Banif Financial Group
Financial Statements
Notes to the Financial Statements
31 December 2008
1
1 – BALANCE SHEET
BANIF - SGPS, S.A.
CONSOLIDATED BALANCE SHEET
31 DECEMBER 2008 AND 31 DECEMBER 2007
(amounts in Euros thousand)
31-12-2008 31-12-2007
Before Impairment Impairment and Net Net and depreciation depreciation
Cash and balance at Central Banks 313.199 - 313.199 276.824 Due from other banks 149.231 - 149.231 118.535 Trading securities 277.124 - 277.124 253.447 Other financial assets at fair value through profit or loss 248.046 - 248.046 285.731 Financial assets available-for-sale 163.255 (3.779) 159.476 218.537 Loans and advances to banks 149.668 - 149.668 189.831 Loans and advances to customers 10.590.663 (253.714) 10.336.949 8.619.775 Investment securities held to maturity 84.003 - 84.003 - Securities subject to repurchase agreements 91.283 - 91.283 31.131 Derivatives held for hedging - - - - Non-current assets available for sale 10.171 (1.538) 8.633 68.404 Investment Property 107.990 - 107.990 9.042 Other tangible assets 378.158 (115.620) 262.538 185.403 Intangible assets 81.698 (52.664) 29.034 26.731 Investments in associates and affiliates excluded from Cons. Accounts 107.375 - 107.375 109.612 Current tax assets 30.801 - 30.801 32.982 Deferred tax assets 41.874 41.874 20.022 Other assets 490.614 (11.222) 479.392 314.953 Debtors by insurance and reinsurance - - - - Other assets 490.614 (11.222) 479.392 314.953 Total Assets 13.315.153 (438.537) 12.876.616 10.760.960
Deposits from Central Banks - - 965.843 - Trading liabilities - - 41.934 44.747 Financial liabilities at fair value through profit or loss - - 267.196 377.443 Deposits from other banks - - 2.081.009 1.777.023 Customer deposits and other loans - - 6.514.863 5.331.498 Debt securities in issue - - 1.385.895 1.702.673 Financial liabilities linked to transferred assets - - - - Derivatives held for hedging - - - - Non-current liabilities available-for-sale - - - - Provisions - - 13.224 16.564 Underwriting provisions - - - - Current tax liabilities - - 6.810 33.739 Deferred tax liabilities - - 16.415 61.497 Instruments representing capital - - - - Other subordinated Liabilities - - 323.105 353.856 Other Liabilities - - 397.552 271.796 Creditors by insurance and reinsurance - - - - Other liabilities - - 397.552 271.796 Total liabilities - - 12.013.846 9.970.836
Share Capital - - 350.000 250.000 Issue Premiums - - 78.214 78.214 Other equity instruments - - - - Treasury shares - - (764) (203) Revaluation reserves - - (24.539) 76.073 Other reserves and retained earnings - - 121.221 109.897 Profit for the year - - 59.237 101.084 Interim dividends - - - - Minority interests 279.401 175.059 Total Equity - - 862.770 790.124
Total Liabilities + Equity - - 12.876.616 10.760.960
2
2 – INCOME STATEMENT
BANIF - SGPS, S.A.
CONSOLIDATED INCOME STATEMENT
31 DECEMBER 2008 AND 2007
(amounts in Euros thousand)
31-12-2008 31-12-2007 Interest and similar income 944.302 700.918 Interest and similar expense (675.014) (461.854) Net Interest Income 269.288 239.064 Dividend Income 2.883 2.800 Fees and commission income 116.249 106.998 Fees and commission expense (13.437) (12.230) Net gain or loss on financial assets and liabilities at fair value through profit or loss 23.136 8.863 Net gain or loss on financial assets available for sale 63.996 53.287 Net gain or loss on foreign exchange (19.989) 6.177 Net gain or loss from disposal of other assets 1.786 9.398 Net reinsurance premium written - - Cost of net reinsurance claims - - Variation in net underwriting provisions - reinsurance - - Other operating income 26.131 29.411 Net Operating Income 470.043 443.768 Personnel Costs (162.606) (136.323) Overheads (134.239) (105.470) Depreciation and amortisation (31.285) (26.750) Provisions net of write-offs (1.791) (5.938) Impairment losses on financial assets net of reversal and recovery (53.707) (27.407) Impairment losses on other financial assets net of reversal and recovery (2.713) (818) Impairment losses on other assets net of reversal and recovery (5.046) 2.055 Negative consolidation differences - 510 Income from associates and joint ventures (equity method) 3.282 11.448 Profit before tax 81.938 155.075 Income Tax (15.175) (38.271) Current (27.582) (45.076) Deferred 12.407 6.805 Profit after tax and before minority interest 66.763 116.804 Of which: Profit after tax from discontinued operations - - Minority Interest (7.526) (15.720) Consolidated Net Profit 59.237 101.084
Average weighted number of ordinary shares in circulation 300.607.649 249.836.509 Earnings per share (€/ share) 0,20 0,40
The Accountant The Board of Directors
3
3 – STATEMENT OF CHANGES IN EQUITY
BANIF - SGPS, S.A.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
31 DECEMBER 2008 AND 2007
(amounts in Euros thousand)
Revaluation Reserves, Other Profit for the year Share Treasury Issue Reserves and Retained less Minority Capital Shares PremiumsEarnings Interests Total Balances as at 31-12-2007 250.000 (203) 78.214 185.970 101.084 615.065 Transfer to reserves - - - 63.584 (63.584) - Dividend - - - - (37.500) (37.500) Capital Increase 100.000 - - - - 100.000 Acquisition/disposal of treasury shares - (561) - - - (561) Revaluation reserve ------Available-for-sale financial assets - - - (102.802) - (102.802) Consolidation differences: operations with MI - - - (5.587) - (5.587) Exchange rate variation - - - (42.347) - (42.347) Banif Cayman dividends - - - (623) - (623) Other changes in equity - - - (1.513) - (1.513) Net profit for the period - - - - 59.237 59.237 Balances as at 31/12/2007 350.000 (764) 78.214 96.682 59.237 583.369
Balances as at 31-12-2006 250.000 (1.334) 78.214 80.665 78.096 485.641 Transfer to reserves - - - 48.096 (48.096) - Dividends - - - - (30.000) (30.000) Aquisition/disposal of treasury shares - 1.131 - (1.024) - 107 Available-for-sale financial assets - - - 59.492 - 59.492 Other changes in equity - - - (1.259) - (1.259) Net profit for the period - - - - 101.084 101.084 Balances as at 31/12/2007 250.000 (203) 78.214 185.970 101.084 615.065
The Accountant The Board of Directors
4
4 – CASH FLOW STATEMENT
5 BANIF - SGPS, S.A.
CASH FLOW STATEMENT
31 DECEMBER 2008 AND 2007
(amounts in Euros thousand)
OPERATING ACTIVITIES 31-12-2008 31-12-2007 Operating Results Net profit for the period 59.237 101.084 Impairment of overdue credit 53.707 27.407 Other impairment losses 7.759 (1.237) Provisions for the period 1.791 5.938 Depreciation for the period 31.285 26.750 Allocation for income tax 15.175 38.271 Minority interest 7.526 15.720 Derivatives (net) 59.098 63.789 Profits from companies excluded from consolidated accounts (3.282) (11.448) Dividends received (2.883) (2.800) Interest paid on subordinated liabilities 21.098 25.943 250.511 289.417
Changes in operating assets and liabilities (Increase)/Decrease in financial assets held for trading (23.677) (88.356) (Increase)/Decrease in financial assets at fair value through profits 37.685 162.004 (Increase)/Decrease in financial assets available-for-sale 59.118 (188.123) (Increase)/Decrease in loans and advances to other banks 40.163 300.448 (Increase)/Decrease in held-to-maturity investments (84.003) 1.075 (Increase)/Decrease in loans and advances to customers (1.774.495) (1.605.688) (Increase)/Decrease in non-current assets held for sale 31.451 (7.675) (Increase)/Decrease in assets with repurchase agreement (60.152) (16.830) (Increase)/Decrease in other assets (61.186) (63.434) Decrease/(Increase) in deposits from central banks 965.843 - (Decrease)/Increase in trading liabilities (2.813) 17.404 (Decrease)/Increase in other financial liabilities at fair value through profit or loss (110.247) (53.392) (Decrease)/Increase in deposits from other banks 303.986 211.308 (Decrease)/Increase in customer deposits 1.183.365 904.611 (Decrease)/Increase in debt securities in issue (316.779) 172.191 (Decrease)/Increase in other liabilities 8.752 150.122 Income Taxes (106.856) 11.709 90.155 (92.626)
Net Cash Flow from Operating Activities 340.666 196.791
INVESTMENT ACTIVITIES
Acquisition of subsidiaries -51.092 -89.068 Purchase of tangible assets (126.044) (75.157) Purchase of intangible assets (10.485) (6.831) Acquisition of Investment property (102.698) - Disposal of Investment property 3.751 - Dividend income 2.883 2.800 Net Cash Flow from Investment Activities (283.685) (168.256)
FINANCING ACTIVITIES
Increase in Share Capital 100.000 - Issue Premiums - - Dividends paid (37.500) (30.000) (Purchase)/Disposal of Treasury Shares (561) 1.131 Issue/Redemption of Subordinated Liabilities (30.751) (13.918) Interest paid on subordinated liabilities (21.098) (25.943)
Net Cash Flow from Financing Activities 10.090 (68.730)
67.071 (40.195) CHANGES IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of the period 395.359 435.554 Foreign Exchange revaluations - - Cash and cash equivalents at end of the period 462.430 395.359 67.071 (40.195)
Balance sheet value of cash and cash equivalents as of 31 December Cash 57.766 50.391 Sight deposits with Central Banks 255.433 226.433 Sight deposits with other banks 105.931 75.008 Cheques to be collected 43.300 43.527 462.430 395.359
Cash and equivalents not avaliable for use by entity --
6 5 – Notes to the Consolidated Financial Statements at 31 December 2008 and 2007, BANIF – SGPS, SA and Subsidiaries (Figures in ‘000 euros, except as otherwise stated)
1. GENERAL INFORMATION
The Banif Financial Group (Group) comprises Companies specializing in the banking and insurance sectors, supported by a number of other companies operating in various areas of the financial sector. The main Group entities and the nature of their business activities are described in greater detail in the Management Report.
Banif SGPS, SA, the parent company of the Group, with registered offices at Rua João de Tavira 30, 9004-509 Funchal, has the sole object of managing holdings in other Companies, as detailed in Notes 4 and 20.
A holding of 60.39% in Banif SGPS, SA is owned directly and indirectly by Rentipar Financeira, SGPS, SA, which is in turn owned by Comendador Horácio da Silva Roque.
The shares in Banif SGPS, SA are listed on Euronext Lisboa.
On 6 March 2009, the Company’s Board of Directors reviewed, approved and authorized the Financial States as at 31 December 2008 and the Management Report, which shall be submitted for the approval of the General Meeting of Shareholders of 31 March 2009.
2. ADOPTION OF NEW OR REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS
The following standards took effect in 2008:
IAS 39 Financial Instruments: Recognition and Measurement The Group adopted the alterations to IAS 39 Financial Instruments: Recognition and Measurement and IRS 7 Financial Instruments: Disclosures. In view of the exceptional market circumstances, these amendments made it possible to reclassify certain financial instruments out of the category of Financial assets held for trading into Financial assets held to maturity or Loans and Receivables (Notes 8 and 13).
IFRIC 11 – Group and Treasury Share Transactions The Group adopted IFRIC 11 insofar as it is applicable to consolidated financial statements. This interpretation requires that agreements whereby rights over shares in the entity are assigned to employees be accounted for as share-based payment schemes, even when the entity buys the instruments from an independent party, or when the shareholders surrender the equity instruments needed. As at 31 December 2008, the Group has no agreements of this kind.
IFRIC 12 – Service Concession Arrangements This interpretation, not yet adopted by the European Union, applies to concession operators and explains how to account for liabilities accepted and rights received under concession arrangements. No member of the Group is a concession operator and consequently this interpretation has no impact on the group.
In Note 49 we describe the standards and interpretations most recently issued by the International Accounting Standards Board (IASB) but yet to take effect, where the Group has not opted for early adoption in its financial statements.
7
The Group does not expect that these standards and interpretations will have a significant impact on its financial statements.
3. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
3.1 Basis of Presentation
The consolidated financial statements of the Banif Financial Group have been drawn up in accordance with the International Financial Reporting Standards (IFRS) as adopted in the European Union, under the terms of Regulations of the Council and the European Parliament no. 1606/02. The financial statements have been draw up on the historical cost basis, except for held for trading financial assets and liabilities (including derivatives), assets and liabilities at fair value through profit or loss, available for sale financial assets, property recorded under tangible assets and investment properties which are recorded at fair value. The main accounting policies used by the Group are presented below.
3.2 Comparative information
Save as explained in Note 3.3 on “Impairment of equity instruments”, where no adjustments are needed to comparative figures, the Group has not made any other changes to its accounting policies, meaning that in general the figures presented are comparable, in relevant aspects, with those from the previous period. As stated in Note 3.10, under “Non-current assets held for sale”, the Group transferred 88,766 thousand euros to “Other assets”, with the result that the comparison between the figures for the period and those for the previous period should be examined in conjunction with the information contained in Notes 16 and 22.
3.3 Use of estimates in the preparation of the Financial Statements
The preparation of financial statements requires the use of estimates and assumptions by the Group’s Management that affect the reported amounts of assets and liabilities, credits and costs, together with the contingent liabilities disclosed. In making these estimates the Management used its judgement, together with the information available at the date of preparation of the financial statements. Consequently, future amounts effectively realized may differ from the estimates made.
The situations where the use of estimates is most significant are as follows:
Fair value of financial instruments
When the fair values of financial instruments cannot be marked to market, they are determined through the use of valuation techniques which include mathematical models (marked to model). The input data in these models is whenever possible observable market data, but when this is not possible, a degree of judgement is required to establish the fair values, namely as regards the level of liquidity, correlation and volatility.
8 Impairment losses on client credits
Client accounts receivable with outstanding positions and total liabilities which amount to a significant sum are analyzed individually to assess the needs for recording impairment losses. This analysis involves estimating the value and timing of future flows. These estimates are based on assumptions concerning a number of factors which may be modified in future, which might consequently alter the impairment amounts. Additionally, a collective analysis of impairment is conducted by credit segments, with similar characteristics and risks and impairment losses are determined on the basis of the historical behaviour of losses for the same type of assets.
Impairment on equity instruments
Available-for-sale financial assets are analyzed when there is objective evidence of impairment, and specifically when there is a significant or prolonged decline in fair values, below cost price. Determining when a degree of decline is considered “significant or prolonged” requires judgement. In this context, the Group considers that a decline in the fair value of an equity instrument of more than or equal to 30% (20% in 2007) or a decline over more than 1 year (6 months in 2007) may be considered as significant or prolonged. However, other factors are assessed, such as the volatility of asset prices. The alteration in the criteria for considering that objective evidence of impairment exists from 20% to 30% and from 6 months to 1 year reflects an appropriate adjustment in the light of the extraordinarily volatile conditions and lack of liquidity in the market, as contemplated by Circular 105/08/DSBDR or 18/12/2008 of the Bank of Portugal. This alteration has no impact on comparative data for the previous year.
Investment properties and property in own use
The fair value of investment properties and property in own use, classified under Other Tangible Assets, is determined on the basis of valuations conducted by independent experts, using estimates of income and maintenance or replacement costs and also comparable market values.
Deferred tax assets
Deferred tax assets are recognized for unused fiscal losses, insofar as it is considered likely that positive fiscal results will exist in the future period established in law. Judgement is required to determine the value of the deferred tax assets which may be recognized, based on the level of expected future fiscal results.
Retirement benefits
The level of liabilities relating to retirement benefits (defined benefits plans) is determined through an actuarial assessment, which uses assumptions concerning discount rates, the expected returns on Pension Fund assets, future salary and pension increases and mortality tables. In view of the long term nature of pension plans, these estimates are subject to significant uncertainties. Note 44 sets out the assumptions used.
3.4 Consolidation Principles
The consolidated financial statements include the accounts of Banif SGPS, SA and those of entities controlled by the same (“subsidiaries”), including special purposes entities (SPEs), drawn up for the same reference date as the present financial statements. Control is deemed to exist whenever the Group has the possibility of 9 determining the operating and financial policies of an entity with a view to obtaining benefits from its activities, which normally happens when the Group holds no less than 50% of the voting rights in the entity. Special purposes entities, in relation to which the Group retains the majority of risks and benefits involved in their activities, are also included in the consolidated accounts. These include essentially the entities used by the Group in credit securitisation operations and the issue of structured debt.
Whenever applicable, the subsidiaries’ accounts are adjusted in order to reflect the use of the accounting policies of the Banif Financial Group.
Significant balances and transactions between Group companies are eliminated in the course of the consolidation process.
The value corresponding to third party holdings in subsidiaries in presented under “Minority Interests”, in shareholders’ equity.
3.5 Business combinations and goodwill
The acquisition of subsidiaries is recorded by the purchase method. The acquisition cost corresponds to the fair value, on the transaction date, of the assets delivered, liabilities accepted, equity instruments in issue, plus any costs directly attributable to the transaction. The identifiable assets, liabilities and contingent liabilities of the entity acquired should be measured by fair value at the acquisition date.
Goodwill corresponds to the difference between acquisition cost and the proportion acquired by the group of the fair value of the assets, liabilities and contingent liabilities identified. Whenever it is found that the fair value exceeds the acquisition cost (“negative goodwill”), the differential is immediately recognized in profit or loss.
When the acquisition cost exceeds the fair value of the assets, liabilities and contingent liabilities, the positive goodwill is recorded under assets, and is not depreciated. However, it is subject to annual impairment tests, and any impairment losses which may be determined are reflected.
For the purposes of carrying out the impairment test, the goodwill determined is imputed to each of the Cash Flow Generating Units (CFGU) which benefited from the combination. The goodwill attributed to each unit is subject to an impairment test annually, or whenever there is any indication that impairment may exist.
Impairment of goodwill is determined by calculating the recoverable amount for each CFGU or CFGU group to which the goodwill relates. When the recoverable amount for the CFGUs is less than the amount recorded, impairment is recognized.
Impairment losses on goodwill cannot be reversed in future periods.
3.6 Investment in associates
These are investments in entities where the Group has significant influence and which are neither subsidiaries nor joint ventures. Significant influence is deemed to exist whenever the Group holds more than 20% of the voting rights, either directly or indirectly.
Investments in associates are recorded by the equity method. The investment is initially recorded at acquisition cost, which is increased or decreased through recognition of subsequent variations in the portion held in the associate’s equity. Goodwill arising on acquisition is therefore reflected in the investment value, and is
10 subject to impairment analysis as part of the value of the investment. Any negative goodwill is immediately recognized in profit or loss.
As in the procedure for subsidiaries, the associate’s accounts are adjusted, whenever applicable, in order to reflect the use of the Group’s accounting policies.
3.7 Foreign currency transactions
Foreign currency transactions are recorded on the basis of the indicative exchange rates on the transaction date. Monetary assets and liabilities expressed in foreign currency are translated to Euros at the exchange rate ruling at the balance sheet date. Non-monetary items, which are valued at fair value, are translated on the basis of the exchange rate ruling on the last valuation date. Non-monetary items which are carried at historical cost, are carried at the original exchange rate.
Exchange rate differences resulting from translation are recognized as gains or losses of the period in the income statement, except for those deriving from non- monetary financial instruments classified as available for sale, which are recorded against a specific item of shareholders’ equity until disposal of the asset.
At the balance sheet date, assets and liabilities with a functional currency other than the euro are translated at the exchange rate ruling at the date of the close of the balance sheet, whilst income and cost items are translated at the average rate for the period. Differences arising from use of the closing rate and average rate are recorded against a specific equity item until disposal of the respective entities.
3.8 Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents comprise national and foreign currency, in cash, sight deposits with central banks, sight deposits with other banks in Portugal and abroad and cheques to be drawn on other banks.
3.9 Financial instruments
3.9.1 Initial recognition and measurement of financial assets
Purchases and sales of financial assets which involve the delivery of assets in accordance with timeframes established by regulations or market conventions are recognized at the transaction date, i.e. at the date on which the commitment to purchase or sell is accepted. Derivative financial instruments are also recognized at the transaction date.
The classification of financial instruments on the initial recognition date depends on their characteristics and on the intention with which they are acquired. All financial instruments are initially measured at fair value plus costs directly attributable to purchase or issue, except in the case of assets and liabilities at fair value through profit or loss where these costs are recognized directly in profit or loss.
3.9.2 Subsequent measurement of financial assets
Held-for-trading financial assets
11 Held-for-trading financial assets and liabilities are those acquired with a view to sale in the short term and realization of profits from price fluctuations or on the trader’s margin, including all derivatives not acquired for hedging operations.
After initial recognition, gains and losses generated by subsequent measurement at fair value are reflected in the profit or loss for the period. In derivatives, positive fair values are recorded under assets and negative fair values are recorded under liabilities. Interest and dividends or charges are recorded in the respective profit or loss accounts when the right to payment is established.
Held-for-trading financial liabilities also include sales of overdraft securities. These operations are recorded in the balance sheet at fair value, with subsequent variations in the fair value recorded in the profit or loss for the period under “Profit or loss from assets and liabilities at fair value through profit or loss”.
Financial assets at fair value through profit or loss
These accounts include financial assets and liabilities classified by the Group irrevocably on initial recognition as being at fair value through profit or loss, in accordance with the option provided for in IAS 39 (fair value option), provided the conditions stipulated for recognition are met, namely: i) the designation eliminates or significantly reduces accounting mismatches between measurement of financial assets and liabilities and recognition of the respective gains or losses; ii) the assets and liabilities are part of a group of assets or liabilities or both which is managed and its performance assessed on the basis of fair value, in keeping with a duly documented investment and risk management strategy; or iii) the financial instrument includes one or more embedded derivatives, except when the embedded derivatives do not significantly modify the cash flows involved in the contract, or when it is clear, with little or no analysis, that the embedded derivatives cannot be separated.
After initial recognition, gains and losses generated by subsequent measurement at fair value of financial assets and liabilities are reflected in the profit or loss for the period under “Profit or loss on assets and liabilities at fair value through profit or loss”.
The Group classifies under financial assets at fair value through profit or loss almost all the trading book for banking activities, which is managed and its performance assessed on the basis of fair value, except for strategic holdings and securities for which reliable valuations cannot be obtained. Financial liabilities were designated as liabilities at fair value through profit or loss as they consist of debt instruments (subordinated and non-subordinated) with one or more embedded derivatives.
Available-for-sale financial assets
This item comprises instruments which may be disposed of in response to or in anticipation of liquidity needs or changes in interest rates, exchange rates or changes in their market price, and which the Group has not classified in any of the other categories. Accordingly, as at 31 December 2007, this account includes essentially
12 holdings regarded as strategic and securities for which it is not possible to obtain reliable valuations.
After initial recognition they are subsequently measured at fair value, or else carried at cost if it is not possible to determine the fair value reliably, and the respective gains and losses are reflected under “Revaluation Reserves” through to sale (or recognition of impairment losses), at which point the accrued value is transferred to profit or loss of the period under “Profit or loss on available-for-sale financial assets”.
Interest on financial assets is calculated in accordance with the effective rate method and recognized in the income statement under “Interest and similar income”. Dividends are recognized in profit or loss, when the right to the respective payment is established, under “Earnings from equity instruments”. For debt instruments issued in foreign currencies, exchange rate differences are recognized in the income statement for the period under “Profit or loss on exchange rate revaluation”.
An analysis is conducted of the existence of evidence of impairment losses on available-for-sale financial assets at the reference date of each set of financial statements. Impairment losses are recognized in the income statement under “Impairment of other financial assets net of reversal and recovery”.
Held-to-maturity financial assets
Held-to-maturity financial assets comprise financial investments with fixed or determinable payments and fixed maturities, where there is the intention to hold them to maturity.
After initial recognition, they are subsequently measured at amortized cost, using the effective interest rate method, less impairment losses. The amortized cost is calculated taking into account the bonus or discount at the acquisition date and other charges directly imputable to the purchase as part of the effective interest rate. Amortization is recognized in profit or loss under “Interest and similar income”. Impairment losses are recognized in profit or loss under “Impairment of other financial assets net of reversal and recovery”.
Loans and advances to banks and loans and advances to customers
These accounts include funds advanced to banks and to Group customers.
These are financial assets with fixed or determinable payments, not listed on the markets, which are not assets acquired or sourced with a view to disposal in the short term (held for trading) or classified as financial assets at fair value through profit or loss when initially recognized.
After initial recognition, normally at the value disbursed, including all the costs involved in the transaction, such as commissions charged without having the nature of provision of a service, these assets are subsequently measured at amortized cost, using the effective rate method, and subject to impairment tests.
The amortized cost is calculated taking into account earnings or charges directly imputable to the sourcing of the asset as part of the effective interest rate. Depreciation is recognized in the income statement under “Interest and similar
13 income”. Impairment losses are recognized in the income statement under “Credit impairment net of reversal and recovery”.
Loans granted and accounts receivable are only written off from assets where there are no realistic expectations of recovering the amounts in question, including through collateral. This assessment is independent of the procedures for writing off lending assets in the individual accounts of the subsidiaries, under the local rules applicable to these entities.
Deposits from other banks, Customer accounts and other loans, Debt securities in issue and Other subordinated liabilities
The other financial liabilities, which include essentially deposits from banks, customer accounts and debt issues not designated as financial liabilities at fair value through profit or loss, for which the contractual terms result in the obligation to deliver funds or financial assets to the holders, are recognized initially at the value of the funds received net of directly associated transaction costs, and subsequently valued at amortized cost, using the effective rate method. Depreciation is recognized in the income statement under “Interest and similar charges”.
Fair value
The fair value used in valuing trading financial assets and liabilities classified as being at fair value against profit or loss, and available-for-sale financial assets is determined in accordance with the following criteria:
• In the case of instruments traded on active markets, the fair value is determined on the basis of the closing price, the price of the last transaction made or the value of the last known bid;
• In the case of assets not traded on active markets, the fair value is determined using valuation techniques, which include the prices of recent transactions in equivalent instruments and other valuation methods normally used by the market (discounted cash flow, option valuation models, etc.).
Floating rate assets (e.g. shares) and their derivative instruments for which it is not possible to obtain reliable valuations are carried at acquisition cost, less impairment losses, if any.
Impairment
The Group assesses regularly whether there is objective evidence of impairment in its lending portfolio and receivables. Impairment losses identified as recorded against profit or loss.
Whenever, in a subsequent period, there is a reduction in the value of the estimated impairment loss, the amount previously recognized is reversed by adjusting the account for impairment losses. The amount corresponding to such reversal is recognized directly in the income statement in the same item.
A credit, or a portfolio of customer, defined as a set of credits with similar risk characteristics, is impaired whenever: there is objective evidence of impairment resulting from one or more events which occurred after initial recognition and, when this event (or events) has an impact on the recoverable value of future cash flows from the loan or portfolio of customer loans, the measurement of which may be reasonably estimated. 14 Two analytical methods are used to determine impairment: a) Individual analysis
The existence of impairment losses in individual instances is assessed by means of a case-by-case analysis of the situation of customers where the total credit exposure is regarded as significant. For each customer the Group assesses, at each balance sheet date, the existence of objective evidence of impairment, considering the following factors:
- the economic-financial situation of the customer; - the customer’s overall exposure and any default on credit within the Group and the financial system; - commercial information on the customer; - analysis of the business sector in which the customer operates, when applicable; - connections between the customer and the Group to which it belongs, when applicable, and analysis of the Group in relation to the variables referred to above in terms of the client considered individually.
In determining impairment losses in individual cases, the following factors are considered:
- The economic-financial viability of the client and its ability to generate sufficient cash flow to service the debt in future; - The value of the associated real guarantees and the estimated recovery periods; - The customer’s assets in situations of liquidation or bankruptcy and the existence of privileged creditors;
Loans analyzed individually without any objective evidence being found of impairment are grouped together on the basis of similar risk characteristics, and assessed collectively for impairment purposes.
Where loans are analyzed individually and an impairment loss is estimated, these loans are not included for the purposes of collective assessment.
Whenever an impairment loss is identified in customer credits assessed individual, the amount of the loss is determined by the difference between the accounting value of the credit and the present value of the respective estimated future cash flows, discounted at the original interest rate for the contract. Loans to customers presented in the balance sheet are reduced by using an impairment losses account and the amount recognized in the income statement under “Loan impairment net of recovery and reversal”. For lending on a variable rate basis, the discount rate used to determine any impairment loss is the effective annual rate, determined by the contract.
Calculation of the present value of estimated future cash flows from collateralized lending reflects the cash flows which may result from recovery and disposal of the collateral, less the costs involved in recovery and sale. b) Collective analysis
Loans assessed on a collective basis are grouped together by segment with similar characteristics and risks. Impairment losses for these loans are estimated considering the historical experience of losses on similar risk portfolios, and the economic environment and its influence on the level of historical losses. 15 At regular intervals, the Group updates the historical parameters used to estimate losses through collective analysis.
Whenever a loan is regarded as uncollectable, and the respective impairment loss is estimated at 100% of the value of the loans, the loan is written off against the value of the loss. The loan is thereby deducted from assets.
Subsequent recoveries of amounts previously written off are credited to the income statement, in the “Impairment” account referred to above.
Derivatives and hedge accounting
In the course of its normal operations, the Group uses a number of derivative financial instruments both to satisfy its customers’ needs, and to manage its own interest rate positions or positions regarding other market risks. These instruments involve variable degrees of lending risk (maximum potential accounting loss due to possible default by borrowers on contractual obligations) and market risk (maximum potential loss due to alteration of the value of a financial instrument due to variations in interest rates, foreign exchange rates and listed prices).
The notional values of derivatives operations are used to calculate the flows to trade on contractual terms, possible in net terms, and although they constitute the most usual form of measurement used in these markets, they do not correspond to any quantification of the lending or market risk on the respective operations. For interest or exchange rate derivatives the lending risk is measured by the substitution cost at current market prices for the contracts in which a potential gain position is held (positive market value) in the event of the borrower defaulting.
Derivatives embedded in other financial instruments are separated from the host instrument whenever their risks and characteristics are not closely related to those of the host contract and the entire contract is not recorded on initial recognition at fair value through profit or loss (fair value option).
Derivative instruments used in management of exposure to financial and market risks are accounted for in accordance with the criteria defined in IAS 39, provided they meet the eligibility requirements set by this standard, namely for recording of hedges of exposure to variation in the fair value of the hedged asset (“Fair value hedges”). Otherwise, derivatives are considered at their fair value as financial trading assets or liabilities, depending on whether their fair value is positive or negative.
The Group as a rule does not carry out short / long trading on these financial instruments. Derivative instruments have been used by the Banif Financial Group mainly in the following situations:
1. As a hedge against liabilities indexed to reference assets: in practice, the Group issues financial liabilities where interest and capital repayments are linked to the performance of a reference asset (shares, lending and interest rate, etc.) and makes the hedge by contracting OTC derivatives in order to transform these liabilities into Euribor indexed operations. These embedded derivatives are valued together with the financial liability (“fair value option”), classified under financial liabilities at fair value through profit or loss.
2. As a hedge against the risk of derivative operations with clients: the Group contracts OTC derivatives (cross currency swap, interest rate swap, equity swap, etc.) with clients whose risk is hedged by back-to-back operations with counterparties in the market.
16 3. As a hedge against the risk of financial assets with embedded derivatives, which are valued, overall, at fair value through profit or loss: the Group contracts back-to-back operations (cross currency swap, interest rate swap, etc.) with counterparties in the OTC derivatives market, to hedge against the risk involved in these assets.
4. Interest rate swaps related to credit and leasing securitisation operations carried out by the Banif Financial Group, with the swaps with significant risk (flat rate to floating rate) being hedged in full with counterparties in the market.
However, the financial statements do not consider any hedging operations, given that all existing derivatives were either classified as trading derivatives because they failed to meet the hedge accounting requirements of IAS 39, or else are associated with liabilities at fair value through profit or loss. Consequently, all derivatives are recorded under trading assets and liabilities.
3.9.3 Derecognition of financial assets and liabilities
Financial assets
A financial asset (or when applicable a part of a financial asset or part of a group of financial assets) is derecognized when:
I. the rights to receive cash flows from the asset expire; or II. the rights to receive cash flows have been transferred, or the Group has accepted the obligation to pay all the cash flows receivable, without significant delay, to third parties, under a pass-through agreement; and III. the risks and benefits of the assets have been substantially transferred, or the risks and benefits have not been transferred or retained, but control over the asset has been transferred.
When the rights to receive cash flows have been transferred or when a pass-through agreement has been entered into and not all the risks and benefits of the assets have been substantially transferred or retained, and control over the asset has also not been transferred, the financial asset is recognized to the extent of continued involvement, which is measured at the lesser of the original value of the assets and the maximum value of the payment which may be claimed from the Group.
When continued involvement takes the form of an option to purchase the transferred assets, the extent of continued involvement is the value of the asset which may be repurchased, save in the case of a sale option measurable at fair value, when the value of the continued involvement is limited to the lowest of the fair value of the asset and the price for exercise of the option.
Financial liabilities
A financial liability is derecognized when the underlying obligation expires or is cancelled. When an existing financial liability is replaced by another with the same counterparty on terms substantially different from those initially established, or the initial terms are substantially altered, such substitution or alteration is processed as derecognition of the original liability and recognition of a new liability, and any difference between the respective values is recognized in the profit or loss for the period.
17 3.10 Non-current assets held for sale
Non-current assets are classified as held for sale whenever it is determined that their balance sheet value will be recovered through sale. This condition is only met when the sale is highly likely and the asset is available for immediate sale in its current state. The sale operation should take place within one year of classification in this category. An extension of the period in which it is required that the sale be concluded does not mean that an asset (or set of assets for sale) cannot be classified as held for sale, if the delay is caused by events or circumstances beyond the Group’s control, and if the commitment to sell the asset is maintained.
The Group records in this item essentially properties received as settlement of debts relating to lending.
The assets recorded in this category are valued at the lower of acquisition cost and fair value, determined by independent valuers, less costs to be incurred in the sale. These assets are not depreciated.
In cases where the assets classified in this category no longer meet the conditions for immediate sale, namely because more than 1 year has elapsed and the Group has received no reasonable offers, these assets are reclassified into “Other assets”, maintaining the measurement criterion as established in IAS 36 – Impairment of assets – paragraphs 7 to 17.
3.11 Investment properties
Investment properties are initially recognized at cost, including transaction costs. The amount entered in the accounts includes additional investment costs in existing investment property, if the recognition criteria are met, but excludes routine maintenance costs.
Subsequent to initial recognition, investment properties are stated at fair value, reflecting market conditions at the balance sheet date.
Gains and losses resulting from alterations to the fair value of investment properties are included in the profit or loss of the year in question.
Investment properties are derecognized when disposed of or when future economic benefits are no longer expected as a result of owning them. On disposal, the difference between the net disposal value and the stated asset value is recognized in the income statement in the period of the disposal.
Transfers out of and into investment properties are made when there is a change in use. When investment properties are transferred to buildings in the Group’s own use, the estimated cost for subsequent entry in the accounts is the fair value at the date of the change of use. If a building in the Group’s own use is reclassified as investment property, the Group records this asset in accordance with the applicable policy for building in the Group’s own use until the date of its transfer to investment properties.
3.12 Other tangible fixed assets
The account for tangible fixed assets includes buildings in the Group’s use, vehicles and other equipment.
18 The buildings used by the Group in carrying on its business are classified as buildings in the Group’s use. Buildings in the Group’s use are valued at fair value, as determined by independent valuers, less subsequent depreciation and impairment losses. Buildings in the Group’s use are valued at the intervals necessary, to ensure that the accounting values do not differ significantly from their fair value at the balance sheet date, three year intervals between valuations being taken as the norm.
Positive variations in fair value are credited to revaluation reserves, included in equity, except and to the extent that such variation constitutes a reversal of losses on the same asset recognized in profit and loss, in which case this positive variation shall be recognized in profit and loss.
Negative variations in fair value are recognized in profit or loss, except and to the extent that they can offset by positive revaluation reserves existing for the same asset.
Other tangible fixed assets are recorded at cost, less subsequent depreciation and impairment losses. Repair and maintenance costs and other costs associated with use are recognized as costs when they occur.
Tangible assets are depreciated on a straight line basis, in accordance with their expected useful life, which is:
Buildings [10 – 50] years Vehicles 4 years Other equipment [2 – 15] years
On the transition date, the Group used the option permitted by the IAS of considering as the “estimated cost” of tangible asset the respective fair value or, in some cases, the balance sheet value resulting from legal revaluations effected up to 1 January 2004 under Portuguese legislation.
Tangible assets are derecognized when sold or when no further economic benefits may be expected from their use or sale. On the date of derecognition, the gain or loss calculated by the difference between the net sale value and the net accounting value is recognized in the income statement under “Other operating income”.
3.13 Leases
The Group classifies operations as finance leases and operating leases in accordance with their substance and not their legal form. Leases are classified as finance leases when the risks and rewards of ownership of an asset are transferred to the lessee. All other leases are classified as operating leases.
These operations are recorded as follows:
3.13.1 Operating leases
Payments made by the Group under operating leases are recorded as costs in the periods to which they relate
3.13.2 Finance leases
As lessee
19 Assets on a finance lease basis are recorded in “Other tangible fixed assets” at the fair value of the asset or, if lower, at the present value of the minimum leasing payments.
Rentals relating to finance leases are divided into financial charges and repayments, in order to obtain a constant interest rate through to maturity of the liability. Interest paid is recorded as a financial cost. Assets on finance leases are depreciated over the course of their useful lives. However, if there is no reasonable certainty that the Group will obtain ownership at the end of the contract, the asset is depreciated for the lesser of the useful life of the asset or of the finance lease.
As lessor
Assets on a finance lease basis are recorded in the balance sheet as loans granted, for the amount equal to the net investment in the leased item, which is repaid through the principal repayments contained in the financial plan of the lease. Interest included in rentals is recorded as financial income, at the effective contract rate.
3.14 Intangible assets
Intangible assets, which correspond essentially to software, are recorded at acquisition cost, less accrued depreciation and impairment losses. Depreciation is recorded on a straight line basis, over the estimated useful life of the assets, which currently stands at between 3 and 4 years.
The depreciation periods and method for intangible fixed assets are reviewed at the end of each year. Alterations to the estimated useful life or consumption pattern of the future economic benefits are treated as changes to estimates. Depreciation is recognized in the respective item of the income statement.
Intangible assets may include internal capitalized expenses, namely those relating to in-house software development. To this end, expenses are only capitalized from the moment when the conditions established in IAS 38 (relating to the development phase) are met.
3.15 Tax on income
Costs relating to tax on income correspond to the sum of current taxes and deferred taxes.
Current taxes are determined on the basis of the tax rate in force in the jurisdictions where the Group operates.
The Group also records under deferred tax liabilities or assets sums relating to recognition of taxes payable/recoverable in future, deriving from temporary taxable/deductible differences, namely those relating to provisions temporarily not deductible for fiscal purposes, revaluations of securities and derivatives only taxable at the time of realization, the taxation rules on pension liabilities and liabilities relating to other employee benefits and capital gains not taxed due to reinvestment. In addition, deferred tax assets are recognized in relation to fiscal losses presented by certain Group companies, when these losses can be carried forward.
Deferred tax assets and liabilities are calculated and assessed on an annual basis, using the taxation rates expected to be in force at the date of reversal of the temporary differences, which correspond to the rates approved or substantially 20 approved at the balance sheet date. Deferred tax liabilities are always recorded. Deferred tax assets are only recorded to the extent to which it is likely that there exist future taxable profits which will allow them to be used.
Taxes on income are recorded against the results for the period, except in situations where the events which gave rise to them are reflected in a specific equity account, namely, with regard to the value of available-for-sale financial assets and buildings in own use. In this case, the fiscal effect associated with valuations is also reflected against equity, not affecting the profit or loss for the period.
3.16 Employee benefits
Employee benefit liabilities have been recognized under the rules defined by IAS 19. Accordingly, the policies reflected in the consolidated accounts as at 31 December 2008 are as follows:
Pension liabilities
There are various pension plans within the Group, including those with defined benefit plans and, in a smaller number of cases, defined contributions. These liabilities are normally financed through independent pension funds, or payments to insurance companies.
The following Banif Financial Group entities have liabilities in relation to the payment of pensions:
- Banif – Banco Internacional do Funchal, SA
As a result of the Company Agreement reached with the unions in the sector in 2008, as described in Note 45, the Company is committed to three Pension Plans:
- Pension Plan I, a defined benefit plan, whereby the Company finances its liability (i) for payment of invalidity and presumable invalidity retirement pensions and survivors’ pensions for employees covered by the defined benefits plan, complementing the Social Security system, and (ii) for future payment of compulsory contributions for post- employment health care to the Social Health Care Service (contribution rate of 6.5%), covering all its current employees and the pensioners under the Fund; - Pension Plan II, a defined contribution plan, under which the Company agrees to contribute each month a sum equivalent to 4.5% of the remuneration to which the plan applies, and an initial contribution paid up on the date of constitution of the Plan; - Pension Fund III, a defined contribution fund, under which the Company agrees to contribute each month a sum equivalent to 1.5% of the remuneration to which the plan applies.
- Banco Banif Comercial dos Açores, SA
Under the terms established in the Agreement Constituting the Pension Fund (defined benefit plan) and the Vertical Collective Employment Agreement for the Banking Sector, these entities have accepted liabilities for payment of retirement pensions, invalidity and presumable invalidity pensions and survivors’ pensions to their employees and their families. In addition to the benefits established in the pension plan, the Pension Funds accepts liability 21 for paying compulsory contributions to the Social Health Care Service (contribution rate of 6.5%).
- Other Group entities
The companies Banif Go, Instituição Financeira de Crédito, SA, Banif – Banco de Investimento, SA and the subsidiareis Banif Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, SA, Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA and Banif New Capital – Sociedade de Capital de Risco, SA, provide their employees with defined contribution pension plans, financed through pension funds.
The liability or assets recognized in the balance sheet in relation to defined benefit plans corresponds to the difference between the current value of pension liabilities and the fair value of the assets of the pension funds, considering adjustments relating to deferred actuarial gains and losses. The value of liabilities is determined on an annual basis by independent actuaries, using the projected unit credit method and actuarial assumptions regarded as appropriate (Note 45). Liabilities are reviewed on the basis of a discount rate which reflects the market interest rate for high quality corporate bonds, denominated in the currency in which the liabilities are payable, with periods to maturity similar to those for settlement of pension liabilities.
Gains and losses deriving from differences between the actuarial and financial assumptions used and the amounts effectively occurring as regards liabilities and pension fund earnings are deferred in an account on the assets or liabilities side (“corridor”), up to a limit of 10% of the lower of the current value of liabilities for past services or the value of the pension funds, with reference to the end of the current year. Accrued actuarial gains and losses in excess of the corridor are recognized against results over the average remaining period of service of employees covered by the plan.
At the date of transition to IFRS, the Group adopted the possibility permitted by IFRS 1 of not recalculating actuarial gains and losses deferred since the start of the plans. Accordingly, the deferred actuarial gains and losses reflected in the Group’s accounts at 31 December 2003 were written off in full against retained earnings, in connection with determination of the adjustments for transition to IFRS.
Charges relating to defined contribution plans are recognized as costs in the respective period.
Other long term benefits
In addition to pensions, the Group has other liabilities for employee benefits, including liabilities for medical care, length of service bonuses and other allowances.
The liabilities for these benefits are also determined on the basis of actuarial valuations, in a way similar to that for pension liabilities, and are recorded under “Other liabilities” against profit or loss.
3.17 Provisions and contingent liabilities
A provision is constituted when a present obligation (legal or constructive) exists, deriving from past events, where the future outflow of resources is likely, and this may be reliably determined. The provision corresponds to the Group’s best estimate of the amounts which it may be necessary to disburse in order to settle the liability at the balance sheet date. If the time effect of the cost of money is significant, 22 provisions are discounted using a pre-tax interest rate reflecting the specific risk of the liability. In these cases, increase in the provision due to the passage of time is recognized under financial costs.
If the future outflow of resources is not likely, then this is a contingent liability. Contingent liabilities need only be disclosed, unless the possibility of an outflow of economic resources is remote.
3.18 Dividends
Dividends are recognized as liabilities and deducted from capital accounts when approved by shareholders. Dividends for the financial year approved by the Board of Directors after the date of the financial statements are disclosed in the Notes to the Financial Statements (Note 32).
3.19 Recognition of income and costs
In general, income and costs are recognized in accordance with the period when the operations took place, on the accruals basis, i.e. they are recorded as they are generated, irrespective of the moment when charged or paid. Income is recognized insofar as it is likely that the economic benefits associated with the transaction will accrue to the Group and the value of the income item can be reliably measured.
For financial instruments measured at amortized cost and for financial instruments classified as “Available-for-sale financial assets”, interest is recognized using the effective rate method, which corresponds to the rate which discounts exactly the set of future cash receipts or payments up to maturity, or up to the next repricing date, for the net amount currently recorded for the financial asset or liability. When the effective interest rate has been calculated, future cash flows are estimated considering the contractual terms and considering all the other income or charges directly attributable to the contracts.
Dividends are recognized when the entitlement to receive payment is established.
3.20 Income and charges for services and commissions
The Group charges its customers commissions for the provision of a wide range of services. These include commissions for the provision of ongoing services, for which clients are usually debited periodically, or else commissions are charged for particular significant acts.
The commissions charged for services rendered during a given period are recognized over the lifetime of the service. Commissions related to a significant act are recognized at the time of the act in question.
Commissions and charges associated with financial instruments are included at the effective interest rate of such instruments.
3.21 Financial guarantees
In the normal course of banking business, the Bank provides financial guarantees, such as letters of credit, bank guarantees and documentary credits
23 Financial guarantees are initially recognized as a liability, at fair value. This liability is subsequently stated at the amount of the estimate of future expenses for settling the obligation, at the balance sheet date. Commissions obtained for the provision of financial guarantees are recognized directly in results, under “Service and commission income”, during the lifetime of the guarantees.
4. GROUP UNDERTAKINGS
As at 31 December 2008 and 31 December 2007, the Group undertakings included in the consolidation process were as follows:
31-12-2008 31-12-2007 Registered % effective % direct Minority % effective % direct Minority Company name Holder Offices holding holding interests holding holding interests
Banif Comercial, SGPS, SA Portugal Banif SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif - Investimentos SGPS, SA Banif - Banco Internacional do Funchal, SA Portugal Banif Comercial, SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif (Açores ) SGPS, SA Portugal Banif Comercial SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif Finance, Ltd. Cayman Isl. Banif - Banco Internacional do Funchal, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banco Banif & Comercial dos Açores, SA Portugal Banif Comercial SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif & Comercial Açores, Inc San José U.SA Banco Banif & Comercial dos Açores, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif & Comercial Açores, Inc Fall River U.SA Banco Banif & Comercial dos Açores, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Investaçor, SGPS, SA Portugal Banco Banif & Comercial dos Açores, SA 59,20% 59,20% 40,80% 59,20% 59,20% 40,80% Investaçor Hoteis SA Portugal Investaçor, SGPS, SA 59,20% 59,20% 40,80% 59,20% 59,20% 40,80% Açortur Investimentos Turísticos dos Açores, SA Portugal Investaçor, SGPS, SA 49,37% 49,37% 50,63% 49,37% 49,37% 50,63% Turotel, Turismo e Hoteis dos Açores, SA Portugal Investaçor, SGPS, SA 58,07% 58,07% 41,93% 58,07% 58,07% 41,93% Investimentos Turísticos e Similares e Apart-Hotel Pico Lda. Portugal Açortur Investimentos Turísticos dos Açores, SA 49,37% 49,37% 50,63% 49,37% 49,37% 50,63%
Banif Go, Instituição Financeira de Crédito, SA Portugal Banif Comercial, SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif Rent - Aluguer Gestão e Comercio de Veículos Automóveis Portugal Banif Comercial, SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif - Banco Internacional do Funchal (Brasil), SA Brazil Banif Comercial, SGPS 98,50% 98,50% 1,50% 98,50% 98,50% 1,50% Banif International Holdings, Ltd Banif - Investimentos - SGPS, SA Portugal Banif - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif - Banco de Investimento, SA Portugal Banif - Investimentos - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif Gestão Activos - Soc. Gestora de Fundos de Investimento Portugal Banif - Banco de Investimento, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Mobiliario, SA Banif Açor Pensões - Soc. Gestora Fundos Pensões, SA Portugal Banco Banif & Comercial dos Açores, SA 61,89% 61,89% 38,11% 59,19% 59,19% 40,81% Banif - Banco de Investimentos, SA Banif Capital - Soc. de Capital. de Risco SA Portugal Banif - Banco de Investimento, SA 80,00% 80,00% 20,00% 75,00% 75,00% 25,00% Centro Venture - Soc. Capital de Risco SA Portugal Banif - Banco de Investimento, SA 51,00% 51,00% 49,00% 51,00% 51,00% 49,00% Gamma - Soc. Titularização de Créditos, SA Portugal Banif - Banco de Investimento, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Numberone SGPS, Lda Portugal Banif - Banco de Investimento, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif International Asset Management Ltd. Cayman Isl. Numberone SGPS, Lda 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif Multifund Ltd. Cayman Isl. Banif International Asset Management Ltd. 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif - Banco Internacional do Funchal (Cayman) Ltd Cayman Isl. Banif - Investimentos - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif Internacional Holdings, Ltd Cayman Isl. Banif - Banco Internacional do Funchal 85,00% 85,00% 15,00% 85,00% 85,00% 15,00% (Cayman) Ltd Banif Financial Services, Inc U.SA Banif Internacional Holdings Ltd 85,00% 85,00% 15,00% 85,00% 85,00% 15,00% Banif Finance (USA) corp. U.SA Banif Internacional Holdings Ltd 85,00% 85,00% 15,00% 85,00% 85,00% 15,00% Banif Forfaiting Company, Ltd. Bahamas Banif Internacional Holdings Ltd 85,00% 85,00% 15,00% 85,00% 85,00% 15,00% Banif Forfaiting (USA), Inc. U.SA Banif Internacional Holdings Ltd - - - 85,00% 85,00% 15,00% Banif Trading, Inc. U.SA Banif Internacional Holdings Ltd 85,00% 85,00% 15,00% 85,00% 85,00% 15,00% FINAB - International Corporate Management Services, Ltd. Cayman Isl. Banif - Banco Internacional do Funchal 60,00% 60,00% 40,00% 60,00% 60,00% 40,00% (Cayman) Ltd. Banif Securities, Inc. U.SA Banif Securities Holding, Ltd 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Econofinance, S.A Brazil Banif Securities Holding, Ltd 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif Investimento México, SA de C.V. Mexico Banif Securities Holding, Ltd - - - 99,00% 99,00% 1,00% Banif Securities Holding, Ltd Cayman Isl. Banif - Investimentos - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif ( Brasil), Ltd. Brazil Banif - Investimentos - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif - Banco Internacional do Funchal, SA Banif International Bank, Ltd Bahamas Banif Comercial - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif - Investimentos - SGPS, SA Banif - Banco de Investimento (Brasil), SA Brazil Banif - Investimentos - SGPS, SA 100,00% 100,00% 0,00% 75,00% 75,00% 25,00% Banif Securities Holding, Ltd Banif Corretora de Valores e Câmbio SA Brazil Banif - Banco de Investimento (Brasil), SA 100,00% 100,00% 0,00% 75,00% 75,00% 25,00% Banif Nitor Asset Management SA Brazil Banif - Banco de Investimento (Brasil), SA 100,00% 100,00% 0,00% 38,25% 38,25% 61,75% Nitor Administração de Recursos Brazil Banif Nitor Asset Management S. A. - - - 38,25% 38,25% 61,75% Banif Private Equity SA Brazil Banif - Banco de Investimento (Brasil), SA 100,00% 100,00% 0,00% - - - Banif - Imobiliária, SA Portugal Banif - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Sociedade Imobiliária Piedade, SA Portugal Banif - Imobiliária, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banifserv-Empresa de Serviços, Sistemas e Tecnologias de Portugal ACE (*) 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banif Bank (Malta) PLC Malta Banif - SGPS, SA 72,00% 72,00% 28,00% 100,00% 100,00% 0,00% Banco Caboverdiano de Negócios SA Cape Verde Banif - SGPS, SA 51,69% 51,69% 48,31% 46,00% 46,00% 54,00% Banif Holding (Malta) PLC Malta Banif - SGPS, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00%
24 31-12-2008 31-12-2007 % % % % Interesses Interesses Nome da Sociedade Sede Detentor do Capital participação participação participação participação minoritários minoritários efectiva directa efectiva directa Global Cash Fund Cayman Isl. Banif - Banco Internacional do Funchal 98,97% 98,97% 1,03% 89,67% 89,67% 10,33% (Cayman) Ltd Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA Agressive Strategy Fund Cayman Isl. Banif - Banco Internacional do Funchal, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA Balanced Strategy Fund Cayman Isl. Banif - Banco Internacional do Funchal 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% (Cayman) Ltd Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA Brazilian Bond Fund Cayman Isl. Banif - Banco Internacional do Funchal SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA Brazilian Equity Fund Cayman Isl. Banif - Banco Internacional do Funchal 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% (Cayman) Ltd Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA Conservative Strategy Fund Cayman Isl. Banif - Banco Internacional do Funchal, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA European Bond Fund Cayman Isl. Banif - Banco Internacional do Funchal 99,05% 99,05% 0,95% 99,30% 99,30% 0,70% (Cayman) Ltd Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA European Equity Fund Cayman Isl. Banif - Banco Internacional do Funchal SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Banco Banif & Comercial dos Açores, SA Banif US Real Estate Brazil Banif - Banco de Investimento, SA 100,00% 100,00% 0,00% 100,00% 100,00% 0,00% Beta Securitizadora Brazil FIP Banif Real Estate 99,25% 99,25% 0,75% 92,19% 92,19% 7,81% FIP Banif Real Estate Brazil Banif - Banco Internacional do Funchal (Brasil 99,25% 99,25% 0,75% 92,19% 92,19% 7,81% ) SA Banif - Banco de Investimento (Brasil) SA SPE Panorama Brazil FIP Banif Real Estate 94,26% 94,26% 5,74% 87,58% 87,58% 12,42% FIP Banif Real Estate II Brazil Banif - Banco de Investimento (Brasil) SA 100,00% 100,00% 0,00% - - - FIP Amazônia Energia II Brazil Banif - Banco de Investimento (Brasil) SA 50,01% 50,01% 49,99% - - - Banif Nitor Caravelas Banif - Banco de Investimento (Brasil) SA 100,00% 100,00% 0,00% - - - Art Invest Portugal Banif - Banco de Investimento SA 60,58% 60,58% 39,42% - - - Global Real State Cayman Isl. Banif - Banco de Investimento SA 52,89% 52,89% 47,11% - - - Banif Nitor Port. Crédito Privado Brazil Banif - Banco de Investimento (Brasil) SA 93,25% 93,25% 6,75% - - - Imogest Portugal Banif - Banco Internacional do Funchal, SA 58,39% 58,39% 41,61% - - - Banco Banif & Comercial dos Açores, SA Banif - Banco de Investimento, SA Capven Portugal Banif - Banco Internacional do Funchal, SA 58,73% 58,73% 41,27% - - - Banif Capital - Soc. de Capital. de Risco S.A Banif - Banco de Investimento, SA (*) A BanifServ - ACE is a joint venture between the following Banif Group entities: Banif - Banco Internacional do Funchal, SA 60.0% Banco Banif & Comercial dos Açores, SA 25,0% Companhia de Seguros Açoreana, SA 1.5% Banif Go 8.0% Banif Banco de Investimento, SA 1.5% Banif Rent - Aluguer, gestão e Comércio de Veiculos Automóveis 4.0%
As at 31 December 2008 and 31 December 2007, the special purpose vehicles included in the consolidated accounts were:
25 31-12-2008 31-12-2007 Company Name Natureza %%
Atlantes Nº1 Limited Veículos de Securitização 100,00% 100,00%
Atlantes Nº2 plc Veículos de Securitização 100,00% 100,00%
Atlantes Mortgage Nº1 plc Veículos de Securitização 100,00% 100,00%
Atlantes Mortgage Nº2 plc Veículos de Securitização 100,00% -
Atlantes Mortgage Nº3 plc Veículos de Securitização 100,00% -
Azor Mortgage Nº 1 Veículos de Securitização 100,00% 100,00%
Azor Mortgage Nº 2 Veículos de Securitização 100,00% -
Trade Invest Series 10 Emissão de Dívida Estruturada - 100,00%
Euro Invest Series 2 Emissão de Dívida Estruturada - 100,00%
Euro Invest Series 3A, 3B, 5, 6, Emissão de Dívida Estruturada 100,00% 100,00% 7, 8 e 9
Trade Invest Series 12, 13, 14 Emissão de Dívida Estruturada 100,00% 100,00%
In the course of the period ended 31 December 2008, the following changes took place within the Group: - Acquisition of 25% of Banif – Banco de Investimento (Brasil), SA by Banif Securities Holdings, Ltd, for a price of 35.5 million euros. This operation gave the Group 100% ownership of Banif – Banco de Investimento (Brasil), SA. - Increase of 6 million euros in the share capital of Banif Bank (Malta). A Banif SGPS, SA subscribed 1.8 million euros. After this operation, Banif SGPS, SA had a 72% stake in Banif Bank (Malta). - Increase of 21 million euros in the share capital of Companhia de Seguros Açoreana. Banif SGPS, SA and Banco Banif e Comercial dos Açores, SA subscribed 10 million euros, and the Group retained the same percentage of control as prior to the operation. - Increase of 50 million euros in the share capital of Banif – Banco Internacional do Funchal, SA. The increase was paid up by Banif Comercial SGPS, SA. - Acquisition by Banif Comercial SGPS, SA of Banif (Açores) SGPS, SA form Banif – Banco Internacional do Funchal, SA for a sum of 20,735 thousand euros. - Merger of Banif Forfaiting (USA) Inc into Banif Mortgage Company. After the merger the company adopted the name Banif Finance (USA). - Acquisition of 5.69% of Banco Caboverdiano de Negócios by Banif SGPS, SA for a price of 1.7 million euros. - Increase of 3.6 million USD in the share capital of Banif International Holdings, Ltd. Banif (Cayman), Ltd subscribed 85% of this increase. - Acquisition of 49% of Banif Nitor Asset Management by Banif – Banco de Investimento (Brasil). - Merger of Nitor Administração Recursos into Banif Nitor Asset Management.
5. SEGMENT REPORTING
The Banif Financial Group is organised in separate business areas, through two sub- holdings: Banif Comercial SGPS, SA, which brings together banking and specialised lending business, and Banif Investimentos SGPS, SA, which manages interests in 26 investment banking and other financial activities. The Group also has an independent unit engaged exclusively in managing the Group’s property interests.
In the Group’s segment reporting, the primary reporting format is by business areas, which include corporate finance, trading and sales, brokerage, retail banking, commercial banking, payments and settlements, custody, asset management and other business activities (residual item).
The secondary reporting format is by the geographical areas in which the Company operates: Portugal, North America, Latin America, European Union and the rest of the world.
5.1 Business segments
CORPORATE TRADING AND BROKERAGE RETAIL COMMERCIAL PAYMENTS AND ASSET CATEGORY CUSTODY OTHER TOTAL FINANCE SALES (RETAIL) BANKING BANKING SETTLEMENTS MANAGEMENT
ASSETS Cash and balances at central and other banks - 123.705 - 113.827 373.740 - - 527 299 612.098 Trading securities - 277.124 ------277.124 Available-for-sale financial assets - 159.476 ------159.476 Loans and advances to customers (net) - - - 6.127.956 4.208.993 - - - - 10.336.949 Held-to-maturity investment securities - 84.003 ------84.003 Other assets (of which): - 635.812 15.451 97.235 63.418 - - 5.649 589.401 1.406.966 Tangible assets - 19.798 408 42.106 7.581 - - 874 191.772 262.539 Intangible assets - 2.903 66 631 941 - - 66 24.428 29.035 TOTAL NET ASSETS - 1.280.120 15.451 6.339.018 4.646.151 -- 6.176 589.700 12.876.616
LIABILITIES Deposits from central and other banks - 598.091 - 4.025 2.440.490 - - - 4.246 3.046.852 Customer accounts and other loans - - - 5.394.443 1.120.017 403 - - - 6.514.863 Debt securities in issue - 63.806 - 427.807 894.282 - - - - 1.385.895 Other liabilities - 429.264 80.648 146.691 229.586 - - 6.151 173.897 1.066.237 TOTAL LIABILITIES - 1.091.161 80.648 5.972.966 4.684.375 403 - 6.151 178.143 12.013.847
Corporate Trading and Brokerage Retail Commercial Payments and Asset Custody finance Sales (retail) Banking Banking settlements Management Other TOTAL Interest and similar income 549 285.793 7 321.956 330.770 - - 375 4.852 944.302 Interest and similar expense (85) (263.262) (2) (184.849) (212.587) - - - (14.229) (675.014) Net interest income 464 22.531 5 137.107 118.183 -- 375 (9.377) 269.288 Dividend income - 2.883 ------2.883 Fee and commission income 2.549 6.909 5.135 47.850 30.949 2.223 744 17.562 2.328 116.249 Fee and commission expense (14) (182) (1.244) (4.179) (189) (3.300) (104) (3.939) (286) (13.437) Income from assets and liabilities valued at fair value through profit or loss - 23.182 (46) ------23.136 Income from available-for-sale financial assets - 63.996 ------63.996 Foreign exchange income - (20.974) - - 2.354 - - - (1.369) (19.989) Income from disposal of other assets - 158 (2) (1.161) (976) - - - 3.767 1.786 Other operating income (291) (1.118) 1.532 5.143 14.007 9.680 37 (29) (2.830) 26.131 Operating revenue 2.708 97.385 5.380 184.760 164.328 8.603 677 13.969 (7.767) 470.043 Personnel costs (1.291) (20.905) (1.407) (77.094) (54.715) (2.152) (208) (2.595) (2.239) (162.606) Overheads (1.004) (21.603) (1.747) (54.614) (37.247) (1.878) (208) (7.898) (8.040) (134.239) Operating cash flow 413 54.877 2.226 53.052 72.366 4.573 261 3.476 (18.046) 173.198 Depreciation in the period (67) (1.306) (149) (13.852) (13.587) (286) (32) (328) (1.678) (31.285) Provisions net of write-offs (143) 250 (535) 7.057 (7.583) - - (232) (605) (1.791) Impairment of loans and advances net of reversals and recovery - - - (21.291) (32.416) - - - - (53.707) Impairment of other financial assets net of reversals and recovery (29) (2.023) - (262) (399) - - - - (2.713) Impairment of other assets net of reversals and recovery - (2.471) - (1.673) (436) - - (8) (458) (5.046) Negative goodwill ------Results from associates and joint ventures (equity method) ------3.282 3.282 Profit before tax and minority interests 174 49.327 1.542 23.031 17.945 4.287 229 2.908 (17.505) 81.938 Taxes Current (48) (13.682) (428) (6.388) (4.977) (1.189) (64) (806) - (27.582) Deferred 135 7.890 247 1.221 1.132 514 85 442 741 12.407 Profit after tax and before minority interests 261 43.535 1.361 17.864 14.100 3.612 250 2.544 (16.764) 66.763 Minority interests ------(7.526) (7.526) Profit for the period 261 43.535 1.361 17.864 14.100 3.612 250 2.544 (24.290) 59.237
5.2 Geographical segments
27 REST OF CATEGORY NORTH LATIN RESTO OF THE PORTUGAL EUROPEAN TOTAL AMERICA AMERICA WORLD UNION ASSETS Cash and balances at central and other banks 450.700 105.849 4.054 35.437 16.058 612.098 Trading securities 19.986 77 242.582 14.479 277.124 Available-for-sale financial assets 69.605 10 47.673 42.188 159.476 Loans and advances to customers (net) 8.025.410 1.568.373 158.497 290.710 293.959 10.336.949 Held-to-maturity investment securities 84.003 84.003 Other assets (of which): 1.147.760 64.977 2.813 142.129 49.287 1.406.966 Tangible assets 237.115 5.051 332 15.699 4.341 262.538 Intangible assets 27.465 462 731 376 29.034 TOTAL NET ASSETS 9.797.464 1.739.286 165.364 758.531 415.971 12.876.616
LIABILITIES 00000 Deposits from central and other banks 2.885.235 152.286 9.331 3.046.852 Customer accounts and other loans 6.005.430 22.170 4.622 482.641 6.514.863 Debt securities in issue 861.871 356.370 135.534 32.120 1.385.895 Other liabilities 543.412 67.799 6.189 157.830 291.006 1.066.236 TOTAL LIABILITIES 10.295.948 446.339 6.189 450.272 815.098 12.013.846
REST OF NORTH LATIN RESTO OF THE PORTUGAL EUROPEAN TOTAL AMERICA AMERICA WORLD UNION Interest and similar income 657.994 933 43.329 56.861 185.185 944.302 Interest and similar expense (459.610) (331) (36.280) (10.831) (167.962) (675.014) Net interest income 198.384 602 7.049 46.030 17.223 269.288 Dividend income 2.880 0 - 3 - 2.883 Fee and commission income 90.726 17 2.692 19.267 3.547 116.249 Fee and commission expense (9.131) (11) (1.042) (2.530) (723) (13.437) Income from assets and liabilities valued at fair value through profit or loss 17.858 0 3.847 6.976 (5.545) 23.136 Income from available-for-sale financial assets - 0 - 63.996 - 63.996 Foreign exchange income (12.274) 13 137 (7.350) (515) (19.989) Income from disposal of other assets 1.410 - - 376 - 1.786 Other operating income 28.969 (73) (3.196) 2.277 (1.846) 26.131 Operating revenue 318.822 548 9.487 129.045 12.141 470.043 Personnel costs (126.925) (3.173) (3.509) (27.327) (1.672) (162.606) Overheads (95.902) (3.663) (3.486) (28.870) (2.318) (134.239) Operating cash flow 95.995 (6.288) 2.492 72.848 8.151 173.198 Depreciation in the period (27.319) (510) (120) (2.748) (588) (31.285) Provisions net of write-offs (1.791)----(1.791) Impairment of loans and advances net of reversals and recovery (29.370) (298) (3.406) (20.831) 198 (53.707) Impairment of other financial assets net of reversals and recovery (2.713) - - - - (2.713) Impairment of other assets net of reversals and recovery (5.043) - (3) - - (5.046) Negative goodwill ----- 0 Results from associates and joint ventures (equity method) 1.466 1.816 - - - 3.282 Profit before tax and minority interests 31.225 (5.280) (1.037) 49.269 7.761 81.938 Taxes Current (7.167) - - (20.415) - (27.582) Deferred (4.014) 1.638 942 12.345 1.496 12.407 Profit after tax and before minority interests 20.044 (3.642) (95) 41.199 9.257 66.763 Minority interests 86 891 (7) (130) (8.366) (7.526) Profit for the period 20.130 (2.751) (102) 41.069 891 59.237
6. CASH AND BALANCES WITH CENTRAL BANKS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Cash 57.766 50.391 Sight deposits with central banks 255.393 226.391 Interest on liquid funds 40 42 313.199 276.824
Sight deposits with the Bank of Portugal, of 244,385 thousand euros, include the deposits made to comply with the legal requirements on minimum cash resources. In accordance with Bank of Portugal Notice 7/94, of 19 October, the coefficient to be applied is 2% of eligible liabilities. These deposits have been interest bearing since 1999.
7. DUE FROM OTHER BANKS 28
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Cheques awaiting collection 43.300 43.527 In Portugal 41.821 41.915 Abroad 1.479 1.612
Sight deposits 105.779 74.597 In Portugal 3.375 1.782 Abroad 102.404 72.815
Others 152 411
149.231 118.535
Cheques in course of collection from banks in Portugal at 31 December 2008 were cleared through the Clearing Chamber during the first few business days of January 2009.
8. TRADING SECURITIES
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Financial derivatives with positive fair value 71.848 36.395 Debt instruments 161.998 189.357 Equity instruments 43.278 27.695 277.124 253.447
Note 15 details derivatives by type of instrument.
The trading book had the following composition at 31 December 2008 (balance sheet value of debt instruments includes interest accrued, equity instruments stated in euros):
29 Type Quantity Listed price Balance sheet value
Debt instruments
LETRAS DO TESOURO NACIONAL - BRASIL 71.805 284,21 20.408 CERTIFICADO DEPÓSITO BANCÁRIO 610.699 3,07 1.873 FED REPUBLIC OF BRASIL 10/09 2.000.000 1,09 1.608 FED REPUBLIC OF BRASIL 10/09 143.000 1,09 115 FED REPUBLIC OF BRASIL 03/30 220.000 1,62 262 FED REPUBLIC OF BRAZIL 04/24 120.000 1,24 108 BANCO NAC DESENV ECON 04/10 350.000.000 0,99 188 FED REPUBLIC OF BRAZIL 09 100.000 1,02 111 FED REPUBLIC OF BRAZIL 04/10 339.000 1,10 274 FED REPUBLIC OF BRASIL 160.000 1,15 136 FED REPUBLIC OF BRASIL 10 2.176.000 1,09 1.733 FED REPUBLIC OF BRASIL 34 31.000 1,22 28 FED REPUBLIC OF BRAZIL 08/40 1.235.000 1,31 1.194 FED REPUBLIC OF BRASIL 100.000 1,26 94 FED REPUBLIC OF BRASIL 02/25 230.000 1,22 208 FED REPUBLIC OF BRASIL 10.000 1,13 8 FED REPUBLIC OF BRASIL 790.000 1,13 659 BANCO DO ESTADO SAO PAULO 369.000 0,92 243 PETROBRAS ENERGIA SA 33.000 0,87 21 FED REPUBLIC OF BRASIL 303.000 1,13 253 REPUBLIC OF BRAZIL 01/17/17 158.000 1,03 120 EUROPEAN INVEST BANK 02/14/2013 140.000 1,01 48 EUROPEAN INVEST BANK 24/08/09 200.000 1,00 64 PETROBRAS INTL FINANCE 12/18 429.000 1,07 331 BRASKEM SA 110.000 1,03 85 CIA SIDERURGICA PAULISTA 40.000 1,00 30 BRASTURINVEST INV TUR 04/09 2.026.000 1,00 2.120 CSN ISLANDS IX CORP 37.000 1,01 28 COSAN SA INDUSTRIA E COM 100.000 0,96 70 UNIBANCO 7 3/8 12/15/13 USD 30.000 1,02 22 TELE N L PARTICIPACOES 10.000 1,00 7 GERDAU AMERISTEL CORP 1.353.000 1,02 1.038 BRASKEM SA 606.000 0,82 358 VOTORANTIM OVERSEAS 06/20 100.000 0,88 63 BANCO VOTORANTIM SA 250.000 0,90 163 BRASKEM INTL LTD 20.000 0,96 14 GERDAU SA 153.000 0,85 94 FED REPUBLIC OF BRAZIL 250.000 1,03 191 BANCO VOTORANTIM SA 15.000 0,96 10 BANCO BRADESCO (CAYMAN) 100.000 1,01 73 CENTRAL ELET BRASILEIRAS SA 745.000 0,99 533 VALE OVERSEAS LIMITED 01/16 379.000 0,95 267 COSAN SA INDUSTRIA E COM 177.000 0,58 74 NATIONAL STEEL SA 50.000 0,63 23 BRASKEM SA 30.000 0,76 17 LPG INTERNATIONAL INC 12/20/2015 60.000 0,92 40 CESP-COMP ENER SAO PAULO 08/11/13 55.000 1,01 41 BANCO VOTORANTIM SA 950.000 0,96 668 PETROLEO INTL FIN CO 10/06/16 359.000 0,97 254 BERTIN LTDA 10/05/16 340.000 0,56 143 CIA SANEAMENTO BÁSICO 11/16 89.000 0,96 62 BANCO BBM INVESTIMENTOS 11/21/09 8.000 0,99 6 VALE OVERSEAS LIMITED 01/23/2017 100.000 0,95 70 VALE OVERSEAS LIMITED 11/21/36 66.000 0,89 43 EURO INVEST LIMITED 0 12/07/09 249.000 0,98 245 GP INVESTMENTS LTD 12/23/2049 387.000 0,80 228 MINERVA OVERSEAS LTD 02/01/2017 50.000 0,54 21 BANCO SAFRA SA (CAYMAN) 04/03/2017 500.000 0,70 112 BANCO VOTORANTIM NASSAU 04/10/2014 10.000 0,86 3 SADIA OVERSEAS LTD 05/24/2017 550.000 0,89 354 ODEBRECHT FINANCE LTD 10/18/2017 1.000 0,85 1 PETROBRAS INTL FIN CO 03/01/2018 134.000 0,92 90 USIMINAS COMMERCAIL LTD 200.000 0,89 133 BANCO FIBRA SA 04/22/2010 400.000 0,93 270
30 Type Quantity Listed price Balance sheet value
INTL BK RECON & DEVELOP 145.000 0,99 49 BRASKEM FINANCE SA 220.000 0,71 113 EMPRESA MADEIRENSE DE TABACOS 05/10 9.554.000 1,00 9.578 CIA SEG ACORES SA 17/12/2017 150.000 0,95 143 RENTIPAR FINANCEIRA SGPS SA 2.475.000 1,00 2.469 CDCA POS-T 12864991 0,33 4.221 CDCA PRE-T 1879997 0,30 557 CPR FINANCEIRA 19620993 0,31 6.159 CPR-POS-T 10118018 0,34 3.399 DEBENTURES 16452 905,36 14.895 LFT 36192 1.148,96 41.583 TITULOS PUBLICOS FEDERAIS - LFT 5870 1.148,89 6.744 SECRETARIA DO TESOURO NACIONAL - LFT 2126 1.149,11 2.443 DISCOVERY 5% 09/08 5000000 1,01 5.053 PREFF-PAN EURO R EST 12750 103,84 1.324 JP MORGAN EUROP PROP 18,9175 9.937,89 188 GREENWIC 5% 09/09 331 1.000,00 331 GENEVA 5% 05/09 735 1.000,00 735 MIAMI REAL 5% 06/10 2596 1.000,00 2.596 LETRAS DO TESOURO NACIONAL 818 1.143,03 935 LETRAS DO TESOURO NACIONAL 2900 1.168,97 3.390 LETRAS DO TESOURO NACIONAL 240 1.150,00 276 LETRAS DO TESOURO NACIONAL 265 1.147,17 304 CRED DIR CRED AGRONE 171 94.532,16 16.165 PTCL FLOAT 200000 0,99 197 161.998
Type Quantity Listed price Balance sheet value
Equity instruments
BMF 10.000 1,90 19 PARMALAT FINANZIARIA SPA 30.000 0 0 CIPAN 27.451 0,5 14 B.EURO TESOURARIA 176.054 7,0 1.233 B.EURO ACCOES 119.007 1,7 198 B.GESTAO PATRIMONIAL 91.753 6,3 417 BANIF GESTAO ACTIVA 73.484 5,4 283 BANIF GESTÃO DINAMIC 54.562 3,5 139 COTAS AMAZONIA FIP 190.000 0,33 63 COTAS BANIF FIDC AGRO1 14 159.571,43 2.234 COTAS BANIF NITOR FI AÇOES 970.512 0,21 208 COTAS INSTITUCIONAL FIM 13.012.850 0,37 4.860 COTAS MAESTRO FIM 7.727.435 0,34 2.633 COTAS NITOR 30 10.503.423 0,44 4.596 NITOR FIM 4.774.875 0,65 3.100 LINDENCORP 794.018 12,28 9.751 LDI 949.500 6,60 6.264 PDI ON CLASSE A 9.860.400 0,31 3.040 JOÃO FORTES ON 4.130.424 0,77 3.184 MELLON 65.733 3,48 229 FIP CAIXA AMBIENTAL 1250 285,60 357 GOVERNANCA 1500 304,00 456 43.278
A sum of 4,178 thousand euros was reclassified into this account from “Held-to- maturity investments”, as stated in Note 13.
9. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
This account breaks down as follows:
31 Description 31-12-2008 31-12-2007
Equity instruments 181.228 98.127 Debt instruments 66.818 187.604 248.046 285.731
The portfolio of securities at fair value through profit or loss had the following composition at 31 December 2008 (balance sheet value of debt instruments includes interest accrued, listed price of equity instruments stated in euros):
Type Quantity Listed price Balance sheet value
Debt instruments
OT JUL 3,95% 2009 963.680.000 1,01 38.254 RENTIPAR 2008/2012 8.000.000 1,00 8.000 O.T. Setembro/1998-2013 498.798.000 1,08 5.473 REP ANGOLA FLT 15NOV2012 (USD) 5.000.000 1,00 3.609 O.T. PGB 3.2% 04/15/11 3.000.000 1,01 3.086 CLARIS LTD/MILLESIME CDO 2.000.000 0,74 1.487 OT-MAIO 5,85% 2010 1.255.000 1,04 1.355 BAYER HIPO 05MAI2014 1.250.000 1,00 1.247 DEUTSCHE BANK AG LONDON 2.000.000 0,80 1.196 EURO INVEST S10 6 29DEZ11 1.089.000 1,00 1.089 CSA 950.000 0,95 901 EMT 2005/2010 382.000 1,00 383 EURO INVEST 12DEZ2049 371.000 1,00 371 EURO INVEST S11 5 29DEZ11 511.000 1,00 367
66.818
Type Quantity Listed price Balance sheet value
Equity instruments BANIF IMOPREDIAL 13.192.642 7 93.975 FUNDO INV PART AMAZONIA ENERGIA 95.000.000 1 29.288 APLICAÇÃO URBANA XIV 11.856 1 11.856 LUSO CARBON FUND-FUNDO ESP FECHADO 82 61.130 5.013 BANIF PRIMUS INFRA-ESTRUTURA 1.524 10.000 4.698 PORTO NOVO F.I.I.F. 22.370 176 3.942 FINE ART INVEST 1 3.248.000 3.248 PRADERA EUROPEAN RETAIL FUND 2 300.000 10 2.930 HOZAR PORTUGAL, SA 269.058 8 2.074 ESPIRITO SANTO FINL 250.000 11 2.738 BANIF GESTÃO PATRIMONIAL 528.169 5 2.406 BANIF NITOR MULTI-STRATEGY A 09/08 3.000 1.039 2.239 BANIFUNDO EURO ACÇÕES 1.299.278 2 2.191 AVIVA CENTR EUROPEAN PROPERTY FUND 1.543.012 1 2.052 FLORESTA ATLÂNTICA - SGFII (CL B) 40.000 51 2.035 NEW ENERGY FUND-FEIF 39 50.251 1.960 BANIF NITOR MULTI-STRATEGY A 08/08 2.000 1.026 1.475 FUNDO NORFIN VISION ESCRITORIOS 192.063 7 1.256
32 Type Quantity Listed price Balance sheet value
BANIF PROPRETY 1.226 1 1.226 GED SUR FCR-CL B 229.900 5 1.150 PRAX CAPITAL III, SCA, SICAR 3.000 276 829 PORTUVINIUS, SA 360.000 2 711 BANIF ASIA 155.070 4 546 BANIF AMERICA LATINA 153.712 3 516 CARADOR PLC 500.000 1 250 MOU-MIAMI TUNNEL PROJECT 1 235.000 169 TEIXEIRA DUARTE 259.737 1 156 INAPA - Inv. Part. Gestão 416.372 0 142 OTP BANK RT 5.000 2.875 54 PEDIDOS LIZ LDA 38 1 38 FUTEBOL CLUBE DO PORTO 23.000 1 32 RAIFFEISEN INT BK HL 1.000 19 19 EDP 2.350 3 6 WESTERN ASSET US MONEY FUND 1.428.937 1 5 BRISA 360 5 2 GED SUR FCR-CL A 100 5 1 SHOTGUN PICTURES 10.000 0 0 GALERIAS NAZONI 750 0 0 HOZAR PORTUGAL, SA 181.228
Of the sum of 48,168 thousand euros in treasury bills, 41,557 thousand euros corresponds to “assets given as security”, in relation to irrevocable commitments to the Deposit Guarantee Fund, the Investor Compensation System and Intraday Credit with the Bank of Portugal.
10. AVAILABLE FOR SALE FINANCIAL ASSETS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Debt instruments 99.213 5.533 Equity instruments 64.042 216.840
Impairment (3.779) (3.836) 159.476 218.537
The portfolio of securities available for sale had the following composition at 31 December 2008:
33 Type Quantity Balance sheet value Impairment Acquisition cost Debt insturments
AQUEDUCT TRADING SERVICES CO 28.131.478 21.103 - 20.214 SPDH - SERV. PORTUGUESES HANDLING 120.800 9.524 - 9.524 CAIXA GERAL DEPOSITOS 12/12/2011 7.500.000 7.485 - 7.481 OBRIGAÇÕES TESOURO CABO VERDE 6.154.976 6.047 - 6.047 PORTUCEL - EMP CELUL PAPEL 03/10 5.900.000 5.906 - 5.936 TELE N L PARTICIPACOES 3.774.000 2.718 - 2.776 O.T. PGB 3.2% 04/15/11 2.100.000 2.161 - 2.082 PORTUCEL - EMP CELUL PAPEL 03/10 2.000.000 2.010 - 2.007 FOMENTINVEST SGPS 1.538.462 1.789 - 1.788 BUONI POLIENNALI DEL TES 02/01/2013 1.500.000 1.589 - 1.541 BRASIL TELECOM S/A 2.100.000 1.560 - 1.574 BELGIUM KINGDOM 4 03/28/2022 1.500.000 1.556 - 1.406 BUONI POLIENNALI DEL TES 02/01/2017 1.500.000 1.517 - 1.452 BES FINANCE LTD 09 1.500.000 1.509 - 1.485 BES FINANCE LTD 04/27/2010 1.535.000 1.484 - 1.502 GOVT OF FRANCE 10/25/2038 1.400.000 1.471 - 1.258 DEUTSCHE TEL FIN 3 02/02/09 1.428.000 1.470 - 1.410 EDP FINANCE BV 06/14/10 1.500.000 1.439 - 1.476 BANCO INDUSTR E COMRCL 2.178.000 1.375 - 1.541 MONTE DEI PASCHI SIENA 10/26/2009 1.300.000 1.302 - 1.277 UNICREDITO ITALIANO SPA 09/22/2009 1.300.000 1.284 - 1.271 CAS DEPOSITI E PRESTITI 01/31/13 1.200.000 1.202 - 1.123 BANCO ESPIRITO SANTO 5 1/2 07/10 1.000.000 1.051 - 1.010 BELGIUM KINGDOM 09/28/2013 1.000.000 1.050 - 1.008 BANCO SABADELL SA 1.000.000 1.049 - 998 BANCO PINE SA 1.500.000 993 - 1.053 AUTOSTRADE SPA 1.000.000 939 - 960 HELLENIC REPUBLIC 09/20/2037 1.000.000 821 - 890 CIA BRAS BEBIDAS 12/11 1.000.000 787 - 825 FTA SANTANDER EMPRESAS 2 A2 1.000.000 784 - 837 BUONI POLIENNALI DEL TES 10/15/2012 750.000 773 - 754 HELLENIC REPUBLIC 800.000 740 - 748 CAIXA GERAL DEPÓSITOS FINANCE 1.150.000 731 - 932 BBVASM 2,75% 2010/06/07 700.000 721 - 684 BCP FINANCE BANK LTD 03/09 700.000 696 - 694 BANCO BMG SA 1.000.000 627 - 714 BANCO PANAMERICANO SA 1.000.000 624 - 717 IBERDROLA FINANZAS SAL 600.000 604 - 598 BANCO BMG S.A. 920.000 586 - 653 BANCO ESPIRITO SANTO 4 3/8 01/25/11 500.000 529 - 495 BANCO BPI SA 500.000 528 - 509 BNPPCB 4% 22/03/2010 500.000 520 - 497 REPUBLIC OF AUSTRIA 10/20/2013 500.000 519 - 498 BONDS Y OBLIG DEL ESTADO 01/31/37 500.000 519 - 443 HYPOBANK MUNHYP 2,75% 2010-05-04 500.000 510 - 493 HYPESS 2,50% 2010/05/07 500.000 503 - 489
Type Quantity Balance sheet value Impairment Acquisition cost INTESA SANPAOLO IRELAND 04/2010 500.000 499 - 494 CAIXA GERAL DEPO 500.000 497 - 500 UNICREDIT SPA 500.000 492 - 486 ALPHA CREDIT GROUP PLC 500.000 484 - 488 CESP-COMP ENER SAO PAULO 01/15/2015 1.654.000 447 - 779 BTPS 02/01/37 500.000 433 - 425 BANCO BRADESCO SA 04/15/14 350.000 352 - 369 BANCO BPI SA CAYMAN 01/10 290.000 287 - 285 ISA CAPITAL DO BRASIL 01/30/2012 400.000 285 - 301 VOTORANTIM OVERSEAS 06/20 250.000 158 - 162 CAIXA GERAL FIN 209.000 142 - 176 VIGOR 02/23/2017 410.000 139 - 280 INDEPENDENCIA INTERNAT 01/31/2017 300.000 136 - 207 SUL AMERICA PARTICIPAÇÕES 02/15/12 220.000 102 - 95 GED SUR CAPITAL S.A., SGECR 30.000 30 - 30 FLORESTA ATLÂNTICA - SGFII, SA 5.062 25 - 25 99.213 - 98.772
34 Type Quantity Balance sheet value Impairment Acquisition cost Equity instruments
FINIBANCO HOLDING SGPS, SA 11.119.874 26.132 - 35.869 ZON MADEIRA 97.147 14.086 - 1.535 ZON AÇORES 66.000 5.947 - 356 VIA LITORAL, SA 4.750 3.320 - 792 AÇORLINE 3.254 3.254 3.254 3.254 PITHECIA PARTICIPAÇÕES S/A 8.600.000 2.437 - 2.437 LEAK EMPREENDIMENTO IMOBILIÁRIO SPE LTDA. 7.000 2.286 - 2.286 HABIPREDE 1.250 1.250 - 1.250 LOYIDONTA PARTICIPAÇÕES S/A 4.287 1.212 - 1.212 JOÃO FORTES 868.676 691 - 691 FINANGEST 526 535 180 535 MILLENNIUM 41.900.000 517 - 990 UNICRE- CARTÃO INTERNACIONAL DE CRÉDITO, SA 28.628 497 - 497 SIBS-SOC. INTERBANCÁRIA DE SERVIÇOS 103.436 445 - 445 IMOVALOR 19.890 280 - 280 REAL SEGUROS 2.116 228 129 228 NOVA COMPANHIA GRANDE HOTEL 50.300 185 71 185 COMPANHIS DAS QUINTAS SGPS, S.A. 34.317 171 103 171 DIDIER & QUEIROZ, S.A. 50.000 150 2 150 SOGEO-SOC. GEOTERMICA DOS AÇORES 24.529 122 - 122 SISP 108 108 - 108 VISA CLASS C 2.533 63 - 63 NORMA AÇORES-SOC. EST. APOIO DES. REG. 10.000 50 - 50 AMBELIS 400 20 20 20 TRANSINSULAR (AÇORES)-TRANSP.M.INSUL. 2.000 11 - 11 SWIFT SOC WOELDWIDE INTERBANK FINANCIAL TELECOMUNICATIONS,SC 13 10 - 10 BEIRA VOUGA ACÇÕES PREFERENCIAIS 21.500 10 10 10 BEIRA VOUGA 20.317 10 10 10 PRETÓRIA - VIAGENS E TURISMOS LDA 5.736 6 - 6 NYSE EURONEXT 201 4 - 4 CENTRO DE EMPRESAS E INOVAÇÃO DA MADEIRA, LDA 800 4 - 4 S.W.I.F.T. 11-1 VISA EUROPE 1--- TEATRO MICAELENSE 83 - - - SC BRAGA SAD 20 - - - NORGARANTE 500 - - - MACEDO & COELHO 188 - - - LISGARANTE 500 - - - GRAVAL 500 - - - COLISEU MICAELENSE 83 - - - BENFICA SAD 20 - - - 64.042 3.779 53.582
11. DUE FROM BANKS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Interbank money market - - Purchase operations with resale agreement In Portugal -- Abroad -9.394 Deposits In Portugal 13.318 31.404 Abroad 96.576 13.542 Loans In Portugal 12.500 - Abroad 1.936 112.294 Very short term investments In Portugal - Abroad 16.096 21.417 Others 9.242 1.780 149.668 189.831
12. LOANS AND ADVANCES TO CUSTOMERS
This account breaks down as follows:
35
Lending items 31-12-2008 31-12-2007
Corporate customers Current accounts 1.791.105 1.393.711 Discount and other credits represented by effects 460.229 393.288 Loans 2.211.076 1.705.994 Overdrafts 117.804 102.022 Factoring 173.287 142.360 Finance leases 452.346 406.749 Others 307.341 209.553 Personal customers Home loans 2.854.648 2.371.526 Consumer credit 439.441 412.983 Other purposes Loans 691.149 834.878 Current accounts 201.261 292.256 Discount and other credits represented by effects 36.281 41.455 Overdrafts 50.521 61.157 Other 125.701 97.226
Other credits and receivables (secured) 279.150 59.646
Overdue credit and interest 329.760 244.726
Income receivable 80.051 58.214 Expenses relating to deferred income 9.967 6.118 Revenues relating to deferred income (20.455) (17.693)
Impairment on lending (253.714) (196.393)
Total 10.336.949 8.619.775
In lending to corporate customers, the sum of 35 million euros is being used as security for refinancing operations with the ECB, as per Note 23.
Due to the exceptional economic circumstances, reflected in the liquidity and availability of current prices in the market, the Group reclassified financial instruments, as at 30 September 2008, taking into account the alterations to IAS 39 described in Note 2, into “Other loans and advances”, removing them from the category of “Available-for-sale financial assets”. The securities reclassified in the former account are:
36 Fair Value on the Balance sheet value Fair value Item Reclassification Date 31-12-2008 31-12-2008 ALFA BANK 598 621 645 ALFA DIV PYMT RT 12/15/2011 1.421 1.427 1.500 AMSTEL SECURITISATION 2006-1X D 1.189 1.214 1.528 ATHLON SECURITISATION BV 2.940 2.950 3.052 B-TRA 358 358 361 GAMA RECEIVABLES FUNDING PLC 4.965 4.969 4.836 GRANITE MORTGAGES PLC 979 980 1.082 GRANITE MORTGAGES PLC 739 739 855 HARBOURMASTER CLO 2.128 2.049 2.027 HARVEST CLO SA 1.425 1.433 1.116 LEEK FINANCE PLC 1.413 1.420 1.506 MARBLE ARCH RESIDENTIAL SECURISATIO 1.146 1.149 1.228 MARLIN (EMC-II) BV 514 516 540 MDM DPR FINANCE COMPANY S.A. 2011 1.417 1.429 1.496 MDM DPR FINANCE COMPANY S.A. 2012 232 240 251 PILLAR FUNDING PLC 1.278 1.348 1.441 PILLAR FUNDING PLC 1.649 1.763 1.953 RUSSIAN CONSUMER FINANCE NO.1 S.A. 1.947 1.979 2.008 SAGRES SOCIEDADE DE TITULARIZACAO 2.712 2.876 2.829 UBB DIVERSIFIED PAYMENT RIGTHS FIN 1.300 1.342 1.265 30.350 30.802 31.519
At the reclassification date, negative fair value reserves of 837 thousand euros were recognized. Of this amount, by 31 December 2008, 100 thousand euros had been transferred to profits or loss. As a result of application of the amortized cost method, income of 452 thousand euros was recognized. If the securities had remained in the category of available-for-sale financial assets, 1,168 thousand euros would have been transferred to fair value reserves, as positive fair value reserves. The effective interest rate for these securities is between 5.82% and 31.75% and the estimated cash flows are not less than the nominal value of the securities.
Lending through finance leases is as follows:
37 Contingent Current value of Financial Unsecured residual Balance Sheet rentals minimum rentals income not values accruing to Value - Lending recognized in receivable received the lessor's benefit results FINANCE LEASE OPERATIONS - EQUIPMENT - ADVANCES 1.904 ------Corporate and public administration 1.904 -- - - Less than 1 year 1.904 -- - - 1 to 5 years ----- More than 5 years -----
Private ----- Less than 1 year ----- 1 to 5 years ----- More than 5 years -----
FINANCE LEASE OPERATIONS - PROPERTY - CONTRACTS CONCLUDED 176.879 261.539 84.660 - 9.930
Corporate and public administration 161.153 238.307 77.154 - 9.189 Less than 1 year 771 793 22 - 415 1 to 5 years 8.105 9.372 1.267 - 545 More than 5 years 152.278 228.143 75.865 - 8.229
Private 15.726 23.232 7.505 - 741 Less than 1 year 138 139 1 - 7 1 to 5 years 1.003 1.161 159 - 55 More than 5 years 14.585 21.931 7.345 - 679
FINANCE LEASE OPERATIONS - PROPERTY - ADVANCES 316.821 358.853 42.032 - 26.223
Private 41.118 47.235 6.117 - 4.050 Less than 1 year 2.185 2.239 54 - 456 1 to 5 years 30.847 34.900 4.053 - 2.603 More than 5 years 8.086 10.096 2.010 - 991
Other assets on finance leases 275.704 311.618 35.915 - 22.173 Less than 1 year 12.015 12.346 331 - 2.382 1 to 5 years 230.990 258.685 27.695 - 17.922 More than 5 years 32.699 40.587 7.889 - 1.870
FINANCE LEASE OPERATIONS - EQUIPMENT - CONTRACTS CONCLUDED 5 322 -- - -
Private 3.036 -- - - Less than 1 year 74 -- - - 1 to 5 years ----- More than 5 years 2.962 -- - -
Other assets on finance leases 2.286 -- - - Less than 1 year 516 -- - - 1 to 5 years ----- More than 5 years 1.770 -- - - 500.927 620.392 126.691 - 36.153
13. HELD-TO-MATURITY INVESTMENT SECURITIES
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Debt instruments 84.003 -
84.003 -
Composition of the portfolio of held-to-maturity investment securities at 31 December 2008:
38 Type Quantity Balance sheet value Debt instruments
CAIXA ECO MONTEPIO GERAL 4.500.000 4.405 KOREA DEVELOPMENT BANK 6.000.000 6.024 BRISA FINANCE BV 09/13 2.500.000 2.366 GE CAPITAL EURO FUNDING 4.200.000 4.212 LANSFORSAKRINGAR BANK 4.000.000 3.997 CITIGROUP INC 06/14/12 2.537.000 2.426 PORTUGAL TELECOM INT FIN 12 2.500.000 2.363 ALPHA CREDIT GROUP PLC 09/10 3.000.000 2.963 MORGAN STANLEY & CO INTL 3.000.000 2.818 COCA-COLA HBC FIN PLC 6.000.000 6.001 CREDIT SUISSE USA INC 04/12/13 7.500.000 5.276 FRIESLAND BANK FLOAT 04/13 2.500.000 2.399 GOLDMAN SACHS GROUP INC 1.500.000 1.417 SAG DO BRASIL SA 10/06/09 1.800.000 1.319 MOSCOW NARODNY FINANCE 10/09/09 2.000.000 1.419 CAJA GENERAL GRANADA 03/08/2012 3.000.000 2.961 BANCO BMG S.A. 1.000.000 715 BCP FINANCE BANK LTD 02/03/2011 5.000.000 4.947 BES FINANCE LTD 5.000.000 4.945 BANCO INDUSTR E COMRCL 3.000.000 2.129 BANCO ESPIRITO SANTO 2.000.000 2.011 CAIXA GERAL DEPO 8.000.000 8.048 BANCO PANAMERICANO SA 1.000.000 704 BANCO BMG SA 1.000.000 651 BANCO FIBRA SA 06/06/2011 800.000 535 BANCO PINE SA 1.500.000 1.055 BANCO DAYCOVAL SA 1.310.000 904 CAJA AHORRO MONTE MADRID 06/25/10 5.000.000 4.993 84.003
Securities with a value of 52,236 million euros are being used as security for refinancing operations with the ECB, as described in Note 23.
In the wake of the crisis in the markets, under current conditions of price volatility, the Group decided to reclassify GE Capital Euro Funding bonds from held-for-trading to held-to-maturity. This reclassification acknowledges the unusual market circumstances triggered by the bankruptcy of Lehman Brothers and the intervention by various governments in a range of financial institutions and insurance companies. As a result of these situations, which are not expected to reoccur, the Group decided to reduce the volume of securities in its trading book.
At the reclassification date, the security in question had a value of 4,178 thousand euros. At 31 December 2008, the book value for the security was 4,212 thousand euros and the fair value was 3,839 thousand euros. Prior to reclassification, fair value income of 4 thousand euros was recognized in results (7 million euros less than in 2007). As a result of application of the amortized cost method, income of 2 thousand euros was recognized up to 31 December 2008. If the security had been retained in the trading book, costs of 339 thousand euros would have been recognized in fair value results. The estimated future cash flows for this security are 4,764 thousand euros through to maturity, giving an effective rate of 5.19%.
Due to the exceptional economic circumstances, the Group altered its intentions regarding the holing of certain securities held in the available-for-sale category, and
39 now has both the intention and capacity to hold them to maturity. The securities reclassified into the held-to-maturity category are listed in the following table:
Fair Value on the Balance sheet value Fair value Item Reclassification 31-12-2008 31-12-2008 ALPHA CREDIT GROUP PLC 09/10 2.953 2.959 2.958 BANCO ESPIRITO SANTO 1.998 1.998 1.997 BCP FINANCE BANK LTD 02/03/2011 4.895 4.906 4.906 BES FINANCE LTD 4.882 4.893 4.894 BRISA FINANCE BV 09/13 2.326 2.334 2.323 CAIXA ECO MONTEPIO GERAL 4.391 4.405 4.408 CAIXA GERAL DEPO 8.007 8.006 7.918 CAJA AHORRO MONTE MADRID 06/25/10 4.990 4.992 4.991 CAJA GENERAL GRANADA 03/08/2012 2.950 2.953 2.952 CITIGROUP INC 06/14/12 2.413 2.422 2.372 COCA-COLA HBC FIN PLC 5.994 5.997 5.996 CREDIT SUISSE USA INC 04/12/13 5.207 5.217 5.051 FRIESLAND BANK FLOAT 04/13 2.369 2.376 2.371 GOLDMAN SACHS GROUP INC 1.407 1.410 1.256 KOREA DEVELOPMENT BANK 5.974 5.979 5.975 LANSFORSAKRINGAR BANK 3.993 3.994 3.993 MORGAN STANLEY & CO INTL 2.796 2.808 2.567 MOSCOW NARODNY FINANCE 10/09/09 1.399 1.409 1.411 PORTUGAL TELECOM INT FIN 12 2.275 2.291 2.444 71.219 71.349 70.783
14. SECURITIES SUBJECT TO REPURCHASE AGREEMENTS
Securities subject to repurchase agreements, with a fair value of 91,283 thousand euros (as against 31,131 thousand euros in 2007) correspond to securities acquired, where there is an agreement to resell them at a pre-set price, which are registered at Banco Banif Brasil, Banif – Banco de Investimento and Banif – Banco Internacional do Funchal (Brasil). The value stated corresponds to the purchase value plus the interest implicit in the resale price, which is being recognized in accordance with the accruals principle. The Group does not recognize the securities in its portfolio, as it has not taken on the risks or rewards of the holding of these securities.
15. DERIVATIVES
Financial derivatives in which the Group is counterparty are all classified as held for trading, with variations in fair value recognized against profit or loss, corresponding to the following types of instruments:
DescriptionNotional Values 31-12-2008 31-12-2007 Fair value Fair value Positive Negative Positive Negative
Exchange rate contracts Purchases 657.715 20.319 11.738 17.051 14.755 Sales 650.527
Interest rate contracts 3.360.167 5.926 6.667 12.889 16.219 Equity/indexes contracts 40.500 871 3.151 2.508 716 Credit contracts 65.000 14.021 6.903 2.651 3.024 Futures 93.712 30.711 9.711 1.296 5.121 Total 71.848 38.170 36.395 39.835
The fair value of financial derivatives is recognized in the balance sheet under separate asset and liabilities accounts. Positive fair value is recognized in “Trading assets” and negative fair value in “Trading liabilities”.
16. AVAILABLE-FOR-SALE NON-CURRENT ASSETS
40 Movements in this account over the period were as follows:
Movement in the period Balance at Balance at Recognized Reversed Impairment Asset category 31-12-2007 Other 31-12-2008 Acquisition Disposal impairment impairment movements losses losses
Property and plant 65.503 49.698 (19.188) (88.776) (894) 693 7.036 1.538 Equipment 1.940 - - (364) - - 1.576 - Other tangible assets 961 11 - (951) - - 21 - Total 68.404 49.709 (19.188) (90.091) (894) 693 8.633 1.538
Acquisitions over the period correspond to the amount recovered through foreclosure or auctioning of collateral security for loans, corresponding essentially to property.
“Transfers to other assets” correspond to reclassifications of assets held for more than 1 year, where the Group has not received reasonable offers, due to the deterioration of market conditions. These reclassifications were made for the amounts for which these assets were stated, with no impact on profit or loss for the period or previous periods.
17. INVESTMENT PROPERTIES:
Movements in this account over the period were as follows:
Movement in period Inclusion of Transfer Asset category entities in Exchange Revaluation Disposal Property in Assets Balance at consolidated rate Balance at own use held for 31-12-2007 accounts sale differences 31-12-2008 Under operating lease (lessor) Buildings 9.042 102.698 - (3.751) - - - 107.990 9.042 102.698 - (3.751) - - - 107.990
Property temporarily not let stands at 11,471 thousand euros.
Valuations of investment property are conducted by specialist and independent valuers in accordance with criteria and methods generally accepted for this purpose, which include cost method and market method analyses, the fair value being set as the amount which can reasonably be expected for the transaction between an interested buyer and an interested seller, on a fair basis, neither being obliged to sell or buy and both being fully aware of relevant factors at a given date.
18. OTHER TANGIBLE ASSETS
As stated in Note 3.12, buildings in the Group’s own use were recorded at fair value, reviewed every three years. These properties were last revalued as at 31.12.2006.
18.1 Movement during the period
Entities newly Increase Exchange Net balance at included in Depreciation for Write- Other Net balance at 31- Transf. rate Asset category 31-12-2007 consolidated Revaluation the period offs movements 12-2008 Acquisition differences accounts (net)
Property 89.127 - 64.049 - 5.387 6.223 3.341 (1.634) (1.370) 145.995 Plant 23.275 - 9.485 - 2.272 7.887 2.353 2 32 24.826 Assets on operating lease 43.446 - 37.574 - 2.199 8.599 8.012 - - 66.608 Assets on finance lease ------Tangible assets under construction 28.185 6.514 6.010 - (17.258) - 214 - (1.344) 21.893 Other tangible assets 1.370 - 2.412 - - 394 158 (14) - 3.216 Total 185.403 6.514 119.530 - (7.400) 23.103 14.078 (1.646) (2.682) 262.538 41
18.2 Tangible fixed assets on an operating lease basis
Future payments Contingent on non- earnings cancellable recognized in Residual maturity Gross operating lease results
Less than 1 year 1.544 14 - 1 to 5 years 55.458 20.226 - More than 5 years - - - Total 57.002 20.240 -
19. GOODWILL AND OTHER INTANGIBLE ASSETS
Movements in the period:
Entities newly Increase Net balance Net balance at included in Depreciation in Transfers Write-offs at 31-12- Asset category 31-12-2007 consolidated Revaluation the period Acquisition 2008 accounts (net)
Goodwill 4.039 - 214 - - - - 4.253 Intangible assets in progress 11.676 - 3.660 - (3.356) - - 11.980 Automatic processing systems 10.722 - 6.463 - 3.356 8.134 - 12.407 Other intangible assets 294 - 148 - - 48 - 394 Total 26.731 0 10.485 - - 8.182 - 29.034
In relation to goodwill at 31 December 2008:
- For the company Investaçor SGPS, SA, an initial study was conducted justifying the goodwill recognized (2,218 thousand euros), and this study was reviewed in 2008, concluding that there are no grounds for recording impairment. This analysis used the discounted cash flows method, on the basis of prospective analysis of the company’s future activity and its business, in the form of medium and long term economic and financial projections (6 years), and determination of the respective projected financial flows. This assessment used a capitalization rate of 7.69%.
- For the company Banif Nitor Asset Management, SA, an initial study was conducting justifying the goodwill recognized (949 thousand euros), and this study was reviewed in 2008, concluding that there are no grounds for recording impairment. This analysis used the discounted cash flows method. The following parameters were used: real annual discount rate: 12.91%, projected inflation: 5.23%, and nominal annual discount rate: 18.81%.
- For the company Banco Caboverdiano de Negócios, an initial study was conducting justifying the goodwill recognized (872 thousand euros, of which 274 thousand euros relate to he acquisition in 2008 of 5.7%), and this study was reviewed in 2008, concluding that there are no grounds for recording impairment. This analysis used the discounted cash flows method. The following parameters were used: Euro Risk free Rate (Rf) 3.30%, Mature Market Risk Premium (Rm - Rf) 5.00%, Country Rating B1, Default spread 6.50%, Relative Volatility Equity vs Fixed Income Markets 1.5, Adjusted Risk Premium 14.75%, Implied KE 17.32%, Perpetual growth rate 3.00%.
No impairment losses on intangible assets were recorded in 2008.
42
20. INVESTMENT IN ASSOCIATES
As at 31 December 2008 and 2007, the account for Investment in Associates broke down as follows:
31-12-2008 Value of Net Company name REGISTERED OFFICES PRINCIPAL BUSINESS OWNER OF CAPITAL % holding holding Goodwill Total Equity Net Profits Contribution
Companhia de Seguros Largo da Matriz 45-52 Banif - SGPS, SA Açoreana, SA 1500 Ponta Delgada Insurance Banco Comercial dos Açores S.A. 47,69% 18.435 - 38.658 3.122 1.489
Banca Pueyo Virgen de Guadalupe , 2 Villanuea de la Serena, Badajoz Banking Banif - SGPS, SA 33,32% 24.375 28.400 73.155 9.201 3.066
Bankpime Travessera de Gràcia, nº 11 Barcelona Banking Banif - SGPS, SA 27,50% 18.363 15.157 66.774 (4.750) (1.306)
Inmobiliaria Vegas Altas Parque de la Constitución, 9 Villanueva de la Serena Real Estate Banif - SGPS, SA 33,33% 2.555 - 7.666 169 56
Espaço 10 Av. Barbosa do Bocage 83-85 1050-050 Lisboa Real Estate Banif Investimentos - SGPS, SA 25,00% - - (674) (91) (23)
MCO2 Rua Tierno Galvan, Torre 3, 10.º Piso Amoreiras, Lisboa Investment Management Banif - Banco de Investimento, SA 20,00% 90 - 450 - - 63.818 43.557 186.029 7.651 3.282
For goodwill recorded in the holdings in Banca Pueyo e Bankpime, impairment tests were conducted using the discounted free cash flow to equity method. No impairment of goodwill was recorded as a result of this analysis.
Assumptions in the impairment test for Bankpime: CoE = 11.0%, Annual growth rate of terminal value = 1.0%
Assumptions in the impairment test for Banca Pueyo: CoE = 9.1%, Annual growth rate of terminal value = 1.0%
31-12-2007 Value of Net Company name REGISTERED OFFICES PRINCIPAL BUSINESS OWNER OF CAPITAL % holding holding Goodwill Total Equity Net Profits Contribution Companhia de Seguros Largo da Matriz 45-52 Banif - SGPS, SA Açoreana, SA 1500 Ponta Delgada Insurance Banco Comercial dos Açores S.A. 47,69% 19.411 - 40.703 18.093 7.749
Banca Pueyo Virgen de Guadalupe , 2 Villanuea de la Serena, Badajoz Banking Banif - SGPS, SA 33,32% 24.042 28.400 72.156 9.163 3.053
Bankpime Travessera de Gràcia, nº 11 Barcelona Banking Banif - SGPS, SA 27,50% 20.023 15.157 72.809 4.670 563
Inmobiliaria Vegas Altas Parque de la Constitución, 9 Villanueva de la Serena Real Estate Banif - SGPS, SA 33,33% 2.579 - 7.738 160 -
Espaço 10 Av. Barbosa do Bocage 83-85 1050-050 Lisboa Real Estate Banif Investimentos - SGPS, SA 25,00% - - (583) 333 83 66.055 43.557 192.823 32.419 11.448
The companies recorded by the equity method recorded their data in accordance with the accounting policies of the Banif Financial Group (Note 3); there are not problem of standardization of accounting policies.
21. TAX ON INCOME
21.1 Current taxes
This item breaks down by entity:
43 DESCRIPTION 31-12-2008 31-12-2007 Banif 11.529 467 Banco Banif Brasil 6.487 7.721 Banif Go 606 399 Banif Banco de Investimento 3 326 Banco Banif e Comercial dos Açores SA 1.513 0 Econofinance SA 3 4 Banif Gestão de Activos 989 1.124 Banif Capital 2 28 Centro Venture 1 0 Banif Banco de Investimento (Brasil) SA 2.030 1.793 Gamma 8 16 Banif Forfaiting Inc 72 108 Banif Corretora Valores Cambios 3.593 16.626 Banif Nitor Asset Management 80 34 Nitor Administracao Recursos 0 5 Banif Açor Pensões 47 85 Banif Investimentos - SGPS SA 74 45 Banif (Açores) SGPS SA 22 37 BanifServ 1 1 Banif Imobiliária 458 0 Banif Comercial - SGPS SA 16 17 Banif - SGPS SA 3.093 4.016 Soc Imobiliária Piedade 5 5 Banif Rent SA 53 34 Investaçor SGPS SA 6 6 Numberone SGPS 5 3 Investaçor Hoteis SA 24 16 Açortur 44 42 Turotel 29 22 Hotel do Pico 8 2 30.801 32.982
21.2 Deferred taxes – movement in period
Banif – Banco de Investimento (Brasil) has recorded deferred tax assets of 10,115 thousand euros, deriving from a fiscal loss; realization depends on taxable profits being recorded in future. The Company is confident this amount will be recovered.
PREVIOUS END OF PERIOD MOVEMENT IN PERIOD PERIOD DECRIPTION DEFERRED DEFERRED TAX (Net) EQUITY CHARGES EARNINGS TAX (Net)
Provisions/impairment not accepted for fiscal purposes 797 - (142) 8.045 8.700 Other risks and charges 101 - 0 0 101 Impairment on loans 696 - (142) 8.045 8.599 Other -- --
Deferral of taxation of capital gains (3) -- -(3) Disposal of fixed assets (3) --(3)
Fiscal losses to carry forward 6.500 - 09.84016.340 Fiscal losses to carry forward 6.500 - 0 9.840 16.340
Valuations not accepted for fiscal purposes (59.505) 54.527 43 1.157 (3.778) Investment properties (1.317) - 0 953 (364) Impairment on property in own use 356 0 (559) 0 (203) Derivatives (169) - 0 65 (104) Available-for-sale assets (57.470) 54.527 --(2.943) Assets at fair value through profit or loss (897) - 2.208 139 1.450 Others (8) - (1.606) - (1.614)
Others 10.736 - (5.918) (618) 4.200 Employee benefits 4.076 - 458 (751) 3.783 Commissions 1.013 - (256) 15 772 Intangible assets 226 - (25) 118 319 Others 5.421 - (6.095) 0 (674) TOTAL (41.475) 54.527 (6.017) 18.424 25.459
21.3 Reconciliation of normal tax rate with effective rate 44
Rate Tax
Consolidated profits before tax and minority interests 81.938
Tax determined on basis of nominal rate 26,50% 21.714
Impact of entities with different tax rate -3,17% -2.595
Fiscal benefits -1,56% -1.278
Other definitive differences: Profits appropriated from companies recorded through equity method -1,06% -870 Other costs not accepted -0,22% -182
Pension funds -1,98% -1.625
Others 0,01% 11 18,52% 15.175 22. OTHER ASSETS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Gold 22 14 Other precious metals, coins and medals 514 552 Other receivables from residents 1 4 537 570
Subsidies receivable 8.053 9.341 8.053 9.341
Shareholders' loans 22.470 17.508 Sundry debtors 54.521 34.516 Public administration 12.378 7.413 Other earnings receivable 11.035 4.115 Pension fund (Note 45.1, 4)) and (Note 45.2 c)) 11.755 9.795 Operations relating to securities to be settled 7.150 50.736 Insurance 1.958 1.230 Foreign exchange position 28.779 29.616 Investments - bond account 1.362 2.442 Debtors for furtures and options operations 723 7.540 Property 88.776 - Other assets 241.117 143.526 482.024 308.437
Impairment losses (11.222) (3.395) 479.392 314.953
The sum of 88,776 thousand euros under “Property” refers to property reclassified out of “Non-current assets available for sale”, as per Note 3.2 and Note 16.
23. DEPOSITS FROM CENTRAL BANKS
This account breaks down as follows:
45 Description 31-12-2008 31-12-2007
Deposits from central banks 961.334 - Interest on deposits from central banks 4.509 - 965.843 -
“Deposits from Central Banks” corresponds to refinancing operations with the European Central Bank (ECB), as part of liquidity-providing operations, secured by eligible assets, as described in Note 28 on securities issued in connection with securitization operations, Note 12 on Loans and advances to customers and Notes 10 and 13 on securities.
24. TRADING LIABILITIES
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Derivative financial instruments with negative fair value (nota 15) 38.170 39.835 Overdrafts 3.764 4.912 41.934 44.747
Note 15 provides detail of derivatives by type of instrument.
25. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial liabilities at fair value through profit or loss relate to debt instruments issued by the Group with one or more embedded derivatives which under the amendment to IAS 39 – Fair value option were designated on initial recognition at fair value through profit or loss.
This account breaks down by issuers as follows:
31-12-2008 31-12-2007
Banif - Banco Internacional do Funchal, SA 22.629 63.432 Banco Banif e Comercial dos Açores, SA 5.070 4.955 Euro Invest Série 5 - 60.012 Euro Invest Série 6 28.097 29.115 Euro Invest Série 7 20.956 22.100 Euro Invest Série 8 25.910 32.618 Euro Invest Série 9 35.219 46.828 Trade Invest Série 12 28.002 27.926 Trade Invest Série 13 6.925 17.342 Trade Invest Série 14 78.988 61.521 Banif - SGPS, SA - 69.990 Banif - Banco Internacional do Funchal (Brasil) 36.503 33.216 Banif - Banco Investimento (Brasil) 41.266 34.418 Banif Cayman 38.701 -
Held by the Banif Financial Group (101.070) (126.030) 267.196 377.443
Group issues break down as follows: 46
Issue Issue Held by Group Total BANIF EURO MULTI-ACTIVOS 2005/2010 4.819 - 4.819 BANIF EUROSTOXX 50 2005/2010 5.889 (2.410) 3.478 BANIF SFE 2006 2009 8.168 (6.336) 1.832 BANIF SFE DÓLAR MULTI-ACTIVOS 2005-2010 3.753 (2.414) 1.339 BBCA 2006 - 2011 5.070 (205) 4.865 Euro Invest Série 6 28.097 (376) 27.721 Euro Invest Série 7 20.956 (1.076) 19.880 Euro Invest Série 8 25.910 (8.311) 17.599 Euro Invest Série 9 35.219 (641) 34.578 Trade Invest Série 12 28.002 (7.023) 20.979 Trade Invest Série 13 6.925 - 6.925 Trade Invest Série 14 78.988 (6.474) 72.514 Banif - Banco Internacional do Funchal (Brasil) 2006 - 2009 19.258 (19.258) - Banif - Banco Internacional do Funchal (Brasil) 2006 - 2009 11.497 (11.497) - Banif - Banco Internacional do Funchal (Brasil) 2004 - 2009 5.748 - 5.748 Banif - Banco Investimento (Brasil) 2007 - 2009 22.810 (22.810) - Banif - Banco Investimento (Brasil) 2007 - 2009 12.133 (12.133) - Banif - Banco Investimento (Brasil) 2008 - 2009 6.323 - 6.323 Banif Cayman 2008 - 2010 USD 7.264 (73) 7.191 Banif Cayman 2008 - 2010 EUR 2.148 (33) 2.115 Banif Cayman zero coupon 2008 - 2018 29.289 - 29.289 368.266 (101.070) 267.196
The Group’s debt issues are outlined below:
Banif – Banco Internacional do Funchal, SA
Issues repaid in the period ended 31-12-2008:
- Repayment of Caixa Banif SFE Rendimento dinâmico 2004-2008 with a value of 18 million US dollars.
- Early repayment of Caixa Banif SFE Step Up 2005- 2010 with a value of 15 million US dollars.
- Repayment of Caixa Banif SFE Dólar – Multi Activos 2005-2008 bonds with a value of 10 million US dollars.
Debt issues in prior periods:
- On 28 February 2005, Banif – Banco Internacional do Funchal SA issued 10 million Euros in five-year notes. Interest is payable annually, in arrears, as from the subscription date, on 28 February each year. The Bank has a call option, allowing for early repayment of the entire issue at its nominal value, at any interest payment date as from maturity of the 2nd coupon (28 February 2007), inclusive, provided it publishes this intention in the Euronext Lisbon official bulletin and in a widely-read newspaper, no less than thirty days in advance. The gross nominal interest rate is subject to evolution of an underlying basket including three equity indexes (S&P 500 Index, DJ Euro Stoxx 50 Index and Nikkei 225 Index), a commodity index (standard crude oil future) and a bond index (Citigroup World Government Bond index), with a minimum value of 1%.
- On 28 February 2005, Banif – Banco Internacional do Funchal SA, SFE issued 5 million US dollars in five-year notes. Interest is payable annually, in arrears, as from the subscription date, on 28 February each year. The Bank has a call option, allowing for early repayment of the entire issue at its nominal value, at any interest payment date as from maturity of the 2nd coupon (28 February 2007), inclusive, provided it publishes this intention in
47 the Euronext Lisbon official bulletin and in a widely-read newspaper, no less than thirty days in advance. The gross nominal interest rate is subject to evolution of an underlying basket including three equity indexes (S&P 500 Index, DJ Euro Stoxx 50 Index and Nikkei 225 Index), a commodity index (standard crude oil future) and a bond index (Citigroup World Government Bond index), with a minimum value of 1%.
- On 01 July 2005, Banif – Banco Internacional do Funchal, SA issued 10 million Euros in five-year notes. Interest is payable annually, in arrears, as from the subscription date, on 01 July each year. The Bank has a call option, allowing for early repayment of the entire issue at its nominal value, at any date as from the 2nd anniversary of the subscription date (23 May 2007), inclusive, provided it publishes this intention in the Euronext Lisbon official bulletin and in a widely-read newspaper, no less than thirty days in advance. Interest is paid at a flat rate of 1% per annum plus a variable percentage linked to the DJ Eurostoxx 50 index. In 2008, Banif SA bought back 4.1 million euros of this issue.
- On 30 March 2006, Banif - Banco Internacional do Funchal SA, SFE issued 7.5 million euros in three-year notes. Interest is payable annually, in arrears, as from the subscription date, on 30 March each year. The gross nominal interest rate is 1% p.a.. At the date of maturity, the investor will be entitled to receive 50% of the performance of the best of 3 investment strategies (three indexes).
Banco Banif Comercial dos Açores
- On 31 March 2006, the company issued cash bonds with a value of 5,000,000, euros represented by 5,000 certificates for 1,000 euros each. Interest on these bonds is payable every six months, in arrears, on 31 March and 30 September, and during the first year will be calculated at a flat rate of 3.25%, and during the remaining four years at the rate equivalent to the Euribor 6 month rate, ruling on the second business day prior to the start of each interest period, plus 1.00% The loan will be repaid at par, in a single instalment, on 31 March 2011, although it may be repaid early, at the Company’s option, with prior authorization from the Bank of Portugal, as from 31 March 2008 (inclusive).
Debt issue vehicles: Trade Invest, Ltd. and Euro Invest, Ltd.
As part of its overall strategy for obtaining funding, the Banif Group has also issued debt securities with interest and repayment indexed to one or more financial instruments (structured products) through vehicle companies in the Cayman Islands called Trade Invest, Ltd. and Euro Invest, Ltd., which have a debt issue programme in the international markets (EMTN).
The debt issues made through these vehicles are represented by notes.
In the different issues made by these entities, there is watertight separation between related assets and liabilities not offering associated residual benefits, meaning that they are also used for structuring and placing Clients’ operations.
The issues of these vehicles used to obtain Group funding have therefore been fully consolidated given that only in these cases are the benefits of the activity effectively retained.
48 The following issues of notes where the underlying risks were accepted by the respective holders were classified as liabilities at fair value in the Group’s accounts at 31-12-2008:
Issue Nominal Value Coupon Issue Date Maturity Date Underlying Risk Corporate, bank and sovereign lending risks Euro Invest Series 6 25,000,000 EUR Variable 26-05-2006 26-05-2009 (Brazil)
Euro Invest Series 7 20,000,000 EUR Variable 07-12-2006 07-12-2009 Bank lending risk (Brazil) Corporate lending risks Euro Invest Series 8 35,000,000 EUR 5% 13-04-2007 13-04-2012 (Iberian)
Euro Invest Series 9 50,000,000 EUR 6% 22-10-2007 22-10-2012 Corporate lending risk 7,500,000 EUR EUR - 3.8% Trade Invest Series 12 19,000,000 USD USD - 6% 16-02-2006 16-02-2009 Bank lending risk (Brazil) 16,505,000 USD USD - 3.25% 25-08-2006 25-10-2008 Corporate, bank and Trade Invest Series 13 9,415,000 USD USD - 3.7% 25-08-2006 08-06-2009 sovereign lending risks Corporate lending risk (EU Trade Invest Series 14 60,000,000 EUR Variable 30-07-2007 30-07-2010 and USA)
Issues repaid in the period ended 31-12-2008:
- Repayment of Euro Invest Série 5, with a value of 50,000 thousand euros.
Banif SGPS
Issues repaid in the period ended 31-12-2008:
- Repayment of Banif SGPS, SA 2003-2008 bonds with a value of 70 million euros.
Banif – Banco Internacional do Funchal (Brasil)
- On 7 December 2006, Banif – Banco Internacional do Funchal (Brasil) issued bonds with a value of 26.65 million dollars, repayable on 7 December 2009. The coupon rate in force is 7%.
- On 26 May 2006, Banif – Banco Internacional do Funchal (Brasil) issued bonds with a value of 16 million dollars, repayable on 26 May 2009. The coupon rate in force is 6.6%.
- On 17 December 2004, Banif – Banco Internacional do Funchal (Brasil), SA issued subordinated debt with a value of 8 million dollars, maturing in 10 years and carrying interest at a rate of 7% in the first 5 years and the USD Libor rate plus 4.5% in the last 5 years. Interest is paid annually, as from the issue date, on 17 December each year.
Banif – Banco de Investimento (Brasil)
- On 16 February 2006, Banif – Banco de Investimento (Brasil), SA issued bonds with a value of 30.102 million dollars, repayable on 19 February 2007. The coupon rate in force is 6.0625%.
- On 26 May 2007, Banif – Banco de Investimento (Brasil), SA issued bonds with a value of 16 million dollars, repayable on 26 May 2008. The coupon rate in force is 6.6%.
49 - On 17 December 2008, Banif – Banco de Investimento (Brasil), SA issued bonds with a value of 8.8 million dollars, repayable on 17 June 2009. The coupon rate in force is 1.75%
Banif – Banco Internacional do Funchal (Cayman)
- On 2 May 2008, Banif – Banco Internacional do Funchal (Cayman) issued Zero Coupon Notes, maturing in 10 years, with a value of 56,263 thousand US dollars.
- On 28 April 2008, Banif – Banco Internacional do Funchal (Cayman) issued bonds with a value of 2,000 thousand euros, maturing in 2.5 years. Interest is pegged to the performance of a basket of five financial sector equities.
- On 28 March 2008, Banif – Banco Internacional do Funchal (Cayman) issued bonds with a value of 10,000 thousand US dollars, maturing in 2 years. Interest is pegged to the credit risk of a group of Brazilian entities partly owned by Portuguese business interests. Flat annual interest rate of 4.50%.
26. DUE FROM OTHER BANKS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
From banks in Portugal Deposits 290.913 249.762 Loans 260.180 158.321 Others 1.640 57.731 552.733 465.814
From banks abroad Deposits 328.489 30.151 Loans 939.456 1.114.839 Sales with repurchase agreements 146.969 93.457 Others 97.699 56.552 1.512.613 1.294.999
Interest 15.663 16.210 2.081.009 1.777.023
27. LOANS AND ADVANCES TO CUSTOMERS
This account breaks down as follows:
50 Description 31-12-2008 31-12-2007
Deposits Sight 1.415.660 1.584.554 Term 4.499.332 3.331.229 Savings 181.801 200.496 Other 334.884 113.919 6.431.677 5.230.198
Other debits Loans 19.234 65.273 Other 63.952 36.027 83.186 101.300
6.514.863 5.331.498
28. LIABILITIES REPRESENTED BY SECURITIES
This account breaks down as follows by issuer:
31-12-2008 31-12-2007 Banif Finance 812.008 1.025.000 Atlantes Mortgage N.º3 600.000 - Atlantes Mortgage N.º2 353.667 - Azor Mortgage N.º2 289.478 - Atlantes Mortgage N.º1 233.198 281.334 Azor Mortgage N.º1 100.095 135.338 Banif - SGPS 50.000 - Banif Go 42.800 40.000 Banif Cayman 32.355 - Beta Securitizadora 3.242 3.901 SPE Panorama 1.956 2.696 Atlantes n.º2 - 20.554
Held by the Banif Financial Group (1.315.744) (73.199)
Sub - Total 1.203.055 1.435.624
Deposit certificates 173.754 257.962 Financial charges 9.086 9.087 1.385.895 1.702.673
Group issues break down as follows Issue Issue Held by Group Total Banif Finance 2004 - 2009 225.000 (23.205) 201.795 Banif Finance 2006 - 2010 300.000 (27.833) 272.167 Banif Finance 2007 - 2012 287.008 - 287.008 Atlantes Mortgage N.º3 600.000 (600.000) - Atlantes Mortgage N.º2 353.667 (353.667) - Azor Mortgage N.º2 289.478 (289.478) - Atlantes Mortgage N.º1 233.198 - 233.198 Azor Mortgage N.º1 100.095 (1.561) 98.534 Banif - SGPS, SA 2008 - 2011 50.000 - 50.000 Banif Go 2005 20.000 (20.000) - Banif Go 2006 22.800 - 22.800 Banif Cayman Zero Coupon 2008 - 2011 20.000 - 20.000 Banif Cayman Zero Coupon 2008 - 2011 12.355 - 12.355 Beta securitizadora 2017 2.302 - 2.302 Beta securitizadora 2018 940 - 940 SPE Panorama 1.956 - 1.956 2.518.799 (1.315.744) 1.203.055 51
Characteristics of the Group’s issues of debt securities:
Banif Finance
Issues repaid in the period ended 31-12-2008:
- Repayment of Banif Finance 2005-2008 bonds with a value of 200 million euros.
Issues in prior periods:
- On 05 August 2004, Banif Finance LTD issued Floating Rate Notes with a total value of 225 million Euros, with an issue value of 99.668% and a duration of five years. The interest is payable on 05 February, 05 May, 05 August and 05 November each year. The interest rate is indexed to the Euribor 3 month rate, plus a spread of 0.45%.
- On 3 November 2006, Banif Finance LTD issued Floating Rate Notes with a total value of 300 million Euros, with an issue value of 99.925% and a duration of four years. The interest is payable on 3 February, 3 May, 3 August and 3 November each year. The interest rate is indexed to the Euribor 3 month rate, plus a spread of 0.35%.
- On 22 May 2007, Banif Finance LTD issued Floating Rate Notes with a total value of 300 million Euros, with an issue value of 99.729% and a duration of five years. The interest is payable on 22 February, 22 May, 22 August and 22 November each year. The interest rate is indexed to the Euribor 3 month rate, plus a spread of 0.30%.
Securitization Operations
The Group securitized consumer credit and mortgage lending through disposal of these assets to special purposes entities (vehicles) incorporated for this purpose. In order to raise funds, these entities issued debt instruments with different levels of subordination and interest. A residual interest in the securitized assets is usually retained by the Group through the holding of residual securities. The vehicles incorporated for securitization operations are included in the consolidated accounts of the Banif Financial Group, insofar as, in substance, the Group owns all the risks (lending and interest rate risks) and rewards (lending rate margin), meaning that it is subject to the effect of the performance of the operations in question.
52 The credit securitisation operations in which the Group participated through Banif SA, Banco Banif Comercial dos Açores and Banif Go, as a means of financing their current activities, were as follows: - Atlantes Finance No. 1: November 1999 (terminated in August 2005) - Atlantes Finance No. 2: May 2002 (terminated in 2008) - Atlantes Mortgage No. 1: February 2003 - Azor Mortgages: November 2004 - Atlantes Mortgage No. 2: March 2008; - Azor Mortgage No. 2: July 2008; - Atlantes Mortgage No. 3: October 2008
Through these securitisation operations, the three Banif Group entities referred to above transferred personal loans contracts, home loan contracts and leasing contracts to the following vehicles: - Atlantes Finance No. 1, to the company Atlantes No. 1 Limited, based in Jersey - Atlantes Finance No. 2, to the company Atlantes Finance No.2 Plc, based in Dublin - Atlantes Mortgage No. 1, to the company Atlantes Mortgage No. 1 Plc, based in Dublin - Azor Mortgages, to the company Azor Mortgages Plc, based in Dublin - Atlantes Mortgage No. 2, to the company Gamma, based in Portugal. - Azor Mortgage No. 2, to the company Gamma, based in Portugal. - Atlantes Mortgage No. 3, to the company Gamma, based in Portugal
In the Atlantes Finance No. 1 operation, credits were initially transferred with a total value of 200 million euros. In addition, a further 245 million euros was transferred in rollovers up to May 2002, when the revolving period of the operation came to an end. The Atlantes Finance No. 1 securitization operation terminated in August 2005, with the respective clean-up call.
In the Atlantes Finance No. 2 operation, credits were initially transferred with a total value of 150 million euros. In addition, a further 203 million euros was transferred in rollovers up to April 2005, when the revolving period of the operation came to an end. Under the legislation in force, a Credit Securitization Fund was created with the name Atlantes Mortgage Finance No. 2 Fundo, currently managed by Navegator – Sociedade Gestora de Fundos de Titularização de Créditos, SA, which acquired the personal loans and leasing contracts from the transferors, and obtained finance by selling participation units in the fund, subscribed by an Irish corporation called Atlantes Finance No. 2 Plc. In order to obtain finance, the company Atlantes Finance no. 2 Plc issued notes with a total value of 150 million euros.
In the Atlantes Mortgage No. 1 operation, the contracts transferred consisted entirely of home loans from Banif SA, with a value of 500 million euros. Under the legislation in force, a Credit Securitization Fund was created with the name
53 Atlantes Mortgage Finance No. 1 Fundo, managed by Navigator – Sociedade Gestora de Fundos de Titularização de Créditos, SA, which acquired the mortgage lending from the transferors, and sold participation units subscribed by the Irish corporation Atlantes Mortgage No. 1 Plc. In order to obtain finance, the company Atlantes no. 1 Plc issued bonds with a total value of 500 million euros.
Azor Mortgages, started in November 2004, was the first home loan credits securitisation operations undertaken by BBCA (the second in the Banif Group), with a total value of 281 million euros. In Azor Mortgages, under the legislation in force, the credits transferred were acquired by the securitisation company Sagres Sociedade de Titularização de Créditos, which issued the Azor Notes fully subscribed by an Irish corporation called Azor Mortgages Plc. In order to obtain finance, the company Azor Mortgages Plc issued bonds with a total value of 281 million euros.
In December 2006, with a view to the objectives established for the Banif Group’s newly incorporated securitization company, Gamma STC, the Azor Notes together with the respective rights to receive credits and the duties of payment to the vehicle Azor Mortgages, plc, originally belonging to Sagres STC, were transferred to Gamma STC. This transfer was approved by the originator of the credits, the original securitization company, rating agencies, the Securities Market Commission, the investors, and other entities involved in the operation, after assessing Gamma’s capacity to manage the same.
In the Atlantes Mortgage No. 2 operation, the contracts transferred consisted entirely of home loans from Banif SA, with a value of 375 million euros. Under the legislation in force, a Credit Securitization Fund was created with the name Atlantes Mortgage Finance No. 2 Fundo, managed by Gamma – Sociedade Titularização de Créditos, SA, which acquired the mortgage lending from the transferor, and sold participation units subscribed by the Irish corporation Atlantes Mortgage No. 2 Plc. In order to obtain finance, the company Atlantes no. 2 Plc issued bonds with a total value of 375 million euros.
Azor Mortgages No. 2 was launched in July 2008 as an issue of securitized bonds, collateralized by portfolio of mortgage lending originating from BBCA. Unlike previous issues, which involved foreign-based vehicles, this issue was carried out directly by Gamma STC, without the involvement of any other vehicle from outside Portugal.
In this issue, BBCA transferred to Gamma STC a portfolio of 300 million euros. This acquisition, together with constitution of the necessary cash reserves, was financed through issue of securitized bonds Azor Mortgages No. 2 Class A, B and C, with a total nominal value of 306.75 million euros.
At the end of 2008 a further operation went ahead, under the title Atlantes Mortgage No. 3, in the form of an issue of securitized bonds, involving mortgage lending originating from Banif SA.
The structure was similar to that for Atlantes Mortgage No. 2, in other words, the Bank transferred to Gamma mortgage lending with a value of 600 million euros. 54 This acquisition, together with constitution of the necessary cash reserves, was financed through issue of securitized bonds Atlantes Mortgages No. 2 Class A, B and C, with a total nominal value of 623,7 million euros
The companies Atlantes Finance No. 2 Plc, Atlantes Mortgage No.1 Plc, Azor Mortgages Plc, Atlantes Mortgage No. 2 Plc, Azor Mortgage No.2 and Atlantes Mortgage No. 3 have no other business interests other than holding participation units or notes indexed to the credits transferred by the Banif Group and issuing bonds placed on the international financial markets, meaning that payment of the capital and interest on these bonds will depend exclusively on the performance of the lending portfolios transferred.
The company Atlantes Finance No. 2 Plc issued 150 million Euros in bonds which were rated as follows by Standard & Poor’s, Moody’s e Fitch Ratings:
S&P Moody’s Fitch % of Total Class A Bonds AAA Aaa AAA 93% Class B Bonds A A1 A+ 5% Class C Bonds BBB Baa2 BBB 2%
These bonds were issued at a variable interest rate indexed to the Euribor 3 month rate.
The company Atlantes Mortgage No. 1 Plc issued 500 million Euros in bonds which were rated as follows:
S&P Moody’s Fitch % of Total Class A Bonds AAA Aaa AAA 92.5% Class B Bonds A A2 A 4.5% Class C Bonds BBB Baa3 BBB 2.5% Class D Bonds BB Ba2 BB 0.5%
These bonds were issued at a variable interest rate indexed to the Euribor 3 month rate.
The company Azor Mortgages Plc issued 281 million euros in bonds which were rated as follows: S&P Moody’s Fitch %of Total Class A Bonds AAA Aaa AAA 90.04% Class B Bonds A Aa2 A+ 6.76% Class C Bonds BBB Baa1 BBB+ 3.20%
These bonds were issued at a variable interest rate indexed to the Euribor 3 month rate.
The company Atlantes Mortgage No. 2 issued 375 million euros in bonds which were rated as follows:
S&P Fitch %of Total 55 Class A Bonds AAA AAA 93% Class B Bonds A A 5% Class C Bonds BBB BBB 2%
These bonds were issued at a variable interest rate indexed to the Euribor 3 month rate.
Azor Mortgages No. 2 Class A, with a nominal value of 253.5 million Euros was rated AAA by Standard & Poor’s.
All Azor Mortgages and Azor Mortgages No. 2 bonds are pegged to the 3 month Euribor rate, except the most junior class (Class D and C respectively), for which the interest rate is residual.
Atlantes Mortgage No. 3 Class A and B bonds, pay quarterly interest indexed to the 3 month Euribor rate. Class A, with a nominal value of 558.6 million Euros, was rated by Standard & Poor’s as AAA. Atlantes Mortgage No. 3 Class C, with an initial nominal value of 23.7 million Euros, are residual interest bonds.
In the course of the year ended 31 December 2008, the capital repayment value of the bonds issued by the vehicles stood at 125,266 thousand euros, as shown in the table below:
Bonds in Issue Operation Amount Issued Securitized Loans 31-12-2008 31-12-2007 Atlantes No. 1 200.000 - - - Atlantes Finance No. 2 150.000 - 20.554 - Atlantes Mortgage No. 1 500.000 233.198 281.334 232.969 Azor Mortgage 281.000 100.095 135.338 97.212 Atlantes Mortgage No. 2 375.000 353.667 - 352.359 Azor Mortgage No. 2 300.000 289.478 - 282.958 Atlantes Mortgage No. 3 600.000 600.000 - 591.211 2.406.000 1.576.438 437.226 1.556.709
The bonds issued under Atlantes Mortgage No. 2, Atlantes Mortgage No. 3 e Azor Mortgage No. 2 are held by Group entities, and are being used as collateral in financing operations with the ECB, as described in Note 23.
Banif SGPS - On 15 July 2008, Banif SGPS, SA issued 50 million Euros in bonds. Interest is payable half-yearly, in arrears. For the first year the interest rate is 6.25% and for the subsequent coupons interest is indexed to the 6 month Euribor rate ruling on the second business day prior to the start of each six-month period, plus 0.75%. This bond issue has a maximum duration of three years as from the subscription date and will be repaid in full, at par, in a single instalment, on the maturity date of the 6th coupon, i.e. 15 July 2011, unless repaid early.
Banif Go
56 - On 25 November 2005, Banif Leasing SA issued commercial paper with a total value of 20 million euros, with a maturity of three years, automatically renewable for periods of three years, with an interest rate equal to the Euribor rate ruling on the second business day prior to the subscription date, for the respective issue period, plus 0.5%. - On 26 May 2006, Banif Leasing SA issued commercial paper with a total value of 20 million euros, with a maturity of three years, automatically renewable for periods of three years, with an interest rate equal to the Euribor rate ruling on the second business day prior to the subscription date, for the respective issue period, plus 0.5%.
Banif Cayman - On 22 December 2008, Banif Cayman issued Zero Coupon Notes 2008/2011 with a value of 20 million euros. Repayment at par on maturity date, unless repaid early. - On 22 December 2008, Banif Cayman issued Zero Coupon Notes 2008/2011 with a value of 20 million US dollars. Repayment at par on maturity date, unless repaid early.
Beta Securitizadora - Beta Securitizadora issued two issues of 7,219 thousand BRL (interest rate: 11%) and 2,861 thousand BRL (interest rate: 10.50%) maturing on 06/06/2017 and 06/11/2018 respectively.
SPE Panorama SPE Panorama issued two issues of 7,000 thousand BRL and 1,000 thousand BRL maturing on 14/04/2009.
29. PROVISIONS AND CONTINGENT LIABILITIES
Movements in provision during the period ended 31 December 2008:
Balance at Reversal and Balance at Description 31-12-2007 Increase Adjustment Use recovery 31-12-2008
Fiscal contingencies 11.777 2.699 - (4.115) (1.953) 8.408 Other provisions 2.372 1.565 - (1.016) (1.316) 1.605 Provisions for guarantees and commitments 2.415 796 - - - 3.211 Total 16.564 5.060 - (5.131) (3.269) 13.224
In view of the high degree of uncertainty regarding the payment periods for the contingencies provided for, no time discount was considered.
The account for “provisions for fiscal contingencies” contained the sum of 1,632 thousand euros (4,885 thousand in 2007), relating to the dispute between BBCA and the European Commission, regarding the latter’s decision on the adaptation of the fiscal system to the specific circumstances of the Autonomous Region of the Azores, which excludes the financial sector from the application of a lower rate of IRC (corporation tax) in the Azores.
Below we detail the nature of the obligations in question:
57 Charges relating to employee benefits: liabilities accepted in relation to payment of the death allowance provided for in the Banking Sector Collective Labour Agreement.
Fiscal contingencies: a present obligations resulting from past events exists where the future outflow of resources relating to tax on profits is likely.
Provisions for guarantees and commitments: a present obligation resulting from past events exists where the future outflow of resources relating to the provision of guarantees and commitments is likely.
Guarantees provided correspond to the following nominal amounts recorded in memorandum accounts:
Contingencies and other commitments to third parties, not recognized in the Financial Statements as at 31 December 2008 and 31 December 2007 break down as follows
Description 31-12-2008 31-12-2007 Guarantees given (of which:) 1.030.119 779.829 Guarantees and sureties 914.398 745.176 Bills and endorsements 85.467 - Letters of credit and stand-by 2.844 3.386 Documentary credits opened 27.410 31.267 Description 31-12-2008 31-12-2007
Other contingent liabilities (of which:) 1.204.888 38.674 Bonds and compensation 538 27 Other personal guarantees provided and other contingent liabilities - 5.165 Assets given as security 1.204.350 33.482 Commitments to third parties (of which): 1.575.955 1.729.777 Irrevocable commitments 462.651 787.575 Revocable commitments 1.113.304 942.202
2.780.843 1.768.451
“Assets given as security” correspond to securities granted in repos and treasury bills, which secure irrevocable commitments to the Deposit Guarantee Fund, the Investor Compensation System and Intra-Day Credit from the Bank of Portugal.
30. OTHER SUBORDINATED LIABILITIES
This account breaks down by issuer:
31-12-2008 31-12-2007
Banif - Banco de Investimento 30.000 30.000 Banif - Banco Internacional do Funchal (Cayman) - 10.189 Banif - Banco Internacional do Funchal 268.893 237.500 Banif Go 21.000 6.000 Banco Banif e Comercial dos Açores 65.000 55.000 Banif Finance 198.249 225.000
Held by the Banif Financial Group (261.158) (210.462)
Sub total 321.984 353.227
Financial charges 1.121 629 323.105 353.856
58 Group issues break down as follows:
Issue Issue Held by the Group Total Banif - Banco de Investimento 2006 - 2016 15.000 (15.000) - Banif - Banco de Investimento 2007 - perpétua 15.000 - 15.000 Banif - Banco Internacional do Funchal 2001-2011 3.893 - 3.893 Banif - Banco Internacional do Funchal 2005 - 2010 50.000 (50.000) - Banif - Banco Internacional do Funchal 2006 - perpétua 75.000 (75.000) - Banif - Banco Internacional do Funchal 2006 - 2016 50.000 - 50.000 Banif - Banco Internacional do Funchal SFE 2007 -2016 50.000 (50.000) - Banif - Banco Internacional do Funchal SFE 2008 -2017 15.000 (15.000) - Banif - Banco Internacional do Funchal 2006 - 2018 25.000 - 25.000 Banif Go 2005 -2010 6.000 (6.000) - Banif Go 2008 - 2017 15.000 (15.000) - BBCA 2006 - 2016 20.000 - 20.000 BBCA 2007 - 2017 10.000 - 10.000 BBCA 2007 - perpetual 25.000 (25.000) - BBCA 2007 - 2017 10.000 (10.000) - Banif Finance 2004 - 2014 50.000 - 50.000 Banif Finance 2006 - perpetual 98.249 (158) 98.091 Banif Finance 2006 - 2016 50.000 - 50.000 583.142 (261.158) 321.984
The debt issues classified in this account are as follows:
Banif – Banco de Investimento
- On 29 June 2006, Banif Banco de Investimento, SA issued subordinated notes, Variable Rate 2006/2016, with a value of 15,000,000 euros. The interest on these notes matures at six month intervals and in arrears on 29 December and 29 June each year and is calculated, during the first five years of the life of the loan, at the rate equivalent to the 6 month Euribor rate, ruling on the second business day prior to the start of each interest period, plus 0.875%. As from the 11th coupon (inclusive) and through to the end of the life of the loan, the interest rate will be equivalent to the 6 month Euribor rate plus 1.15%.
- On 5 May 2007, Banif Banco de Investimento, SA issued subordinated notes, Variable Rate 2007/2049, with a value of 15,000,000 euros. The interest on these notes matures quarterly and in arrears, the first coupon being due on 28 August. The interest rate applied is the Euribor 3-month rate ruling on the business day prior to the start of each interest period, plus 1.35%.
Banif – Banco Internacional do Funchal (Cayman)
- Repayment of subordinated notes Banif (Cayman), Ltd., entirely held by Banif – Banco Internacional do Funchal, SA (total of 15 million USD on 30 June 2008.
Banif – Banco Internacional do Funchal
- On 16 July 2001 Banif – Banco Internacional do Funchal, SA, issued subordinated cash bonds with a value of 12,500 thousand euros represented by 12,500 certificates of 1,000 euros each The interest on these bonds matures at six month intervals and in arrears on 16 January and 16 July each year and were calculated for the 1st coupon on the basis of a rate of 5.375% and for subsequent coupons in accordance with the Euribor 6 months rate in force on the second business day prior to the beginning of each six month period, plus 0.75%. The loan is to be repaid at par in one instalment, on 16 July 2011 but may however be paid back in advance on the Bank’s option (call option), with 59 authorization from the Bank of Portugal, on maturity of the 10th, 12th, 14th 16th or 18th coupons, with no premium on the amount repaid. In 2008, Banif SA bought back 8.6 million euros of this issue.
- On 30 December 2005, Banif – Banco Internacional do Funchal, SA issued subordinated bonds with a value of 50 million euros. In the interest payment periods prior to 30 December 2010 (the first possible early repayment date, at the issuer’s option), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 0.75% per annum. For each subsequent period, the issuer will pay a rate corresponding to the 3 month Euribor rate plus 1.25% per annum.
- On 22 June 2006, Banif – Banco Internacional do Funchal, SA issued subordinated notes with a value of 75 million euros with an indeterminate duration. Interest is paid quarterly in arrears on 22 December, 22 March, 22 June and 22 September each year. The Bank will pay interest at a floating rate corresponding to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 1%. For each period subsequent to 22 December 2014, the interest rate will be equivalent to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 2% (step up of 1% on the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 1%). As from 22 December 2014, the subordinated notes may be repaid on the borrower’s initiative, in full or in part, at any interest payment date.
- On 22 December 2006, Banif – Banco Internacional do Funchal, SA contracted a subordinated loan of 50 million euros with an indeterminate duration, granted by Banif Finance. Interest is paid quarterly in arrears on 22 December, 22 March, 22 June and 22 September each year. The Bank will pay interest at a floating rate corresponding to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 0.75%. For each period subsequent to 22 December 2011, the interest rate will be equivalent to the 3 month Euribor rate ruling on the second business day prior to each interest period, plus 1.25%. As from 22 December 2011, the subordinated notes may be repaid on the borrower’s initiative, in full, at any interest payment date.
- On 22 December 2007, Banif – Banco Internacional do Funchal, SA – SFE contracted a subordinated loan of 50 million euros with an indeterminate duration, granted by Banif Finance. For interest payment periods prior to 22 December 2016 (the first call option date), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 1.73% per annum. For each subsequent period, the issuer will pay a rate corresponding to the Euribor 3 month rate plus 2.37% per annum.
- On 30 June 2008, Banif – Banco Internacional do Funchal, SA – SFE contracted a subordinated loan of 15 million euros with an indeterminate duration, granted by Banif Finance. For interest payment periods prior to 28 December 2017 (the first call option date), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 3.0362% per annum. For each subsequent period, the issuer will pay a rate corresponding to the Euribor 3 month rate plus 4.0362% per annum.
- On 18 August 2008, Banif – Banco Internacional do Funchal, SA issued subordinated notes with a value of 25 million euros represented by 25 million 1,000 euros notes. Interest is paid half-yearly in arrears on 18 August and 18 February each year and for the first year the interest was calculated at 6.25%, with interest on subsequent coupons being indexed to the 6 month Euribor rate 60 ruling on the second business day prior to each interest period, plus 1%. As from the 11th coupon (inclusive) ad through to the maturity date, the interest is payable at the Euribor 6 month rate plus 1.15%. The loan will be repaid at par in a single instalment, at the maturity date, although the Bank has a call option, provided it obtained prior consent from the Bank of Portugal, as from the 10th coupon.
Banif Go
- On 30 June 2005, Banif Go issued 10-year subordinated notes with a value of 6 million euros. Interest is paid annually in arrears as from the subscription date, on 30 June each year. Banif Leasing SA has a call option for the entirety of the loan, at its nominal value, at any interest payment date as from maturity of the 5th coupon (30 June 2010) inclusive, provided it publishes such intention in the Euronext Lisbon Boletim de Cotações and in a widely read newspaper, no less than 30 days in advance. The gross nominal interest rate is equal to the 12-month Euribor rate ruling on the second business day prior to the start of the interest period, plus 1.5%.
- On 30 June 2008, Banif Go contracted a subordinated loan of 15 million euros with an indeterminate duration, granted by Banif SA. For interest payment periods prior to 28 December 2017 (the first call option date), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 3.0362% per annum. For each subsequent period, the issuer will pay a rate corresponding to the Euribor 3 month rate plus 4.0362% per annum.
Banco Banif e Comercial dos Açores
- Subordinated notes BBCA/06 Variable Rate – 2006-2016. The Company issued 20,000,000 Euros in subordinated notes, represented by 400,000 notes with a value of 50 euros each. These notes were issued in 3 series, on the following subscription dates: 23 October, 27 November and 4 December 2006. The interest on these notes matures every six months in arrears, on 23 April and 23 October, and is calculated, during the first five years of the life of the loan, at a rate equivalent to the 6-month Euribor rate ruling on the second business day prior to the start of each interest period, plus 1.00%. If the call option is not exercised, and as from the 11th coupon (inclusive) and through to the end of the loan, the interest rate will be equivalent to the 6-month Euribor rate plus 1.25%. The interest rate on the 1st coupon was 4.647%. The loan will be repaid at par, in a single instalment, on 23 October 2016, and the Company has a call option, depending on prior authorization from the Bank of Portugal, as from maturity of the 10th coupon.
- Subordinated notes BBCA/07 Variable Rate – 2007-2017. On 25 September 2007 the Company issued 20,000,000 Euros in subordinated notes, represented by 400,000 notes with a value of 50 euros each. The interest on these notes matures every six months in arrears, on 25 September and 25 March, and is calculated, during the first five years of the life of the loan, at a rate equivalent to the 6-month Euribor rate ruling on the second business day prior to the start of each interest period, plus 1.00%. If the call option is not exercised, and as from the 11th coupon (inclusive) and through to the end of the loan, the interest rate will be equivalent to the 6-month Euribor rate plus 1.25%. The interest rate on the 1st coupon was 5.72%. The loan will be repaid at par, in a single instalment, on 25 September 2017, and
61 the Company has a call option, depending on prior authorization from the Bank of Portugal, as from maturity of the 10th coupon.
- On 22 December 2007, BBCA contracted a subordinated loan for 25,000,000 euros with an indeterminate duration, granted by Banif Finance Plc. Interest is payable quarterly and in arrears on 22 March, 22 June, 22 September and 22 December each year. The company will pay interest at a variable rate corresponding to the Euribor 3 month rate ruling on the second target business day immediately prior the starting date of each interest period, plus 1.37% per annum. For each period subsequent to 22 December 2016, the interest rate will be equivalent to the Euribor 3 month rate ruling on the second target business day prior to the start of each interest period, plus 2.37% per annum (step-up of 1%). The interest rate for the 1st period is 6.16%. As from 22 December 2016 the borrower may repay the loan on any interest payment date.
- On 30 June 2008, BBCA contracted a subordinated loan of 10 million euros with an indeterminate duration, granted by Banif Finance. For interest payment periods prior to 28 December 2017 (the first call option date), the issue will pay interest at a rate corresponding to the 3 month Euribor rate plus 3.0362% per annum. For each subsequent period, the issuer will pay a rate corresponding to the Euribor 3 month rate plus 4.0362% per annum.
Banif Finance
- Banif Finance, Ltd Variable Rate Notes – 2004/2014 On 29 December 2004, Banif Finance Ltd. issued 50,000,000 euros in subordinated notes represented by 50,000 notes with a value of 1,000 euros each. The interest on these notes matures quarterly in arrears, on 29 March, 29 June, 29 September and 29 December each year, starting on 29 March 2005, and is calculated, during the first five years of the life of the loan, at a rate equivalent to the 3-month Euribor rate ruling on the second business day prior to the start of each interest period, plus 0.80%. As from the 21st coupon (inclusive) and through to the end of the loan, the interest rate will be equivalent to the 3-month Euribor rate plus 1.30%. The loan will be repaid at par, in a single instalment, on 29 December 2014, and the Company has a call option, depending on prior authorization from the Bank of Portugal, on any interest payment date as from maturity of the 20th coupon. There is also a tax option for early repayment, on any interest payment date, provided the holders are given advance notice of 30 to 60 days, if due to alteration of legislation applicable to Banif Finance it is required to make additional payments and this cannot be avoided by taking reasonable measures.
- On 22 December 2006, Banif Finance Ltd., issued 125,000 thousand euros in subordinated notes of indeterminate duration. The interest on these notes matures quarterly in arrears, on 22 March, 22 June, 22 September and 22 December each year and is calculated at a variable rate corresponding to the 3-month Euribor rate ruling on the second business day prior to the start of each interest period, plus 1.37%. For every period subsequent to 22 December 2016, the interest rate will be equivalent to the 3-month Euribor rate plus 2.37%. As from 22 December 2016, the loan may be repaid on the borrower’s initiative, in full, at any interest payment date. In 2008, Banif Finance bought back 26.8 million euros of this issue.
- On 22 December 2006, Banif Finance Ltd., issued 50,000 thousand euros in ten year subordinated notes. The interest on these notes matures quarterly in 62 arrears, on 22 March, 22 June, 22 September and 22 December each year and is calculated at a variable rate corresponding to the 3-month Euribor rate ruling on the second business day prior to the start of each interest period, plus 0.75%. For every period subsequent to 22 December 2011, the interest rate will be equivalent to the 3-month Euribor rate plus 1.25%. As from 22 December 2011, the loan may be repaid on the borrower’s initiative, in full, at any interest payment date.
31. OTHER LIABILITIES
The item breaks down as follows:
Description 31-12-2008 31-12-2007
Creditors and other deposits 50.458 53.172 Personnel costs 25.800 23.895 Overheads 3.832 677 Other interest and similar charges 11.086 4.205 Securities operations for settlement 67.908 82.505 Guarantees given and other contingent liabilities 305 324 Foreign exchange position 24.110 9.710 Collection on behalf of third parties 134 122 Contributions to other health systems 323 281 Creditors in respect of operations with futures or options 706 9.594 Public adminsitration 33.742 14.818 Other 179.148 72.493 397.552 271.796
32. SHAREHOLDERS’ EQUITY OPERATIONS
Shareholders’ equity accounts broke down as follows at 31 December 2008 and 31 December 2007:
Description 31-12-2008 31-12-2007 Equity 350.000 250.000 Issue premiums 78.214 78.214 Other equity instruments Treasury shares (764) (203) Revaluation reserves (24.539) 76.073 Legal reserve 25.910 21.422 Other reserves and retained earnings (free) 95.311 109.897 Profit for the period 59.237 101.084 Interim dividends Minority interests 279.401 175.059 Total equity 862.770 790.124
The share capital comprises 350,000,000 shares, with a nominal value of € 1.00 per share, fully paid up.
In the course of 2008, the Company distributed dividends of 37.5 million Euros for the financial year of 2007, corresponding to €0.15 per share (250,000,000 shares).
In June 2008, Banif SGPS, SA increased its share capital from 250,000 thousand euros to 350,000 thousand euros. The share issue, reserved for shareholders, was realized as follows:
63 a) capitalization of issue premium reserves with a value of 50,000 thousand euros, through issue of 50,000,000 new ordinary registered shares with a nominal value of 1 EUR; b) issue of 50,000,000 new shares, each with a nominal value of 1 EUR, for a price of 2 EUR, through cash subscription.
The revaluation reserves recorded correspond to the following situations (figures net of tax): Via Litoral (1,885 thousand euros), Finibanco Holdings (-7,303 thousand euros), Zon Madeira (9,212 thousand euros), Zon Açores (4,109 thousand euros), CSA securities portfolio (-33,811 thousand euros), Banif - Banco de Investimento securities portfolio (-2,068 thousand euros), others (3,437 thousand euros)
Information on compliance with capital requirements, as reported to the supervisory authorities, is presented in the Management Report, in Chapter III – Analysis of Individual and Consolidated Accounts.
The consolidated profit of the Banif Financial Group was determined as follows:
64 31-12-2008 31-12-2007 BANIF - SGPS (8.220) (6.845) SOCIEDADE IMOBILIARIA PIEDADE (80) (25) ESPAÇO DEZ (23) 83 BANIF IMOBILIARIA (178) 5.255 BANIF BANK (MALTA) (2.212) (1.103) BANCA PUEYO 3.066 3.053 BANCO CABOVERDIANO DE NEGÓCIOS 690 231 BANKPIME (1.306) 564 INMOBILIARIA VEGAS ALTAS 56 80 BANIF HOLDINGS (MALTA), LTD -- BANIF COMERCIAL-SGPS (96) (10) BANIF-BANCO INTERNACIONAL DO FUNCHAL 15.562 41.624 METALSINES 0 (3.389) BANIF FINANCE 99 - BANIF AÇORES, SGPS 80 248 INVESTAÇOR, SGPS (219) (76) INVESTAÇOR HÓTEIS 97 106 AÇORTUR (11) 2 TUROTEL 4 (69) HOTEL PICO (10) 430 BANCO BANIF E COMERCIAL DOS AÇORES 6.565 13.404 BANIF & COMERCIAL AÇORES, Inc FALL RIVER -- BANIF & COMERCIAL AÇORES, Inc SAN JOSÉ (4) 4 BANIF GO 1.414 5.866 BANIF RENT 45 13 BANCO BANIF BRASIL 3.063 5.103 COMPANHIA DE SEGUROS AÇOREANA 1.489 7.749 BANIF - INVESTIMENTOS SGPS (6.910) (6.396) BANIF BANCO DE INVESTIMENTO (143) (2.033) BANIF (CAYMAN) 19 2.874 BANIF BANCO DE INVESTIMENTO (BRASIL) 8.042 122 BANIF NITOR ASSET MANAGEMENT (392) (141) BANIF CORRETORA DE VALORES E CAMBIOS 30.253 29.155 NITOR ADMINISTRAÇÃO RECURSOS - 563 BETA SECURITIZADORA 258 311 NUMBERONE SGPS (6) (12) BANIF INT. ASSET MANAGEMENT 182 12 BANIF GESTÃO DE ACTIVOS 3.261 3.453 BANIF AÇOR PENSOES 78 97 BANIF (BRASIL) (5) 1 FINAB 108 81 BANIF INTERN. HOLDINGS Ltd (507) 303 BANIF SECURITIES HOLDINGS (1.735) 123 ECONOFINANCE (2) (13) BANIF INVESTIMENTO MÉXICO 0 (79) BANIF FINANCIAL SERVICES 2 14 BANIF SECURITIES INC. (2.134) 303 BANIF FINANCE USA (171) 1.125 BANIF FORFAITING COMPANY 36 20 BANIF FORFAITING (USA) Inc - 115 BANIF INTERNATIONAL BANK 159 218 BANIF CAPITAL - SOC DE CAPITAL DE RISCO (90) (225) BANIF MULTIFUND 13 17 CENTRO VENTURE 6 4 GAMMA 51 17 BANIF TRADING INC (52) (29) ATLANTES N.1 (5) 2 ATLANTES N.2 (618) (321) ATLANTES MORTGAGE N.º1 (359) 86 ATLANTES MORTGAGE N.º2 14 - ATLANTES MORTGAGE N.º3 4.268 - AZOR MORTGAGE N.º1 (646) 731 AZOR MORTGAGE N.º2 1.080 - TRADE INVEST S12, S13, S14 252 (1.555) EURO INVEST S3a, s3b, S5, S6, S7, S8, S9 5.219 (1.161) FIP BANIF REAL ESTATE - 690 BANIF US REAL ESTATE (98) 270 FIP BANIF REAL ESTATE II -- FP AMAZÔNIA ENERGIA II -- BANIF NITOR CARAVELAS -- ART INVEST -- GLOBAL REAL ESTATE -- BANIF NITOR PORT. PRIVADO -- SPE PANORAMA (49) (78) IMOGEST -- CAPVEN -- AGGRESSIVE STRATEGY FUND - 6 BALANCED STRATTEGY FUND - 6 BRAZILIAN BOND FUND - 17 BRAZILIAN EQUITY FUND - 55 CONSERVATIVE STRATEGY FUND - 4 EUROPEAN BOND FUND (2) (2) EUROPEAN EQUITY FUND (11) 29 GLOBAL CASH FUND - 7 59.237 101.084 65
33. MINORITY INTERESTS
As at 31 December 2008 and 31 December 2007, the minority interests (MI) account broke down as follows: 31-12-2008 31-12-2007 Entity Bal. sheet val. MI profits Bal. sheet val. MI profits Banif Finance 176.941 6.792 104.668 (4.668) Imogest 56.345 - - - Banif Cayman 12.863 930 11.731 (961) Fundos Banif Multi Fund 4.840 0 166 (3) Banco Caboverdiano de Negocios 4.438 645 3.260 (349) Açortur - Investimentos Turísticos dos Açores 3.457 (12) 3.469 (2) Investaçor Hoteis SA 3.262 67 3.196 (73) Banif Bank (Malta) 2.972 (884) - - Investaçor SGPS SA 2.738 (151) 2.884 52 Capven 2.528 - - - Banif Açor Pensões 1.395 48 1.444 (67) Banif International Holdings 1.269 (89) 992 (54) Art Invest 1.241 - - - Turotel - turismo e Hóteis dos Açores 1.147 3 1.144 49 Banif Portofolio 1.133 107 - - Banif Finance (USA) 759 2 648 (148) Banif Banco Internacional do Funchal (Brasil) 615 27 493 (64) Investimentos Turísticos e Similares Hóteis e Apart-Hotel Pico 431 (10) 433 20 Centro Venture 259 6 253 (4) SPE Panorama 214 (3) 343 11 FIP Banif Real Estate 172 4 1.822 (138) Finab 156 72 109 (54) Banif Capital 139 (28) 168 75 Banif Forfaiting 37 7 29 (4) Banif Trading Inc 23 (9) 31 5 Beta Securitizadora 20 2 170 (26) Banif Financial Services Inc 6 - 3 (2) Amazonia Energia II 1 - - - Banif - Banco Investimento (Brasil) - - 13.186 (88) Banif Corretora Valores Cambios - - 23.728 (8.812) Banif Nitor Asset Management - - (157) 512 Banif Investimento México - - (1) 1 Banif Forfaiting Inc - - 47 (20) Nitor Administração Recursos - - 800 (908) 279.401 7.526 175.059 (15.720 )
The minority interests account for Banif Finance related to:
- the issue, on 22 December 2004, of guaranteed perpetual preference shares with a unit preference liquidation value of 1,000 euros; this issue had a total value of 75 million euros. The preferential dividends are paid to holders of the preference shares, if and when declared by the Company’s Board of Directors, quarterly and in arrears. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (22 December 2014), plus: i) a sum corresponding to the preferential dividend accrued and not paid in relation to the most recent preferential dividend period, declared or otherwise, up to the date set for repayment, and ii) any additional sums, provided prior authorisation is obtained from the Bank of Portugal and the Issue Guarantor (Banif – Banco Internacional do Funchal), and provided the requirements of Cayman Islands law are satisfied.
- the issue, on 28 December 2007, of guaranteed perpetual preference shares with a unit preference liquidation value of 1,000 euros; this issue had a total value of 25 million euros. The preferential dividends are paid to holders of the preference shares, if and when declared by the Company’s Board of Directors, quarterly and in arrears. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend
66 payment date as from the first repayment date (28 December 2017). Exercise of this option is subject to prior authorisation from the Bank of Portugal and compliance with the requirements of Cayman Islands law.
- the issue, on 29 December 2008, of guaranteed perpetual preference shares with a unit preference liquidation value of 1,000 euros; this issue had a total value of 20 million euros. The preferential dividends are paid to holders of the preference shares, if and when declared by the Company’s Board of Directors, quarterly and in arrears. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (29 December 2018). Exercise of this option is subject to prior authorisation from the Bank of Portugal and compliance with the requirements of Cayman Islands law.
- the issue, on 31 December 2008, of guaranteed perpetual preference shares with a unit preference liquidation value of 1,000 euros; this issue had a total value of 25 million euros. The preferential dividends are paid to holders of the preference shares, if and when declared by the Company’s Board of Directors, quarterly and in arrears. Banif Finance has a call option, permitting it to repay all or part of this issue, at its preferential liquidation value, at any dividend payment date as from the first repayment date (31 December 2018). Exercise of this option is subject to prior authorisation from the Bank of Portugal and compliance with the requirements of Cayman Islands law
The minority interests account for Banif Cayman relates to:
- the issue, on 12 November 2003, of 16,000,000 preference shares with a unit preferential liquidation value of 1 dollar, issued in two tranches of 10 million dollars and 6 million dollars. The preferential dividends are paid to the holders of the preference shares, if and when declared by the Company’s Board of Directors, annually and in arrears, on 12 December each year.
34. INTEREST AND SIMILAR INCOME AND INTEREST AND SIMILAR CHARGES
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Interest and similar income Interest on liquid funds 8.105 8.007 Interests on funds due from banks 37.430 40.767 Interest on lending to customers 693.581 527.208 Interest on overdue credit 9.899 7.578 Interest and similar income from other assets 187.730 111.685 Commissions received associated with amortized cost 7.557 5.673 944.302 700.918
Interest and similar expense Interest on deposits from central banks 9.828 - Interest on deposits from other banks 111.164 82.603 Interest on customer deposits 254.691 153.157 Interest on loans 3.573 884 Interest on liabilities represented by securities, non-subordinated 116.564 106.662 Interest and similar expense on other financial liabilities 84.053 48.080 Interest on subordinated liabilities 21.098 25.943 Commissions paid associated with amortized cost 6.023 3.415 Other 68.020 41.110 675.014 461.854
67 35. INCOME FROM EQUITY INSTRUMENTS
This account breaks down as follows:
Description 31-12-2008 31-12-2007
Dividends on available-for-sale financial assets 2.883 2.800 2.883 2.800
36. INCOME AND CHARGES RELATING TO SERVICES AND COMMISSIONS
This item breaks down as follows:
Description 31-12-2008 31-12-2007
Commission income Guarantees provided 10.007 9.568 For other services rendered 28.172 28.217 Credit operations 1.396 1.205 Annuities 3.120 2.737 Card management 2.466 3.002 Transfers 788 683 Collective investment institutions in securities 17.697 18.630 Administration 1.390 30 Collection 2.702 3.459 Deposit and custody 362 500 Other commissions received 48.149 38.967 116.249 106.998
Commission expense Guarantees received 250 152 For other services received 7.900 7.278 Other commissions paid 5.287 4.800 13.437 12.230
Commission income includes a sum of 17,697 thousand euros (18,630 thousand euros in 2007) for management of collective investments in securities.
37. PROFIT AND LOSS ON FINANCIAL OPERATIONS
This item breaks down as follows:
68 Description 31-12-2008 31-12-2007
Gains on financial operations Foreign exchange gains 75.037 24.984 Gains on other financial assets at fair value through profit or loss 20.243 16.620 Gains on trading assets 697.290 455.895 Gains on available-for-sale financial assets 65.856 53.557 858.426 551.056
Losses on financial operations Foreign exchange losses 95.026 18.807 Losses on other financial assets at fair value through profit or loss 20.261 13.896 Losses on trading assets 674.136 449.756 Losses on available-for-sale financial assets 1.860 270 791.283 482.729
38. OTHER OPERATING INCOME
This item breaks down as follows:
Description 31-12-2008 31-12-2007
Other income Services rendered 5.462 8.221 Recovery of credit and interest 3.307 3.547 Reimbursement of expenses 19.259 14.489 Gains on disposal of other non-financial assets 2.839 17.845 Others 51.337 48.105 82.204 92.207
Other costs Membership fees and donations 816 674 Contributions to FGD and FGCAM 1.495 1.185 Other taxes 9.406 7.343 Losses on the disposal of customer loans 1.053 8.447 Other 41.517 35.749 54.287 53.398
39. PERSONNEL COSTS
This item breaks down as follows:
Description 31-12-2008 31-12-2007
Remuneration of directors and auditors 9.384 8.858 Remuneration of employees 110.201 91.978 119.585 100.836
Mandatory social charges: Charges on remuneration 25.322 22.066 Charges relating to pensions: - Banif (Note 45.1 5)) 2.964 3.191 - Banco Banif e Comercial dos Açores (Note 45.2 d)) 4.673 2.681 - Others (Defined contribution plans) 139 140 Other social charges 1.694 1.916 34.792 29.994
Other personnel costs 8.229 5.493 162.606 136.323
69 40. OVERHEADS
This item breaks down as follows:
Description 31-12-2008 31-12-2007
Specialist services 33.462 27.113 Communications 13.898 12.067 Advertising and publications 17.187 10.870 Travel, accommodation and entertainment 7.144 5.585 Upkeep and repair 6.714 5.440 Water, power and fuel 4.830 4.254 Rentals 21.133 17.835 Insurance 2.470 2.244 Transport 2.424 1.746 Consumables 2.081 1.682 Training 1.553 1.313 Others 21.343 15.321 134.239 105.470
41. IMPAIRMENT OF LOANS AND OTHER FINANCIAL ASSETS
Movements in the account for Impairment of Loans and Advances to Customers in the period ended 31 December 2008:
Balance at Reversal and Balance at Description 31-12-2007 Increase Use recovery 31-12-2008
Impairment on lending 196.393 82.437 (6.738) (18.378) 253.714 Total 196.393 82.437 (6.738) (18.378) 253.714
During the financial year of 2008, the Banif Financial Group recovered 10,352 thousand euros in credit written off the balance sheet, included in the income statement under “Loan impairment net of reversal and recovery”.
Movements in the account for Impairment of other Financial Assets in the period ended 31 December 2008:
Balance at Reversal and Balance at Description 31-12-2007 Increases Adjustments Uses recovery 31-12-2008
Available-for-sale financial assets 3.836 242 - (299) - 3.779 Available-for-sale non-current assets 6.471 894 (3.415) (1.718) (694) 1.538 Debtors and other investments 3.395 7.657 3.415 (2.905) (340) 11.222 Total 13.702 8.793 - (4.922) (1.034) 16.539
42. EARNINGS PER SHARE
42.1 Basic earnings per share
Description 31-12-2008 31-12-2007 Basic Profit for the period 59.237 101.084 Weighted average number of ordinary shares in issue 300.607.649 249.836.509
Basic gain per share (expressed in € per share) 0,20 0,40
42.2 Diluted earnings per share
70 Description 31-12-2008 31-12-2007 Diluted Profit for the period 59.237 101.084 Profit for the period adjusted for calculation of diluted gain per share (in €) 59.237 101.084
Weighted average number of ordinary shares in issue 300.607.649 249.836.509 Weighted average number of ordinary shares in issue adjusted for calculation of diluted gain per 300.607.649 249.836.509
Diluted gain per share (expressed in € per share) 0,20 0,40
43. FINANCIAL INSTRUMENTS RISK
The analysis of financial instruments risk is presented in chapter II – Operations of the Banif Financial Group in 2008, item 2.3 – Control of Operating Risks, Management Report.
44. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments at fair value
The following tables present an analysis of the categories of financial instruments recognized at fair value in the financial statements at 31 December 2008 and 2007, and the respective valuation methods:
2008 Valuation techniques Market value or listed price Market analysis Other Total Assets
Trading assets 146.057 131.067 - 277.124 Other financial assets at fair value through profit or loss 234.738 13.308 - 248.046 Available-for-sale financial assets 89.881 53.980 15.615 159.476
Liabilities
Trading liabilities - 41.934 - 41.934 Other financial assets at fair value through profit or loss - 267.196 - 267.196
2007 Valuation techniques Market value or listed price Market analysis Other Total Assets
Trading assets 215.431 38.016 - 253.447 Other financial assets at fair value through profit or loss 279.399 6.332 - 285.731 Available-for-sale financial assets 184.714 23.220 10.603 218.537
Liabilities
Trading liabilities - 44.747 - 44.747 Other financial assets at fair value through profit or loss - 377.443 - 377.443
Fair value is determined in line with the policies defined in Note 3.9.2..
Unlisted equity instruments recognized under available-for-sale financial assets at acquisition cost, due to the impossibility of a reliable valuation, are contained in the column headed “others”.
In the internal valuation models for trading securities and financial instruments at fair value through profit or loss, the market interest rates are determined on the basis of information disclosed by Bloomberg. Rates for up to one year are the market rates in the interbank money market, whilst rates for maturities of more than one year are 71 obtained through listings for interest rate swaps. The interest rate curve obtained is then adjusted against the values of short term interest rate futures. Interest rates for specific maturities are determined by interpolation methods. The same interest rate curves are also used in projecting non-deterministic cash flows, such as benchmarks.
The interest rates used for determining the interest rate curve with reference to 31 December 2008, for EUR and USD, are as follows:
Currency Term EUR USD 1 day 2,05% 0,13% 7 days 2,25% 0,38% 15 days 2,32% 0,42% 1 month 2,53% 0,55% 2 months 2,78% 1,06% 3 months 2,83% 1,35% 4 months 2,89% 1,52% 5 months 2,96% 1,71% 6 months 3,03% 1,88% 7 months 3,03% 1,95% 8 months 3,03% 2,03% 9 months 3,03% 2,10% 10 months 3,00% 1,81% 11 months 2,98% 1,56% 1 year 2,95% 1,28% 2 year 2,68% 1,48% 3 year 2,96% 1,75% 4 year 3,10% 1,94% 5 year 3,25% 2,13% 6 year 3,36% 2,22% 7 year 3,48% 2,31% 8 year 3,57% 2,39% 9 year 3,65% 2,48% 10 year 3,74% 2,56% 20 years 3,88% 2,74% 30 years 3,57% 2,71%
In the internal valuation models for available-for-sale financial assets the discounted cash flows method has been adopted, involving an analysis of the intrinsic value of the transaction, discounting, at the reference date, the projected cash flows at the discount rate reflecting the risk on the same (Zon Madeira: Average WACC = 10% and Perpetual Growth Rate = 2.0%; Zon Açores: Average WACC = 10% and Perpetual Growth Rate = 2.0% and Via Litoral: Equity holders IRR = 12%).
Changes in the fair value of “Other financial liabilities at fair value through profit or loss” had an impact of 9,558 thousand euros on the results for 2008 (-2,844 thousand euros in 2007).
Financial instruments at cost or amortized cost
The following tables present a comparative analysis between the balance sheet value and the fair value of categories of financial instruments recognized at cost or amortized cost.
72 2008 Balance sheet Unrecognized value Fair value gain/loss Assets
Due from banks 612.099 612.099 - Lending and other receivables 10.336.949 10.336.924 -25 Available-for-sale non-currrent assets 41.885 41.901 16 Other financial assets 675.072 675.922 850
Liabilities
Deposits from other banks 3.046.852 3.046.852 - Customer deposits and other loans 6.514.863 6.514.968 105 Debt securities in issue 1.385.895 1.385.895 - Available-for-sale non-current liabilities 118.671 118.401 -270
2007 Balance sheet Unrecognized value Fair value gain/loss Assets
Due from banks 308.366 308.366 - Lending and other receivables 8.619.775 8.620.012 237 Available-for-sale non-currrent assets 68.404 68.404 - Other financial assets 84.225 84.225 -
Liabilities
Deposits from other banks 1.777.023 1.777.023 - Customer deposits and other loans 5.331.498 5.331.476 -22 Debt securities in issue 1.702.673 1.702.977 304 Available-for-sale non-current liabilities - - -
For liquid assets, investments and lending with a maturity of less than one year, it was considered that the amount recorded in the balance sheet is a reliable approximation to their fair value. For lending with a maturity of more than one year at an indexed rate, it was also considered that the balance sheet value is a reliable approximation to the fair value. For fixed rate lending with a maturity of more than one year, the fair value was estimated by discounting expected cash flows, at the average rate of operations effected in December 2008 (current market conditions).
For deposits of up to one year or without a set maturity, which includes deposits without an associated interest rate, it was considered that the amount repayable at the reporting date is a reliable approximation to the fair value.
45. RETIREMENT BENEFIT OBLIGATIONS: LIABILITIES RELATING TO RETIREMENT AND SURVIVORS’ PENSIONS
45.1 Banif – Banco Internacional do Funchal, SA a) Company Agreement concluded in 2008 and changes to Pension Plan
In 2008, Banif – Banco Internacional do Funchal, SA (Company) concluded a Company Agreement (CA) with the banking sector unions making significant changes to the professional career structure and social security arrangements.
73 All Banif employees are now included in the General Social Security System (GSSS).
The pension fund and plan in place prior to approval of the Company Agreement assured compliance with the range of benefits stipulated in the Collective Labour Agreement (CLA) for the Banking Sector, as regards social security, namely in clauses 136 et seq.. This was a defined benefit (DB) plan, financed jointly by the Associate (Company) and the Participants (employees included under the provisions of clause 137-A of the CLA).
When the CA took effect on 1 October 2008, the pension fund was transformed into a hybrid fund with three pension plans, known as Pension Plans I, II and III.
Pension Plan I took over the provision assured by the former DB Pension Plan, covering not only pensioners – as follows directly from the applicable legislation – but also staff working for the company who, at 31 December 2006, were 5 or less years away from presumable invalidity retirement (65 years).
Pension Plan II, a defined contribution (DC) plan, covers all employees contracted for active service in the Company prior to 1 January 2007, who had not died, retired or left the company’s service prior to the date of the CA taking effect. In relation to these employees, the Associate defined not only a specific plan of monthly contributions in line with their respective salaries, and also made an initial contribution to be allocated to their respective individual accounts, calculated on the grounds of: (i) complementary old age pensions estimated in the assessment of liabilities conducted by the Pension Plan Actuary at 31 December 2006 and duly reported to the Portuguese Insurance Institute and the Bank of Portugal, and (ii) the current value of future contributions.
Pension Plan III, also a defined contribution (DC) plan, covered all employees contracted for active service in the Company after 1 January 2007, who had not died, retired or left the company up to the date on which the CA took effect. In relation to these employees, the Associate defined a specific plan of periodic monthly contributions in line with their respective salaries.
Plan II and Plan III started up on 1 October 2008, with the first of the contributions being made on the same date by the Associate and the Participants.
The transformation of the pension plan resulted in a material reduction in the number of current employees covered for the purposes of complementary invalidity and presumable invalidity retirement pensions and survivor’s pensions (promised benefits) under the Defined Benefit Plan. In order to assess the impact of this reduction, actuarial studies were conducted with reference to 1 October 2008; up to this date the Company recognized liabilities relating to the former Defined Benefit Plan, whilst after this date it recognized liabilities relating to Pension Plan I.
On the date of transformation of the Fund, the Company also recognized all the initial contributions to Pension Plan II (Defined Contribution). b) General description
As a result of the Company Agreement reached in 2008, as described in the preceding item, Banif – Banco Internacional do Funchal SA is committed to three Pension Plans:
- Pension Plan I, a defined benefit plan, whereby the Company finances its liability (i) for payment of invalidity and presumable invalidity retirement pensions and survivors’ pensions for employees covered by the defined 74 benefits plan, complementing the Social Security system, and (ii) for future payment of compulsory contributions for post-employment health care to the Social Health Care Service (contribution rate of 6.5%), covering all its current employees and the pensioners under the Fund; - Pension Plan II, a defined contribution plan, under which the Company agrees to contribute each month a sum equivalent to 4.5% of the remuneration to which the plan applies, and an initial contribution paid up on the date of constitution of the Plan; - Pension Fund III, a defined contribution fund, under which the Company agrees to contribute each month a sum equivalent to 1.5% of the remuneration to which the plan applies.
The Banif Pension Fund is a closed end fund with the purpose of financing the obligations provided for in the respective associated Pension Plans (Decree-Law 12/2006, of 20 January, which currently regulates the constitution, management and marketing of Pension Funds). The Fund was incorporated on 7 December 1989, under Decree-Law 396/86, of 25 November.
The fund is managed by Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA, which has subcontracted Banif – Banco de Investimento, SA for the financial management of the fund and valuation of the respective assets.
The most recent actuarial studies of the liabilities of the defined benefits plan was carried out with reference to the division date and 31 December 2008 and 2007, by the actuary Drª Ana Marta Vasa, of Watson Wyatt International Limited – Surcursal em Portugal.
As at 31 December 2008, the Defined Benefit Plan covered a population of 76 pensioners (66 in 2007) and 26 current employees (1,741 in 2007). c) Actuarial assumptions
The main actuarial and financial assumptions used for calculations are as follows:
2008 2007 31-12-2008 01-10-2008 Actuarial Valuation method Unit Credit Projected Unit Credit Projected Unit Credit Projected Mortality table: - Men TV 73/77 TV 73/77 TV 73/77 - Women TV 88/90 TV 88/90 TV 88/90 Invalidity table EVK80 EVK80 EVK80 Discount rate 5,75% 6,00% 5,50% Rate of return on fund assets 5,75% 6,00% 5,50% Salary growth rate 4,00% 4,00% 4,00% Pension growth rate 2,00% 2,00% 2,00% Turnover rate Not applied Not applied Not applied
The discount rate is determined by using the interest rates on private debt bonds with a high credit quality (“AA”) with a maturity close to that corresponding to the liabilities to be financed. The maturity of the liabilities should be calculated on the basis of the average life expectancy weighted by the payments made to the fund, which in the case of the Banif Pension Fund is approximately 21 years.
The overall expected yield for the period (4.75%) reflects expected returns on fund assets at the end of the previous period, taking into consideration the characteristics of the fund portfolio and the investment policies.
75 No turnover rate is applied for the sake of prudence and because it cannot be reliably determined.
d) Liabilities and cover
Liabilities recognized in the balance sheet and the impact of the division were as follows:
2008 2007 31-12-2008 01-10-2008 Division 01-10-2008 Current value of liabilities: Pensions currently payable 12.573 12.386 0 12.386 11.158 Past services of current staff 8.346 8.167 -42.185 50.352 52.413 SAMS charges 5.204 4.982 -4.882 9.864 9.996 Total 26.123 25.535 -47.067 72.602 73.567 Fair value of Plan assets -25.913 -28.217 -39.114 -67.331 -71.140 Deficit 210 -2.682 5.271 2.427 Unrecognized actuarial gains (losses) "Corridor" -2.612 -2.554 -4.707 -7.260 -7.357 “Corridor” Surplus -3.651 -1.191 -2.196 -3.387 -3.132 Total -6.263 -3.745 -6.903 -10.647 -10.489 Liabilities (assets) recognized in balance sheet -6.053 -6.427 -5.377 -8.062 Net effect of the division and transformation of the Pension Fund: 1.050
The net effect of the division and transformation of the Pension Fund corresponds to:
- a gain, from the reduction in liabilities, of 47,067 thousand euros, less the proportional fraction of unrecognized liabilities (“corridor” and “corridor” surplus) of 6,903 thousand euros; - a loss due to the initial contribution to Pension Plan II (DC) of 39,114 thousand euros, corresponding to a reduction in the assets allocated to the define benefit plan.
Coverage of liabilities complies with the requirements of Bank of Portugal Notice 12/2001.
As at 31 December 2008, the current value of liabilities for future services stood at 3,051 thousand euros (57,946 thousand euros in 2007).
Of unrecognized actuarial losses, the sum of 2,612 thousand euros (7,357 thousand euros in 2007) is included in the corridor and the surplus, of 3,651 thousand euros (3,132 thousand euros in 2007), will be amortised over 1.8 years, corresponding to the average remaining working life of the plan participants.
At 31 December 2008, an increase, or reduction, of 1% in the contribution rate to the SHS would mean an increase in liabilities of 805 thousand euros (1,536 thousand euros at 31 December 2007) or a reduction of 797 thousand euros (1,536 thousand euros at 31 December 2007) and an increase in costs for the period (cost of current services and cost of interest) of 24 thousand euros (92 thousand euros at 31 December 2007), or a reduction of 25 thousand euros (79 thousand euros at 31 December 2007).
e) Expenses recognised in the period
In the financial years of 2008 and 2007, the Company recognised the following costs relating to pension plans:
76 2008 31-12-2008 01-10-2008 2007 Cost of current services 245 2.959 3.339 Interest expense 383 3.035 3.444 Expected return -370 -2.858 -3.074 Actuarial losses recognized in the year 21 100 238 Charges borne by beneficiaries 0 -551 -756 Total expense for the period 279 2.685 3.191
Defined Benefits Plan, presenting separately the costs borne up to 1 October 2008 and thereafter:
ii. Defined Contribution Pension Plans (Pension Plans II and III): the contributions made to these plans as from 1 October 2008 are recognized as costs for the period and total 800 thousand euros.
iii. Net effect of the division and transformation of the Pension Plan, as described in d) above, which corresponded to total reduction in costs of 1,050 thousand euros.
The cost of current services under the Defined Benefit Plan, relating to liabilities for pensions for Group directors, is nil (224 thousand euros in 2007), insofar as all of them retire due to presumable invalidity (65 years) in 2009. The fact that this precondition is not met does not invalidate the non-allocation of any amount by way of the cost or current services insofar as the liability to be funded is now to be calculated in line with total services.
The cost of contributions to Pension Plans II and III, for Group directors, stood at 2,160 thousand euros, for the initial contribution (amount allocated on transformation of the pension fund) and 11 thousand euros in normal contributions.
f) Variation in current value of liabilities
Annual accrual of liabilities breaks down as follows, including the effect of division:
2008 2007 31-12-2008 Division 01-10-2008 Current value of opening liabilities 25.535 -47.067 73.567 72.499 Cost of current services 245 - 2.959 3.339 Interest expenses 383 - 3.035 3.444 Actuarial losses (gains) 351 - -6.287 -4.888 Pensions paid -391 - -672 -826 Current value of closing liabilities 26.123 -47.067 72.602 73.567
g) Variation in value of pension fund
Variation in fair value of fund assets:
2008 2007 31-12-2008 Division 01-10-2008 Opening value of fund 28.217 -39.114 71.140 65.881 Expected return 370 - 2.858 3.074 Actuarial (financial) (losses) gains -2.283 - -6.545 -2.169 Contribution paid to fund - - 551 5.180 Pensions paid to fund -391 - -672 -826 Closing value of fund 25.913 -39.114 67.331 71.140
Contributions of 551 thousand euros were made in 2008 (5,180 thousand euros in 2007), in cash.
In 2009, the Company expects to make contributions of 521 thousand euros.
77
As at 31 December 2008 and 2007, fund assets broke down as follows:
2008 2007 Value % Value % Shares 539 2,1% 5.036 7,1% Investment Funds 8.240 31,8% 36.732 51,6% Public Debt 0 0,0% 6.139 8,6% Miscellaneous bonds 3.275 12,6% 12.025 16,9% Property 9.332 36,0% 9.347 13,1% Money Market 4.293 16,6% 2.672 3,8% Other 235 0,9% -811 -1,1% Total 25.913 100,0% 71.140 100,0%
The Company, or other companies belonging to the same group, use let properties belonging to the Pension Fund, with a value of 6,049 thousand euros (6,049 thousand euros, in 2007).
Of the Fund’s assets at 31 December 2008, 1,875 thousand euros (2,439 thousand euros in 2007) corresponded to securities issued by the Company, or by other companies belonging to the same group, and 3,825 thousand euros (2,067 thousand euros in 2007) corresponded to deposits with the Company, or other companies belonging to the same Group.
h) Insured benefits
In addition to the pension fund, there are two insurance contracts providing annuities to cover the retirement pension of one pensioner, taken out with separate insurance companies, not belonging to the same group as the company. The insured pension is fixed, paid 14 times a year, and is 40% reversible on the death of the pensioner under the Pension Plan, the respective annual accruals being borne by the Pension Fund.
i) Other information
The main figures effectively recorded in the period were as follows, presented separately for the periods up to 1 October 2008 and thereafter:
2008 2007 31-12-2008 01-10-2008 Mortality table 0,06% 0,06% 0,12% Invalidity table 0,35% 0,35% 0,13% Rate of return on fund assets -11,66% -4,95% 1,39% Salary growth rate 4,01% 4,43% 6,56% Pension growth rate 11,87% 11,87% -0,30% Turnover rate 6,00% 2,97% 2,79%
The liabilities and value of the defined benefit fund over the last five years:
2008 2007 2006 2005 2004 Current value of liabilities 26.123 73.567 72.499 64.941 48.821 Value of fund 25.913 71.140 65.881 54.426 38.112 (Deficit) surplus -210 -2.427 -6.681 -10.516 -10.709 Actuarial (losses) gains on liabilities -351 4.888 -2.121 -11.033 -2.446 Actuarial (losses) gains on funds -2.283 -2.169 828 817 283
44.2 Banco Banif e Comercial dos Açores
a) General description
78 Under the Vertical Collective Employment Agreement (VCEA) for the Banking Sector, Banco Banif e Comercial dos Açores, SA has accepted liability for payment of retirement, invalidity and survivor’s pensions to its employees and their families (defined benefits plan), as they are not covered by the national social security system. In addition to the benefits provided for in the pension plan, the company has also accepted liability for paying obligatory contributions to the Social Healthcare Service (SHS), which amounts to 6.5% of pensions paid.
In order to finance its liabilities in this area, the company set up an independent pension fund on 30 December 1988, in accordance with Portuguese legislation. As from 2007, the fund has also financed liabilities relating to the death allowance provided for in the VCEA.
The fund is managed by Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA, which has subcontracted Banif – Banco de Investimento, SA for the financial management of the fund and valuation of the respective assets.
The most recent actuarial study of the liabilities of this benefits plan was carried out with reference to 31 December 2008 and 2007, by the actuary Drª Ana Marta Vasa, of Watson Wyatt International Limited – Surcursal em Portugal.
As at 31 December 2008, the fund covered a population of 241 pensioners (215 in 2007) and 407 current employees (418 in 2007). b) Actuarial assumptions
The main actuarial and financial assumptions used for calculations are as follows:
2008 2007 Actuarial Valuation method Unit Credit Projected Unit Credit Projected Mortality table: - Men TV 73/77 TV 73/77 - Women TV 88/90 TV 88/90 Invalidity table EVK80 EVK80 Discount rate 5,75% 5,50% Rate of return on fund assets 5,75% 5,50% Salary growth rate 3,00% 3,00% Pension growth rate 2,00% 2,00% Turnover rate Not applied Not applied
The discount rate is determined by using the interest rates on private debt bonds with a high credit quality (“AA”) with a maturity close to that corresponding to the liabilities to be financed. The maturity of the liabilities should be calculated on the basis of the average life expectancy weighted by the payments made to the fund, which in the case of the Banif Pension Fund is approximately 16 years.
The overall expected yield for the period reflects expected returns on fund assets at the end of the previous period, taking into consideration the characteristics of the fund portfolio and the investment policies.
No turnover rate is applied for the sake of prudence and because it cannot be reliably determined.
c) Liabilities and cover
Liabilities recognized in the balance sheet were:
79
2008 2007 Current value of liabilities: Pensions currently payable 47.907 41.260 Past services of current staff 48.737 49.758 SAMS charges 6.211 5.960 Death allowance 0 1.692 Total 102.855 98.670 Fair value of Plan assets -92.046 -97.597 Deficit 10.809 1.073 Unrecognized actuarial gains (losses) "Corridor" -10.286 -2.806 “Corridor” Surplus -6.226 0 Total -16.511 -2.806 Liabilities (assets) recognized in balance sheet -5.702 -1.733
Coverage of liabilities complies with the requirements of Bank of Portugal Notice 12/2001.
As at 31 December 2008, the current value of liabilities for future services stood at 27,210 thousand euros (29,067 thousand euros in 2007).
At 31 December 2008, an increase, or reduction, of 1% in the contribution rate to the SHS would mean an increase in liabilities of 957 thousand euros (918 thousand euros at 31 December 2007) or a reduction of 955 thousand euros (917 thousand euros at 31 December 2007) and an increase in costs for the period (cost of current services and cost of interest) of 19 thousand euros (24 thousand euros at 31 December 2007), or a reduction of 18 thousand euros (15 thousand euros at 31 December 2007). d) Expenses recognised in the period
In the financial years of 2008 and 2007, the Company recognised the following costs in the coverage of liabilities for retirement and survivor’s pensions:
2008 2007 Cost of current services 2.004 2.053 Interest expense 5.427 4.863 Expected return -5.188 -4.145 Actuarial losses recognized in the year 0 0 Cost of early retirement pensions 2.547 0 Charges borne by beneficiaries -117 -90 Total expense for the period 4.673 2.681 e) Variation in current value of liabilities
Annual accrual of liabilities breaks down as follows:
2008 2007 Current value of opening liabilities 98.670 102.374 Cost of current services 2.004 2.053 Interest expenses 5.427 4.863 Actuarial losses (gains) -2.752 -9.477 Acc. liabilities for early retirement 2.547 0 Acc. liabilities for deal allowance 0 1.692 Pensions paid -3.041 -2.834 Current value of closing liabilities 102.855 98.670
80 f) Variation in value of pension fund
Variation in fair value of fund assets:
2008 2007 Opening value of fund 97.597 90.854 Expected return 5.188 4.145 Actuarial (financial) (losses) gains -16.456 -2.575 Contribution paid to fund 8.758 8.008 Pensions paid to fund -3.041 -2.834 Closing value of fund 92.046 97.597
Contributions of 8,758 thousand euros were made in 2008, in cash.
In 2009, the Company expects to make contributions of 3,434 thousand euros.
As at 31 December 2008 and 2007, fund assets broke down as follows:
2008 2007 Value % Value % Shares 1.721 1,9% 6.795 7,0% Investment Funds 43.477 47,2% 49.753 51,0% Public Debt 0 0,0% 7.637 7,8% Miscellaneous bonds 10.939 11,9% 15.650 16,0% Property 14.231 15,5% 14.231 14,6% Money Market 22.202 24,1% 4.395 4,5% Other -525 -0,6% -864 -0,9% Total 92.045 100,0% 97.597 100,0%
The Company, or other companies belonging to the same group, use let properties belonging to the Pension Fund, with a value of 9,185 thousand euros (9,185 thousand euros, in 2007).
Of the Fund’s assets at 31 December 2008, 6,095 thousand euros (3,343 thousand euros in 2007) corresponded to securities issued by the Company, or by other companies belonging to the same group, and 21,875 thousand euros (3,435 thousand euros in 2007) corresponded to deposits with the Company, or other companies belonging to the same Group.
g) Other information
The main figures effectively recorded in the period were as follows:
2008 2007 Mortality table 0,79% 0,48% Invalidity table 0,00% 0,00% Rate of return on fund assets -11,64% 1,74% Salary growth rate 4,12% 4,76% Pension growth rate 3,83% 1,71% Turnover rate 1,21% 1,44%
The fund’s liabilities and value over the last five years:
2008 2007 2006 2005 2004 Current value of liabilities 102.855 98.670 102.374 100.256 83.865 Value of fund 92.046 97.597 90.854 82.140 67.255 (Deficit) surplus -10.809 -1.073 -11.520 -18.116 -16.610 Actuarial (losses) gains on liabilities 2.752 9.477 2.094 -12.483 -2.750 Actuarial (losses) gains on funds -16.456 -2.575 1.638 1.271 343
81 44.3 Banif Go, Instituição Financeira de Crédito, SA
On 31 December 2008, Banif Go, Instituição Financeira de Crédito, SA signed an agreement with Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA for group membership of the open-ended pension funds Banif Reforma Jovem, Banif Reforma Activa and Banif Reforma Sénior. This is a defined contribution pension plan, based on contributions.
The initial number of participation units, with a value of 1,124.5 million euros, corresponds to the mathematical provisions existing at the starting date of this contract under the previous group insurance contract (Plano Investimento Futuro) with Companhia de Seguros Açoreana, which were transferred to the new contract.
45.4 Banif – Banco de Investimento, SA and subsidiaries
On 26 de Dezembro de 2003,Banif – Banco de Investimento, SA and its subsidiareis Banif Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, SA, Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA and Banif New Capital – Sociedade de Capital de Risco, SA, set up, as Associates, a pension fund (BBI & Associadas), with Banif Açor Pensões – Sociedade Gestora de Fundos de Pensões, SA. This is a closed end pension fund (defined contribution and contributory) designed to finance the obligations established in the respective pension plan.
At 31 December 2008, gross contributions made by the Associates on behalf of the participants stood at 160.2 thousand euros, of which 138.6 had been made by Banif – Banco de Investimento, 19.3 thousand euros by Banif Gestão de Activos and 2.3 thousand euros by Banif Açor Pensões.
The cost of contributions to the pension plan of these entities in relation to Group directors stood at 27 thousand euros.
46. ASSETS ON OPERATING LEASES
Assets used under operating leases and the respective expenses for future periods are as follows: Minimum future Contingent payments on non- Minimum rentals Other assets on cancellable operating payments on recognized in operating leases leases leases profit or loss
Residual maturity
Less than 1 year 126 358 142 1 to 5 years 2.407 506 254 More than 5 years - - - Total 2.533 864 396
47. RELATED PARTY BALANCES AND TRANSACTIONS
In the normal course of its financial business, the Group carries out transactions with related entities. These include banking credit and products, deposits, shareholder loans, guarantees and other banking operations and services.
The balance of these transactions with related entities in the balance sheet and the respective costs and income for the period ended are as follows:
82
Key management personnel AssociatesShareholders Other entities 2008 2007 2008 2007 2008 2007 2008 2007
Credit and products 1.884 2.199 1.894 1.933 13.868 12.210 16.907 5.367 Deposits 5.747 5.259 42.970 34.088 37.675 29.727 1.747 17.315 Shareholder loans - - 6.677 985 - - 13.750 13.750 Loans obtained - - - - 15.000 65.000 - - Guarantees provided - 250 915 878 5 - 15.802 6.511 Commissions and services provided 1 1 413 339 75 3 814 41 Interest and similar expense 149 126 2.278 270 4.391 4.088 361 321 Interest and similar income 38 57 681 99 54 - 63 358
Transactions with related parties are analyzed in accordance with the criteria applicable to similar operations and are carried out on arm’s length terms. These operations are subject to approval by the Executive Board.
In the period ended, no specific provisions were made for balances with related parties.
Remuneration of key management personnel:
Key management personnel 2008 2007 Short term benefits 9.122 8.010 Post employment benefits (defined benefit) - 224 Redundancy benefit - 540 Share-based payment - -
The parties related to the Banif Financial Group are the following:
Key management personnel
Comendador Horácio da Silva Roque Dr. Carlos David Duarte de Almeida Dr. Joaquim Filipe Marques dos Santos Dr. Artur Manuel da Silva Fernandes Dr. António Manuel Rocha Moreira Engº Diogo António Rodrigues da Silveira Dr. José Marques de Almeida Dr. Fernando José Inverno da Piedade Dr. Paulo Cézar Rodrigues Pinho da Silva Dr. Raúl Manuel Nunes C. Simões Marques Dr. António Júlio Machado Rodrigues Dr. Nuno José Roquette Teixeira Dr. Manuel Isidoro Martins Vaz Dr. Sérgio Luis Teles de Almeida Capela Dr. Carlos Eduardo Pais e Jorge Dr. Hugo Barreto Del Priore Dr. Gonçalo Cristóvam Meireles de Araújo Dias Dr. José António Vinhas Mouquinho Dra. Isabel Maria da Costa Franco de Sousa Edward DeCaso Dr. Carlos Alberto R. Ballesteros A. Firme Dr. João Manuel da Silva Machado dos Santos Dr. Luis Filipe Saramago Carita Dr. Gladstone Medeiros de Siqueira Dr. Kiyoshi Miyagi Dr.António Manuel Rocha Moreira Dra. Maria da Conceição Rodrigues Leal
83 Eng. Fernando André Belchior Rodrigues Dr. Abraão dos Santos Lima Dr. Alfonso G. Finocchiaro Dr. Almerindo Aniceto Fernandes Fonseca Dr. Carlos Alberto Costa Martins Dr. Carlos Alberto Viveiros dos Reis Dr. Guilherme Ferreira de Menezes Dr. João Carlos Neves Ribeiro Dr. João Paulo Pereira Marques de Almeida Dr. Jorge Manuel dos Santos Matos Dr. José António Machado de Andrade Dr. José Carlos Carvalho Brites Dr. Paulo Humberto Marques Pinto Balsa Dr. Vasco Pinto Ferreira Eng. Gonçalo da Costa Monteiro M.Baptista Engº Eduardo Augusto Fonseca Marques Eng.º Nuno Martins Ermelinda Albergaria Joaquim Faneca Joaquim Silva Pinto Jordi Conejos Sancho Peter Van Nuys Richard J. Kailer Rui Manuel Gouveia da Costa Taborda Valdemar B. Lopes Walter Fraze, Jr. Aguinaldo Rocha Chevalier Maurice Mizzi D. Francisco Javier Del Puyo Cortijo D. Francisco Ruiz Benítez-Cano D. José Antonio Iturriaga Miñon D. José Maria Rodrígues Treceño D. Ricardo Del Pueyo Cortijo Dr. Angelo Scupino Dr. António Joaquim de Almeida Henriques Dr. Átila Noaldo Serejo Alves da Silva Dr. Carlos Manuel C. Cruz Ferreira Dr. David Augusto da Fonte Dr. Dionísio Guisado Escudero Dr. Edson Ferraz de Freitas Dr. Eduardo Ippolito Dr. Fábio Feola Dr. Fernando Loureiro Brandão Dr. João Luiz de Morais Erze Dr. José António Castro Sousa Dr. José Paulo Baptista Fontes Dr. José Pedro Lopes Trindade Dr. José Roberto Ferreira da Cunha Dr. Júlio Erse Dr. Luiz Marcos Santiago Dr. Manuel Casimiro de Jesus Chantre Dr. Marco Vera Dr. Marcos Rechtman Dr. Miguel Salgado Valadão do Vale Dr. Nuno Henrique Oliveira Pimentel Dr. Pedro Brandão de Melo e Castro Dr. Pedro Manuel Correia de Rodrigues Filipe 84 Dr. Pedro Mendes de Barros Dr. Pedro Schiappa Pietra Ferreira Cabral Dr. Ricardo José Macedo Ferreira Dr. Rodrigo Lopes Dr. Tiago Mateus das Neves Dra. Mercedes Busquets Alted Edward Cachia Carouana Eng. José Manuel Almeida Braz Eng. José Romão Leite Braz Félix Millet Tussell Joseph Sammut Keneth Mizzi Luís Alberto Câmara Carvalho Viveiros Rego Mark Portelli Miguel Navas Moreno Rodrigo Boulos Dumans e Mello Simon Tortell
Associates
CSA Espaço Dez Banco Pueyo BankPime Inmobiliaria Vegas Altas MCO2
Shareholder
Rentipar Financeira SGPS Renticapital - Investimentos Financeiros, SA Vestiban Fundação Horário Roque Instituto de Seguros de Portugal - Fundo garantia automóvel Jorge Sá J. Sá & Filhos, Lda Oliveira, Freitas & Ferreira Lda Evalesco SGPS SA
Other entities
SOIL SGPS, AS Habiprede - Sociedade de Construções, SA Mundiglobo - Habitação e investimento, SA Rentimundis - Investimento Imobiliário, SA Rentipar Indústria SGPS, SA Rentiglobo SGPS, SA Empresa Madeirense de Tabacos, SA SIET SAVOI, SA VITECAF- Fabrica Rações da Madeira, SA RAMA - Rações para Animais, SA SODIPRAVE - Soc. Dist. De Produtos Avícolas, SA Genius - Mediação de Seguros, SA FINPRO SGPS, SA Rentimedis - Mediação de Seguros, SA Aviatlântico – Avicultura, SA Rentipar Seguros, SGPS 85
48. POST-BALANCE SHEET EVENTS
At the date of approval of these Financial Statements by the Company’s Board of Directors, no event had taken place since 31 December 2008, the reference date for the said Financial Statements, which required any adjustment or change to the value of assets or liabilities.
The Board of Directors has tabled a proposal for the General Meeting, to be held on 31 March 2009, for amendment of Article Five of the articles of association, to the effect of authorizing the board of directors to increase the share capital, one or more times, by cash subscription, on the terms and conditions it sees fit to establish, up to a maximum of five hundred million euros.
With effect at 1 January 2009, the Group merged Banco Banif e Comercial dos Açores, SA into Banif – Banco Internacional do Funchal, SA, both of which subsidiaries were wholly owned by Banif Comercial SGPS, SA.
49. RECENTLY ISSUED STANDARDS AND INTERPRETATIONS NOT YET IN FORCE
Below we summarise the accounting standards and interpretations recently issued by the International Accounting Standards Board (IASB) and adopted by the European Union, but which have not yet taken effect and where the Group has not opted for early implementation in the preparation of its financial statements:
IAS 1 (Amended) – Presentation of Financial Statements
In September 2007 the IASB issued an amended version of IAS 1 – Presentation of Financial Statements, application of which is mandatory as from 1 January 2009, early adoption being permitted.
Changes in relation to the current text of IAS 1:
The statement of financial position (formerly called the balance sheet) must be presented for the current period and the comparative period. Under the amended IAS 1, the statement of financial position has also to be presented for the start of the comparative period whenever an entity makes a retroactive restatement in the comparative accounts as the result of a change in accounting policy, correction of an error or reclassification of an item in the financial statements. In these cases, three statements of financial position are required, as compared to the two statements formerly.
As a result of the changes imposed by this revision, the users of financial statements will more easily be able to distinguish between variations in Group equity resulting from transactions with shareholders, as shareholders (e.g. dividends, transactions with treasury shares) and transactions with third parties, which are summarized in the statement of comprehensive income. In view of the nature of these changes (disclosures), the impact expected by the Group will be felt solely in terms of presentation, although at 31 December 2008 the exact content of these changes had not yet been determined.
IAS 23 (Amended) – Borrowing Costs
86 In March 2007 the International Accounting Standards Board (IASB) issued a revised version of IAS 23 – Borrowing Costs, application of which is mandatory as from 1 January 2009, early adoption being permitted.
This standard defines that borrowing costs directly attributable to the cost of acquisition, construction or production of an asset (eligible asset) are capitalized as part of the respective cost. Accordingly, the option of these costs being recognized immediately as an expense is removed. The Group does not expect any impact from the introduction of this alteration.
IAS 32 (Revised) – Financial Instruments: Presentation – Puttable instruments and obligations arising on liquidation In February 2008 the International Accounting Standards Board (IASB) issued a revised version of IAS 32 – Puttable instruments and obligations arising on liquidation, application of which is mandatory as from 1 January 2009. In accordance with the current requirements of IAS 32, if a financial instrument gives the holder the right to put the instrument back to the issuer for cash or another financial asset, that instrument is classified as a financial liability. As a result of this review, certain financial instruments which currently meet the requirements for classification as financial liabilities will be reclassified as equity instruments if (i) they represent a residual interest in the net assets of an entity, (ii) the belong to a class of instruments subordinate to any other class of instruments issued by the entity, and (iii) in the event of all the instruments in this class being subject to the same terms and conditions. An alteration has also been made to IAS 1 – Presentation of Financial Statements adding a new requirement for the presentation of puttable financial instruments and obligations arising from liquidation. The Group does not expect any impact from adoption of this standard.
IFRS 1 (amended) – First time adoption of the international financial reporting standards and IAS 27 – Consolidated and separate financial statements The changes to IFRS 1 First time adoption of the international financial reporting standards and IAS 27 Consolidated and separate financial statements take effect as from 1 January 2009. These changes allow entities adopting the IFRS for the first time in the preparation of their individual accounts to adopt as the deemed cost of their investments in subsidiaries, joint ventures and associates the respective fair value at the date of transition to IFRS or the balance sheet value determined within the previous accounting framework. The Group does not expect any impact from adoption of this standard.
IFRS 2 (Amended) – Share-based payment: Vesting Conditions This amendment to IFRS 2 has clarified that (i) vesting conditions are service conditions and performance conditions only and (ii) all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group does not expect any impact from adoption of this standard.
IFRS 8 – Operating Segments The International Accounting Standards Board (IASB) issued IFRS 8 – Operating segments on 30 November 2006, which was then approved by the European Commission on 21 November 2007. Application of this standard is mandatory for periods starting on or after 1 January 2009. IFRS 8 – Operating Segments defines the presentation of information on the operating segments of an entity and also on services and products, geographical areas where the entity operates and major customers. This standard specifies how entities are to report their information in their annual financial statements, and will consequently alter IAS 34 – Interim Financial Reporting, with regard to the information to be selected for interim financial reporting. An entity will also have to 87 make a description of the information presented by segment, namely results and operations, as well as a brief description of how the segments are constructed. In view of the nature of these alterations (disclosures), the impact anticipated by the Group will be felt solely in terms of presentation, although at 31 December 2008 the exact impact of these changes had not yet been determined.
IFRIC 13 – Customer Loyalty Programmes In July 2007, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 13 Customer Loyalty Programmes, taking mandatory effect for period starting on or after 1 July 2008, early adoption being permitted. This interpretation applies to customer loyalty programmes, where customers are assigned credits as part of a sale or of the provision of a service and the customers can exchange these credits in future for free or discounted services or goods. In view of the nature of the contracts covered by this Interpretation, the Group does not expect to feel any impact.
IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction In July 2007, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 14 which clarifies the provisions of International Accounting Standard 19 with regard to the measurement of a defined benefit asset, in the context of defined benefit plans after retirement and for cases where there are minimum financing requirements. A defined benefit asset is the surplus of the fair value of the plan assets in the light of the present value of the defined benefit liability. IAS 19 limits the measurement of these assets to the present value of disposable economic benefits, either in the form of plan repayments or reductions to future contributions to the plan, which may be affected by minimum financing requirements. The effective date for application of this interpretation is 1 January 2009 and the Group does not expect any significant impact from application.
Annual Improvement Project In May 2008, the IASB published the Annual Improvement Project altering certain standards then in force. The effective date of the alterations varies from standard to standards, with application being mandatory for most in 2009. The main changes resulting from the Annual Improvement Plan are as follows: Alteration of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, with effect for periods starting on or after 1 July 2009. This alteration has clarified that all the assets and liabilities of a subsidiary should be classified as non-current assets held for sale under IFRS 5 if there is a plans for partial disposal of the subsidiary resulting in a loss of control. The Group does not expect any impact from adoption of this alteration. Alteration of IAS 1 Presentation of financial statements, taking effect as from 1 January 2009. The alteration clarifies that only certain financial instruments classified as trading instruments, and not all, are examples of current assets and liabilities. The Group does expect any impact from adoption of this alteration. Alteration to IAS 16 Property, plant and equipment, taking effect as from 1 January 2009. The alteration sets rules for classifying (i) revenues from the disposal of assets held for rental and subsequently sold and (ii) the same assets during the time from termination of the lease to the date of disposal. The Group does not expect any significant impact from adoption of this alteration. Alteration to IAS 19 Employee benefits, taking effect as from 1 January 2009. The alterations made clarify (i) the concept of the negative past service cost resulting from alteration of the defined benefits plan, (ii) the interaction between the expected return on assets and the plan administration costs, and (iii) the distinction between short and medium and long term benefits. The Group does not expect any significant impact from the adoption of this alteration.
88 Alteration to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, taking effect as from 1 January 2009. This Alteration establishes that benefits from the obtaining of government loans at below-market interest should be measured as the difference between the fair value of the liability at the date of contracting, determined under IAS 39 Financial instruments: Recognition and measurement of the value received. This benefit should subsequently be recorded in accordance with IAS 20. The Group does not expect any impact from adoption of this alteration. Alteration to IAS 23 Borrowing Costs, taking effect as from 1 January 2009. The concept of borrowing costs has been altered so as to clarify that these costs should be determined in accordance with the effective rate method prescribed in IAS 39 Financial instruments: recognition and measurement, thereby eliminating the inconsistency between IAS 23 and IAS 39. The Group does not expect any impact from the adoption of this alteration. Alteration to IAS 27 Consolidated and separate financial statements, taking effect as from 1 January 2009. The alteration made to this standard means that in cases where investment in a subsidiary is recorded at fair value in the individual accounts, in accordance with IAS 39 Financial instruments: recognition and measurement, and this investment qualifies for classification as a non-current asset held for sale in accordance with IFRS 5 Non-current assets held for sale and discontinued operations, it should continue to be measured under the terms of IAS 39. This alteration will have no impact on the Group’s financial statements. Alteration to IAS 28 Investments in Associates, taking effect as from 1 January 2009. The alterations made to IAS 28 were designed to clarify that (i) an investment in an associate should be treated as a single asset for the purposes of impairment tests t be carried out under IAS 36 Impairment of assets, (ii) any impairment loss to be recognized should not be allocated to specific assets, namely to good will and, (iii) that reversals of impairment are recorded as an adjustment to the balance sheet value of the associate provided that, and insofar as, the recoverable value of the investment increases. The Group does not expect any impact from the adoption of this alteration. Alteration to IAS 38 Intangible assets, with effect as from 1 January 2009. This alteration ahs determined that an expense with deferred cost, incurred in the context of promotional or advertising activities, can only be recognized in the balance sheet when an advance payment has been made for goods or services which will be received at a future date. Recognition should occur when the entity has the right of access to the goods and the services are received. This alteration is not expect to have a significant impact on the Group’s accounts. Alteration to IAS 39 Financial instruments: recognition and measurement, with effect as from 1 January 2009. These alterations consisted fundamentally of (i) clarifying that it is possible to reclassify instruments out from and into the category of at fair value through profit or loss in the case of derivatives whenever they start or end a hedging relationship in the form of a hedge for cash flow or new investment in an associate or subsidiary, (ii) alteration of the definition of financial instruments at fair value through profit or loss with regard to the category of the trading category, laying down that in the case of portfolios of financial instrument managed jointly or for which there is evidence of recent activities with a view to realizing short term gains, these portfolios should be classified as held for trading on first recognition, (iii) alteration of the requirements for documentation and effectiveness testing for hedges established in relation to the operating segments determined through application of IFRS 8 Operating Segments, and (iv) clarifying that measurement of a financial liability at amortized cost, after interruption of the respective fair value hedge, should be effected on the basis of the new effective rate calculated at the date of interruption of the hedging relationship. The Group does not expect any significant impact from adoption of this alteration.
89 Alteration to IAS 40 Investment properties, taking effect as from 1 January 2009. As a result of this alteration, properties being built or developed with a view to subsequent use as investment properties will now be included under IAS 40 (having previously fallen under IAS 16 Property, Plant and Equipment). Such property under construction may now be recorded at fair value unless this cannot be reliably measured, in which case it is to be recorded at acquisition cost. The Group does not expect an significant impact from adoption of this alteration.
Recently issued accounting standards and interpretations not yet adopted by the European Union and consequently not yet in effect are described below:
IAS 39 (Amended) - Financial instruments: recognition and measurement – eligible hedged items The International Accounting Standards Board (IASB) has issued an amendment to IAS 39 financial instruments: recognition and measurements – eligible hedged items, application of which is mandatory as from 1 July 2009. This amendment clarifies the application of the existing principles which determine which risks or cash flows are eligible for inclusion in a hedging operation. The Group does not expect any significant impact from adoption of this standard.
IFRS 3 (revised) – Business combinations and IAS 27 (amended) Consolidated and separate financial statements In January 2008 the International Accounting Standards Board (IASB) issued IFRS (3) – Business combinations, with mandatory effect in periods starting as from 1 July 2009, early adoption being permitted.
The main impact of the changes in these standards will be felt in: (i) the treatment of partial acquisitions, where noncontrolling interests (formerly called minority interests) may be measured at fair value (which also involves recognition of the goodwill attributable to noncontrolling interests) or as a portion, attributable to the noncontrolling interests, of the fair value of the net assets acquired (as currently required); (ii) step acquisition, where the new rules require, on calculation of goodwill, revaluation against profit or loss of the fair value of any noncontrolling interest held prior to the acquisition effected with a view to obtaining control; (iii) recording of costs directly related to acquisition of a subsidiary which are now directly imputed to profit or loss; (iv) contingent prices, where alterations in estimates over time are now recorded in profit or loss and do not affect goodwill and (v) alterations to the percentages of subsidiaries held not resulting in loss of control, which are now recorded as movements in equity. In addition, the alterations to IAS 27 also mean that accrued losses in a subsidiary will now be attributed to the noncontrolling interests (recognition of negative noncontrolling interests) and that, when a subsidiary is disposed of, with a view to losing control any noncontrolling interest retained is measured at fair value determined at the date of disposal. The Group does not expect any significant impact from adoption of this standard.
IFRIC 15 – Agreements for the Construction of Real Estate IFRIC 15 - Agreements for the construction of real estate – takes effect for periods starting on or after 1 January 2009. This interpretation contains guidelines for determining whether an agreement for construction of real estate comes under IAS 18 Revenue or IAS 11 Construction Contracts, and UAS 18 may be expected to be applicable to wider range of transactions.
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation In July 2008, the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 16 - hedges of a net investment in a foreign operation, which takes 90 mandatory effect in periods starting on or after 1 October 2008, early adoption being permitted.
This interpretation clarifies that: hedges of an investment in a foreign operation can only be applied to exchange rate differences deriving from the translation of the financial statements of subsidiaries in their functional currency to the functional currency of the parent company, and only for an amount equal to or less than the net assets of the subsidiary; the hedge instrument may be contracted by any Group entity, except the entity to which the hedge relates; and when the hedged subsidiary is sold, the accrued gain or loss relating to the effective hedge component is reclassified into profit or loss.
This interpretation permits an entity which uses the step consolidation method to choose an accounting policy which makes it possible to determine the accrued currency translation adjustment which is reclassified into profit or loss on the disposal of the subsidiary, just as it would do if it had adopted the direct consolidation method. This interpretation is to be applied prospectively. The Group does not expect that this interpretation will have an impact on its financial statements.
IFRIC 17 – Distributions of non-cash assets to owners In November 2008 the International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 17 – Distributions of non-cash assets to owners, with mandatory application in periods starting as from 1 July 2009, early adoption being permitted.
This interpretation sets out to clarify the accounting treatment of distributions of non- cash assets to owners. It lays down that distributions of non-cash assets are to be recorded at fair value, the difference in relation to the balance sheet value of the asset distributed being recognized in profit or loss on distribution.
The Group does not expect this interpretation to have an impact on its financial statements.
IFRIC 18 – Transfers of Assets from Customers In November 2008 the International Financial Reporting Interpretations Committee (IFRIC) issue IFRIC 18 – Transfers of assets from customers, application of which is mandatory in periods starting on or after 1 July 2009, early adoption being permitted. This interpretation sets out to clarify the accounting treatment of agreements whereby an entity receives a customer’s assets for its own use and with a view to subsequently linking the customers to a network or providing customers with ongoing access to the supply of goods or services.
The interpretation clarifies: the terms on which an item of assets falls within the scope of this interpretation; recognition of the asset and its initial measurement; identification of the identifiable services (one or more services in exchange for the asset transferred); recognition of income; accounting for the transfer of cash from customers;
The Group does not expect this interpretation to have an impact on its financial statements.
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6. LEGAL ACCOUNTS CERTIFICATE AND AUDIT REPORT
Introduction
1. Under the terms of the relevant legislation, we are pleased to present the Legal Accounts Certificate and the Audit Report on the financial information contained in the Management Report and Consolidated Financial Statements attached for the financial year ended 31 December 2008 of Banif SGPS, SA, which comprise: the Consolidated Balance Sheet as at 31 December 2008 (which records a total of 12,876,616 thousand euros and total equity of 583,369 thousand euros, including a net profit of 59,237 thousand euros), the Consolidated Income Statement, the Consolidated Income Statement by nature, the Statement of Changes in Equity and the Consolidated Statement of Cash Flows for the financial year then ended, and the corresponding notes to the financial statements.
Responsibilities
2. It is the responsibility of the Directors to: a) prepare consolidated financial statements for the financial year which give a true and fair view of the financial position of the group of companies included in the consolidated accounts, the consolidated result of their operations and consolidated cash flows; b) to provide historic financial information, which shall be prepared in accordance with generally accepted accounting principles and which is complete, true, current, clear, objective and lawful, as required by the Securities Code; c) adopt appropriate accounting policies and criteria; d) maintain an appropriate system of internal control; and e) report on any relevant occurrence which has influenced the activities of their group of companies included in the consolidated accounts, their state of affairs or results.
3. It is our responsibility to check the financial information given in the financial statements referred to above, and to ensure that it is complete, true, current, clear, objective and lawful, as required by the Securities Code, and to express a professional and independent opinion on such information, on the basis of our audit.
Scope
4. Our audit was performed in accordance with the Audit Rules and Recommendations of the Chamber of Official Auditors, which require that the audit be planned and performed in such a way as to give a reasonable assurance that the consolidated financial statements are free from, or that they are not free from, material misstatement. To this end our audit included:
- checks to ensure that the financial statements of the companies included in the consolidated accounts had been appropriately examined and, in significant cases where this was not the case, checking, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and an assessment of estimates, based on judgements and criteria defined by the Directors, used in preparing the financial statements; - checking the consolidation operations and the application of the equity method; - an assessment of the suitability of the accounting policies adopted and disclosure of these policies, taking the circumstances into account; - checking whether or not the going concern principle is applicable;
92 - an assessment of the overall adequacy of the presentation of information in the financial statements; and - an assessment of whether the consolidated financial information is complete, true, current, clear, objective and lawful.
5. Our audit also included checking that the consolidated financial information contained in the management report corresponds to the other financial statements.
6. We believe that our audit gives us a reasonable basis on which to issue our opinion.
Opinion
7. In our opinion, the consolidated financial statements referred to above give a true and fair view, in all materially relevant aspects, of the consolidated state of affairs of Banif SGPS, SA as at 31 December 2008 and the consolidated result of its operations and cash flows in the financial year then ended, in accordance with the International Financial Reporting Standards, as adopted in the European Union, and the information which they contain is complete, true, current, clear, objective and lawful.
Lisbon, 13 March 2009
ERNST & YOUNG AUDIT & ASSOCIADOS – SROC, SA Official Audit Firm (No. 178) Registered with the Securities Market Commission under no. 9011 Represented by: João Carlos Miguel Alves (ROC no. 896)
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7. REPORT AND OPINION OF THE AUDIT BOARD
Shareholders,
1. In compliance with provisions of paragraph g) of article 420 of the Companies Code, the Audit Board has drawn up this report on its auditing work during 2008 and hereby also issues its opinion on the report, accounts and proposals presented by the Directors of Banif SGPS, SA.
2. The Audit Board has maintained, as is its custom, a constant dialogue with the Company’s official audit firm, senior management and directors, as this is essential for many aspects of its supervisory duties.
3. In this context, the Audit Board requested from such persons and bodies full information and documents on the company and the various aspects of its business affairs, having also requested and obtained the additional explanations it felt to be necessary or appropriate from time to time, experiencing no constraints in this respect.
4. The Chairman of the Audit Board attended all meetings of the Board of Directors, had access to all the information presented for such meetings, monitored the process of adopting resolutions and took cognizance of the content of the respective minutes.
5. For these reasons, the Audit Board is able to attest that the Directors’ Report provides a detailed account of the affairs of the various Group companies in the course of 2008.
6. The Audit Board has analysed the Report of the Official Audit Firm and the respective Legal Certificate issued by such firm, and hereby declares its agreement with this, for the purposes of para. 2 of article 452 of the Companies Code.
7. The Audit Board has also examined the company’s consolidated accounts, as at 31 December 2008, and assessed the conformity of these accounts with the consolidated management report, in accordance with article 508-D para.1, of the Companies Code.
8. In view of the above, and as required by Article 245.1 c) of the Securities Code, applicable by reference by Article 8.1 a) of Securities Market Commission Regulation 5/2008, each of the members of the Audit Board signing this report, as identified below, declares, on his own individual liability, that, to the best of his knowledge, the management report, annual account, legal accounts certificate and other financial statements required by law or regulation were drawn up in accordance with the applicable accounting rules, providing a true and fair view of the assets and liabilities, state of affairs and results of Banif SGPS, SA and the companies included in its consolidated accounts, and that the management report provides a faithful account of the development of its business, the performance and position of Banif SGPS, SA and the companies included in the consolidated accounts, and contains a description of the main risks and uncertainties faced by the same.
9. In conclusion, the Audit Board recommends that the General Meeting: a) Approves the Directors' Report for the Financial Year ended on 31 December 2008; b) Approves the Accounts for the same financial year;
94 c) Approves the proposal for the Distribution of Profits contained in the Directors' Report, which accords with the relevant legal requirements; d) Approves the Consolidated Management Report and the Consolidated Accounts for the same financial year; and e) Under the terms of article 455 of the Companies Code, assesses the work of the Bank's Directors and the Supervisory Board.
Lisbon, 13 March 2009
Dr. FERNANDO MÁRIO TEIXEIRA DE ALMEIDA – Chairman Dr. ANTÓNIO ERNESTO NETO DA SILVA Dr. JOSÉ LINO TRANQUADA GOMES
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