RNS Number:7034J
Magyar Fejlesztesi Bank
29 September 2006
Hungarian
Development Bank Ltd.
Consolidated Financial Statements and
Independent Auditor's Report
For the year ended 31 December 2005
Page
------
Independent Auditor's Report 1
Consolidated Financial Statements
Consolidated Balance Sheet as at 31 December 2005 2
Consolidated Income Statement for the year ended 31 December 2005 3
Consolidated Cash Flow Statement for the year ended 31 December 2005 4
Consolidated Statement of Changes in Shareholders equity 5
Notes to Consolidated Financial Statements 6 - 45
Independent Auditor's Report
To the Shareholder of Hungarian Development Bank Ltd.
a) We have audited the accompanying consolidated balance sheet of
Hungarian Development Bank Ltd. and subsidiaries (the "Group") as at 31 December
2005 and the related consolidated statements of income, shareholders' equity and
cash flows for the year then ended (the "consolidated financial statements").
The consolidated financial statements are the responsibility of management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Group 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.
22 May 2006
KPMG Hungaria Kft.
Istvan Henye
Partner
Hungarian Development Bank Ltd.
Consolidated Balance Sheet
as at 31 December 2005
(in million HUF)
Note December 31 December 31
2005 2004
Cash and balance with the National Bank of
Hungary 5 8 604 6 193
Placements with other banks 6 260 307 261 714
Loans and advances to customers, net of
allowance for impairment losses 7 481 929 309 296
Financial assets at fair value through
profit and loss 8 23 186 25 393
Securities 9 79 211 135 919
Investments in unconsolidated subsidiaries
and associates 10 27 864 20 571
Other assets 11 32 265 15 300
Fixed and intangible assets 12 7 791 8 119
--------- --------
TOTAL ASSETS 921 157 782 505
========= ========
Placements and loans from other banks 13 572 089 477 848
Deposits from customers 14 57 254 20 679
Issued securities 15 131 579 127 463
Financial instruments for hedging 16 98 876
Other liabilities 17 22 645 26 644
--------- --------
Total liabilities 783 665 653 510
--------- --------
Subordinated debt 18 9 500 9 500
--------- --------
Share capital 19 87 570 87 570
Share premium 19 - 52 036
Capital reserve 19 18 082 106 011
Statutory reserves 20 4 342 1 812
Retained earnings 13 177 (132 652)
Minority interest 4 821 4 718
--------- --------
Total shareholder's equity 127 992 119 495
--------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY 921 157 782 505
========= ========
Commitments and contingencies 21 206 347 178 594
The accompanying notes to consolidated financial statements on pages 6 to 48
form an integral part of these consolidated financial statements.
Hungarian Development Bank Ltd.
Consolidated Income Statement
for the year ended 31 December 2005
(in million HUF)
Note 2005 2004
Interest and similar income 47 433 43 182
Interest expense and similar charges (23 833) (18 916)
-------- --------
Net interest income 23 600 24 266
Release / (charge) for impairment losses of loans
and 22 19 479 (7 750)
advances -------- --------
Fee and commission income 1 589 1 043
Fee and commission expenses (902) (934)
-------- --------
Net fee and commission income 687 109
Profit / (loss) from sale and cease of investments 23 756 (219)
Allowance for impairment losses of investments in
subsidiaries and associates 22 (4 572) (2 179)
Allowance for impairment losses of goodwill 22 (38) (637)
Dividend income 145 15
Net result on foreign currency transactions (246) 481
Other provision release / (charge) 22 (4 017) 8 106
Other income 24 4 836 7 343
-------- --------
Other operating income 718 15 945
General and administrative expenses 25 (13 704) (11 959)
Other expenses 24 (4 659) (2 568)
-------- --------
Other operating expenses (18 363) (14 527)
Profit before income tax 22 267 15 008
-------- --------
Taxation 26 (6 224) (1 591)
Profit after income tax 16 043 13 417
-------- --------
Minority interest (123) (63)
Net profit for the year 15 920 13 354
======== ========
The accompanying notes to consolidated financial statements on pages 6 to 48
form an integral part of these consolidated financial statements.
Hungarian Development Bank Ltd.
Consolidated Cash Flow Statement
for the year ended 31 December 2005
(in million HUF)
Note 2005 2004
Cash flows from operating activities
Net profit for the year before taxes 22 144 14 945
Adjustments to reconcile net profit to cash
provided by operating activities
Depreciation and amortization 1 351 1 282
Allowance (release) / charge for possible loan 22 (19 857) 15 662
losses
Allowance (release) / charge for impairment
losses of 22 4 572 2 179
investments in subsidiaries and associates
Allowance (release) / charge for impairment
losses of 22 378 (211)
other assets
Other provision (release) / charge 22 4 017 (8 106)
Allowance (release) / charge for impairment of 22 38 637
goodwill
Profit/(loss) on sale of fixed assets 24 (67) 704
(Increase)/decrease in operating assets
(Increase)/decrease in placements with other 1 407 (223 523)
banks
(Increase)/decrease in loans, before impairment
for (152 776) (27 868)
possible loan losses
(Increase)/decrease in financial instruments for 2 207 (21 005)
trading
(Increase)/decrease in other assets, before (9 559) 25 531
impairment
(Increase)/decrease in accrued interest (7 784) (2 777)
receivable
Increase/(decrease) in operating liabilities
Increase / (decrease) in deposits from customers 36 575 (2 658)
Increase / (decrease) in placements and loans
from other 94 241 246 693
banks
Increase / (decrease) in financial instruments
for (778) (1 604)
hedging
Increase / (decrease) in other liabilities (7 672) 1 803
Increase / (decrease) in accrued interest payable (344) 1 284
Income tax paid and deferred tax 26 (6 224) (1 591)
-------- --------
Net cash used by operating activities (38 131) 21 377
Cash flows from investing activities
(Increase) / decrease in investments in 56 708 9 541
securities
(Increase)/decrease in equity investments and
associates, (11 865) (17 190)
before allowance
Net movement in goodwill, before impairment - (789)
losses
Net movement in negative goodwill - (182)
Proceeds from sale of fixed assets 727 309
Proceeds from changes of Group 6 -
Acquisition of fixed assets (1 681) (2 196)
-------- --------
Net cash provided by investing activities 43 895 (10 507)
Cash flows from financing activities
Dividend paid during the year (3 000) (6 000)
Dividend not paid during the year (8 000) -
Increase / (decrease) in bond issue 4 116 (5 712)
Valuation of financial instruments 3 428 -
Movement of minority interest 103 2 152
-------- --------
Net cash provided by financing activities (3 353) (9 560)
Net increase in cash and cash equivalents 2 411 1 310
Cash and cash equivalents as at January 1 6 193 4 883
Cash and cash equivalents as at December 31 8 604 6 193
The accompanying notes to consolidated financial statements on pages 6 to 48
form an integral part of these consolidated financial statements.
Hungarian Development Bank Ltd.
Statement of changes in Shareholder's equity
for the year ended 31 December 2005
(in million HUF)
Share Capital Share Capital Statutory Retained Minority Total
Premium Reserve Reserves Earnings interest
Note 19 19 19 20
Balance at 1
January 2004 87 570 52 036 106 011 678 (138 871) 4 603 112 027
------- ------------ ------ ------------- -------- ---------- ------------
Capital -
increase
General
reserve 1 134 (1 134) -
Net profit for
the year 13 354 13 354
Changes in
minority
interest 115 115
Dividend (6 000) (6 000)
Balance at 1
January 2005 87 570 52 036 106 011 1 812 (132 652) 4 718 119 495
------- ------- ------- ------ -------- ------ --------
Reclassification
(52 036) (87 929) 139 965 -
General
reserve 2 530 (2 530) -
Valuation of
financial
instruments 3 474 3 474
Net profit for
the year 15 920 15 920
Changes in
minority
interest 103 103
Dividend (11 000) (11 000)
Balance at 31
December 2005 87 570 - 18 082 4 342 13 177 4 821 127 992
The accompanying notes to consolidated financial statements on pages 6 to 48
form an integral part of these consolidated financial statements.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted by the Bank in preparation of these
consolidated financial statements are as follows:
a) Basis of presentation
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") adopted by the
International Accounting Standards Board ("IASB") and interpretations issued by
International Financial Reporting Interpretations Committee ("IFRIC").
The Group 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 consolidated
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 used in the Notes to Consolidated Financial Statements
were as follows as at 31 December 2005: 213.58 HUF/USD and 252.73 HUF/EUR (2004:
180.29 HUF/USD and 245.93 HUF/EUR, respectively)
These consolidated financial statements are presented in million Hungarian
Forints ("MHUF").
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million HUF)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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) Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Bank. Control exists when
the Bank has the power, directly or indirectly, to govern the financial and
operating policies of an enterprise. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control
effectively commences until that control effectively ceases.
Certain subsidiaries in which the Bank owns a controlling interest have not been
consolidated because:
- It was management's intention at the date of acquisition, that the
shares will be disposed of in the near future,
- The owners' right based on shares are restrained by legal regulations.
Unconsolidated subsidiaries are included in the consolidated financial statement
using the equity method of accounting.
Associates
Associates are those enterprises in which the Group has significant influence,
but not control, over the financial and operating policies. Investments in
associated companies are accounted for under the equity method, whereby the
investment is initially recorded at cost and adjusted thereafter for the post
acquisition change in the Group's share of the net assets of the investee. The
income statement reflects the Group's share of the result of operations of the
investee and any goodwill impairment losses.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million HUF)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Jointly controlled entities
Jointly controlled entities are those enterprises over whose activities the
Group has joint control, established by contractual agreement. The consolidated
financial statements include the Group's proportionate share of the enterprises'
assets, liabilities, revenue and expenses with items of a similar nature on a
line by line basis, from that joint control effectively commences until that
joint control effectively ceases.
Transactions eliminated during consolidation
Intercompany balances and transactions, and any unrealized gains arising from
intercompany transactions, are eliminated in preparing the consolidated
financial statements.
Goodwill
Goodwill arising in a business combination is measured initially as the excess
of the cost of the business combination over the acquirer's interest in the net
fair value of the acquired identifiable assets, liabilities and contingent
liabilities recognized. Following the requirements of IFRS 3 no amortization has
been charged after 1 January 2004, but goodwill is subject to an annual
impairment test.
Negative goodwill
Negative goodwill arising in a business combination is measured initially as the
excess of the net fair value of the acquired identifiable assets, liabilities
and contingent liabilities recognized over the cost of the business combination.
Negative goodwill arose during 2005 has been credited to the income statement.
e) Derivative financial instruments
The Group 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 Group 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.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million HUF)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f) Financial assets and liabilities
i) Classification
Financial assets and liabilities at fair value through profit and loss are those
that the Group 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 Group
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 Group has the intent and ability to hold to
maturity. During 2004, the Group 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 or financial asset at fair value
through profit and loss in the following two financial years (2005 and 2006).
Available for sale assets are financial assets that are not held for trading
purposes, originated by the Group 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 Group'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 valued 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 measurement 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.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million HUF)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Group 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.
g) 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
debt-equity 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.
The Group does not hold investments for trading purposes.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million HUF)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) Fixed assets and intangible 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 and property 1 - 50%
Investment on rented property 17%
Office and other machinery and equipment 14.5 - 20%
Mobiles 50%
Motor vehicles 20%
Computer equipments 17 - 33%
Software 12.5 - 33%
Other intangible assets 17 - 33%
i) Allowance for impairment loan losses
The Group 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.
j) Bonds issued
Bond issued are stated at issue price, modified by the amortisation of the
issuance premium or discount.
k) 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.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million HUF)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ii) General risk reserve
Under Section 87 of Hungarian Act No. CXII of 1996, a general risk reserve of
maximum 1.25% of the risk weighted assets may be made. The general risk reserve
is treated as appropriations against retained earnings, and is not charged
against income.
l) 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 consolidated financial statements, all
unpaid interest belonging to classified clients is reversed upon such
discontinuance and maintained in an off-balance sheet suspense account.
m) Dividend income
Dividends are recognised in the current income statement, if the dividends are
declared before the date of these financial statements.
n) Transactions in foreign currency
The accounting records of the Group 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.
o) 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 surcharge for financial instutions, which was
introduced from 2005. The base of the tax is the profit before taxation and the
rate of the surcharge is 8 %.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31December 2005
(in million HUF)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
p) 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.
q) Reclassification
Certain items previously reported in the prior years' financial statements have
been reclassified to conform with the current year presentation. Accordingly, in
the consolidated income statement the previous year's dividend was reclassified
into the retained earnings, because of the modification of IAS 32, which is in
force from January 2005.
From 2005, the minority interest must be presented as a part of the
shareholder's equity. Therefore, the previous year's minority interest was also
reclassified into the shareholder's equity.
In the income statement the coming above book value was included in the other
income in 2004.This amount was reclassified into provision, to meet the applied
settlements in 2005.
r) 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.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
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.
The asset side state guarantee frame, declared by the law for the group was HUF
480 billion in 2005 (2004: HUF 280 billion).
The liability side state guarantee frame for the Group was HUF 1,220 billion
(2004: HUF 1,020 billion)
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.
(CONTINUED)
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 FX guarantee frame for the Group was HUF 900 billion in 2005 (2004: HUF 530
billion).
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
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 6 6
Due from banks 809 4 125
Balances with National Bank of Hungary (NBH):
Obligatory reserve in HUF 2 930 147
Other 4 859 1 915
------- -------
8 604 6 193
According to the regulation of the National Bank of Hungary, financial
institutions are required to place 5 % of certain customer deposit as a
statutory reserve in 2005. The rate of this reserve in 2004 was 5%.
6. PLACEMENTS WITH OTHER BANKS
2005 2004
------ ------
Maturity within one year 132 216 132 747
Maturity over one year 128 128 129 028
-------- --------
260 344 261 775
Allowance for impairment losses (37) (61)
-------- --------
(See Note 22. - part of impairment loan losses)
260 307 261 714
Placements with banks as at 31 December 2005 and 2004 can be broken down by
weighted average interest rates as follows:
2005 2004
------ ------
Placements with other banks in HUF 3,55% 4,72%
Placements with other banks in foreign currency 4,06% 3,80%
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
7. LOANS AND ADVANCES TO CUSTOMERS, NET OF ALLOWANCE FOR IMPAIRMENT LOSSES
2005 2004
------ ------
Maturity within one year 318 942 111 984
Maturity over one year 218 392 257 383
-------- --------
537 334 369 367
Allowance for impairment losses (55 405) (60 071)
-------- --------
(See Note 22. - part of impairment loan losses)
481 929 309 296
The cause of the increase of loans to customers with a maturity within one year
is a loan with a maturity of 31 March 2006, which was prolonged till the end of
2007 in the second half of 2006.
Loans as at 31 December 2005 and 2004, can be broken down by weighted average
interest rates as follows:
2005 2004
------ ------
Loans in HUF 8,15% 10,70%
Loans in foreign currency 4,03% 3,36%
8. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
31 December 2005 31 December 2004
------------------ --- ------------------
Cost Unrealised gain/(loss) Book value Cost Unrealised gain/(loss) Book value
------ -------------- ------------ --- ------ ----------------- ------------
Securities
Government
bonds 18 931 130 19 061 22 379 (95) 22 284
Discount
treasury 1 799 - 1 799 - - -
bills
Other
securities 2 317 9 2 326 3 109 - 3 109
------- -------- ------- ------- --------- -------
Total 23 047 139 23 186 25 488 (95) 25 393
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
9. SECURITIES
31 December 2005 31 December 2004
------------------ --- ------------------
Cost Unrealised gain/(loss) Book value Cost Unrealised gain/(loss) Book value
------ -------------- ------------ --- ------ ----------------- ------------
Available
for sale
assets
Government
Bonds 70 033 3 274 73 307 131 041 (1 146) 129 895
FCY 2 128 18 2 146 1 797 80 1 877
Bonds
NBH 16 - 16 16 - 16
Bonds
Discount
treasury 310 (8) 302 - - -
bills
Other 3 440 - 3 440 4 131 - 4 131
Bonds ------- -------- ------- ------- ---------- -------
Total 75 927 3 284 79 211 136 985 (1 066) 135 919
Investments in debt securities as at 31 December 2005 and 2004 can be broken
down by currency and interest rates as follows:
2005 2004
------ ------
Hungarian Government bonds within one year in
HUF 6.50% - 7.00% 5.21% - 11.09%
Hungarian Government bonds between one and five 6.25% - 9.25% 6.25% - 11.37%
years in HUF
Hungarian Government bonds between one and five
years in foreign currency 6,50% 6,50%
Hungarian Government bonts over five years in
HUF 5.50% - 7.50% -
Other bank bonds between one and five years in
HUF 7,90% 12%
NBH bonds over one year in HUF 6,43% 11,32%
Corporate bonds between one and five years in
HUF 8.74% - 9.80% 8.74 - 9.80%
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
10. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATES
2005 2004
------ ------
Investment in unconsolidated subsidiaries 384 1 998
Investment in associates 32 113 17 327
Other investments 3 253 4 079
-------- --------
35 750 23 404
Allowance for impairment (See Note 22) (7 886) (2 833)
-------- --------
27 864 20 571
The Group's investments as at 31 December 2005 and as at 31 December 2004 were
as follows:
Name of the company Industry Direct and indirect Direct and indirect
proprietary ratio in 2005 proprietary ratio in 2004
--------------------- ---------- ------------------- -------------------
Consolidated subsidiaries
----------------------------
Corvinus
Nemzetkozi
Befektetesi Equity 100,00% 94,44%
ZRt. management
Magyar Kozmu
ZRt. Infrastructure 100,00% 100,00%
Magyar
Export-Import
Bank ZRt. Export 74,95% 74,95%
financing
Magyar
Exporthitel
Biztosito ZRt. Export credit 74,94% 74,94%
insurance
Magyar
Koveteleskezelo
ZRt. Factoring 100,00% 100,00%
Nemzeti
Lakasberuhazo
es
Ingatlanfejles
zto ZRt. Property 100,00% 100,00%
management
Unconsolidated subsidiaries
-----------------------------
CW-Abwicklungs
AG. I.a. Financial 100,00% 100,00%
services
Defend
Security Kft.
V.a Services 60,00% 60,00%
D-Park Kft.
V.a. Property 100,00% 100,00%
management
Lacto-Csik
S.A.* Agricultural 50,71% 50,71%
Melcom-Ing
Kft. V.a. Property 100,00% 100,00%
management
MFB
Uzemeltetesi,
Fenntartasi es
Szolgaltatasi
Kft. V.a. Services - 100,00%
Motor-Force
Impex Srl.* Commercial 57,80% 57,80%
REGLAMA
Szolgaltato
Kft. V.a. Property - 100,00%
management
Techno
Ingatlanforgal-
mazasi Kft.
V.a. Equity - 100,00%
management
Toketars Kft.
V.a. Equity - 100,00%
management
Trewin Rt.
V.a. Advisory 100,00% 100,00%
services
Vecsei 2005
Ingatlanforgal
mazasi Kft. Property 100,00% -
services
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATES (CONTINUED)
Name of the company Industry Direct and indirect Direct and indirect
proprietary ratio in 2005 proprietary ratio in 2004
Associates
------------
Albertfalva
Uzletkozpont
Kft. Property 49,00% 49,00%
management
Aranykapu ZRt. Agricultural 48,94% 48,93%
Beszallitoi
Befekteto ZRt. Capital 49,00% -
investments
Budai
Egeszsegkozpont
Kft. Healthcare 49,00% 49,00%
Bukkszeki
Sport- es
Gyogyhotel
Kft. Hydro-hotel 48,98% -
operation
Civil
Biztonsagi
Szolgalat ZRt. Services 48,72% 48,72%
Construktor
Kft. Property 48,87% 48,87%
management
Csepany es
Tarsai Kft. Food industry 48,62% -
Csepeli
Lakasfejleszto
Kft. Ingatlanfejlesztes 49,00% -
Debreceni Hus
Rt. Agricultural 49,00% 48,99%
Dioszeghy
Udvar Kft. Property 49,00% -
investments
Egressy
Ingatlanberuha
zo Rt. Property 48,91% 49,09%
management
Firebird-Furedi
Kapu Kft. Property 48,95% 48,95%
management
Ganz
Transelektro
Villamossagi
ZRt. Heavy industry 41,98% 41,98%
Grafika Press
Rt. Printing 48,98% -
Hotel
Egerszalok
ZRt. Hotel services 20,00% -
Hunguest
Hotels
Montenegro Hotel services 44,50% -
Immo-Invest 21
Kft. Property 49,00% -
construction
Intergass
Hungaria ZRt. Energy source 48,78% 48,78%
wholesaler
Kereszturi
Ingatlanfejles
zto Rt. Property 48,98% 48,98%
management
Kiskunhalasi
Baromfifeldolg
ozo Rt. Food industry 47,85% 47,85%
Megatrend
Romania Srl. Advisory services 39,39% 39,39%
Organica ZRt. Sewage 48,97% -
Polus Palace
ZRt. Tourism 48,99% 48,99%
Salina Invest
S.A Equity management 43,51% 43,51%
Studio '96
ZRt. Printing 49,00% -
Szalok Holding
ZRt. Tourism 48,93% 48,93%
Telepes
Projekt Kft. Property 48,78% 48,78%
management
Viktoria Gem
Kft. Commercial 48,78% 48,78%
* These investments were consolidated using the equity method, because of
insignificant size of the subsidiaries' equity. The Group's share of the equity
of these subsidiaries does not exceed 50 MHUF.
Unconsolidated subsidiaries which are not signed are under liquidation.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
11. OTHER ASSETS
2005 2004
------ ------
Accrued interest receivables and other accruals 15 366 7 582
Receivables from the State (exchange rate risk
guarantee) 11 038 1 421
Receivables from APV Rt. - 225
Receivables from credit insurance 138 1 063
Trade receivables 22 941
Other receivables 2 686 1 467
Property held for re-sale 2 323 2 323
Advances 152 61
Taxation recoverable 1 051 450
Other assets 160 102
------- -------
32 936 15 635
Allowance for impairment losses (671) (335)
------- -------
(See Note 22. - impairment of other receivables and other
asets)
32 265 15 300
The increase of receivables from State in connection with exchange rate risk
guarantee is mainly explained by the rising exchange rate and the increase of
the guarantee frame.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
12. FIXED ASSETS AND INTANGIBLE ASSETS
Movement of fixed and intangible assets in 2005:
Intangible assets Land and buildings Equipment Work in Progress Goodwill Total
Cost
Opening
balance 4,440 3,541 4,389 206 931 13,507
Derecognition
in accordance
with IFRS 3 - - - - -740 -740
Movement from
purchase or
sale of
subsidiaries - - - - -6 -6
Additions 848 127 619 1677 153 3,424
Disposals -214 -501 -522 -1,594 - -2,831
------- -------- ------- ------ ------ -----
Closing
balance 5,074 3,167 4,486 289 338 13,354
------- -------- ------- ------ ------ -----
Amortization
Opening
balance 2,005 822 1,924 - - 4,751
Additions 729 86 691 - - 1,506
Disposals -38 -311 -383 - - -732
------- -------- ------- ------ ------ -----
Closing
balance 2,696 597 2,232 - 0 5,525
------- -------- ------- ------ ------ -----
Impairment of
goodwill in
2004 - - - - -637 -637
Impairment of
goodwill in
2005 - - - - -38 -38
(see Note 22)
Net book
value
31 December
2004 2,435 2,719 2,465 206 294 8,119
======= ======== ======= ====== ====== =====
31 December
2005 2,378 2,570 2,254 289 300 7,791
======= ======== ======= ====== ====== =====
Movement of fixed and intangible assets in 2004:
Intangible assets Land Equipment Work in progress Goodwill Negative Total
and buildings goodwill
Cost
Closing
balance 4 440 3 541 4 389 206 931 - 13 507
Amortization
Closing
balance 2 005 822 1 924 - - - 4 751
Impairment of
goodwill
(see Note 22) - - - - (637) - (637)
Net book
value
31 December
2003 2 064 3 435 1 412 948 208 (182) 7 885
31 December
2004 2 435 2 719 2 465 206 294 - 8 119
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
13. PLACEMENTS AND LOANS FROM OTHER BANKS
2005 2004
------ ------
Payable within one year:
National Bank of Hungary in HUF 606 1 290
Other banks in HUF 28 808 51 897
Other banks in foreign currency 115 353 80 807
Payable over one year:
National Bank of Hungary in HUF 303 909
Other banks in HUF 18 737 18 738
Other banks in foreign currency 408 282 324 207
------- -------
572 089 477 848
Deposits from the National Bank of Hungary and deposits and loans from other
banks as at 31 December 2005 and 2004 can be broken down by weighted average
interest rates as follows:
2005 2004
------ ------
NBH and other banks in HUF 7,42% 11,09%
NBH and other banks in foreign currency 3,57% 2,26%
14. DEPOSITS FROM CUSTOMERS
2005 2004
------ ------
Payable within one year:
HUF 50 347 14 514
Foreign currency - -
Payable over one year:
HUF 331 166
Foreign currency 6 576 5 999
------- -------
57 254 20 679
Deposits from customers as at 31 December 2005 and 2004 can be broken down by
weighted average interest rates as follows:
2005 2004
------ ------
Deposits from customers in HUF 7,50% 11,58%
Deposits from customers in foreign currency 2,39% 2,37%
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
15. 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 State granted an exchange rate risk guarantee frame for
the sources of loan scheme financing. 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.
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 to a variable rate (see Note 16).
16. 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 of MHUF 10 included in the balance sheet reflects these deals'
positive market value (2004: MHUF 119 liability).
b) HUF IRS deals
The financial instrument for hedging balance includes the market value of the
SWAP deals to hedge the interest risk of issued HUF bonds by the Bank. The
amount as at 31 December 2005 was MHUF 108 liability. (2004: MHUF 757
liability).
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
17. OTHER LIABILITIES
2005 2004
------ ------
Accrued interest payable and other accruals 7 416 7 760
Trade creditors 366 1 838
Tax liability 783 726
Provisions (see Note 22) 5 206 15 680
Dividend payable 8 000 -
Other 874 640
------- -------
22 645 26 644
18. SUBORDINATED DEBT
In May 1998, the State Lottery and Gambling Plc. (Szerencsejatek Rt.), a company
wholly owned by the Hungarian Government, purchased subordinated bonds from the
Bank for MHUF 9,500. The maturity of the bonds is 10 years, and bear 0%
interest. The Ministry of Finance became the owner of the bonds, according to a
agreement dated 29 December 1998. The maturity date of the bonds is 30 April
2008.
19. SHARE CAPITAL, SHARE PREMIUM AND CAPITAL RESERVES
100% of the shares are owned by the Hungarian State. The rights of the ownership
belong to the Minister of Ministry 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
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
SHARE CAPITAL, SHARE PREMIUM AND CAPITAL RESERVES (CONTINUED)
b) Share premium
2005 2004
------ ------
Share premium - 52 036
c) Capital reserve
In 2005 the Bank transferred its negative retainded earnings into the share
premium and capital reserve according to the decision of the management.
20. STATUTORY RESERVES
2005 2004
------ ------
General reserve 3 742 1 812
General risk reserve 600 -
------- -------
4 342 1 812
21. COMMITMENTS AND CONTINGENT LIABILITIES
2005 2004
------ ------
Unused credit facility 123 609 89 696
Guarantees 62 610 73 954
Law cases 6 797 1 527
Capital increase commitment 3 614 620
European Investment Found subscription commitment 6 557 6 181
Other commitments and contingent liabilities 3 160 6 616
------- -------
206 347 178 594
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
22. ALLOWANCE FOR IMPAIRMENT LOSSES AND PROVISIONS
Net movement in the impairments and provisions were as follows in 2005:
a) Changes in the allowance of impairment for loan losses,
investments, other receivables, other assets and goodwill:
Loans Other receivables Other assets Total
Opening balance at 1
January 2005 60 132 233 102 60 467
Charge 18 356 511 106 18 973
Release (22 722) (239) - (22 961)
Utilization and FX 675 6 (48) 633
changes
Release because of
repayment (15 491) - - (15 491)
Reclassification 14 491 - - 14 491
--------- --------- --------- --------
Closing balance at 31
December 2005 55 441 511 160 56 112
Net movement in (4 691) 278 58 (4 355)
impairment
Utilization (675) (6) 48 (633)
--------- --------- --------- --------
Charged to income (19 857) 272 106 (19 479)
statement
Goodwill Investments Total
--- --- ---
Opening balance at 1 January 2005 637 2 833 3 470
Reclassification (634) 634 -
Net movement due to sale or purchase of
subsidiaries (3) - (3)
Charge 38 4 572 4 610
Release - - -
Utilization - (153) (153)
--------- --------- --------
Closing balance at 31 December 2005 38 7 886 7 924
Net movement in impairment 38 4 419 4 457
Utilization - 153 153
--------- --------- --------
Charged to income statement 38 4 572 4 610
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
ALLOWANCE FOR IMPAIRMENT LOSSES AND PROVISIONS (CONTINUED)
b) Net changes in provisions:
Other provision Provision for off balance sheet items Total
Opening
balance at 1
January 2005 2 245 13 435 15 680
Charge 1 201 2 816 4 017
Release - - -
Reclassificati
on (988) (13 503) (14 491)
---------- ---------- ---------
Closing
balance at 31
December 2005 2 458 2 748 5 206
Charged to
income
statement 1 201 2 816 4 017
Net movement in the impairments and provisions were as follows in 2004:
c) Changes in the allowance of impairment for loan losses,
investments, other receivables, other assets and goodwill:
Loans Other receivables Other assets Total
Opening balance at 1
January 2004 59 178 1 308 207 60 693
Reclassification 643 (643) - -
Net movement due to
sale or purchase of
subsidiaries 3 695 4 - 3 699
Charge 17 016 68 75 17 159
Release (1 354) (335) (19) (1 708)
Release because of
repayment (7 701) - - (7 701)
Utilization (11 345) (169) (161) (11 675)
--------- --------- --------- ---------
Closing balance at 31
December 2004 60 132 233 102 60 467
Net movement in
impairment (3 384) (436) (105) (3 925)
Utilization 11 345 169 161 11 675
--------- --------- --------- ---------
Charged to income
statement 15 662 (267) 56 15 451
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
ALLOWANCE FOR IMPAIRMENT LOSSES AND PROVISIONS (CONTINUED)
Goodwill Investments Total
Opening balance at 1 January 2004 - 730 730
Charge 637 2 187 2 824
Release - (8) (8)
Utilization - (76) (76)
---------- ---------- ---------
Closing balance at 31 December 2004 637 2 833 3 470
Net movement in impairment 637 2 103 2 740
Utilization - 76 76
---------- ---------- ---------
Charged to income statement 637 2 179 2 816
d) Net changes in provisions:
Other provision Provision for off balance sheet items Total
Opening
balance at 1
January 2004 181 21 286 21 467
Reclassificati
on (8) 8 -
Net movement
due to sale or
purchase of
subsidiaries 2 223 96 2 319
Charge 22 5 192 5 214
Release (168) (6 263) (6 431)
Utilization (5) (6 884) (6 889)
---------- ------------- --------
Closing
balance at 31
December 2004 2 245 13 435 15 680
Charged to
income
statement (151) (7 955) (8 106)
23. PROFIT / (LOSS) FROM SALES AND CEASE OF INVESTMENTS
The Group's result on the sale of investments was MHUF 756 in 2005. The loss on
the sale of investments was MHUF 219 in 2004.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
24. OTHER OPERATING INCOME/EXPENSES
Other operating income 2005 2004
------ ------
Income from non-financial activities 1 174 1 392
Profit on sale of fixed assets - 704
Unrealised gain on financial instruments 140 -
Gain on sale of receivables 1 063 3 234
Derecognition of negative goodwill 1 171 1 335
Fee income from insurance 558 -
Other income 730 678
-------- -------
4 836 7 343
Other operating expenses 2005 2004
------ ------
Loss on the sale of available for sale securities 578 537
Other expenses related to loans 7 14
Charitable donations 367 595
Loss on sale of fixed assets 67 -
Material costs 624 741
Remitted receivables 719 -
Fees 1 488 -
Other operating expenses 809 681
-------- -------
4 659 2 568
25. GENERAL AND ADMINISTRATIVE EXPENSES
2005 2004
------ ------
Salaries and employee benefits 8 147 6 201
Depreciation and amortization 1 351 1 137
Other expenses 4 206 4 621
------- -------
13 704 11 959
The average number of the employees in the Group was 623 in 2005 (2004: 409).
The number of employees of two subsidiaries - Magyar Export-Import Bank ZRt. and
Magyar Exporthitel Biztosito ZRt. - appears first time in 2005. These
subsidiaries have been controlled by the Bank since the end of 2004.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
26. INCOME TAXES
The tax charge for the year is based on the profit for the year according to the
statutory accounts of the Group 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 banks are subject of a surcharge of 8 % for
financial institutions.
2005 2004
Corporation tax 6,224 1,465
Deferred payment - temporal difference:
- Revaluation of financial instruments - 126
-------- ----------
- 126
Tax payable in the Income Statement 6,224 1,591
Effective tax rate 2005 2005 2004 2004
------ ------ ------ ------
Profit before income taxes 22 144 14 945
Taxes by law 16,00% 3 543 16,00% 2 391
Surcharge 8,00% 1 772 - -
Tax base correction 0,61% 134 -1,75% (262)
Self revision - - -0,16% (23)
Effects of consolidation entries 1,73% 383 -1,05% (157)
Effect of IFRS 3 - - -1,38% (207)
Valuation of financial instruments 2,22% 491 -1,86% (277)
Result on the involvement of associated
companies 0,16% 36
General risk reserve -0,61% (135) - -
Revaluation of financial instruments - - 0,84% 126
Effective tax liability 28,11% 6 224 10,65% 1 591
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
27. FOREIGN CURRENCY BALANCE SHEET AND CURRENCY RISK ANALYSIS
The foreign currency balance sheet was as follows as at 31 December 2005:
HUF EUR Other foreign currencies Total
------- ------- --------- -------
Assets
Cash and cash 7 942 662 - 8 604
equivalents
Placements with other 125 365 108 726 26 216 260 307
banks
Loans, net of
allowance for 363 015 104 941 13 973 481 929
impairment losses
Financial assets at
fair value 23 097 89 - 23 186
through profit and
loss
Securities 75 963 610 2 638 79 211
Equity investments 25 240 1 367 1 257 27 864
Other assets 30 660 1 302 303 32 265
Fixed and intangible 7 791 - - 7 791
assets ------- ------- --------- -------
Total assets (1) 659 073 217 697 44 387 921 157
------- ------- --------- -------
Liabilities
Placements and loans
from other 47 507 481 483 43 099 572 089
banks
Deposits from 50 678 6 571 5 57 254
customers
Issued securities 17 850 113 729 - 131 579
Financial instruments
for - - 98 98
hedging
Other liabilities 16 441 5 825 379 22 645
------- ------- --------- -------
Total liabilities 132 476 607 608 43 581 783 665
------- ------- --------- -------
Subordinated debt 9 500 - - 9 500
------- ------- --------- -------
Shareholder's equity 127 992 - - 127 992
------- ------- --------- -------
Total liabilities and
shareholder's equity 269 968 607 608 43 581 921 157
(2) ------- ------- --------- -------
Net Exposure (1) - 389 105 (389 911) 806 -
(2)
Commitments and
Contingent 187 360 18 892 95 206 347
Liabilities ------- ------- --------- -------
Net foreign currency
position 576 465 (371 019) 901 206 347
at 31 December 2005 ------- ------- --------- -------
The foreign currency balance sheet was as follows as at 31 December 2004:
HUF EUR Other foreign currency Total
------- -------- ---------- -------
Total assets (1) 536 997 199 426 46 082 782 505
Total liabilities and
Shareholder's 254 726 490 083 37 696 782 505
equity (2)
Net exposure (1) - (2) 282 271 (290 657) 8 386 -
Commitments and Contingencies 161 423 17 171 - 178 594
Net foreign currency position
at
31 December 2004 443 694 (273 486) 8 386 178 594
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
28. 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 3 months to 1 to 5 Over 5 years Without maturity Total
months 1 year years
Assets
Cash and cash
equivalents 3 729 - - - - 4 875 8 604
Placements
with other
banks 58 006 22 699 51 373 89 420 38 809 - 260 307
Loans, net of
allowance for
impairment
losses 23 887 73 144 205 115 96 105 83 678 - 481 929
Financial
assets at
fair
value through
profit and 797 1 060 8 868 5 269 7 192 - 23 186
loss
Securities - 810 14 898 44 247 19 256 - 79 211
Equity
investments * - 419 1 541 6 339 2 691 16 874 27 864
Other 1 481 10 18 975 11 590 209 - 32 265
assets
Fixed and
intangible
assets - - - - - 7 791 7 791
Total assets
(1) 87 900 98 142 300 770 252 970 151 835 29 540 921 157
Liabilities
Placements
and
loans from 32 659 35 065 77 047 331 639 95 679 - 572 089
other banks
Deposits from
customers 21 325 13 408 15 645 6 318 558 - 57 254
Issued
securities - - 113 730 17 849 - - 131 579
Financial
instruments
for hedging - - - 98 - - 98
Other
liabilities 2 109 296 18 504 1 038 698 - 22 645
Total
liabilities 56 093 48 769 224 926 356 942 96 935 - 783 665
Subordinated
debt - - - 9 500 - - 9 500
Shareholder's
equity - - - - - 127 992 127 992
Total
liabilities
and
shareholder's
equity (2) 56 093 48 769 224 926 366 442 96 935 127 992 921 157
MISMATCH (1)-(2)
31 807 49 373 75 844 (113 472) 54 900 (98 452) -
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 years Over 5 years Without Total
maturity
------ ------ ------ ------- ------- ------- -------
Total assets
(1) 78 377 64 361 133 815 355 289 121 967 28 696 782 505
Total
liabilities
and
Shareholder's
equity (2) 89 054 17 355 53 224 439 026 48 671 135 175 782 505
------ ------ ------ ------- ------- ------- --------
MISMATCH (1)-(2)
(10 677) 47 006 80 591 (83 737) 73 296 (106 479) -
* Investments connected to development equtiy investments have maturity.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
29. 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 years Over 5 years Without Total
interest
------ ------- ------ ------- ------ ------- ------
Assets
Cash and cash
equivalents 8 604 - - - - - 8 604
Placements
with other
banks 252 182 3 105 411 4 498 111 - 260 307
Loans, net of
allowance for
impairment
losses 42 017 185 802 185 878 46 770 21 462 - 481 929
Financial
assets at
fair
value through
profit and 797 1 059 8 868 5 270 7 192 - 23 186
loss
Securities - 810 14 898 44 247 19 256 - 79 211
Equity
investments - 419 1 541 6 339 2 691 16 874 27 864
Other 1 481 10 18 975 11 590 209 - 32 265
assets
Fixed and
intangible
assets - - - - - 7 791 7 791
------ ------- ------ ------- ------ ------- ------
Total assets
(1) 305 081 191 205 230 571 118 714 50 921 24 665 921 157
------ ------- ------ ------- ------ ------- ------
Liabilities
Placements
and
loans from 237 395 254 000 79 306 1 388 - - 572 089
other banks
Deposits from
customers 21 787 13 618 15 654 6 225 (30) - 57 254
Issued
securities - - 113 730 17 849 - - 131 579
Financial
instruments
for hedging - - - 98 - - 98
Other
liabilities 2 109 296 18 504 1 038 698 - 22 645
------ ------- ------ ------- ------ ------- ------
Total
liabilities 261 291 267 914 227 194 26 598 668 - 783 665
------ ------- ------ ------- ------ ------- ------
Subordinated
debt - - - - - 9 500 9 500
------ ------- ------ ------- ------ ------- ------
Shareholder's
equity - - - - - 127 992 127 992
------ ------- ------ ------- ------ ------- ------
Total
liabilities
and
shareholder's
equity (2) 261 291 267 914 227 194 26 598 668 137 492 921 157
------ ------- ------ ------- ------ ------- ------
MISMATCH (1)-(2)
43 790 (76 709) 3 377 92 116 50 253 (112 827) -
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 years Over 5 years Without Total
interest
------ ------ ------- ------ ------ -------
------
Total assets
(1) 290 775 165 324 104 293 144 480 48 810 28 823 782 505
Total
liabilities
and
Shareholder's
equity (2) 219 981 170 201 105 605 131 669 10 374 144 675 782 505
------ ------ ------- ------ ------ ------- ------
MISMATCH (1)-(2)
70 794 (4 877) (1 312) 12 811 38 436 (115 852) -
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
30. SEGMENT INFORMATION
The segment information for the year 2005:
Segment
-------------------------
Bank Other financial institutions Insurance Corporates Cons. adjustment Total
======= ========= ======= ======== ======== =======
Cash and
balances with
National Bank
of Hungary 7 964 24 15 4 576 (3 975) 8 604
Placements
with other
banks 152 054 109 990 450 - (2 187) 260 307
Loans, net of
allowance for
impairment
losses 456 696 26 187 50 430 (1 434) 481 929
Other 28 127 1 332 414 2 460 (68) 32 265
assets
Financial
assets at
fair
value through
profit and - 8 676 7 651 6 859 - 23 186
loss
Securities 78 093 1 118 - - - 79 211
Equity
investments 53 382 298 - 13 755 (39 571) 27 864
Fixed and
intangible
assets 5 714 412 125 1 324 216 7 791
------- --------- ------- -------- -------- -------
Total 782 030 148 037 8 705 29 404 (47 019) 921 157
Assets ======= ========= ======= ======== ======== =======
Placements
and
loans from 444 036 130 177 1 582 (2 707) 572 089
other banks
Deposits from
customers 62 257 80 - - (5 083) 57 254
Other
liabilities 17 403 2 468 2 322 1 000 (548) 22 645
Issued
securities 131 576 - - - 3 131 579
Financial
instruments
for hedging 98 - - - - 98
------- --------- ------- -------- -------- -------
Total
liabilities 655 370 132 725 2 323 1 582 (8 335) 783 665
------- --------- ------- -------- -------- -------
Subordinated
debt 9 500 - - - - 9 500
------- --------- ------- -------- -------- -------
Total
shareholder's
equity 117 160 15 312 6 382 27 822 (38 684) 127 992
------- --------- ------- -------- -------- -------
Total
Liabilities
and
Shareholder's
Equity 782 030 148 037 8 705 29 404 (47 019) 921 157
======= ========= ======= ======== ======== =======
Interest and
similar 38 670 7 587 531 975 (330) 47 433
income
Interest
expense and
similar
charges (20 244) (3 870) - (63) 344 (23 833)
------- --------- ------- -------- -------- -------
Net interest
income 18 426 3 717 531 912 14 23 600
------- --------- ------- -------- -------- -------
Income/(loss)
before income
taxes 21 070 969 59 (677) 723 22 144
======= ========= ======= ======== ======== =======
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
SEGMENT INFORMATION (CONTINUED)
The segment information for the year 2004:
Bank Other financial institutions Insurance Corporates Cons. Adjustment Total
======= ========= ======== ========= ======== =======
Total 606 275 176 867 9 555 22 867 (33 059) 782 505
assets
Total
liablities 489 310 161 973 3 220 1 215 (2 208) 653 510
Subordinated
debt 9 500 9 500
Total
shareholder's
equity 107 465 14 894 6 335 21 652 (30 851) 119 495
------- --------- -------- --------- -------- -------
Total
liablities
and
Shareholder's 606 275 176 867 9 555 22 867 (33 059) 782 505
equtiy
Net interest
income 23 134 238 - 894 - 24 266
Income /
(loss) before
income taxes 14 351 (2 136) - 203 2 527 14 945
31. TABLE OF FAIR VALUE
Table of fair values for the year 2005:
Net book value Fair value
---------- --------
Assets
Cash and cash equivalents 8 604 8 604
Placements with other banks 260 307 260 307
Loans, net of allowances for impairment
losses 481 929 482 151
Financial assets at fair value through profit
and loss 23 186 23 186
Securities 79 211 79 211
Equity investments 27 864 27 864
Other assets 32 265 32 265
Fixed and intangible assets 7 791 7 791
---------- --------
Total assets 921 157 921 379
---------- --------
Liabilities
Placements and loans from other banks 572 089 572 089
Deposits from customers 57 254 57 254
Issued securities 131 579 131 579
Financial instruments for hedging 98 98
Other liabilities 22 645 22 645
---------- --------
Total liabilities 783 665 783 665
---------- --------
Subordinated debt 9 500 8 290
Shareholder's equity 127 992 129 424
---------- --------
Total liabilities and shareholder's equity 921 157 921 379
---------- --------
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
TABLE OF FAIR VALUE (CONTINUED)
Table of fair values for the year 2004:
Net Book Value Fair Value
---------- ---------
Assets
Cash and cash equivalents 6 193 6 193
Placements with other banks 261 714 261 714
Loans, net of allowances for impairment losses 309 296 309 831
Financial assets at fair value through profit
and loss 25 393 25 393
Securities 135 919 135 919
Equity investments 20 571 20 571
Other assets 15 300 15 300
Fixed and intangible assets 8 119 8 119
---------- ---------
Total assets 782 505 783 040
========== =========
Liabilities
Placements and loans from other banks 477 848 477 848
Deposits from customers 20 679 20 679
Issued securities 127 463 127 463
Financial instruments for hedging 876 876
Other liabilities 26 644 26 644
---------- ---------
Total liabilities 653 510 653 510
---------- ---------
Subordinated debt 9 500 7 015
---------- ---------
Shareholder's equity 119 495 122 515
---------- ---------
---------- ---------
Total liabilities and
shareholder's equity 782 505 783 040
========== =========
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
32. RECONCILIATION OF THE SHAREHOLDERS' EQUITY AND PROFIT BEFORE TAXATION IN
THE HUNGARIAN AND IFRS FINANCIAL STATEMENTS
Reconciliation for the year 2005:
Net income Shareholders' equity
2005 31 December 2005
Hungarian financial statements ("HFS") 4 625 121 924
General reserve and general risk reserves 2 491 561
Difference on the equity method (1 321) -
Derecognition of negative goodwill based
on IFRS 3 1 171 2 028
Effects of applying of IAS 39 (2 046) 3 376
Minority interests - 103
Divedend 11 000 -
----------- -----------
IFRS financial statements 15 920 127 992
----------- -----------
Reconciliation for the year 2004:
Net income Shareholders' Equity
2004 31 December 2004
Hungarian financial statements ("HFS") 3 179 110 657
Self revision of a subsidiary 145 -
General reserve 1 134 -
Difference on the equity method (46) (46)
Derecognition of negative goodwill based
on IFRS 3 1 335 2 028
Effects of applying of IAS 39 1 733 2 142
Revaluation reserve - (4)
Deferred tax (126) -
Minority interest (See chapter 2. q) - 4 718
Dividend payed (See chapter 2. q) 6 000 -
---------- -----------
IFRS financial statements 13 354 119 495
========== ===========
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
33. KEY MANAGEMENT PERSONNEL COMPENSATION
The compensation of the key management personnel at the Bank was the following:
2005 2004
------ ------
Members of the Board of Directors 33,7 35,8
Members of the Supervisory Board 22,0 17,3
CEOs and deputy CEOs 344,5 314,9
----------------- ------- -------
Total: 400,2 368,0
34. 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 related parties also include other State
owned companies. The list of related parties of the Bank (subsidiaries and
associates) can be found in Note 10.
The balances arising from transactions with related parties were as follows in
2005:
Subsidiaries and associates Other State owned companies
Assets
Cash and balances
with the National
Bank of Hungary - 7 789
Loans and advances
to customers, net
of allowance for
impairment losses 2 985 326 410
Financial asset or
liability at fair
value through
profit and loss 1 625 21 561
Securities - 75 771
Investments in
subsidiaries and
associates 26 690 510
Other assets - 27 256
Liabilities
Deposit from other
banks and other
borrowed funds 5 2 199
Deposit from
customers 4 974 6 252
Other liabilities 152 7 465
Income Statement
Interest and
similar income 275 28 218
Interest expense
and similar
charges 54 158
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
RELATED PARTIES (CONTINUED)
The balances arising from transactions with related parties were as follows in
2004:
Subsidiaries and associates Other State owned companies
Assets
Cash and balances
with the National
Bank of Hungary - 2 061
Financial asset or
liability at fair
value through
profit and loss 2 887 22 056
Securities - 132 479
Investments in
subsidiaries and
associates 19 028 510
Other assets 568 9 677
Liabilities
Deposit from other
banks and other
borrowed funds - 2 202
Deposit from
customers 1 552 5 999
Other liabilities 278 323
Income Statement
Interest and
similar income 100 34 030
Interest expense
and similar
charges 147 495
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
35. SIGNIFICANT EVENTS AFTER THE REPORTING DATE
Decision on expanding the operation of the Hungarian Development Bank
In collaboration with the Hungarian Government, the Bank elaborated its concept
for the further centralization of state-owned grant 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 HDB 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. To replace the foreign currency bond
issued in 2001 with a nominal value of EUR 450 million and which matured this
year on 12 June, the Bank issued new bond with a nominal value of EUR 500
million.
Merger of subsidiaries
The Bank, as the owner, decided that two of its subsidiaries were to be merged
into other companies. The Vecsei 2005 Ingatlanforgalmazasi Kft. was merged into
the Bank on 30 June 2006. Magyar Kozmu Rt. was merged into NIL Rt. as of 30
April 2006.
36. EFFECTS OF NEW IFRS PRONOUNCEMENTS
Certain new standards, amendments and interpretations to existing standards have
been published that are mandatory for the Group's accounting periods beginning
on or after 1 January 2006 or later periods, but which the Group has not early
adopted, as follows:
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
EFFECTS OF NEW IFRS PRONOUNCEMENTS (CONTINUED)
a) IAS 19 (Amendment), Employee Benefits (effective from 1 January
2006)
As the Group does not have any defined benefit plans, this amendment is not
relevant to the Group'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 Group'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 Group believes that this
amendment should not have a significant impact on the classification of
financial instruments, as the Group 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 Group'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 Group's operations as the Group 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 Group's operations.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
EFFECTS OF NEW IFRS PRONOUNCEMENTS (CONTINUED)
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 Group'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
Group'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 Group'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 Group 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 Group's operations.
Hungarian Development Bank Ltd.
Notes to Consolidated Financial Statements
for the year ended 31 December 2005
(in million HUF)
EFFECTS OF NEW IFRS PRONOUNCEMENTS (CONTINUED)
l) IFRIC 8 Scope of IFRS 2 (effective from 1 May 2006)
IFRIC 8 is not relevant to the Group's operations.
m) IFRIC 9 Reassessment of Embedded Derivatives (effective from 1 June
2006)
The Group 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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