Untitled - Euroland

Management, Head Office and Branches
Board of Directors
Jóhan Páll Joensen, Chairman
Høgni Hansen
Jóhannus Egholm Hansen
Rúni M. Hansen
Jógvan Jespersen
Johan E. Hansen
Sigmar Jacobsen
Management
Jørn Astrup Hansen,
Chief Executive Officer
Janus Petersen
Head Office
P/F FØROYA BANKI
Húsagøta 3
P.O. Box 3048
FO-100 Tórshavn
Tel. + 298 31 13 50
Fax + 298 31 99 36
SWIFT: FIFB FOTX
E-mail: [email protected]
www. foroyabanki.fo
P/F. skr. nr. 10, Tórshavn
Branches
Klaksvík:
Tel. + 298 45 63 77, Fax + 298 45 63 39
Miðvágur:
Tel. + 298 33 25 50, Fax + 298 33 25 55
Sørvágur - Kollafjørður - Vestmanna
Contents
Five years summary
2
Financial highlights and ratios
3
Directors´ Report 2004
4
Profit and Loss account
8
Balance Sheet at 31 December
9
Signatures
10
Auditors´ Reports
11
Accounting Principles
12
Saltangará
Tel. + 298 44 74 10, Fax + 298 44 85 11
Toftir - Strendur - Fuglafjørður - Gøta
Norðskáli - Eiði
Tórshavn:
Tel. + 298 31 13 50, Fax + 298 31 69 50
N. Finsensgøta - Hornabøur - SMS
Sandur - Skopun
Tvøroyri:
Tel . + 298 37 10 32, Fax + 298 37 18 76
Vágur - Hvalba
1
Five years summary
Main figures (DKKm)
2000
2001
2002
2003
2004
267
-6
15
275
19
8
259
33
12
264
-5
16
256
1
-2
Profit on financial items
276
302
304
275
255
Expenses
Write-offs and provisions for bad debts (net)
Value adjustments of participating interest
116
-171
-3
119
-25
2
127
-1
3
119
110
1
127
12
5
Profit before taxations
328
210
182
47
121
Taxes
105
42
36
9
24
Profit for the Year
223
168
146
38
97
Cash in hand and claims on credit institutions, etc.
Loans and advances
Bonds and shares and capital interests
Other assets
59
3,164
1,502
193
391
3,361
1,699
141
327
3,412
1,688
97
299
3,512
1,493
105
289
3,636
1,560
112
Total assets
4,918
5,592
5,525
5,408
5,597
Debt to credit institutions
Deposits
Other liabilities
Shareholders equity, 31/12
125
3,266
201
1,326
112
3,941
120
1,419
89
3,832
111
1,492
57
3,780
61
1,510
70
3,870
99
1,557
Total liabilities
4,918
5,592
5,525
5,408
5,597
201
319
225
174
148
Pay-out ratio
56.0
44.6
49.9
52.7
51.5
Average number of employees, full-time equivalents
205
209
210
199
196
Profit and loss account
Net income from interest and fees
Value adjustment
Other ordinary income
Balance sheet
Off-balance-sheet items
Key figures
2
Financial highlights and ratios
2000
2001
2002
2003
2004
Solvency ratio
38.8
41.9
46.9
47.1
47.3
Solvency ratio based on core (tier 1) capital
38.8
42.0
47.0
47.2
47.4
Return on equity before tax 1
26.7
15.8
12.8
3.2
8.0
Return on equity after tax 1
18.2
12.7
10.3
2.5
6.4
Income / cost ratio 2
2.35
2.55
2.42
2.32
2.04
Interest rate risk
1.6
2.1
2.1
1.5
1.4
Foreign exchange position / core capital
3.4
4.3
0.4
1.6
3.5
Loans and advances, plus provisions, in relation to deposits
113.6
98.3
102.0
107.9
106.0
Excess cover relative to the statutory liquidity requirements
209.1
302.9
297.3
260.3
261.2
28.9
34.1
33.1
27.9
30.6
2.9
2.0
1.5
1.4
1.7
Provisioning ratio
14.2
12.4
12.2
13.5
11.0
Write-offs and provisioning ratio for the year
-4.4
-0.6
0.0
2.6
0.3
Annual growth in loans and advances
16.5
6.3
1.5
2.9
3.5
Loans and advances / equity capital
2.4
2.4
2.3
2.3
2.3
1,000,000
1,000,000
1,000,000 1,000,000
1.000.000
1,326
1,419
In percent
Total amount of large exposures / equity capital 3
Share of loans due on which interest rates have been reduced
Shares
Number of shares at year-end (denomination DKK 100)
Net asset value per share
1,492
1,510
1,557
1) The return on shareholder´s funds is calculated on the basis of shareholder´s funds at the beginning of the year.
2) Loss and provisions for bad debts are not considered
3) Outstanding accounts larger than 10 pc of shareholder´s funds in proportion to shareholder´s funds at the end of the year.
3
Directors´ Report 2004
FØROYA BANKI in 2004
In 2004, the Bank recorded a slight fall in its interest and
commission income, which, compared with the previous
year, dropped by 3 per cent to DKK 256 million. Fee and
commission income improved by 19.2 per cent to DKK
21 million. The growth in fees is satisfactory but the level
of fee and commission income remains low in Faroese
banks.
The growth in fee and commission income, however,
did not compensate for a fall in the Bank’s net interest
income, which in 2004 fell by DKK 11 million, or 4.7 per
cent, to DKK 235 million in response to the extremely
low level of interest. A change in the level of interest of
only 1 percentage point means a change in earnings of
approx. DKK 16 million for FØROYA BANKI.
a fragile basis. A relatively weak economy has in certain
cases made it necessary for the Bank to reduce interest
rates and, in others, to waive interest temporarily. It will
probably turn out that in recent years it has been too easy
rather than too difficult to borrow money in the Faroe
Islands.
In 2004, the Bank’s gross financial income dropped
by DKK 20 million to DKK 255 million on the previous
year. This should be seen in the light of substantial oneoff income of DKK 15 million in 2003 in connection with
the sale of foreclosures. Also in 2004, a total amount of
DKK 7 million relating to the refurbishment of part of
the Bank’s branch network were set off against ordinary
income.
The general abundance of liquidity in the Faroe Islands,
not only in the banks, and the low level of interest
in the money and bond markets have led to intensive
competition for loans. This competition is generated on
The Bank’s operating costs amounted to DKK 127
million in 2004, the same level as in the two previous
years when adjusting for reversals of depreciation and
writedowns. If losses and provisions for bad debt are
excluded, the Bank’s income to expense ratio was 2 : 1
in 2004, which is satisfactory. However, the ratio, of
4
Directors´ Report 2004
course, should be seen in the light of the Bank’s relatively
comfortable equity capital.
Losses and provisions
In recent years, FØROYA BANKI’s engagements in the fish
farming industry have developed highly unsatisfactorily.
Already in 2003, it was evident that most fish farmers
did not have sufficient capital to cover the substantial
losses that they were at risk of suffering. In the first half
of 2003, FØROYA BANKI therefore made a provision of
DKK 124 million in respect of its engagements in the fish
farming industry. In 2004 it was not necessary to increase
provisions for bad debt in this sector. It is expected that
the provisions already made will prove sufficient.
In 2004, there were no major changes in provisions
in respect of other industries and the Bank’s private
customers, so FØROYA BANKI needed to recognise losses
and provisions at a total amount of only DKK 12 million
in its financial statements. In 2004 the Bank wrote off an
unprovided loss of DKK 11 million; an amount of DKK 3
million (net) was provided in respect of the Bank’s loans;
and an amount of DKK 2 million was received in respect
of claims previously written off.
While losses and provisions in 2004 were at a very
moderate level, the Bank’s write-offs via the provisions
account were quite substantial, particularly in respect of
its engagements in the fish farming industry. In 2004,
FØROYA BANKI wrote off DKK 109 million as a final
loss. The additional provision from 2003 thus largely
translated into write-offs in 2004.
Consequently, with net provisions of DKK 3 million
and write-offs of DKK 109 million, FØROYA BANKI
reduced its provisions account from DKK 571 million at
year-end 2003 to DKK 465 million at year-end 2004. The
provisions correspond to 11 per cent of the Bank’s loans.
Management is of the opinion that the provisions are both
necessary and adequate.
FB HOLDING
According to the Commercial Banks and Savings Banks
Act, banks may, as a principal rule, only engage in
banking activities. However, they may engage in other
activities to wind-up prior engagements or for the purpose of contributing to the reorganisation of commercial
undertakings.
In 2004, FØROYA BANKI had to take over control of
several fish farming businesses which had gotten into
financial difficulties. However, the Bank has chosen to
place the ownership of these businesses in a subsidiary of
the Bank established for this purpose, P/F FB HOLDING.
The subsidiary was established in April 2004 with a
share capital of DKK 0.5 million, subscribed at a price
of 1,000.
At the end of 2004, the whole share capital of P/f
Faroe Salmon and P/f 15. juni 2004 (which acquired the
fish farming activities from P/f Gulin, a company which
subsequently went bankrupt) was owned by FB HOLDING.
In 2004, FB HOLDING in connection with a financial
reorganisation also acquired a 75 per cent interest in
P/f Vestlax, the parent company of a large fish farming
group.
In connection with the financial reorganisation of the
Faroe Salmon group, FB HOLDING recorded a loss of DKK
4.1 million on its shares in 2004. In view of the uncertain
trends in the fish farming industry, FB HOLDING has not
assigned any value to its shareholdings in its financial
statements for 2004. Consequently, FØROYA BANKI has
forgiven a loan granted for the financing of FB HOLDING’s
share purchases. At the end of 2004, FB HOLDING’s equity
was DKK 0.8 million.
FØROYA BANKI has chosen not to prepare consolidated
financial statements. However, consolidation of FB
HOLDING’s and FØROYA BANKI’s 2004 financial statements
would have affected neither the Bank’s results nor its
equity. However, the balance sheet total would have been
reduced by DKK 0.8 million.
5
Directors´ Report 2004
TRYGD
FØROYA BANKI is the sole shareholder of the insurance
company P/F TRYGD, which in 1998 resumed operations
after having been dormant during the insurance monopoly,
which for 55 years had prevented the company from
underwriting new business.
In 2004, TRYGD had a premium income of DKK 57
million and a profit of DKK 1.4 million on its insurance
operations, which, in view of the circumstances, is
satisfactory. However, the Faroese insurance market is
subject to pressure from a substantial financial surplus
capacity, and it is still necessary to strengthen the
insurance operations.
In 2004, TRYGD’s profit after tax was DKK 3.7 million,
and the company’s equity amounted to DKK 120 million
at year-end 2004.
ELEKTRON
In 2004, the data centre P/F ELEKTRON, owned and operated
by the Faroese banks in cooperation with the local
government, Føroya Landsstýri, had a turnover totalling
DKK 41 million and a profit after tax of DKK 3 million.
FØROYA BANKI owns 34 per cent of ELEKTRON, which at
year-end 2004 had a book equity of DKK 14 million. The
results and equity are recognised on a proportionate basis
in FØROYA BANKI’s financial statements.
In the past 15-20 years, ELEKTRON, which in 2005
will celebrate its 40th anniversary, has attracted a
disproportionate political interest. Of very little benefit to
ELEKTRON and the centre’s customers and owners. With a
restrictive Act on the Processing of Personal Data and a
not less restrictive administration of the Act, the political
authorities have made natural cross-border cooperation
difficult, not only for ELEKTRON - but for Faroese banks as
well. Thus, ELEKTRON’s right to exchange data with data
centres outside the Faroe Islands is currently based on an
exemption granted by the data supervisory authorities.
This is not a sustainable situation, neither for ELEKTRON
nor for the banks.
There is reason to believe that the exemption will be
replaced by a permanent permission later on in 2005.
This will hopefully pave the way for a natural cooperation
between ELEKTRON and foreign partners. For the benefit of
6
ELEKTRON and the banks. Computer and banking business
is not restricted by national borders. If ELEKTRON and
the Faroese banks are to be able to hold their own in the
competition, it is important that their initiatives are not
restricted in advance.
Taxes
In 2004, FØROYA BANKI achieved a profit before tax of
DKK 121 million. Taxes amounting to DKK 24 million
equivalent to 20 per cent of the profit has been expensed
in the financial statements.
The Bank’s depreciation and amortisation for tax
purposes were previously significantly less than those
made for accounting purposes. As a result, the tax reserves
held by the Bank have been substantial. However, the
Bank’s tax conditions were normalised in 2001 when
FØROYA BANKI deducted its bad debt provisions from
taxable income. At the beginning of 2004, the Bank had
a tax asset of only DKK 3 million. FØROYA BANKI must
therefore pay the full amount of the tax calculated on
the net profit for 2004, though part of it by the Bank’s
subsidiaries.
Distribution of profit
FØROYA BANKI’s net profit for the year after tax was DKK
97 million in 2004.
In recent years, the Bank’s policy has been to distribute
half the net profit as dividend to the shareholders.
Consequently, the Board of Directors will recommend
to the Annual General Meeting that DKK 50 million of
the net profit for 2004 be distributed as dividend and that
DKK 47 million be used to consolidate the Bank.
The amount available to the Annual General Meeting is
DKK 1,503 million composed as follows:
Directors´ Report 2004
DKKm
Net profit for the year
Retained profits
Amount available
97
1.406
1.503
The Board of Directors recommends that the amount be
distributed as follows:
DKKm
Dividend
Adjustment of reserves
Carried forward to next year
Total amount distributed
50
5
1.448
1.503
For all practical purposes, the local government represented by a fund is the sole shareholder of FØROYA BANKI.
This means that, with a corporation tax rate of 20 per
cent, the Bank will pay 60 per cent of the profit before
tax to the political authorities. For 2004 DKK 74 million
altogether.
Since the merger of Sjóvinnubankin and FØROYA BANKI
in 1994, the Bank has paid taxes totalling DKK 214
million while DKK 921 million has been distributed to
the shareholders. If the Bank’s book equity of DKK 1,557
million at year-end 2004 is added to this amount, it will
be seen that the local government has fully recovered its
capital contribution. In 1992-93, the local government
had to inject capital to an amount of DKK 2,685 million
into the two banks. Until now an amount of DKK 2,692
million has been recovered.
The Bank’s management
In connection with the Annual General Meeting in March
2004, Jákup Jacobsen resigned as a member of the
Bank’s Board of Directors. Jákup Jacobsen, a member of
the Board of Directors since 1999, was succeeded on the
Board by Jóhannus Egholm Hansen, Attorney-at-Law,
Copenhagen.
At the same General Meeting in March 2004, Magnhild
H. Andreasen resigned as a member of the Bank’s
Board of Directors after having represented the Bank’s
employees since 2002. Being alternate to Magnhild H.
Andreasen, Sigmar Jacobsen, Argir, replaced her on the
Board of Directors.
The Board of Directors subsequently elected Jóhan
Páll Joensen as chairman and Rúni M. Hansen as vicechairman of the Board.
FØROYA BANKI in 2005
During the past few years, the Faroese economy has
been clearly declining. There are no obvious signs of an
early recovery. The full impact of the collapse of the fish
farming industry will come through in 2005 and in 2006
in particular. The competitiveness of the fish processing
industry, which is of vital importance to employment
ashore, is threatened by low-pay countries.
The relatively weak economic trends and the low
level of interest, which especially affects Føroya Banki,
whose liquidity is substantial, do not hold out promise of
immediate growth in the Bank’s gross earnings.
However, FØROYA BANKI has prepared itself for more
difficult times. The Bank has made adequate provisions
in respect of its risks and will hardly face major upheavals
even if the recession should turn out not to be of a passing
nature.
Altogether, FØROYA BANKI expects its profit
performance in 2005 to be at the same level as in 2004
or slightly lower.
7
Profit and loss account
DKK 1,000
2004
2003
Interest recievable, etc.
Interest payable, etc.
292,523
57,961
309,561
63,416
Net income from interest
234,562
246,145
497
21,092
238
291
18,512
1,041
255,913
263,907
1,088
-2,154
-5,483
16,464
Profit on financial items
254.847
274,888
Staff costs, etc. and administrative expences
121,773
117,942
5,276
921
0
79
Depreciation and provision for loss on bad debts ( net )
11,570
109,630
Profit on holdings in associated and affiliated companies
4,939
970
121,167
47,286
Tax
24,076
9,302
Profit for the financial year
97,090
37,984
97,090
1,405,91
37,984
1,388,900
Total amount available for distribution
1,503,004
1,426,884
Distributed for dividends
Adjustment of reserve for net revaluation according to the equity method
Profit brought forward
50,000
5,204
1,447,800
20,000
970
1,405,913
Total
1,503,004
1,426,884
Dividend on shares, etc., and other holdings
Charges and commissions receivable, etc.
Charges and commissions payable
Net income from interest and charges
Price adjustments of securities and exchange-rate
adjustments of foreign currency, etc
Other ordinary income
Amortisation and depreciation of intangible and tangible assets
Other operating expenses
Profit on ordinary activities before tax
Distribution of profits
Profit for the financial year
Brought forward from prior years
8
Balance Sheet 31 December
DKK 1,000
2004
2003
209,217
181,947
79,402
116,702
Loans and advances
3,635,865
3,511,795
Bonds
1,420,961
1,367,758
Shares
13,839
4,958
4,921
3,677
120,752
116,305
65,587
68,803
0
0
41,133
31,347
4,954
4,833
5,596,632
5,408,124
70,441
57,301
3,869,675
3,779,942
95,161
55,926
0
0
4,153
4,843
Capital and reserves
Share capital
Reserves
Brought forward from prior years
Carried forward from profit/loss for the year
Total capital fonds
100,000
9,402
1,405,913
41,887
1,557,202
100,000
4,198
1,388,900
17,014
1,510,111
Total liabilities
5,596,632
5,408,124
Guarantees, etc.
Other commitments
147,524
0
144,191
30,250
Total-off-balance-sheet items
147,524
174,441
Assets
Cash in hand and claims on central banks
Claims on credit institutions, etc.
Holdings in associated enterprises, etc.
Holdings in affiliated enterprises, etc.
Tangible assets
Own holdings
Other assets
Prepayments and accrued income
Total assets
Liabilities
Debt to credit institutions
Deposits
Other liabilities
Accruals and deferred income
Provisions for liabilities and fees
Off-balance-sheet items
9
Signatures
Tórshavn, 18 February, 2005
Management
Jørn Astrup Hansen
Janus Petersen
Board of Directors
Jóhan Páll Joensen
Rúni M. Hansen
10
Høgni Hansen
Jógvan Jespersen
Jóhannus Egholm Hansen
Johan E. Hansen
Sigmar Jacobsen
Auditors´ Reports
We have audited the Annual Accounts of P/F FØROYA
BANKI for the year 2004 presented by the Board of
Directors and the Management.
Basis of opinion
We have conducted our audit on the basis of the Executive Order of the Danish Financial Supervisory Authority
on the Performance of Audit in financial institutions
and financial groups and in accordance with generally
accepted auditing standards as applied in Denmark.
Based on an evaluation of materiality and risk, we have
assessed procedures and tested the basis for the amounts
and disclosures in the Annual Accounts.
Our audit did not give rise to any qualifications.
Opinion
In our opinion, the Annual Accounts have been presented
in accordance with the accounting provisions of Danish
legislation and give a true and fair view of assets and
liabilities, financial position and profit for the year.
Tórshavn, 18 February 2005
Petur A. Johannesen
Chief Auditor
We have audited the Annual Accounts of P/F FØROYA
BANKI for the year 2004 presented by the Board of
Directors and the Management.
Basis of opinion
We have planned and conducted our audit on the basis
of the Danish Financial Supervisory Authority on the
Performance of Audit in financial institutions and financial groups and in accordance with generally accepted
auditing standards as applied in Denmark.
Based on an evaluation of materiality and risk, we have
assessed procedures and tested the the basis for the
amounts and disclosures in the Annual Accounts.
Our audit did not give rise to any qualifications.
Opinion
In our opinion, the Annual Accounts have been presented
in accordance with the accounting provisions of Danish
legislation and give a true and fair view of assets and
liabilities, financial position and profit for the year.
Tórshavn, 18 February 2005
SPEKT
State Authorised Public Accountants
Súni Schwartz Jacobsen
State Authorised Public
Accountant
Finnbjørn Zachariasen
State Authorised Public
Accountant
Rasmussen & Weihe P/F
State Authorised Public Accountants
Klaus Rasmussen
State Authorised
Public Accountant
Ole Guldborg Nielsen
MSc in Business Adm. and
Auditing
11
Accounting principles
The Annual Accounts for P/F FØROYA BANKI have been prepared
in compliance with the Danish Commercial Banks and Savings
Banks Act, the Executive Order on the Presentation of Accounts
by Credit Institutions and guidelines issued by the Danish
Financial Supervisory Authority.
The accounting policies are unchanged relative to last year.
All income and expenses are stated on an accrual basis. Thus
only income and expenses relating to the financial year are
included in the profit and loss account.
Consolidated accounts
The Bank has two subsidiaries, P/F TRYGD, which is engaged
in non-life insurance, and P/F FB Holding, which has been
established with a view to temporary holding of shares in other
companies over which the Bank has been forced to take control
in preparation for reconstruction.
In accordance with current rules, no consolidated accounts
have been prepared.
Interest and commission
Interest income and interest expenses as well as current commission are stated on an accrual basis. Interest receivable and
payable are stated in the balance sheet under »Other assets« /
»Other liabilities« to the extent that such interest has not been
added/charged to the respective accounts. Share dividend is
booked as income at the time of payment. Fees and non-recurring commission are recognised as income on a current basis.
Foreign currencies
Assets and liabilities denominated in foreign currencies are
expressed at the rates prevailing at the balance sheet date. Forward transactions are stated at the forward rates at year-end.
Bonds, equities and mortgages
Listed securities are stated at officially quoted prises at the
balance sheet date. Unlisted securities are stated at their estimated value.
Loans, advances, guarantees and claims on
credit institutions
The Bank’s loans, advances and guarantees are assessed to
identify potential risks. Bad debts are written off and provisions
are made for risky claims.
Fixed-rate receivables are stated in the balance sheet at
the market value prevailing at the balance sheet date, not
exceeding, however, their current outstanding amounts. Value
adjustments of fixed-rate loans and advances are included in the
profit and loss account.
Holdings in affiliated and associated undertakings
Holdings in affiliated and associated undertakings are expressed
at the equity value prevailing at the balance sheet date.
Tangible assets
Land and buildings are stated at acquisition price or market
value subject to individual assessment.
12
Starting in the 1996 financial year, systematic depreciation
has been provided on buildings owned by the Bank and used for
corporate purposes.
Machinery and equipment are stated at acquisition price less
depreciation. Depreciation is provided on a straight-line basis
over the expected useful lives of the assets.
Expected useful lives are:
Buildings:
Machinery and equipment:
20 to 30 years.
3 to 5 years.
Acquisitions at less than DKK 20,000 are written off immediately.
Financial instruments
Forward exchange transactions and options used for hedging
purposes are stated at market value at the end of the financial
year. The transactions are recognised in the profit and loss
account under the item Value adjustments of other financial
instruments and booked in the balance sheet under the underlying asset or Other assets / Other liabilities.
Interest rate swaps used to hedge interest rate risks are not
adjusted for changes in market value; interest rate swaps are
referred to only in the notes to the Accounts.
Interest relative to interest rate swaps is stated on an accrual
basis and included as a net interest amount under other interest
income in the profit and loss account and the item Other assets /
other liabilities in the balance sheet.
Genuine sales and repurchase transactions are included in the
item Debt to other credit institutions.
Other assets
This item includes, among other things, interest receivable, positive market value of financial instruments and deposits. It is
recognised at nominal value.
Prepayments and accrued income
The item, which comprises mainly prepaid payroll costs, is
booked at nominal value.
Debt to credit institutions and central banks
Debt to credit institutions and central banks is carried at nominal value.
Deposits
All deposits are carried at nominal value.
Taxation
Calculated tax on the taxable income for the year is expensed in
the profit and loss account along with the change in provisions
for deferred taxes for the year.
Provisions are made for tax assets and deferred tax respectively at 20 per cent of the timing differences between the booking for tax and for accounting purposes.