 28 249 549 Undrawn131 730 410 128 076 705 Under GIF 2007: Net disbursed 00 Undrawn10000 000 0 Under Seed Capital Action: Net disbursed 150 000 150 000 Undrawn50000 50 000 Investments made on behalf of the EIB (**) Under EIB Risk Capital Mandate Net disbursed 1370 579 363 1248 520 533 Undrawn1242 905 845 1204 359 297 Under European Technology Facility Net disbursed 124 725 313 130 025 976 Undrawn28434 532 46 173 159 Investments made on behalf of the External mandators (**) Under ERP-EIF Dachfond Net disbursed 47 514 956 30 375 557 Undrawn72869 186 73 855 292

10 467 106 367 10 301 018 906

(*) Those amounts arevalued based on the valuation method described in note2.3. (**) Those amounts arevalued at current rate. Thedrawn amounts correspond to the net disbursed.The value adjustmentcalculation is performed based on the valuation method described in note2.3. • value adjustmenthas been estimatedatEUR 83 639 222 (2006: EUR 195 621 038) leading to anet adjusted value of EUR 1411 665 454 (2006: EUR 1182 925 472), on the investments managed on behalf of the EIB. • value adjustmenthas been estimatedatEUR 15 172 327 (2006: EUR 16 407 266 estimatedamount) leading to anet adjusted value of EUR 98 404 600 (2006: EUR 73 940 862 estimatedamount), on the investments made on behalf of the Commission. EIB Group 222 Financial Report2007

8. Detailed information on the income statement

8.1. Netinterest and similar income

Net interest and similar income comprises:

31.12.2007 31.12.2006 EUR EUR

Interest on debt securities 23 853 812 21 344 796 Interest on term deposits 4778 046 900 209 Interest on bank current accounts 898 741 946 287 Other interest 700 471 453 996

30 231 070 23 645 288

As mentioned in the note2.7, the discounts and premiums arecalculatedwith the effectiveinterest rate method.The above figures arepresentednetted.Discounts amounttoEUR 3316 906 (2006: EUR 1149 607) and premiums amountto EUR 1732 099 (2006: EUR 1945 169).

8.2. Netincome from guarantees operations

Net income from guarantees operations comprises:

31.12.2007 31.12.2006 EUR EUR

Net guarantees fees on derivatives 7579 840 1183 644 Loss/Gain on fair value changes on derivatives (870 260) 4564 626 Interest (expenses)/income on amortisation of NPV (341 388) 1254 315 Reversal of provision 2517 101 2140 674 Provision forguarantees under IAS 37 (1 122 670) (534 696) Net increase in the financial guarantees contracts13586 401 7680 172

21 349 024 16 288 735

8.3. Commission income

Commission income is detailed as follows:

31.12.2007 31.12.2006 EUR EUR

Commissions on mandatesrelating to venturecapital operations 14 798 524 15 580 893 Commissions on mandatesrelating to guarantees 8412 985 7733 288 Income from Advisoryactivity5850 873 2953 329 Other commissions 10 000 10 000

29 072 382 26 277 510

8.4. Netloss on financial operations

Net loss on financial operations amounting to EUR (1 908 880) (2006: loss EUR 524 335) corresponds to losses arising entirely from transactions or cash positions in foreigncurrencies,ofwhich EUR 813 477 is aforeignexchange loss on venturecapital impaired funds (2006: gain EUR 24 296). EIF – Financial Statements 223 EIB Group

8.5. General administrativeexpenses

31.12.2007 31.12.2006 EUR EUR

Wages and salaries 17 317 160 14 614 519 Social securitycosts 2130 900 1123 415 19 448 060 15 737 934 Other administrativeexpenses 6665 063 5862 253

26 113 123 21 600 187

Wages and salaries include expenses of EUR 4078 735 (2006: EUR 3671 243) incurredinrelation to staff seconded from the EIB.

Key managementcompensation forthe year is EUR 1300 648 (2006: EUR 1264 687).

Other administrativeexpenses include officespaceleased in addition to the EIF’s owned premises.Expenses relating to these operational leases amounttoEUR 1154 045 (2006: EUR 645 159).

Less than 1year 1to5years morethan 5years Total EUR EUR EUR EUR

Futureminimum lease payments under non-cancellable operating leases 1053 359 4213 437 1053 359 6320 155

Thenumber of persons,including 14 EIB secondees (2006: 14 EIB secondees), employedatthe year-end is as follows:

31.12.2007 31.12.2006

Chief Executive11 Employees 141 120

Total 142 121

Average of the year 135 111 EIB Group 224 Financial Report2007

9. Relatedparties transactions

TheEuropean InvestmentBank is the majorityowner of the Fund with 66% of the shares.The remaining percentage is held by the European Commission (25%) and the Financial Institutions (9%).

9.1. European InvestmentBank

Relatedparty transactions with the European InvestmentBank aremainly relatedtothe managementbythe Fund of the venturecapital activityasdescribed in the note7.3. In addition, the European InvestmentBank manages the EIF treasury, the IT,the pension fund and other services on behalf of the Fund.The amounts included in the financial statements and relating to the European InvestmentBank aredisclosed as follows:

31.12.2007 31.12.2006 EUR EUR

ASSETS Prepayments and accrued income 795 703 1589 529 Other assets 13 294 567 9709 504 LIABILITIES Creditors 84 122 2646 501 Other provisions 1482 798 1571 360 Accruals &deferredincome 180 000 190 000 Capital paid in 365 000 000 244 800 000 OFF BALANCE SHEET Guarantees Drawn410 445 884 503 386 265 Guarantees undrawn16250 000 16 250 000 Assets held forthirdparties 40 372 364 44 528 353 Investments drawninventurecapital 1495 304 677 1378 546 509 Investments undrawninventurecapital 1271 340 376 1250 532 456 INCOME Managementfees 8540 072 8456 922 EXPENSES Wages &Salaries 2928 735 2802 613 IT expenses 866 775 850 635 Services 1134 982 1884 472 Treasurymanagementfees 337 176 269 363 EIF – Financial Statements 225 EIB Group

9.2. Commission of the European Communities

Relatedparty transactions with the Commission aremainly relatedtothe managementbythe Fund of the venturecapital and guarantees activities as described in the note7.3. In addition, the Commission manages the EC programmes treasuryonbehalf of the Fund.The amounts included in the financial statements and relating to the Commission of the European Communities aredisclosed as follows:

31.12.2007 31.12.2006 EUR EUR

ASSETS Accounts Receivable 8078 322 3828 075 LIABILITIES Accounts Payable 499 675 258 813 Capital paid in 138 200 000 120 000 000 OFF BALANCE SHEET Guarantees Drawn7037 301 432 5994 388 020 Guarantees undrawn278 540 464 1340 126 551 Assets held forthirdparties 382 745 013 324 124 409 Net disbursed in venturecapital 113 726 928 90 498 127 Investments undrawninventurecapital 150 508 348 142 696 395 INCOME Managementfees 11 849 856 12 296 812 EXPENSES Treasurymanagementfees 57 528 88 213

10. Taxation

TheProtocolonthe Privileges and Immunities of the European Communities,appended to the Treaty of 29 October 2004 establishing aConstitution forEurope,applies to the Fund,which means thatthe assets,revenues and other property of the Fund areexempt from all directtaxes. EIB Group 226 Financial Report2007

EIB Group Addresses

EuropeanInvestmentBank

www.eib.org - U [email protected]

100, boulevard Konrad Adenauer 3 (+352)43791 L-2950 Luxembourg 5 (+352)437704

External offices:

Austria Italy Mattiellistraße2-4 ViaSardegna 38 A-1040 Wien I-00187Roma 3 (+43-1)505 36 76 3 (+39)0647191 5 (+43-1)505 36 74 5 (+39)0642873438

Belgium Poland Ruedelaloi 227/Wetstraat 227 Plac Piłsudskiego 1 B-1040 Bruxelles/Brussel PL-00-078 Warszawa 3 (+32-2)235 00 70 3 (+48-22) 3100500 5 (+32-2)230 58 27 5 (+48-22) 3100501

Finland Portugal Fabianinkatu34 AvenidadaLiberdade,190-4° A PL 517 P-1250-147 Lisboa FI-00101 Helsinki 3 (+351) 213428989 3 (+358) 106180830 5 (+351) 213470487 5 (+358) 92 78 52 29

France Romania 21,rue desPyramides Str. JulesMichelet 18-20 F-75001Paris R-010463Bucureti, Sector 1 3 (+33-1)55047455 3 (+40-21)208 64 00 5 (+33-1)42616302 5 (+40-21)317 90 90

Germany Spain Lennéstraße11 CalleJosé Ortega yGasset, 29,5° D-10785Berlin E-28006Madrid 3 (+49-30) 59 00 47 90 3 (+34)914 31 13 40 5 (+49-30) 59 00 47 99 5 (+34)914 31 13 83

Greece UnitedKingdom 1, Herodou Attikou &Vas.SofiasAve 2Royal Exchange Buildings GR-106 74 Athens London EC3V 3LF 3 (+30-210) 68 24 517 3 (+44)2073759660 5 (+30-210) 68 24 520 5 (+44)2073759699 Financial Report2007 227 EIB Group

Caribbean Pacific 1, Boulevard du GénéraldeGaulle Level32, ABNAMROTower F-97200 Fort-de-France 88 Phillip Street 3 (+596) 596747310 Sydney NSW2000 5 (+596) 596561833 Australia 3 (+61-2)82110536 5 (+61-2)82110538

Egypt Senegal 6, Boulos Hanna Street 3, rue du Docteur Roux Dokki,12311 Giza BP 6935,Dakar-Plateau 3 (+20-2)33366583 3 (+221) 338894300 5 (+20-2)33366584 5 (+221) 338429712

Kenya South Africa Africa Re Centre,5th floor 5Greenpark Estates Hospital Road, PO Box40193 27 George Storrar Drive KE-00100 Nairobi Groenkloof 3 (+254-20)273 52 60 0181 Tshwane(Pretoria) 5 (+254-20)271 32 78 3 (+27-12) 4250460 5 (+27-12) 4250470

Morocco Tunisia Riad Business Center 70,avenueMohamed V Aile sud, ImmeubleS3, 4e étage TN-1002Tunis Boulevard Er-Riad 3 (+216) 71 28 02 22 Rabat 5 (+216) 71 28 09 98 3 (+212) 37 56 54 60 5 (+212) 37 56 53 93

European InvestmentFund www.eif.org - U [email protected]

43, avenue J.F. Kennedy 3 (+352)4266881 L-2968 Luxembourg 5 (+352)426688200

Please consult the Bank’s websitefor anychange in the list of existing offices and fordetails on offices that may have been opened following publication of this brochure.

Annual Report2007 • Volume II

European Investment Bank Group •European Investment Bank Group •European Investment Bank Group •European Investment Bank Group