Annual report 2010

Transcription

Annual report 2010

Annual Report
Advanzia Bank S.A.
Simplicity, Transparency
and Trust
Financial Statements
FOR THE YEAR ENDED 31 ST DECEMBER 2010
ADVANZIA BANK S.A.
Advanzia Bank S.A.
9, rue Gabriel Lippmann
Parc d’Activité Syrdall 2
L-5365 Munsbach
Luxembourg
Registre de Commerce et des Sociétés Luxembourg: B109476
 +352 263 875 00
 +352 263 875 99
E-mail: [email protected]
BIC (SWIFT): ADVZLULL
www.advanzia.com ● www.gebuhrenfrei.com ● www.advanziakonto.com
Advanzia Bank S.A. Annual Report 2010
Stelly Brito, Customer Relations Junior Officer
Gordana Adolf, Head of Marketing
Contents
About Advanzia Bank S.A.................................................................................................... 3
Directors’ Report for 2010................................................................................................ 17
Board and Management.................................................................................................... 21
Financial Statements......................................................................................................... 22
Statement of Financial Position .......................................................................... 22
Statement of Comprehensive Income................................................................ 23
Statement of Changes in Equity.......................................................................... 24
Statement of Cash Flows..................................................................................... 25
Significant Accounting Policies............................................................................ 26
Notes to the Financial Statements...................................................................... 32
Risks and Risk Management/Basel 2 – Pillar 3 Disclosure................................................ 45
Report of the Réviseur d’entreprises agréé...................................................................... 59
2 Advanzia Bank S.A. Annual Report 2010
Peter Heckmann, Business Engineering Manager · Christiane Roeder, Executive Assistant
About Advanzia Bank S.A.
Advanzia Bank S.A. (“the Bank”) was incorporated as “Advanzia S.A.” on 19th July 2005, as
a “société anonyme” governed by Luxembourg law. The articles of association have been
published in the “Mémorial C Recueil des Sociétés et Associations” on 2nd December 2005.
Advanzia S.A. was granted a banking license by the Luxembourg Minister of Treasury and
Budget in December 2005. The name “Advanzia S.A.” was changed to “Advanzia Bank S.A.”
on the 11th January 2006. Advanzia Bank S.A. is established for an indefinite duration.
The object of Advanzia Bank S.A. is the undertaking of banking activities pursuant to article
1 of the Luxembourg law of 5th April 1993 relating to the financial sector, as amended,
and more particularly to issue credit cards, make loans to credit card holders and receive
deposits of cash and other repayable funds from the public. It may perform any financial,
commercial, or industrial operations which it may deem useful in the accomplishment and
development of its object.
Advanzia Bank S.A. Annual Report 2010 3
Advanzia Bank S.A. commenced its banking operations in April 2006, taking deposits from
and subsequently issuing credit cards to the public.
Advanzia Bank S.A. provides its services based on a Luxembourg banking license, applying
the principles with respect to cross-border banking in the European Union and European
Economic Area. Advanzia Bank S.A. currently markets its products principally in Germany
and Luxembourg.
Advanzia Bank S.A. is supervised by the Luxembourg banking regulator, the Commission de
Surveillance du Secteur Financier (CSSF). Advanzia Bank S.A. has no branches nor offices
other than its Luxembourg headquarter, but has notified the competent authorities in
which it markets its products, as per the provisions for cross-border banking.
Advanzia Bank S.A. is an independent bank, with a limited number of private investors. The
Kistefos Group in Oslo, Norway has been the controlling shareholder since the company
became a bank in 2006, and currently controls approximately 60% of the issued shares.
Deposit Balance
329 M EUR 257 M EUR
41 M EUR
Total income
35 M EUR
Net card loan balance
224 M EUR 164 M EUR
Loan losses
17 M EUR
21 M EUR
Operating expenses
14 M EUR
11 M EUR
Proﬁt before taxes
8,8 M EUR
3,5 M EUR
Equity
35 M EUR
2009
2010
29 M EUR
Luxembourg: small and smart
Luxembourg has an important place among the world‘s financial centres. Because of
the quick implementation of European Union rules, Luxembourg has earned a first-class
reputation within the Union.
The decisive competitive advantage offered by our Grand Duchy is the high level of planning certainty, resulting from its stable political and social conditions. And key to this is
the efficiency of Luxembourg’s decision-makers.
The multicultural population structure has led to multilingualism becoming the standard. A high level of flexibility and enthusiasm for innovation are typical trademarks of
Luxembourg.
The financial market is of great relevance to Luxembourg as a country. Currently, 28% of
the gross domestic product is generated by the financial sector. In 2010, there were over
149 banks registered in Luxembourg with their assets totalling approximately EUR 793 billion. On a global scale, one would surely be hard pressed to find a location with as many
financial experts in one place as are found in the Grand Duchy of Luxembourg.
Luxembourg is also worth a trip for ”non-bankers” as well. The city picturesquely extends
over three hills. The sharp contrast between historically preserved buildings and modern
architecture is a source of particular interest. All set in a surrounding of a lush and green
landscape.
Over the last decades, Luxembourg has recorded nearly constant population growth
in connection with its economic growth and the resulting growth in the labour market.
Today, Luxembourg has half a million inhabitants.
From bartering in the past to the Advanzia MasterCard Gold of today,
developments in the culture of payment transactions have been colourful
and highly imaginative. And although exotic birds, shells and artworks
were creative and spectacular forms of payment, the transaction charges
were extremely high – to say nothing of the time and effort spent in caring
for and looking after the currency. Although today’s solutions are a little
less spectacular, they are extremely efficient and inexpensive. The Advanzia
MasterCard Gold costs nothing and is easy-care.
Payment methods and
the culture of paying
Once upon a time in Holland, a little flower bulb turned the whole agricultural industry
and the economy upside down. Four hundred years ago, flower bulbs were a common
and, depending on the variety, valuable payment method. The story began quite ordina
rily. Charles de l’Ecluse, a doctor and botanist, discovered the tulip on a trip to Armenia
and first bred them as a remedy. The flower was soon very much in demand for its beauty
and variety. Large gardens of tulips sprang up all over Holland. Tulip bulbs were consi
dered a symbol of wealth and good fortune, and were both dowry and decoration.
The bulbs were taken to the commodity exchanges of Haarlem and Amsterdam, and at
their peak fetched prices of up to EUR 87 000 per tulip bulb in today’s money.
When the tulip era ended in 1637, the clever Dutch made good use of what they had
learnt. Instead of simply putting an end to the tulip trade, they refined their methods.
Today, the Dutch are by far the world’s biggest producers of tulips.
bus
A Dutch
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Petra Schuth, Head of Fraud Prevention
Tulip mania is a constructive mistake. Today, some two billion tulips are
grown every year. There’s even one type called “Dow Jones”.
Payment methods that weren’t
considered strange at the time
Rebecca Rösner, Fraud Prevention Junior Officer
Ilona Eichholz, Chargeback Officer
Cowry shells got attached on the hulls of ships and drove up as far as
the fjords of Norway. Who finds one feels rich.
Tony Cragg, I’m alive, 2004, Kistefos-Museet, Norway
The Lydians, that lived in what today is Turkey, minted the first coins in the 7th century BC.
The introduction of this genuine payment method made trading easier and more transparent. Until then, people had exchanged their goods for highly imaginative alternative forms
of “currency”. Cowry shells are a very well known example of an alternative currency, and
were used as a means of payment in Africa, Asian and the South Seas. Cowry shells also
attached themselves, unnoticed, to the hulls of ships, ending up as far away as Scandinavia,
and were probably the first cases of clandestine currency imports.
Another ancient payment means is art. And there are even guidelines for assigning the
value of the artwork.
Anyhow, birds of paradise remain undoubtedly one of the most beautiful currency of all
times. The birds were exchanged for goods in Papua New Guinea. If the weather hadn’t put
a stop to attempts to import this magnificent currency into Europe, it would probably have
strongly influenced our “currency care”.
As pretty as the design of the Advanzia MasterCard Gold may be, no credit card on earth
can surpass the beauty and elegance of a bird of paradise. But it is a lot more practical –
and a lot less expensive.
Probably the only disadvantage of the Advanzia
MasterCard Gold is that we will never
experience with our own eyes the sight of a lady
entering a boutique with two birds of paradise
on her shoulder.
A story of success
from the old world of payment methods
The wealth of the Oman sultanate was based on trade. Incense in particular, which was
very precious, was also in great demand in Europe. The caravans took around 100 days
to travel the 3 400 km from the Arabian Peninsula to the Mediterranean Sea. Paying for
the goods was as cumbersome as it was dangerous. Incense was partly weighed in gold,
which also had to be transported.
To use today’s language: the transaction costs for payments were extremely high. There
were a number of simple and simply unbelievable mechanisms. The purchaser buried
the proposed payment in various places. If the quality and amount of the goods were as
promised, then the purchaser would reveal all the hiding places. If, however, this was not
the case, then amounts were discounted and fewer hiding places were named.
Isn‘t it a good thing that the Advanzia MasterCard Gold makes life easier today?
Prashanth Bors, Credit & Collections Junior Officer
My home country became rich by selling incense to the perfumers of
Paris and Venice. The traders were able to keep the places where incense
was harvested secret for hundreds of years. However, my ancestors were
also extremely creative when it came to payments.
Incense is available in lots of qualities. The lighter it is the better.
ted in
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as firs
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ated o
issuer
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th e a m
coins,
Sandra Kessler, Head of Chargeback
As a child, I was fascinated by the different kinds of
currency. I thought the Swiss francs were the loveliest. Today I’m glad that, thanks to my Advanzia
MasterCard Gold, I don’t have to carry lots of
different currencies around with me.
Coins and notes
The creation of paper money was born out of need. There simply weren’t enough coins
to go round, and too much precious material was required. The first notes were issued in
China in about 960 A.D. In Europe, John Law, the Scottish-born Finance Minister of France,
introduced notes to France in 1718. Unfortunately, though, he was unable to keep his king
away from the printing press, and the experiment failed.
No other payment method was as difficult to accept as the note. People didn’t trust a piece
of paper, especially one whose only value lay in trusting a promise to pay by a sovereign or
a bank. In the beginning, all notes had to be backed by real coins or precious metals. In the
19th century they were backed by silver, which eventually led to backing in gold.
Over time, the advantages of notes have prevailed. In some countries, wallets have no coin
compartments. The Italians are currently pushing for a one-euro note so they can pay for
their espressos the pre-euro way.
The history of payment methods is above all a story of trust. John Law would probably
have been beheaded in the Paris of 1718 if he had said that in the future, people would be
paying for their purchases not with gold, coins or notes, but mainly with cards made of the
future material plastic.
For 6 500 years, people have been interested in the material with the innocuous abbreviation of Au and the atomic number of 79 in the chemical table of elements. South Africa
is the world’s biggest supplier of gold; it is estimated that to date, some 155 000 tonnes
of gold have been mined there. No other metal in the world is as coveted as gold – or as
fascinating. There are even traces of gold in most languages. Gold adjectives are attached
euphemistically to lots of things that are of great value to us, or used as a synonym – “As
good as gold”.
From gold to the
Advanzia MasterCard Gold
Gold has been used as a method of payment and a measure of wealth for thousands
of years. In fact, though, only three percent of today’s annual gold production of 2 600
tonnes ends up in the safes of various banks. Eighty-five percent of it is made into jewellery.
Gold was important for the economy, because it was considered a stabilising factor and
currency reserve for national banks. It remains a popular and safe option for investors in
times of crisis, even though hardly anyone still uses it to pay for things today.
It is also easier and physically less taxing not to have to pay with it, because it is very
heavy. One troy ounce of gold (oz.) weighs 31,10 grams. The Advanzia MasterCard Gold
weighs just 2,0 grams.
Isabel Scholz, Accounting Clerk
Gold has always been important in South Africa. Not always for good
things, though. Gold has probably made as many people unhappy as
it has made rich. I far prefer the Advanzia MasterCard Gold in plastic.
Easy, practical, safe
Advanzia MasterCard Gold
Perhaps E. Bellamy should be “credited” with inventing the credit card. In his sciencefiction publication “The Year 2000“ of 1887, he described a payment method that is
identical to today’s credit card. Originally issued by major hotels, oil companies and chain
stores, the payment card first appeared in the USA in 1914. By 1949, though, everyone
agreed that the payment card was safe and practical. It wasn’t long before other services,
such as travel insurance, were added to the cards. Once the Americans’ delight in the little
piece of plastic became evident, one of the bankers in the Swedish Wallenberg family
launched the EUROCARD in 1964 – later to become the MasterCard – as an alternative to
the established American credit cards.
Cashless life will continue to become predominant. In Germany, for instance, only 12% of
the population has a real revolving type credit card, but demand is constantly increasing.
With our flexible solutions and co-branding products, we help to make sure that anyone
who is interested can find the solution to suit his requirements and possibilities. Advanzia
offers the MasterCard Gold for everybody.
Not even
an Olymp
ic
of pure
al is made
lver;
% of it is si
gold. 92,5
.
ms is gold
only 6 gra
gold med
Tony Cragg, Articulated Column, 2001, Kistefos-Museet, Norway
Directors’ Report for 2010
Ms. Beatriz Malo de Molina, Norway (Chairman)
2010 was a pivotal year for Advanzia Bank S.A. After
population of 82 million inhabitants, is by far the larger of
having reached break-even in late 2008, 2010 saw the
Advanzia’s two market segments. The German credit card
Bank’s after tax profits increase from 2009 by more
market as such remains a market in development, given
than 150% to EUR 6.3 million. The Bank also increased
that card usage, credit card acceptance at points of sale,
client growth compared to 2009, as well as the net loan
as well as credit card penetration is among the lowest in
balance with almost EUR 60 million or 36% in 2010. At
Western Europe. This is nevertheless compensated for by
the same time, loan losses were managed increasingly
the market’s sheer size, its wealth, economic resilience
downwards, and 2010 demonstrated the Bank’s ability to
during the global downturn and good growth prospects.
reduce overall losses both in nominal and in percentage
Thus the combination of these elements represents an
terms.
outstanding opportunity for Advanzia.
Advanzia Bank S.A.’s main product is a revolving credit
The performance of Advanzia’s operations is impacted by
card connected to the MasterCard payment network.
the general economic climate in the markets in which the
The key advantage to the customers is the full absence of
Bank is present. The most important factors are private
fees. Clients may borrow up to a certain credit limit, and
consumption, employment levels, interest rates and con-
repay any amount between the minimum amount and the
sumer sentiment. The overall economic perspectives in
full outstanding balance. All loans to credit card clients
the beginning of 2010 in Germany and Luxembourg were
are unsecured. The Bank charges interest on outstanding
surprisingly good considering the recent financial crisis of
balances from cash withdrawals, and also on balances
2008 and 2009, and improved even further during 2010.
from purchases when the customer elects to repay
anything less than the full balance.
During 2010, Advanzia Bank S.A. has continued the sales
of its main credit card product “Gebührenfrei MasterCard
Advanzia is present in both the Luxembourg and Ger-
Gold” on the Internet. The Bank has optimised online
man markets. Germany, the EU’s largest country with a
sales and tested new campaigns and partners, and many
of which were successful. Advanzia has also ventured
ting clients seeking a good return on transparent, simple
further with search engine optimisation efforts, social
and secure online deposit products. In addition, Advanzia
marketing channels, and remarketing campaigns. These
makes an effort to ensure that existing and long-term
measures have contributed considerably towards impro-
deposit clients are recognised for their loyalty to the Bank.
ving Advanzia’s marketing reach and impact. Throughout
the year, the Bank has continuously analysed sales and
High client satisfaction is vital for Advanzia’s business.
marketing indicators in order to optimise the effectiveness
All credit card clients have access to our operators on a
of these important areas of activity.
24 hours/365 days basis. The Bank strives to keep service
level high, and during 2010, friendly operators answered
Advanzia also issues co-branded and white-labelled credit
97% of the phone calls within 40 seconds. In November
cards in co-operation with over 60 partners, where 2010
2010, Advanzia initiated its online portal to individual
saw the addition of several new such relationships. The
clients, allowing clients to view their latest invoices,
Bank is focused on these business-to-business relation-
repayment activity and read the latest information about
ships, given that there is ample opportunity to efficiently
developments or campaigns from Advanzia.
reach targeted client groups, offer increasingly tailored
products through these partners, and explore more inno-
Proper risk management is at the core of Advanzia’s ope-
vative distribution models.
rations and an imperative for the Bank’s success. The Bank
has determined its overall risk appetite, and pursues a
Advanzia’s sales levels have been increased during the
strategy of minimising all risks not directly related to core
year, in line with profit growth and positive response from
operations. Therefore, Advanzia follows highly prudent
consumers to our increased efforts. Approximately 72 000
strategies relating to many standard banking risks such
new credit card clients signed up to become customers of
as liquidity risk and market risks. On credit risk, which is
Advanzia during the year, of which 62 000 became active
vital for Advanzia’s core activity, the Bank aims to optimise
card users. Our total client base reached year-end figures
the risk-reward balance in order to ensure a sustainable
of close to 300 000 open credit cards in good standing.
growth in loan balance and earnings.
The net credit card loan balance (after provision for value
adjustments and write-offs) increased by 36% from EUR
The Bank has in 2010 managed its credit risk by applying
165 million at the end of 2009 to EUR 224 million at the
several credit risk scorecards, which it utilises to assess the
end of 2010.
perceived risk of a client or a group of clients, and to follow
a carefully optimised credit limit assignment strategy.
Advanzia also offers a monthly interest-accruing deposit
In 2008 and 2009, the Bank followed more conservative
account named “Advanziakonto”. Advanziakonto deposits
credit limit assignment strategies, reflecting the then
provide funding for the Bank’s credit card operations and
prevailing macroeconomic outlook. The Bank introduced
liquidity reserves, and volumes are in general adjusted
new credit scorecards in 2009, which assess client risk
to these needs. During 2010, customers’ “Advanziakonto”
from the time of application and throughout the client
deposits increased from EUR 257 million to EUR 329 million.
relationship. In 2010, Advanzia followed a more ambitious
Our deposit customers are principally located in Germany
credit limit assignment strategy, as it was reassured by
and Luxembourg as well as, to a lesser extent, other Euro-
the positive development of the economy and also consi
pean countries. The deposit clients represent a different
dered that it possessed the required tools to safely assign
client segment than our credit card clients. The Bank
gradually higher credit limits. The application of these new
markets “Advanziakonto” mainly over the Internet, targe-
and better performing strategies have contributed to the
considerable increase in the loan balance in 2010. At the
Profit before income taxes in 2010 of EUR 8,8 million
same time, proving the efficacy of the Bank’s credit policy,
is considerably above budget and expectations, and
loan losses during 2010 have been contained at lower
154% above the prior year’s results. This achievement
levels in both relative and absolute terms than in 2009.
was driven by higher card loan balance yielding higher
interest income, lower than expected credit losses, while
During 2010, Advanzia also invested considerably in
operating costs were kept within budget. At the end of
anti-fraud measures, such as EMV (chip on the cards) and
2010, Advanzia’s capital ratio was 13,0%, well above the
MasterCard SecureCode. By introducing these measures,
statutory minimum requirement of 8%.
fraud attempts have considerably decreased, and fraud
losses have therefore been reduced by more than 50%
No significant event has occurred after 31st December
compared to 2009. Advanzia’s efforts to counter credit
2010.
card fraud are always ongoing, and the Bank is deeply connected and cooperative with the international network of
The Board of Directors is very pleased with the perfor-
corporations and agencies that devote time and resources
mance of Advanzia Bank S.A. during 2010. The Bank has
to fraud prevention.
increased sales, loan balance and profitability, while containing credit risk. The operating model of the Bank has
The Bank’s operating model is designed to fulfil the objec-
proven to be able to deliver both substantial growth and
tives of processing large client and transactional volumes,
profitability, and we look forward to future developments.
in an efficient organisation, at a low cost, with a relatively
small overhead, and where operational risk is contained
The economic outlook for Germany continues to remain
at a low level. This is achieved by outsourcing capital and
favourable, both seen in the context of the recent financial
labour intensive services to specialised third party provi-
crisis as well as the country’s long-term performance since
ders, permitting management to focus the team on its key
reunification in 1990. Despite the uncertainties related
competencies related to product development, sales, risk
to sovereign debt levels in the euro area, the expected
management and value chain optimisation.
development of the overall German economy and the
employment levels are expected to remain robust in 2011
At the end of 2010, there were 51 employees in Advanzia,
and going forward.
up from 50 in 2009. Operating expenses in 2010 remained
lean and well within budget. Excluding client acquisition
Against this backdrop, Advanzia Bank intends to pursue
costs, the cost/income ratio of the Bank was 25% in 2010.
growth assertively in the German and Luxembourg mar-
In the view of the Board of Directors, this performance
kets. The Bank expects to increase its base of credit card
reflects both the merits and scalability of Advanzia’s ope-
customers as well as its loan balance further in 2011. This
rating model.
growth will be matched by a corresponding development
in deposit volume to cover the funding needs. The Bank is
As a Luxembourg bank, Advanzia is a member of the
also foreseeing to upgrade components of its IT infrastruc-
deposit insurance scheme Association pour la Garantie des
ture to enable it to improve further its current processing
Dépôts Luxembourg (AGDL), which ensures client deposits
and product offering. To support its growth as well as
up to EUR 100 000. AGDL may change from today’s ex-post
maintain its relative solidity in 2011, Advanzia also expects
compensation scheme to a pre-funded scheme. In the
to develop its profitability accordingly.
event this occurs, Advanzia will be required to contribute
to this scheme. Advanzia Bank S.A. Annual Report 2010 19
Patrick Thilges, Business Analyst
Jean-Marc Barthélemy, Head of Chargeback
Pieter Verhoeckx, Chief Customer Relations Officer
Tor Erland Fyksen, Chief Risk Officer
Eirik Holtedahl, Deputy Chief Executive Officer /Chief Financial Officer
Paulo Bastos, Customer Relations Manager
Stelly Brito, Customer Relations Junior Officer
Board and Management
In 2010, the Board of Directors has consisted of the following persons:
Ms. Beatriz Malo de Molina, Norway (Chairman), Investment Director, Kistefos AS
Dr. rer. pol. Thomas Schlieper, Switzerland (Deputy Chairman)
Dr. Thomas Altenhain, Germany, Consultant
Mr. Tor Erland Fyksen, Luxembourg, Chief Operating and Risk Officer, Advanzia Bank
Mr. Christian Holme, Norway, Investment Analyst, Kistefos AS
Messrs. Dag Sørsdahl and Åge Korsvold, both residents of Norway, were board members until 23rd February 2010, when
they were succeeded by, respectively Ms. Beatriz Malo de Molina and Mr. Christian Holme. Ms. Malo de Molina then
assumed the role as Chairman of the Board.
The management of Advanzia has been organised in an Executive Management Committee, consisting of the Chief Executive
Officer and the Deputy Chief Executive Officer. The Executive Management Committee has delegated some of the management of the day-to-day business to a Management Committee which during 2010 has consisted of the following persons:
From left to right: Eirik Holtedahl, Pieter Verhoeckx, Marc Hentgen, Gregor Sanner and Tor Fyksen
Management:
Mr. Marc Hentgen, Germany, Chief Executive Officer, Chief Marketing Officer
Mr. Eirik Holtedahl, Luxembourg, Deputy Chief Executive Officer, Chief Financial Officer
Mr. Tor Erland Fyksen, Luxembourg, Chief Operating and Risk Officer
Mr. Petrus Johannes (Pieter) Verhoeckx, Luxembourg, Chief Customer Relations Officer
Mr. Gregor Sanner, Germany, has in March 2011 joined the Management Committee of Advanzia Bank S.A. assuming the
role of Chief Operations Officer.
Financial Statements
STATEMENT OF FINANCIAL POSITION AS AT 31 ST DECEMBER 2010
In thousands of EUR
ASSETS
Cash, balances with central banks
Note
2010
2009
13
15 811
15 656
351 627
266 462
Loans and advances
whereof: financial institutions
14
125 949
101 625
whereof: customers
15
225 678
164 837
Tangible assets
16
482
392
Intangible assets
17
502
439
Deferred tax assets
18
3 043
5 536
Other assets
19
344
310
371 809
288 795
Note
2010
2009
Amounts owed to financial institutions
20
5 000
0
Amounts owed to customers
21
328 915
257 310
Other liabilities
22
2 862
2 835
336 777
260 145
Total assets
In thousands of EUR
LIABILITIES & EQUITY
Total liabilities
Subscribed capital
23
16 279
16 279
Issue premiums
23
26 108
26 108
9, 23
80
0
Loss carried forward
23
-13 737
-16 211
Result for the financial year
23
6 302
2 474
35 032
28 650
371 809
288 795
Share-based payment reserve
Total equity
Total liabilities and equity
The notes are an integral part of these financial statements.
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st December 2010
In thousands of EUR
Note
Financial and operational income and expenses
2010
2009
40 526
35 112
Interest income
5
42 495
39 606
Interest expense
5
-5 229
-7 858
Commission income
6
5 373
4 228
Commission expense
6
-2 577
-1 876
Net exchange result
7
0
1
Other operating income
7
581
1.095
Other operational expense
8
-117
-84
-14 113
-10 678
9
-5 368
-4 684
10
-8 745
-5 994
-474
-322
Administrative expenses
Personnel expenses
General administrative expenses
Depreciations and amortisations on (in)tangible assets
Depreciation and amortisation on tangible assets
16
-179
-126
Depreciation and amortisation on intangible assets
17
-295
-196
Impairment on financial assets
11
-17 145
-20 648
8 794
3 464
-2 492
-990
Result on activities after taxes
6 302
2 474
Result for the year
6 302
2 474
Other comprehensive income for the year
0
0
Total comprehensive income for the year
6 302
2 474
Result on activities before taxes
Income taxes
12
STATEMENT OF CHANGES IN EQUITY
2010
Subscribed
capital
Issue
premiums
Share-based
payment
reserve
Loss carried
forward
Net profit or
loss for the
financial year
Total Equity
16 279
26 108
0
-16 211
2 474
28 650
Allocation to loss carried forward 21st June 2010
0
0
0
2 474
-2 474
0
Issue of employee stock option 22 September 2010
0
0
80
0
0
80
Result for 2010
0
0
0
0
6 302
6 302
16 279
26 108
80
-13 737
6 302
35 032
Subscribed
capital
Issue
premiums
Share-based
payment
reserve
Loss carried
forward
Net profit or
loss for the
financial year
Total Equity
15 027
24 449
0
-10 472
-5 739
23 265
0
0
0
-5 739
5 739
0
1 252
1 659
0
0
0
2 911
0
0
0
0
2 474
2 474
16 279
26 108
0
-16 211
2 474
28 650
In thousands of EUR
Equity 1st January 2010
nd
Equity 31st December 2010
2009
In thousands of EUR
Equity 1st January 2009
Allocation to loss carried forward 22nd June 2009
Capital increase 12 October 2009
th
Result for 2009
Equity 31st December 2009
STATEMENT OF CASH FLOWS
In thousands of EUR
2010
2009
Interest, commissions receipts
47 868
43 833
Interest, commissions payments
-7 806
-9 733
581
1 095
-14 230
-10 798
-35
-68
27
-2 499
26 405
21 830
OPERATING ACTIVITIES
Other receipts
Operating payments
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net cash flow from operating activities
2010
2009
(Increase) decrease in loans to financial institutions & others
-24 324
6 830
(Increase) decrease in loans to clients
-77 985
-25 769
-626
-614
-102 935
-19 553
FINANCING ACTIVITIES
2010
2009
Increase (decrease) in deposits from financial institutions
5 000
0
Increase (decrease) in deposits from clients
71 605
6 203
Increase (decrease) in shareholders' equity
80
2 911
76 685
9 114
155
11 391
15 656
4 265
155
11 391
15 811
15 656
INVESTMENT ACTIVITIES
Investments in tangible and intangible assets
Net cash flow from investment activities
Net cash flow from financing activities
Net cash flow
Opening balance, cash, balances with central banks
Net cash flow for the period
Ending balance, cash, balances with central banks
Please see note 13 regarding cash, balances with central banks.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently by Advanzia Bank S.A. (the
“Bank”) to all periods presented in these financial statements.
(a) Basis of consolidation
The Bank has no subsidiaries, shareholdings or similar in other entities, and thus there is no consolidation of financial statements. The Bank has no special purpose entities and thus there is no consolidation of the financial statements on this basis. The Bank does not manage and administer assets held
in unit trusts and other investment vehicles on behalf of investors during the reporting period or at
balance sheet date.
(b) Foreign currency
Transactions in foreign currencies are translated into the respective functional currency of the
operation at the spot exchange rate at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are retranslated into the functional currency
at the spot exchange rate at that date. The Bank had no operations in foreign currency during the
reporting period or at balance sheet date.
(c) Interest
Interest income and expense are recognised in the Statement of Comprehensive Income using the
effective interest method. The effective interest rate is the rate that exactly discounts the estimated
future cash payments and receipts through the expected life of the financial asset or liability (or,
where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When
calculating the effective interest rate, the Bank estimates future cash flows considering all contractual
terms of the financial instrument but not future credit losses.
The calculation of the effective interest rate includes all fees and points paid or received that are an
integral part of the effective interest rate. Transaction costs include incremental costs that are directly
attributable to the acquisition or issue of a financial asset or liability.
Interest income and expense presented in the Statement of Comprehensive Income include:
•
interest on financial assets and liabilities at amortised cost calculated on an effective interest
basis
The Bank has not had available-for-sale investment, securities, derivatives or similar during the
reporting period or at balance sheet date.
(d) Fees and commission
Fees and commission income and expenses that are integral to the effective interest rate on a financial
asset or liability are included in the measurement of the effective interest rate.
Other fees and commission income, interchange fee from MasterCard, including account servicing
fees, are recognised as the related services are performed.
Other fees and commission expense relate mainly to transaction and service fees, which are expensed
as the services are received.
(e) Lease payments made
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the
term of the lease.
(f) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the
Statement of Comprehensive Income except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of
previous years.
(g) Financial assets and liabilities
(i) Recognition
The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated
liabilities on the date at which they are originated.
(ii) Derecognition
The Bank writes off certain loans when they are determined to be uncollectible. The Bank derecog
nises a financial liability when its contractual obligations are discharged or cancelled.
(iii) Amortised cost measurement
The amortised cost of a financial asset or liability is the amount at which the financial asset or liability
is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and
the maturity amount, minus any reduction for impairment.
As the Bank applies no fees on credit cards in good standing, the effective interest rate is only governed
by the interest accrued on the accounts. Thus, the effective interest rate is the same as the effective
rate used when discounting future cash flows, and the net present value is then the same as the
current nominal value.
(iv) Fair value measurement
Fair value is the amount for which an asset could be exchanged or a liability settled between know
ledgeable and willing parties in an arm’s length transaction on the measurement date.
(v) Identification and measurement of impairment
At each balance sheet date the Bank assesses whether there is objective evidence that financial assets
are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event
has occurred after the initial recognition of the asset, and that the loss event has an impact on the
future cash flows of the asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower,
restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider,
indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market
for a security, or other observable data relating to a group of assets such as adverse changes in the
payment status of borrowers or issuers in the group, or economic conditions that correlate with
defaults in the group.
The Bank considers evidence of impairment for loans and advances at both a specific asset and
collective level. All individually significant loans and advances are assessed for specific impairment. All
individually significant loans and advances found not to be specifically impaired are then collectively
assessed for any impairment that has been incurred but not yet identified. Loans and advances and
held-to-maturity investment securities that are not individually significant are collectively assessed for
impairment by grouping together loans and advances and held-to-maturity investment securities with
similar risk characteristics.
In assessing collective impairment the Bank uses statistical modelling from either the Bank when
available, or from other sources (such as collection agencies, etc.) for similar types of loans and
defaults, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement
as to whether current economic and credit conditions are such that the actual losses are likely to
be greater or less than suggested by historical modelling. Default rates, loss rates and the expected
timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they
remain appropriate.
Impairment losses on assets carried at amortised cost are measured as the difference between the
carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected
in an allowance account against loans and advances. Interest on the impaired asset continues to be
recognised through the unwinding of the discount. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(h) Cash and cash equivalents
Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central
banks which are subject to insignificant risk of changes in their fair value, and are used by the Bank in
the management of its short-term commitments.
Cash and cash equivalents are carried at amortised cost in the Statement of Financial Position.
(i) Loans and advances
Loans and advances are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market and that the Bank does not intend to sell immediately or in the near
term.
Loans and advances are initially measured at fair value plus incremental direct transaction costs if any,
and subsequently measured at their amortised cost using the effective interest method.
(j) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased
software that is integral to the functionality of the related equipment is capitalised as part of that
equipment.
(ii) Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of
each part of an item of property and equipment. The estimated useful lives for the current and comparative periods are as follows:
•
IT equipment
3 years
•
fixtures and fittings
4-5 years
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
(k) Intangible assets
(i) Software
Software acquired by the Bank is stated at cost less accumulated amortisation and accumulated
impairment losses.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the
software, from the date that it is available for use. The estimated useful life of software is three years.
(ii) Deferred tax assets
Deferred tax is provided for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax
is measured at the tax rates that are expected to be applied to the temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits
will be available against which the asset can be utilised. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
(l) Deposits, debt securities issued and subordinated liabilities
Deposits, debt securities issued and subordinated liabilities are the Bank’s sources of debt funding.
The Bank classifies capital instruments as financial liabilities or equity instruments in accordance with
the substance of the contractual terms of the instruments, and as defined in IAS 32.
Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus
directly attributable transaction costs, and subsequently measured at their amortised cost using the
effective interest method, except where the Bank chooses to carry the liabilities at fair value through
profit or loss.
(m) Provisions
A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will
be required to settle the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
(n) Employee benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in
profit or loss when they are due.
(ii) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided.
(iii) Participation certificates
Participation certificates (PC) are instruments given to certain employees, which under some conditions will give a benefit to the holder. The fair value of the PCs is based on a vesting period, a minimum
profitability of the Bank and/or the prospect of an exit or listing. The cost of issuing these PC’s is recognised at their fair value in profit or loss and in liabilities.
(iv) Options to employees
The cost of issuing these options is recognised at their fair value in the profit or loss and in equity.
(o) Share capital and reserves
Incremental costs directly attributable to the issue of an equity instrument are deducted from the
initial measurement of the equity instruments.
(p) New standards and interpretations not yet adopted
The early adoption of the revised or new basically relevant standards/ interpretations for the Bank,
issued by the International Accounting Standards Board (IASB) or International Financial Reporting
Interpretation Committee (IFRIC) and adopted by the European Union, that has not become manda
tory until the end of the financial year 2010 or after, has been waived.
The following principles or accounting interpretations have become effective after 2010:
•
Improvements to IFRSs (EC regulation 70/2009) (excluding revisions to IFRS1 or IFRS5)
•
IAS 27: Consolidated and Separate Financial Statements (EC regulation 494/2009)
•
IFRIC 18: Transfer of Assets from Customers (EC regulation 1164/2009)
•
Improvements to IFRSs (EC regulation 243/2010)
The Bank is currently in the process of evaluating the potential effects of these standards. Given the
nature of the Bank’s operations, these standards are not expected to have a significant impact on the
Bank’s financial statements.
It is expected that these standards will be implemented to the extent that they will apply to the Bank,
when they are adopted by the EU and enter into force.
NOTES TO THE FINANCIAL STATEMENTS
Page
1.
Reporting entity
33
2.
Basis of preparation
33
3.
Use of estimates and judgements
33
4.
Segment reporting
35
5.
Net interest income
35
6.
Net fee and commission income
35
7.
Other operating income
35
8.
Other operating expense
35
9.
Personnel expenses
36
10. General administrative expenses 36
11. Impairment on financial assets
36
12. Income taxes
37
13. Cash, balances with central banks
37
14. Loans and advances to financial institutions 37
15. Loans and advances to customers
38
16. Tangible assets
39
17.
40
Intangible assets
18. Deferred tax assets
40
19. Other assets
40
20. Amounts owed to financial institutions
41
21. Amounts owed to customers
41
22. Other liabilities
41
23. Equity
41
24. Deposit guarantee scheme
44
25. Audit fees
44
26. Staff
44
27.
45
Related parties
1. Reporting entity
Advanzia Bank S.A. (“the Bank” or “Advanzia”) is a bank domiciled in the Grand Duchy of Luxembourg.
The address of the Bank’s registered office is 9, rue Gabriel Lippmann, Parc d’Activité Syrdall 2, L-5365
Munsbach, Luxembourg. The Bank’s street address has changed as of 1st January 2011 due to a change
of the name of the street on which the Bank is located.
The financial statements of the Bank as at and for the year ended 31st December 2010 include the
entire bank. The Bank does not have any subsidiaries or similar, and does not consolidate its accounts
or financial statements with other entities.
2. Basis of preparation
(a) Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by
the European Union in accordance with the Regulation No. 1606/2002 of the European Parliament and
of the Council on the application on International Accounting Standards..
The financial statements were authorised for issue by the Board of Directors on 12th April 2011.
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis, except for the Participation
Certificates (see Significant Accounting Policies and note 23).
(c) Functional and presentation currency
These financial statements are presented in euro, which is the Bank’s functional currency. Except as
indicated, financial information presented has been rounded to the nearest thousand euro.
(d) Significant events after Balance Sheet date
The Bank is not aware of any significant events after balance sheet date which would affect the 2010
financial statements.
3. Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amounts recognised in the financial
statements are described in note 3 and the Risks and Risk management/Basel 2 – Pillar 3 disclosure
section.
Key sources of estimation uncertainty
Allowances for credit losses
Assets accounted for at amortised cost are evaluated for impairment on a basis described in the
Bank’s procedures.
In general, the Bank assesses impairments on credit card loans collectively, as this is the most practical
approach given the number of credit card loans, and the average low exposure on each loan. An impair
ment assessment is applied to non-performing credit card loans to cover credit losses inherent in
portfolios of loans with similar credit risk characteristics when there is objective evidence to suggest
that they contain impaired loans.
For credit card loans, the Bank considers that there is objective evidence of impairment when a loan
or group of loans is 60 days or more past due. In addition the Bank analyses other traits to verify if
there is other objective evidence of impairment. An impairment allowance is assessed on the groups
of loans, categorised by the number of days past due, or other criteria. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine
the required input parameters, based on historical data and current economic conditions. The
accuracy of the allowances depends primarily on the estimates of collectability over time. The Bank
continuously assesses and monitors the collectability of delinquent loans.
In addition, the Bank may also apply allowances for impairment applied to financial assets evaluated individually, if there are particular events that warrant this. The assessment is made upon
management’s best estimate of the present value of the cash flows that are expected to be received.
In estimating these cash flows, management makes judgements about the nature of the delinquency
and the counterparty’s financial situation. Each impaired asset is assessed on its merits, and the work
out strategy and estimate of cash flows considered recoverable are independently approved by the
Credit Risk function.
Determining fair values
The Bank determines fair value for its financial assets and liabilities, and for assessing the carrying
value of its loans and assets which have been subjected to an impairment assessment by the Bank.
Financial asset and liability classification
The Bank’s accounting policies provide scope for assets and liabilities to be designated at inception
into different accounting categories in certain circumstances:
•
The Bank has not classified any of its financial assets or liabilities as “trading”.
•
The Bank has not classified any financial assets or liabilities at fair value through profit or loss.
•
The Bank has not classified any financial assets as held-to-maturity.
Qualifying hedge relationships
The Bank has not designated any financial instruments in qualifying hedge relationships.
Securitisations
The Bank has not securitised any of its portfolio during 2010.
4. Segment reporting
The Bank only has two main products, credit cards and deposit accounts which both are in the
retail banking business line, and mainly operates in Germany and Luxembourg, which in relation
to Advanzia’s products may be considered as one geographical area. The Bank is therefore not
performing any segment reporting. Furthermore, since the Bank is not quoted nor publicly traded, the
Bank is by IFRS 8.2(a) (ii) not required to perform any segment reporting.
5. Net interest income
Interest income
Interest income is earned on bank placements (including money market placements) and customer
loans:
In thousands of EUR
INTEREST INCOME
2010
2009
Financial institutions
935
1 673
Customers
41 560
37 933
Total interest income
42 495
39 606
Interest income is charged on impaired loans to consumers based on the effective interest rate method.
Interest expense
Interest expense is paid on loans from banks and customer deposits:
In thousands of EUR
INTEREST EXPENSE
2010
2009
0
0
Customers
-5 229
-7 858
Total interest expense
-5 229
-7 858
6. Net fee and commission income
Commission income is made up of interchange fees received from MasterCard and reminder fees
charged to credit card customers.
Commission expense includes account handling fees paid to banks as well as miscellaneous fees paid
to MasterCard.
7. Other operating income
Other operating income comprises all income not recorded elsewhere. In 2010, the amount also contains a repayment from a 2008 contribution to AGDL of EUR 366 614, see note 24.
8. Other operational expense
Other operating expense is made up of the net worth tax, which amounted to EUR 116 540 in 2010.
9. Personnel expenses
Personnel expenses include wages and salaries as well as social security and other costs. In addition,
some employees participate in a defined pension insurance contribution plan. The Bank’s cost for this
pension plan including applicable taxes was in 2010 of EUR 83 300 (2009: EUR 0). All pension contributions are paid in apart from applicable taxes, for which a provision of EUR 14 400 has been made.
Share-based payment transactions
The Bank introduced in 2008 a Participation certificate (PC) program offered to some of the employees
as a reward incentive. The issuance of PC’s is done at the Bank’s discretion which may change from
year to year. No PC’s have been allocated in 2010. The fair value of the PCs is at balance sheet date
assessed to be 0. For further description of the PCs, see note 23.
The CEO of Advanzia Bank S.A. was in 2010 awarded 2 252 Employee Stock Options (ESO). The options
are vested. In the absence of a market value of these options, the Bank has calculated the theoretical
value of issuing these ESOs. The valuation is done by using the Black-Scholes-Merton option pricing
model, with the following assumptions: American type call options, no dividend payments foreseen,
share price based on the company’s book value at the awarding date of EUR 179, maturity of options
on 1st March 2018, volatility based on volatility of peer banks, applying a risk free rate, and an effective
strike price of EUR 252,25, and discount of 15% due to non-voting rights and non transferability of the
shares. The estimated value for the options is EUR 79 598, which in accordance with IFRS 2, is recorded
as a personnel expense in 2010. Please also see note 23 for additional details.
10.General administrative expenses
These expenses consist of expenses related to the administration and operations of the Bank, such as
office rent and operations, operational lease payments, outsourced services etc., as well as customer
acquisition costs.
The Bank has future payment commitments arising from rental agreements, service agreements etc.,
covering multiple years, and which may be summarised as follows:
In thousands of EUR
less than
1 year
1 - 5 years
More than
5 years
As at 31st December 2010
1 129
490
0
As at 31st December 2009
929
1 054
0
COMMITMENTS
11.Impairment on financial assets
The Bank applies an allowance for impairment on loans that it considers to be impaired. Please see the
Risks and Risk management/Basel 2 – Pillar 3 disclosure section and note 3 regarding impairment of
loans. In addition, loans that are deemed uncollectible are written off.
The losses from impairment and write-offs of financial assets are composed as follows:
In thousands of EUR
IMPAIRMENT
2010
2009
Impairment (value adjustments)
-3 275
-14 015
Write-offs
-13 870
-6 633
Total impairments
-17 145
-20 648
The Bank completed in January 2010 a write down of collection cases deemed to have low recoverability, amounting to EUR 11,6 million. The Bank had previously made value adjustments of these cases
equivalent to the write downs. The write down impacted only the Statement of Financial Position.
12.Income taxes
The Bank has at balance sheet date a result on activities before taxes of EUR 8 794 457, which yields
a current income tax expense of EUR 2 514 335, when applying the applicable tax rate in 2010 of
28,59%. In addition, the Bank has adjusted the deferred tax asset due to an increase in the corporate
tax rate in 2011 (see note 18), resulting in a tax income of EUR 22 191, giving an overall income tax
expense in 2010 of EUR 2 492 144. The effective income tax rate for 2010 is 28,34%.
Since the Bank has been in an overall loss making situation since start-up in 2005, and these losses are
fiscally deductible from future profits (see Significant Accounting Policies, (f)) the Bank has calculated
a deferred tax asset (see note 18). Conversely, no income tax will be payable to the tax authorities on
the basis of the result in 2010.
13.Cash, balances with central banks
This item represents the placements with the Luxembourg Central Bank in order to comply with the
Bank’s minimum reserve requirements. The Bank holds no notes or coins at hand.
14.Loans and advances to financial institutions
This item includes nostro account balances as well as money market placements (term deposits) with
other financial institutions (banks). The money market placements have original maturities between
1 and 6 months.
The Bank has pledged a deposit of EUR 11,3 million as collateral for a guarantee given by Fokus Bank,
Norway in favour of MasterCard, in order to guarantee Advanzia’s payment obligations towards
MasterCard.
In thousands of EUR
2010
2009
10 316
2 339
Money market placements
115 633
99 286
Balance at 31st December
125 949
101 625
Nostro account balances
15.Loans and advances to customers
This item includes credit card loans to the Bank’s retail customers as well as a prepayment to MasterCard to cover the settlement of client transactions at balance sheet date.
In thousands of EUR
2010
2009
1 503
604
Credit card loans to retail customers
245 795
194 153
Impairment
-21 620
-29 920
225 678
164 837
2010
2009
29 920
15 905
-11 575
0
17 145
20 648
Write-offs (net of recoveries)
-13 870
-6 633
21 620
29 920
Loans and advances to customers at amortised cost
Prepayment to MasterCard
Allowances for impairments are estimated as follows:
In thousands of EUR
Balance at 1 January
st
Write-down of some delinq. bal. Jan. 2010 (bal. sheet transaction)
Impairment loss for the year
Charge for the year
The Bank completed in January 2010 a write-down of older delinquent balances to 85% of their
nominal value, which thus yielded a corresponding reduction of the impairment allowance. This writedown was completed as a balance sheet transaction. The charge for the year represents the change
in impairment amount on loan balances that either were or became delinquent during the year. The
write-offs reflect the changes to the impairment value for delinquent accounts that are written off,
and thus completely removed from the bank’s assets. These write-offs are recorded net of recoveries.
16.Tangible assets
IT
equipment
Fixtures
and fittings
Total
Balance at 1st January 2010
246
405
651
Acquisitions
260
9
269
0
-3
-3
Balance at 31st December 2010
506
411
917
147
195
342
99
210
309
0
0
0
246
405
651
131
128
259
Depreciation for the period
97
82
179
Impairment losses
0
0
0
Disposals
0
-3
-3
228
207
435
87
46
133
Depreciation for the period
44
82
126
Impairment losses
0
0
0
Disposals
0
0
0
131
128
259
Net tangible assets at 31st December 2010
278
204
482
Net tangible assets at 31st December 2009
115
277
392
In thousands of EUR
Cost
Disposals
Acquisitions
Disposals
Balance at 31 December 2009
st
Depreciation and impairment losses
st
17.Intangible assets
Purchased
software
Total
952
952
Acquisitions
358
358
0
0
1 310
1 310
646
646
Acquisitions
306
306
0
0
952
952
513
513
Amortisation for the period
295
295
0
0
808
808
317
317
Amortisation for the period
196
196
0
0
513
513
Net intangible assets at 31st December 2010
502
502
Net intangible assets at 31st December 2009
439
439
In thousands of EUR
Cost
Internal development
Internal development
Amortisation and impairment losses
Impairment losses
Impairment losses
18.Deferred tax assets
The Bank has been in an overall loss making situation since start-up in 2005, and these losses are
fiscally deductible from future profits (see Significant Accounting policies (f), and note 12). The Bank’s
performance since 2009 indicates that it is likely that these previous losses may be offset against
current and future tax payable. The Bank has therefore calculated a deferred tax asset on the accumulated losses at the tax rate prevailing at the respective year ends. For 2010, this claim amounts to
EUR 3 043 505 and has been computed at a tax rate of 28,8% which is the new applicable tax rate as of
1st January 2011.
19.Other assets
Other assets are made up of prepaid administrative expenses.
20.Amounts owed to financial institutions
The Bank had a deposit from a financial institution of EUR 5 million as at balance sheet date.
21.Amounts owed to customers
All amounts due to customers are repayable on a day to day basis.
22.Other liabilities
In thousands of EUR
2010
2009
508
315
Preferential creditors
1 214
1 048
Other provisions
1 140
1 472
AGDL provisions
0
0
2 862
2 835
Short term payables
Other provisions cover expected payments for goods or services delivered by balance sheet date, and
which are foreseen to become payable within the next 12 months.
23.Equity
The movements in the capital accounts have been as follows:
In thousands of EUR
ATTRIBUTABLE TO EQUITY
HOLDERS OF THE BANK
Share
capital
Share
premium
Share-based
payment
reserve
16 279
26 108
0
-13 737
28 650
Issue of employee stock options
0
0
80
0
80
Total comprehensive income (loss)
0
0
0
6 302
6 302
16 279
26 108
80
-7 435
35 032
15 027
24 449
0
-16 211
23 265
0
0
0
2 474
2 474
Increase paid in
1 252
1 570
0
0
2 822
Allocated costs
0
89
0
0
89
16 279
26 108
0
-13 737
28 650
st
Total comprehensive income (loss)
Loss
carried
forward Total equity
The recorded amount in the share based payment reserve originates from recognising the effect of
issuing employee stock options in 2010 recorded at fair value as per IFRS 7, please see description
below, as well as note 9.
Share capital and share premium
The share capital, share issue premiums, authorised capital (excluding subscribed share capital) and
voting and non-voting shares developed as follows during 2010:
Share capital
(EUR)
Issue premiums (EUR)
Authorised
capital (EUR)
Issued voting
shares
Issued nonvoting shares
1st January 2010
16 279 387
26 107 686
3 114 088
194 731
15 479
31 December 2010
16 279 387
26 107 686
3 114 088
194 731
15 479
DATE
st
The sum of share capital and premium amounts to EUR 42 387 073. This amount excludes issue costs
related to previous share capital increases.
As per IAS 32.37, issue costs related to capital increases are not to be included in the share capital
or premium. When including such issuance costs from previous years (in all EUR 141 850), the share
premiums would be EUR 26 249 536. The sum of the share capital and premiums would then be
EUR 42 528 923, which is the amount recorded in the Luxembourg Registre de Commerce et des
Sociétés.
As at 31st December 2010 the Bank held 2 252 Class G1 shares which serve as underlying assets for
the 2 252 employee stock options (cf. below), with a nominal value of EUR 2 815. These shares were
acquired from the CEO of the Bank in December 2009 at zero cost in relation to the establishment of
the stock option program, please also see note 9. These shares are to be considered treasury stock,
but as a consequence of being valued at no cost, the shares are not reducing the share capital.
The authorised capital excludes the subscribed share capital.
As at 31st December 2010, the 210 210 issued shares were distributed among the following share classes:
SHARE CLASS
Number of shares
Class A
12 964
Class A1
8 752
Class B
3 287
Class B1
14 561
Class C
115 713
Class D
39 454
Total voting shares
194 731
Class F
7 299
Class G
4 800
Class G1
3 380
Total non-voting shares
Total issued shares
15 479
210 210
Shares in share classes A-D are voting shares and have a nominal value of EUR 83,50 each. Shares in
share classes F-G1 have a nominal value of EUR 1,25 each, and have no voting rights. As at 31st December 2010 management owned 19 361 shares in Advanzia Bank S.A.
Dividends
Advanzia Bank S.A. has not declared nor paid any dividends for neither 2009 nor 2010.
Participation certificates
Advanzia Bank S.A. has established a “Participation certificate” (PC) program for its employees, where
the PCs under certain circumstances will entitle the holder to a pay-out, which is related to the value
of the Bank. The PCs have been distributed to some employees based on seniority and merit. See also
note 9.
In all, 1 960 PCs have been authorised and as at 31st December 2010, a total of 480 PCs were issued
and outstanding to certain employees (2009: 570 PCs). No PCs have been distributed in 2010. The
reduction in PCs from 2009 to 2010 is due to departure of employees.
The PCs will entitle the holder to a pay-out in the event of an exit (listing, asset sale, share sale) of
Advanzia, by mandatory redemption of the PCs or by statutory redemption of the PCs. Mandatory
redemption occurs if an employee leaves the Bank in accordance with certain terms (“good leaver”
clauses, by own decision etc.), and usually after three years. The Bank has the right, but is not obliged,
to perform a statutory redemption of the PCs after six years, and then at a rate of 25% of issued PCs
per year.
In the event of an exit, the value of a PC will be based on the transactional (i.e. sales) value of the
Advanzia shares, with adjustments for interest adjusted paid-in share capital, and the number of
outstanding shares and PCs. In the event of a statutory or mandatory redemption, the value of the PCs
will be based on the net asset value of the Bank’s assets and liabilities with adjustments for interest
adjusted paid-in share capital and statutory minimum reserves, and the number of outstanding shares
and PCs. The value of the PCs is subject to and contingent on sufficient available and distributable
accumulated profit.
As an exit as at 31st December 2010 was neither known nor foreseen, no value can be assessed on that
basis. As at 31st December 2010, the fair value of the PCs in the event of redemption would have been
EUR 0. As the fair value of the PCs in the event of a statutory or mandatory redemption is contingent
on considerable profitability, and that it is currently highly uncertain if sufficient profitability will be
reached to give the PCs a value in the time span of three to six years, no value can be assessed on that
basis.
Employee Stock Options (ESO)
The CEO of Advanzia has in 2010 been awarded 2 252 ESOs (cf. note 9). The ESOs underlying assets are
2 252 Class G1 shares in Advanzia Bank S.A. which are issued and outstanding (cf. above). The ESOs are
fully vested and may be exercised between 1st March 2013 and 1st March 2018.
24.Deposit guarantee scheme
The Bank is a member of the “Association pour la Garantie des Dépôts, Luxembourg A.s.b.l.” (AGDL).
The purpose of the AGDL is to establish a mutual deposit guarantee scheme in favour of the customers
of member financial institutions. As a member of AGDL, deposits in Advanzia were in 2010 guaranteed
up to EUR 100 000 per individual depositor. The coverage is 100% up to this limit.
In the event of a failure of one or several of AGDL’s member(s), the other members are required to
contribute on a pro-rate basis in relation to their respective shares of the overall insured deposit
amounts. Advanzia has not made any provisions for obligations that may arise from being a member
of AGDL.
In 2008, the Bank was required to make a contribution of EUR 2 809 839 to AGDL as a result of the
failure of the three Luxembourg banks Kaupthing Bank Luxembourg S.A., Glitnir Bank Luxembourg S.A.
and Landsbanki Luxembourg S.A. The entire AGDL obligation was recorded as a loss in the accounts of
Advanzia in 2008.
The Bank received in 2010 EUR 366 614 from AGDL as some of the assets in Kaupthing Bank
Luxembourg were recovered, liquidated and redistributed to the AGDL members. This amount is in
addition to the EUR 979 831 which was received/reversed in 2009 for the same AGDL obligation. The
amount in 2010 is recorded as Other income. See also note 7.
25.Audit fees
Provisions for and fees billed to the Bank by KPMG Audit, Luxembourg and other member firms of the
KPMG network during the year were as follows:
In thousands of EUR
AUDIT FEES
Audit fees
Audit related fees
Other fees
Total fees (excl. VAT)
2010
2009
134
131
0
5
43
13
177
149
These fees are also subject to a value added tax (VAT) of 15% which is not included in the figures above,
and are presented as part of the General administration expenses in the Statement of Comprehensive
Income.
26.Staff
The average number of persons employed during the financial year by the Bank was as follows:
2010
2009
4
4
Employees
47
46
Total
51
50
Senior Management
27.Related parties
Parent and ultimate controlling party
Kistefos AS, Norway has retained majority control of the shares during the year ended 31st December
2010. Kistefos AS is fully owned by Mr. Christen Sveaas, Norway. Kistefos does not, as per Norwegian
GAAP, consolidate its interest in Advanzia.
Transactions with board members and key management personnel
Except as disclosed elsewhere in the notes to the financial statements, members of the Board of Directors, key management personnel, Kistefos associates and their immediate relatives have transacted
with the Bank during the period as follows:
In thousands of EUR
2010
2009
1 937
1 378
Pensions
51
0
Loans
16
20
175
70
Remuneration
Other commitments
Interest rates charged on balances outstanding from related parties are the same as that would be
charged in an arm’s length transaction. Credit card loans are not secured and no guarantees have
been obtained.
No impairment losses have been recorded against balances outstanding during the period with key
management personnel, and no specific allowance has been made for impairment losses on balances
with key management personnel and their immediate relatives at the period end.
RISKS AND RISK MANAGEMENT/BASEL 2 – PILLAR 3
DISCLOSURE
Introduction
The following section provides an overview and analysis of the risks to which Advanzia Bank S.A. is
subject, and how the Bank manages such risks. As a Luxembourg bank, Advanzia Bank is also required
to disclose particular information about risks and risk management. This information is commonly
referred to as “Pillar 3”. This section also contains the information required for Pillar 3, and the annual
report 2010 including this section thus serves as the Pillar 3 disclosure of Advanzia Bank S.A..
Unless otherwise stated, all figures are in euro as at 31st December 2010.
Risk management: objectives and policies
The Board of Directors has overall responsibility for determining the Bank’s risk appetite as well as the
establishment and oversight of the Bank’s risk management framework.
The Bank’s risk management policies are established to identify and analyse the risks faced by the
Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank, through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.
The Bank has exposure to the following risks:
•
credit risk
•
liquidity risk
•
market risks
•
operational risks
•
concentration risks
•
fraud risks
•
counterparty credit risk
For managing risk, the following principles are followed:
•
The risk and own funds strategy is executed by the Bank’s management on behalf of the Board of
Directors in accordance to the business strategy as well as the type of risk involved. The Board of
Directors is responsible for and monitors the execution of the risk and own funds strategy.
•
For all types of risks relevant to the Bank, clearly defined processes and organisational structures
exist, and all the different tasks, expertises and responsibilities follow these.
•
For the purpose of the identification, measurements, steering as well as supervision of the different types of risk, adequate and compatible processes are determined and implemented. These
processes are designed to avoid conflicts of interest.
•
For all types of risks relevant to the Bank, appropriate limits are set and supervised.
•
All relevant risks are reviewed and reassessed at various intervals as a part of the Internal Capital
Adequacy Assessment Process (ICAAP).
Credit risk
Credit risk represents the single largest risk within the Bank. Credit risk is the risk of financial loss to the
Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and
arises principally from the Bank’s loans and advances to customers and other banks and investment debt
securities. For risk management reporting purposes, the Bank considers and consolidates all elements of
credit risk exposure (such as individual obligor default risk, country and sector risk).
Management of credit risk
The Board of Directors has delegated responsibility for the oversight of credit risk to the Executive
Management Committee, which further has delegated the responsibility to the Credit Committee
responsible for surveying and assessing credit risk. A Credit Risk Function, reporting to the Credit
Committee, is responsible for managing the Bank’s credit risk, including:
•
Formulating credit policies in consultation with business units, covering collateral requirements,
credit assessment, risk grading and reporting, documentary and legal procedures, and compliance
with regulatory and statutory requirements.
•
Establishing the authorisation structure for the approval and renewal of credit facilities. This
includes principles for customer acceptance, assignment of initial credit limits on credit cards, and
subsequent increases of credit card limits based on exhibited behaviour by the customer and in
accordance to estimated risk. Authorisation limits are allocated centrally as part of the automated
application process. Larger facilities, or facilities outside the ordinary automated process,
require approval by the Credit Risk Officer, Credit Risk Function, Credit Committee, Management
Committee or the Board of Directors as appropriate.
•
Reviewing and assessing credit risk. The Bank assesses all credit exposures in excess of designated
limits, prior to facilities being committed to customers by the business unit concerned. Renewals
and reviews of facilities are subject to the same review process.
•
Limiting concentrations of exposure to counterparties.
•
Providing advice, guidance and specialist skills to other units in the Bank to promote best practice
throughout the Bank in the management of credit risk.
Regular audits of business units and credit processes are undertaken by internal audit.
Exposure to credit risk
In thousands of EUR
Loans and advances
to customers
Loans and advances
to financial institutions
2010
2009
2010
2009
0
8
0
0
Impaired; 0-30 days past due
104
7
0
0
108
2
0
0
2 082
2 019
0
0
16 702
19 984
0
0
Impaired; 420 days + past due
22 010
24 678
0
0
0
0
0
0
Gross amount
41 006
46 698
0
0
Allowance for impairment
-21 620
-29 920
0
0
Carrying amount
19 386
16 778
0
0
19 253
15 718
0
0
3 848
3 753
0
0
23 101
19 471
0
0
Neither past due nor impaired
183 191
128 588
125 949
101 625
Carrying amount
183 191
128 588
125 949
101 625
Carrying amount - amortised cost
225 678
164 837
125 949
101 625
COLLECTIVELY IMPAIRED
Impaired; not past due
Impaired: Other assessment
PAST DUE BUT NOT IMPAIRED
0-30 days
30-60 days
Carrying amount
In addition to the above, the Bank had entered into lending commitments of EUR 839 million
(2009: EUR 517 million) with counterparties being neither past due nor impaired.
Impaired loans
Impaired loans are loans and advances for which the Bank determines that it is probable that it will
be unable to collect all principal and interest due according to the contractual terms of the loan. The
Bank assesses that credit card loans which are more than 60 days past due are to be considered as
impaired, and are fully due.
Past due but not impaired loans
Past due but not impaired loans are those for which contractual interest or principal payments are
past due but the Bank believes that impairment is not appropriate. These are loans, or groups of loans,
for which the Bank does not consider that there exists objective evidence of impairment.
Allowances for impairment
The Bank establishes an allowance for impairment losses on assets carried at amortised cost that
represents its estimate of incurred losses in its loan portfolio. The main components of this allowance
are a specific loss component that relates to individually significant exposures, and a collective loan
loss allowance established for groups of homogeneous assets in respect of losses that have been
incurred but have not been identified on loans that are considered individually insignificant as well as
individually significant exposures that were subject to individual assessment for impairment but not
found to be individually impaired. The Bank assumes that it over time will collect ca. 50% of balances
becoming delinquent. The bank is continuously monitoring the development of its recoverability.
Write-off policy
The Bank writes off a loan and any related allowances for impairment losses, when the Bank deter
mines that the loan or security is uncollectible. This determination is reached after considering
information such as the occurrence of significant changes in the borrower’s financial position such that
the borrower can no longer pay the obligation. Please see note 11 regarding a particular write-down
of certain delinquent accounts.
The Bank does not hold any collateral for its credit card loans, or other loans.
In general, credit card loans are well diversified and small (usually maximum up to EUR 10 000, and on
average EUR 1 132 at balance sheet date). The Bank also follows a policy of maximum concentration
per individual borrower or group of borrower.
In addition, the Bank monitors concentrations of credit risk by sector and by geographic location. An
analysis of concentrations of credit risk from loans and advances at the balance sheet date is presented below:
In thousands of EUR
Loans and advances
to customers
Loans and advances
to financial institutions
2010
2009
2010
2009
Banks
0
0
125 949
101 625
Retail
225 678
164 837
0
0
Total 31st December
225 678
164 837
125 949
101 625
224 407
163 336
8 089
1 774
1 271
1 501
117 860
99 851
225 678
164 837
125 949
101 625
CONCENTRATION BY SECTOR
CONCENTRATION BY LOCATION
Germany
Luxembourg and other EU/EEA countries
Total 31st December
Concentration by location for loans and advances is measured based on the location of the borrower.
Trading assets
The Bank did not hold any trading assets, including derivative assets held for risk management
purposes.
Settlement risk
The Bank’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of an entity to honour its obligations to deliver cash,
securities or other assets as contractually agreed. Due to the limited number of operations, the limited
size of transactions the Bank considers its settlement risk to be negligible, and considers that proper
operational routines are sufficient to mitigate the risk.
Advanzia only places its spare liquidity with other banks that are all to be individually assessed and for
larger exposures, also to be approved by the board of directors. These are banks that have minimum
requirements with respect to ratings (long-term, senior, unsecured ratings), and are mostly to be
considered as “systemic banks”. In addition, Advanzia has in 2010 imposed limitations on maximum
placements with each financial institution (25% of own funds, and applying risk weights in accordance
with the Pillar 1 solvency risk weightings). The Bank was as at balance sheet date also compliant with
the requirements in CSSF Circular 2010/475 regarding large exposures, and no exposure (without
applying any risk weights) to a group of counterparties exceeded 100% of own funds.
Fraud risk
Credit cards may be subject to fraudulent misuse, which usually can be categorised into application
fraud (where the identity of the card holder is incorrect), or usage fraud (which often is a result of
hacking or skimming). For the card industry in general, losses due to credit card fraud have increased
over the last years. This is caused by offenders being better organised and using more sophisticated
methods to commit fraud.
Advanzia has over the past years made several investments and taken measures to combat both types
of above-mentioned fraud. These measures include the so-called MasterCard SecureCode, which was
fully completed in 2010, as well as commencing the replacement of credit cards with EMV (electronic
chips) cards in 2010. Both measures, as well as others, have clearly had positive impacts for Advanzia,
as the fraudulent amount measured as ratio of card turnover has decreased from 0,62% in 2009 to
0,27% in 2010.
Liquidity risk
Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations associated with
its financial liabilities.
Management of liquidity risk
The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have suffi
cient liquidity to meet its liabilities when due as well as at all times maintain the statutory minimum
liquidity requirement, under both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Bank’s reputation.
The Bank projects cash flow from all its operations and activities on a daily basis for the next three to
four months. Cash flow estimates beyond this time frame are based on budget. The Bank then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities,
loans and advances to banks, to ensure that sufficient liquidity is maintained within the Bank as a
whole.
The daily liquidity position is monitored and regular liquidity stress testing is conducted under a
variety of scenarios covering both normal and more severe market conditions. All liquidity policies
and procedures are subject to review and approval by the Management Committee and the Board
of Directors. Weekly reports cover the liquidity position and main cash flows, and liquidity is also
covered further in the Bank’s monthly report to the Board of Directors.
The Bank relies on deposits from customers as its primary source of funding. The deposits from customers are repayable on demand. The short-term nature of these deposits increases the Bank’s liquidity
risk and the Bank actively manages this risk through maintaining competitive pricing and constant
monitoring of market trends. On an aggregate level, the customer deposits exhibit a high degree of
stability. During 2010, customer deposits in savings products increased by 28%.
Exposure to liquidity risk
The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to short
term liabilities from customers. For this purpose, net liquid assets are considered as including cash and
cash equivalents. The same calculation is used to measure the Bank’s compliance with the liquidity
limit established by the Bank’s regulator, CSSF. Details of the reported Bank ratio of net liquid assets to
deposits from customers at the reporting date and during the reporting period were as follows:
2010
2009
At 31st December
42%
45%
Average for the period
44%
48%
Maximum for the period
49%
52%
Minimum for the period
41%
45%
Residual contractual maturities of financial liabilities
31 ST DEC 2010
Carrying
amount
Gross
nominal
inflow/
outflow
Less than
1 month
1-3
months
3 months
to 1 year
1-5
years
More
than 5
years
5 000
-5 001
-5 001
0
0
0
0
Deposits from customers
328 915
-329 427
-329 427
0
0
0
0
Unrecognised loan commitments
838 829
-838 829
-838 829
0
0
0
0
1 172 744
-1 173 257
-1 173 257
0
0
0
0
Carrying
amount
Gross
nominal
inflow/
outflow
Less than
1 month
1-3
months
3 months
to 1 year
1-5
years
More
than 5
years
0
0
0
0
0
0
0
257 310
-257 688
-257 688
0
0
0
0
Unrecognised loan commitments
516 734
-516 734
-516 734
0
0
0
0
774 044
-774 422
-774 422
0
0
0
0
In thousands of EUR
NON-DERIVATE LIABILITIES
Deposits from banks
31 ST DEC 2009
In thousands of EUR
NON-DERIVATIVE LIABILITIES
Deposits from banks
The previous table shows the undiscounted cash flows on the Bank’s financial liabilities and unrecognised loan commitments on the basis of their earliest possible contractual maturity. The Bank’s
expected cash flows on these instruments vary significantly from this analysis. For example, deposits
from customers are expected to maintain a stable or increasing balance, and only a very small amount
of unrecognised loan commitments (i.e. the unused portion of credit card limit) may be expected to be
drawn down immediately.
The Gross nominal inflow / (outflow) disclosed in the previous table represents the contractual
undiscounted cash flows relating to the principal and interest on the financial liability or commitment.
Market risks
Market risks are the risks that changes in market prices, such as interest rates, equity prices, foreign
exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will
affect the Bank’s income or the value of its holdings of financial instruments. The objective of market
risk management is to manage and control market risk exposures within acceptable parameters, while
optimising the return on risk.
Advanzia’s exposure to interest rate risk is fairly limited. The Bank minimises this risk by matching the
duration (time until the interest rate may be adjusted) of the interest bearing assets with the duration
of the interest bearing liabilities. The Bank’s main asset class is net credit card loans and bank deposits
with short duration. The card lending rates may be changed at any time. The main liabilities are client
deposits, on which the rates may also be changed on short notice, thus changes in the two may be
matched as needed.
Under any circumstance, credit card loans and client deposits are usually not subject to sudden large
(but short-lived) aberrations in the underlying money market interest rates, which may occur on rare
occasions, and the Bank is thus in practice shielded from such shocks. The Bank also has placements
with other banks, either on nostro accounts or as money market placements (term deposits), but the
duration of the latter is usually kept at less than three months, and are thus considered to be in line
with the main other interest bearing asset/liability classes. The Bank monitors and reports interest
rate risk (using duration gap analyses), and has also pre-established levels to stay within (a cumulative
duration gap of maximum 20% within 365 days).
Management of market risks
Overall authority for market risks is vested in the Finance Department, which is responsible for the
development of market risk management policies (subject to review and approval by the Board of
Directors) and for the day-to-day review of their implementation. As the Bank has no trading portfolio,
there is no market risk associated with this.
As Advanzia only operates in euro, and holds no positions in other currencies, the Bank does not need
to recognise or manage any currency risk. A few suppliers may invoice in currencies other than euro,
but these are immediately translated to euro, and the currency risk as such is negligible.
Exposure to interest rate risk
The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in
the future cash flows or fair values of financial instruments because of a change in market interest
rates. Interest rate risk is managed principally through monitoring interest rate gaps and by matching
the duration of the assets and liabilities.
A summary of the Bank’s interest rate gap position as at balance sheet date is as follows:
31 ST DEC 2010
Carrying
amount
Less than
3 months
3-6
months
6-12
months
15 811
15 811
0
0
0
0
Loans and advances to banks
125 949
92 507
33 442
0
0
0
Loans and advances to customers
225 678
225 678
0
0
0
0
Total interest bearing assets
367 438
333 996
33 442
0
0
0
5 000
5 000
0
0
0
0
328 915
328 915
0
0
0
0
Total interest bearing liabilities
333 915
333 915
0
0
0
0
Gap
33 523
81
33 442
0
0
0
Cum. gap
33 523
81
33 523
0
0
0
9,1%
0,0%
9,1%
0
0
0
Carrying
amount
Less than
3 months
3-6
months
6-12
months
15 656
15 656
0
0
0
0
Loans and advances to banks
101 625
101 625
0
0
0
0
Loans and advances to customers
164 837
164 837
0
0
0
0
Total interest bearing assets
282 118
282 118
0
0
0
0
0
0
0
0
0
0
257 310
257 310
0
0
0
0
Total interest bearing liabilities
257 310
257 310
0
0
0
0
Gap
24 808
24 808
0
0
0
0
Cum. gap
24 808
24 808
0
0
0
0
8,8%
8,8%
0
0
0
0
In thousands of EUR
Note
Cash and cash equivalents
Deposits from banks
Cum. gap (%)
1-5 More than
years
5 years
31 ST DEC 2009
In thousands of EUR
Cash and cash equivalents
Deposits from banks
Cum. gap (%)
Note
1-5 More than
years
5 years
The cumulative gap (%) is calculated in relation to interest bearing items, measured at amortised cost.
The management of interest rate risk against interest rate gap limits is supplemented by monitoring
the sensitivity of the Bank’s financial assets and liabilities to various standard and non-standard
interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis
point (bp) parallel fall or rise in all yield curves worldwide and a 50 bp rise or fall in the greater than
12-month portion of all yield curves. An analysis of the Bank’s sensitivity to an increase or decrease
in market interest rates, assuming no asymmetrical movement in yield curves and a constant balance
sheet (Statement of Financial Position) position, is at balance sheet date as follows:
100bp
parallel
increase
100bp
parallel
decrease
50bp
increase
after 1 year
50bp
decrease
after 1 year
At 31st December
192
-192
0
0
112
-112
0
0
192
3
0
0
-3
-192
0
0
At 31st December
161
-161
0
0
107
-107
0
0
173
-36
0
0
36
-173
0
0
137
-137
0
0
80
-80
0
0
137
2
0
0
-2
-137
0
0
115
-115
0
0
76
-76
0
0
123
-26
0
0
26
-123
0
0
In thousands of EUR
SENSITIVITY OF PROJECTED NET
INTEREST INCOME 2010
2009
SENSITIVITY OF REPORTED EQUITY TO
INTEREST RATE MOVEMENTS 2010
At 31st December
2009
At 31st December
Interest rate movements affect reported equity due to increases or decreases in net interest income
and the fair value changes reported in profit or loss.
Operational risks
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated
with the Bank’s processes, personnel, technology and infrastructure, and from external factors other
than credit, market and liquidity risks such as those arising from legal and regulatory requirements
and generally accepted standards of corporate behaviour. Operational risks arise from all of the Bank’s
operations.
The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses
and damage to the Bank’s reputation with overall cost effectiveness and to avoid control procedures
that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by
the development of overall standards for the management of operational risk in the following areas:
•
requirements for appropriate segregation of duties, including the independent authorisation of
transactions
•
requirements for the reconciliation and monitoring of transactions
•
compliance with regulatory and other legal requirements
•
documentation of controls and procedures
•
requirements for the periodic assessment of operational risks faced, and the adequacy of controls
and procedures to address the risks identified
•
requirements for the reporting of operational losses and proposed remedial actions
•
development of contingency plans and disaster recovery plans
•
training and professional development
•
ethical and business standards
•
risk mitigation, including insurance where this is effective.
Compliance with bank standards is supported by a programme of periodic reviews undertaken by
internal audit. The results of internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the senior management of the Bank.
The amount to be set aside for operational risk as at 31st December 2010 was EUR 3 308 846, using the
“Basic Indicator Approach” (BIA).
Concentration risk
Given the limited individual balances (on average around EUR 1 100) and the large diversification of
credit card clients, Advanzia does not consider that there is material concentration risk related to
this product. The same applies to client deposits, which again are limited in average and maximum
amount, and well diversified in number.
The bank is applying limitations to the aggregate placements with other credit institutions or groups of
other credit institutions. As at balance sheet date, the bank was also in compliance with the new CSSF
Circular 10/450 on large exposures, and had no exposures exceeding 100% of regulatory capital
(cf. below).
There may be some product concentration risk as Advanzia is deriving most of its income from one
product line (credit cards).
Disaster Recovery Plan/Business Continuity Plan
For the purpose of a disaster recovery and the planning of the business continuity a crisis team and
an IT emergency plan are in place. Different crisis invoking events are covered such as the long-term
failure of the IT systems or disruption of the communication channels.
The disaster recovery and business continuity plan are updated in response to changes on an ongoing
basis in the business environment. The IT Department reviews the plan at least annually.
Capital management
Regulatory capital
The Bank’s regulator, the Commission de Surveillance du Secteur Financier (CSSF) sets and monitors
capital requirements for the Bank. According to applicable regulations relating to capital adequacy,
credit institutions are required to dispose of sufficient capital resources to cover different types of
risks. The minimum legal requirement is 8% of own funds (following CSSF’s definition) in relation to
its risk weighted balance. With effect from 1st January 2008 the Bank is complying with the provisions of the Basel 2 framework in respect of regulatory capital. The Bank is following the standardised
approach to credit risk and the Basic Indicator Approach for operational risk, in order to calculate the
Basel 2 Pillar 1 minimum requirements in 2010.
The Bank’s regulatory capital is analysed into two tiers:
•
Tier 1 capital, which includes ordinary share capital, share premiums, retained earnings, after
deductions for goodwill and intangible assets, and other regulatory adjustments relating to items
that are included in equity but are treated differently for capital adequacy purposes.
•
Tier 2 capital, which includes qualifying subordinated liabilities, collective impairment allowances
(limited to those credit portfolios where the standardised approach is used under Basel 2). During
the financial year and as at balance sheet date, the Bank had no tier 2 capital.
Various limits are applied to elements of the capital base. Qualifying tier 2 capital cannot exceed tier 1
capital; and qualifying term subordinated loan capital may not exceed 50% of tier 1 capital. There are
also restrictions on the amount of collective impairment allowances that may be included as part of
tier 2 capital.
Banking operations are categorised as banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and
off-balance sheet (Statement of Financial Position) exposures. As noted above, Basel 2 introduced a
risk-weighted asset requirement in respect of operational risk.
The Bank’s policy is to maintain a sufficient capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The impact of the level of capital
on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance
between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.
The Bank has complied with all externally imposed capital requirements throughout the period.
The Bank’s regulatory capital position at 31st December was as follows:
In thousands of EUR
TIER 1 CAPITAL
Note
2010
2009
Ordinary share capital
23
16 279
16 279
Issue premium
23
26 108
26 108
Share based payment reserve
23
80
0
Loss carried forward
23
-7 435
-13 737
Less intangible assets
17
-502
-440
-3 044
-4 409
31 486
23 801
0
0
31 486
23 801
Other regulatory adjustments
TIER 2 CAPITAL
Qualifying subordinated liabilities
Total regulatory capital
The Share based payment reserve is included in the Tier I capital, as the cost related to this has been
included in the Personnel expenses, and thereby affected Loss carried forward accordingly. Please see
notes 9 and 23.
The item Other regulatory adjustments is the allowance for first-time IFRS adoption on 1st January
2008, which consists of the effect of recognising the deferred income tax as an asset, and subsequent
adjustments for reductions in this asset.
Compliance with respect to capital adequacy (Pillar 1 and Pillar 2)
(a) Pillar 1
Management uses regulatory capital ratios in order to monitor its capital base, and these capital ratios
remain the international standards for measuring capital adequacy. The regulator’s approach to such
measurement based upon Basel 2 is now primarily based on monitoring the relationship of the capital
resources requirement (measured as 8 percent of risk-weighted assets including the operational risk
allowance) to available capital resources.
The capital ratio (Pillar 1) as at 31st December 2010 was 13,0% (2009: 14,5%).
(b) Pillar 2 (ICAAP)
The Bank has submitted its 2010 Internal Capital Adequacy Assessment Process (ICAAP) document
proposal. The regulator has in 2010 reverted to the Bank’s ICAAP document. Advanzia will submit its
ICAAP document for 2011 during 2011, as per regulatory requirements.
During the ICAAP process in 2010, Advanzia has been following a strategy of assessing all risk aspects
available, and considered their relevance. The Bank is to a larger degree also quantifying its assessments based on experience data. The Bank assesses its ICAAP on a monthly basis, which is reported to
the Board of Directors.
The ICAAP adjusted own funds at 31st December 2010 were EUR 30,6 million, which then gives a
Pillar 2 ratio of 12,7%, (2009: 13,8%), being above the board approved target of 8%, and within the
predefined risk appetite of Advanzia.
Capital allocation
Given the limited operational scope and product lines of the Bank, the Bank does not perform an
internal capital allocation procedure. The Bank’s policy in respect of capital management and allocation is reviewed and approved by the Board of Directors.
Munsbach, Luxembourg 12th April 2011
Mrs. Beatriz Malo de Molina
Chairman of the board
Dr. rer. pol. Thomas Schlieper
Dr. Thomas Altenhain
Deputy chairman of the board
Mr. Tor Erland Fyksen
Mr. Christian Holme
Advanzia Bank S.A.
9, rue Gabriel Lippmann
Parc d’Activité Syrdall 2
L-5365 Munsbach
Luxembourg

Annual report 2010

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