parex ANNUAL agl OK

Transcription

parex ANNUAL agl OK

CONTENTS
Management
Management report
Key figures of Latvia’s economic development
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and financial highlights
Key business achievements
Customer service
Payment cards
Lending and leasing
Information technology
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5
8
Treasury and trading
Investment banking and corporate finance
Asset management
Personnel
Prevention of money laundering
Open pension fund Parekss atklåtais pensiju fonds
Transportation and logistics company
Parekss Brokeru Sistéma
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Leasing company Parekss Lîzings
Leasing company Parex Lizingas (Lithuania)
Bank Parex Bankas (Lithuania)
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Insurance company
Parekss apdroßinåßanas kompånija
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Insurance company Baltic Polis (Lithuania)
Representative offices of the Parex Group
Sponsorship
Structure
Financial statements
Parekss banka branches,
Parex Group companies
and representative offices
Parex Group
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01
2001
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MANAGEMENT
Valery Kargin
Viktor Krasovitsky
President, Chairman of the Board
Chairman of the Council of Directors
Alexander Kvasov
‰riks Brîvmanis
Vice President, Customer Service
Vice President, Finance and Information Technology
Lîga Puriña
Gene Zolotarev
Vice President, Lending and Leasing
Vice President, Capital Market and Investment Banking
Parex Group
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Annual report 2001
MANAGEMENT REPORT
nificant amount of net operating income on a highly conservative (A–average grade) securities portfolio. Most
notably we have seen a dramatic (170%) increase in commissions income and a 29% increase in trading income,
indicating that our investment in an “all star team” is
paying off. With the creation of a Sales and Origination
group we have seen a substantial increase in client
transaction volumes. This success has been largely tied
to Parekss banka’s participation as co-lead manager of
three major Baltic debt transactions in 2001 (Svensk
Exportkredit for LVL 10 million, Lithuanian Telecom for
LTL 150 million, and the second Latvian Eurobond for
EUR 200 million).
The completion of 2001 marks a significant
point in the history of Parekss banka as it looks to celebrate its 10–year anniversary in mid–2002. In 2001,
Parekss banka and the Parex Group as a whole not only
posted record profitability but also established a full
range of performance benchmarks, positioning itself as
an undisputed leader in Latvia’s financial services sector. Parekss banka has also furthered its reputation as
one of the most well managed and most stable financial
institutions in the Baltics with a track record of consistent profitability throughout all of its years of establishment. Significant growth has been experienced in key
areas of Parekss banka’s business with deposit growth
of 21%, an increase in payment card accounts of 29%,
and growth in client accounts of 30%. Eight new client
service centres have been opened bringing the branch
network to a total of 101 throughout Latvia.
Internationally Parekss banka increased its presence in
the Baltics with the opening of its representative office in
Tallinn, Estonia, adding to the Parex Group’s existing network of 10 offices throughout the CIS and in Frankfurt,
Germany.
Other major Parex Group entities – Parex Bankas,
Parekss Lîzings, Parex Lizingas and Parekss atklåtais
pensiju fonds – have accomplished their operational
goals, thus effectively supplementing the business activities of Parekss banka and greatly contributing to overall
growth and prosperity of the Group. Furthermore having
laid the foundation for the launch of Parex Asset
Management the Parex Group is well positioned to
become one of the largest fund managers in Central and
Eastern Europe.
Parekss banka is one of the largest creditors in the
Latvian corporate sector and is also active in lending in
Lithuania and Estonia. Credits to corporate and institutional clients comprise approximately 83% of Parekss
banka’s credit portfolio and experienced 27% growth in
2001. Parekss banka remains committed to the domestic economy and has supported a number of industrial
sectors through its lending activities.
This performance has not gone unnoticed by the rating
agencies, with Moody’s upgrading Parekss banka to Ba1
and Fitch maintaining a positive outlook. Parekss banka
has also been successful in being awarded “Bank of the
Year” from the Banker Magazine and received all four
categories (Best Bank, Best Debt House, Best Equity
House, Best M&A House) in Latvia in Euromoney’s
Awards for Excellence.
Also during 2001, increased focus was placed on lending
to private individuals. Rapid growth of GDP in 2001 in the
Baltics, and especially in Latvia, highlights the rise in
prosperity and purchasing power of the public.
Comparatively low credit rates allow access to funding for
a greater portion of the private sector. In step with this
trend, Parekss banka plans over the next two years to
develop distribution channels for credit services in order
to increase the proportion of retail clients in the credit
portfolio – from the existing level 17% to approximately
25%.
We are especially proud to report that we have achieved
these superior results in a highly competitive environment and have upheld the trust that our shareholders
and our clients have placed in us. We will continue to
strive for excellence in reaching our goal of protecting
and growing our clients’ assets.
The past year was also a record year for Capital Markets
and Investment Banking activities. Parekss banka’s prudent management of its proprietary investment portfolio
has resulted in optimal asset allocation producing a sig-
Valery Kargin
President, Chairman of the Board
Viktor Krasovitsky
Gints Poißs
Chairman of the Council
Rîga,
28 February, 2002
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2001
KEY FIGURES OF LATVIA’S ECONOMIC DEVELOPMENT AND FINANCIAL HIGHLIGHTS
KEY FIGURES OF LATVIA’S ECONOMIC DEVELOPMENT
FINANCIAL HIGHLIGHTS OF PAREX GROUP
Parex Group
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Annual report 2001
KEY BUSINESS ACHIEVEMENTS
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2001
Parex Group
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Annual report 2001
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2001
CUSTOMER SERVICE
Gatis Kokins
Inese Íibajeva
Head of Corporate Customer Service Division, Assistant Vice President
Head of Remote Customer Service Department
1992 Parekss banka was established and
received its first customer. The Central Office was located at 8 Kr.Valdemåra Street Rîga.
offices and branches to a single network and provided
on-line services.
2001 The DIGI::WEB Internet account management system was introduced and a Corporate Customer
Service Division was established.
1993 Parekss banka purchased a building at 3
Smilßu Street to serve the needs of both corporate enterprises and private customers. This building is now the
Head Office of Parekss banka.
1994 The Bank merged the currency exchange
offices of a/s Parekss with Parekss banka and expanded the range of services offered to customers.
1995 Parekss banka began serving its first
large corporate clients – Lattelekom, Latvijas Gåze,
Latvenergo, the Road Traffic Safety Department and
other state companies. This was a turning point in the
history of the Bank. The Bank opened its first Customer
Service Office outside Rîga.
1996 The Collection Service was created.
1997 The Bank distinguished its customers by
separating resident customers from non-resident customers.
1998 A Customer Service Office was opened at
Smilßu Street along with a VIP Division offering special
services to key clients.
1999 Customer Service and
Feedback telephone line was created.
Customer
2000 The GLOBUS system was introduced in
Parekss banka; it connected the Customer Service
Parex Group
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Annual report 2001
CUSTOMER SERVICE
Parekss banka provides services to more than
150,000 customers daily – from opening current
accounts and account handling to transaction funding,
loans and investments. In Parekss banka each customer
can convert currency, deposit cash in a current, payment
card and savings account or as a term deposit and make
necessary payments.
By following its strategic goal of being a universal bank,
Parekss banka offers its services to companies and individuals at all of its branches which are expanding in number across Latvia. The concept of Parekss banka branch
development is based on the principle that customers
can receive any necessary banking service in the same
location. To implement the regional branch development
plan, the Bank has opened 8 new Customer Service
offices. A new Customer Service Office was opened at
148 Brîvîbas Street last year to attract new customers.
This increased focus on customer services has led to an
increase of 30% in customer accounts in 2001.
With LVL 673 million in assets, Parekss banka was an
undisputed leader in the commercial banking sector in
Latvia in 2001. The growth of the Bank is reflected by the
increase in all the basic indicators; the Bank achieved
19% market share by volume of capital and reserves and
22% by volume of deposits.
To provide quality advice on complicated financial
issues and a flexible approach to enterprise servicing,
the Bank set up the Large Corporate Customer Service
Division in 2001. Its key task is to ensure an individual approach to resolving the financial issues of large
companies is undertaken in order to facilitate
enhanced service delivery.
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2001
CUSTOMER SERVICE
Vladimirs Kußnirs
Head of Branch Network, Head of Valdemårs Branch
Ga¬ina Eglîte
Head of Head Office Customer Service Division
Mihails Íçav¬evs
Head of Citadele Branch
Jevgénija Jerjomenko
Head of Daugavpils Branch
To make life easier for customers Parekss banka introduced the DIGI::WEB Internet account management
system. The system makes it possible for customers to check balances, make transfers and pay bills anytime day
or night. The Bank also intends to offer the DIGI project account management system to companies to meet the specific needs of various customers.
Following the introduction of the single European Union currency, Parekss banka was the first bank in Latvia to
receive the new euro banknotes in 2001 and present them to the public. In parallel, Parekss banka organised a campaign – Pe¬ñas depozîts III – where customers could deposit old European currencies with the Bank. This offer was
very popular with customers.
Parekss banka has highly skilled and professional staff who are always prepared to provide information and advice
on all services offered by the Bank. Customers may receive information at any of the 101 Parekss banka offices in
Latvia, by telephone or on the website: www.parex.net.
Parekss banka is determined to improve its range of services and strengthen its position not only in Latvia but also
internationally.
Parex Group
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Annual report 2001
CUSTOMER SERVICE
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2001
PAYMENT CARDS
Tatjana Kulapina
Andris Riekstiñß
Project Manager, Credit Cards Department, Payment Cards Divisions
Head of Payment Cards Division
Jurijs Degtjarjovs
Head of Credit Cards Department, Payment Cards Divisions
1994 Parekss banka obtained a VISA and
Europay licence for the issue of payment cards and was
one of the first banks in Latvia to start issuing VISA and
EuroCard/MasterCard.
and Maestro are international cards. The Cirrus international debit card can be used to withdraw cash from
almost 500,000 ATMs world-wide.
Parekss banka was one of the first banks in Latvia to
issue credit cards. Customers do not need to pay a guarantee or security deposit because the credit limit is
based on the financial status of the customer. Parekss
banka and a number of travel agencies launched a highly successful advertising campaign in 2001 to promote
the advantages of using credit cards. The slogan used
for the promotion was “Money is always with you”. The
campaign led to Parekss banka issuing 33% more credit
cards.
1995 The Bank obtained exclusive rights to distribute American Express cards in Latvia.
1997 Parekss banka
began to issue Maestro
cards.
1998 The Bank began to issue VISA Electron
cards. The Virtual payment card came into use in Latvia
to enable customers to make payments via the Internet.
Parekss banka has always been at the forefront of developments in technology. Last year Parekss banka offered
its clients the Virtual card for use via the Internet. The
Bank also made it possible for customers to view their
history of banking transactions on the Internet and to
check their cash balance.
1999 Parekss banka began to issue Cirrus payment cards. The first real credit cards were issued to the
market.
2000 The Bank expanded the number of ATMs
and POS terminals in retail outlets.
Parekss banka has one of the largest ATM networks in
Latvia. In 2001 Parekss banka and Baltijas Tranzîtu
Banka signed a co-operation agreement to merge the
networks of the two banks into one joint network. The
result, Naudas punkts 24, means that customers of
both banks are able to withdraw cash, free of charge,
from more than 200 ATMs in Latvia. To develop the
growth of the use of payment cards in Latvia Parekss
banka also launched a promotional campaign based on
the slogan “Pay by card and win a prize” in 2001.
2001 Parekss banka and Baltijas Tranzîtu
Banka established Naudas Punkts 24, a joint ATM network.
Payment cards are a fast growing area of banking services in Latvia. The number of debit cards issued
increased by 28% in 2001 compared to the year 2000.
Parekss banka aims to continue to be a leader in the
payment card market by continuing to develop and
update its range of payment cards.
Parekss banka is currently working on analysing the
comments and views of its customers to develop the use
of payment cards in retail outlets. Another achievement
in 2001 was that Parekss banka was awarded a VISA
certificate for Smartcards. In the area of payment cards
the priority of Parekss banka is to encourage the gradual
removal of ATMs and POS terminals and to replace them
by the latest technological developments.
The Bank has also concentrated its attention on the provision of salary cards to employers; as a result the number of payment cards issued by Parekss banka has
increased by 29% compared to the year 2000. All debit
cards issued by Parekss banka, including VISA Electron
Parex Group
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Annual report 2001
PAYMENT CARDS
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2001
LENDING AND LEASING
Vladislavs Skrebelis
Ilona Kubile
Member of the Board, Councillor to Vice President, Lending and Leasing
Head of Trade Finance and Factoring Division
Jorens Raitums
Head of Corporate Lending and Leasing Division
1994 Parekss banka set up its Credit Division
with 4 employees. The Bank was asked to operate credit lines granted to Latvia by international institutions.
to join the International Factor Group, an international
factoring organisation.
Parekss banka offers flexible conditions and
works consistently on meeting the needs and aspirations
of its customers. Lending activities are grouped by three
general customer activities: large corporates and organisations, small and medium sized enterprises and private
individuals.
1995 The first large loans were issued to institutional borrowers. The Leasing Division was created.
1996 The World Bank granted several credit
lines to Latvia for the development of small and medium
sized enterprises (SMEs) and the restructuring of the
financial sector. The provision of factoring services
began.
Parekss banka provides various types of finance to companies: loans, leases for the purchase of fixed assets
and vehicles, credit lines and overdrafts for the shortterm financing of current assets and factoring services.
Parekss banka also offers import and export factoring
services and financing in the area of international trade.
In addition, the Bank is prepared to facilitate the process
of receiving funds for its customers from the EU SAPARD
programme.
1997 The Bank established SIA Parekss Lîzings
(Latvia) and Parex Lizingas (Lithuania). The Credit
Division was moved to the Citadele branch of the Bank.
1998 Parekss banka started serving the credit
line granted by the World Bank to finance rural development. As part of a national programme the Bank started
to issue loans to students.
The largest segment of loans issued by Parekss banka in
2001 were to private companies (70.4%) with the
remaining significant loans being issued to private individuals (17.6%) and state and municipal enterprises
(6.5%). The residual 5.5% of loans were issued to
Government and municipalities.
1999 Parekss banka became the only bank in
the Baltic countries to join MULTILEASE, the international leasing association.
The Bank saw strong portfolio growth during 2001 in its
lending to the transportation and communication sector
(23% of the total loans granted to enterprises), the commercial sector (21%) and the manufacturing sector
(15%). The Bank envisages remaining a prime lender and
a reliable partner for large corporate and institutional borrowers in the Baltic States. This will be achieved by leveraging of the Bank’s expertise and extensive know-how
built up over the last 10 years of lending experience.
2000 A contract was signed with VAS Lauku
attîstîbas fonds (The Rural Development Fund state joint
stock company) concerning guarantees for the repayment of rural loans. The Bank in association with Parex
Bankas in Lithuania began lending money to various projects.
2001 An integrated management model was
introduced for lending. An activity programme was set up
for each customer group – corporate clients, SMEs and
individuals, creating an individual approach to customers. A contract was signed between Parekss banka
and the State Treasury concerning energy efficiency projects. The Bank was the first bank in the Baltic countries
Parex Group
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Annual report 2001
LENDING AND LEASING
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2001
LENDING AND LEASING
EiΩens Slava
Head of Private and SME Lending and Leasing Division
Guntars Grînbergs
Ìirts Vîtoliñß
Head of Legal Division
Head of Citadele Branch Loans Department,
Private and SME Lending and Leasing Division
The majority of loans issued by Parekss banka
are required for the purchase, renovation and construction of real estate and for the financing of working capital requirements. Parekss banka operates closely with
the leading real estate companies in the real estate market, which ensures customers have fast and easy access
Customers appreciate the flexible leasing service offered
by Parekss banka, which ensures that the purchase of
second-hand vehicles, real estate and other equipment
becomes an effortless process.
The rapid growth of GDP in the Baltic countries means
that Parekss banka is continually aware of the importance of lending to private individuals. Consequently, the
Bank continues to develop lending service distribution
channels aimed at this sector of the market.
Accordingly, mortgage loans to private individuals will
become a priority area of lending in 2002. As a result
the Citadele branch will be converted into a Mortgage
Centre for private individuals. The branch has highly specialised staff, the latest technology and all the resources
necessary to enable customers to receive high quality
services.
Although Parekss banka lends mainly to enterprises and
residents of Latvia, it is also successful in lending to foreign customers. The strategy of the Bank reinforces its
strong position in this area of lending.
Parekss banka intends to continue to be the lender of
choice by providing creative, flexible and fast solutions to
its customers and by remaining a reliable, safe and
knowledge partner.
to loans of this type. In issuing loans, Parekss banka
also pays special attention to loans for business development and the financing of activities undertaken by
farmers and rural entrepreneurs.
Parekss banka is also focused on leasing services as
leasing remains a popular method of purchasing cars,
lorries and other vehicles as well as boats and aircrafts.
Parex Group
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Annual report 2001
INFORMATION TECHNOLOGY
connected in a single network and provides the facility for
customers to use on-line services.
The Bank is also aware of the increasing importance of
the Internet in the business environment. In 2001 it introduced the DIGI::WEB Internet-based account management system. The system enables customers to check
their account balance and make cash transfers from the
comfort of their home or office. The Digipas electronic
authorisation device ensures the security of transactions
for companies and enterprises while private customers
have special code cards for authorisation purposes.
The Bank is planning to introduce a variety of new systems to maintain its technological advantage. These
include:
• a new version of the DIGI::FIRMA account
management system which will allow accounts
to be managed through a modem line to the Bank,
• the implementation of a Data Warehouse
system for the central storage of information,
• the DIGI::TEL telephone banking system,
• the DIGI::SMS system which enables
customers to access their accounts via their
mobile telephone,
• the DIGI::WAP system which provides services
through the use of GSM/UMTS WAP,
• the CRM customer-bank relationship
management system which extends the
database of information on new or
existing customers.
Rolands Citajevs
Head of Banking Technology Division
1992
The Bank designed its first information
system.
Parekss banka has also invested in a new TITAN dealing
system which will increase the level of security in handling transactions and also improve the speed of service
delivery. The implementation of a new utility bill payment
system will facilitate customer service in all Parekss
banka branches. Parekss banka also intends to start
issuing smartcards to customers – a more secure
method of handling transactions.
1994 The first Reuters terminal was installed
1995 Parekss banka launched its website. The
Cardman card management system was introduced.
1996 The first ATM (cash dispenser) was
installed. The Customer – Bank and Master KCS systems
were introduced. Parekss banka joined the S.W.I.F.T
international association.
1997 The first Bloomberg information terminal
was installed. The first debit card was issued.
1999 The first Cirrus card was issued.
2000 The implementation of the new GLOBUS
banking system began at Parekss banka; the
Transmaster card management system and the new
Firewall information security system were introduced. A
cash dispenser management module was implemented
in the Cortex card system.
2001 The DIGI::WEB internet-based account
management system was introduced.
Parekss banka recognises the importance of
keeping ahead of information technology trends and as
such invests large resources in its development. The creation and implementation of the GLOBUS system was a
significant event in the development of technology at the
Bank. GLOBUS enables all branches of the Bank to be
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2001
TREASURY AND TRADING
Normunds Vigulis
Arvîds Sîpols
Head of Treasury Department
Deputy Head of Trading Department
Leonîds Rudermans
Dainis Barups
Head of Trading Department
Head of Treasury Products Origination and Sales Department
1994 The Investment and Securities Division
was established to handle resource management and
trading operations.
countries. Fitch approved the long-term loan rating of the
Bank at BB+, set its individual rating at C/D and the additional rating at 5. The international rating agency
Moody’s Investors Service increased the long-term
deposit rating of the Bank from Ba2 to Ba1.
1996 The Resource Division was formed as a
separate function from the Investment and Securities
Division; it has operated separately since that time.
Parekss banka is a leader in resource management, securities trading and placement operations
throughout the Baltic countries. As a result of the successful placement of a range of bonds Parekss banka
reinforced its leading position in this field in the Latvian
market in 2001. Last year Parekss banka was also successful in issuing Latvian government euro bonds to the
value of EUR 200 million. The Bank acted as a lead manager for the placement of LVL 10 million for the Swedish
Export Credit Corporation. This was the first issue of
bonds in the Latvian currency registered by Euroclear.
Parekss banka has chosen to operate throughout the
Baltic region in the specialist field of resource management and securities trading. To demonstrate this, the
Bank, acting as co–lead manager, successfully issued
the bonds of Lietuvos Telekomas which were valued at
LTL 150 million.
1997 The Trade and Risk Management Division
was created.
1998 The Asset and Liability Management
Committee and the Risk Management Committee were
established as separate functions.
1999 Parekss banka began its activities in the
international financial markets: Moody’s Investors
Service awarded Parekss banka a Ba2 rating; Thomson
BankWatch (Fitch) approved the credit rating as BB+. The
Latvian government issued its first bonds in the Euro currency; the first issue was worth EUR 255 million; a syndicated loan of USD 20 million was granted by 7 leading
Western banks.
Through focusing specifically on the Baltic countries, the
CIS and Eastern Europe, Parekss banka has been able to
increase its market share in various market segments,
ranging from foreign currency exchange to trade in fixedrate revenue instruments and shares. Parekss banka is
a major liquidity provider in money market instruments
both in local and foreign currencies. With over 50 trading
issues with top financial institutions, Parekss banka is a
recognized international partner.
2000 Parekss banka
received a syndicated
loan of USD 23 million from leading German, Czech,
Polish and other banks. Capital Intelligence upgraded the
rating of the Bank in foreign currencies to BB+. Thomson
BankWatch (Fitch) increased the rating of the Bank in
local currency up to LC-1.
2001 Parekss banka received a syndicated
loan of EUR 35 million from 12 banks in 7 European
Parex Group
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Annual report 2001
TREASURY AND TRADING
The Marginal and Derivative Operations Division
at Parekss banka serves both private individuals and
companies. Parekss banka was the first bank in Latvia to
introduce a 24-hours trading service. The Bank introduced this service last year enabling its customers to
operate in markets world-wide, around the clock.
2001 was a very successful year for Parekss banka in all
its areas of operation. It received recognition from
Euromoney Magazine which granted its four annual prizes
(Best Bank, Best EquityHouse, Best DebtHouse and Best
M&A House) to one bank for the first time. The bank was
Parekss banka. The Banker magazine also declared
Parekss banka to be the best bank in Latvia in 2001.
Customers trust the professionalism and experience of
the Parekss banka team. The Bank will continue to work
closely with its customers to maintain and develop what
it has already achieved.
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2001
INVESTMENT BANKING AND CORPORATE FINANCE
Rafails Turkots
Head of Investment Banking and Corporate Finance Division
Parekss banka regards investment banking and
corporate finance as a highly important strategic area.
Currently, Parekss banka provides a wide range of services in financial advisory covering mergers and acquisitions, corporate restructuring, strategic advisory, structured finance, loan syndication and project finance.
that has been internationally affirmed by leading financial
journal Euromoney Magazine, who in 2001 named
Parekss banka “Best M&A House” in Latvia.
The experienced and highly professional investment
banking and corporate financing team at Parekss banka
is ideally qualified to deliver results to both domestic and
international companies.
Parekss banka’s seasoned international team of experienced corporate finance professionals effectively utilises
its in-depth knowledge in many key regional industries, a
wide network of contacts in Baltic industry and the international investing community to provide a tailored and
flexible approach emphasizing creative, value-added
thinking as well as outstanding service and execution.
Drawing from experience in advisory roles in the privatization and sales of major Latvian companies, Parekss
banka’s corporate finance team has the industry expertise and the market know-how necessary to effectively
execute successful Baltic and cross-border M&A transactions. Recently, Parekss banka has acted as financial
advisor to the main shareholder of Baltkom GSM (one of
the two Latvian mobile operators) on the sale of its stake
to Sweden's TELE2. This landmark USD 277 million
transaction, completed in October 2000, was the largest
private M&A deal in Baltic history.
Parekss banka’s corporate finance history includes a
number of syndications to key local corporations such as
Lattelekom and LNT as well as a private placement for
Lietuvos Energija. More recently, Parekss banka has
been chosen as the consortium member for the advisory
on the privatization of Latvia's Ventspils Nafta (the
largest oil transshipment terminal in the Baltics.) The
selection of Parekss banka highlights the respect shown
to the professionalism of the team by both the Latvian
Privatization Agency and by Raiffeisen Investment AG
(consortium lead).
Parekss banka is a market leader in providing comprehensive financial solutions for clients even in the most
challenging and dynamic market conditions, a position
Parex Group
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Annual report 2001
ASSET MANAGEMENT
Guntars Vîtols
Sergejs Medvedjevs
Head of Investment Strategy and Planning Department
Head of Investment Products Department
1995 Parekss banka provided the first investment programmes to allow customers to invest their
resources in global financial markets.
Parekss banka’s trading, research and sales departments and built upon a track record of success in fund
management, the newly formed company is well
equipped to provide superior fund management services.
1997 The range of investment services was
expanded to include opportunities in CIS.
1999
PAM will play a number of important roles including the
consolidation of asset management services within the
Parex Group and providing third party products and asset
management services to individual clients. The management of investments for the largest open pension fund in
Latvia – Parekss atklåtais pensiju fonds (The Parex Open
Pension Fund), the Parex Investment Society, a vehicle
for the development of Latvian-based funds, and the
investment portfolio for Parekss banka will also be transferred to PAM. Additionally, PAM will carry on the tradition
of award-winning coverage of financial markets through a
number of research publications.
The Investment Services Division was
created.
2000 Parekss banka enters into sub-distribution agreements with leading fund managers such as
Franklin Templeton.
2001 Parex Asset Management (PAM) the joint
stock company was established.
Since its inception, Parekss banka has been an
active investor in international markets. With over USD
400 million in diversified holdings, Parekss banka’s proprietary investment portfolio has grown to become by far
the largest in the Baltics.
The experience that Parekss banka has acquired in dealing with securities has contributed to the development of
a conservative but profitable investment analysis
methodology that has proved to be highly effective
(including during periods of crisis in 1995 and 1998).
This methodology is also available to customers who use
asset management services based on the principle
“Choose the best out of the best”. Sub-distribution
agreements with leading fund managers such as Franklin
Templeton are also available to clients.
With the development and restructuring of Parex Group,
it has become apparent that the needs of the group and
its clients would be best served by consolidating the
asset management function in a separate legal entity.
This led to the establishment and launch of JSC Parex
Asset Management joint stock company in the beginning
of 2002. Formed from a team of key managers from
21
2001
PERSONNEL
Ludmila Zaiceva
Head of Human Resources Department
Parekss banka employs a professional and competent team of individuals who are constantly striving to
excel in serving their customers.
In 2002, the Bank intends to further
increase its focus on internal training by
organising special courses in specific areas
of banking as well as psychology and ethics.
A dedication to a strong work ethic, a determination to
succeed and the ability to thrive in an environment of
change, challenge and competition characterise Parekss
banka team. At the end of 2001 Parekss banka
employed 1,380 people with an average age of 34.5.
Employees also play an active part in various sporting and cultural events. The
basketball team of the Bank won the
tournament organised by the
Association of Commercial Banks
of Latvia and the football
team achieved good
results in the mini-football challenge cup organised by Andersen. The
Bank also took part in
the annual Media Games in 2001.
Our success can be attributed to our people who are a
highly educated and professional team of individuals.
53% of employees have a degree in economics, with 7%
having a bachelor’s degree in economics and 5% having
a master’s degree. In 2001, 191 employees studied at
higher educational establishments in order to improve
their knowledge and skills.
Parekss banka dedicated team helps ensure that the
bank continues to achieve its goals and retains its leading position in the Latvian market. The drive and enthusiasm present in the staff of Parekss banka in Latvia can
also be seen in those employees of other countries in
which our Bank operates.
An environment of highly motivated people has developed from a culture of teamwork and a well thought out
remuneration policy. Internal communication in the form
of a newsletter and Intranet helps keep employees well
informed about the latest developments at the Bank. The
Intranet not only provides examples of descriptions of
documents used on a daily basis and other banking
information but also features interviews and photographs
of employees.
Parex Group
22
Annual report 2001
PERSONNEL
Sandra Purviña
Roberts Stu©is
Chief Accountant
Head of Financial Analysis Department
23
2001
PREVENTION OF MONEY LAUNDERING
1998 The Law On the Prevention of Money
Laundering was adopted by the Saeima (parliament) of
the Republic of Latvia. Parekss banka sets up a Control
Department.
1999 Parekss banka developed further policies and procedures for the prevention and detection of
money laundering.
2000 A delegation from the Council of Europe
visited Parekss banka to discuss issues related to the
prevention of money laundering.
2001 The recommendations issued by the
inter-governmental organisation FATF (The Financial
Action Task Force on Money Laundering) were approved.
They served as the basis for the creation of the Parekss
banka Money Laundering Prevention Committee and for
all policies and procedures regarding the prevention of
money laundering. The Financial and Capital Markets
Commission also issued recommendations to improve
the prevention of money laundering.
Jånis Skrastiñß
Councillor to President, Legal Protection of Banking Activities
Parekss banka is committed to setting up antimoney laundering procedures that comply with all national and international legislation and standards to avoid
being involved in money laundering or any financing of
illegal activities. Parekss banka set up a special
Department Division to supervise these activities as
early as 1998.
As a result of successful cooperation with the Ministry of
the Interior and the Ministry of Foreign Affairs of the
Republic of Latvia, the Bank has attempted to set up
rigid procedures to ensure the authenticity of the identification of its customers. With the support of the Control
Committee, the Control Department at Parekss banka
intends to continuously enhance and improve the set of
measures aimed at the prevention of money laundering.
It aims to organise the operations of the bank so that the
prevention of money laundering is incorporated in to all
areas of the bank and is a responsibility of every staff
member.
Initially, 4 highly qualified bankers with specialist knowledge in the fields of law, economics and financial analysis worked in the Control Department. The team has
expanded to include 7 employees who provide regular
training to employees of the Bank and ensure that all
units of the Bank comply with and implement the internal
procedures aimed at the prevention of money laundering.
The Customer Analysis Unit forms part of the Control
Division and promotes the application of the international principle “know your customer”.
Written correspondence with the Money Laundering
Prevention Service at the Prosecutors’ Office of the
Republic of Latvia shows that Parekss banka complies
with and follows the requirements stipulated by the law,
other legislative acts and international standards.
Proposals submitted by Parekss banka to assist in the
drafting of legislative acts have been received favourably.
Parex Group
24
Annual report 2001
OPEN PENSION FUND • PAREKSS ATKLÅTAIS PENSIJU FONDS
1998 The non-profit stock company Atklåtais
pensiju fonds Sociålais nodroßinåjums (Open Pension
Fund Social Security) was established.
1999 The Company obtained licenses affirming
that the financing of pensions was its primary activity and
which enabled the setting up of the Parex Pension Fund.
A collective participation agreement was signed with
Parekss banka.
2000 The Pension Fund was also granted a
licence to create the Papildpensija Pension Fund which
allowed the Fund to attract private individuals as customers. 8 such collective participation agreements were
signed with legal entities.
2001 The Pension Fund obtained a licence to
establish the Sociålais nodroßinåjums Collective Pension
Scheme. The name of the Fund was changed to Parekss
atklåtais pensiju fonds (Parex Open Pension Fund). A
website was established for the pension fund and
became operational during the year.
Jakovs Íurs
President, Parekss atklåtais pensiju fonds
Parekss atklåtais pensiju fonds is a licensed
non-profit making joint-stock company, which is registered in the Register of Latvian Enterprises. It is subject
to and operates under all existing legislation regarding
the operation and supervision of private pension funds.
Currently, the pension fund, which is managed by
Parekss banka, offers two pension schemes licensed by
the Finance and Capital Market Commission: Sociålais
nodroßinåjums (legal entities) and Papildpensija (private
individuals). The aim of Parekss atklåtais pensiju fonds
is to invest responsibly in order to increase the amount
of the supplementary pension capital for members of the
Fund and to pay pensions to its members (or heirs)
according to their chosen plan after the age of 55.
ticipants. As at 31 December 2001, the assets of
Parekss atklåtais pensiju fonds amounted to LVL 1,444
thousand, representing a 266.4% increase compared to
the previous year. The number of people contributing to
the fund increased by 291.4% during the 2001 reaching
3,793 participants.
A website for the fund was established and became
operational during 2001 (www.parexpensija.lv). This provides a description of the activities, the licensed products of Parekss atklåtais pensiju fonds and methods of
calculating additional pension capital.
As the leading open pension fund in Latvia, Parekss
atklåtais pensiju fonds intends to continue its flexible
policy regarding the frequency and amounts of contributions, in order to best meet the needs of the participants
of the pension scheme.
Parekss atklåtais pensiju fonds was the market leader in
open pension funds in Latvia in 2001 in terms of the
amount of capital owned, the assets of the fund, the
assets of the Pension Scheme and the number of par-
25
2001
TRANSPORTATION AND LOGISTICS COMPANY • PAREKSS BROKERU SIST‰MA
1998 The SIA Parekss Brokeru
Sistéma (Parex Brokerage System –
PBS) customs brokerage company was
established. A licence to perform customs brokerage operations was
obtained.
1999 More than 10 PBS representative offices were opened on the borders of the Republic of Latvia and in
ports. Cargo logistics and forwarding
was started and cooperation with customs warehouses began. The turnover of
PBS exceeded LVL 0.5 million in the second year of operation. PBS joined the
National
Association
of
Cargo
Forwarders of Latvia.
Jånis Kaverskis
2000 PBS started to distribute
insurance policies issued by Parekss AK.
Director General, Parekss Brokeru Sistéma
2001 PBS entered into an agreement with Parekss banka on representation
and service delivery (collection of customs duties) on
behalf of the Bank at 7 customs checkpoints. PBS
obtained a certificate for cargo forwarding.
Parekss Brokeru Sistéma is the first company
in Latvia to offer customs brokerage, cargo insurance
and financial services under one roof. In co-operation
with Parekss banka, the company provides a full range of
services to export, import and transit cargo holders and
hauliers.
During 2001 PBS strengthened its position in the market
place in Latvia reaching a turnover of LVL 544,807, which
represents a net increase of 11% compared to 2000.
Unlike other customs brokerage companies in Latvia,
PBS offers its services at all road customs checkpoints
in the country and at the largest Latvian ports. PBS consists of 18 units where 92 staff members are employed.
In 2001, the company opened four new representative
offices in Ezere, Plüdoñi, Jelgava Railway Terminal and
Vecmîlgråvis (Rîga). PBS intends to open a new representative office in Jékabpils in 2002.
In order to further improve customer service Parekss
Brokeru Sistéma SIA intends to electronically enter data
regarding TIR-Carnet into the automated customs data
recording and processing system (ASYCUDA). This will
improve customer service considerably.
Parex Group
26
Annual report 2001
LEASING COMPANY • PAREKSS LÈZINGS
1997 A new company - Parekss Lîzingsentered the Latvian market by issuing loans for the
purchase of vehicles and real estate.
1998 Parekss Lîzings undertook the financing of factoring operations.
1999 Increased demand for real estate,
plant and machinery and vehicle leasing services.
2000 Internal restructuring of the company
took place. The company introduced the option of
leasing goods and consequently attracted new partners.
2001 The financing of the purchase of consumer goods became the key area of operations for
Parekss Lîzings.
Andris Mi˚elsons
Director General, Parekss Lîzings
The main activity of Parekss Lîzings is to issue
loans for the purchase of consumer goods. The company
has used its experience of the market and its knowledge
of suppliers to produce a flexible policy tailored towards
current customer needs. The company issued 5,100
agreements in 2001, and its leasing portfolio tripled to
reach LVL 901,000 by the end of the year.
Parekss Lîzings takes into consideration payment, warranty, delivery and installation concerns when issuing
policies. Specific campaigns are tailored to meet client
needs. Parekss Lîzings had more than 40 leasing partners in 2001.
Parekss Lîzings intends to offer new types of financing
for new types of goods and services in order to fully maximise the benefits of the service distribution network
which has been built up. Attention will also be focused
on informing customers of the advantages of consumer
credit leasing.
27
2001
LEASING COMPANY • PAREX LIZINGAS
1997 Parex Lizingas was registered in
Lithuania, opening its Central Office in Vilnius and a
branch in Klaipeda.
1998 Parex Lizingas became the first company
in Lithuania to offer leasing services for the purchase of
consumer goods. The company opened a branch in
Kaunas.
1999 Parex Lizingas began offering a factoring
service to its customers.
2000 Branches in Siauliai and Panevezys were
opened.
2001 All Parex Lizingas branches were connected to a single network ensuring efficient on-line connections and exchange of information.
Zigmas Vaißvila
Director, Parex Lizingas
Parex Lizingas provides leasing and factoring
services to domestic and foreign companies. The company belongs to the Association of Leasing Companies
of Lithuania and is the fifth largest leasing company in
Lithuania. Consultative services enable domestic and
foreign customers to buy a wide variety of equipment
including the financing of real estate, plant and machinery and other less costly items.
Parex Lizingas is able to draw on the experiences of its
parent company in Latvia to continually improve and
extend the services offered to customers and to
enhance internal information technology services.
Parex Group
28
Annual report 2001
BANK • PAREX BANKAS
1996 Industrijos Bankas
was registered in
Lithuania.
1999 Parekss banka became a strategic
investor in Lithuanian Industrijos Bankas.
2000 Parekss banka acquired 100% of the
shares of Industrijos Bankas and on 25 October the
bank was renamed Parex Bankas.
2001 Through developing its operations, Parex
Bankas increased its market share by gaining an additional 1.5% of the market in Lithuania.
Jånis Tukåns
President, Parex Bankas
Parex Bankas services can be found in any of the six
largest Lithuanian cities: Vilnius, Kaunas, Klaipeda,
Siauliai, Panevezys and Alitus. The Central Office of
Parex Bankas is located in the centre of Vilnius at 13
K.Kalinausko Street. Parex Bankas is proud to include
amongst its customers, important Lithuanian companies
such as Lietuvos avialinijos, Vilniaus dujos, Ûiaures
miestelis and Endokrininiai preparatai.
P arex Bankas offers a full range of banking
services to its customers in Lithuania – from opening accounts to making deposits, to investment
services, securities trading and financial consultations.
Parex Bankas has obtained the rights to distribute
Eurocard/MasterCard and VISA international payment cards in Lithuania. The Bank has also created
its ATM network in parallel to its branch distribution. To further facilitate customer service and
accelerate the payment process, Parex Bankas
offers Internet banking solutions to its Lithuanian
customers through the use of the iBank account
settlement system.
The Bank continues to aim to become the premier financial services institution in the Baltic countries offering
integrated client service frameworks in account and card
services, lending, leasing, insurance, asset management and securities brokerage. Strategically, the Parex
Group stresses that the Baltic countries are its basic
area of operations. The successful operations of Parex
Bankas, a subsidiary of the Parex Group, are therefore
key to this Pan-Baltic strategy. is one of the most successful elements of this strategy. The priorities of Parex
Bankas in 2002 include the granting of mortgages to private individuals and SMEs, the introduction of new payment cards and further improvement of the quality of
customer service.
Parex Bankas significantly improved its performance during 2001. It is on track to become one of
the top 5 banks in Lithuania. When Parex Bankas
bought Industrijos Bankas in 2000 it was number
13. The assets of Parex Bankas increased by 48%
compared to 2000. The volume of deposits with
Parex Bankas increased by 180% in 2001.
29
2001
INSURANCE COMPANY • PAREKSS APDROÍINÅÍANAS KOMPÅNIJA
Dace Brumziede
Jurijs Cunajevs
Director General, Parekss apdroßinåßanas kompånija
President and Chairman of the Board, Baltic Polis
1994 The Parekss apdroßinåßanas kompånija
(Parekss AK) insurance company was set up with a statutory capital of LVL 1 million.
Parekss AK is one of the largest insurance companies in Latvia and offers a wide range of services to its
customers. In common with other insurance companies
in Latvia, the Parekss AK insurance portfolio consists of
building and construction insurance, health insurance,
compulsory third party motor vehicle liability insurance,
casco insurance and cargo insurance.
1995 Parekss AK expanded its range of services considerably by offering 16 different types of insurance to customers.
In 2001 the volume of gross premiums contracted by
Parekss AK increased by 12.3% compared to 2000 and
exceeded LVL 10 million. The gross volume of claims
paid increased by 31.20% and the profit after tax was
LVL 0.908 million.
1996 Parekss AK
was one of the 3 largest
insurance companies in Latvia by volume of net written
premiums. The network of agents expanded to include
operations in the largest cities and districts of Latvia.
As a result of successful cooperation between Parekss
AK and the Parex Group, customers can negotiate insurance contracts at branches of Parekss banka and other
Parex Group companies. Parekss AK has also concluded
deals with Shell and other petrol companies so that its
customers can sign third party liability insurance contracts at more than 30 petrol stations in Latvia.
1997 Parekss AK became one of the 8 companies that was granted a licence allowing it to provide
compulsory third party motor vehicle liability insurance in
Latvia. By the end of the year, the company had 8 representative offices in districts of Latvia. Parekss AK has
shown a profit since 1997; the profit was LVL 1.47 million in that year.
Parekss AK intends to develop new facilities to satisfy
customer needs by expanding its range of services not
only in Latvia but also in other Baltic countries.
1998
The equity of Parekss AK increased by
LVL 0.55 million and reached LVL 1.55 million.
1999 Parekss AK purchased 50% of the shares
of the Lithuanian insurance company Baltic Polis, investing in its future development in the Baltic market.
2000 4 new representative offices were opened
in districts of Latvia. Parekss AK acquired 100% of the
shares of the Lithuanian insurance company Baltic Polis
and the company became a member of the Parex Group
in Lithuania.
2001 The volume of gross written premiums for
Parekss AK reached LVL 10 million.
Parex Group
30
Annual report 2001
INSURANCE COMPANY • BALTIC POLIS
1999 Parekss apdroßinåßanas kompånija
became the owner of the Baltic Polis insurance company
by purchasing 50% of its shares. The volume of gross
premiums issued by Baltic Polis during 1999 rose
increased by more than 7 times compared to the
previous years.
Baltic Polis in conjunction with the Parekss AK in Latvia
expects to nearly double its volume of gross written
premiums in 2002 by focusing mainly on compulsory
MTPL insurance.
2000 Parekss AK acquired 100% of the shares
of Baltic Polis and Baltic Polis became part of the Parex
Group in Lithuania. The equity of Baltic Polis increased to
LTL 3.1 million.
2001 The assets of Baltic Polis increased by
9.4% and totalled LTL 8.347 million. 30,000 policies
were sold during the year, an increase of 21% compared
to the previous year.
During 2001 a law has passed in Lithuania on
compulsory motor third party liability (MTPL) insurance
which came into effect on 1 April 2002. This was a key
event in the Lithuanian insurance market in 2001 and
Baltic Polis was proud to be one of the first insurance
companies to obtain a licence allowing the company to
sell the compulsory insurance. To prepare for this event,
Baltic Polis has expanded its sales network, opened new
representative offices and signed contracts with insurance intermediaries.
By volume of gross written premiums, Baltic Polis ranked
amongst the 10 largest insurance companies in
Lithuania in 2001. Net written premiums increased by
3.6% to LTL 4.8 million in the year and profit for the year
totalled LTL 26,300. The volume of gross written premiums was LTL 7.2 million.
31
2001
REPRESENTATIVE OFFICES OF THE PAREX GROUP
Arnis Austrums
Leonîds Jamroziks
Customer Service Manager,
Head of Representative Offices Management Department
Representative Offices Management Department
1993 The first Parekss banka representative office was established in Minsk (Belarus).
1994 The Central Bank of the Russian
Federation gave permission to Parekss banka to open
representative offices in Russia. The first representative
office was set up in Moscow.
The new Estonian representative office opened in
Tallinn in November 2001 represents a significant step
forward for the Bank’s regional strategy and gives it representation in all three Baltic States. The creation of a
stable base in the Baltic countries will provide secure
growth for the Bank in the long-term.
1995 A Parekss banka representative office
was established in Kiev (Ukraine).
1997 A Parekss banka representative office
was established in Almaty (Kazakhstan).
1998 The Central Bank of Germany gave
permission to Parekss banka to open a representative
office in Frankfurt. A representative office was set up in
Chisinau (Moldova).
2000 A representative office was set up in
Baku (Azerbaijan).
2001
A representative office was set up in
Tallinn (Estonia).
While strengthening its leading position within the Baltics, the Bank continues to be active in
Western and CIS markets in order to raise recognition
abroad. By 2001, 11 representative offices had been
established in 8 countries, employing 29 people. The
largest representative office is located in Moscow.
Each representative office acts in a consulting capacity,
informing customers of the services offered by the Parex
Group and cooperating with non-resident customers of
the Bank. By implementing a considered well structured
marketing policy, Parekss banka is now a serious competitor to the most significant banks in other countries,
and its customers are not only private individuals but
also large enterprises and private companies.
Parex Group
32
Annual report 2001
SPONSORSHIP
Parekss banka participates actively in
sponsoring many Latvian social, cultural and
sporting projects. Professionalism and honesty
are the key principles of the sponsorship programme of the Bank.
Over a period of ten years, Parekss banka has
also supported various cultural programmes:
events to commemorate the legendary ballet
dancer Måris Liepa, concerts for Jose Carreras
and a rock opera “From Roses and Blood” by
Zigmårs Liepiñß. In addition, several CDs with
music by Raimonds Pauls and songs by Inese
Galante were launched with the support of
Parekss banka. The music collection “Blow,
wind!” by Imants Kalniñß was even awarded the
prize of best record in Latvia in 2000.
The Bank takes pride in the fact that it sponsored the Latvian ice-hockey team which competed in
the World Ice-Hockey Championships. The Bank has also promoted the development of cycling and
car-racing.
The Bank is also an active supporter of long-term educational projects. It is thanks to Parekss
banka that the students of the Rîga Ballet School and the Russian Theatre Studio have received
grants for several years. Several important projects have been implemented together with the Rîga
School of Economics and the Banking Academy. In 2001, Parekss banka provided financial support for the library that was established at the Transport and Communications Institute.
Several important events have been sponsored that companies which organise large-scale seminars and international conferences. Parekss banka sponsored the Annual Meeting of the European
Bank for Reconstruction and Development: this was one of the most important events in Latvia in
2000.
A significant project that the Bank embarked on in 2001 was the sponsorship of the voyage of the
yacht Milda around the globe. The campaign “Love to Everybody!” organised by Parekss banka,
has been running for two successive years on 14 February, Saint Valentine’s Day. Representatives
of the Bank visit social care centres, old people’s homes, orphanages, schools and kindergartens
in Rîga, the Rîga region, Rézekne, Salacgrîva, Ventspils etc to present gifts. As an active member
of the corporate community in Latvia, Parekss banka will continue to support projects that enhance
the level of welfare, culture and education in Latvia.
33
2001
Parex Group
34
Annual report 2001
35
2001
Parex Group
36
Annual report 2001
Parekss Group
Financial Statements
37
Economic and Banking Environment in Latvia
Management of the Bank
Statement of Responsibility of the Management
Financial Statements:
Statements of Income
Balance Sheets and Memorandum Items
Statements of Changes in Shareholders’ Equity
Statements of Cash Flows
Notes
Auditors’ Report
38
40
40
37
Annual report 2001
41
42
43
44
45
83
ECONOMIC AND BANKING ENVIRONMENT IN LATVIA
The Lat (LVL), the only legal payment means of the Republic of Latvia, is fully convertible against hard currencies without
exchange controls. As of 1994, the rate of exchange of lat is preserved by the Bank of Latvia relative to the International
Monetary Fund Special Drawing Right (SDR), thereby implementing the policy of fixed national currency exchange rate.
The Bank of Latvia’s selected mechanism of linking the lat to the SDR allows for relative stability and predictability of the
national currency. The mechanism also mitigates the foreign currency risks and creates a stable basis for corporate planning and pricing. The Bank of Latvia has resolved to preserve the linkage between the national currency and SDR until the
inclusion of Latvia into the European Union.
During the reporting year, the exchange rates of foreign currencies against the LVL were determined by the interrelated fluctuations of the SDR currencies – US dollar, Euro, Japanese yen and British pound, as well as by the fluctuations of these
currencies against other foreign currencies in the world markets. The exchange rate for the LVL against the US dollar weakened during 2001 due to the significant fall of the euro exchange rate against the US dollar, while the LVL gained against
the the Euro.
Official exchange rates of the Bank of Latvia are as follows:
USD
EUR
SEK
RUB
As at 31 December 2001
LVL 1.00=
1.567
1.783
16.949
47.393
LVL 1.00=
1.631
1.754
15.576
46.296
As at the year end, the cash basis (cash in circulation and deposits with the Bank of Latvia) coverage with net foreign assets
constituted 115.4%, and net reserve was equivalent to 3.5 months’ volume of state commodity and non–factored service
import.
BANKING SECTOR IN 2001
As at 31 December 2001, in Latvia there were 22 banks, 1 branch of a foreign bank (Latvian branch of Nordea Bank Finland
Plc. (Finland)) and 1 representative office of one foreign bank (Dresdner Bank AG (Germany)).
The Latvian banking sector is characterised by its stability. There is a gradual growth in the assets, deposits attracted and
loan volume issued by the banks, and commercial banks are operating with a profit. Further increase of the banking system’s efficiency is closely linked to economic development, structural reforms, and the development of the capital and real
estate markets.
The banking sector is one of the most developed economic sectors in Latvia and presents major attractions to foreign
investors. The latter is evidenced by investments of several foreign banks in the share capital of the Latvian banks:
Swedbank, Skandinaviska Enskilda Banken, Vereins– und Westbank and Norddeutsche Landesbank. It is projected that in
the near term, additional foreign banks will become strategic investors in other Latvian banks.
Changes in the Latvian banking sector have nearly reached completion. Most banks are privately held. One bank is
state–owned, and another is partially state–owned with the privatisation process under way. At the end of 2001, the state’s
share in the share capital of the banking sector was 3.7%. Four major banks held assets comprising 60% of total assets of
all banks, and concentration of assets in the 10 largest banks amounted to 80%.
According to a number of foreign experts, bank supervision and surveillance in Latvia is among the strictest in all Central
and Eastern Europe. Many of the regulations on the operations of Latvian credit institutions are stricter than in some EU
member states.
As of 1 July 2001, bank supervision and surveillance was transferred from the Bank of Latvia to the newly founded Financial
and Capital Market Commission (FCMC). FCMC has taken over the functions of the former Credit Institution Monitoring
Department of the Bank of Latvia, the Security Market Commission and the State Insurance Monitoring Inspection. FCMC
was established with the purpose to promote the protection of investors, depositors and insured persons’ interests as well
as the development and stability of the financial and capital market.
38
2001
ECONOMIC ENVIRONMENT IN LATVIA
The monetary and fiscal policy practised over the recent years has promoted a productive restructuring of the Latvian economy and Latvia has responded to be one of the most successful countries in Central and Eastern Europe.
Subsequent to overcoming the impact of the Russian crisis, in 2001 the economy of Latvia exhibited upward development
in almost all significant economic sectors. The total growth of GDP reached a level of 7.6%. More than three fourths of the
growth was generated by 4 industries – manufacturing, trade, commercial services, and the transport and communications
industry. The growth of transport and communications industry has been largely determined by the development of transit
services.
During 2001, the consumer price index grew by 3.2% and the average rate of inflation for the year constituted 2.5%. During
the reporting year, the unemployment rate for the economically active part of the population slightly decreased to 7.7% as
at the year end.
Starting with 1996, and the only exception being the year 1999, the budget deficit has been lower than 3% of GDP. Over
the past years the budget deficit has demonstrated a stable trend of decline. The Latvian current account deficit for the
reporting year most probably will exceed 10% of GDP. It is mainly covered by direct foreign investments and long–term loans.
Along with the development of the Latvian economy, the foreign trade volume has also grown significantly. Thus, in 2001
the export volume has increased by 11% with the import volume also growing by 14%.
During the first nine months of 2001, non-financial investments in Latvia exceed by 10% the respective indices for 2000.
An especially rapid growth by 15% therein was seen in the private sector. Relatively sizeable during the year was also the
growth in the power, trade and transport and communications industries. During the last year, direct foreign investments
increased by 22%, reaching the level of 5.7% of GDP. It is expected that in 2001 volume of direct foreign investments will
decrease, constituting approximately 3.5% of GDP. By the end of September 2001, in Latvia foreign investors had contributed direct investments in the amount of LVL 607 (USD 981) per capita.
The success of the economic reforms in Latvia is proved by the credit ratings assigned by leading foreign rating agencies.
In August 2001, the international credit agency Standard & Poor’s, approved its rating for Latvia retaining it at the previous
level – a BBB rating for long–term foreign currency loans and an A – rating for long–term loans denominated in lats. The
future projection set for Latvia is characterised as a positive outlook. Also the future projection for long–term investments
in the national currency is defined as a stable outlook. The rating for short–term foreign currency loans is A–3, while for
short–term loans in the national currency – A–2.
Standard & Poor’s remarked that Latvia’s foreign debt and the fiscal deficit levels remain relatively low. According to the
evulation, Latvia’s currency is stable and fiscal policy is conservative, contributing to the maintenance of low inflation, development of the capital market and the extension of goverment bond maturities.
In 2001, the international credit rating agency Fitch Ratings also retained its ratings for Latvia as a country attractive for
investments: for long–term and short–term foreign currency loans as BBB and F3, respectively, as well as an A rating for
the long–term national currency loans.
Meanwhile, the credit ratings granted by Moody’s are as follows: for long–term local currency government bonds – A2, while
for long–term foreign currency loans – Baa3.
Parekss Group
39
Annual report 2001
MANAGEMENT OF THE BANK
At the date of signing these financial statements:
Council of the Bank
Gints Poißs
Hans Berndt
Juris Vanags
Jånis Skrastiñß
Member of the Council
By decision of the Parekss banka shareholders on 8 October 2001, Jånis Skrastiñß, a citizen of the Republic of Latvia,
was elected as a new member of the Council.
Board of Directors
Valery Kargin
Viktor Krasovitsky
Vladislavs Skrebelis
President and Chairman of the Board of Directors
Deputy Chairman of the Board of Directors
Member of the Board of Directors
Council of Directors
Viktor Krasovitsky
‰riks Brîvmanis
Vice President Responsible for the Bank’s financial management, asset and liability management,
information technology strategic development and implementation and the Bank’s accounting system.
Vice President Responsible for Operations Division, covering client service (retail and corporate),
card operations, settlements and branch management.
Vice Presiden Responsible for Lending Operations, covering all lending, credit and leasing facilities to retail and corporate clients.
Vice President Responsible for Capital Markets, Trading & Treasury, Investment Banking,
Corporate Finance, Investment Products, Trust and Asset Management. Also responsible for managing the Bank’s strategic development covering investor relations, debt and equity financing,
relationships with international financial institutions and rating agencies.
Alexander Kvasov
Lîga Puriña
Gene Zolotarev
STATEMENT OF RESPONSIBILITY OF THE MANAGEMENT
The Management of a/s Parekss banka (hereinafter – the Bank) are responsible for the preparation of the financial statements of the Bank as well as for the preparation of the consolidated financial statements of the Bank and its subsidiaries
(hereinafter – the Group).
The financial statements set out on pages 41 to 82 are prepared in accordance with the source documents and present
fairly the financial position of the Bank and the Group as at 31 December 2001 and 2000 and the results of their operations and cash flows for the years then ended.
The financial statements are prepared in accordance with International Financial Reporting Standards on a going concern
basis. Appropriate accounting policies have been applied on a consistent basis. Prudent and reasonable judgements and
estimates have been made by the Management in the preparation of the financial statements.
The Management of a/s Parekss banka are responsible for the maintenance of proper accounting records, the safeguarding of the Group’s assets and the prevention and detection of fraud and other irregularities in the Group. They are also
responsible for operating the Bank in compliance with the Law on Credit Institutions, regulations of the Financial and Capital
Market Commission and other legislation of the Republic of Latvia applicable for credit institutions.
Valery Kargin
Viktor Krasovitsky
Gints Poißs
President,
Chairman of the Board
Chairman of the
Rîga,
28 February 2002
40
2001
STATEMENTS OF INCOME
FOR THE YEARS ENDED 31 DECEMBER 2001 AND 2000
LVL 000’s
Notes
2001
Group
Bank
2000
Group
Bank
Interest income
Interest expense
Net interest income
4
4
40,952
(19,340)
21,612
39,049
(18,641)
20,408
32,723
(15,491)
17,232
31,984
(15,284)
16,700
Commission and fee income
Commission and fee expense
Net commission and fee income
5
5
16,414
(4,090)
12,324
15,358
(4,006)
11,352
13,256
(2,483)
10,773
13,083
(2,466)
10,617
Profit on securities trading and foreign exchange, net
6
10,196
9,787
7,339
7,202
Other operating income
7
1,266
969
1,135
997
45,398
42,516
36,479
35,516
8, 9
21, 22
(25,008)
(3,911)
(371)
(21,834)
(3,527)
(303)
(18,895)
(2,682)
(390)
(17,935)
(2,591)
(390)
Provision expense for possible credit losses
Release of previously established provision
10
10
(5,503)
2,773
(5,180)
2,707
(5,592)
2,585
(5,289)
2,585
(Loss) from revaluation of long–term investments
20
-
(1,094)
(217)
(562)
13,378
13,285
11,288
11,334
(1,571)
(1,533)
(1,309)
(1,309)
11,807
11,752
9,979
10,025
(103)
-
46
-
11,704
11,752
10,025
10,025
Net operating income
Administrative expense
Depreciation and amortisation expense
Other operating expense
Profit before corporate income tax and minority interest
Corporate income tax
11
Profit before minority interest
Minority interest
Net profit for the year
The financial statements on pages 41 to 82 have been approved by the Management of the Bank and signed on its
behalf by:
Valery Kargin
Viktor Krasovitsky
Gints Poißs
President,
Chairman of the
Rîga,
28 February 2002
The accompanying notes are an integral part of these financial statements.
Parekss Group
41
Annual report 2001
BALANCE SHEETS AND MEMORANDUM ITEMS
AS AT 31 DECEMBER 2001 AND 2000
LVL 000’s
Notes
31/12/2001
Group
Bank
31/12/2000
Group
Bank
Assets
Cash and deposits with the Bank of Latvia
Balances due from credit institutions
Loans and advances to non-banking customers
12
13
14, 15, 16
33,683
70,976
270,547
32,385
69,783
258,843
24,058
107,325
217,627
23,568
105,888
206,182
17, 18
19
20
249,106
18,398
-
248,118
18,357
4,014
159,405
16,336
120
156,439
16,281
3,045
Intangible assets
Fixed assets
Prepayments and accrued income
21
22
23
1,321
20,332
4,585
1,113
16,506
4,431
1,577
14,450
7,049
1,429
12,526
6,840
Other assets
Total assets
Liabilities
24
4,771
673,719
3,441
656,991
2,791
550,738
1,826
534,024
25
26
57,162
549,007
1,739
1,080
6,243
615,231
59,040
533,465
1,610
896
3,612
598,623
45,950
447,678
3,324
734
4,868
502,554
38,442
442,113
3,070
611
1,934
486,170
358
-
520
-
Treasury bills and other fixed income securities
Shares and other non-fixed income securities
Investments in subsidiaries
Balances due to credit institutions and
the Bank of Latvia
Deposits from the public
Accrued expense and deferred income
Provision for liabilities and charges
Other liabilities
Total liabilities
27
28
Minority interest
Shareholders’ equity
Paid–in share capital
Fair value revaluation reserve
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
Memorandum items
29
30,000
(238)
28,368
58,130
673,719
30,000
(238)
28,606
58,368
656,991
30,000
17,664
47,664
550,738
30,000
17,854
47,854
534,024
Contingent liabilities
Financial commitments
Foreign exchange contracts
Other financial instruments
Funds under trust management
30
30
30
30
31
8,299
30,189
198,795
3,913
4,601
8,272
30,957
209,248
3,913
4,601
9,801
20,467
40,912
14,754
3,847
9,520
21,662
47,127
14,754
3,847
The financial statements on pages 41 to 82 have been approved by the Management of the Bank and signed on its
behalf by:
Valery Kargin
Viktor Krasovitsky
Gints Poißs
President,
Chairman of the
Rîga,
28 February 2002
42
2001
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Changes in the Bank’s shareholders’ equity may be specified as follows:
LVL 000’s
Balance as at 1 January 2000
Paid out dividends
Paid–in
share
capital
30,000
-
Fair value
revaluation
reserve*
-
Retained
Total
earnings shareholders’
equity
7,929
37,929
(100)
(100)
-
-
10,025
10,025
Balance as at 31 December 2000,
as previously reported
30,000
-
17,854
47,854
Effect of adopting IAS 39
Balance as at 31 December 2000, as restated
30,000
121
121
17,854
121
47,975
-
-
(1,000)
(1,000)
30,000
(447)
88
(238)
11,752
28,606
(447)
88
11,752
58,368
Paid out dividends
Fair value revaluation reserve charged to
statement of income
Change in fair value of available for sale securities
Balance as at 31 December 2001
The following provides a reconciliation of the shareholders’ equity between the Bank and the Group as at 31 December 2001:
LVL 000’s
Paid-in
share
capital
30,000
30,000
Balance per the Bank
Negative shareholders’ equity of a subsidiary
Balance per the Group
*
Fair value
revaluation
reserve
(238)
(238)
Retained
Total
earnings shareholders’
equity
28,606
58,368
(238)
(238)
28,368
58,130
As a result of implementing IAS 39, the Group has adopted accounting policy to recognise the revaluation result of available for sale
financial assets directly in the equity up until such financial assets are sold or otherwise disposed of.
Parekss Group
43
Annual report 2001
STATEMENTS OF CASH FLOWS
LVL 000’s
Notes
2001
Group
Bank
2000
Group
Bank
Cash inflow/(outflow) from operating activities
Profit before taxation and minority interest
Amortisation of intangible assets,
depreciation of fixed assets and their write-offs
Loss from sale of fixed assets
Increase/(decrease) in provision for
possible credit losses
Loss from revaluation of foreign currency positions
Loss from revaluation of long-term investments
6
(Increase)/decrease in prepayments and accrued income
(Increase)/decrease in other assets
Increase/(decrease) in accrued expense
and deferred income
Increase in provision for liabilities and charges
Increase/(decrease) in other liabilities
Minority interest
Increase in cash and cash equivalents
before changes in assets and liabilities
13,378
13,285
11,288
11,334
4,003
18
3,612
18
2,925
80
2,825
80
2,897
2,638
(3,359)
(4,012)
445
-
384
1,094
181
217
198
562
2,104
(1,657)
2,045
(1,287)
(3,082)
528
(2,869)
1,493
(976)
(851)
2,412
2,158
38
1,375
(265)
12
1,678
-
323
(1,326)
566
200
(4,260)
-
21,360
22,628
10,753
7,709
(Increase)/decrease in short-term investments
Decrease in balances due from credit institutions
(Increase) in loans and advances to non-banking customers
Increase/(decrease) in balances due to credit institutions
Increase in deposits from the public
Increase in cash and cash equivalents from operating
activities before corporate income tax
(2,596)
38,027
(54,893)
10,311
101,329
(9,261)
36,516
(54,381)
21,011
91,352
7,827
354
(57,482)
741
145,325
7,881
1,632
(45,388)
(7,408)
139,760
113,538
107,865
107,518
104,186
Corporate income tax
Net cash and cash equivalents from operating activities
Cash inflow/(outflow) from investing activities
(2,158)
111,380
(2,150)
105,715
317
107,835
317
104,503
(9,647)
-
(7,294)
-
(9,797)
163
(7,625)
163
(89,966)
(87,476)
(78,241)
(78,354)
(99,613)
(94,770)
(87,875)
(85,816)
(1,000)
(1,000)
(2,915)
(100)
(2,915)
(100)
(Purchase) of intangible and fixed assets
Proceeds from sale of fixed assets
(Purchase) of equity investments in
other entities and other long-term investments
including investments available for sale, net
(Decrease) in cash and cash equivalents
from investing activities
Cash inflow/(outflow) from financing activities
Issue/(redemption) of bonds
Dividend (payment)
(Decrease)/increase in cash and cash
equivalents from financing activities
(1,000)
(1,000)
(3,015)
(3,015)
Net cash inflow for the year
Cash and cash equivalents at the
beginning of the year
10,767
9,945
16,945
15,672
32
52,145
50,855
35,381
35,381
(Loss) from revaluation of foreign currency positions
Cash and cash equivalents at the end of the year
6
32
(445)
62,467
(384)
60,416
(181)
52,145
(198)
50,855
44
2001
NOTES TO THE FINANCIAL STATEMENTS
INFORMATION ON THE BANK
1
(Figures in parenthesis represent amounts as at 31 December 2000 or for the year then ended.)
A/s Parekss banka was registered as a joint stock company on 14 May 1992. The Bank commenced its operations in June
1992.
The Bank’s head office and three main branches are located in Rîga, Latvia. As at 31 December 2001, the Bank was operating a total of 101 (93) branches and client service centres in Rîga and throughout Latvia. The Bank also operates 4 representative offices: in Frankfurt (Germany), Kiev (Ukraine), Tallinn (Estonia) and Baku (Azerbaijan).
The Bank’s main areas of operation include accepting deposits from the public, granting short–term and long–term loans to
the State Treasury, local municipalities, corporate customers, private individuals and other credit institutions, dealing with
finance lease and foreign exchange transactions. The Bank also offers its clients trust management and investment banking services, as well as performs local and international payments.
As at 31 December 2001, the Bank had approximately 1,380 (1,166) employees, 5,750 (5,650) loan customers, 4,000
(3,400) finance lease customers, 96,320 (87,650) settlement card holders and 112,700 (88,750) deposit customers. The
shareholders of the Bank are Europe Holding Ltd., a privately held company incorporated in the Isle of Man, Mr. Valery Kargin
and Mr. Viktor Krasovitsky (see Note 29).
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2
The Bank maintains its books of account and prepares financial statements for regulatory purposes in Lats, in accordance
with accounting principles and practices employed by domestic banks as required by stipulations of the Financial and Capital
Market Commission and other Latvian accounting regulations applicable for credit institutions.
A summary of the principal accounting policies all of which have been applied consistently (unless otherwise stated) throughout the years ended 31 December 2001 and 2000 is set out below.
a) Reporting Currency
The accompanying financial statements are reported in thousands of Lats (LVL 000’s).
b) Basis of Accounting
These financial statements are based on the statutory records, which are maintained under the historical cost convention,
modified for revaluation as disclosed below, with adjustments and reclassifications for the purpose of fair presentation in
accordance with International Financial Reporting Standards (IFRS).
c)
Basis of Consolidation
As at 31 December 2001 and 2000, the Bank had a number of investments in subsidiaries, in which the Bank held directly and indirectly more than 50% of the shares and voting rights. More detailed information on the Bank’s subsidiaries has
been presented in Note 20.
The Bank’s subsidiaries are accounted in the Bank’s financial statements under the equity method. The financial statements
of a/s Parekss banka and its subsidiaries AB Parex Bankas, BAS Parekss atklåtais pensiju fonds, SIA Parekss Lîzings, SIA
Parekss Brokeru Sistéma, AS Parex Asset Management, IAS Parekss ieguldîjumu sabiedrîba and the indirectly controlled entity UAB Parex Lizingas are consolidated in the Group’s financial statements on a line by line basis by adding together like items
of assets and liabilities as well as income and expenses. Where the controlling shareholding in a subsidiary was acquired
during the reporting year, only post acquisition income and expenses have been included in the Group’s financial statements
for the current reporting year. For the purposes of consolidation, intra–group balances and intra–group transactions including
interest income and expense as well as unrealised profits and loss resulting from intra–group transactions are eliminated in
the Group’s financial statements.
Parekss Group
45
Annual report 2001
2
d) Income and Expense Recognition
Interest income and expense items are recognised on an accrual basis. No interest income is recognised on non-performing loans and advances (see paragraph i) in which interest is unlikely to be collected.
Commissions and fees as well as all other major income and expense items are credited and/or charged to the statement
of income at the time of the related business.
e) Foreign Currency Translation
Transactions denominated in foreign currencies are recorded in Lats at actual rates of exchange effective at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Lats at the rate of
exchange prevailing at the end of the year. Any gain or loss resulting from a change in rates of exchange subsequent to the
date of the transaction is included in the statement of income as a profit or loss from revaluation of foreign currency positions.
f)
Taxation
Corporate income tax is applied at the rate of 25% on taxable income generated by the Bank for the taxation period.
To promote foreign investments in Latvia, the tax authorities have granted foreign majority owned companies, as defined by
Latvian legislation, which registered prior to 1 April 1995, a tax holiday. As a result, the Bank is currently eligible for a 50%
tax holiday and is accordingly subject to 12.5% corporate income tax on taxable income.
Deferred corporate income tax arising from temporary differences in the timing of the recognition of items in the statutory
accounts and tax returns and/or between the statutory accounts and these financial statements is calculated using the liability method. The deferred corporate income tax is determined based on the current tax rates. The principal temporary timing differences arise from differing rates of accounting and tax depreciation on the Bank’s fixed assets, as well as the treatment of general provision and provision for vacation pay reserve.
g)
Loans and Advances to Non-Banking Customers
Loans and advances to non-banking customers represent the amortised cost less provision for possible credit losses on
loans and advances.
h) Leases
Finance leases, which confer rights and obligations similar to those attached to owned assets, are recognised as assets and
liabilities at amounts equal at the inception of the lease to the fair value of the leased property or, if lower, at the present value
of the minimum lease payments. The finance income is allocated to periods during the lease term to produce a constant periodic return on the net investments outstanding in respect of the finance leases.
For the purposes of these financial statements, finance lease receivables are included in loans and advances to non-banking customers.
Rentals under operating leases are charged to the statement of income on a straight–line basis over the lease term.
i)
Provision for Possible Credit Losses
Non-performing loans and advances to customers including banking institutions are defined as loans and other credit balances in which contractually due principal is 14 days or more overdue, contractually due interest is 90 days or more overdue, or the Management otherwise believe that the contractual interest or principal due will not be collected.
The Bank has granted commercial and consumer loans to customers throughout its market area. The economic condition
of the market area may have an impact on the borrowers’ ability to repay their debts. The Management of the Bank have
considered both specific and general risks in determining the balance of provision for possible credit losses. Provision for
possible credit losses are established to represent the estimated amounts of probable losses that have been incurred at
the balance sheet date. The specific element of the provision relates to credits that have objective evidence of impairment.
The specific provision is determined after individually reviewing all credits for impairment. The general element of the provision relates to the potential losses, which experience indicates are present in the Bank’s portfolio of loans and advances
to customers, but have not yet been specifically identified.
When a loan or advance has been classified as non-performing or of high risk, a provision for possible credit losses is established for that specific loan or advance for the amount of the outstanding balance which is deemed to be impaired. The value
46
2001
2
of collateral held in connection with loans and advances is based on the estimated realisable value of the asset and is taken
into account when estimating the required provision.
The provision for possible credit losses is composed of estimated figures for the following:
– specific provision for credits that have objective evidence of impairment.
– general provision for the Bank’s total exposure to:
* credit concentration risk;
* collateral values;
* possible measures implemented to improve impaired customers’ financial position;
* general market or operating events that have or have yet to occur, prior/or subsequent to the balance sheet date, for which a specific credit risk provision is not yet quantifiable.
The estimate for the level of impairment is based on present value of expected future cash flows considering relevant factors including, but not limited to, the Bank’s past loan loss experience, known and inherent risks in the portfolio of loans
and advances, adverse situations that may affect the borrowers’ ability to repay, the fair value of any underlying collateral
and current economic conditions as well as other relevant factors affecting loan and advance collectability and realisable
collateral values. Ultimate losses may vary from the current estimates.
These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the period in which they become known. Due to an inherent lack of reliable information about the customers’ financial position, the
estimate of impairment is uncertain. Nevertheless, the Management of the Bank have made their best estimates of impairment and believe the estimates presented in these financial statements are reasonable in light of available information.
When loans and advances cannot be recovered, they are written-off and charged against provision for possible credit losses. They are not written-off until all the necessary legal procedures have been completed and the amount of the loss is finally determined.
j) Treasury Bills and Other Fixed Income Securities
As at 1 January 2001, the Group has classified its treasury bills and other fixed income securities into three categories:
held for trading, held to maturity and available for sale. The classification of investments between the categories is determined at acquisition based on the guidelines established by the Management. In 2000, investments in fixed income securities were carried either at cost adjusted for amortised discount/premium for securities held for investment purpose or at
their market value for securities held for trading purpose.
Held for trading
Fixed income securities are classified as held for trading, if they are either acquired for generating a profit from short–term
fluctuations in price or dealer’s margin, or are included in a portfolio in which a pattern of short–term profit taking exists.
Held for trading securities are initially recognised at cost and subsequently re-measured at fair value based on available
market prices. The result of re-measuring trading securities at fair value is included in the statement of income as profit/(loss) from trading and revaluation of securities.
Held to maturity
Fixed income securities are classified as held to maturity if the Group has both the positive intent and ability to hold these
investments to maturity. Held to maturity investments are carried at amortised cost using the effective interest rate method,
less any provision for impairment.
A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The amount of the
impairment loss for assets carried at amortised cost is calculated as the difference between the asset’s carrying amount
and the present value of expected future cash flows discounted at the financial instrument’s original effective interest rate.
Available for sale
Investments in fixed income securities intended to be held for an indefinite period of time, which may be sold in response
to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available for sale.
Available for sale financial assets are initially stated at cost and subsequently re-measured at fair value based on available
market prices or quotes of brokers. The result of revaluation of available for sale securities is recognised in equity as a fair
value revaluation reserve. When the securities are disposed of, the related accumulated fair value revaluation is included in
the statement of income as profit/(loss) from trading with securities. If there is objective evidence that the value of an investment has been impaired, the cumulative net loss that has been recognized directly in equity is charged to the statement of
Parekss Group
47
Annual report 2001
2
income and the asset is stated in the balance sheet at the recoverable amount calculated as discounted future cash flows
using current market interest rate for similar financial assets.
k)
Shares and Other Non-Fixed Income Securities
Investments in listed shares and privatisation certificates held for trading purposes are recorded at their market value.
Unrealised profits or losses arising as a result of stating listed shares and privatisation certificates held for trading purposes
at market value are respectively credited or charged to the statement of income as profit or loss from trading and revaluation of securities.
Investments in shares available for sale are initially stated at cost and subsequently re-measured at fair value based on available market prices and quotes of brokers. Where the fair value is not available, the investment in shares is stated in the balance sheet at cost less any provision for impairment determined on an individual investment basis.
l)
Investments in Affiliated Entities
Investments in affiliated entities, in which the Bank and its subsidiaries own directly and indirectly more than 20% but less
than 50% of the voting rights, are accounted for in the Bank’s and the Group’s financial statements under the equity method.
This method is appropriate as the Bank’s and its subsidiaries’ investment interests enable the Bank and its subsidiaries
to influence, but not ultimately control, the operating or financial decisions of these entities. Under this method, the Bank
and the Group include investments in affiliated entities as long–term assets valued at the original cost of the investment
adjusted for the Bank’s and its subsidiaries’ share of the post acquisition earnings or losses of the investment, adjusted
for dividend income received. The adjustment is recorded on a regular basis to the income statement in respect of the
changes occurring during the year.
The above method of accounting is also used in respect of the non-consolidated subsidiaries in the Group’s financial statements.
m) Intangible Assets
Intangible assets comprise goodwill from the acquisition of subsidiaries, as well as capitalised costs relating to leasehold
rights and other intangible assets. Goodwill from the acquisition of subsidiaries is amortised over the period of 5 years on
a straight–line basis. The leasehold rights are amortised over the remaining lease contract on a straight–line basis. Annual
amortisation rates applied on a straight–line basis to other intangible assets range from 20%– 50%.
n) Fixed Assets
Fixed assets are recorded at historical cost less accumulated depreciation. If the fair value of a fixed asset is lower than its
carrying amount, due to circumstances not considered to be temporary, the respective asset is written down to its fair value.
Depreciation is calculated using the straight–line method based on the estimated useful life of the asset. The following
depreciation rates have been applied:
Category
Annual depreciation rate
Buildings
Transport vehicles
Other fixed assets
2%
20%
20% – 33%
Leasehold improvements are capitalised and depreciated over the remaining lease contract period on a straight–line basis.
Assets under the course of construction are not depreciated.
Costs related to the purchase and development of computer software are regarded as fixed assets. These assets are initially measured and capitalised in the balance sheet at cost. Depreciation of the assets will be provided to write off the cost
related to computer software on a straight–line basis over a five–year period from the date of finalisation of installation.
Maintenance and repair costs are charged to the statement of income as incurred.
o) Sale and Repurchase Agreements
These agreements are accounted for as financing transactions. Under sale and repurchase agreements, where the Bank is
the transferor, assets transferred remain on the Bank’s balance sheet and are subject to the Bank’s usual accounting policies, with the purchase price received included as a liability owed to the transferee.
48
2001
2
Where the Bank is the transferee, the assets are not included in the Bank’s balance sheet, but the purchase price paid by
it to the transferor is included as an asset. Interest income or expense arising from outstanding sale and repurchase agreements is recognised in the statement of income over the term of the agreement.
p) Financial Instruments
Derivatives
In the normal course of business, the Bank and its subsidiaries engage as a party to contracts for forward foreign exchange
rate and currency swap instruments, as well as options and other financial instruments. For the accounting purposes, all
derivatives are classified as held for trading purposes and accounted for as follows.
Subsequent to initial recognition and measurement, outstanding forward foreign exchange rate contracts, currency swaps
and other financial instruments are carried in the balance sheet at their fair value. The fair value of these instruments is
recognised on balance sheet as “Other assets” or “Other liabilities”. The notional amounts of these financial instruments
are reported in off–balance sheet accounts.
Options are carried at the fair value based on available market prices and quotes of international brokerage firms. The fair
value of the options is recognised in the balance sheet as “Other assets” or “Other liabilities”. The notional amounts of
options are reported in off–balance sheet accounts.
Gains or losses from changes in the fair value of outstanding forward foreign exchange rate contracts, currency swaps,
options and other financial instruments are recognised in the statement of income as they arise.
Other Off–balance Sheet Commitments
In the ordinary course of business, the Bank and its subsidiaries are involved with off–balance sheet financial commitments
comprising of commitments to extend loans and advances, financial guarantees and commercial letters of credit. Such
financial commitments are recorded in the financial statements when the commitment is established. The methodology for
provisioning against possible losses arising from off–balance sheet commitments is consistent with that adopted for loans
and advances to customers as described in paragraph i) above.
q) Trust Activities
Funds managed by the Bank on behalf of individuals, corporate customers, trusts and other institutions are not regarded
as assets of the Bank and, therefore, are not separately included in the balance sheet. Funds under trust management are
presented in these financial statements only for disclosure purposes.
r)
Fair Values of Financial Assets and Liabilities
Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length basis.
Where, in the opinion of the Management, the fair values of financial assets and liabilities differ materially from their book
values, such fair values are separately disclosed in the notes to the financial statements.
s) Cash and Cash Equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents are defined as the amounts comprising cash and demand deposits with the Bank of Latvia and other credit institutions less demand deposits taken from
other credit institutions.
Parekss Group
49
Annual report 2001
3
SUMMARY OF FINANCIAL RISK MANAGEMENT POLICIES
In the ordinary course of business the Group is exposed to various financial risks. Those financial risks include mainly credit risk, market risk and liquidity risk. In order to manage the above risks, the Management of the Group have approved the
risk management policies which are briefly summarised below.
a) Credit risk
Credit risk relates to uncertainty in a counterparty’s ability or willingness to meet its contractual obligations, thus causing
financial loss for the entities within the Group. The Group manages the level of credit risk it undertakes by establishing limits on individual counterparty, or groups of counterparties with similar characteristics, as well as for geographical segments,
taking into consideration the time duration of such limits. The adequacy of limits is monitored by the Bank’s Risk
Management Committee on a regular basis. Daily monitoring of compliance with established limits is carried out by the
Bank’s Back Office Department. The Group’s exposure to credit risk is further reduced by obtaining adequate collaterals and
guarantees, as well as by exercising rigorous monitoring procedures of the financial viability of counterparties throughout
the contractual relationship.
The Group’s maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet. A detailed analysis of the Group’s credit exposures is presented in Note
33 (Capital Adequacy).
b) Market risk
Market risk is the financial risk of uncertainty in the future market value of a portfolio of assets and/or liabilities due to
changes in interest rates, foreign exchange rates and price of commodities or equity instruments. The Group is mainly
exposed to changes in interest rates and foreign exchange rates.
The Group’s exposure to interest rate risk is managed on a daily basis by the Bank’s Treasury Department and is monitored
on a regular basis by the Assets and Liabilities Management Committee. Tools used by the Treasury Department and the
Committee include gap analysis, duration analysis and sensitivity analysis. Based on such analyses, the Group’s cost of
funds and market situation, the Committee sets benchmark rates for lending to customers and accepting of deposits from
customers, as well as provides guidelines for the management of the Bank’s investment portfolio and use of derivative financial instruments. The interest rate repricing analysis of the Group’s assets and liabilities is presented in Note 35.
The Group’s exposure to foreign exchange rate fluctuations is also managed by the Bank’s Treasury Department and Assets
and Liabilities Management Committee. The Committee determines limits for open positions in individual currencies as well
as for total open positions. The Group’s exposure to foreign currency risk is presented in Note 36.
As deemed necessary, the Group’s exposure to market risks is further reduced by utilising derivative financial instruments.
c)
Liquidity risk
Liquidity risk relates to the ability of the Group to meet its financial obligations when they fall due without incurring substantial losses. The liquidity risk is managed by stringent monitoring and planning of the movements in the balances of
demand deposits with banks and cash on hand, and by allocation of a predetermined proportion of the Group’s assets in
highly liquid financial instruments and short–term deposits. Such proportion is determined based on the analysis of the
maturities of the Bank’s contractual obligations, including outstanding liabilities and commitments as well as based on the
potential calls for withdrawal of funds from current accounts, overnight deposits, loans and credit lines granted as well as
under guarantees issued by the Group. The Group’s assets and liabilities as well as memorandum items by their remaining
contractual maturities are presented in Note 34.
50
2001
INTEREST INCOME AND EXPENSE
2001
Group
LVL 000’s
4
Bank
2000
Group
Bank
Interest income
- interest on balances due from credit institutions
- interest on loans and advances to non-banking customers
2,487
24,460
2,534
22,722
4,670
19,568
4,656
19,015
- interest on treasury bills and other fixed
income securities
Total interest income
14,005
40,952
13,793
39,049
8,485
32,723
8,313
31,984
(3,384)
(15,956)
(19,340)
21,612
(3,019)
(15,622)
(18,641)
20,408
(2,175)
(13,316)
(15,491)
17,232
(2,034)
(13,250)
(15,284)
16,700
Interest expense
- interest on balances due to credit institutions
- interest on deposits from the public
Total interest expense
Net interest income
5
COMMISSION AND FEE INCOME AND EXPENSE
2001
Group
LVL 000’s
Bank
2000
Group
Bank
Commission and fee income
- payment transfer fee
- transactions with settlement cards
- service fee for account maintenance
- cash disbursement/transaction commission
- review of loan applications and collateral evaluation
- securities
- customs brokerage
- letters of credit and guarantees
- cash collection
Total commission and fee income
Commission and fee expense
6,474
5,009
1,357
941
933
553
540
521
86
16,414
6,326
4,905
1,268
868
831
553
521
86
15,358
5,344
2,808
2,474
1,361
603
205
381
80
13,256
5,310
2,805
2,402
1,315
602
205
381
63
13,083
- fees related to settlement card operations
(1,740)
(1,684)
(1,138)
(1,138)
- brokerage and custodian fees
- fees related to correspondent accounts
Total commission and fee expense
Net commission and fee income
(1,388)
(962)
(4,090)
12,324
(1,388)
(934)
(4,006)
11,352
(603)
(742)
(2,483)
10,773
(603)
(725)
(2,466)
10,617
Parekss Group
51
Annual report 2001
6
PROFIT ON SECURITIES TRADING AND FOREIGN EXCHANGE, NET
2001
LVL 000’s
Profit from currency exchange operations
(Loss) from revaluation of foreign currency positions
Profit
Profit
Profit
Profit
from foreign exchange, net
from trading and revaluation of securities
from trading with other financial instruments
on securities trading and foreign exchange, net
7
Bank
Group
Bank
5,424
(445)
5,045
(384)
3,541
(181)
3,420
(198)
4,979
4,840
377
10,196
4,661
4,749
377
9,787
3,360
3,649
330
7,339
3,222
3,651
329
7,202
OTHER OPERATING INCOME
2001
Group
695
96
59
416
1,266
LVL 000’s
Penalties received
Dividends received
Safety boxes rental income
Other income
Total other operating income
8
2000
Group
Bank
695
96
51
127
969
2000
Group
349
291
61
434
1,135
Bank
349
291
61
296
997
2000
Group
8,961
2,427
1,693
Bank
8,430
2,405
1,677
ADMINISTRATIVE EXPENSE
2001
Group
12,010
2,928
2,035
LVL 000’s
Personnel expense
Advertising, marketing and sponsorship
Repairs and maintenance
Bank
10,481
2,865
2,001
Travel and representation
Communications (telephone, telex, mail)
1,986
1,529
1,983
1,360
1,265
1,494
1,218
1,460
Rent for premises
Consulting and professional fees
Car maintenance
Taxes
1,099
1,092
642
429
768
922
617
102
933
972
519
70
806
923
503
65
299
141
254
42
268
45
251
38
818
25,008
439
21,834
248
18,895
159
17,935
Security
Insurance
Other administrative expense
Total administrative expense
52
2001
PERSONNEL EXPENSE
9
Personnel expense includes remuneration for work to the personnel and related social security contributions and other benefits costs. The President and the Deputy Chairman of the Board of Directors of the Bank have not received any remuneration in respect to their employment. The members of the Council do not receive remuneration in respect of their positions.
2001
LVL 000’s
Remuneration for work
Social security contributions
Total personnel expense
2000
Group
Bank
Group
Bank
9,749
2,261
12,010
8,567
1,914
10,481
7,264
1,697
8,961
6,864
1,566
8,430
Personnel expense has been presented in these financial statements within administrative expense.
During the year ended 31 December 2001, the average number of personnel employed by the Bank and the Group was
1,285 (2000: 1,060) and 1,574 (2000: 1,239), respectively.
PROVISION EXPENSE FOR POSSIBLE CREDIT LOSSES AND
RELEASE OF PREVIOUSLY ESTABLISHED PROVISION
10
An analysis of the change in provision for possible credit losses is presented as follows:
2001
Group
LVL 000’s
Specific provision at the beginning of the year
General provision at the beginning of the year
Total provision at the beginning of the year
Additional specific provision from acquisition of subsidiaries
Additional general provision from acquisition of subsidiaries
Total additional provision from acquisition of subsidiaries
Specific provision charged to statement of income
General provision charged to statement of income
Total provision expense for possible credit losses
Release of previously established specific provision
Release of previously established general provision
Total release of previously established provision
Provision charged to the statement of income, net
Reversal of specific provision due to write-offs
Increase/(decrease) in specific provision due to
currency fluctuations
Specific provision at the end of the year
General provision at the end of the year
Provision for possible credit losses at the end of the year
Parekss Group
53
Bank
2000
Group
Bank
10,338
2,340
12,678
9,732
2,293
12,025
13,751
2,286
16,037
13,751
2,286
16,037
-
-
620
47
667
-
5,280
223
5,503
4,965
215
5,180
5,408
184
5,592
5,105
184
5,289
(2,425)
(348)
(2,773)
(2,374)
(333)
(2,707)
(2,408)
(177)
(2,585)
(2,408)
(177)
(2,585)
2,730
2,473
3,007
2,704
(1,912)
(1,485)
(7,564)
(7,243)
167
11,448
2,215
13,663
165
11,003
2,175
13,178
531
10,338
2,340
12,678
527
9,732
2,293
12,025
Annual report 2001
10
PROVISION EXPENSE FOR POSSIBLE CREDIT LOSSES AND
RELEASE OF PREVIOUSLY ESTABLISHED PROVISION
During the year ended 31 December 2001, the Management of the Bank have revised the general credit loss provisioning rates
for the main groups of assets to reflect the changes in the overall risk structure in the Bank’s and the Group’s portfolio of the
respective assets. As a result, the following general provision rates have been adopted by the Management in respect of the
Bank’s and Group’s non-risk free assets as at 31 December 2001 and 2000:
31/12/2001
Due from credit institutions
31/12/2000
1.00%
1.00%
-
3.00%
1.00%
1.00%
The above general provision has not been applied to balances due from credit institutions registered in the OECD countries
and interbank balances secured by Latvian government fixed income securities. Furthermore, starting from the year 2001
no general provision has been applied to treasury bills and other fixed income securities.
The following table provides a specification of the provision for possible credit losses between the respective assets and
issued guarantees:
LVL 000’s
Accrued interest income
Other assets
Guarantees
11
31/12/2001.
31/12/2000.
Group
Bank
Group
Bank
Spec.
Gen.
Spec.
Gen.
Spec.
Gen. Spec. Gen.
prov. prov.
prov. prov.
prov.
prov. prov.
prov.
2,395
166 2,395
166 2,315
326 2,315
326
7,256 2,028 6,821 1,988 7,403 1,820 6,801 1,773
944
944
90
149
90
149
24
24
830
830
470
- 466
23
13
60
60
21
21
21
21
11,448 2,215 11,003 2,175 10,338 2,340 9,732 2,293
CORPORATE INCOME TAX
According to Latvian tax legislation relating to foreign investment, the Bank is eligible for a 50% tax holiday for five years
starting from 1 January 1997, and is accordingly subject to 12.5% income tax on taxable income up until the current reporting period.
Corporate income tax expense comprises the following items:
2001
Group
LVL 000’s
Provision for corporate income tax for the year
Increase in deferred corporate income tax
Prior year adjustment
Total corporate income tax expense
1,379
297
(105)
1,571
Bank
1,365
273
(105)
1,533
2000
Group
1,243
66
1,309
Bank
1,243
66
1,309
Increase in deferred corporate income tax mainly relates to excess of tax depreciation over accounting depreciation.
54
2001
CORPORATE INCOME TAX
11
The reconciliation of the Bank’s net profit for the year to the provision for corporate income tax for the year may be presented as follows:
2001
LVL 000’s
2000
Profit before corporate income tax
(Excess) of tax depreciation over accounting depreciation
Bank
13,285
(1,817)
Bank
11,334
(1,103)
Non-deductible expense and (non-taxable income), net
Taxable profit for the year
2,063
13,531
1,401
11,632
3,383
(653)
2,908
(422)
(1,365)
1,365
(1,243)
1,243
Corporate income tax (at standard rate)
Tax reducers (donations)
50% tax holiday
Provision for corporate income tax for the year
12
CASH AND DEPOSITS WITH THE BANK OF LATVIA
Cash and deposits with the Bank of Latvia include the following:
31/12/2001
Group
Bank
28,085
26,787
5,598
5,598
33,683
32,385
LVL 000’s
Cash
Deposits with the Bank of Latvia
Total cash and deposits with the Bank of Latvia
31/12/2000
Group
Bank
17,405
16,915
6,653
6,653
24,058
23,568
Deposits with the Bank of Latvia are due on demand and are non-interest bearing.
According to the resolution of the Council of the Bank of Latvia, credit institutions should comply with the compulsory reserve
requirement. This compulsory reserve must be exceeded by a credit institution’s average monthly LVL balance on its correspondent account with the Bank of Latvia plus average monthly cash in LVL. The average monthly cash in LVL may comprise
up to 40%.
As at 31 December 2001, the Bank was in compliance with these requirements of the Bank of Latvia.
Parekss Group
55
Annual report 2001
13
BALANCES DUE FROM CREDIT INSTITUTIONS
31/12/2001
Group
Bank
LVL 000’s
31/12/2000
Group
Bank
Due from credit institutions registered in OECD countries
Due from credit institutions registered in Latvia
42,263
19,411
41,648
19,411
87,849
8,234
87,203
8,234
Due from credit institutions registered in other countries
Total gross balances due from credit institutions
11,863
73,537
11,285
72,344
13,883
109,966
13,092
108,529
Less provision for possible credit losses (see Note 10)
Total net balances due from credit institutions
(2,561)
70,976
(2,561)
69,783
(2,641)
107,325
(2,641)
105,888
As at 31 December 2001, the Bank had established correspondent relationships with 35 (37) credit institutions registered
in the OECD countries, 6 (6) Latvian credit institutions and 50 (51) credit institutions incorporated in other non-OECD countries.
31/12/2001
LVL 000’s
31/12/2000
Group
29,190
13,184
42,374
Bank
25,878
15,070
40,948
due within 1 month
27,021
due within 1-3 months
due within 1-5 years
over 5 years and undated
Total term deposits
Total gross balances due from credit institutions
886
64
3,192
31,163
73,537
Total net balances due from credit institutions
(2,561)
70,976
Correspondent accounts
Overnight deposits
Total demand deposits
Term deposits with credit institutions:
Group
25,477
15,299
40,776
Bank
25,318
15,299
40,617
27,447
50,600
50,600
860
3,089
31,396
72,344
10,513
613
893
6,571
69,190
109,966
9,901
613
858
5,940
67,912
108,529
(2,561)
69,783
(2,641)
107,325
(2,641)
105,888
Term deposits, serving as cash collateral, have been classified as “over 5 years and undated”.
As at 31 December 2001, the Bank had inter-bank deposits with 2 Latvian credit institutions, 2 OECD region credit institutions and 3 credit institutions registered in other non-OECD countries. Corresponding balances comprised 58%, 72% and
55% of total balances due from credit institutions registered in Latvia, OECD and other non-OECD countries, respectively.
56
2001
LOANS AND ADVANCES TO NON-BANKING CUSTOMERS
14
Loans and advances to non-banking customers comprise the following:
31/12/2001
LVL 000’s
Regular loans
Loans under reverse repurchase agreements
Utilised credit lines
Total gross loans to non-banking customers
31/12/2000
Group
Bank
Group
Bank
131,185
124,396
102,891
98,621
5,036
4,815
-
-
55,757
55,757
33,873
33,873
191,978
184,968
136,764
132,494
Finance leases
67,636
62,467
80,525
72,760
Overdraft facilities
15,983
15,983
6,692
6,633
4,234
4,234
2,869
2,869
20,217
20,217
9,561
9,502
279,831
267,652
226,850
214,756
Debit balances on settlement cards
Total other loans and advances
Total gross loans and advances to non-banking customers
(9,284)
(8,809)
(9,223)
(8,574)
Total net loans and advances to non-banking customers
270,547
258,843
217,627
206,182
As at 31 December 2001, regular loans include balances due from investment and brokerage companies, which, by substance, represent the Bank’s funds placed with the above companies to secure trading with financial instruments. As at
31 December 2001 such loans amounted to LVL 2,214 thousand (2000: LVL 931 thousand).
As at 31 December 2001, included in loans and advances to non-banking customers is the Bank’s short–term money market deposit with Lehman Brothers in the amount of LVL 171 thousand (2000: LVL 612 thousand).
As at 31 December 2001, the outstanding balance of regular loans includes also LVL 1,307 thousand (2000: LVL 873 thousand) due from the Bank’s subsidiary acting as the Bank’s broker for trading investments in shares of various entities registered in CIS countries. As such, the balance due from the aforementioned subsidiary represents the Bank’s investments
in shares, however, in accordance with a specific FCMC request, it has been classified as a loan.
Loans and advances to non-banking customers include financing granted to small and medium size Latvian entities from the
funds provided by the World Bank specifically for this purpose (see Note 26).
As at 31 December 2001, the Bank has also issued student loans in the total amount of LVL 4,157 thousand
(2000: LVL 3,065 thousand). Student loans are issued under the initiative of the Ministry of Education of the Republic of
Latvia and the State Treasury. The State Treasury has arranged the necessary funding and fully assumes all risks and
rewards incident to these loans. Since the Bank only acts as an agent on behalf of the Ministry of Education and State
Treasury, the outstanding balances of the aforementioned loans and the corresponding deposits are not included in the
Bank’s balance sheet.
As at 31 December 2001, loans and advances totalling LVL 19,693 thousand (2000: LVL 25,080 thousand) or 7% (2000:
12%) of the total portfolio of net loans and advances to non-banking customers were classified as zero risk, as collateralised by deposits (see Notes 25 and 26).
The Latvian banking legislation requires that any credit exposure to a non-related entity may not exceed 25% of equity as
defined by FCMC (see Note 33) and the total credit exposure to all related parties, except for consolidated subsidiaries,
may not exceed 15% of equity as defined by the FCMC. As at 31 December 2001, the Bank was in compliance with the
above requirements.
Parekss Group
57
Annual report 2001
14
The table below provides the division of outstanding loans and advances to non-banking customers by maturity profile.
LVL 000’s
31/12/2001
Group
Bank
31/12/2000
Group
Bank
Overdue
Falling due within:
7,601
7,474
8,421
7,439
1 month
1 - 3 months
35,725
11,686
33,264
10,117
21,889
12,521
20,795
11,414
3 - 6 months
6 - 12 months
1 - 5 years
14,904
26,589
96,570
12,504
26,001
92,636
16,535
26,101
97,668
12,958
23,056
94,340
more than 5 years
Total gross loans and advances to
non-banking customers
86,756
85,656
43,715
44,754
279,831
267,652
226,850
214,756
(9,284)
270,547
(8,809)
258,843
(9,223)
217,627
(8,574)
206,182
Currently, the Bank’s information system does not provide an analysis of outstanding loans and advances to non-banking
customers by their remaining maturities considering the scheduled repayments during the period of loans. Due to extensive
effort required in preparation of such an analysis, the Management did not deem presentation of such analysis in these
financial statements practical. Accordingly, the above table has been prepared under the assumption that all principal falls
due at the final maturity date.
As at year end, the interest accrual profile of loans and advances to non-banking customers was as follows:
LVL 000’s
Accrual basis
Non-accrual basis
Total gross loans and advances to
non-banking customers
31/12/2001
Group
Bank
273,333
261,539
6,498
6,113
31/12/2000
Group
Bank
220,767
208,949
6,083
5,807
279,831
267,652
226,850
214,756
(9,284)
270,547
(8,809)
258,843
(9,223)
217,627
(8,574)
206,182
Loans and advances by customer profile may be specified as follows:
31/12/2001
Group
Bank
LVL 000’s
Government
Local municipalities
State owned enterprises
31/12/2000
Group
Bank
236
236
382
382
14,932
14,347
6,286
6,286
8,910
6,770
3,094
3,094
Municipalities enterprises
13,880
10,669
6,165
6,165
Privately held companies
193,148
190,980
169,768
159,536
Total gross loans and advances to corporate customers
231,106
223,002
185,695
175,463
37
37
124
124
1,295
1,295
1,051
1,051
Other private individuals
47,393
279,831
43,318
267,652
39,980
226,850
38,118
214,756
Less provision for possible credit loses (see Note 10)
(9,284)
270,547
(8,809)
258,843
(9,223)
217,627
(8,574)
206,182
Public and religious institutions
Personnel employed by the Bank
58
2001
14
An industry analysis of the gross portfolio of loans and advances to corporate customers before provision for possible
credit losses comprises of:
31/12/2001
LVL 000’s
31/12/2000
Group
Bank
Group
Bank
Transport and communications
56,682
50,951
35,942
28,255
Trade
Manufacturing
Hotels and restaurants
49,603
34,995
22,622
45,760
33,773
22,555
46,266
24,423
1,418
41,283
22,215
964
Financial intermediation
Electricity, gas and water supply
Construction
19,125
11,382
9,843
26,297
10,822
9,541
12,551
11,567
6,883
19,989
10,986
6,778
2,493
1,511
22,850
231,106
2,478
1,470
19,355
223,002
4,314
1,296
41,035
185,695
4,308
1,203
39,482
175,463
Fishing
Agriculture and forestry
Other industries
Total gross loans and advances to corporate customers
The following table represents the geographical profile of the portfolio of loans and advances to non-banking customers
analysed by the place of customers’ reported residence:
OECD region residents
Latvian residents
31/12/2001
Group
Bank
41,932
41,548
197,640
198,060
31/12/2000
Group
Bank
38,251
37,884
152,196
152,804
Non-OECD region residents
40,259
279,831
28,044
267,652
36,403
226,850
24,068
214,756
(9,284)
270,547
(8,809)
258,843
(9,223)
217,627
(8,574)
206,182
LVL 000’s
15
FINANCE LEASES BY TYPE OF ASSETS
31/12/2001
Group
Bank
LVL 000’s
31/12/2000
Group
Bank
Real estate
Transport vehicles
21,398
20,074
21,398
19,495
28,545
30,924
25,095
30,211
Manufacturing equipment
Equity shares
Other
Total gross finance leases
5,032
4,743
16,389
67,636
4,550
4,743
12,281
62,467
5,558
3,266
12,232
80,525
4,049
3,214
10,191
72,760
In the ordinary course of business, the Bank and its subsidiaries offer their customers the possibility to finance the acquisition of equity shares by means of finance lease agreements. As such, the Bank becomes the legal owner of those shares
during the period of lease. Even though the Bank is the legal owner of the entities which are being leased, the Management
believe that in substance the control over the respective entities is not transferred to the Bank, and therefore such entities
should not be considered as related entities to the Bank.
Parekss Group
59
Annual report 2001
16
UNEARNED INTEREST INCOME ON FINANCE LEASES
31/12/2001
Group
Bank
LVL 000’s
Short-term unearned income
Long-term unearned income
Total unearned interest income on finance leases
17
4,613
7,971
12,584
31/12/2000
Group
Bank
4,079
7,402
11,481
6,088
9,748
15,836
5,460
9,149
14,609
TREASURY BILLS AND OTHER FIXED INCOME SECURITIES
31/12/2001
Group
Bank
100
100
55,465
51,340
LVL 000’s
State Treasury bills
Government bonds
31/12/2000
Group
Bank
3,177
3,177
47,031
44,065
Municipality bonds
Credit institution bonds
Corporate bonds
Other financial institution bonds
Managed funds
Total gross treasury bills and other fixed income securities
1,112
66,682
77,492
38,749
10,450
250,050
1,112
72,830
74,491
38,749
10,440
249,062
1,311
30,478
30,794
29,994
16,859
159,644
1,311
30,478
30,794
29,994
16,859
156,678
Less provision for fixed income securities (see note 10)
Total net treasury bills and other fixed income securities
(944)
249,106
(944)
248,118
(239)
159,405
(239)
156,439
Managed funds represent the Group’s share in certain portfolios of fixed income securities that are managed on behalf of
investors by financial institutions registered in OECD countries. The Group does not possess detailed information on these
investments, therefore they are not classified by their ultimate issuer.
The Group’s investments in treasury bills and other fixed income securities are classified by listed and unlisted securities
as follows:
LVL 000’s
Latvian State Treasury bills
Government bonds:
Listed
100
31/12/2001
Unlisted
-
Total
100
Listed
3,177
31/12/2000
Unlisted
-
Total
3,177
Latvian government bonds
30,465
-
30,465
14,951
-
14,951
OECD government bonds
Non-OECD government bonds
(excluding Latvia)
Total government bonds
Municipality bonds:
14,744
-
14,744
14,442
-
14,442
10,256
55,465
-
10,256
55,465
16,456
45,849
1,182
1,182
17,638
47,031
OECD
Non-OECD (excluding Latvia)
1,099
13
1,112
1,221
90
-
1,221
90
Total municipality bonds
1,099
13
1,112
1,311
-
1,311
60
2001
17
31/12/2001
Unlisted
LVL 000’s
Listed
Total
Listed
31/12/2000
Unlisted
Total
Credit institution bonds:
Latvia
OECD
174
36,400
29,826
174
66,226
61
21,326
1,136
7,955
1,197
29,281
Non-OECD (excluding Latvia)
Total credit institution bonds
Corporate bonds (OECD
282
36,856
29,826
282
66,682
21,387
9,091
30,478
and non-OECD)
Other financial institution
bonds (OECD)
Managed funds
Total gross treasury bills
and other fixed
50,318
27,174
77,492
19,353
11,441
30,794
15,404
-
23,345
10,450
38,749
10,450
23,856
-
6,138
16,859
29,994
16,859
159,242
90,808
250,050
114,933
44,711
159,644
(930)
(14)
(944)
(227)
(12)
(239)
158,312
90,794
249,106
114,706
44,699
159,405
income securities
Less provision for fixed
income securities (see note 10)
Total net treasury bills
and other fixed
income securities
Treasury bills and other fixed income securities held by the Group as at 31 December 2001 are classified between held to
maturity, available for sale and held for trading portfolio as follows:
LVL 000’s
Government bonds
Municipality bonds
Corporate bonds
Other financial
institution bonds
Managed funds
Total fixed income
securities, gross
Held to
maturity
157
1,129
31/12/2001
Available
Held for
for sale
trading
100
54,026
1,282
1,112
66,612
70
70,139
6,224
Total
100
55,465
1,112
66,682
77,492
Held to
maturity
752
1,064
31/12/2000
Available
Held for
for sale
trading
3,177
46,279
1,221
90
30,478
28,098
1,632
Total
3,177
47,031
1,311
30,478
30,794
5,352
-
33,397
-
10,450
38,749
10,450
-
29,994
-
16,859
29,994
16,859
6,638
224,274
19,138
250,050
1,816
139,247
18,581
159,644
As at 31 December 2000, the classification of treasury bills and other fixed income securities by portfolio is based on the
classification adopted by the Group as at 1 January 2001. The available for sale treasury bills and other fixed income securities as at 31 December 2000 have been presented at their amortised cost.
Parekss Group
61
Annual report 2001
18
BY MATURITY PROFILE
The following table provides a maturity profile of the Group’s treasury bills and other fixed income securities as at 31
December 2001:
LVL’000
Government bonds
Municipality bonds
Corporate bonds
Other financial institution bonds
Managed funds
Total fixed income securities,
gross
19
Within
1 month
1-3
months
3-6
months
6-12
months
1-5
years
Total
portfolio
23,958
1,099
more
than
5 years
30,652
-
13
100
-
-
855
-
-
663
-
12,442
-
1,002
1,083
3,254
24,128
18,793
10,718
29,110
56,953
24,777
66,682
77,492
38,749
113
-
-
-
1,072
9,265
10,450
126
763
12,442
6,194
79,768
150,757
250,050
100
55,465
1,112
SHARES AND OTHER NON-FIXED INCOME SECURITIES
Latvian entities’ equity shares
Foreign entities’ equity shares
Latvian privatisation certificates
Managed funds
Total shares and other non-fixed income securities, gross
31/12/2001
Group
Bank
563
563
514
473
49
49
17,272
17,272
18,398
18,357
31/12/2000
Group
Bank
383
383
489
434
50
50
15,438
15,438
16,360
16,305
Less provision for possible losses (see note 10)
Total net shares and other non-fixed income securities
18,398
(24)
16,336
LVL 000’s
62
18,357
2001
(24)
16,281
SHARES AND OTHER NON-FIXED INCOME SECURITIES
19
The following table shows the division of the Group’s investments in shares and other non-fixed income securities held by
listed and unlisted securities:
31/12/2001
LVL 000’s
Equity shares:
in Latvian financial
institutions
in Latvian corporate entities
in OECD corporate entities
in other non-OECD
credit institutions
in other non-OECD
corporate entities
Managed funds
Total equity shares
Total gross shares and other
non-fixed income securities
Less provision for possible
losses (see Note 10)
Total net shares and other
non-fixed income securities
31/12/2000
Listed
Unlisted
Total
Listed
Unlisted
Total
273
29
25
265
300
25
538
329
238
46
25
120
291
25
358
337
6
-
6
-
-
-
135
443
-
44
17,272
17,906
49
179
17,272
18,349
49
109
393
-
43
15,438
15,917
50
152
15,438
16,310
50
443
17,955
18,398
393
15,967
16,360
-
-
-
(24)
-
(24)
443
17,955
18,398
369
15,967
16,336
Due to the fact that the Group does not possess a detailed enough specification of investments under managed funds,
which are managed on the behalf of investors by financial institutions registered in OECD area, such investments are not
classified by their ultimate issuer.
The following table provides the division between shares and other non-fixed income securities of the Group available for
sale and held for trading purposes:
LVL 000’s
Available
for sale
31/12/2001
Held for
trading
Total
31/12/2000
Available Held for
for sale
trading
Total
Equity shares:
in
in
in
in
Latvian financial institutions
Latvian corporate entities
OECD corporate entities
other non-OECD credit institutions
in other non-OECD corporate entities
Managed funds
Total equity shares
Total gross shares and non-fixed income
securities
Less provision for possible losses
(see Note 10)
Total net shares and non-fixed
income securities
Parekss Group
25
12
-
538
317
6
25
538
329
6
25
12
-
358
325
-
25
358
337
-
-
179
17,272
18,349
49
1
37
-
179
17,272
18,312
49
38
-
151
15,438
16,272
50
152
15,438
16,310
50
37
18,361
18,398
38
16,322
16,360
-
-
-
-
(24)
(24)
37
18,361
18,398
38
16,298
16,336
63
Annual report 2001
20
INVESTMENTS IN SUBSIDIARIES
The Bank’s investments in subsidiaries are accounted in the Bank’s stand-alone financial statements under the equity
method. Movements in the Bank’s investments in subsidiaries for the current reporting year may be specified as follows:
LVL 000’s
Balance as at 1 January
Acquisitions and investments
Disposals
Revaluation
Balance as at 31 December
2001
2000
Bank
3,045
Bank
193
2,073
(10)
(1,094)
4,014
3,580
(383)
(345)
3,045
In 2001, the Bank has established new subsidiaries – AS Parex Asset Management and IAS Parekss ieguldîjumu sabiedrîba, both incorporated in the Republic of Latvia. The Bank’s investment in these entities amounted to LVL 600 thousand and
LVL 150 thousand, respectively.
During the reporting year, the Bank has also increased its investment in BAS Parekss atklåtais pensiju fonds, thus increasing its share in the fund from 98% to 99.6%. The Bank also acquired the remaining shareholding in AB Parex Bankas and
paid in additional share capital, thus increasing its investment in AB Parex Bankas by LVL 974 thousand.
A proportional share of the subsidiaries’ losses for the year ended 31 December 2001, in the amount of LVL 1,094 thousand (2000: post acquisition losses of LVL 345 thousand), has been included in the statement of income as a loss from
revaluation of long-term investments.
As at 31 December 2001, the Bank held the following investments in subsidiaries:
Company
AB Parex Bankas
AS Parex Asset Management
BAS Parekss atklåtais
pensiju fonds
SIA Parekss Brokeru Sistéma
IAS Parekss ieguldîjumu
sabiedrîba
UAB Parex Lizingas
SIA Parekss Lîzings
Regalite Holdings Ltd.
M.B.M. Investments Ltd.
UAB Janusava
Total investments
in subsidiaries
Business profile
Banking
Finance
Share
capital in
LVL 000’s
4,960
600
The Bank’s
share %
100.0
100.0
% of total
voting
rights
100.0
100.0
Investment
value in
LVL 000’s
2,624
600
Pension fund
Custom brokerage
services
450
99.6
99.6
478
120
91.7
91.7
162
Finance
Leasing
Leasing
Finance
Finance
150
482
31
5
1
100.0
51.0
100.0
100.0
100.0
100.0
51.0
100.0
100.0
100.0
150
-
Leasing
2
51.0
51.0
4,014
As at 31 December 2001, the Bank owns directly 6% of the shares of UAB Parex Lizingas, a limited liability company registered in the Enterprise Register of the Republic of Lithuania. In addition, SIA Parekss Lîzings, a 100% subsidiary of a/s
Parekss banka, is an owner of 45% shareholding in the above entity. As such, a/s Parekss banka indirectly owns 51% of
UAB Parex Lizingas.
The financial statements of a/s Parekss banka and its subsidiaries AB Parex Bankas, BAS Parekss atklåtais pensiju fonds,
SIA Parekss Lîzings, SIA Parekss Brokeru Sistéma, IAS Parekss ieguldîjumu sabiedrîba, AS Parex Asset Management and
indirectly controlled entity UAB Parex Lizingas are consolidated in the Group’s financial statements on a line by line basis
by adding together like items of assets and liabilities as well as income and expenses.
The Bank’s Management consider other subsidiaries to be immaterial for the purposes of the Group’s financial statements
presentation, hence the consolidation of the financial statements of these subsidiaries was not performed. Non-consolidated subsidiaries are recorded in the Bank’s and the Group’s financial statements at zero value.
64
2001
INTANGIBLE ASSETS
21
31/12/2001
Group
Bank
LVL 000’s
31/12/2000
Group
Bank
Goodwill from acquisition of subsidiaries:
AB Parex Bankas
SIA Parekss Lîzings
Leasehold rights
Other intangible assets
Total net book value of intangible assets
451
490
451
490
589
613
589
613
941
146
234
1,321
941
146
26
1,113
1,202
227
148
1,577
1,202
227
1,429
Movements in the Group’s intangible assets for the year ended 31 December 2001 can be specified as follows:
LVL 000’s
Goodwill
from acquisition of
subsidiaries
Leasehold
rights
Other
intangible
assets
Total
intangible
assets
As at 1 January 2001
Additions
Accumulated amortisation
1,306
1,306
798
798
298
197
495
2,402
197
2,599
Charge for the year
Net book value
104
261
365
571
81
652
150
111
261
825
453
1,278
1,202
941
227
146
148
234
1,577
1,321
Historical cost
22
FIXED ASSETS
31/12/2001
LVL 000’s
31/12/2000
Group
718
Bank
718
Group
576
Bank
576
Buildings
Transport vehicles
Other fixed assets
Total fixed assets excluding prepayments
9,373
1,219
8,491
19,801
6,782
1,168
7,307
15,975
6,785
1,147
5,428
13,936
5,507
1,069
4,873
12,025
Prepayments for fixed assets
Total net book value of fixed assets
531
20,332
531
16,506
514
14,450
501
12,526
Leasehold improvements
Parekss Group
65
Annual report 2001
FIXED ASSETS
22
The following changes in the Group’s fixed assets excluding prepayments for fixed assets took place during the year ended
31 December 2001:
LVL 000’s
Leasehold
improvements
Buildings
Transport
vehicles
Other
fixed
assets
Total fixed
assets
excluding
prepayments
Additions
1,252
653
7,589
2,422
2,580
591
11,640
5,749
23,061
9,415
Transfers
Disposals
Accumulated depreciation
(330)
(536)
1,039
330
10,341
(149)
3,022
(223)
17,166
(908)
31,568
Charge for the year
Reversal due to disposals
Net book value
676
159
(514)
321
804
164
968
1,433
460
(90)
1,803
6,212
2,675
(212)
8,675
9,125
3,458
(816)
11,767
576
718
6,785
9,373
1,147
1,219
5,428
8,491
13,936
19,801
Historical cost
23
PREPAYMENTS AND ACCRUED INCOME
Accrued interest income
Prepayments
Total gross prepayments and accrued income
31/12/2001
Group
Bank
3,792
3,721
1,623
1,540
5,415
5,261
31/12/2000
Group
Bank
6,507
6,350
1,012
956
7,519
7,306
Total prepayments and accrued income
(830)
4,585
(470)
7,049
LVL 000’s
(830)
4,431
(466)
6,840
As at 31 December 2001, prepayments include reconstruction and renovation expenses for the amount of LVL 838 thousand.
As at 31 December 2000, the Group’s and the Bank’s accrued interest income included interest income on fixed income
securities in the amount of LVL 2,468. Due to adoption of IAS 39, as at 31 December 2001 accrued interest income on
fixed income securities is presented under Treasury bills and other fixed income securities.
66
2001
OTHER ASSETS
24
LVL 000’s
31/12/2001
Group
Bank
31/12/2000
Group
Bank
Unrealised gain on outstanding financial derivatives
Money in transit
Repossessed fixed assets for sale
1,146
1,156
570
1,146
754
249
65
852
522
65
845
230
Prepaid corporate income tax
Other
Total gross other assets
286
1,636
4,794
281
1,024
3,454
1,412
2,851
746
1,886
Total net other assets
(23)
4,771
(13)
3,441
(60)
2,791
(60)
1,826
BALANCES DUE TO CREDIT INSTITUTIONS AND
THE BANK OF LATVIA
31/12/2001
Group
Bank
26,214
26,214
LVL 000’s
Due to credit institutions registered in OECD countries
Due to credit institutions registered in Latvia
Due to credit institutions registered in other
non-OECD countries
Total balances due to credit institutions
and the Bank of Latvia
25
31/12/2000
Group
Bank
21,142
15,012
16,505
16,505
3,434
3,434
14,443
16,321
21,374
19,996
57,162
59,040
45,950
38,442
The following table presents the Group’s balances due to credit institutions according to maturity profile:
LVL 000’s
Total balances repayable on demand
Loans from credit institutions:
due within 1 month
Total loans from credit institutions
Total due to credit institutions
Due to credit institutions
registered in:
OECD
Latvia
Other
Total
Total
countries
countries 31/12/2001 31/12/2000
39
6,000
7,551
13,590
12,679
6,545
-
10,331
-
2,756
387
19,632
387
6,081
1,256
19,630
26,175
26,214
46
128
10,505
16,505
777
2,908
64
6,892
14,443
20,453
2,908
192
43,572
57,162
16,565
9,276
93
33,271
45,950
As at 31 December 2001, 3 (3) credit institutions registered in the OECD countries, 12 (12) Latvian credit institutions and
78 (131) credit institutions incorporated in other non-OECD countries had established correspondent (vostro) relationships
with the Bank. During the year, the Bank has revised its correspondent relationships and terminated a number of low activity accounts with banks registered in non-OECD countries.
On 3 May 2001, the Bank prolonged the syndicated loan from OECD countries’ banks maturing on 2 May 2002 and bearing an interest rate of 3 month LIBOR plus a margin of 1.10% per annum. The outstanding balance of the syndicated loan,
amounting to EUR 35,000 thousand (LVL 19,630 thousand (2000: LVL 14,099 thousand)), comprises 75% of the total balances due to credit institutions registered in OECD countries as at 31 December 2001.
As at 31 December 2001, the Bank had outstanding balances due to 2 credit institutions registered in Latvia and 4 credit
institutions registered in other non-OECD countries. The respective deposits comprised 52% and 59% of the total balances
due to credit institutions registered in Latvia and in other non-OECD countries.
As at 31 December 2001, the Bank held restricted balances due to credit institutions amounting to LVL 8,060 thousand (2000:
LVL 11,064 thousand) that are dependent upon the repayment of outstanding balances due from non-banking customers
Parekss Group
67
Annual report 2001
26
DEPOSITS FROM THE PUBLIC
LVL 000’s
31/12/2001
Group
Bank
31/12/2000
Group
Bank
Demand deposits
Term deposits:
426,920
420,048
319,393
316,069
due within 1 month
46,588
24,650
43,980
22,145
68,852
20,445
68,355
19,759
25,860
13,268
24,422
11,822
18,332
10,322
17,808
10,086
8,402
3,319
122,087
549,007
7,865
3,183
113,417
533,465
7,702
2,632
128,285
447,678
7,452
2,584
126,044
442,113
due in more than 5 years
Total term deposits
Total deposits from the public
The following table presents deposits from the public according to customer profile:
31/12/2001
Group
Bank
5,237
5,237
LVL 000’s
Government
Municipalities
Financial institutions
State owned enterprises
Public and religious institutions
Privately held companies
Private individuals
Bank’s employees
31/12/2000
Group
Bank
1,925
1,924
7,242
8,012
16,391
7,242
8,012
16,031
6,057
13,475
16,353
6,057
13,475
16,353
1,956
385,360
99,055
25,754
549,007
1,813
378,911
90,465
25,754
533,465
952
326,993
59,983
21,940
447,678
855
323,040
58,469
21,940
442,113
Deposits from financial institutions include funds received from the World Bank for the purpose of issuing loans to small
and medium size entities registered in Latvia. As at 31 December 2001, the total outstanding balance of such deposits
amounted to LVL 3,513 thousand (2000: LVL 4,947 thousand).
The following table provides the split of deposits from the public by their place of residence.
31/12/2001
Group
Bank
155,176
156,277
393,831
377,188
549,007
533,465
LVL 000’s
Latvian residents
Non-residents
31/12/2000
Group
Bank
113,765
113,856
333,913
328,257
447,678
442,113
As at 31 December 2001, the Bank held restricted deposits amounting to LVL 12,126 (2000: LVL 15,251 thousand) that
are dependent upon repayment of outstanding balances due from non-banking customers.
68
2001
PROVISION FOR LIABILITIES AND CHARGES
LVL 000’s
31/12/2001
Group
Bank
Provision for employee vacation pay
Provision for deferred corporate income tax
General provision for guarantees
Total provision for liabilities and charges
512
547
21
1,080
27
31/12/2000
Group
Bank
436
439
21
896
474
239
21
734
424
166
21
611
28
OTHER LIABILITIES
Money in transit
31/12/2001
Group
Bank
1,477
99
31/12/2000
Group
Bank
2,010
264
Suspense liabilities
Unrealised loss on outstanding financial derivatives
Other liabilities
Total other liabilities
1,345
756
2,665
6,243
1,181
165
1,512
4,868
LVL 000’s
1,341
754
1,418
3,612
1,134
165
371
1,934
Suspense liabilities comprise funds received by the Group and the Bank as at 31 December 2001, but not transferred to
ultimate beneficiaries due to unclear or incomplete details of the supporting documentation.
29
PAID–IN SHARE CAPITAL
As at 31 December 2001, the Bank’s registered and paid-in share capital was LVL 30,000 thousand. In accordance with
the Bank’s statutes, the share capital consists of 9,000 thousand ordinary shares with voting rights and 21,000 thousand
ordinary shares without voting rights. All shares have a par value of LVL 1 each and they were issued and fully paid-in as at
31 December 2001.
As at 31 December 2001, the Bank had 3 shareholders. The respective shareholdings may be specified as follows:
Paid-in
share
capital in
LVL 000’s
31/12/2001
% of total
paid-in
capital
% of total
voting
rights
Paid-in
share
capital in
LVL 000’s
31/12/2000
% of total
paid-in
capital
% of total
voting
rights
Europe Holding Ltd.,
the Isle of Man
Valery Kargin
15,280
7,360
50.94
24.53
50.00
15,280
7,360
50.94
24.53
50.00
Viktor Krasovitsky
Total
7,360
30,000
24.53
100.00
50.00
100.00
7,360
30,000
24.53
100.00
50.00
100.00
As at 31 December 2001, the Bank did not possess any of its own shares.
Parekss Group
69
Annual report 2001
30
MEMORANDUM ITEMS
Memorandum items comprise contingent liabilities, financial commitments and foreign exchange contracts and other financial instruments. The following table provides a specification of contingent liabilities and financial commitments outstanding as at 31 December 2001 and 2000.
31/12/2001
Group
Bank
LVL 000’s
31/12/2000
Group
Bank
Outstanding guarantees
Outstanding letters of credit
Less provision for guarantees (see Notes 10 and 27)
Total contingent liabilities
4,735
3,585
(21)
8,299
30,189
4,708
3,585
(21)
8,272
30,957
7,476
2,346
(21)
9,801
20,467
7,195
2,346
(21)
9,520
21,662
As at 31 December 2001, the Group’s financial commitments comprise of unutilised credit lines in the amount of LVL
20,270 thousand, credit card commitments – LVL 5,213 thousand and loans granted not fully drawn down – LVL 4,706
thousand.
The following table presents the notional amounts and fair values of foreign exchange contracts and other financial instruments. The notional amounts of foreign exchange contracts represent the amounts payable under these contracts. The
notional amounts of other financial instruments represent the value of the underlying assets.
LVL 000’s
Notional amount
31/12/2001
31/12/2000
Group
Bank
Group
Bank
Fair value
31/12/2001
31/12/2000
Group
Bank
Group Bank
Spot exchange
Forwards
Swaps
Total foreign exchange contracts
Written options
Purchased options
Credit derivatives
Other instruments
Total other financial instruments
105,746 106,572
36,004 45,633
57,045 57,043
198,795 209,248
83
1,683
2,147
3,913
83
1,683
2,147
3,913
17,545
8,506
14,861
40,912
17,511
10,687
18,929
47,127
22
217
144
383
22
219
144
385
(19)
(2)
(19)
(40)
(19)
(2)
(19)
(40)
8,582
80
6,092
14,754
8,582
80
6,092
14,754
7
7
7
7
(60)
(60)
(60)
(60)
The fair value of foreign exchange contracts has been recorded in the Bank’s and the Group’s balance sheet under other
assets in the amount of LVL 1,139 thousand (2000: LVL 65 thousand), and under other liabilities in the amount of LVL 756
thousand (2000: LVL 105 thousand) and LVL 754 thousand (2000: LVL 105 thousand), respectively. The fair value of other
financial instruments has been recorded in the balance sheet under other assets in the amount of LVL 7 thousand (2000:
LVL 0) and other liabilities in the amount of LVL 0 (2000: LVL 60 thousand).
70
2001
MEMORANDUM ITEMS
30
The following table represents the geographical profile of the Group’s memorandum items based on the customer’s/counterparty’s reported residence:
LVL 000’s
OECD
countries
Latvia
Other
non-OECD
countries
Total
464
1,019
1,483
6,029
3,487
1,432
4,919
23,357
763
1,134
1,897
803
4,714
3,585
8,299
30,189
62,333
26,887
34,884
124,104
23,367
2,868
10,498
36,733
20,046
6,249
11,663
37,958
105,746
36,004
57,045
198,795
-
-
83
83
1,683
1,082
2,765
-
1,065
1,148
1,683
2,147
3,913
Outstanding guarantees, net
Total contingent liabilities
Spot exchange
Forwards
Swaps
Total foreign exchange contracts
Purchased options
Credit derivatives
Other instruments
Total other financial instruments
31
FUNDS UNDER TRUST MANAGEMENT
Under IFRS, funds managed by a trustee on behalf of individuals, trusts and other institutions are not regarded as assets
of the trustee and, therefore, are not included in its balance sheet.
The table below provides analysis of the funds managed on behalf of customers by investment type:
31/12/2001
Group
Bank
31/12/2000
Group
Bank
1,497
220
1,497
220
1,186
232
1,186
232
188
312
649
188
312
649
10
1,230
10
1,230
other fixed income securities
Other investments
2,866
2,866
2,658
2,658
- Loans to non-banking entities
- Latvian equity shares
- Foreign credit institution shares
- Foreign equity shares
Total other investments
Total assets under trust management agreements
229
32
58
1,416
1,735
4,601
229
32
58
1,416
1,735
4,601
227
10
37
915
1,189
3,847
227
10
37
915
1,189
3,847
LVL 000’s
- Government bonds
- Foreign municipality bonds
- Credit institution bonds
- Corporate bonds
- Managed funds
Total investments in treasury bills and
Parekss Group
71
Annual report 2001
32
CASH AND CASH EQUIVALENTS
The table below provides a breakdown of cash and cash equivalents as at 31 December 2001 and 2000:
31/12/2001
Group
Bank
LVL 000’s
Cash and demand deposits with the Bank of Latvia
Demand deposits with other credit institutions
Demand deposits taken from other credit institutions
Total cash and cash equivalents
33
33,683
42,374
(13,590)
62,467
32,385
40,948
(12,917)
60,416
31/12/2000
Group
Bank
24,058
40,776
(12,689)
52,145
23,568
40,617
(13,330)
50,855
CAPITAL ADEQUACY
Capital adequacy refers to the sufficiency of the Group’s capital resources to cover the credit risks and market risks arising
from the portfolio of assets and the off-balance sheet exposures.
The Financial and Capital Market Commission, the bank regulator, requires Latvian banks to maintain a capital adequacy
ratio based on financial statements prepared under Latvian accounting standards of 10% of risk weighted assets. The
FCMC’s requirements are principally consistent with the internationally recognised Basle Committee guidelines for the calculation of equity to be utilised in the capital adequacy ratio. The minimum capital adequacy ratio recommended by the 1988
Basle Committee guidelines is 8%.
Since the Bank has subsidiaries, which are financial institutions, it should comply with the regulatory requirements based
on both the Group’s financial statements and the Bank’s financial statements as a stand–alone entity. As at 31 December
2001, the Group’s capital adequacy ratio based on Basle Committee guidelines was 12.5% (2000: 12.6%), while, in accordance with the FCMC’s requirements, the Group’s capital adequacy ratio was 12.4% (2000: 12.2%). At the same time, the
Bank’s capital adequacy ratio based on IFRS financial statements and without taking into account the Bank’s investments
in subsidiaries and calculated in accordance with the Basle Committee guidelines was 12.9% (2000: 13.4%), and, when
calculated in accordance with the FCMC’s requirements, the Bank’s capital adequacy ratio was 13.0% (2000: 13.0%).
The following tables show the capital adequacy ratio calculations of the Group.
72
2001
CAPITAL ADEQUACY
33
The following tables show the capital adequacy ratio calculations of the Group.
The Group’s equity to be utilised in the capital adequacy ratio as at 31 December 2001 has been calculated as follows:
LVL 000’s
Amounts
Description
Tier 1
Total
per tier
- paid-in share capital
30,000
- share premium
- legal and other reserves
- general banking risk reserve (appropriated from retained earnings)
-
- audited retained earnings (not subject to dividend distribution)
- audited profit for the year (not subject to dividend distribution)
Less
16,664
11,704
- total amount of preference shares
-
- accumulated deficit
- own shares held
- intangible assets (as defined by the FCMC)
- minority interest
- loss for the year
Total Tier 1
(1,321)
358
57,405
Tier 2
- subordinated capital (restricted to 50% of Tier 1)
- fixed asset revaluation reserve (restricted to 70% of total increase in
fixed assets value which has been certified by at least 2 independent valuers)
- revaluation reserve for long-term investments in securities
(restricted to 55% of total increase in long-term investments)
Total Tier 2
Less investments in financial institutions, not subject to consolidated supervision
Equity to be utilised in the Group’s capital adequacy ratio per the FCMC
Additional Tier 1
- intangible assets (except goodwill)
Additional Tier 2
- general provision for possible credit losses (restricted to 1.25% of risk weighted assets)
Equity to be utilised in the Group’s capital adequacy ratio per the Basle Committee guidelines
Furthermore, the total of Tier 2 may not exceed the total of Tier 1.
Parekss Group
73
Annual report 2001
57,405
380
2,215
60,000
33
CAPITAL ADEQUACY
The following table shows assets and memorandum items credit risk weightings, as well as a calculation of other capital
charges, used in the calculation of the Group’s capital adequacy ratio according to the FCMC’s requirements:
Group’s capital adequacy under the FCMC’s requirements
Balance in
LVL 000’s
Risk
weighting
Risk
weighted
balance in
LVL 000’s
Balances due from Latvian credit institutions secured by Latvian
33,683
0%
-
government securities
Loans and advances secured by Latvian government securities or guarantees
Loans and advances to non-banking customers secured by deposits
6,241
5,051
19,693
0%
0%
0%
-
Latvian government securities
Bonds guaranteed by OECD governments
30,565
13,462
33,102
0%
0%
0%
-
Accrued interest income at 0% risk weighting
Demand deposits due from credit institutions within Latvia
Balances due from credit institutions within OECD countries
Fixed income securities of OECD credit institutions
173
12,258
42,263
38,952
0%
20%
20%
20%
2,452
8,453
7,790
Fixed income securities of supranationals
Other balances due from credit institutions within Latvia
Loans and advances to local municipalities in Latvia
Loans and advances to non-banking customers secured
by residential property
Fixed income securities of Latvian credit institutions
Prepayments
Balances due from non-OECD countries’ credit institutions, except Latvia
Other loans and advances to non-banking customers
Other fixed income securities
Fixed income securities held for trading purposes
Shares and other non-fixed income securities available for sale
Shares and other non-fixed income securities held for trading purposes
Intangible assets
Fixed assets
Other assets
Total assets
4,484
912
14,310
20%
50%
50%
897
456
7,155
22,567
174
1,623
300
9,302
208,926
103,080
25,287
37
18,361
1,321
20,332
4,771
2,489
673,719
50%
50%
50%
50%
100%
100%
100%
*
100%
*
**
100%
100%
100%
11,284
87
812
150
9,302
208,926
103,080
37
20,332
4,771
2,489
388,473
Assets
*
Capital charge for fixed income securities and shares included in the trading portfolio have been calculated under fixed income
securities and equity position risk capital charge.
** Deducted from equity.
74
2001
CAPITAL ADEQUACY
Group’s capital adequacy under
the FCMC’s requirements, continued
33
Credit
equivalent
Balance in
LVL 000’s
Risk
weighting
Risk
weighted
balance in
LVL 000’s
388,473
100%
100%
100%
1,108
182
3,424
0%
50%
100%
91
3,424
50%
2,543
0%
-
50%
1,042
100%
521
0%
50%
5,213
2,096
0%
-
50%
50%
668
22,212
50%
100%
167
11,106
128,410
-
-
0%
1%
1%
1%
1.5%
643
10,799
10,681
36,479
11,783
0%
20%
50%
100%
100%
22
53
365
177
0.5%
100%
83
1,683
100%
100%
1
1,683
406,083
406,083
10,013
10%
10%
40,608
1,001
25,287
25,287
0%-10%
0%-6%
1,015
686
18,361
18,361
5%-10%
10%
949
1,836
Total risk weighted assets
Memorandum items
zero risk weighted
50% risk weighted
100% risk weighted
zero risk weighted
100% risk weighted
Revocable commitments
zero risk weighted
50% risk weighted
100% risk weighted
Contracts with original maturity less than 14 days
Contracts with original maturity less than 1 year:
zero risk weighted
20% risk weighted
50% risk weighted
100% risk weighted (OECD and Latvian counterparties)
100% risk weighted (other non-OECD counterparties)
Interest rate related contracts
Non-OECD counterparties
Credit derivatives
Total risk weighted assets and memorandum items
Total credit risk’s capital charge
Foreign currency open positions subject to capital charge
Fixed income securities position risk’s capital charge
Specific charge
General charge
Equity position risk’s capital charge
Specific charge
General charge
Other capital charges
Total capital charges
Equity to be utilised in the capital adequacy ratio
Group’s Capital Adequacy Ratio
69
46,164
57,405
((Equity/Total capital charges) x 10%)
Parekss Group
12.4%
75
Annual report 2001
33
CAPITAL ADEQUACY
For the purpose of these financial statements, the Group’s capital adequacy ratio in accordance with the guidelines set
forth by the Basle Committee is calculated utilising the following weights:
0%
Cash
Deposits with the Bank of Latvia
Investments in Latvian government securities
Loans, advances and related commitments secured by deposits or Latvian government
guarantees or securities
Balances due from OECD central governments and central banks
20%
Balances due from banks incorporated in OECD countries
Balances due from OECD countries’ municipalities
50%
Loans, advances and related commitments and guarantees to
non-banking customers secured by residential property
100%
Balances due from banks incorporated in the non-OECD countries
Investments in non-OECD countries’ government securities
Other loans, advances and related commitments to corporate customers and private individuals
Accrued income, prepayments and other short and long-term assets
(Accrued interest income weightings are based on the assets they relate to)
Other non-zero risk guarantees and letters of credit
76
2001
CAPITAL ADEQUACY
33
Based on the guidelines set forth by the Basle Committee, the Group’s capital adequacy has been calculated as follows:
Group’s capital adequacy under the Basle’s guidelines
Balance in
LVL 000’s
Risk
weighting
Risk
weighted
balance in
LVL 000’s
Balances due from Latvian credit institutions secured
by Latvian government securities
33,683
0%
-
6,241
0%
-
Loans and advances secured by Latvian government securities or guarantees
Loans and advances to non-banking customers secured by deposits
Latvian government securities
5,051
19,693
30,565
0%
0%
0%
-
Bonds guaranteed by OECD governments
Balances due from credit institutions within OECD countries
13,462
33,102
173
42,263
0%
0%
0%
20%
8,453
Fixed income securities of OECD credit institutions
Fixed income securities of supranationals
38,952
4,484
20%
20%
7,790
897
22,567
289
13,170
9,302
14,310
208,926
174
103,080
25,287
37
18,361
941
380
20,332
1,623
4,771
2,500
673,719
50%
50%
100%
100%
100%
100%
100%
100%
*
100%
*
**
100%
100%
100%
100%
100%
11,284
145
13,170
9,302
14,310
208,926
174
103,080
37
380
20,332
1,623
4,771
2,500
407,174
Assets
Loans and advances to non-banking customers secured by
residential property
Balances due from credit institutions within Latvia
Balances due from non-OECD countries’ credit institutions, except Latvia
Loans and advances to local municipalities in Latvia
Other loans and advances to non-banking customers
Fixed income securities of Latvian credit institutions
Other fixed income securities
Fixed income securities held for trading purposes
Shares and other non-fixed income securities available for sale
Shares and other non-fixed income securities held for trading purpose
Goodwill
Other intangible assets
Fixed assets
Prepayments
Other assets
Total assets
*
Capital charge for fixed income securities and shares included in the trading portfolio have been calculated under fixed income
securities and equity position risk capital charge.
** Deducted from equity.
Parekss Group
77
Annual report 2001
33
CAPITAL ADEQUACY
Group’s capital adequacy under the
Basle’s guidelines, continued
Credit
equivalent
Balance in
LVL 000’s
Risk
weighting
Risk
weighted
balance in
LVL 000’s
407,174
100%
100%
1,108
182
0%
50%
91
100%
3,424
100%
3,424
50%
50%
2,543
1,042
0%
100%
521
Total risk weighted assets
Memorandum items
zero risk weighted
50% risk weighted
100% risk weighted
zero risk weighted
100% risk weighted
Revocable commitments
zero risk weighted
50% risk weighted
100% risk weighted
Contracts with original maturity less than 14 days
Contracts with original maturity less than 1 year:
zero risk weighted
20% risk weighted
100% risk weighted
Interest rate related contracts
Non-OECD counterparties
Credit derivatives
Total risk weighted assets and memorandum items
Total credit risk’s capital charge
Foreign currency open positions subject to capital charge
Fixed income securities position risk’s capital charge
Specific charge
General charge
Equity position risk’s capital charge
Specific charge
General charge
Other capital charges
Total capital charges
0%
5,213
-
-
50%
50%
50%
2,096
668
22,212
0%
50%
100%
167
11,106
128,410
-
-
0%
1%
1%
643
10,799
58,943
0%
20%
100%
22
589
0.5%
100%
83
1,683
100%
100%
1
1,683
424,778
424,778
11,153
8%
8%
33,982
892
25,287
25,287
0%-8%
0%-5%
812
549
18,361
18,361
-
4%-8%
8%
-
759
1,469
55
38,518
Equity to be utilised in the capital adequacy ratio
Group’s Capital Adequacy Ratio
60,000
((Equity/Total capital charges) x 8%)
12.5%
78
2001
ASSETS, LIABILITIES AND MEMORANDUM ITEMS
BY MATURITY STRUCTURE
34
The relationship between the maturity of assets and liabilities as well as memorandum items is indicative of liquidity risk
and the extent to which it may be necessary to raise funds to meet outstanding obligations. The table below allocates the
Group’s assets, liabilities and memorandum items to maturity groupings based on the time remaining from the balance
sheet date to the contractual maturity dates.
LVL 000’s
Within 1
month
1-3
month
33,683
-
66,834
38,528 11,590
126
763
6,427
-
3-6
month
6-12
month
1-5
years
Over 5
years
and
undated
Total
-
-
-
-
33,683
Assets
Intangible assets
Fixed assets
Other assets
Total assets
Liabilities
Balances due to credit institutions and
the Bank of Latvia
Other liabilities
Minority interest
Memorandum items
Spot exchange
Forwards
Swaps
Purchased options
Credit derivatives
Other instruments
Total financial instruments
-
-
886
64
14,819 26,154
12,442
6,194
-
3,192 70,976
94,846 84,610 270,547
79,768 149,813 249,106
- 11,971 18,398
-
-
1,321
1,321
2,389
107
2,608
428
150,595 12,888
- 20,332 20,332
19
4
782
1,284
4,585
77
1,161
150
347
4,771
28,243 33,577 175,546 272,870 673,719
33,222
387
473,508 24,650
1,374
230
5,522
135
513,626 25,402
20,453
2,908
25,860 13,268
12
77
75
229
46,400 16,482
3,478
30,189
192
8,402
46
185
8,825
- 57,162
3,319 549,007
1,739
1,080
1,080
97
6,243
58,130 58,130
358
358
62,984 673,719
1,424
-
714
-
1,024
-
361
-
105,746
-
-
-
-
- 105,746
18,076
42,128
44
9,716
- 17,884
4,601
600
-
-
36,004
57,045
-
-
-
83
2,147
165,950 11,907
83
-
4,601 18,567
-
1,683
1,683
1,298
-
8,299
30,189
1,683
2,147
- 202,708
Currently, the Bank’s information system does not provide an analysis of outstanding loans and advances to non-banking customers by their remaining maturities considering the scheduled repayments during the period of loans. Due to extensive effort
required in preparation of such an analysis, presentation of such analysis in these financial statements was not deemed practical by the Management. Accordingly, the above table has been prepared under the assumption that all principal falls due at
the final maturity date.
Parekss Group
79
Annual report 2001
35
REPRICING MATURITY OF ASSETS AND LIABILITIES
Interest rate risk is the sensitivity of the financial position of the Bank and its subsidiaries to the change in market interest
rates. In the normal course of business, the Bank and its subsidiaries encounter interest rate risk as a result of differences
within maturities or interest re–fixing dates of respective interest sensitive assets and liabilities. The interest rate risk is
managed through the activities of the Bank’s Treasury department. The table below allocates the Group’s assets and liabilities to maturity groupings based on the time remaining from the balance sheet date to the closest interest re–fixing date.
LVL 000’s
Within 1
month
1-3
month
3-6
month
6-12
month
1-5
years
More
than 5
years
Noninterest
bearing
Total
12
68,484
-
524
-
-
-
33,671
1,968
33,683
70,976
47,188
31,614 20,421 23,813
72,471
69,218
5,822 270,547
11,341
14,638 10,800
71,859 138,474
- 249,106
Assets
Cash and deposits with the
Bank of Latvia
Loans and advances to non-banking
customers
Treasury bills and other fixed
income securities
Shares and other non-fixed
income securities
Intangible assets
Fixed assets
Other assets
Total assets
Liabilities
Balances due to credit
institutions and the Bank of Latvia
Other liabilities
Total liabilities
Minority interest
Total liabilities and
shareholders’ equity
1,994
-
-
-
127,025
46,252
31,745
25,011
175,001
1,359
201,371
1,726 19,708
2,897
24,650 25,830 13,268
51
61
61
26,427 45,599 16,226
201,371
-
-
-
150
25,807 144,480
207,692
192
8,435
185
8,812
-
-
26,427 45,599 16,226
8,812
80
-
-
18,398
-
18,398
-
1,321
1,321
20,332 20,332
4,585
4,585
4,621
4,771
90,718 673,719
35
7,593 57,162
3,316 298,507 549,007
1,739
1,739
1,080
1,080
97
4,429
6,243
3,448 313,348 615,231
-
58,130
358
58,130
358
3,448 371,836 673,719
2001
CURRENCY PROFILE
36
The following table provides an analysis of the Group’s assets and liabilities and shareholders’ equity as well as memorandum items outstanding as at 31 December 2001 by currency profile:
LVL 000’s
LVL
USD
EUR
GBP
RUB
18,078
6,538
3,129
774
102
12,472 44,305
6,615
66,264 169,644 26,350
26,655 176,112 32,264
375
73
8,192
4,539
102
-
Intangible assets
Fixed assets
635 17,668
1,113
16,671
-
3
-
-
-
2,207
1,876
2,982
516
147,077 416,659
394
41
68,796
20
9,434
86
4,829
5,262 27,759 20,561
Other
Total
5,062
33,683
Assets
Other assets
Total assets
Liabilities
Balances due to credit institutions and the
Bank of Latvia
2,670 70,976
8,114 270,547
5,883 249,106
92
208
3,661
18,398
1,321
20,332
108
4,585
1,126
4,771
26,924 673,719
1,191
167
Accrued interest expense and deferred income
66,941 421,179 36,952 10,104
368
1,171
164
4
924
-
4,086
-
Other liabilities
Total liabilities
1,743
1,740
278
369
75,238 451,849 57,955 11,668
700
1,413
6,243
4,953 13,568 615,231
Minority interest
358
58,130
133,726 451,849 57,955 11,668
Net long/(short) position for
balance sheet items
13,351 (35,190) 10,841 (2,234)
Off-balance sheet claims arising from foreign exchange
358
- 58,130
4,953 13,568 673,719
Spot exchange receivable
2,641
Forward foreign exchange receivable
Swap exchange receivable
9,000
Total
11,641
Off-balance sheet liabilities arising from foreign exchange
2,222
57,162
9,745 549,007
32
1,739
156
1,080
(124) 13,356
-
43,646 28,693
26,903
4,982
35,075
3,523
105,624 37,198
4,291
1,896
2,125
8,312
320 26,179 105,770
2,118 35,899
7,372 57,095
320 35,669 198,764
Spot exchange payable
Forward foreign exchange payable
3,472 52,898 19,802
23,032
9,152
934
4,420
-
- 25,154 105,746
2,886 36,004
Swap exchange payable
Total
4,778 13,278 25,193
31,282 75,328 45,929
1,164
5,584
- 12,632 57,045
- 40,672 198,795
(19,641) 30,296 (8,731)
(6,290) (4,894)
2,110
2,728
494
Net long/(short) positions on foreign exchange
Net long/(short) position
Exchange rates applied as at 31 December
2001 (1 LVL to 1 foreign currency unit)
1.00
0.638 0.560856
320 (5,003)
196
8,353
(31)
(31)
0.924 0.0211
A significant portion of loans and advances to customers are denominated in USD. Although these loans are generally funded in the Bank by USD denominated deposits, an appreciation of the USD against the local currency may adversely affect
the borrowers’ repayment ability and, therefore, increase the likelihood of future credit losses.
Latvian banking legislation requires that open positions in each foreign currency may not exceed 10% of the Bank’s equity
(see Note 33 for the definition of equity under the FCMC’s regulations) and that the total foreign currency open position may
not exceed 20% of equity.
The Bank was in compliance with the above requirements as at 31 December 2001.
Parekss Group
81
Annual report 2001
37
LITIGATION AND CLAIMS
In the ordinary course of business, the Bank has been involved in a number of legal proceedings to recover collateral or outstanding credit balances, as well as related interest and expenses from defaulted credit customers and interbank counterparties. The Management of the Bank believe that any legal proceedings pending as at 31 December 2001 will not result
in material losses for the Bank.
38
RELATED PARTIES
Related parties are defined as shareholders who have significant influence over the Group, members of the Council and
Board of Directors, key Management personnel, their close relatives and companies in which they have a controlling interest as well as associated companies of the Group. The following table presents the outstanding balances and terms of the
Group’s transactions with related party.
LVL 000’s
- Loans and advances to related parties
- Financial commitments and outstanding guarantees to related parties
Total credit exposure to related parties
31/12/2001 31/12/2000
2,566
2,111
950
116
3,516
2,227
Total deposits from related parties
- Loans and advances to related parties
- Financial commitments and outstanding guarantees to related parties
Total credit exposure to related parties
Total deposits from related parties
27,155
23,557
Amount in
LVL 000’s
2,566
950
3,516
Terms
27,155
0-13%
0-24%
No specific provision has been established by the Group for loans, financial commitments and outstanding guarantees to
related parties as at 31 December 2001.
In the ordinary course of business, a/s Parekss apdroßinåßanas kompånija, a related party to the Bank, undertakes insurance of the collaterals of loans and advances granted by the Bank to non-banking customers.
82
2001
AUDITORS’ REPORT
Arthur Andersen Ltd
11. novembra krastmala 23
Rîga LV 1050
Latvia
Tel 371 732 1140
Fax 371 783 0484
www.andersen.com
To the shareholders of a/s Parekss banka
We have audited the consolidated balance sheet of a/s Parekss banka and its subsidiaries (the Group) as at 31 December
2001 and 2000, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for
the years then ended. We have also audited the balance sheet of a/s Parekss banka (the Bank) as at 31December 2001
and 2000, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended.
These financial statements set out on pages 41 to 82 are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with International Standards on Auditing issued by the International Federation of
Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Group and the Bank as at 31 December 2001 and 2000, and the results of their operations and their cash flows for the
years then ended in conformity with International Financial Reporting Standards, as published by the International
Accounting Standard Board, applied on a consistent basis.
ANDERSEN
Rîga,
28 February 2002
Parekss Group
83
Annual report 2001
84
2001

parex ANNUAL agl OK

Transcription

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