RNS Number:0283F
Magyar Fejlesztesi Bank
22 June 2006
Hungarian
Development Bank Ltd.
Unconsolidated Financial Statements and
Independent Auditor's Report
For the year ended 31 December 2005
Contents
Independent Auditor's Report
Unconsolidated Financial Statements
Unconsolidated Balance Sheet as at 31 December 2005
Unconsolidated Income Statement for the year ended 31 December 2005
Unconsolidated Statement of Changes in Shareholder's equity for the year ended
31 December 2005
Unconsolidated Cash Flow Statement for the year ended 31 December 2005
Notes to the Unconsolidated Financial Statements
Independent Auditor's Report
To the Shareholder of Hungarian Development Bank Ltd.
We have audited the accompanying unconsolidated balance sheet of Hungarian
Development Bank Ltd. (the "Bank") as at 31 December 2005 and the related
unconsolidated statements of income, shareholders' equity and cash flows for the
year then ended (the "unconsolidated financial statements"). The unconsolidated
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these unconsolidated financial statements based on our
audit.
We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the unconsolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the unconsolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The Bank is required to prepare consolidated financial statements under
International Accounting Standard 27. As explained in Note 2(a), the bank will
prepare consolidated financial statements which are expected to be published in
September 2006.
In our opinion, except for the effect on the unconsolidated financial statements
of the matter referred to in the preceding paragraph, the unconsolidated
financial statements present fairly, in all material respects, the financial
position of the Bank as at 31 December 2005 and the results of its operations
and its cash flows for the year then ended in accordance with International
Financial Reporting Standards.
17 March 2006
KPMG Hungaria Kft.
Istvan Henye
Partner
Hungarian Development Bank Ltd.
Unconsolidated Balance Sheet
as at 31 December 2005
(in millions of HUF)
Note 31 December 31 December
2005 2004
Cash and balances with the National Bank of
Hungary 5 7,964 2,346
Placements with other banks 6 152,054 135,336
Loans and advances to customers, net of
allowance for impairment losses 7 456,696 275,251
Available for sale securities 8 78,093 133,009
Investments in subsidiaries and associates 9 53,382 44,730
Other assets 10 28,127 9,719
Fixed assets 11 5,714 5,884
--------- ---------
TOTAL ASSETS 782,030 606,275
========= =========
Deposits from other banks and other
borrowed funds 12 444,036 319,683
Deposits from customers 13 62,257 21,058
Issued securities 14 131,576 127,461
Financial liabilities at fair value through 15 98 876
profit and loss
Other liabilities 16 17,403 20,232
--------- ---------
Total liabilities 655,370 489,310
--------- ---------
Subordinated debt 17 9,500 9,500
--------- ---------
Share capital 18 87,570 87,570
Share premium 18 - 52,036
Capital reserve 18 18,082 106,011
Statutory reserves 19 4,310 1,812
Retained earnings 7,198 (139,964)
--------- ---------
Total shareholder's equity 117,160 107,465
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY 782,030 606,275
========= =========
Commitments and contingencies 20 145,955 132,175
The accompanying notes to unconsolidated financial statements form an integral
part of these unconsolidated financial statements.
Hungarian Development Bank Ltd.
Unconsolidated Income Statement
for the year ended 31 December 2005
(in millions of HUF)
Note
2005 2004
Interest and similar income 38,670 42,267
Interest expense and similar charges (20,244) (19,133)
--------- ---------
Net interest income 22 18,426 23,134
Allowance release/(charge) for impairment losses 21 4,633 (8,167)
Fee and commission income 956 1,047
Fee and commission expenses (860) (949)
--------- ---------
Net fee and commission income 96 98
Gain from sale of investments 712 116
Allowance for impairment losses of investments in
subsidiaries and associates 21 (4,608) (3,916)
Dividend income 313 15
Net gains on foreign currency - 70
Other provision (charges)/releases 21 (2,265) 1,099
Other operating income 23 15,363 12,933
--------- ---------
Other operating income 13,411 14,117
General and administrative expenses 24 (10,362) (9,365)
Net loss on foreign currency (510) -
Other operating expenses 23 (868) (1,667)
--------- ---------
Other operating expenses (11,740) (11,032)
Profit before income tax 20,930 14,351
--------- ---------
Income tax 25 (6,047) (1,564)
--------- ---------
Dividend paid - -
--------- ---------
Net profit for the year 14,883 12,787
========= =========
The accompanying notes to unconsolidated financial statements form an integral
part of these unconsolidated financial statements
Hungarian Development Bank Ltd.
Statement of changes in Shareholder's equity
For the year ended 31 December 2005
(in millions of HUF)
Share Capital Share Premium Capital Reserve Statutory Reserves Retained Earnings Total
Note 18 18 18 19
Balance at 1
January 2004 87,570 52,036 106,011 678 (145,617) 100,678
========= ========= ========== ===== =========== ==========
General
Reserve - - - 1,134 (1,134) -
Dividend - - - (6,000) (6,000)
Net profit for
the year - - - - 12,787 12,787
------ ------ ------ ------ ------ ------
Balance at 1
January 2005 87,570 52,036 106,011 1,812 (139,964) 107,465
========= ========= ========== ======= =========== ==========
Reclassificati
on of the
equity - (52,036) (87,928) - 139,964 0
Revaluation of
financial
instruments - - - - 5,812 5,812
Dividend - - - - (11,000) (11,000)
Statutory
reserves - - - 2,498 (2,498) -
Net profit for
the year - - - - 14,883 14,883
------ ------ ------ ------ ------ ------
Balance at 31
December 2005 87,570 0 18,082 4,310 7,198 117,160
========= ==== ========= ======= ======= ==========
The accompanying notes to unconsolidated financial statements form an integral
part of these unconsolidated financial statements.
Hungarian Development Bank Ltd.
Unconsolidated Cash Flow Statement
for the year ended 31 December 2005
(in millions of HUF)
Note
2005 2004
Cash flows from operating activities
Net profit/(loss) for the year before taxes 20,930 14,351
Adjustments to reconcile net profit/(loss) to
cash provided by operating activities
Depreciation and amortization 1,149 976
Allowance for impairment losses of loans 21 (6,117) (3,426)
Allowance (release)/charge for impairment losses of
investments in subsidiaries and associates 21 (1,017) 3,858
Allowance (release)/charge for impairment losses of
other assets 21 (232) 13
(Release) in other risk provision 21 (11,243) (10,136)
(Loss) / Profit on sale of fixed assets (24) 411
Changes in operating assets and liabilities
Increase in placements with other banks 124,352 87,752
(Decrease) in deposits from other banks and borrowed
funds (16,719) (97,148)
(Increase)/decrease in loans and advances to
customers, before allowances (175,329) 21,273
Increase/(decrease) in deposits from customers 41,199 (1,934)
(Increase) in accrued interest receivable and other
accruals (8,230) (1,116)
Decrease/(increase) in accrued interest payable and
other accruals 721 (584)
(Increase)/decrease in other assets, before (9,945) 25,488
allowances
Increase in other liabilities 7,694 119
Income tax paid and deferred tax 25 (6,047) (1,564)
(Decrease) in financial instruments held for hedging (778) (1,605)
-------- ---------
Net cash provided by/(used in) operating activities (39,636) 36,728
Cash flows from investing activities
Decrease in securities 54,916 12,146
Increase in investments in subsidiaries and
associates, before allowance (7,635) (36,414)
Proceeds from sale of fixed assets 80 161
Acquisition of fixed assets (1,033) (1,662)
-------- ---------
Net cash provided by/(used in) investing activities 46,328 (25,769)
Cash flows from financing activities
Proceeds from bond issue 4,114 (5,713)
Revaluation of financial instruments 5,812 -
Dividend not paid during the year (8,000) -
Dividend paid during the year (3,000) (6,000)
-------- ---------
Net cash provided by/(used in) financing activities (1,074) (11,713)
Net increase/(decrease) in cash and cash equivalents 5,618 (754)
======== =========
Cash and cash equivalents as at 1 January 5 2,346 3,100
Cash and cash equivalents as at 31 December 5 7,964 2,346
The accompanying notes to unconsolidated financial statements form an integral
part of these unconsolidated financial statements.
Hungarian Development Bank Ltd.
Notes to Unconsolidated Financial Statements
For the year ended 31 December 2005
(In millions of HUF)
1. PRINCIPAL ACTIVITIES
The Hungarian Development Bank Ltd. (the "Bank" or "HDB") is registered as a
joint-stock company under Hungarian law and is licensed to conduct commercial
banking activities in Hungarian Forint and in foreign currency. The Bank is
primarily engaged in long-term lending and investment management activities.
The legal status and the activities of the Bank are regulated by Act XX of 2001
which came into force on 15 June 2001.
The Bank's registered office is located at Nador u. 31, Budapest, Hungary. The
Bank is 100% owned by the Hungarian State. In 2005, the rights of ownership were
exercised by the Ministry of Economy and Transport. The average number of
employees was 355 in 2005 (2004: 314).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted by the Bank in preparation of these
unconsolidated financial statements are as follows:
(a) Basis of presentation
These unconsolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") adopted by the
International Financial Reporting Interpretations Committee ("IFRIC") and
interpretations issued by the Standing Interpretations Committee, except for IAS
27, Consolidated Financial Statements and Accounting for Investments in
Subsidiaries. Under IAS 27, the Bank is required to prepare consolidated
financial statements. Consolidated financial statements are in the process of
being prepared and will be published in September 2006. These unconsolidated
financial statements have been prepared for information purposes.
The Bank maintains its accounting records and prepares its statutory financial
statements in accordance with the relevant accounting, banking and fiscal
regulations prevailing in Hungary. In order to present these unconsolidated
financial statements in accordance with IFRS, certain adjustments have been made
to the Hungarian statutory financial statements. The effect of these adjustments
on net income for the year and shareholders' equity is detailed in Note 32.
Foreign exchange rates were as follows as at 31 December 2005: 213.58 HUF/USD
and 252.73 HUF/EUR.
These unconsolidated financial statements are presented in Hungarian Forints
("HUF"), rounded to the nearest million ("MHUF").
(b) Adoption of new and revised International Financial Reporting Standards
In the current period, the Bank has adopted all of the new and revised IFRS and
Interpretations issued by the International Accounting Standards Board (the
IASB) and the International Financial Reporting Interpretations Committee
(IFRIC) of the IASB that are relevant to its operations and effective for
accounting periods beginning on 1 January 2005.
(c) Foreign currency translation
Transactions in foreign currencies are translated to HUF at the foreign exchange
rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated to
HUF at the foreign exchange rates quoted by the National Bank of Hungary at that
date. Foreign exchange differences arising on translation are recognised in the
income statement.
(d) Derivative financial instruments
The Bank uses derivative financial instruments, interest rate swaps and forward
exchange contracts to manage its exposure to foreign exchange and interest rate
risks arising from business activities. The Bank does not hold or issue
derivative financial instruments for trading purposes.
The recognition of income/expenses relating to derivative transactions is on a
mark-to-market basis. Value changes are immediately recognised in the income
statement.
(e) Financial assets and liabilities
i. Classification
Financial asset or liability at fair value through profit and loss are those
that the Bank principally holds for the purpose of short term profit taking.
These include investments, bonds, certain purchased loans, fair value hedges and
derivative contracts that are not designated and effective hedging instruments,
and liabilities from short sales of financial transactions.
Originated loans and receivables are loans and receivables created by the Bank
other than those created with the intention of short term profit taking.
Originated loans and receivables comprise loans and advances to banks and
customers, and advances except purchased loans.
Held to maturity assets are financial assets with fixed or determinable payments
and fixed maturity that the Bank has the intent and ability to hold to maturity.
Available for sale assets are financial assets that are not held for trading
purposes, originated by the bank or held to maturity. Available for sale
instruments include money market placements and certain debt and equity
investments.
ii. Recognition
Financial assets and liabilities are entered into the Bank's books on the trade
day, except for derivative assets, which are entered on the settlement day.
Financial instruments are measured initially at cost, including transaction
costs.
iii. Measurement
Subsequent to initial recognition, all fair value through profit and loss
instruments and all available for sale assets are measured at fair value. When
no quoted market price exists in an active market and fair value cannot be
reliably measured, these instruments and assets are stated at cost including
transaction costs.
The effect of the valuation of the profit and loss instruments is recognised
directly in the income statement and the effect of the valuation of the
available of the sale assets is recognised in the equity.
All held to maturity financial instruments and originated loans and receivables
are measured at amortised cost less impairment. Premiums and discounts,
including initial transaction costs, are included in the carrying amount of the
related instrument and amortised based on the effective interest rate of the
instrument.
iv. Fair value measurement principles
The fair value of financial instruments is based on their quoted market price at
the balance sheet date without any deduction for transaction costs. If a quoted
market price is not available, the fair value of the instrument is estimated
using pricing models or discounted cash-flow techniques.
Where discounted cash-flow techniques are used, estimated future cash-flows are
based on the management's best estimates and the discount rate is a market
related rate at the balance sheet date for an instrument with similar terms and
conditions. Where pricing models are used, inputs are based on market related
measures at the balance sheet date.
The fair value of derivatives that are not exchange-traded are estimated at the
amount that the Bank would receive upon normal business conditions to terminate
the contract at the balance sheet date taking into account current market
conditions and the current creditworthiness of the counterparties.
(f) Investments in subsidiaries and associates
Equity investments classified as controlling interest comprise those investments
where the Bank through direct ownership interest, has the power to govern the
financial and operating policies of the investee. Equity investments classified
as significant interest comprise those investments where the Bank through direct
ownership interest, has the power to participate in the financial and operating
policies of the investee, but not to control those activities. Other equity
investments comprise other share holdings, which do not meet the preceding
criteria.
The investment portfolio includes investments that the Bank has the intent to
hold long term in its portfolio. Long term investments are determined as
follows:
1. Act XX of 2001 determines the allowable fully controlled equity investments.
2. The Bank classifies investments in associates held in its portfolio from
equity-debt conversions as long term investments.
3. The investment portfolio includes investments managed under the Equity
Investment Program. Based on this Program the ownership in these investments
cannot exceed 49% and the Bank is obliged to disinvest at the end of the 5th-12
th year after making the investment.
All investments are shown at cost less impairment.
(g) Fixed assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
charged to the income statement on a straight-line basis over the estimated
useful lives of items of property, plant and equipment. Freehold land, works of
art, asset under construction, tangibles out of operating are not depreciated.
The depreciation rates based on the estimated useful lives are as follows:
Property and plant 2-6%
Rights on property 1-50%
Investment on rented property 17%
Office and other machinery and equipment 14.5-20%
Mobiles 50%
Motor vehicles 20%
Computer equipment 17-33%
Software 12.5-33%
Other intangible assets 17-33%
(h) Impairment of financial assets
The Bank reviews its loan portfolios to assess impairment on a quarterly basis.
Impairment losses are charged against the carrying amount of loans and advances
that are identified as being impaired based on these reviews of outstanding
balances and reduce these loans and advances to their recoverable amounts
calculated on the basis of discounted future cash flows. Impairment losses are
charged against income for the period.
If in a subsequent period, the amount of impairment loss decreases, changes in
recoverable amounts are recognised through the income statement.
(i) Issued securities
The issued bonds are stated in the books at purchase price, modified by the
amortisation of the issuance cost and premium or discount.
(j) Statutory reserves
i. General reserve
In accordance with Section 75 of Hungarian Act No. CXII of 1996, a general
reserve equal to 10% of the net post tax income is required to be made in the
Hungarian statutory accounts. The general reserve, as calculated under Hungarian
Accounting and Banking Rules in the International Financial Statements, is
treated as appropriations against retained earnings, and is not charged against
income.
ii. General risk reserve
Under Section 87 of Hungarian Act No. CXII of 1996, a general risk reserve of
1.25% of the risk weighted assets may be made. The general risk reserve, as
calculated under Hungarian Accounting and Banking Rules in the International
Financial Statements, is treated as appropriations against retained earnings,
and is not charged against income.
(k) Interest and fee income and expense
Interest is accrued and credited to income based on the principal amount
outstanding. The accrual of interest on loans is discontinued when, in the
opinion of management, there is an indication that a borrower may be unable to
meet payments as they come due. In these unconsolidated financial statements,
all unpaid interest is reversed upon such discontinuance and maintained in an
off-balance sheet suspense account.
(l) Dividend income
Dividends are recognised in the current income statement, if the dividends are
declared before the balance sheet preparation date.
(m) Transactions in foreign currency
The accounting records of the Bank are maintained in Hungarian Forints (HUF).
Transactions denominated in other currencies are translated at exchange rates
ruling at the date of the transaction. Assets and liabilities denominated in
other currencies are translated at rates ruling at the balance sheet date. Gains
and losses on exchange are recognised in the statement of income for the year.
(n) Income taxes
Income tax on the profit or loss for the year is comprised of current and
deferred tax. Income tax is recognised in the income statement 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 substantially enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Income taxes contain the extra tax for financial instutions, which was
introduced from 2005. The base of the tax is the profit before taxation and the
rate of the extra tax is 8 %.
Deferred tax is calculated using the balance sheet liability method, providing
for temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. The
amount of deferred tax provided is based on the expected manner of realisation
or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantially enacted at the balance sheet date.
Under Hungarian tax legislation, banks cannot carry forward tax losses.
(o) Statement of cash flows
For the purposes of reporting cash flows, cash and cash equivalents include
cash, balances and placements with the National Bank of Hungary except those
with more than three months maturity.
(p) Reclassification
Certain items previously reported in the prior year financial statements have
been reclassified to conform with the current year presentation.
(q) Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and returns that are different from those of segments operating
in other economic environments.
The Bank does not identify any business or geographic segments, therefore no
segment reporting is prepared on the non-consolidated level.
3. SUMMARY OF SIGNIFICANT RISK MANAGEMENT POLICIES
The most significant business risks to which the Bank is exposed are credit,
interest rate, liquidity and foreign exchange risks. Risk management policies
are set by the Board of Directors of the Bank within the rules established by
the National Bank of Hungary and the Hungarian Financial Institutions
Supervision. The Board implements these policies. The Bank has established
reporting systems, which permit monitoring of risk exposures.
The Bank contracts transactions in the ordinary course of business in various
currencies and uses the various financial instruments at its disposal. On and
off-balance sheet financial assets and liabilities are denominated in these
various currencies and, unless otherwise stated, are stated at year end FX
rates, unless accounted for as a hedge. Banking transactions, unless otherwise
stated, are effected at market rate.
(a) Credit risk
Credit risk is the risk that a customer or counterparty of the Bank will be
unable or unwilling to meet a commitment that it has entered into with the Bank.
It arises from lending, investment and other activities undertaken by the Bank.
Credit risk is managed by the Board of Directors which establishes credit
regulations including the approval process, discretionary credit limits,
portfolio concentration guidelines, standards for the measurement of credit
exposures, risk ratings of clients and assessments of management quality and
financial performances.
Each outstanding loan and investment is reviewed quarterly. Loans are classified
based on a point rating system, which incorporates qualitative and quantitative
factors.
(b) Interest rate risk
Interest rate risk is measured by the extent to which changes in market interest
rates impact on margins and net interest income. Gaps in the value of assets,
liabilities and off-balance sheet instruments that mature or reprice during a
given period generate interest rate risk. The Bank reduces this risk by matching
the repricing of assets and liabilities using pricing/maturity techniques,
including the use of derivative products.
Interest rate risk is managed by the Board of Directors through the mandate
given to the Asset-Liability Committee, which establishes and delegates position
limits, and monitors such limits to restrict the effect of movements in interest
rates on current earnings and on the value of interest sensitive assets and
liabilities.
(c) Liquidity risk
The Bank's policy is to manage the structure of its assets and liabilities and
commitments in ways which create opportunities to maximize income while ensuring
that funds will be available to honour all cash outflow obligations as these
become due. Expected cash flows and daily liquidity reports are provided to
management to enable timely liquidity monitoring.
(d) Foreign exchange risk
The Bank has assets and liabilities, both on and off-balance sheet, denominated
in various foreign currencies. Foreign exchange risk arises when the actual or
forecasted assets in a foreign currency are either greater or less than the
liabilities in that currency. The Bank manages the currency structure of assets
and liabilities on and off-balance sheet, utilising forward foreign exchange
transactions and other hedging instruments.
It is the policy of the Bank that it should not speculate in currencies and
should only take currency positions within strict limits. The Board of Directors
establishes and monitors specific regulations based on statutory and internal
limits, and approves the overall strategy. Adherence to these limits, including
intra day limits, is monitored continuously.
The Foreign Exchange Guarantee Agreement between the Bank and the Hungarian
Ministry of Finance was signed on 27 January 2004 with retroactive effect. This
agreement manages foreign exchange risks of the Bank's foreign currency
borrowings (Euro). Based on this agreement, State compensates any foreign
exchange loss of the Bank arising from the placements denominated in other than
Euro. However, the Bank is required to pay to the State the amount of realised
foreign exchange gains on these transactions at the final maturity of the
borrowings or upon introduction of the Euro as the official currency of Hungary.
The state guarantee maximum underlying amount is declared by law and was HUF 900
billion in 2005. (2004.: HUF 530 billion)
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING
ACCOUNTING POLICIES
The Bank makes estimates and assumptions that affect the reported amounts of
assets and liabilities within the next financial year. Estimates and judgements
are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances.
The Bank reviews its loan portfolios to assess impairment at least on a
quarterly basis. In determining whether an impairment loss should be recorded in
the income statement, the Bank makes judgements as to whether there is any
observable data indicating that there is a measurable decrease in the estimated
future cash flows from a portfolio of loans before the decrease can be
identified with an individual loan in that portfolio. This evidence may include
observable data indicating that there has been an adverse change in the payment
status of borrowers in a group, or national or local economic conditions that
correlate with defaults on assets in the group. Management uses estimates based
on historical loss experience for assets with credit risk characteristics and
objective evidence of impairment similar to those in the portfolio when
scheduling its future cash flows. The methodology and assumptions used for
estimating both the amount and timing of future cash flows are reviewed
regularly to reduce any differences between loss estimates and actual loss
experience.
5. CASH AND BALANCES WITH THE NATIONAL BANK OF HUNGARY
2005 2004
Cash 199 305
Balances with the National Bank of Hungary:
Obligatory reserve in HUF 2,906 127
Other 4,859 1,914
-------- --------
7,964 2,346
======== ========
According to the National Bank's regulation, the Bank is required to place 5 %
of certain customer deposit as a statutory reserve. The rate of this reserve in
2004 was 5%.
6. PLACEMENTS WITH OTHER BANKS
2005 2004
Maturity within one year 47,880 69,523
Maturity between one and five years 70,023 48,747
Maturity over five years 34,151 17,066
-------- --------
152,054 135,336
======== ========
Placements with maturity over one year include placements with the National Bank
of Hungary totaling MHUF 330 (2004: MHUF 962).
Placements with other banks as at 31 December 2005 and 2004 can be broken down
by weighted average rates as follows:
2005 2004
Placements in HUF 3.55 % 4.72%
Placements in foreign currency 2.15 % 2.24%
The main part of the placements with other banks in 2005 belongs to the long
term refinancing loans which is the source of the customer loans of commercial
banks.
7. LOANS AND ADVANCES TO CUSTOMERS, NET OF ALLOWANCE FOR
IMPAIRMENT LOSSES
2005 2004
Maturity within one year 298,156 85,099
Maturity between one and five years 107,350 157,409
Maturity over five years 99,014 86,686
-------- --------
504,520 329,194
Allowance for impairment losses (see Note 21) (47,824) (53,943)
-------- --------
456,696 275,251
======== ========
Loans as at 31 December 2005 and 2004 can be broken down by weighted average
rates as follows:
2005 2004
Loans in HUF 8.19 % 10.73 %
Loans in foreign currency 3.71 % 2.99 %
8. AVAILABLE FOR SALE SECURITIES
31 December 2005 31 December 2004
Purchase price Unrecognized Gain/(Loss) Book Value Purchase price Unrecognized Gain/(Loss) Book Value
---------- ------------- ------------ ------------ ------------- ----------
Government
Bonds 69,706 2,800 72,506 126,271 1,421 127,692
Other 3,440 0 3,440 3,440 0 3,440
Bonds
MNB 2,129 18 2,147 1,797 80 1,877
Bonds
Total 75,275 2,818 78,093 131,508 1,501 133,009
-------- ------- -------- --------- ------- ---------
During 2004, the Bank reclassified its held to maturity financial assets to
available for sale assets. Accordingly, all held to maturity assets must be
classified as available for sale asset for the next financial year.
Investments in debt securities as at 31 December 2005 and 2004 can be broken
down by currency and actual interest rates as follows:
2005 2004
Hungarian Government within one year in HUF 6.5% 9.25-11.09%
Hungarian Government between one and five years in 6.25-9.25% 6.25-9.25%
HUF
Other banks between one and five years in HUF 7.9% 12%
Hungarian Government between one and 5 years in
Foreign Currency 6.5% 6.5%
Corporate bonds between one and five years in HUF 8.74-9.8% 8.74-9.8%
9. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES
2005 2004
Controlling interest 45,873 39,543
Significant interest 15,977 14,092
Other 982 1,562
-------- --------
62,832 55,197
Allowance for impairment (see Note 21) (9,450) (10,467)
-------- --------
53,382 44,730
======== ========
The Bank's controlling interest as at 31 December 2005 and 2004 were as follows:
Name of the company HDB Direct Ownership 2005 HDB Direct Ownership 2004
Controlling interest
Corvinus Nemzetkozi
Befektetesi zRt. 100% 77.79%
Defend Security Kft.
"V.a." 60% 60%
Magyar Exporthitel
Biztosito zRt. 74.95% 74.95%
Magyar Export-Import
Bank zRt. 74.95% 74.95%
Magyar Koveteleskezelo
zRt. 100% 100%
Magyar Kozmu zRt. 100% 100%
MFB Uzemeltetesi Kft. - 100%
Nemzeti
Ingatlanfejleszto es
Lakasberuhazo zRt. 100% 100%
Toketars Kft. "V.a." - 99.99%
Vecsei 2005 Kft. 100% -
The Bank's significant interest as at 31 December 2005 and 2004 were as follows:
Significant interest HDB Direct Ownership 2005 HDB Direct Ownership 2004
---------------------- --------------- ----------------
---
Aranykapu zRt. 48.94% 49%
Budai Egeszsegkozpont
Kft. 49% 49%
Civil Biztonsagi
Szolgalat zRt. 48.72% 48.72%
Csepany es Tarsai Kft. 48.62% -
Debreceni Hus Rt. 49% 48.99%
Ganz Transelektro
Villamossagi zRt 41.98% 41.98%
Grafika Press Rt. 48.98% -
Intergas Hungaria zRt. 48.78% 48.78%
Kenguru Gold Kft. 48.99% -
Kenguru Kid Kft. 48.98% -
Kiskunhalasi
Baromfifeldolgozo Rt. 47.85% 47.85%
Lamba Rt. "F.A." 48.84% 48.84%
Laurel Kft. 48.73% -
Monofix zRt. 48.89% -
Organica zRt. 48.97% -
Polus Palace zRt. 48.99% 48.99%
Print-X Nyomdaipari
zRt. 47.99% 47.99%
Skublics es Tarsai
Kft. 48.89% -
Studio 96. zrt. 49% -
Szalok Holding zRt. 48.93% 48.93%
Viktoria Gem Kft. 48.78% 48.78%
All of the above investee companies are incorporated in Hungary.
10. OTHER ASSETS
2005 2004
Accrued interest receivables and other accruals 13,997 5,767
Receivables from the State (exchange rate risk guarantee) 11,038 1,421
Advances 20 18
Other 2,502 2,346
Trade receivables 5 110
Taxation recoverable 584 308
-------- --------
28,146 9,970
Allowance for other assets (see Note 21) (19) (251)
28,127 9,719
======== ========
11. FIXED ASSETS
Intangible assets Land and buildings Equipment Assets under construction Total
Gross value
At the
beginning of
the year 3,177 2,638 2,446 362 8,623
Additions 610 114 269 993 1,986
Disposals - 36 208 952 1,196
------- ------- ------- -------- ------
At the end of
the year 3,787 2,716 2,507 403 9,413
------- ------- ------- -------- ------
Depreciation
At the
beginning of
the year 1,130 371 1,238 - 2,739
Additions 626 64 461 - 1,151
Disposals 15 14 162 - 191
------- ------- ------- -------- ------
At the end of
the year 1,741 421 1,537 - 3,699
------- ------- ------- -------- ------
Net book
value
At December
31 2004 2,047 2,267 1,208 362 5,884
======= ======= ======= ======== ======
At December 31
2005 2,046 2,295 970 403 5,714
======= ======= ======= ======== ======
12. DEPOSITS FROM OTHER BANKS AND OTHER BORROWED FUNDS
2005 2004
Payable within one year:
National Bank of Hungary in HUF 606 1,291
Other banks in HUF 26,002 39,693
Other banks in foreign currency 10,608 3,593
--- ---
Payable over one year:
National Bank of Hungary in HUF 303 909
Other banks in HUF 18,737 18,737
Other banks in foreign currency 387,780 255,460
-------- ---------
444,036 319,683
======== =========
Deposits from the National Bank of Hungary and other banks as at 31 December
2005 and 2004 can be broken down by weigthted average interest rates as follows:
2005 2004
Deposit from other banks and other borrowed funds in HUF 7.5 % 11.37 %
Deposit from other banks and other borrowed funds in foreign
currency 3.69 % 2.17 %
13. DEPOSITS FROM CUSTOMERS
2005 2004
Payable within one year:
HUF 55,351 14,893
Payable over one year:
HUF 331 166
foreign currency 6,575 5,999
-------- --------
62,257 21,058
======== ========
Deposits from customers as at 31 December 2005 and 2004 can be broken down by
weighted average interest rates as follows:
2005 2004
Deposit from customers in HUF 7.5 % 11.58 %
Deposit from customers in foreign currency 2.39 % 2.37 %
14. ISSUED SECURITIES
Issued securities include the following bonds:
a) EURO Bond
The Bank issued bonds with a nominal value of EUR 450 million on 12 June 2001.
The purpose of the issuance was to provide a general source of funds for the
Bank's activities. The bonds were issued with a maturity date of 12 June 2006,
and a fixed interest rate of 5.25%. The issuance was made at a 99.375% quotation
rate. The Bonds were initially recognised at issuance price but were
subsequently adjusted by the amortisation of the discount and issuance costs.
b) HUF Bond
In the framework of its HUF 100,000 million bond issuance program, the Bank
issued bonds in the amount of HUF 12,000 million with a value date of 25
November 2002. The amount of the same series of bonds was increased by HUF 6,422
million by an issue made with a value date of 7 March 2003. The bonds were
issued with a maturity date of 25 November 2007, and a fixed interest rate of
6.25%. The Bank swapped the fixed rate for a variable rate (see Note 15).
15. FINANCIAL INSTRUMENTS FOR HEDGING
a) Foreign currency IRS deals
The Bank concluded SWAP deals for the purpose of hedging the interest risk of
foreign currency fixed interest rate bonds issued by the Hungarian National
Bank. The amount at MHUF 10 included in the balance sheet reflects these deals'
positive market value (2004: -119 MHUF).
b) HUF IRS deals
The financial instrument for hedging balance also includes the negative market
value of the SWAP deals concluded to hedge the interest risk of issued HUF bonds
by the Bank of MHUF 108 (2004: - 757 MHUF).
16. OTHER LIABILITIES
2005 2004
Accrued interest payable and other accruals 6,353 5,632
Other reserves (see Note 21) 2,167 13,410
Dividend payable liabilities 8,000 -
Tax settlement 465 286
Payables 318 715
Amounts payable to subsidiaries 18 8
Other 82 181
------- --------
17,403 20,232
======= ========
17. SUBORDINATED DEBT
In May 1998, the State Lottery and Gambling Plc. (Szerencsejatek Rt.), a company
wholly owned by the Hungarian State, purchased subordinated bonds from the Bank
for MHUF 9,500. The bonds mature after 10 years and bear 0% interest. According
to an agreement on 29 December 1998, the Ministry of Finance became the owner of
the bonds. The maturity date of the bonds is 30 April 2008.
18. SHARE CAPITAL, SHARE PREMIUM AND CAPITAL RESERVES
100% of the shares are owned by the Hungarian State. The rights of ownership are
exercised by the Minister of Economy and Transport.
a) Subscribed capital
2005 2004
87,570 ordinary shares with a nominal value of HUF 1 million
each 87,570 87,570
------- -------
b) Share premium
2005 2004
Share premium 0 52,036
------- -------
c) Capital reserves
In 2005 the Bank reclassified its negative retainded earnings into the share
premium and capital reserve.
19. STATUTORY RESERVES
2005 2004
General reserve 3,710 1,812
General risk reserve 600 -
-------- --------
4,310 1,812
======== ========
20. COMMITMENTS AND CONTINGENT LIABILITIES
2005 2004
Commitments to extend credit 124,616 85,716
Guarantees 14,647 36,552
Law cases 1,729 1,527
Capital increase liability 3,614 620
Other commitments 1,349 7,760
-------- --------
--- ---
145,955 132,175
======== ========
21. ALLOWANCE FOR IMPAIRMENT AND PROVISIONS
Net movement in the risk-reserves are as follows in 2005:
a) Changes in the allowance for impairment of originated loans, investments
and other assets :
Loans Other assets Investment Total
------- ------------- ------------ -------
Closing balance at 31 December
2004 53,943 251 10,467 64,661
New impairment charges 16,967 - 4,608 21,575
Release of impairment (21,368) (232) (2,818) (24,418)
Write off during year (15,225) - (2,807) (18,032)
Reclassification from 13,509 - - 13,509
provision -------- --- --- --------
Closing balance at 31 December
2005 47,826 19 9,450 57,295
======== ==== ======= ========
Net movement (6,117) (232) (1,017) (7,366)
Write off during year (15,225) - (2,807) (18,032)
---------- --- --------- ----------
===
Charged to income statement (4,401) (232) 4,608 (25)
========= ======= ======= ======
b) Changes in other provisions:
Off-balance sheet items
---------------
Closing balance at 31 December 2004 13,410
========
New provision charges 3,445
Release of provision (1,179)
Reclassification (13,509)
----------
Closing balance at 31 December 2005 2,167
=======
Net movement (11,243)
Charged to income statement 2,265
=======
Net movement in the risk-reserves are as follows in 2004:
c) Changes in the allowance for impairment of originated loans, investments
and other assets:
Loans Other assets Investment Total
-------- ------------ ------------ -------
Opening balance at 31 December
2003 57,369 238 6,608 64,215
Transfers 7,100 - 1,937 9,037
New impairment charges 8,865 234 4,207 13,306
Release of impairment (712) (220) (291) (1,223)
Write off during year (18,679) (1) (1,994) (16,684)
Closing balance at 31 December
2004 53,943 251 10,467 64,661
======== ===== ======== ========
Net movement (3,426) 13 3,858 445
Write off during year (18,679) (1) (1,994) (16,684)
---------- ----- --------- ----------
Charged to income statement 8,153 14 3,916 12,083
======= ==== ======= ========
d) Changes in other provisions :
Off-balance sheet items
---------------
Opening balance at 31 December 2003 23,546
Transfers (9,037)
New provision charges 5,164
Release of provision (6,263)
Write off during year -
------------
Closing balance at 31 December 2004 13,410
========
Net movement (10,136)
Write off during year -
------------
Charged to income statement (1,099)
=========
22. NET INTEREST INCOME
2005 2004
Interest and similar income
Customers 26,893 27,581
National Bank of Hungary 249 231
Other banks 3,410 2,788
Securities 8,118 11,391
Others - 276
--------- ---------
38,670 42,267
--------- ---------
Interest expense and similar charges
Customers (2,172) (730)
National Bank of Hungary (111) (408)
Other banks (10,813) (9,411)
Securities (7,148) (6,934)
Others - (1,650)
--------- ---------
(20,244) (19,133)
--------- ---------
Net interest income 18,426 23,134
========= =========
23. OTHER OPERATING INCOME/EXPENSES
Other operating income
2005 2004
Recovered amounts of doubtful receivables, net 15,243 7,701
Gain on sale of receivables, net 32 4,660
Profit on sale of fixed assets, net - 410
Other income 88 162
------ ------
15,363 12,933
====== ======
Other operating expenses
2005 2004
Unrealised FX losses from trading and available for sale
securities, net - 644
Amortization of the issued bonds 326 328
Charitable donations 355 562
Loss on sale of fixed assets, net 27 -
Other expenses relating to loans 15 14
Other 145 119
------ ------
868 1,667
====== ======
24. GENERAL AND ADMINISTRATIVE EXPENSES
2005 2004
Salaries and employee benefits 5,308 4,681
Depreciation and amortisation 1,149 976
Other expense 3,905 3,708
-------- --------
10,362 9,365
======== ========
The average number of the employees in 2005 was 355 (2004: 314).
25. INCOME TAXES
The tax charge for the year is based on the profit for the year according to the
statutory accounts of the Bank as adjusted for the relevant taxation regulation.
The tax rate in Hungary for the year ended 31 December 2005 was 16% (2004: 16%).
In 2005 and 2006 the Bank is subject to a surcharge of 8 % for financial
institutions.
2005 2004
Corporate income tax 6,047 1,438
Deferred payment - temporary difference:
- Revaluation of financial
instruments - 126
-------- --------
- 126
Tax liability in the income
statement 6,047 1,564
Balance of deferred tax liability
- Revaluation of financial instruments - -
-------- --------
- -
======== ========
Effective tax rate 2005 2005 2004 2004
Income/(loss) before income taxes 20,930 14,351
Taxes by law 16.0% 3,349 16.0% 2,296
Surcharge 8.0% 1,674
Non deductable expenses 0.2% 42 -4.23% (607)
General risk reserve -0.69% (144) - -
Effect of the release of impairment on
investments 3.23% 676 - -
Valuation of financial instruments 2.15% 450 -1.75% (251)
Deferred tax effect
Revaluation of financial instruments - - 0.88% 126
Effective tax liability 28.89% 6,047 10.90% 1,564
26. RELATED PARTIES
Parties are considered to be related if one party has the ability to control the
other party or exercise significant influence over the other party in making
financial and operating decisions. The list of related parties of the Bank
(subsidiaries and associates) can be found in Note 9.
Other related parties represent the state and other state-controlled entities.
The balances arising from transactions with related parties were as follows in
2004:
Subsidiaries and associates Other related parties
Assets
Cash and balances with
the National Bank of
Hungary - 2,041
Loans and advances to
customers, net of
allowance for impairment
losses 3,473 171,292
Securities - 129,569
Investments in
subsidiaries and
associates 43,722 510
Other assets 14 7,735
Liabilities
Deposit from other banks
and other borrowed funds - 2,202
Deposit from customers 2,302 5,999
Other liabilities 7 286
Income Statement
Interest and similar
income 103 30,725
Interest expense and
similar charges 235 476
The balances arising from transactions with related parties were as follows in
2005 :
Subsidiaries and associates Other related parties
Assets
Cash and balances with
the National Bank of
Hungary - 7,765
Loans and advances to
customers, net of
allowance for impairment
losses 3,997 326,025
Securities - 74,653
Investments in
subsidiaries and
associates 52,490 510
Other assets 34 25,899
Liabilities
Deposit from other banks
and other borrowed funds 1,138 912
Deposit from customers 10,057 6,252
Other liabilities 105 7,465
Income Statement
Interest and similar
income 257 24,800
Interest expense and
similar charges 338 219
27. KEY MANAGEMENT PERSONNEL COMPENSATION
The key management personnel compensation in 2005 were as follows :
Members of the Board of Directors 33.7
Members of the Supervisory Board 22.0
CEO-s and deputy CEO-s 344.5
------------------- ---------
Total: 400.2
28. FOREIGN CURRENCY BALANCE SHEET AND CURRENCY RISK ANALYSIS
The foreign currency balance sheet was as follows as at 31 December 2005:
HUF EURO Other foreign currency Total
------ ------ ------ ------
Assets
Cash and balances with
the 7,302 662 - 7,964
National Bank of Hungary
Placements with other 125,859 26,195 - 152,054
banks
Loans and advances to
customers,
net of allowance for 355,395 97,911 3,390 456,696
impairment
losses
Securities 75,947 - 2,146 78,093
Investments in
subsidiaries and 53,005 377 - 53,382
associaties
Other assets 27,467 627 33 28,127
Fixed assets 5,714 - - 5,714
------ ------ ------ ------
Total assets (1) 650,689 125,772 5,569 782,030
====== ====== ====== ======
Liabilities
Deposits from other
banks and 45,650 391,173 7,213 444,036
other borrowed funds
Deposits from customers 55,681 6,571 5 62,257
Issued securities 17,847 113,729 - 131,576
Financial instruments
for - 98 98
hedging
Other liabilities 11,892 5,478 33 17,403
------ ------ ------ ------
Total liabilities 131,070 516,951 7,349 655,370
------ ------ ------ ------
Subordinated liabilities 9,500 - - 9,500
------ ------ ------ ------
Shareholder's equity 117,160 - - 117,160
------ ------ ------ ------
Total liabilities and
shareholder's equity (2) 257,730 516,951 7,349 782,030
====== ====== ====== ======
Net Exposure (1) - (2) 392,959 (391,179) (1,780) -
Commitments and
Contingent 127,147 18,739 - 145,886
Liabilities ====== ====== ====== ======
Net foreign currency
position at 520,106 (372,440) (1,780) -
31 December 2005 ====== ====== ====== ======
The main lines of foreign currency balance sheet was as follows as at 31
December 2004 :
HUF EURO Other foreign currency Total
Total assets (1) 510,090 88,281 7,904 606,275
====== ======= ====== ======
Total liabilities and
shareholder's equity (2) 219,897 385,057 1,321 606,275
====== ======= ====== ======
Net Exposure (1) - (2) 290,193 (296,776) 6,583 -
Commitments and
Contingent 115,005 17,170 - 132,175
Liabilities ====== ======= ====== ======
Net foreign currency
position 405,198 (279,606) 6,583 -
at 31 December 2004 ====== ======= ====== ======
Foreign exchange rates applied in the above table were as follows as at 31
December 2005: 213.58 HUF/USD (2004: 180.29 HUF/USD) and 252.73 HUF/EUR (2004:
245.93 HUF/EUR).
29. MATURITY STRUCTURE OF ASSETS AND LIABILITIES
The maturity structure of assets and liabilities were as follows as at 31
December 2005:
------ ------ ------ ------ ------ ------ -------
Up to 1 Month 1 to 3 Months 3 Months to 1 Year 1 to 5 Over 5 Without maturity Total
Years Years
------ ------ ------ ------ ------ ------ -------
Assets
Cash and
balances with
the National
Bank of
Hungary 3,089 - - - - 4,875 7,964
Placements
with other
banks 28,888 3,666 15,575 67,439 36,486 - 152,054
Loans and
advances to
customers,
net
of allowance
for 21,436 70,401 195,852 87,505 81,502 - 456,696
impairment
losses
Securities - 500 14,090 44,247 19,256 - 78,093
Investments
in
subsidiaries
and - - - - - 53,382 53,382
associaties
Other - - 28,127 - - - 28,127
assets
Fixed - - - - - 5,714 5,714
assets ------ ------ ------ ------ ------ ------ -------
Total assets
(1) 53,413 74,567 253,644 199,191 137,244 63,971 782,030
====== ====== ====== ====== ====== ====== =======
Liabilities
Deposits from
other banks
and other
borrowed 21,224 12,656 3,344 311,135 95,677 - 444,036
funds
Deposits from
customers 25,567 13,863 15,921 6,318 588 - 62,257
Issued
securities - - 113,729 17,847 - - 131,576
Financial
instruments
for hedging - - - 98 - - 98
Other
liabilities - - 17,403 - - - 17,403
------ ------ ------ ------ ------ ------ -------
Total
liabilities 46,791 26,519 150,397 335,398 96,265 - 655,370
------ ------ ------ ------ ------ ------ -------
Subordinated
liabilities - - - 9,500 - - 9,500
------ ------ ------ ------ ------ ------ -------
Shareholder's
equity - - - - - 117,160 117,160
------ ------ ------ ------ ------ ------ -------
Total
liabilities
and
shareholder's
equity (2) 46,791 26,519 150,397 344,898 96,265 117,160 782,030
====== ====== ====== ====== ====== ====== =======
MISMATCH (1)
- 6,622 48,048 103,247 (145,707) 40,979 (53,189) -
(2) ====== ====== ====== ====== ====== ====== =======
The maturity structure of assets and liabilities were as follows as at 31
December 2004 :
Up to 1 Month 1 to 3 Months 3 Months to 1 Year 1 to 5 Over 5 Without maturity Total
Years Years
Total assets
(1) 63,930 42,838 61,677 276,929 110,286 50,615 606,275
====== ====== ====== ====== ====== ====== =======
Total
liabilities
andshareholder's
equity (2) 54,545 1,566 23,754 370,274 48,671 107,465 606,275
====== ====== ====== ====== ====== ====== =======
MISMATCH (1) -(2) 9,385 41,272 37,923 (93,345) 61,615 (56,850) -
====== ====== ====== ====== ====== ====== =======
30. Interest Risk - REpricing analysis
The repricing of assets and liabilities were as follows as at 31 December 2005 :
------ ------ ------- ------ ------ ------ -------
Up to 1 Month 1 to 3 Months 3 Months to 1 Year 1 to 5 Over 5 Not interest bearing Total
Years Years
------ ------ ------- ------ ------ ------ -------
Assets
Cash and
balances with
the National
Bank of
Hungary 7,964 - - - - - 7,964
Placements
with other
banks 146,652 1,108 40 4,143 111 - 152,054
Loans and
advances to
customers, net
of allowance
for impairment
losses 24,402 177,280 186,230 46,995 21,789 - 456,696
Securities - 500 14,090 44,247 19,256 - 78,093
Investments in
subsidiaries
and
associaties - - - - - 53,382 53,382
Other assets - - 28,127 - - - 28,127
Fixed assets - - - - - 5,714 5,714
------ ------ ------- ------ ------ ------ -------
Total assets (1) 179,018 178,888 228,487 95,385 41,156 59,096 782,030
====== ====== ======= ====== ====== ====== =======
Liabilities
Deposits from
other banks
and other
borrowed funds 199,800 224,071 18,777 1,388 - - 444,036
Deposits from
customers 26,029 14,073 15,930 6,225 - - 62,257
Issued
securities - - 113,729 17,847 - - 131,576
Financial
instruments
for hedging - - - 98 - 98
Other
liabilities - - 17,403 - - - 17,403
------ ------ ------- ------ ------ ------ -------
Total
liabilities 225,829 238,144 165,839 25,558 - - 655,370
------ ------ ------- ------ ------ ------ -------
Subordinated
liabilities - - - 9,500 - - 9,500
------ ------ ------- ------ ------ ------ -------
Shareholder's
equity - - - - - 117,160 117,1605
------ ------ ------- ------ ------ ------ -------
Total
liabilities
andshareholder
's equity (2) 225,829 238,144 165,839 35,058 - 117,160 782,030
====== ====== ======= ====== ====== ====== =======
MISMATCH (1) -(2) (46,811) (59,256) 62,648 60,327 41,156 (58,064) -
====== ====== ======= ====== ====== ====== =======
The repricing of assets and liabilities were as follows as at 31 December 2004 :
Up to 1 Month 1 to 3 Months 3 Months to 1 Year 1 to 5 Over 5 Not interest bearing Total
Years Years
Total assets
(1) 137,206 156,829 77,991 139,180 44,455 50,614 606,275
====== ====== ======= ====== ====== ====== =======
Total
liabilities
andshareholder
's equity (2) 170,610 135,615 21,356 141,167 10,374 107,465 606,275
====== ====== ======= ====== ====== ====== =======
MISMATCH (1) -(2) (33,404) 21,214 56,635 (1,987) 34,081 (56,851) -
====== ====== ======= ====== ====== ====== =======
31. TABLE OF FAIR VALUE
Carrying amount Fair value
--------- ---------
Assets
Cash and balances with the National Bank of
Hungary 7,964 7,964
Placements with other banks 152,054 152,054
Loans and advances to customers, net of
allowance for impairment losses 456,696 456,918
Securities 78,093 78,093
Investments in subsidiaries and associates 53,382 53,382
Other assets 28,127 28,127
Fixed assets 5,714 5,714
--------- ---------
Total assets (1) 782,030 782,252
========= =========
Liabilities
Deposits from other banks and other borrowed
funds 444,036 444,036
Deposits from customers 62,257 62,257
Issued securities 131,576 131,576
Financial instruments for hedging 98 98
Other liabilities 17,403 17,403
--------- ---------
Total liabilities 655,370 655,370
--------- ---------
Subordinated liabilities 9,500 8,290
Shareholder's equity 117,160 118,592
--------- ---------
Total liabilities and shareholder's equity (2) 782,030 782,252
========= =========
32. RECONCILIATION OF OWNERS EQUITY DIFFERENCES BETWEEN HUNGARIAN ACCOUNTING
REGULATIONS AND IFRS
Equity 31 December 2004 Net income for 2005 Statutory Reserves Retained Equity 31 December 2005
------- ------- ------- earnings -------
-------
Hungarian
financial
statements
("HFS") 105,492 6,077 1,898 - 113,467
Reclassificati
on of general
risk reserve - - 600 - 600
General risk
reserve - 600 - (600) -
General
reserve - 1,898 - (1,898) -
Valuation of
financial
instruments 1,973 (4,692) - 5,812 3,093
Dividend for
the year 2005 - 11,000 - (11,000) -
Deferred tax - - - - -
------- ------- ------- ------- -------
International
financial
statements 107,465 14,883 2,498 (7,686) 117,160
======= ======= ======= ======= =======
33. RECONCILIATION OF THE OWNERS' EQUITY AND PROFIT BEFORE TAXATION IN THE
HUNGARIAN AND IFRS FINANCIAL STATEMENTS
Profit before tax Equity
Hungarian financial statement 25.022 113.467
1. Reclassification and charge of general risk
reserve into equity 600 600
2. Reclassification of the releases of impairment
on investments into equity -2.818 -
3. Reclassification of the releases of impairment
on available for sale securities into equity -1.423 -
4. Reclassification of the amortization of
available for sale securities -368 -
5. Opening balance of the revaluation of
available for sale securities from 2004 - +1.973
6. Adjustment on available for sale securities
revaluation in 2005 - +1.040
7. Effect of the revaluation of the Hungarian
National Bank bonds and the related interest rate
swap - 28
8. Adjustment on other financial instruments -83 52
International financial statements 20.930 117.160
The main part of the difference of the equity and the profit before tax between
the Hungarian and the International Financial Statements is explained with the
fact, that certain items mentioned in the above table shall be accounted in the
financial statements prepared in accordance with IFRS directly to the equity and
these do not appear in the Profit and Loss Statement.
34. EVENTS AFTER THE REPORTING DATE
Decision on expanding the tasks of the Hungarian Development Bank
In collaboration with the Hungarian Government, the Bank elaborated its concept
for the further centralization of state-owned aid intermediation organisations,
under which the goal is to create a "one-stop shop" framework for businesses on
a regional level. The aim of this centralization is for EU funding to be
received and channelled on through one institution. The operation of
Hitelgarancia Rt., an institution which represents one of the main elements of
the guarantee system stimulating financing and reducing risks, will be
integrated more into the MFB Group. One of the objectives of the programme is to
combine the individual public institutions that deal with investments in order
to create a more transparent and cost-efficient organisation.
Agreement on bond issue
There are some major tasks to be completed within the framework of the Bank's
funding activity in 2006. The Bank has to raise the highest level of funding in
its history, totalling EUR 1.6 billion. The Bank commenced negotiations aimed at
replacing the foreign currency bond issued in 2001 with a nominal value of EUR
450 million and which matures this year on 12 June, and after the tendering
procedure selected the entities to organise the new bond issue of EUR 500
million. In agreement with other public issuers, the MFB is expected to enter
the market during late March, while the conditions of the bond are likely to be
more favourable than the issue in 2001.
Merger of subsidiaries
The Bank, as the owner, decided that two of its subsidiaries were to be merged
into other companies. Vecsey 2005 Kft. was merged into the Bank as of 31
December 2005, while Magyar Kozmu Rt. will be merged into NIL Rt. as of 30 April
2006.
35. EFFECTS OF NEW IFRS PRONOUNCEMENTS
Certain new standards, amendments and interpretations to existing standards have
been published that are mandatory for the Bank's accounting periods beginning on
or after 1 January 2006 or later periods, but which the Bank has not early
adopted, as follows:
(a) IAS 19 (Amendment), Employee Benefits (effective from 1 January 2006)
As the Bank does not have any defined benefit plans, this amendment is not
relevant to the Bank's operations.
(b) IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup
Transactions (effective from 1 January 2006)
This amendment is not relevant to the Bank's operations, as the Bank does not
have any intragroup transactions that would qualify as a hedged item in the
non-consolidated financial statements as of 31 December 2005 and 2004.
(c) IAS 39 (Amendment), The Fair Value Option (effective from 1 January
2006)
This amendment changes the definition of financial instruments classified at
fair value through profit or loss and restricts the ability to designate
financial instruments as part of this category. The Bank believes that this
amendment should not have a significant impact on the classification of
financial instruments, as the Bank should be able to comply with the amended
criteria for the designation of financial instruments at fair value through
profit and loss.
(d) IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts (effective
from 1 January 2006)
This amendment requires issued financial guarantees, other than those previously
asserted by the entity to be insurance contracts, to be initially recognised at
their fair value and subsequently measured at the higher of: (a) the unamortised
balance of the related fees received and deferred, and (b) the expenditure
required to settle the commitment at the balance sheet date. Management is
currently assessing the impact of this amendment on the Bank's operations.
(e) IFRS 1(Amendment), First-time Adoption of International Financial
Reporting Standards and IFRS 6 (Amendment), Exploration for and Evaluation of
Mineral Resources (effective from 1 January 2006)
These amendments are not relevant to the Bank's operations as the Bank is not a
first-time adopter of IFRS and does not carry out exploration for and evaluation
of mineral resources.
(f) IFRS 6, Exploration for and Evaluation of Mineral Resources (effective
from 1 January 2006)
IFRS 6 is not relevant to the Bank's operations.
(g) IFRS 7, Financial Instruments: Disclosures, and a complementary
amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures
(effective from 1 January 2007)
IFRS 7 introduces new disclosures to improve the information about financial
instruments. It requires the disclosure of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and
market risk, including sensitivity analysis to market risk. It replaces IAS 30,
Disclosures in the Financial Statements of Banks and Similar Financial
Institutions, and disclosure requirements in IAS 32, Financial Instruments:
Disclosure and Presentation. It is applicable to all entities that report under
IFRS. The amendment to IAS 1 introduces disclosures about the level of an
entity's capital and how it manages capital. Management is currently assessing
the impact of this amendment on the Bank's operations and the disclosures of
financial statements.
(h) IFRIC 4, Determining whether an Arrangement contains a Lease (effective
from 1 January 2006)
IFRIC 4 requires the determination of whether an arrangement is or contains a
lease to be based on the substance of the arrangement. It requires an assessment
of whether: (a) fulfilment of the arrangement is dependent on the use of a
specific asset or assets (the asset); and (b) the arrangement conveys a right to
use the asset. Management is currently assessing the impact of IFRIC 4 on the
Bank's operations.
(i) IFRIC 5, Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds (effective from 1 January
2006)
IFRIC 5 is not relevant to the Bank's operations.
(j) Amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates
- Net Investment in a Foreign Operation (effective from 1 January 2006)
The Bank currently has no items comprising net investments in foreign operations
that will be affected by the amendment.
(k) IFRIC 7 Applying the Restatement Approach under IAS 29 Financial
Reporting in Hyperinflationary Economies. (effective from 1 March 2006)
IFRIC 7 is not relevant to the Bank's operations.
(l) IFRIC 8 Scope of IFRS 2 (effective from 1 May 2006)
IFRIC 8 is not relevant to the Bank's operations.
(m) IFRIC 9 Reassessment of Embedded Derivatives (effective from 1 June 2006)
The Bank has not yet completed its analysis of the impact of the new
Interpretation.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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