DnB NOR Bank ASA Annual report ASA 2006 NOR DnB Bank Annual www.dnbnor.com Annual report 2006 2006 IN BRIEF 2006 in brief 2006 2005 Pre-tax operating profits before write-downs (NOK million) 11 917 10 140 Profits for the year (NOK million) 8 872 7 327 Total assets at year-end (NOK billion) 1 103 860 Return on equity (per cent) 18.2 18.7 First quarter 2006 • Operations in DnB NORD and Monchebank became part of the DnB NOR Bank Group Second quarter 2006 • A successful coordination of the account systems in the former DnB and Gjensidige NOR was completed • The integration was concluded and the synergy targets were reached ahead of schedule • DnB NOR Finans established new operations in the Swedish market • The Board of Directors approved a new capitalisation policy for DnB NOR • The general meeting renewed the authorisation of the Board of Directors of DnB NOR ASA to acquire the Group’s own shares for a total nominal value corresponding to 10 per cent of share capital • The Group applied for permission to use the advanced IRB approach for credit risk as from 1 January 2008 in connection with Basel II, the new capital adequacy rules • The Board of Directors of DnB NOR ASA appointed Rune Bjerke as new group chief executive, succeeding Svein Aaser, who retired on 31 December 2006 Third quarter 2006 • DnB NOR Bank established Postbanken Eiendom • DnB NOR Bank opened a full-service corporate branch in Shanghai • Dominion Bond Rating Service, the Canadian rating agency, assigned a long-term rating of AA to DnB NOR Bank ASA • DnB NOR Bank was presented with the annual Lloyd’s Shipping Award for its syndicated lending to the shipping industry Fourth quarter 2006 • DnB NOR Bank launched a USD 2 million three-year bond issue in the US, the first issue in a funding programme for the issue of bonds in the US market • DnB NOR Bank entered into an agreement to buy 76.3 per cent of BISE Bank in Poland through its partly-owned subsidiary DnB NORD • The Group received preliminary approval from Kredittilsynet (the Financial Supervisory Authority of Norway) to use the foundation IRB approach for credit risk from 1 January 2007 • DnB NOR established a life phase programme for the Group’s employees intended to motivate senior employees to work longer DnB NOR Group 1) Largest entities: DnB NOR Bank Vital 1) DnB NOR Asset Management The DnB NOR Bank Vital is Norway’s leading DnB NOR Asset Manage- Group is the largest entity provider of life insurance ment is Norway’s largest in the DnB NOR Group products and pension fund manager and has and Norway’s largest savings. a leading position within bank, offering services to discretionary asset man- the corporate, retail and agement for institutional securities markets and clients in Norway and the public sector. Sweden. 1) Separate annual and quarterly reports are prepared for the DnB NOR Group and Vital. 2 DNB NOR BANK GROUP ANNUAL REPORT 2006 CONTENTS Contents Directors' report..........................................................................................4 Note 20 Subordinated loans to customers....................................................... 32 Note 21 Commercial paper and bonds............................................................ 32 Annual accounts......................................................................................11 Note 22 Shareholdings etc. ............................................................................ 33 Note 23 Short-term investments in shares, mutual funds and PCCs ................ 34 Profit and loss accounts............................................................................... 11 Note 24 Long-term investments in shares, mutual funds and PCCs................. 35 Note 25 Investments in associated companies ................................................ 36 Balance sheets............................................................................................ 12 Note 26 Investments in subsidiaries................................................................ 36 Note 27 Intangible assets ............................................................................... 37 Cash flow statements................................................................................... 13 Note 28 Fixed assets ...................................................................................... 38 Note 29 Real estate ....................................................................................... 39 Balance sheets - Liabilities Notes to the accounts Note 30 Liabilities........................................................................................... 40 Note 31 Customer deposits ............................................................................ 41 Note 32 Maturity structure on bond debt ........................................................ 41 Note 1 Accounting principles etc. .................................................................14 Note 33 Premiums/discounts on own bonds in the banking portfolio ............... 42 Note 2 Important accounting estimates and discretionary assessments .........17 Note 34 Subordinated loan capital and perpetual subordinated loan Note 3 Changes in group structure ................................................................18 capital securities................................................................................ 42 Note 35 Equity ............................................................................................... 44 Profit and loss accounts Note 4 Net interest income and credit commissions ......................................18 Information on risk Note 5 Interest rates on selected balance sheet items....................................19 Note 36 Risk .................................................................................................. 44 Note 6 Net other operating income................................................................19 Note 37 Expected time to interest rate adjustments ........................................ 46 Note 7 Net gains on foreign exchange and financial instruments ...................20 Note 38 Interest rate sensitivity ....................................................................... 48 Note 8 Operating expenses ...........................................................................20 Note 39 Currency positions............................................................................. 48 Note 9 Pensions............................................................................................21 Note 40 Credit risk ......................................................................................... 49 Note 10 Number of employees/full-time positions ............................................23 Note 41 Residual maturity ............................................................................. 52 Note 11 Write-downs on loans and guarantees ...............................................23 Note 12 Write-downs on loans and guarantees for principal sectors .................24 Additional information Note 13 Net gains on long-term securities .......................................................25 Note 42 Remunerations etc. ........................................................................... 54 Note 14 Taxes.................................................................................................26 Note 43 Information on related parties ............................................................ 56 Note 44 Capital adequacy............................................................................... 57 Balance sheets - Assets Note 45 Financial derivatives .......................................................................... 58 Note 15 Assets................................................................................................27 Note 46 Off-balance sheet transactions, contingencies and Note 16 Commitments for principal sectors .....................................................28 post balance sheet events ................................................................. 60 Note 17 Loans and guarantees according to geographical location...................29 Note 47 Key figures 2002 – 2006 ................................................................... 61 Note 18 Developments in write-downs on loans and guarantees .....................30 Note 48 Survey of results 2002 – 2006 .......................................................... 61 Note 19 Impaired commitments for principal sectors .......................................31 Note 49 Balance sheet summary 2002 – 2006 .............................................. 62 Signatures of the board members ............................................. 62 Auditor's report......................................................................................... 62 Control Committee's report ............................................................. 64 Contack information ............................................................................ 65 Governing bodies ................................................................................... 67 DnB NOR BANK GROUP ANNUAL REPORT 2006 3 Directors' report 2006 – DnB NOR Bank ASA In accordance with the provisions of the Norwegian Accounting Act, the Board of Directors confirms that the accounts have been prepared on a going concern basis. DnB NOR Bank ASA and the banks' subsidiaries prepare consolidated annual accounts in accordance with Norwegian accounting legislation and generally accepted accounting principles. The principles applied are described under accounting