Årsredovisning ikano bank se 2010

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Annual Report

2012

Simple and smart financial services on fair terms. That is what we at Ikano Bank aim to give our customers. We operate on five markets in the Nordic countries and Northern Europe and our mission is to provide financial solutions, savings and card products to individual consumers and businesses, through partners or directly. We are part of the Ikano Group and our roots are in Älmhult.

This is Ikano Bank.

THE YEAR IN BRIEF

• The business volume in-creased by 9% during the year.

• Operating profit for the year amounted to mEUR 60.7, yielding a return on equity of 17.8%.

• Deposits increased by 14%.

• We expanded to the Dutch market and opened a branch in Amsterdam.

• We signed an agreement with Coop in Norway regard-ing corporate card concept for purchases.

• Our Nordic cooperation with Lindex deepened with the new customer club More at Lindex.

• IKEA FAMILY became a new member of Ikano Bank’s mo-bile service, Skipp.

• In Denmark, the major banks’ restraint in lending to small and medium-sized en-terprises led to good busi-ness opportunities for our leasing operations.

• Factoring operations had a breakthrough in the Swedish market and grew by 76%.

• Ikano Bank SE was changed into Ikano Bank AB, in order to allow for additional trans-parency in its accounting.

• Managing Director Bo Liljegren resigned in Sep-tember and Stefan Nyrinder, formerly responsible for the Swedish operations, was ap-pointed as new MD.

• In October, Arja Taaveniku, CEO of the Ikano Group, was appointed new member of the Board.

SWEDEN

NORWAY

FINLAND

DENMARK

THE NETHERLANDS

LENDING BY COUNTRY BUSINESS VOLUME PER PRODUCT AREA

Sweden

Denmark

Norway

Finland

the Netherlands

Deposits

Direct loans

Cards

Leasing

Factoring

Mortgage loans

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We are a bank that strives for simplicity in everything we do and we use awareness of customers’ needs in the develop-ment of our services.Fair terms in all of our business relationships is our promise.

2012 2011 % CHANGE

Operating profit, mEUR 60.7 62.0 -2

Bad debt ratio, % 1.6 1.6 0

Return on equity, % 17.8 22.1 -19

Capital adequacy quotient 2.07 1.89 10

Tier 1 capital quotient 1.69 1.46 16

Expenses/income ratio, % 58.6 55.5 6

Average number of employees 479 440 9

Key Ratios

LENDING, INCLUDING LEASING IN MILLIONS OF EURO

DEPOSITS IN MILLIONS OF EURO

2008

2009

2010

2011

2012

0

500

1000

1500

2000

0

500

1000

1500

2000

In 2012, our

479 employees

contributed to an operating profit of

mEUR 60.7 and Ikano Bank currently has

1.3 million active credit, loan and savings account customers in 5 countries.

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“ Our strong position in Sweden makes it easier for us to introduce new products in our other markets.”

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A secure brand provides strength in tough times.

A business concept in the time

In uncertain times, we look for brands that give a feeling of security and sustainability. Our business concept of finan-cial products that are easily understood, with no hidden fees and fair terms, is therefore very timely, and a tougher market climate may imply new business opportunities for us. For example, our business operations in Sweden, Norway and Denmark achieved very good results in 2012. In particular, this applied to our relatively new factoring operations, that grew by 76%. We also saw that our deposits continued to grow and, at year end, this business accounted for almost 70% of the funding of our operations. This is a positive sign of confidence from our customers and provides us with stable liquidity and the opportunity for continued growth.

Unique retail expertise

Our background in IKEA and extensive experience in retail gives us a unique position in the market, where we can help our partners with financing solutions and loyalty programs that increase sales and strengthen customer relationships. In 2012, we signed new cooperation agreements with Magasin du Nord in Denmark and Coop in Norway and enhanced cooperation with several Nordic retail chains.

An international strategy

The operations on the Swedish market accounted for 84% of our total business volume and this is the market where we have the broadest product offering. Our strong position in Sweden gives us the ability to develop new products that can, then, be introduced in more markets. An example is the launch of savings products in Denmark in 2013. Our presence in many markets is also a great advantage when we work with international retail and leasing partners who want to find joint financing and loyalty solutions for several countries. During the year, our office in the Netherlands opened and, in 2013, we plan to acquire the lending business from our fellow subsidiary in the UK, Ikano Financial Services Ltd.

A changing world

Technological developments affect our purchasing habits and, thereby, also how we manage our banking. We at Ikano Bank work closely with our customers and support them in this development. This may, for example, mean that we help our partners with financing services in web shops, to continue simplify our own internet banking or to develop payment services on mobile phones. The mobile service Skipp, which collects loyalty cards on mobile phones, was a big step forward when it was launched in 2011. In 2012, we continued the development of Skipp by, among other things, making the service available to all IKEA FAMILY members. Something that also affects our business is legislation and banking regulations. More stringent requirements will soon be implemented regarding the quality of capital and liquidity of banks. With great satisfaction, we can confirm that we already meet these requirements. Finally, I would like to thank our customers, partners and employees for their good work in 2012. I look forward to sharing an exciting 2013 with you!

Stefan NyrinderManaging Director, Ikano Bank AB (publ)

2012 was a tough year on the financial markets in Europe. Financial crises and the economic downturn affected companies’ willingness to invest and consumers’ confidence in the future. Nevertheless, we at Ikano Bank performed well, and we can enjoy a continued high level of trust among customers and partners.

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We at Ikano Bank have our roots in Sweden, but we have broader horizons. With our international presence, we can follow our retail partners across national borders. And offer our customers new products already established in other markets.

With our hearts in Älmhult and our sights on Europe.

SWEDEN – CONSUMER SWEDEN – CORPORATE

SAVE CARD LEASINGLOAN MORT-GAGE

FACTO-RING


FACTO-RING

In Sweden we offer:

In Finland we offer:

“ One area of focus at the moment is on sim-plifying for our customers, all the way from the initial interest to an approved applica-tion. Another is to become even better at offering our partners innovative solutions for customer clubs and loyalty programs.”

Joachim Lindow, Country Manager, B2C Sweden

“ We have achieved a breakthrough in factoring this year. Our challenge now is to further develop the business in order to continue to meet the high demand.” Richard Jonsson, B2B Sweden

EMPLOYEES: 61 LOCATED: Sundbyberg, Gothenburg, LundBUSINESS AREAS: Corporate

Our Corporate operations offer financing through leasing through partners in areas such as office machinery, IT and vending machines and also, for the last three years, direct distribution of factoring and invoice purchases. The business developed very well in 2012. Our strong brand, in conjunction with attractive products, led to exceeded sales targets on both the leasing and factoring side.

EMPLOYEES: 158 LOCATED: Älmhult, LundBUSINESS AREAS: Consumer, Sales Finance

In Sweden, our Consumer operations include sales financing and loyalty programs through cooperation partners and di-rect sales of several products in loans, savings and credit cards. 2012 was a tough year for both retail and the direct lending market. Our strong brand and proven expertise in CRM has, nevertheless, led to successes, including enhanced cooperation with Preem and Lindex.

FINLAND

“ Our goal is to expand the business in a profitable manner. We will achieve this by developing existing partnerships, establishing relationships with new part-ners, and broadening our portfolio of services.” Tomas Åberg, Country Manager

EMPLOYEES: 8 LOCATED: VandaBUSINESS AREAS: Sales Finance

In Finland, we offer sales financing to the retailers where the furniture retailer, IKEA, and the vehicle fuel chain, St1, are prominent. Parts of the operating activities, such as customer service and application processing, have been coordinated with the organisation in Sweden in order to increase efficiency and accessibility for customers. In October, Tomas Åberg was appointed new Country Manager of the Finnish operations. His most recent position was at SEB Card.

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In Norway we offer:

NORWAY

“ Norway is a good country in which to operate a bank. The companies show a high willingness to invest and Norwegians have a healthy attitude towards loans for consumption.”

Morten Grusd, Country Manager

EMPLOYEES: 55 LOCATEDI: AskerBUSINESS AREAS: Consumer, Corporate, Sales Finance

In Norway, financing support is available to both the con-sumer and corporate markets. Compared to other markets, Norway has been relatively spared the effects of the eco-nomic crisis, and both Consumer and Corporate services displayed good development in 2012. Not least of all, Ikano Bank’s own Visa card has enjoyed good market penetration. During the year, an agreement was signed with Coop Nor-way regarding a card concept for business purchases.

With our hearts in Älmhult and our sights on Europe.

* Only via partner.

In Denmark we offer:

DENMARK

“ In recent years we have become more and more visible in the Danish market. The cooperation with IKEA opens the door to new partnerships with Danish retail operators.”

Jesper F. Schmidt, Country Manager

EMPLOYEES: 97 LOCATED: GlostrupBUSINESS AREAS: Consumer, Sales Finance

Financing via leasing to the corporate market currently accounts for a third of the Danish business and the remain-der comprises consumer-directed services to the retail trade or directly via e.g. loans and Visa cards. 2012 was a tough year but the major banks’ restraint regarding lend-ing to small and medium-sized companies led to increased business opportunities for our leasing services. In 2013, the next step in the Danish operations is being taken, with the launch of savings products.

In the Netherlands we offer:

THE NETHERLANDS

“ Our strategy is to take advantage of our flexible and cost-effective organisation, to get to know the market and to grow along-side IKEA. In time, we will also be open to new partnerships.”

Åsa Färm, Country Manager

EMPLOYEES: 10 LOCATED: AmsterdamBUSINESS AREAS: Sales Finance

2012 marked the start for Ikano Bank in the Dutch market. Entry into the market took place in cooperation with the furniture retailer, IKEA, which occupies a strong position in the Nether-lands with twelve stores around the country. Since the launch in September, several successful store campaigns have been conducted to increase interest in financial services.


FACTO-RING


FACTO-RING


FACTO-RING

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For us, “on fair terms” means that we share risk, effort and profits in a fair manner in our business relationships. That we are open and transparent in the way we conduct business and that we always keep our promises. We are convinced that this is the right way to create long-term relationships with our customers, partners and employees.

Our values

Our work with our personnel is driven by our desire to encourage open and enthusiastic people to cooperate, develop and, together, to create a successful Ikano. Our three core values comprise the compass that points out the direction towards this goal and helps to fulfill our promise of a company with fair terms.

Common sense and simplicity. To stand with both feet on the ground is part of our heritage and our culture. We have a practical approach to what we do and always maintain focus on cost awareness. We believe in the power of simplicity. It should be profitable to do business with Ikano and the solutions should be easy to understand.

Working together. Here at Ikano, the achievement of our common goals is more important than individual accom- plishments. We attach little importance to hierarchy and believe in peoples’ willingness to take responsibility and contribute with ideas and knowledge, regardless of position. In this way, we also provide our employees with the freedom to challenge established patterns.

Dare to be different. We are always looking for new and better ways to create value for our customers. In order to do so, we have to go our own way and dare to ask the question “Why?” Opportu- nities to stay ahead of our competitors are also created when we have the courage to think differently.

In constant development

Compared with many other banks, we are still a young company and in constant development. We are in a con-tinuous process of developing relationships with our em-ployees, present and future. This might refer to develop-ing our processes in recruitment, introduction and perfor-mance evaluations or to strengthening our presence in social media. In 2012, a new international development programme was started up for our employees. Another important part of the Ikano Group’s corporate culture is social responsibility. We provide annual finan-cial support to a number of social projects around the world, with a particular focus on children and women’s learning and development.

A company is nothing without the people involved in it. We at Ikano Bank, and throughout the Ikano Group, are driven by a common vision and shared values running through the entire business and which create our brand. Together, we work to fulfill our promise to our customers, partners and each other: that everything we do, we do on fair terms.

A bank like no other.

Working together

Common sense and simplicity

On fair

terms

Daring to be different

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“ There are many reasons why I love working at Ikano Bank. Not least of these are the opportunities and the responsibilities I am given. This shows that the company trusts its employees which, in turn, contributes to a fantastic level of commitment.”

Marco Schreuders, Ikano Bank in the Netherlands

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Cecilia Daun WennborgBorn in 1963. MSc in Business and Economics. Board member. Elected in 2009.

Former CFO and CEO SkandiaLink, Manager of Swedish operations in Skan-dia, Interim CEO Skandiabanken, CFO and CEO Carema, Deputy CEO Ambea. Other assignments: Board of Getinge AB Proffice AB, Hakon Invest AB, Eniro AB, Carnegie Fonder AB and Sophiahemmet.

Birger LundBorn in 1949. MSc in Business and Economics. Chairman of the Board. Elected in 2003.

Former CEO of Ikano S.A., held several senior positions within the INGKA Group, most recently as country manager in China. Other assignments: Various board assignments within the Ikano Group.

Ingrid PerssonBorn in 1948. Business administration.Board member. Elected in 2009.

Previously responsible for the savings bank cooperation and the Swedish retail operations within FöreningsSparbanken, CEO Nordbanken Hypotek, had several senior positions in PKbanken.

Mats HåkanssonBorn in 1962. MSc in Business and Economics. Board. Elected in 2009.

Vice President Ikano S.A. Former CFO Ikano S.A. and authorised public accountant at Arthur Andersen in Sweden. Other assignments: Various Board assignments within Ikano Group.

Arja TaavenikuBorn in 1968. Executive MBA.Board member. Elected in 2012.

Group CEO of Ikano S.A. In the past several positions within INGKA Group, most recently as Global Business Unit Manager Kitchen. Other assignments: Various Board assignments within Ikano Group.

Board

Klas DanielssonBorn in 1963. BSc in Business Administration. Board member and Chairman of the remuneration Committee. Elected in 2009.

Former CEO/Founder of Nordnet. Trading Manager UBS, CEO/Founder DE Capital Growth Fund Ltd. Other assignments: Chair-man of the Board in SwedSec Licensiering AB and Svensk Information AB. Board member of East Capital AB and his own company Spiderweb Consulting AB.

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Management team

• Fredrik Krüeger Head of HR. Employed since 2009. Former HR Director at Ferring and Framfab, General Legal Counsel and other operational management roles within Skanska/Drott. • Tom Rattleff COO. Employed since 2009. Former Country Manager of Citibank in Denmark. Sales and Marketing Director at Nordax Finance AB. Held several senior positions within GE Capital. • Stefan Nyrinder Managing Director. Employed since 2008. Former Country Manager of Ikano Bank in Sverige, responsible for the retail market in Sweden and Finland. Sales and Marketing Director HAGS. Had several positions within SEB. • Janice Söderholm Kvist CFO. Employed since 2009. Previously held senior positions in finance at Sparbanken Finn, Nordic Drugs and Sony Ericsson. • Helen Uddefors Head of Legal. Employed since 2002. Former lawyer and project manager in the IT companies RKS Data and Sigma Exallon within banking and finance.

Ikano Bank AB Annual report 2012 12

Contents Administration report ................................................................................................................................. 13 5-year summary ......................................................................................................................................... 16 Income Statement ....................................................................................................................................... 18 Statement of Comprehensive Income ...................................................................................................... 18 Balance Sheet .............................................................................................................................................. 19 Statement of Changes in Equity .............................................................................................................. 20 Notes ........................................................................................................................................................... 22

1 General information ............................................................................................................................ 22 2 Accounting principles ......................................................................................................................... 22 3 Risks and risk management .............................................................................................................. 29 4 Business segments .............................................................................................................................. 40 5 Net interest income .............................................................................................................................. 41 6 Leasing income ................................................................................................................................... 42 7 Net commission ................................................................................................................................... 42 8 Net gains and losses on financial transactions .............................................................................. 42 9 Other operating income .....................................................................................................................43 10 Geographical distribution of income ...............................................................................................43 11 General administrative expenses .....................................................................................................43 12 Other operating expenses ............................................................................................................... 46 13 Loan losses, net ................................................................................................................................. 46 14 Appropriations .................................................................................................................................. 46 15 Taxes .................................................................................................................................................... 47 16 Treasury bills, etc................................................................................................................................ 48 17 Loans to credit institutions ................................................................................................................ 48 18 Loans to the public ............................................................................................................................. 48 19 Bonds and other interest-bearing securities ................................................................................. 49 20 Shares and participating interests ................................................................................................ 49 21 Intangible assets ............................................................................................................................... 50 22 Tangible assets .................................................................................................................................. 51 23 Leases ................................................................................................................................................ 52 24 Other assets ...................................................................................................................................... 52 25 Prepaid expenses and accrued income ........................................................................................ 52 26 Liabilities to credit institutions ....................................................................................................... 53 27 Deposits and borrowings from the public ..................................................................................... 53 28 Change in fair value on interest-rate hedged items in the portfolio hedge............................. 53 29 Issued securities ............................................................................................................................... 53 30 Other liabilities ................................................................................................................................. 53 31 Accrued expenses and prepaid income ........................................................................................ 54 32 Provisions .......................................................................................................................................... 54 33 Subordinated liabilities ................................................................................................................... 54 34 Untaxed reserves ............................................................................................................................. 55 35 Equity ................................................................................................................................................. 55 36 Memorandum items ......................................................................................................................... 56 37 Financial assets and liabilities ........................................................................................................ 56 38 Capital management and capital adequacy ............................................................................... 58 39 Related parties ................................................................................................................................. 60 40 Important assessments and estimates ......................................................................................... 60

Älmhult, 10 April 2013 ................................................................................................................................ 61 Audit report ................................................................................................................................................ 62 All amounts in this annual report are in thousand Euro (kEUR) unless stated otherwise. Amounts in brackets refer to the previous year.

Administration report

Ikano Bank AB Annual Report 2012 13

Administration report The Board of Directors and the Managing Director of Ikano Bank AB (publ), Corporate Identity Number 516406-0922, previously Ikano Bank SE, Corporate Identity Number 517100-0051, hereby present the annual accounts for the period from 1 January to 31 December 2012.

Owner and operational structure Ikano Bank AB (publ) is a limited liability company with its registered office in Älmhult and its head office in Lund. Ikano Bank is owned by Ikano S.A. with its registered office in Luxembourg. The Bank began operating in 1995 and is part of the Ikano S.A. Group’s Business Area Finance which under-takes banking and finance company operations in ten countries in Europe.

During the year the Bank converted from a European company (SE) to being a public limited liability company (AB publ) which has resulted in the Company receiving a new Corporate Identity Number although remaining the same legal entity. The reason for the change is to be able to use the Swedish krona as the accounting and presenta-tion currency. The Council Regulation on the Statute for a European Company stipulates that it is obligatory for a public EU company (a Societas Europaea, SE) to use the Euro as the reporting and the presentation currency. As only 1% of the Bank’s operations generate income and expenses in Euro, this has complicated the presentation of the Bank’s development. The change in the account-ing and reporting currency was implemented on January 1st 2013.

Business activities Ikano Bank carries out banking activities subject to a license from Finansinspektionen [the Swedish Financial Supervisory Authority] in Sweden, Denmark, Norway, Finland and the Netherlands. There are three business areas within these operations: Corporate, Sales Finance and Con-sumer. The Swedish operations are divided into two business segments, Business to Business (B2B) in Stockholm and Business to Consumer (B2C) in Älmhult. Operations in Denmark, Norway, Finland and the Netherlands are undertaken as branches of the Swedish operations. The Bank also has a dormant branch in the UK. The Bank's operations are followed up on the basis of geographical markets; see Note 4, Business segments for further details.

Corporate Offered within the Corporate business area are financial solutions for corporate clients and or-ganisations, in the form of rental and leasing agreements, object financing and factoring. This business area is represented in Sweden, Denmark and Norway.

Sales Finance Services for financing and sales support, mainly to our partners in the retail trade, are managed and marketed within the Sales Finance business area. This business area is represented in all of our geographical markets and the services offered comprise of consumer finance for sales support, credit cards with Visa and MasterCard, benefit cards, bonus management and information ser-vices for sales support.

The largest partner within Sales Finance is the INGKA group (the largest IKEA retailer)from where the Bank originated. Over the years sev-eral more partners have been added to the business. These partners are both domestic partners within each country and Nordic partners covering several of the geographical markets.

On August 30th 2012, the Bank opened a branch in the Netherlands, where Sales Finance services are offered via the furniture retailer IKEA.

Consumer The Consumer business area is comprised of traditional banking activities and is aimed at private individuals with simple, beneficial products and services for savings and loans. The customers carry out part of the work themselves on the Internet or by telephone, which enables matters to be dealt with efficiently and places the Bank in a position to be able to offer customers competitive products.

Lending is offered in the form of unsecured loans, mortgage loans and Visa credit cards. Mortgage loans are offered in cooperation with Sveriges Bostadsfinansieringsaktiebolag (SBAB) which implies that loans are arranged together with and provided by SBAB under the distinctive product name of “Ikano Bolån”. Lending is pro-vided as unsecured loans and card products in Sweden, Denmark and Norway, whereas deposits and mortgage loan products are only offered on the Swedish market. During 2013, deposit prod-ucts will also be offered on the Danish market.

Total assets and business volumes The Bank’s total assets increased over the year by mEUR 198 to mEUR 2,349. At the end of the ac-counting period, total assets for branches in Denmark, Norway, Finland and the Netherlands comprised mEUR 673 of the total amount. The Bank’s equity has increased by mEUR 24 and amounts to mEUR 227 (203).

Business volumes, consisting of loans to the public, deposits from the public, leasing assets and mediated mortgage loan volumes, increased



overall during the year by mEUR 321 and amounted to mEUR 4,098 (3,777) at the end of the year.

Loans to the public increased by mEUR 48 to mEUR 1,353, consisting primarily of increased factoring volumes. Deposit from the public in-creased by mEUR 195 to mEUR 1,617. Leasing operations increased on all markets by a total of mEUR 90, up to mEUR 497.

The Bank has had good access to funding dur-ing the year. Continued positive inflows to savings accounts have resulting in lower financing re-quirements from other sources of funding. The Bank’s total financing through deposits from the public amounted to 69% at year-end.

The Bank finances itself on the capital market and demand for the Bank’s short-term certificate programme continued to be high throughout the the year. At the beginning of 2013, the short-term programme will be supplemented with a bond programme (MTN) with terms of 1 – 15 years, with the aim of extending the average term of the Bank’s financing.

The Bank’s progress over a five-year period is shown on page 16.

Results Operating profit amounted to mEUR 61 com-pared to mEUR 62 for the previous year. Profit has been positively impacted by the growth within the Corporate business segment, the stable level of loan losses and the repayment of VAT from the years 2008-2010 in the Swedish operations. The strengthening of SEK against the Euro has led to a positive effect on the results, mEUR 13 (13).

Net interest income rose by mEUR 4 to mEUR 107 over the year. The interest rate margin fell slightly compared to 2011 which is partially due to the continued work with extending the Bank’s maturity structure on borrowings. The Bank main-tains a liquidity portfolio of high quality but rela-tively low-yielding interest-bearing securities, which has a further negative impact on the in-vestment margin.

Net leasing amounted to mEUR 38, an in-crease of mEUR 2 during the year, which is ex-plained by the growth in volume in this product area.

Net commission decreased by mEUR 4 to mEUR 41 which is largely attributable to the reclassifica-tion of expenses.

Other operating income increased by mEUR 13 during the year and refers to, among other things, value adjustments of acquired customer credits, increased intra-group consulting services and the repayment of excess VAT paid in Sweden during the years 2008-2010.

General administrative expenses increased by mEUR 10 to mEUR 102. The majority of this increase can be attributed to increased expenses for intra-group consulting services, which is reflected as increased income in other operating income. Depreciation, amortisation and impairment of tangible and intangible fixed assets have in-

creased by mEUR 33 to mEUR 180. This increase is, primarily, attributable to increased depreciation followed by higher leasing volumes, but also includes impairment of mEUR 6.1 on an internally-developed system application.

The cost of loan losses for the year amounted to mEUR 28 (mEUR 27), an increase of mEUR 1 explained by increased customer volumes. The loan loss level was unchanged and amounted to 1.6 % (1.6 %).

Employees The Bank works regularly with competence devel-opment. During 2012, the Bank’s Management Development, Female Mentor and Personal Development Programs have continued to run running. Moreover, all newly appointed managers atteneded the Ikano Bank Culture and Leadership Program andfurthermore, training and engage-ments focussing onethnic diversity have been carried out.

The staff survey, VOICE, which was conducted during 2011, was followed up during the year and work on factors identified as areas for improve-ment in the survey has been carried out.

The Works Council, which is the Bank's forum for employee participation in cross-border issues, has convened on two occasions during the year. The Work Council is comprised of elected em-ployee representatives for each country, along with the Managing Director and the Head of HR.

During the year, Bo Liljegren left the position as the Bank’s Managing Director and Stefan Nyrinder was appointed the new Managing Director. Stefan Nyrinder has been employed by the Bank since 2008 and was previously the Manager of the Swedish banking operations.

The number of employees, calculated in terms of annual FTEs, was 479 (440).

Information on principles and processes relat-ing to remuneration and benefits for key person-nel in senior management is provided in Note 11, General administration costs.

Risk management Risk management is a well-integrated part of the day-to-day work within the Bank. Through its operations, the Bank is exposed to several risks, such as credit risk, operational risk and business risk, but also needs to manage liquidity risk, currency risk and interest-rate risk. The Board and Managing Director bear the ultimate responsibil-ity for risk management in Ikano Bank. Risk man-agement aims to ensure that the risks do not exceed the risk tolerance level established by the Board of Directors. The Bank's risks are controlled centrally, but the responsibility for risk manage-ment lies, primarily, with the local entities. This implies that the operational activities own and manage risk on a daily basis. The central risk control function is responsible for monitoring and assessing risk management.



Credit risk is the Bank’s major risk and is defined as the risk that an individual counter-party may be unable to fulfil its obligations. Through good credit risk management, the profitability of lending activities can be optimised.

The Bank defines operational risk as the risk of direct or indirect losses caused by deficient or incorrect internal processes, procedures and systems, administrative errors or external events and factors. The Bank's aim is to guarantee effi-cient processes and to maintain high levels of security and accessibility for the Bank's customers and other interested parties.

Business risk is defined as the risk that the Bank’s earnings may be reduced and may be insufficient to cover the costs of its operations. Loan losses and operational risks are not included in the calculation of business risks. Business risk includes reputation risks, which are risks of finan-cial losses caused by a negative reappraisal of the Bank’s brand by customers, partners or lend-ers.

The Bank’s risk management objectives and policies are described in more detail in Note 3 Risks and risk management.

In recent years, the Bank’s operations have been affected by a number of new and amended regulations which have been imposed on the entire industry. Further new regulations can be expected in coming years and the Bank has, therefore, strengthened its organisation for the monitoring, evaluation and implementation of new regulations as they come into force.

Capital adequacy The Bank’s capital adequacy quota was 2.07 (1.89) at the end of the year. For more information on the calculation of capital adequacy, see Note 38, Capital management and capital adequacy.

Events after balance sheet date No significant events affecting the financial state-ments for 2012 occurred after the end of the period. On 1 January 2013, the Bank changed its accounting and reporting currency from Euro to Swedish Krona, implying a reduction to volatility in net profit/loss, as the Bank’s accounting exposure to the Euro ceases. The Bank’s opening equity for 2013 is SEK 1,943,796,119.

Prospects for 2013 We anticipate that the weak economic develop-ment on our markets will continue during 2013, with private individuals remaining cautious in their consumption and maintaining their focusi on saving. Nonetheless we see opportunities for growth during the coming year through the devel-opment and expansion of our product range. On the corporate side, we believe we will see contin-ued growth on our markets in Sweden, Denmark and Norway – although with a somewhat intensi-fied competition for customers. Deposits from private individuals are an important element of

the Bank’s financing and we will concentrate on maintaining the trust of our customers.

The Bank plans to acquire the lending opera-tions of the fellow subsidiary Ikano Financial Services Ltd in the UK during the year, and incor-porate into the Bank’s existing UK branch.

Proposed allocation of profits The following profits are at the disposal of the Annual General Meeting of shareholders (All amounts in EUR): Fair value reserve 5,073,839 Profit brought forward 162,822,495 Net profit for the year 27,299,776 Total 195,195,110 The Board of Directors proposes that profits be allocated as follows: To be carried forward 195,195,110 Allocated to fair value reserve 5,073,839 Profit brought forward is reported after deduc-tions for Group contributions of EUR 5,826,148, less tax of EUR 1,532,277.

Financial reports


5-year summary

In 2009-2012, DKK and NOK were translated to EUR at an average exchange rate/closing rate. DKK 7.4450/7.4610 7.4491/7.4324 7.4478/7.4521 7.4461/7.4410 NOK 7.4636/7.3372 7.7791/7.7473 8.003/7.7978 8.7058/8.2883

For 2008, SEK was translated to EUR at the 2008 closing rate of 10.9924 and refers only to the Swedish operations.

mEUR 2012 2011 2010 2009 2008INCOME STATEMENTNet interest income 107 103 89 75 44Leasing income 208 178 157 129 71 Net commission 41 45 31 31 15Net gains and losses on financial transactions -4 -4 -2 -1 - Other operating income 33 20 13 7 7 Total operating income 384 342 288 241 137

-102 -92 -75 -67 -39

-180 -147 -129 -108 -60 Other operating expenses -13 -14 -10 -8 -6Loan losses -28 -27 -18 -39 -10

-324 -280 -232 -223 -115

Operating profit 61 62 5 6 18 23Appropriations -23 -4 -34 14 -3Taxes -11 -12 -7 -8 -6Profit for the year 27 46 15 24 14

mEUR 2012 2011 2010 2009 2008B ALANCE SHEETLoans to credit institutions 73 60 70 52 70

Loans to the public 1 353 1 305 1 332 1 016 697326 299 150 117 20

Tangible assets 500 410 371 325 152 Other 97 77 50 38 27Total assets 2 349 2 15 1 1 973 1 5 48 966

Liabilities to credit institutions 114 155 193 178 841 617 1 423 1 189 868 616

Other 258 262 329 312 161Provisions 9 8 8 7 2Subordinated liabilities 63 62 62 38 - Total l iabil it ies and provis ions 2 061 1 910 1 781 1 403 863Untaxed reserves 61 38 34 - 14 Equity 227 203 158 145 89

2 349 2 15 1 1 973 1 5 48 966

Deposits and borrowings from the public

Total l iabil it ies , provis ions and equity

Interest-bearing securities

Other operating expenses

General administrative expensesDepreciation/amortisation and impairment of tangible and intangible

Financial reports


5 year summary

1) Calculated in accordance with the tax rate applying each year. In 2009-2012, DKK and NOK were translated to EUR at an average exchange rate/closing rate. For 2008, SEK was translated to EUR at the 2008 closing rate of 10.9924 and refers only to the Swedish operations.

mEUR 2012 2011 2010 2009 2008Volumes Business volume 4 098 3 777 3 568 2 758 1 882

Change during the year, % 8,5 5,9 29,4 46,6 17,2

Loans to the public 1 353 1 305 1 332 1 016 6973,7 -2,0 31,1 45,8 21,0

1 617 1 423 1 189 868 61613,7 19,6 37,0 40,9 14,7

CapitalEquity ratio 11,7 10,7 9,3 9,4 10,3

Capital adequacy ratio 2,07 1,89 1,68 1,53 1,58

Tier 1 capital ratio 1,69 1,46 1,23 1,20 1,48

Resul tInvestment margin 4,7 5,0 5,1 5,2 5,4

17,8 22,1 25,1 10,5 20,7

C/I-figures before loan losses 58,6% 55,5% 54,5% 57,8% 58,3%

Credit qual ity54,5% 51,1% 45,2% 66,4% 66,8%

Share of doubtful debts, % 2,9% 3,0% 2,5% 3,7% 2,3%

Loan loss level 1,6% 1,6% 1,2% 3,1% 1,4%

Other in formationAverage number of employees 479 440 421 411 253

Customer-related loans and deposits, leasing and mediated mortgage loans

Operating expenses in relation to operating income with lease operations offset in operating income

Total provision for probable loan losses in relation to doubtful debt, gross


Tier 1 capital in relation to capital requirement

Capital base in relation to capital requirement

Operating profit after standard tax rate in relation to average equity

Taxed equity + 78 % of untaxed reserves in relation to total assets

Return on equity 1)

Net interest income in relation to average total assets

Provisions for doubtful debts, %

Change during the year, %

Change during the year, %

Doubtful debts, in relation to total loans to the public, credit institutions (excluding banks) and lease receivables

Loan losses in relation to average loans to the public, credit institutions (excluding banks) and lease receivables

Financial reports


Income Statement

Statement of Comprehensive Income

kEUR Note 2012 20115 155 681 148 6456 207 594 178 4935 -48 853 -45 9867 60 912 59 6017 -19 888 -14 9228 -3 968 -3 8049 32 760 19 632

384 238 341 65 9

11 -101 826 -92 093

21, 22 -179 951 -146 75412 -13 463 -14 094

-295 240 -25 2 941

88 998 88 718

13 -28 318 -26 727

60 680 61 991

14 -22 859 -3 63115 -10 521 -12 465

27 300 45 895

General administrative expenses

Other operating expenses

Net profit for the year

Loan losses, net

Tax expense

Operating profit

Appropriations

Total expenses before loan losses

Interest incomeLeasing incomeInterest expense

Depreciation/amortisation and impairments of tangible and intangible assets

Profit before loan losses

Net gains and losses on financial transactions

Commission income

Other operating incomeTotal income

Commission expense

kEUR 2012 2011Profit for the year 27 300 45 895

Other comprehensive income1 224 274

Changes in fair value on financial assets available-for-sale 337 71

Tax related to financial assets available-for-sale -74 -18Other comprehensive income for the year, net o f tax 1 487 327

Total comprehensive income for the year, net o f tax 28 787 46 222

Translation difference for the year, foreign branches

Financial reports


Balance Sheet

The item Commitments is comprised of unused credit which can be withdrawn at immediate

notice to the extent that this is permitted under the Consumer Credit Act.

kEUR Note 2012 2011

4 416 116 886 36 54917 72 561 60 18518 1 353 091 1 305 30219 208 638 262 01820 294 17221 3 854 10 11522 499 886 410 145

2 925 3 432496 961 406 713

24 69 129 52 02815 6 541 6 04925 17 684 8 079

2 348 5 68 2 15 0 646

26 114 086 155 45227 1 615 433 1 421 23428 1 940 1 51129 128 277 162 88230 67 991 52 07031 60 336 46 972

9 457 8 15632 3 406 3 19515 6 051 4 96133 63 294 61 967

2 060 814 1 910 244

34 60 715 37 85 6

3531 844 31 844

9 225 9 22522 619 22 619

195 195 170 7025 073 3 586

162 822 121 22127 300 45 895

227 039 202 5 462 348 5 68 2 15 0 646

36none none

68 643 033 956 3 027 571Commitments

Retained earnings/losses Net profit for the yearTotal equity

Non-restricted equity

Contingent liabilities

Cash and balances with central banks

Loans to credit institutionsTreasury bills etc.

Loans to the public


Tangible assets

Deferred tax assets

L iabil it ies , provis ions and equityLiabilities to credit institutions

Prepaid expenses and accrued income

Bonds and other interest-bearing securities

- Equipment

Other assets - Leased assets

Shares and participations

Assets

Total assets

Change in fair value on interest-rate hedged items in the portfolio Issued securities

Intangible assets

Subordinated liabilities

- Provisions for pensions - Deferred tax liabilities

Accrued expenses and deferred income

Total l iabil it ies and provis ions

Obeskattade reserver

Other liabilities

Provisions

Equity

Memorandum itemsPledged assets

Restricted equity Share capital Statutory reserve

Total l iabil it ies , provis ions and equity

Fair value reserve

Financial reports


Statement of Changes in Equity

kEURShare

capitalStatutory

reserveFair value

reserve

Retained earnings or

lossesProfit for the year

Total equity

Opening balance 2011-01-01 9 225 22 619 3 25 9 107 277 15 187 15 7 5 67

Appropriation of profits - - - 15 187 -15 187 -

Profit for the year - - - - 45 895 45 895Other comprehensive income for the year - - 327 - - 327Total comprehensive income for the year - - 327 - 45 895 46 222

Group contributions paid - - - -1 686 - -1 686Tax on group contributions - - - 443 - 443

Closing balance 2011-12-31 9 225 22 619 3 5 86 121 221 45 895 202 5 46

Opening balance 2012-01-01 9 225 22 619 3 5 86 121 221 45 895 202 5 46

Appropriation of profits - - - 45 895 -45 895 -

Profit for the year - - - - 27 300 27 300Other comprehensive income for the year - - 1 487 - - 1 487Total comprehensive income for the year - - 1 487 - 27 300 28 787

Group contributions paid - - - -5 826 - -5 826Tax on group contributions - - - 1 532 - 1 532

Closing balance 2012-12-31 9 225 22 619 5 073 162 822 27 300 227 039

Restricted equity Non-restricted equity

Financial reports


Cash Flow Statement

The cash flow statement is prepared applying the indirect method. The reported cash flow includes only transactions involving amounts received or paid. Cash and balances in central banks are defined as cash and cash equivalents, as are

Loans and Liabilities to credit institutions amounting to mEUR 73, net, with a deduction for current “Liabilities to credit institutions” of mEUR 2. The corresponding amounts for the previous year were mEUR 60 and mEUR 6 respectively.

kEUR 2012 2011Operating activ it iesOperating profit +60 680 +61 991

Interest paid -44 642 -43 800Interest received +155 242 +148 302

Depreciation/amortisation and impairment +10 555 +4 401Loan losses +37 041 +31 237

-2 563 -3 345Income tax paid -11 078 -10 170

+94 635 +84 114

-77 950 3 851-26 957 -148 510194 628 233 319-91 047 -39 476-27 274 -29 354

+26 209 +2 96092 244 106 904

Capitalised development expenditure -2 395 -2 705Acquisition of tangible assets -1 392 -2 283

-3 787 -4 988

Financing activ it ies-34 605 -40 424

Borrowing from credit institutions -36 736 -36 826Borrowing from Group companies +1 327 -31 370Group contributions paid -1 686 -2 730

-71 700 -111 35 0

Cash flow for the year +16 75 7 -9 434Cash and cash equivalents at beginning of year +53 953 +63 164Exchange rate differences on cash and cash equivalents 250 223Cash and cash equivalents at the end of the year +70 960 +5 3 95 3

Cash flows from investing activ it ies

Issue of interest-bearing securities

Cash flows from financing activ it ies

Cash flow from changes in working capitalChanges in loans to the public Changes in securities Changes in deposits and borrowings from the public

Changes in other liabilities

Investing activ it ies

Cash flows from operating activ it ies

Changes in other assets

Adjustment for non-cash items

Other adjustments

Changes in leasing assets

Cash flow from operating activ it ies before changes in working capital

Financial reports


Notes

1 General informationThese annual accounts have been issued on 31 December 2012 and refer to Ikano bank AB (publ), which is a public limited liability company with its registered office in Älmhult, and Corporate Iden-tity Number 516406-0922. The head office is located in Lund at Scheelevägen 15, 223 70 Lund, Sweden. The annual accounts were presented for and approved by the Board of Directors on 10 April 2013. The Income statement and Balance sheet were adopted at the General Meeting of Shareholders on 10 April 2013.

The owner of the Bank is Ikano S.A. with Cor-porate Identity Number B87.842. The Parent Company’s address is: 1, rue Nicolas Welter L-2740 Luxemburg. Ikano S.A. prepares consoli-dated financial statements for the group in which the Bank is included as a subsidiary.

The Bank has a licence from the Swedish Fi-nancial Supervisory Authority to undertake fi-

nance activities in accordance with the Swedish Banking and Finance Business Act.

During the year the Bank converted from being a European company (SE) to being a limited liability company (Aktiebolag, AB) which has resulted in the Company receiving a new Corpo-rate Identity Number, although remaining the same legal entity. The Council Regulation on the Statute for a European Company stipulates that it is obligatory for a public EU company (a Societas Europaea, SE) to use the Euro as the reporting and the presentation currency. As only 1% of the Bank’s operations generate income and expenses in Euro, this has complicated the presentation of the Bank’s development. The change in the reporting currency was implemented on 1 January 2013.

All amounts are reported in the financial statements in thousands of Euro (kEUR) unless stated otherwise.

2 Accounting principlesThe annual accounts are prepared in accordance with the Swedish Annual Accounts Act for Credit Institutions and Securities Companies, the Swedish Financial Supervisory Authority’s regulations and general guidelines on Annual Accounts in Credit Institutions and Securities Companies (FFFS 2008:25), in accordance with changed regula-tions, as well as the Swedish Financial Reporting Board’s recommendation RFR 2 Accounting for legal entities. The Bank, consequently, applies legally restricted IFRS. This includes the standards which have been adopted for application, with the restrictions following from RFR 2 and FFFS 2008:25, in accordance with changed regulations. This means applying all IFRS and interpretations that have been adopted by the EU to the extent possible within the framework of the Swedish Annual Accounts Act, and taking the relationship between accounting and taxation into account. The accounting is also affected by the European Company Regulation. The accounting principles set out below have been applied consistently to all periods presented in the financial statements, unless otherwise stated.

Valuation bases in the preparation of the Bank’s financial statements Assets and liabilities are recognised at historical cost. Financial assets and liabilities are measured at amortised cost, except for certain financial assets and liabilities measured at fair value. Financial assets and liabilities measured at fair value consist of: - derivatives

- financial instruments classified as financial assets at fair value through profit or loss -financial instruments classified as financial liabili-ties at fair value through profit or loss - financial assets available for sale

Reporting currency in the Swedish operations In accordance with the Council Regulation on the Statute for a European Company, Ikano Bank has the Euro as its reporting currency for the Swedish operations, despite the fact that its operations generate revenue and expenses in SEK. The day-to-day transactions in SEK are, therefore, trans-lated to Euro at the exchange rate on the transac-tion date. Monetary assets and liabilities are translated from SEK to Euro at the exchange rate of the closing date. Non-monetary assets and liabilities, such as intangible and tangible assets and depreciation/amortisation of these assets are translated at the exchange rate applying when each asset was acquired. Exchange rate differences arising from the translations are recognised in the income statement.

The change in type of business entity means that a change of reporting currency to the Swed-ish krona is possible, although, according to the Swedish Annual Accounts Act (1999:1078), such a change can only be made at the beginning of a new financial year and, therefore, the accounts for 2012 have been prepared in Euro.

Financial reports


Foreign branches The Bank has five foreign operations in the form of branches. The functional currencies in these foreign units are DKK, NOK, GBP and EUR. The translation of income statements and balance sheets of the foreign branches is from the func-tional currency of the foreign operations (the branches) to the Bank’s reporting currency, EUR. Assets and liabilities are translated at the ex-change rate applying at closing date. Revenue and expenses are translated at the average exchange rate for the period. Any translation differences that may arise are recognised in other comprehensive income.

Transactions in foreign currency Transactions in foreign currency are translated to the respective functional currency at the exchange rate applying on the transaction date. Monetary assets and liabilities in foreign currency are translated to the respective functional currency at the closing exchange rate. Non-monetary assets and liabilities recognised at cost are translated at the exchange rate applying on the transaction date. Exchange rate differences arising due to the translations are recognised in the income state-ment.

Transactions and assets and liabilities in cur-rencies other than EUR are translated to Euro (the reporting currency) in the Swedish operations and not to SEK, according to the same principles as those applying to the foreign operations.

Assessments and estimates in the financial statements Preparing the financial reports in accordance with legally restricted IFRS requires management to make assessments, estimates and assumptions regarding the accounting principles and amounts recognised as assets, liabilities, income and expenses. Estimates and assumptions are based on historical experience and a number of other factors appearing to be reasonable under the prevailing circumstances.

Assessments by the Bank’s management around important sources of uncertainty in esti-mates when applying legally restricted IFRS, which have a significant effect on the financial reports, are described in more detail in Note 40 Important assessments and estimates.

Changed accounting principles New and amended IFRS applicable as of the financial year 2012 have not had any material effect on the Bank’s accounting.

New IFRS and interpretations which have not yet been applied A number of new or amended IFRS will come into force during coming financial years and early adoption has not been made in the preparation of

these financial statements. There is no plan for early adoption of new or amended standards applicable in the financial year 2013 and onwards.

The new disclosure requirement in IFRS 7 re-garding the offsetting of financial assets and liabilities, applicable for the financial year starting 1 January 2013 is not deemed to significantly affect the Bank’s financial statements.

IFRS 9 Financial Instruments is expected to re-place IAS 39 Financial Instruments: Recognition and Measurement, starting no later than 1 January 2015 according to the regulations for application. IASB has divided the project into three phases. The first phase deals with the classification and measurement of financial assets. The categories of financial assets according to IAS 39 are re-placed by two categories where assets will be measured at fair value or amortised cost. Amor-tised cost is used for instruments held in a business model whose aim is to attain the contractual cash flows; which are to constitute payment of principal and interest on principal at specified dates. Other financial assets are recognised at fair value and the possibility of applying the ‘fair value option’ as in IAS 39 remains. Changes in fair value are reported through profit or loss, with the exception of value changes in equity instruments which are not held for trading and for which the choice is initially made to report changes in value in other comprehensive income. Changes in value of derivatives in hedge accounting are not affected by this part of IFRS 9, but will be reported in accordance with IAS 39 until further notice. The IASB has also decided to change the method for reporting changes in fair value due to changes in own creditworthiness when the fair value option is applied on own liabilities. The portion of the change in fair value of financial liabilities meas-ured at fair value with the fair value option, which is due to a change in own credit risk, should be reported in other comprehensive income. The remaining portion of the change in fair value is reported through profit or loss. The second phase primarily comprises impairment and the third, hedge accounting. IFRS 9 has not yet been adopted for application within the EU. Conse-quently, an assessment of the possible effects of the standard on the financial reports, or whether the new standard should be applied before 2015, has not been undertaken.

IFRS 13 Fair Value Measurement shall be ap-plied prospectively for financial years starting 1 January 2013 or later, and this is a new, consistent standard for measuring fair value and improved disclosure requirements. The amendment was adopted by the EU in the fourth quarter of 2012, The standard is not deemed to have any signifi-cant impact on the Bank’s financial statements.

A review of IAS 17 is on-going, which means an amendment of accounting for leases on behalf of lessees as well as lessors. The standard is not yet finalised, so an evaluation of the possible effects has not been carried out. Other IFRS standards and interpretations are not considered to have

Financial reports


any material effect on the Bank’s financial reports for 2013 or later years.

Segment reporting The Bank undertakes business operations in six business segments coinciding with the geographi-cal distribution by countries, with the exception of Sweden, which is divided into two business seg-ments, Business to Consumer (B2C) and Business to Business (B2B). The head of each business segment reports to the Managing Director. Each segment produces independent financial report-ing, which is monitored and provided on a monthly basis to the Bank’s management and Board of Directors.

The operations in Denmark, Norway and Swe-den B2B offer financing solutions to corporate customers through rental and lease agreements, as well as through factoring. The operations in Älmhult offer loan and savings products to private customers. Loan products for private customers are also offered by the Danish and Norwegian operations. Norway, Denmark, Finland, the Neth-erlands and Sweden B2C all offer sales support-ing financing to the retail industry, through card credit facilities for consumers.

The business segments are monitored on the basis of operating results. Income and expenses are directly attributable to the business segment to which the item relates, or they are allocated in a reliable manner. Central expenses which have not been allocated are reported under Shared Functions and primarily comprise IT expenses. Eliminations relate primarily to deposits and lending between the central treasury function and the segments, purchased IT services and other administrative services. Price setting of internal interest is determined on the basis of the Bank’s actual expenses for borrowing and risk. IT ser-vices and other administrative services are priced on the basis of actual cost. Services for other companies in the Group’s business area Finance are carried out at the head office and payment is received on the basis of actual costs. Internal monitoring is carried out in the local currency and is based on the Group’s accounting principles. The main difference is the reporting of lease agree-ments where the Group reports the agreements as financial leases, whereas the Bank reports the agreements as operating leases. As a result thereof, currency effects are not included in the financial leasing agreements in the operating segment.

Income Income recognition takes place when the income can be measured reliably and when it is probable that the economic benefits associated with the transaction will accrue to the Bank.

Interest income and interest expenses Interest income on receivables and interest ex-penses on liabilities are calculated and recog-

nised according to the effective interest rate method. The effective interest rate is the interest rate applied to ensure that the present value of all estimated future payments received and made during the expected fixed-interest rate period are equal to the carrying amount of the receivables or liabilities.

Interest income and interest expenses include, when applicable, fees received, allocated over a period of time, which are taken into account in the effective interest rate, transaction costs and other differences between the original value of the receivable or liability and the amount settled on maturity. Interest expenses include direct transac-tion costs allocated over a period of time.

Income from commission and fees Only income not considered as interest is in-cluded. This comprises primarily commission and fees related to payment transactions, clearing transactions and account administration. Income from commission and fees is recognised when it can be reliably measured, it is probable that the economic benefits associated with the transac-tions will accrue to the Bank and if the costs in-curred, or to be incurred, can be measured relia-bly.

Commission expenses Costs of received services are recognised as commission expenses if they are not to be consid-ered as comprising interest. Transaction costs taken into account when calculating the effective interest rate are not recognised as commission expenses.

Net gains and losses on financial transactions The item Net gains and losses on financial trans-actions includes the realised and unrealised changes in value arising due to financial transac-tions. Net gains and losses on financial transac-tions consist of: - realised results from financial assets available-for-sale - when applicable, impairment of financial assets available-for-sale - realised and unrealised changes in the value of derivatives which are economic hedging instru-ments but where hedge accounting is not applied - unrealised changes in fair value of derivatives where hedge accounting to fair value is applied - unrealised changes in fair value of a hedged item in relation to a hedged risk in hedging of fair value - exchange rate fluctuations.

Classification of leases and accounting of lease income Leases are classified as operating or financial leases based on an assessment of the economic substance of the contractual agreements. If the

Financial reports


economic substance of the contractual agreement is that the contract involves financing of an acqui-sition or an asset, the contract is classified as financial. If the economic substance of the contract is equivalent to a rental contract, the lease is classified as operating. The main factor in assess-ing the economic substance of the contract is an assessment of whether the risks and economic rewards associated with the tangible asset are essentially transferred from the lessor to the lessee. All leases at the Bank have been classified as financial leases.

Financial leases are recognised in the income statement and balance sheet as if they were operating leases, in accordance with regulations regarding statutory IFRS. In the item leasing income, gross leasing income, i.e. before depre-ciation according to plan, is recognised. Depre-ciation according to plan is distributed over time and recognised according to the annuity method over the term of the lease contract (see also depreciation principles).

Taxes Income taxes comprise current tax and deferred tax. Income taxes are recognised in the income statement, except when an underlying transaction is recognised directly in other comprehensive income or equity.

Current tax is tax to be paid or received for the current year, applying the tax rates estab-lished at closing date.

Deferred tax is calculated based on any tem-porary differences between the carrying values and fiscal values of assets and liabilities con-cerned. Deferred tax is measured on the basis of the manner in which the underlying assets or liabilities are expected to be realised or settled. Deferred tax is calculated at the tax rate and according to the tax rules in place at closing date.

Deferred tax assets referring to tax-deductible temporary differences and loss carry-forwards are recognised only to the extent it is probable that they will be utilised. The value of deferred tax assets is reduced when it is no longer considered probable that they can be utilised.

Under the item Tax on profit for the year, cur-rent tax, deferred tax and tax related to previous years are reported.

Financial instruments Financial instruments recognised in the balance sheet include, on the asset side, loans and ac-counts receivable, accrued income, interest-bearing securities, shares and participations and derivatives. Liabilities and equity include accounts payable, debt, securities issued and derivatives.

Recognition and derecognition from the balance sheet A financial asset or a financial liability is recog-nised in the balance sheet when the company

becomes a party to the contractual terms of the instrument.

A financial asset is removed from the balance sheet when the contractual rights to the asset are realised or fall due, or when the Bank loses control over them. A financial liability is removed from the balance sheet when the contractual obligation has been fulfilled, or in some manner extinguished.

A financial asset and a liability are offset and recognised as a net amount in the balance sheet only when there is a legal right to offset the amounts and there is an intention to settle the items with a net amount, or to simultaneously realise the asset and settle the liability.

Acquisitions and disposals of financial assets are recognised on transaction date, which is the date on which the Bank undertakes to acquire or dispose of the asset. Loan commitments are not recognised in the balance sheet. Loan receivables are recognised in the balance sheet when the amount is paid to the borrower.

Classification and measurement Financial instruments are initially measured at the fair value of the instrument plus transaction costs, except for derivatives and instruments belonging to the category of financial assets reported at fair value through profit or loss, which are recognised at fair value excluding transaction costs. A finan-cial instrument is classified at acquisition, partly based on the purpose for which the instrument was acquired, but also based on the options stipulated in IAS 39. Classification determines the manner in which the financial instrument is valued after the first accounting date.

Ikano Bank classifies financial assets according to the following three (four) categories at acquisi-tion: Financial assets at fair value through profit and loss, loans and receivables, financial assets available-for-sale and held-to-maturity invest-ments. (The latter category, however, has not been applicable at the Bank during the year).

Ikano Bank classifies financial liabilities ac-cording to the following two categories at acquisi-tion: Financial liabilities valued at fair value through profit and loss and other financial liabili-ties.

Financial assets at fair value through profit or loss This category includes interest and currency swaps for which hedge accounting is not applied. Financial instruments in this category are continu-ously recognised at fair value with any changes in value recognised through profit and loss.

Loans and receivables Loans and receivables are financial assets with fixed payments or with payments that can be determined and which are not quoted on an active market. In the balance sheet, these are represented by the items Loans to credit institu-tions, Loans to the public, Accrued income and

Financial reports


Other assets. These assets are measured at amortised cost. Amortised cost is determined applying the effective interest rate that was calculated at acquisition date. Accounts receiv-able and loans receivable are measured in the amount at which they are expected to be re-ceived, i.e. after a deduction for provisions of doubtful debts.

Financial assets available-for-sale The category of financial assets available-for-sale includes interest-bearing securities and shares and participations. Assets in this category are measured continuously at fair value with changes in value reported in other comprehensive income and accumulated in the fair value reserve in equity. Unlisted shareholdings, the fair value of which cannot be calculated in a reliable manner, are valued at acquisition value.

Changes in value due to impairments or trans-lation differences on monetary items (interest-bearing securities) are recognised through profit or loss. Upon the disposal of assets, the accumu-lated profit or loss which was previously reported in other comprehensive income is reported in the income statement.

Financial liabilities valued at fair value through profit and loss This category includes interest and currency swaps which are not used for hedge accounting.

Other financial liabilities This category includes, among other things, liabilities to credit institutions, deposits from the public, issued securities, subordinated liabilities, and other financial liabilities. Other financial liabilities consist mainly of items attributable to other liabilities and accrued costs. The liabilities are valued at amortised cost.

Loan commitments and unused credits Loan commitments refer to a unilateral pledge to grant a loan on pre-established conditions where the borrower can choose whether he or she wishes to take out the loan.

Unused credit limits refer to credits granted externally. All credit card limits granted and unused may be cancelled with immediate effect to the extent it is allowed in accordance with the Consumer Credit Act. Irrevocable loan commit-ments issued have a validity period of two weeks. Loan commitments and unused credits are not recognised in the balance sheet. Loan receivables are recognised in the balance sheet when the amount is paid to the borrower.

Derivatives Derivatives are used to hedge the risks for inter-est and exchange rate exposures which the Bank is exposed to. The derivatives the Bank employs

are interest swaps to manage the interest rate risks and currency swaps to hedge the Bank’s exposure against exchange rate fluctuations.

Derivatives are initially and continuously measured at fair value in the balance sheet. If hedge accounting is not applied, changes in value are reported in the income statement and deriva-tives are categorised, on the basis of regulations in IAS 39, as shareholdings for trading purposes, also in cases in which they economically hedge risks but in which hedge accounting is not applied. If hedge accounting is applied, changes in value are reported in the derivative and the hedged item is reported in the manner described below.

Hedge accounting The Bank applies hedge accounting in accor-dance with IAS 39 where the effect on the results would be excessively misleading if hedge ac-counting would not be applied. Hedging at fair value is applied to the Bank’s hedge relationships. Changes in the fair value of hedging instruments and hedged items in relation to the hedged risk are reported in the income statement item Net gains and losses on financial transactions.

Hedging instruments consist of interest swaps in the hedging of interest risks, and monetary liabilities in the hedging of exchange rate risks in unrecognised binding commitments (agreements reported as operating leases). The items which are hedged, where hedge accounting is applied, consist of fixed-rate deposits (portfolio hedging) and unrecognised binding commitments (agree-ments reported as operating leases). The hedged risk consists of the risk of a change in fair value due to interest rate fluctuations and the risk of a change in fair value due to changes in the ex-change rate between the contracts reported as operating lease (which are in SEK) and the Euro.

When hedging fixed-rate deposits, the deriva-tive is recognised at fair value in the balance sheet. The hedged liability’s book value is ad-justed with regards to the change in value of the hedged risk. A change in the fair value of the derivative is recognised through profit or loss in the same manner as the change in the fair value of the hedged item under the item Net gains and losses on financial transactions.

The portfolio method applied to hedge ac-counting of fixed-rate borrowing implies that the borrowing is distributed over different time peri-ods on the basis of expected maturity dates. A suitable amount for hedging in each time period is designated on the basis of the Bank’s risk man-agement strategy. An efficiency test of the hedge relationships is performed every month by com-paring the change in fair value of the hedged instrument with the change in fair value of the hedged amount in relation to the hedged risk in each time period. If the efficiency is within the 80-125 % range, an adjustment of the value of the hedged amount equivalent to the calculated change in fair value is reported on a separate line in the balance sheet. If the hedge relationship is

Financial reports


no longer effective, the relation is discontinued and previously recognised value adjustments are distributed over a period of time.

Hedge accounting at fair value is also applied to the exchange risk in unrecognised, binding commitments (contracts reported as operating leases). The hedging instruments consist of mone-tary liabilities in the same currency as the currency of the contracts reported as operating leases (SEK). Through hedge accounting, the valuation principles of unrecognised, binding commitments are changed so that they are also continuously translated from SEK to Euro at closing date rate. Hedge relations are established at an individual level. If the effectiveness is within the 80-125 % range, an adjustment of the value of the hedged item is recognised in the Other assets item of the balance sheet. If the hedge relation is not effec-tive, hedge accounting is not applied for the past period. Value adjustments are removed from the balance sheet as the commitment ceases to be an unrecognised commitment.

On 1 January 2013, the Bank changed its re-porting currency from the Euro to SEK. This will result in the hedge accounting which has been applied to the foreign exchange risk on unrecog-nised commitments being cancelled.

Methods for determining fair value Methods for determining fair value are summa-rised below.

Financial instruments quoted on an active market

For financial assets quoted on an active market, the fair value is based on the quoted asset’s bid price on the closing date. A financial instrument is regarded as quoted on an active market if quoted prices are readily available on the stock ex-change or through a trader, and if those prices represent actual, regularly occurring market transactions motivated by normal business con-siderations. The fair value of financial liabilities is determined on the basis of a quoted asking price. Data regarding fair value recognised in the balance sheet on the basis of prices and obtained from an active market (level 1) is provided in Note 37 Financial assets and liabilities.

Financial instruments not quoted on an active market

If the market for a financial instrument is not active, valuation techniques are used to determine the fair value. The valuation techniques used are, as much as possible, based on market information.

The fair value of derivatives is calculated with the aid of established valuation methods and observable market interest rates.

The fair value of financial instruments which are not derivatives is calculated on the basis of future cash flows and current market interest rates on closing date. The discount rate applied is a market-based interest rate for similar instruments on closing date. Data regarding fair value, recog-

nised in the balance sheet on the basis of a valua-tion technique, is provided in Note 37 Financial assets and liabilities. The Bank’s measurement of a derivative at fair value is based exclusively on input data which is directly, or indirectly, observ-able on the market.

In cases in which the fair value of unquoted shares cannot be reliably established, the acquisi-tion value, adjusted for any impairment, is used as an approximation of fair value. The Bank does not intend to sell their unlisted shares in the foresee-able future.

Instruments not quoted on an active market are recognised in the balance sheet items Shares and participations, Bonds and other interest-bearing securities, deposits and borrowings from the public and other assets and liabilities (deriva-tives).

Loan losses and impairment of financial instruments On each reporting occasion, the Bank evaluates whether there is objective evidence that a finan-cial asset, or group of assets, is in need of impair-ment. Objective evidence of a need for impair-ment includes observable information, for exam-ple, whether the debtor is in financial difficulty or has overdue or missed payments. Objective evidence can also be comprised of identified negative changes in the payment status of a group of financial assets with a similar risk profile.

Financial assets at amortised cost

A loan is classified as doubtful if one or more events have occurred impacting the estimated future cash flows from the asset or group of as-sets. Payments more than 45–90 days over-due, depending on the product and market, are gen-erally considered by the Bank as objective evi-dence that a loan is doubtful. Other objective evidence may consist of information of consider-able financial difficulties. The Bank evaluates whether a need for impairment exists for doubtful loans and whether a loan loss must be recognised on an individual basis for each loan due and for substantial individual loans.

When no need for impairment can be identi-fied for loans evaluated in relation to the need for impairment on an individual basis, an additional assessment is carried out along with other loans with similar credit-risk properties to investigate whether a need for impairment exists at portfolio level. An assessment to establish portfolio impair-ment is carried out using statistical models which calculate the probability that a debt in the differ-ent portfolios will not be settled in accordance with the original contract.

The recognised value of assets after impair-ment is calculated as the present value of the future cash flows discounted by the effective interest rate applicable when the asset was initially recognised. Short-term assets are not

Financial reports


discounted. Impairment is charged to the income statement.

Financial assets available-for-sale

Financial assets available for sale consist mainly of bonds and other interest-bearing securities. These are subject to impairment if objective evidence has been identified, see above.

Reversal of impairments

Impairment is reversed if evidence of a need for impairment no longer exists. Reversals of impair-ments on loans are recognised as a reduction of Loan losses and are specified in a note. Impair-ments of interest-bearing securities are reversed through profit and loss if the fair value increases and such increase can objectively be attributed to an event taking place after the impairment.

Impairment of loan receivables

Loan receivables classified as doubtful are written off from the balance sheet when the loan loss is considered to be realised. A loan loss is consid-ered to be realised upon bankruptcy or when the debt has been waived or disposed of. After impairment, the loan receivables are no longer recognised in the balance sheet. Reversal of previously recognised impairment is recognised as a reduction of loan losses in the item Loan losses, net.

Intangible assets Intangible assets are measured at cost less accu-mulated amortisation and impairment. The Bank’s intangible assets consist of capitalised expendi-ture for internally generated and acquired soft-ware and IT systems. An asset is capitalised if it is probable that future economic benefits attribut-able to the assets will accrue to the Bank, and if the cost of the asset can be measured reliably. Other expenditure for development and mainte-nance or for standard software is immediately expensed. The recognised cost is reduced by amortisation on a straight-line basis over the asset’s estimated useful life. The useful life is reviewed annually. An amortisation period of four years is applied. The amortisation methods and residual values of the assets are reviewed at every year-end.

The Bank also has intangible assets comprising acquired customer relationships. These are rec-ognised at their assessed fair value at date of the acquisition. The customer relationships have a limited useful life and an amortisation period of three years is applied. This is reviewed on an annual basis and when there is an indication of a decline in value.

Tangible assets Tangible fixed assets consist of equipment and lease objects. Equipment is recognised at cost less linear depreciation over the asset’s estimated

useful life. Depreciation periods of 3-5 years are applied. Depreciation methods and the residual values of the assets are reviewed at every year-end.

Any profit or loss arising when an asset is sold or disposed of comprises the difference between the selling price and the carrying amount of the asset, less direct selling costs. Any profit or loss is recognised as other operating income or ex-penses.

Leases are recognised in accordance with the rules concerning legally restricted IFRS for operat-ing leases. Assets for which lease contracts have been entered into, where the Bank is the lessor, are recognised in the balance sheet in the item tangible assets. Lease payments where the Bank is the lessee are expensed over the term of the contract.

Fixed assets which are lease objects in finance leases where the Bank is the lessor are recog-nised in the income statement and balance sheet as operating leases and are written off using the annuity method. Office equipment and other equipment is normally financed for 36 months, with a residual value between 0 and 10 %.

Impairment of intangible and tangible assets The need for impairment of an intangible or tangible asset is tested when there is any indica-tion that the asset’s value may have declined. The test is carried out by calculating the recoverable amount. The recoverable amount is the higher of the fair value less selling costs or the value in use.

In the case of impairment or reverse impair-ment of a leased asset, the rules for finance leases apply.

Impairment is reversed if there is an indication that the need for impairment no longer exists and there has been a change in the assumptions constituting the basis for calculating the recover-able amount.

Employee benefits

Post-employment benefits

The Bank’s pension plans for collective occupa-tional pensions consist of defined contribution and defined benefit plans. Pension costs for defined contribution plans are recognised as expenses in the income statement as they are earned.

The retirement age for all employees is 65. The information required for defined benefit plans contained in collective agreements in accordance with IAS 19 is not obtainable and the Bank, there-fore, applies the exception contemplated in UFR 6, which means that information is, instead, provided as though such plans were defined contribution plans.

There is a provision in the Bank’s own balance sheet for portions of the pension plans. The Swed-ish Pension Obligations Vesting Act and the Swedish Financial Supervisory Authority’s regula-

Financial reports


tions for estimating the size of commitments apply. This is a prerequisite for the right to deduct tax. The Bank’s obligations to pay pensions in future have been valued in the balance sheet to the present value of future expected pension pay-ments. The calculation has been made for each employee and is based on assumptions such as the current salary level and the degree to which the pension is earned. The cost of insurance premiums for the year is reported in Note 32 Provisions.

Severance pay

An expense for payments in conjunction with termination of employment is recognised only if the Bank is unquestionably obliged to prematurely terminate an employment in a formal, detailed plan.

When payments are made as an offer to en-courage voluntary resignations, these are recog-nised as expenses if it is likely that the offer will be accepted and if the number of employees that will accept the offer can be reliably estimated.

Variable remuneration

Ikano Bank pays comparatively little variable remuneration and the amounts paid out are low. It is considered that this, along with the criteria existing in order for variable remuneration to be paid, will not contribute to encouraging unsound risk-taking in the operations.

Disclosure regarding remuneration to be sub-mitted in accordance with the Swedish Financial Supervisory Authority’s regulations is provided on the Bank’s website: www.ikanobank.se.

Provisions Provisions differ from other liabilities with regard to uncertainty concerning the payment date or the

size of the amount for the regulation of the provi-sion. Provisions are reported in the balance sheet when there is a legal or informal obligation due to a past event, and when it is likely that a flow of economic resources will be required for the set-tlement of the provision, and when the amount can be estimated in a reliable manner.

Provisions are made in the amounts represent-ing the best estimates of the amounts required for the regulation of the obligations existing on the balance sheet date. When the effect of the timing of the payment is significant, provisions are calculated by discounting the expected cash flows at a pre-tax interest rate reflecting current market assessments of the time value of money and, if appropriate, the risks associated with the liability in question.

Provisions for pensions and deferred tax li-abilities are included in this balance sheet item.

Group contributions Group contributions are reported in accordance with the Swedish Financial Reporting Board, RFR2 Accounting for legal entities. Group contributions are recognised directly against retained earnings after deduction for current tax effects and are considered equivalent to dividends paid to the Parent Company.

Contingent liabilities A contingent liability is recognised when there is a possible obligation arising from past events, the existence of which can only be confirmed by one or more uncertain future events, or when there is an obligation that is not recognised as a liability or provision, as it is not probable that an outflow of resources will be required.

3 Risks and risk managementThe Bank is, in its operations, exposed to various types of risk, such as credit risk, operational risk, liquidity risk, and market risk. The Bank also handles other types of risk, such as strategic risk and reputation risk. Banking activities are based on deposits from and lending to private individu-als and small and medium-sized enterprises. The Bank is risk-averse and all growth in volumes takes place with controlled, conscious risk-taking.

The Board of Directors and the Managing Di-rector have the ultimate responsibility for risk management at Ikano Bank. The Board of Direc-tors regulates the risks through policies relating to such matters as risk appetite and risk limits.

Risk management aims to ensure that the risks do not exceed the risk tolerance levels estab-lished by the Board of Directors. The risk control function is responsible for monitoring and report-ing to the Board of Directors and management.

The Bank’s control organisation is based on the “three lines of defence” method which implies that the handling and control of the Company's risks are divided into three lines of defence.

The first line of defence is the operational units that are exposed to and manage the risks in daily operations. This includes the Managing Director/management and business unit manag-ers, as well as support functions. Every business area and support function has a compliance and risk coordinator who is responsible for reporting and dialogue with the Compliance and Risk control function in the second line of defence.

The second line of defence is the independent control function responsible for identifying, quantifying and reporting risks. Compliance is responsible for monitoring the policies and rules determined by the Board of Directors. This func-tion shall also contribute with advice for and support to the business functions.

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Financial reports

Ikano Bank AB Årsredovisning 2012

30

The third line of defence is the internal audit which shall independently audit the first and second lines of defence. By testing and evaluat-ing the efficiency in the risk management and control functions, the internal audit function is to ensure the quality in the Bank’s management of risks. The function reports directly to the Board of Directors.

Operational risk Ikano Bank defines operational risk as the risk of direct or indirect losses caused by deficient or incorrect internal processes, procedures and systems, administrative errors or external events and factors. This definition includes legal risk, but not strategic or reputation risk.

Ikano Bank is an Internet Bank which is highly dependent on IT systems and telephony. The monitoring of incidents and improvements in accessibility are priority areas. The Bank has an incident reporting system in which incidents are reported and followed-up. Threats and risks are continually analysed and policies, guidelines and descriptions of procedures are available for the prevention of operational risks and damage limitation.

The central risk organisation coordinates the work on operational risks but the respective managers are responsible for operational risks in operations. Annual risk reviews are carried out with the management of the various operations, during which the largest risks are evaluated and managed in a plan of action. New products, partners and IT systems undergo a risk assess-ment including operational risks. The aim is to guarantee efficient processes and to minimise the operational risks so that the Bank’s customers and other interested parties are assured of Ikano Bank’s high safety and accessibility.

Credit risk Credit risk is the Bank’s largest risk and is defined as the risk that the counterparty may be unable to fulfil their obligations towards the Bank. Credit risk arises in the lending business as well as when investing the Bank's excess liquidity and over-night investment.

Lending activities consist of the product ar-eas: Leases, Factoring, Card Credits and Unse-cured Loans. All of them are designed for quan-tity management with small individual commit-ments. The Bank has, for a long time, been applying scoring models in the assessment of credit risk. In the application process the risk of default is calculated before credit is granted. The result of the initial application gives a score on a scale reflecting the probability of default. The assessment is supplemented with information from information companies before the credit is

finally approved. If the risk exceeds the internally accepted maximum risk exposure, the credit is denied. In addition to application scoring, Ikano Bank utilises various types of behavioural scoring models.

The Bank’s models for assessing the probabil-ity that customers will default (probability of default, “PD-models”) are based on the Basel II principles for advanced models.

The business area Corporate primarily com-prises the leasing of office equipment (mini leasing). The business area also includes Factor-ing which is an additional product for partners undertaking comprehensive invoicing to corpo-rate customers. Leasing contracts are generated mainly by the partners selling office equipment.

Ikano Bank has cooperated with various part-ners throughout the course of several years. In many cases, repurchase agreements are made in the case of end customer default and guaranteed residual value when the lease agreement ex-pires. Operations have been focused on a few types of objects for which there is good internal expertise of over-the-counter markets when no repurchase guarantees are available.

The business area Sales Finance is comprised of credit card loans with a low revolving credit. The majority of credit card loans include store cards with either VISA or MasterCard attached. Credit card loans are managed from Älmhult, Denmark, Norway, Finland and the Netherlands. Credits are generated through the trading partners with whom the Bank cooperates, and through the distribution of cards via the internet.

The business area Consumer comprises bank-ing activities in which lending refers to unsecured loans. Unsecured loans are loans without collat-eral to private individuals. Sales of various types of unsecured loan products take place in different types of media. The various sales channels are followed up on a regular basis. Most products are sold on the basis of individual price setting in which the price reflects the customer’s assessed risk class as at the application date.

Credit assessment takes place on the basis of the credit information agency’s scoring and rating models and customary credit information. Limits for larger engagements are determined in the local credit committees and the largest engagements are forwarded to the central credit and risk committee. The established limits on partners and large engagements are followed up frequently during the year.

The Bank's credit risk exposure, gross and net, concentrations regarding counterparties as well as loan receivables by category of borrower are shown in the table below. Lease receivables are reported as tangible fixed assets in the balance sheet.

Financial reports

Ikano Bank AB Årsredovisning 2012

31

Credit risk exposure, gross and net

1) All granted, but unused credit is comprised of credit card loans which can be cancelled with immediate effect, to the degree allowed under the Consumer Credit Act.

2012kEUR

Total credit risk exposure (before

impairment) ImpairmentCarrying amount

Value of securities regarding balance

sheet items

Total credit risk exposure after value of

securities

Treasury bills etc. 116 886 - 116 886 - 116 886 - AAA 29 156 - 29 156 - 29 156 - AA 87 730 - 87 730 - 87 730Loans to credit institutions 72 561 - 72 561 - 72 5 61 - AA 72 140 - 72 140 - 72 140 - A 208 - 208 - 208 - no rating 213 - 213 - 213Loans to the public 1 431 687 78 596 1 353 091 348 1 35 2 743Leasing receivables 519 394 6 600 512 794 30 949 481 845

208 638 - 208 638 - 208 638 - AAA 52 081 - 52 081 - 52 081 - AA 46 628 - 46 628 - 46 628 - A 68 685 - 68 685 - 68 685 - BBB or lower 29 674 - 29 674 - 29 674 - no rating 11 570 - 11 570 - 11 570Derivatives 8 667 - 8 667 - 8 667 - AA 4 763 - 4 763 - 4 763 - A 3 904 - 3 904 - 3 904Commitments 3 034 024 - 3 034 024 - 3 034 024Loan promises 20 276 - 20 276 - 20 276Unused credit limits 1) 3 013 680 - 3 013 680 - 3 013 680Other commitments 68 - 68 - 68Total credit risk exposure 5 391 85 7 85 196 5 306 661 31 297 5 275 364


2011kEUR

Total credit risk exposure (before

impairment) ImpairmentCarrying amount

Value of securities regarding balance

sheet items

Total credit risk exposure after value of

securities

Treasury bills etc. 36 549 - 36 549 - 36 5 49 - AA 36 549 - 36 549 - 36 549Loans to credit institutions 60 185 - 60 185 - 60 185 - AA 59 609 - 59 609 - 59 609 - A 148 - 148 - 148 - no rating 428 - 428 - 428Loans to the public 1 377 288 71 986 1 305 302 536 1 304 766Leasing receivables 426 388 7 191 419 197 28 207 390 990

262 018 - 262 018 - 262 018 - AAA 14 119 - 14 119 - 14 119 - AA 72 751 - 72 751 - 72 751 - A 119 893 - 119 893 - 119 893 - BBB or lower 36 255 - 36 255 - 36 255 - no rating 19 000 - 19 000 - 19 000Derivatives 12 213 - 12 213 - 12 213 - AA 6 623 - 6 623 - 6 623 - A 5 590 - 5 590 - 5 590Commitments 3 027 635 - 3 027 635 3 027 635Loan promises 15 891 - 15 891 - 15 891Unused credit limits 1) 3 011 680 - 3 011 680 - 3 011 680Other commitments 64 - 64 - 64Total credit risk exposure 5 202 276 79 177 5 123 099 28 743 5 094 35 6


Financial reports


Age analysis of doubtful debt

Age analysis, unsettled but not included in doubtful debts

For a definition of doubtful debts see page 17 “Financial assets at amortised cost” in Note 2 of the Accounting Principles. Unpaid receivables refer to the receivables which are due for pay-ment and which are not included in doubtful debts. These receivables are included in the

future assessment in which impairment is made at portfolio level. Securities, which are in the form of buy-backs and guarantees for overdue receiv-ables, total mEUR 16 (19).

Loan receivables according to category of borrower

kEUR 2012 2011Receivables due up to 60 days 25 706 15 823Receivables due > 60-90 days 5 128 5 959Receivables due > 90-180 days 15 916 17 501Receivables due > 180-360 days 20 398 25 112Receivables due > 360 days 56 749 45 233Total 123 897 109 628

kEUR 2012 2011Receivables due up to 60 days 165 428 128 013Receivables due > 60-90 days 5 702 4 580Receivables due > 90-180 days 1 388 2 004Total 172 5 18 134 5 97

kEUR 2012 2011Loan receivables, gross - household sector 1 385 247 1 351 276 - corporate sector 546 490 408 931 - public sector 19 344 43 469Total 1 95 1 081 1 803 676

Less:

4 5 49 3 692 - household sector 25 45 - corporate sector 4 503 3 647 - public sector 21 -

2 903 3 830 - household sector 41 39 - corporate sector 2 848 3 791 - public sector 14 -

77 744 71 65 5 - household sector 77 227 71 397 - corporate sector 517 258 - public sector - -

Loan receivables , net reported value - household sector 1 307 954 1 279 795 - corporate sector 538 622 401 235 - public sector 19 309 43 469Total 1 865 885 1 724 499

Specific impairment for indiv idual ly assessed s ignificant loan receivables

Impairment for co l lectively assessed homogenous groups of loan receivables

Col lective impairment for indiv idual ly assessed s ignificant loan receivables

Financial reports


Credit quality, loans receivables

Credit scores are assigned to receivables that are neither overdue nor doubtful based on an internal assessment scale.

Liquidity risk Ikano Bank defines liquidity risk as the risk of being unable to make payment when due, with-out significantly increasing the costs, or ulti-mately, not being able to meet payment obliga-tions to any degree. The definition is also linked to the risk of being unable to receive renewed financing on maturity, so-called refinancing risk. The matching of assets and liabilities, both in terms of maturity and volume, along with a good access to and wide spread of financing sources forms the basis of the Bank’s liquidity and financ-ing strategy. The liquidity level shall always be sufficient; this means that there should always be a liquidity reserve and that the Bank should always be able to fulfil its payment commitments and be in a position to strengthen liquidity with-out delay when necessary. The Bank’s manage-ment and control of liquidity risks is centralised and the liquidity risk is reflected in the Bank’s internal pricing.

The liquidity risk is managed by the Bank's central Treasury function, which is ultimately responsible for the Bank’s liquidity management, which takes place in close cooperation with the local business units. The management of liquidity risk is controlled by the independent Risk Control group. The risk and control organisation is de-scribed in more detail on page 19. The Board of Directors receives continuous reporting regard-ing the liquidity positions and development.

The liquidity risk is managed through effective liquidity planning, the application of limits, meas-urement and analysis. Control and monitoring is conducted against the Bank’s liquidity metrics specified in the Bank's Financial Policy.

Liquidity planning is a significant component of the liquidity management, and forecasts are drawn up regularly in order to manage and control the Bank’s total liquidity. Future cash requirements are monitored daily, as is the limit for minimum intra-day liquidity. If it is deemed that a deviation will not return to the minimum

required volume within three days, measures are to be taken to restore liquidity to the permitted level.

The Bank carries out regular stress tests on liquidity in order to increase its preparedness and assess the ability of the Bank to pay under conditions deviating from normal conditions. The analyses are based on the Bank's risk tolerance, and include both company-specific and market-related issues with varying degrees of stress and duration. Examples of events analysed include large withdrawals of deposits by the public, as well as market financing ceasing to be available. The Bank has a preparedness plan including action plans for disruptions in access to liquidity. The preparedness plan shall enter into force if the Bank should find itself in a situation demon-strating that the liquidity reserve is in danger of falling below the allowed minimum level within a period of 12 weeks.

Measuring and monitoring is performed con-tinuously with regard to the structure of the balance sheet and the liquidity exposures refer-ring to the remaining maturity of assets and liabilities. Both contractual maturities and behav-ioural modelled maturities are analysed.

The table below shows the Bank's maturity exposure based on the reported cash flow’s contractual remaining maturity as of 31 December 2012. Deposits from the public are comprised of both fixed-term and non-fixed-term deposits. Total deposits from the public are reported in the column On demand, since the counterparty always has an option to choose when repayment should take place. Analyses of the behavioural cash flows show, however, that the deposits constitute a long-term, stable source of financing, which implies, therefore, that the maturity distri-bution of deposits from the public is, in practice, distributed over several time intervals.

kEUR 2012 2011Corporate sector 473 028 375 5 13Credit score 1-3, low to medium risk 353 695 272 516Credit score 4-5, higher risk 119 332 102 997Household sector 1 209 975 1 183 5 77Credit score 1-3, low to medium risk 1 065 484 1 164 613Credit score 4-5, higher risk 144 491 18 964Total 1 683 003 1 5 5 9 090

Financial reports


Liquidity risk exposure, reported cash flow – remaining term and expected time of recovery

2012 mEUR On demand

No longer than 3 months

Longer than 3 months, but not

longer than 6


longer than 1 year

Longer than 1 year, but not longer than 2

years

Longer than 2 year, but not longer

than 3 years


than 5 yearsLonger than

5 years No maturity

Total carrying amount

of which expected recovery time > 12 months

AssetsCash and balances with central banks - - - - - - - - 0 -Treasury bills etc. 6 26 38 14 - - 117 -Loans to credit institutions - - - - - - - 0 73 -Loans to the public - 214 43 75 169 90 145 251 368 1 35 3 495Leasing receivables - 62 41 81 139 103 80 7 - 5 13 255Bonds and other interest-bearing securities 95 28 37 25 15 8 - - 209 48Derivatives - 1 0 0 1 0 4 - 0 7 5Other assets 14 54 0 - 0 - - - 10 78 5Total assets 87 444 128 198 35 9 246 25 1 25 8 378 2 349 810

L iabil it ies and equityLiabilities to credit institutions 16 37 13 14 7 27 - - 114 47Deposits and borrowings from the public - - - - - - - - 1 617 1 427Derivatives - - - - - 0 0 - - 0 -Issued securities - 35 21 38 - 17 17 - - 128 35Other liabilities - 68 - - - - - - - 68 -Accrued expenses and deferred income 50 0 0 - - - - 9 60 -Provisions - 1 - - - - - - 8 9 -Subordinated liabilities - - - - - - 25 38 - 63 63Equity and untaxed reserves - - - - - - - - 288 288 -

Total l iabil it ies and equity 1 617 171 5 8 5 1 14 24 69 38 305 2 349 1 5 73Loan promises and unused credit limits 3 014 20 - - - - - - - 3 034

Operational lease agreements - 0 0 0 0 0 - - - 1Total difference -4 5 44 25 3 69 147 346 222 181 220 73 -3 034

2011 mEUR On demand



longer than 6


longer than 1 year


years


than 3 years



5 years No maturity


of which expected recovery time > 12 months

Til lgångarCash and balances with central banks 0 - - - - - - - - 0 -Treasury bills etc. - 26 - - - 11 - - - 37 11Loans to credit institutions 60 - - - - - - - 0 60 0Loans to the public - 192 43 78 82 85 143 325 358 1 305 624Leasing receivables - 53 38 73 117 78 55 4 - 419 246Bonds and other interest-bearing securities - 184 36 11 14 17 - - - 262 31Derivatives 0 6 2 0 1 1 2 - - 12 4Other assets 10 19 0 - - - - - 26 5 5 -Total assets 70 479 119 162 215 192 199 329 384 2 15 1 917

L iabil it ies and equityLiabilities to credit institutions 6 83 13 13 27 13 - - - 15 5 40Deposits and borrowings from the public 1 423 - - - - - - - 1 423 1 213Derivatives 0 0 - 0 0 0 0 - - 0 0Issued securities - 60 17 52 - - 34 - - 163 34Other liabilities - 52 - - - - - - - 5 2 -Accrued expenses and deferred income - 39 0 0 - - - - 7 47 -Provisions - - - - - - - - 8 8 -Subordinated liabilities - - - - - - - 62 - 62 62Equity and untaxed reserves - - - - - - - - 240 240 -

Total l iabil it ies and equity 1 429 235 31 65 27 13 34 62 25 6 2 15 1 1 35 0Loan promises and unused credit limits 3 012 16 - - - - - - - 3 028Operational lease agreements - 0 0 0 0 0 - - - 1Total difference -4 371 228 89 97 188 179 166 267 129 -3 028

Financial reports


Liquidity risk exposure, nominal cash flow – remaining term

The above tables show the liquidity exposure of non-discounted cash flows specified according to remain-ing term. Liquidity portfolio and liquidity reserve Ikano Bank’s liquidity is managed within the framework of the Bank’s liquidity portfolio. The structure and size of the Bank’s liquidity portfolio are regulated in the finance policy, which is determined by the Board of Directors. Under this policy, the liquidity portfolio shall always amount to a minimum of 10% of deposits from the public,.

The liquidity portfolio is divided into three categories: Intraday liquidity, Liquidity reserve, and an Investment portfolio.

The Intraday liquidity manages the Bank’s daily payment commitments. The liquidity in this port-folio is to be available within one day, and is to consist of funds in bank accounts, investments available the next banking day (over-night) and bank overdraft facilities, granted in writing, in the Bank’s cash pool.

The Liquidity reserve is to constitute a sepa-rate reserve of high-quality liquid assets, which are to be quickly convertible in case of market stress situations that affect the Bank’s financing

2012 mEUR On demand



longer than 6


longer than 1 year


years


than 3 years



5 years No maturity


AssetsCash and balances with central banks 0 - - - - - - - - 0Treasury bills etc. - 18 15 6 26 38 13 - - 117Loans to credit institutions 73 - - - - - - - 0 73Loans to the public - 224 51 88 128 124 219 455 394 1 684Leasing receivables - 69 49 92 149 100 71 10 - 5 41Bonds and other interest-bearing securities - 96 29 37 24 15 8 - - 209Derivatives - 1 0 1 1 1 7 - - 10Prepaid expenses and accrued income 43 0 - - - - - 10 67Total assets 86 45 2 144 223 329 278 319 465 404 2 700

Liabil it ies and equityLiabilities to credit institutions - 17 37 14 14 7 27 - - 115Deposits and borrowings from the public 1 617 - - - - - - - - 1 617Derivatives - 0 0 0 0 0 4 - - 4Issued securities - 35 21 38 - 17 17 - - 129Other liabilities - 114 0 0 - - - - 18 132Subordinated liabilities - 3 - - 1 3 31 43 - 80Equity and untaxed reserves - - - - - - - - 291 291Total l iabil it ies and equity 1 617 169 5 9 5 2 14 27 79 43 309 2 369Loan promises and unused credit limits 3 014 20 - - - - - - - 3 034Operational lease agreements - 0 0 0 0 0 0 - - 1Total difference -4 5 45 263 85 170 314 25 0 239 422 96 -2 704

2011 mEUR On demand



longer than 6


longer than 1 year


years


than 3 years



5 years No maturity


AssetsCash and balances with central banks 0 - - - - - - - - 0Treasury bills etc. - 26 0 0 0 11 - - - 37Loans to credit institutions 60 - - - - - - - - 60Loans to the public - 206 52 89 123 114 190 377 384 1 5 35Leasing receivables - 59 43 79 129 84 59 5 - 45 7Bonds and other interest-bearing securities - 184 36 11 15 19 - - - 265Derivatives 0 0 0 0 2 1 6 - - 10Prepaid expenses and accrued income 19 0 - - - - - 26 5 4Total assets 69 494 132 180 269 230 25 4 381 410 2 419

L iabil it ies and equityLiabilities to credit institutions 5 84 14 13 27 13 - - - 15 5Deposits and borrowings from the public 1 423 - - - - - - - - 1 423Derivatives 0 1 1 1 2 1 2 - - 6Issued securities - 61 17 53 - - 34 - - 165Other liabilities - 92 0 0 - - - - 15 107Subordinated liabilities - - 1 - 3 5 60 - - 69Equity and untaxed reserves - - - - - - - - 240 240Total l iabil it ies and equity 1 428 236 33 68 31 18 96 0 25 5 2 165Loan promises and unused credit limits 3 012 16 - - - - - - - 3 028Operational lease agreements - 0 0 0 0 0 0 - - 1Total difference -4 371 241 99 113 237 212 15 8 381 15 5 -2 774

Financial reports


options. The Liquidity reserve is invested in interest-bearing securities with a high credit rating on the Swedish market. The assets are to be available for realisation and conversion into cash at short notice. Unused bank overdraft facilities are not included in the Liquidity portfo-lio.

The Bank’s surplus liquidity is managed in the Investment portfolio. The assets of the portfolio consist of interest-bearing securities on the Swedish market. Investments in this portfolio are to have a minimum rating of BBB+ (rating accord-ing to Standard and Poor’s).

The Swedish Financial Supervisory Authority, FI, has introduced a definition of liquidity reserve in regulations regarding the management of liquidity risks, FFFS 2010:7. The Bank maintains a liquidity reserve in accordance with this defini-tion, which, as per 31 December 2012, totalled mEUR 242.1 at market value. These assets are liquid on private markets and eligible for refi-nancing in the Swedish Central Bank. None of the assets have been claimed as collateral, and no doubtful debt exists.

As per 31 December 2012, the Liquidity port-folio totalled mEUR 398.1, which constitutes 25% of deposits from the public. This includes the Liquidity reserve as above, as well as other interest-bearing securities, at a value of mEUR 155.9.

In addition to the Liquidity portfolio, the Com-pany has agreed credit facilities totalling mEUR 199.1.

Market risks The market risk is the risk of a decrease in income or of losses due to unfavourable market condi-tions. The Bank does not trade in derivatives or financial instruments, either on their own or their customers’ behalf. Consequently, the Bank has no capital requirements according to the regulations for trading books. Securities are held solely for the purpose of retaining sufficient liquidity to meet the liquidity regulations. Derivative financial instruments are traded in order to minimise exposure arising in the deposit and lending operations with customers. Market risks are managed by the Bank’s Treasury group. Market risks include interest-rate risks and currency risks.

Interest rate risk Interest rate risk is the risk that the fair value or future cash flows from a financial instrument may vary due to changes in market interest rates.

Interest rate risk occurs if deposits and borrow-ings are not optimally matched. The Bank’s deposits and borrowings are primarily short-term with a maturity period no longer than three months, as shown in the table below.

Under the Bank’s finance policy, interest-rate risk must be minimised so that any possible effect on income is limited. Exposure is calculated as the change in market value arising from 2% parallel shift, upwards or downwards, on the yield curve. The maximum is regulated by the Bank's financial policy.

The Bank limits (hedges) the interest-rate risk for fixed-interest deposits by entering into inter-est-rate swap agreements whereby the Bank receives a fixed interest rate and pays a variable interest rate. The Bank applies hedge accounting to these hedges of fair value. During the period, the change in fair value of the hedged items (fixed-interest deposits), with regard to the hedged risk, amounted to mEUR -0.3 (-1.2) and on hedging instruments (derivatives) to mEUR 0.6 (1.5). The difference of mEUR 0.3 is, thus, the period’s reported inefficiency. The inefficiency is mainly due to changes in fair value in the vari-able position of the interest-rate swaps.

The Bank also limits the interest-rate risk separately for the investments and the borrowing portfolio managed by Treasury. Such measure results in an indirect limitation of volume and fixed-interest periods on the Bank’s interest-bearing investments and also total net exposure. The Bank also hedges the interest-rate risk in a smaller borrowing portfolio with fixed interest, to which hedge accounting is not applied.

The fixed-interest periods for both the Bank’s assets and liabilities on the balance sheet and for non-balance sheet items are shown in the table below. A sensitivity analysis shows that a change of one percentage point in the market rate of interest increases/reduces the net interest income for the next 12-month period by mEUR 3.1 (2.1), given the interest-bearing assets and liabilities on the balance sheet date. A parallel increase of one percentage point in the interest-rate curve would have an effect on equity after tax of mEUR 0.6. A parallel reduction of one percentage point in the interest-rate curve would have an effect on equity after tax of mEUR 0.6.

On 31 December 2012, the Bank had interest rate swaps with a contract value of mEUR 112.0 (84.7). The net fair value of the swaps on Decem-ber 31, 2012 amounted to mEUR 6.5 (4.0) consist-ing of assets of mEUR 6.8 (4.3) and liabilities of mEUR 0.3 (0.3).

Financial reports


Interest-rate exposure – fixed interest periods for assets and liabilities

1) Nominal value

2012 mEUR



longer than 6


longer than 1 year


yearsLonger than

5 years No maturity Tot al

Remaining average

fixed interest term

AssetsCash and balances in central banks 0 - - - - 0 0 0,2 årTreasury bills etc. 96 15 6 - - - 117 0,2 årLoans to credit institutions 73 - - - - 0 73 0,2 årLoans to the public 1 275 25 10 5 - 38 1 35 3 0,2 årLease receivables 418 7 14 54 4 16 5 13 0,5 årBonds and other interest-bearing securities 172 17 20 - - - 209 0,2 årOther assets 47 0 0 5 - 31 84 0,3 årTotal 2 081 65 5 0 64 4 85 2 349

Liabil it ies and equityLiabilities to credit institutions 94 20 - - - - 114 0,2 årDeposits and borrowings from the public 1 411 21 64 121 - - 1 617 0,4 årIssued securities 35 21 38 35 - - 128 1,0 årOther liabilities 72 - - 0 - 66 139 0,1 årSubordinated liabilities - - 63 - - - 63 0,8 årEquity and untaxed reserves - - - - - 288 288 - Total equity and l iabil it ies 1 612 62 165 15 6 - 35 4 2 349Difference assets and l iabil it ies 468 3 -115 -92 4 -269 0Interest rate derivatives, fixed

interest received 1) 36 5 4 66 - - 112 - Interest rate derivatives, fixed

interest paid 1) 81 - - 31 - - 112 -

2011mEUR



longer than 6


longer than 1 year


yearsLonger than

5 years No maturity Tot al

Remaining average

fixed interest term

AssetsCash and tillgodohavanden hos centralbanker 0 - - - - - 0 0,1 årTreasury bills etc. 37 - - - - - 37 0,2 årLoans to credit institutions 60 - - - - - 60 0,2 årLoans to the public 1 232 23 19 5 - 27 1 305 0,2 årLease receivables 358 6 10 32 0 12 419 0,4 årBonds and other interest-bearing securities 226 36 - - - - 262 0,2 årOther assets 16 2 0 4 - 45 67 0,2 årTotal assets 1 929 68 29 41 0 84 2 15 1

L iabil it ies and equityLiabilities to credit institutions 155 - - - - - 15 5 0,2 årDeposits and borrowings from the public 1 282 12 32 97 - - 1 423 0,3 årIssued securities 94 17 52 - - - 163 0,4 årOther liabilities 51 0 0 0 - 56 107 0,1 årSubordinated liabilities - 62 - - - - 62 0,4 årEquity and untaxed reserves - - - - - 241 241 0 årTotal equity and l iabil it ies 1 5 82 91 84 97 - 297 2 15 1Difference assets and l iabil it ies 346 -23 -5 5 -5 7 0 -212 0Interest rate derivatives, fixed

interest received 1) 11 1 6 65 - - 83 2,1 årInterest rate derivatives, fixed

interest paid 1) 73 - - 10 - - 83 0,5 år

Financial reports


Derivatives Derivatives are used to protect the Bank against interest rate and currency risks and include interest rate and currency swaps as shown in the

table below. The table below shows all deriva-tives reported at fair value based on remaining term.

Derivatives – assets and liabilities

2012 kEUR > 1 year

> 1 year - 5 years > 5 years Total

Assets (positive market value)

Liabilities (negative

market value)

Derivatives at fair value through profit or lossInterest-related contractsSwaps 723 31 - 754 1 032 -278Currency-related contractsSwaps 2 123 - - 2 123 2 630 -507Total 2 877

Derivatives for fair value hedgesInterest-related contractsSwaps 880 4 899 - 5 779 5 779 -Total 5 779Total sum 3 726 4 930 - 8 65 6 9 441 -785

2011 kEUR > 1 year

> 1 year - 5 years > 5 years Total

Assets (positive market value)

Liabilities (negative

market value)

Derivatives at fair value through profit or lossInterest-related contractsSwaps 8 7 - 15 250 -236Currency-related contractsSwaps 8 168 - - 8 168 8 182 -14Total 8 183

Derivatives for fair value hedgesInterest-related contractsSwaps 123 3 904 - 4 027 4 041 -14Total 4 027Total sum 8 299 3 911 - 12 210 12 473 -264

Financial reports


Currency risk Currency risk is the risk that the fair value of a financial instrument, or the future cash flows from it, may vary due to changes in exchange rates. For Ikano Bank, currency exposure arises as transaction exposure, accounting exposure (when the reporting currency is in Euro) and in the con-text of net investment in foreign operations. All of the Bank’s liquid flows, in all currencies, are han-dled in a common cash pool. Net exposures are

hedged centrally by Treasury. The accounting exposure is managed through hedge accounting.

A sensitivity analysis shows that a 10% rise in the exchange rate decreases the net exposure by kEUR 0.2.

The Bank’s income statement includes the ex-change result of mEUR -4.1 (-4) in Net gains and losses on financial transactions.

Assets and liabilities per significant currency

2012 mEUR SEK EUR DKK NOK

Other currencies Total

Assets117 - - - - 117

Loans to credit institutions 62 2 - 9 0 73Loans to the public 934 27 244 147 1 1 35 3Leasing receivables 286 - 125 102 - 5 13

209 - - - - 209Other assets 42 4 18 17 3 84Total assets 1 65 0 33 387 275 4 2 349Nominal amount currency derivative 426 - - - - 426

Liabil it ies and equityLiabilities to credit institutions 2 - 78 34 - 114Deposits and borrowings from the public 1 617 - - - - 1 617Issued securities 128 - - - - 128Subordinated liabilities 31 15 12 5 - 63Other liabilities incl. equity 303 -6 78 50 2 427Total equity and l iabil it ies 2 081 9 168 89 2 2 349Nominal amount currency derivative - 22 219 183 1 426

-5 1 0 2 1

0,5 -0,1 0,0 -0,2 -0,1 0,0

2011 mEUR SEK EUR DKK NOK

Other currencies Total

Assets37 - - - - 37

Loans to credit institutions 52 1 - 7 - 60Loans to the public 890 20 251 143 2 1 305Leasing receivables - 226 98 83 - 407Bonds and other interest-bearing securities 262 - - - - 262Other assets 43 6 18 10 1 79Total assets 1 285 25 4 367 242 3 2 15 1Nominal amount currency derivative 350 - - - - 35 0

Liabil it ies and equityLiabilities to credit institutions 1 - 120 35 - 15 5Deposits and borrowings from the public 1 423 - - - - 1 423Issued securities 163 - - - - 163Subordinated liabilities 30 15 12 5 - 62Other liabilities incl. equity 113 133 62 40 0 348Total equity and l iabil it ies 1 729 148 194 79 0 2 15 1Nominal amount currency derivative - 10 175 163 2 35 0

-94 95 -2 0 1

9,4 -9,5 0,1 0,0 0,0 0,0


Differences between assets and liabilities, incl. Nominal amount currency derivative

Differences between assets and liabilities, incl. Nominal amount currency derivativeEffect (before tax) of 10% increase in exchange rate of EUR against foreign

Treasury bills etc.

Effect (before tax) of 10% increase in exchange rate of EUR against foreign

Treasury bills etc.

Financial reports


4 Business segments

2012kEUR

SwedenB 2C

SwedenB 2B Denmark Norway Finland Netherlands

Shared functions

Elimina-tions Total

Interest income 137 824 947 34 357 20 107 2 133 24 58 565 -98 749 155 207Interest expenses -69 730 -2 -4 359 -4 922 -347 -2 -55 537 86 045 -48 852Lease and factoring income - 3 392 5 115 4 630 - - - 12 704 25 841Total net in terest income 68 095 4 338 35 113 19 814 1 786 22 3 028 - 132 196Of which internal income 20 182 -7 711 -6 254 -8 005 -347 -2 2 137 - -

Commission income 30 568 6 988 9 020 12 714 1 622 - - - 60 911Commission expenses -9 658 -1 986 -640 -5 810 -327 -57 0 - -18 477Commiss ion, net 20 910 5 002 8 380 6 904 1 295 -5 7 0 - 42 433

Other operating expenses -19 197 2 930 -6 221 -5 476 -1 090 -58 48 950 -26 684 -6 846Operating net 69 808 12 269 37 272 21 243 1 991 -93 5 1 978 -26 684 167 784

Depreciation/amortisation -65 -194 -948 -407 -989 -13 -7 939 0 -10 555Other overhead expenses -38 352 -10 656 -17 234 -13 789 -1 881 -2 996 -47 188 26 684 -105 411

Exchange rate effect 12 830 12 830

Operating profit 31 391 1 419 19 091 7 047 -879 -3 101 -3 149 12 830 64 648

Financial net 0 0 - - 0 - -3 968

Legal operating profit 31 391 1 419 19 091 7 047 -879 ##### 60 680

2011 kEUR

SwedenB2C

SwedenB2B Denmark Norway Finland

Shared functions Eliminations Total

Interest income 130 531 796 37 443 18 338 1 928 63 205 -104 066 148 176Interest expenses -66 280 -365 -6 965 -5 689 -458 -57 361 91 136 -45 982Lease and factoring income 0 7 071 3 789 3 636 - - 12 929 27 426Total net in terest income 64 25 1 7 5 02 34 268 16 285 1 471 5 844 - 129 620Of which internal income 15 324 -7 818 -9 178 -8 699 -458 10 830 - -

Commission income 31 854 5 945 8 391 11 979 1 432 1 - 59 601Commission expenses -5 896 -1 559 -910 -4 651 -355 -11 - -13 383Commiss ion, net 25 95 7 4 386 7 480 7 328 1 077 -10 - 46 218

Other operating expenses -18 146 250 -7 017 -5 458 -778 34 939 -25 667 -21 878Operating net 72 062 12 137 34 731 18 15 6 1 769 40 772 -25 667 15 3 960

Depreciation/amortisation -114 -215 -910 -386 -986 -1 790 - -4 401Other overhead expenses -41 184 -9 026 -15 388 -11 132 -1 711 -43 689 25 667 -96 461

Exchange rate effect 12 702 12 702

Operating profit 30 764 2 896 18 433 6 638 -927 -4 707 12 702 65 800

Financial net - 0 714 25 - 15 - 2 - -3 808

Legal operating profit 30 764 3 610 ###### 6 623 -929 12 702 61 991

External incomekEUR 2012 2011Corporate 41 757 40 994Sales Finance 113 139 107 989Consumer 76 500 80 216Other 10 563 6 004Total external income 241 95 9 235 203

Financial reports


5 Net interest income

Balance sheet2012kEUR

SwedenB2C


Nether-lands

Elimina-tions Total

24 767 258 3 103 5 512 23 82 - 33 745Deferred tax assets 6 541 - - - - - - 6 5 41Other assets 2 153 447 318 233 380 331 259 810 22 600 1 898 -828 037 2 308 282Total assets 2 184 75 5 318 491 383 434 265 322 22 623 1 980 -828 037 2 348 5 68L iabil it ies and provis ions 1 987 077 312 674 322 796 234 925 26 298 5 082 -828 037 2 060 815

2011kEUR

SwedenB2C


Elimina-tions Total

7 551 393 3 778 833 992 - 13 5 47Deferred tax assets 6 049 - - - - - 6 049Other assets 1 990 597 254 379 359 503 231 787 20 710 -725 915 2 131 060Total assets 2 004 197 25 4 771 363 281 232 620 21 702 -725 915 2 15 0 65 6Liabil it ies and provis ions 1 844 705 242 05 4 316 627 208 297 24 476 -725 915 1 910 245

Fixed assets other than financial instruments

Fixed assets other than financial instruments

kEUR 2012 2011Interest incomeLoans to credit institutions 669 834Loans to the public 147 553 142 952Interest-bearing securities 7 459 4 859Total 15 5 681 148 645of which: Interest income from financial assets not valued

at fair value through profit or loss 148 222 143 786 Interest income from doubful debts 5 057 3 639

Interest expensesLiabilities to credit institutions -2 759 -4 367Deposits and borrowings from the public -41 604 -35 160of which: deposit assurance fee -1 583 -1 343Issued securities -5 177 -4 921Derivatives 4 391 2 245- hedge accounting 549 345- not hedge accounting 3 842 1 900Subordinated liabilities -2 981 -3 147Other interest expenses -723 -636of which: stability fee -703 -632Total -48 85 3 -45 986of which: Interest income from financial assets not valued

at fair value through profit or loss -53 244 -41 956Total net in terest income 106 828 102 65 9

4,5% 4,7%

Investment margin 4,7% 5,0%

Total interest income in relation to average balance sheet total, less total interest expenses in relation to average balance sheet total excluding average equity and

Net interest income in relation to average balance sheet total

Interest margin

Financial reports


6 Leasing income

7 Net commission

8 Net gains and losses on financial transactions

Net profit and net loss relate to realised and unrealised changes in value. No interest income compensation in the case of early repayment of loans has been paid.

kEUR 2012 2011Leasing income, gross 207 594 178 493Less: Depreciation according to plan -169 396 -142 353Leasing income, net 38 198 36 140

Leasing income from financial lease agreements 207 594 178 493Depreciation according to plan for assets that are

financial lease agreements, but are reported as operating leases -169 396 -142 353

Leasing income, net for financial lease agreements 38 198 36 140

Interest income 473 469Interest expenses -12 142 -12 929Leasing, net 26 5 29 23 680

kEUR 2012 2011Commiss ion incomePayment service commissions 1 365 -Lending commissions 32 179 32 009Other commissions 27 368 27 592Total 60 912 5 9 601

Commiss ion expensesPayment brokerage commissions -592 -877Lending commissions -17 646 -12 340Other commissions -1 650 -1 705Total -19 888 -14 922

Commiss ions , net 41 024 44 679

kEUR 2012 2011Other financial instruments 92 480Exchange rate fluctuations -4 055 -4 284Total -3 968 -3 804

Net profit/loss div ided per valuation categoryFinancial assets at fair value through profit or loss 28 683 6 856Financial liabilities at fair value through profit or loss -21 510 -2 534

608 1 662

-363 -1 214Exchange rate fluctuations -11 386 -8 573Total -3 968 -3 804

263 71

Change in fair value for derivatives that are hedging instruments in fair value hedges

Change in fair value for hedged item in respect of the hedged risk in fair value hedges

Net profit or loss on financial assets available-for-sale reported in comprehensive income

Financial reports


9 Other operating income

10 Geographical distribution of income

The geographical distribution of income is distributed according to the location of the customers. This distribution also refers to intra-Group customers.

11 General administrative expenses

kEUR 2012 2011Capital gain arising from the disposal of tangible assets 6 546 5 498Intra-Group consultancy services 13 239 9 426Other operating income 12 975 4 708Total 32 760 19 632

2012kEUR Sweden Finland Denmark Norway UK Germany OtherInterest income 83 349 2 480 40 557 28 268 - - 25Leasing income 117 981 765 45 416 43 423 5 3 -Commission income 37 477 1 640 9 082 12 714 - - -Net gains and losses from financial transactions -4 027 44 26 -10 - - 0Other operating income 15 054 132 4 145 378 4 697 6 968 1 385Total 249 834 5 061 99 226 84 773 4 702 6 971 1 410

2011kEUR Sweden Finland Denmark Norway UK Germany OtherInterest income 90 736 1 928 37 443 18 538 - - -Leasing income 103 277 508 38 891 35 817 - - -Commission income 33 736 1 436 7 779 10 448 - - -Net gains and losses from financial transactions -3 811 -2 24 -15 - - -Other operating income 8 874 49 5 864 1 801 3 546 4 536 1 164Total 232 812 3 919 90 001 66 5 89 3 5 46 4 5 36 1 164

kEUR 2012 2011Personnel costs- salaries and fees -32 773 -28 368- social security contributions -6 290 -5 306- pension costs -5 433 -4 908- other personnel costs -6 872 -7 083Total personnel costs -5 1 368 -45 665Other general adminis trative expenses- postage and telephone -6 250 -6 938- IT costs -18 303 -19 457- consultancy services -5 636 -6 153- agency staff -1 985 -1 830- audit -615 -629- rent and other costs for premises -2 835 -2 960- internal group services -2 055 -63- cost of materials -4 505 -4 065- travel costs -3 311 -2 901- other -4 963 -1 432Total other general adminis trative expenses -5 0 45 8 -46 428Total general adminis trative expenses -101 826 -92 093

Financial reports


Salaries, other remuneration and social security contributions

Of the Bank’s pension costs, kEUR 478 (345) refers to senior executives: 16 (15) individuals. The Bank has certain outstanding pension obligations to the former Managing Director. The Bank has no other outstanding pension obligations to senior

executives. Senior management comprises current and former members of the Board, the Managing Director, the Management team and other executives reporting directly to the Man-aging Director.

Employment conditions for senior management A board fee and committee fee is paid to the Directors in accordance with a resolution adopted by the Annual General Meeting. No fee is paid to employees of the Ikano S.A. Group. The remunerations of the Managing Director and other senior management have been determined by the Board of Directors. The Bank’s pension commitment is covered by continuous insurance premiums for the Managing Director. All pension benefits are transferrable, i.e. not conditional on future employment. The retirement age for senior management is normally 67.

In 2012, the former Managing Director re-signed from his role, with the official relinquish-ment of the position to take place in September 2013. Until this date, the outgoing Managing Director is excused from work duties. The outgo-ing Managing Director received a severance payment equivalent to one year's salary and benefits, to be paid in September 2013. All costs for the Managing Director's departure have been expensed during 2012.

A new Managing Director was appointed in 2012. As the Managing Director is not covered by the Swedish Employment Protection Act, an agreement has been made whereby the period of notice of termination is 24 months if the em-ployment is terminated by the Bank, whereas the

period of notice of termination is 12 months if the employment is terminated by the Managing Director.

The manager of operations in Älmhult has a period of notice of 6 months. If the agreement is terminated by the employee, the period of notice is 2 months. For other senior management, the period of notice for the Bank is 12 months and for the employees, 6 months.

Neither the Managing Director nor the Direc-tors have any loans with the Bank. The Bank has pledged no security and has entered into no contingent liabilities for the benefit of the senior management.

The Bank has adopted a remuneration policy conforming to FFFS 2011:1 on remuneration poli-cies in credit institutions, securities companies and fund management companies with permis-sion to undertake discretionary portfolio man-agement.

Publication of information on remuneration Information on remuneration which is required to be submitted in accordance with the Swedish Financial Supervisory Authority’s regulations is provided on the Bank’s website: www.ikanoBank.se.

kEURSenior

managementOther

employeesSenior

managementOther

employeesSalaries -2 677 -29 804 -1 888 -26 097Variable remuneration -158 -134 -141 -242Social security contributions -891 -5 399 -638 -4 668Total -3 726 -35 337 -2 667 -31 007

2012 2011

Financial reports


Salaries and remuneration to the Board of Directors and senior management

1) Employed by Ikano S.A. Group, No fees are paid. 2) The reported item regarding basic salary/fee refers to salary expenses of kEUR 593 and severance pay of kEUR

493

Number of employees Ordinary working hours has been defined as available working time. This does not include

overtime, or full or part-time leave of absence. The information refers to the full year.

2012 kEUR

Basic salary / Board fees

Variable remuneration Other benefits

Pension costs Total

Birger Lund, Chairman of the board 1) - - - - -

Arja Taaveniku 1) - - - - -

Mats Håkansson 1) - - - - -Ingrid Persson -15 - - - -15Klas Danielsson -18 - - - -18Cecilia Daun Wennborg -21 - - - -21

Bo Liljegren,MD to 2012-09-06 2) -1 029 -37 -11 -140 -1 217Stefan Nyrinder, MD from 2012-09-07 -76 - -5 -17 -98

-1 594 -121 -94 -321 -2 130Total -2 75 3 -15 8 -110 -478 -3 499

2011 kEUR

Basic salary / Board fees

Variable remuneration Other benefits

Pension costs Total

Birger Lund, Chairman of the board 1) - - - - -

Mats Håkansson 1) - - - - -Ingrid Persson -14 - - - -14Klas Danielsson -17 - - - -17Cecilia Daun Wennborg -19 - - - -19Bo Liljegren, MD -298 -29 -2 -58 -387

-1 540 -112 -96 -287 -2 035Total -1 888 -141 -98 -345 -2 472

Other senior management (8 pers)

Other senior management (9 pers)

Gender dis tribution, B oard and management 2012 2011B oard of DirectorsWomen 3 2Men 3 4Other senior management incl . Managing DirectorWomen 2 2Men 7 8

Average number o f employees 2012 2011(calculated as FTE)Women 256 231Men 223 209Total 479 440

Number of employees per country 2012 2011Sweden 309 290Denmark 97 87Norway 55 54Finland 8 9Netherlands 10 -Total 479 440

Financial reports


Remuneration to auditors The auditing assignment involves an examination of the annual accounts and accounting records and the administration by the Board of Directors and the Managing Director, other work incumbent

on the Bank's auditors, and providing advice or other assistance deemed necessary after such an examination or the execution of such other work.

12 Other operating expenses

13 Loan losses, net

14 Appropriations

kEUR 2012 2011KPMG ABStatutory audit -277 -288Tax consultancy -28 -25Other services -250 -20Total -5 5 5 -333

kEUR 2012 2011Marketing expenses -12 689 -13 441Other operating expenses -774 -653Total -13 463 -14 094

kEUR 2012 2011Specific impairment for indiv idual ly assessed loans receivableWrite-off for the year for determined loan losses -5 109 -4 035

3 040 3 379Impairment for the year for loan losses -3 920 -2 352Recoveries from previously determined loan losses 231 176Reversed impairment no longer required for loan losses 114 275

-5 644 -2 5 5 7

966 25

966 25

-4 678 -2 5 32

Write-off for determined loan losses for the year -27 106 -12 752Recoveries from previous years’ established loan losses 8 492 4 334Provision/dissolution of reserve for loan losses -5 026 -15 777

-23 640 -24 195-28 318 -26 727

Col lective impairment for indiv idual ly assessed loan receivablesAllocation/dissolution of collective impairments

Net cost for the year for co l lectively assessed homogenous groups of loan receivables

Net loan losses for indiv idual ly assessed loan receivables for the year

Net costs for the year for loan losses

Reversal of previous impairment for loan losses reported in the annual accounts as determined loanlosses

Col lectively assessed homogenous groups of loans with l imited value and s imilar credit risk

Total co l lective impairment for indiv idual ly assessed receivables for the year

Total specific impairments for indiv idual ly assessed receivables for the year

kEUR 2012 2011Provision for tax allocation reserve -12 934 -

-9 925 -3 631Total -22 85 9 -3 631

Difference between recorded depreciation and depreciation according to plan

Financial reports


15 Taxes

Reported in the income statement

Reconciliation of effective tax

Tax relating to other comprehensive income

Tax items reported directly in equity

Reported in the balance sheet

The change in deferred tax has been recognised as a deferred tax expense of 806 (excluding exchange rate differences of 21), and deferred

tax income of 303, in addition to the amounts above, has been recognised as deferred tax in other comprehensive income.

kEUR 2012 2011Current tax expense Tax expense for the period -9 919 -15 680Adjustment of taxes attributable to previous years -99 1 729Current tax expense -10 018 -13 95 1

Deferred tax referring to temporary differences -511 1 339-295 -

303 147

-10 5 21 -12 465Total reported tax expense in accordance with the income statement

Deferred tax from non-creditable foreign taxesDeferred tax referring to change in tax rate/regulations

kEURCurrent tax expense 26,5% -10 018 23,9% -13 951Tax according to current tax rates 26,3% -9 947 26,3% -15 349Difference 0,2% 71 -2,4% -1 398Difference consis ts o f fo l lowing itemsNon-tax-deductible expenses -0,4% 153 -0,2% 134Non-taxable income 0,0% -12 0,0% -2

-0,3% 99 3,0% -1 729

-3,4% 1 277 -2,2% 1 277Adjustment tax booked in the branches 0,0% - 1,4% -800

4,1% -1 532 0,8% -443Non-creditable foreign tax -0,8% 303 -0,3% 147Other 0,6% -217 0,0% 18Total 0,2% 71 -2,4% -1 398Reported effective tax 26,5 % -10 018 23,9% -13 95 1

Tax not related to profit

Taxes attributable to previous yearsAdjustments in connection with the application of depreciation using a residual value

20112012

2012 2011kEUR Before tax Tax After tax Before tax Tax After taxAvailable-for-sale financial assets 337 -74 263 71 -18 53Other comprehensive income 337 -74 263 71 -18 5 3

2012 2011kEUR Before tax Tax After tax Before tax Tax After taxCurrent tax, group contributions paid -5 826 1 532 -4 294 -1 685 443 -1 242Total -5 826 1 5 32 -4 294 -1 685 443 -1 242

kEUR 2012 2011 2012 2011Tangible assets 4 315 4 126 5 967 4 951Financial assets available-for-sale - - 84 10Non-creditable foreign taxes 2 226 1 923 - -Tax assets/l iabil it ies 6 5 41 6 049 6 05 1 4 961

Deferred tax assets Deferred tax liabilities

Financial reports


16 Treasury bills, etc.

17 Loans to credit institutions

18 Loans to the public

For a definition of doubtful debt, see section 17 “Financial assets at amortised cost” in Note 2, Accounting principles.

kEUR Fair valueReported

value Fair valueReported

value

- Swedish municipalities 116 886 116 886 36 549 36 549Total 116 886 116 886 36 5 49 36 5 49

363 -

- 102Total 363 102

Issued by Swedish public entities

2011

Positive difference as an effect of the book value exceeding nominal valueNegative difference as an effect of the book value being less than nominal value

2012

kEUR 2012 2011Swedish banks- Swedish currency 62 582 51 810- foreign currencies 9 979 8 375Total 72 5 61 60 185

kEUR 2012 2011Outstanding receivables , gross- Swedish currency 971 513 919 571- foreign currencies 460 174 457 717Total 1 431 687 1 377 288

Of which: doubtful debts 115 789 102 211 Individual impairment -638 -170 Additional collective impairment for individually assessed loans -213 -161 Collective impairment for homogenous loan receivables -77 745 -71 655Reported amount, net 1 35 3 091 1 305 302

Individually assessed

doubtful debts

Collectively assessed doubtful

debts Tot alOpening balance, 1 J anuary 2012 331 71 655 71 986Impairment for loan losses for the year 520 6 089 6 609Closing balance, 31 December 2012 85 1 77 744 78 5 95

Reconcil iat ion of impairment for loan losses

kEUR

Financial reports


19 Bonds and other interest-bearing securities

20 Shares and participating interests

kEUR Fair valueReported

value Fair valueReported

valueIssued by other Swedish borrowers- Mortgage institutions 46 184 46 184 55 030 55 030- Non-financial entities 122 783 122 783 158 444 158 444- Financial entities 27 926 27 926 36 439 36 439Foreign issuers 11 745 11 745 12 105 12 105

208 638 208 638 262 018 262 018

Listed securities 77 822 49 626 Unlisted securities 130 816 212 392

62 92

- 1 001

Positive difference as an effect of the book value exceeding nominal valueNegative difference as an effect of the book value being less than nominal value

Total bonds and other interest-bearing securit ies

2012 2011

kEUR 2012 2011Shares and participations, unlisted securities 294 172Shares and other participations 294 172

Financial reports


21 Intangible assets

Impairment of intangible assets for the year refers to capitalised costs for the development of systems.

Internally generated intangible

assets

kEUR

Other technical/

contract based assets

Market and customer based

assets

Other technical/

contract based assets

Acquis it ion costOpening balance, 1 January 2011 7 006 6 288 576 13 870Acquisitions - - 246 246Internally generated assets 2 447 - - 2 447Other changes 460 18 -478 - Exchange rate differences for the year 73 13 - 86

9 986 6 319 344 16 649

Opening balance, 1 January 2012 9 986 6 319 344 16 649Internally generated assets 2 374 - - 2 374Sales and disposals -322 - -79 -401Exchange rate differences for the year 29 41 11 81

12 067 6 360 277 18 703

Opening balance, 1 January 2011 -1 809 -1 560 -518 -3 887Other changes -418 -5 423 0Amortisation for the year -440 -2 110 -23 -2 573Exchange rate differences -73 -1 - -74Closing balance, 31 December 2011 -2 740 -3 676 -118 -6 5 34

Opening balance, 1 January 2012 -2 740 -3 676 -118 -6 534Sales and disposals 322 - 79 401 Amortisation for the year -359 -2 140 -57 -2 556Exchange rate differences -29 -25 -6 -60Closing balance, 31 December 2012 -2 806 -5 841 -102 -8 749

ImpairmentsOpening balance, 1 January 2012 - - - - Impairment for the year -6 100 - - -6 100Closing balance, 31 December 2012 -6 100 - - -6 100

Reported valueAs of 1 January 2011 5 197 4 728 58 9 983As of 31 December 2011 7 246 2 643 226 10 115

As of 1 January 2012 7 246 2 643 226 10 115As of 31 December 2012 3 161 5 19 175 3 85 4

Tot al

Clos ing balance, 31 December 2011

Clos ing balance, 31 December 2012

Amortisation

Acquired intangible assets

Financial reports


22 Tangible assets

Of the total reported value of leased assets, kEUR 612 (150) relates to recovered leased assets, of which kEUR 495 (99) has been set up as reserve. Problem credits amount to kEUR 8,108 (7,417), of which kEUR 3,910 (3,524) has been set up as reserve. The residual value guaranteed by the supplier amounts to kEUR 5,325 (4,601).

kEUR Equipment Leased assets TotalAcquis it ion costOpening balance, 1 January 2011 8 303 582 320 5 90 623Acquisitions 2 265 232 707 234 972Sales and disposals -3 567 -154 808 -15 8 375Exchange rate differences 596 11 527 12 123Closing balance, 31 December 2011 7 5 97 671 746 679 343

Ingående balans 1 januari 2012 7 597 671 746 679 343Acquisitions 1 399 312 356 313 75 5Sales and disposals -230 -187 211 -187 441Exchange rate differences 11 7 729 7 740Closing balance, 31 December 2012 8 777 804 620 813 397

DepreciationOpening balance, 1 January 2011 -5 326 -209 489 -214 815Depreciation for the year -1 828 -142 353 -144 181Sales and disposals 3 504 104 461 107 965Exchange rate differences -515 -10 772 -11 287Closing balance, 31 December 2011 -4 165 -25 8 15 3 -262 318

Opening balance, 1 January 2012 -4 165 -258 153 -262 318Depreciation for the year -1 899 -169 397 -171 296Sales and disposals 214 129 883 130 097Exchange rate differences -2 -3 911 -3 913Closing balance, 31 December 2012 -5 85 2 -301 5 78 -307 430

ImpairmentsOpening balance, 1 January 2011 - -4 472 -4 472Impairments for the year - -3 530 -3 5 30Reversals of previous impairment - 1 149 1 149Exchange rate differences - -27 -27Closing balance, 31 December 2011 - -6 880 -6 880

Opening balance, 1 January 2012 - -6 880 -6 880Impairments for the year - -644 -644Reversals of previous impairment - 1 557 1 5 5 7Exchange rate differences - -114 -114Clos ing balance, 31 December 2012 - -6 081 -6 081

Reported valueAs of 1 January 2011 2 977 368 359 371 336As of 31 December 2011 3 432 406 713 410 145

As of 1 January 2012 3 432 406 713 410 145As of 31 December 2012 2 925 496 961 499 886

Financial reports


Change in impairment for finance lease agreements reported as operating lease agreements

23 Leases Ikano Bank as lessor

The Bank owns assets leased to customers through finance lease agreements which, in accordance with the rules on legally restricted IFRS, are recognised as operating leases. These assets are, therefore, reported in the balance sheet as tangible assets. The lease objects

consist primarily of office equipment, vehicles and cleaning equipment

For contracts that cannot be cancelled, future minimum lease payments are allocated as fol-lows:

Ikano Bank as lessee

Operating lease contracts refer to the Bank’s normal activities. The term of the contract gener-ally extends over three years. On expiry of the lease term, the Bank will redeem the contract at its guaranteed residual value.

Lease payments entered as expenses in 2012 total kEUR 920. Future minimum lease payments for operating lease contracts that cannot be cancelled amount to, and are allocated, as follows:

24 Other assets

25 Prepaid expenses and accrued income

kEUR 2012 2011Opening balance 6 880 8 002Impairment of loan losses for the year 2 386 2 327Reversal of no longer required impairment of loan losses - -275

-3 109 -3 379Translation difference -76 205Closing balance 6 081 6 880

Reversal of previous impairment of loan losses reported in the annual accounts as established losses

kEUR 2012 2011Non-cancellable lease payments amount to:Within 1 year 203 555 175 7521-5 years 339 425 284 883More than 5 years 9 826 4 880Total 5 5 2 807 465 5 15

kEUR 2012 2011Non-cancellable lease payments amount to:Within 1 year 838 8981-5 years 768 1 282More than 5 years - -Total 1 606 2 180

kEUR 2012 2011Positivt value of derivative instruments 9 440 12 473Accounts receivable 34 980 25 740Tax receivables 13 810 1 867Accounts receivable, Group companies 1 622 1 968Other assets 9 277 9 980Total 69 129 5 2 028

kEUR 2012 2011Accrued interest income 2 006 1 567Other prepaid expenses and accrued income 15 678 6 512Total 17 684 8 079

Financial reports


26 Liabilities to credit institutions

27 Deposits and borrowings from the public

28 Change in fair value on interest-rate hedged items in the portfolio hedge

29 Issued securities

30 Other liabilities

kEUR 2012 2011Swedish currency 1 605 841Foreign currency 112 481 154 611Total 114 086 15 5 45 2

kEUR 2012 2011Publ ic- Swedish currency 1 615 433 1 421 234Total 1 615 433 1 421 234

Deposits specified by category of borrowerCorporate sector 40 785 28 288Household sector 1 574 648 1 392 946Total 1 615 433 1 421 234

kEUR 2012 2011Opening balance 1 511 322Change in value during the year 429 1 189Closing balance 1 940 1 5 11

kEUR 2012 2011Certificates of deposits 128 277 162 882Total 128 277 162 882

kEUR 2012 2011Negative value of derivative instruments 773 264Accounts payable 29 463 23 174Preliminary tax, interests 9 366 8 711Group liabilities 7 184 2 439Tax liabilities 2 204 1 722Other liabilities 19 001 15 760Total 67 991 5 2 070

Financial reports


31 Accrued expenses and prepaid income

32 Provisions

Next year’s expected payment in respect of defined-benefit pension plans amounts to kEUR 35. The entire provision reported in the balance sheet is covered by the Pension Obligations Vesting Act.

33 Subordinated liabilities

The subordinated debt is subordinate to the Bank’s other liabilities, which implies a right to payment only after the other creditors have

received payment. Interest expenses for the year for subordinated liabilities amount to kEUR 2,981.

kEUR 2012 2011Accrued interest expenses 10 588 6 377Accrued personnel costs 8 042 5 587Prepaid lease payments 27 607 23 564Accrued expenses related to lease insurance 2 936 3 173Other accrued expenses 11 163 8 271Total 60 336 46 972

kEUR 2012 20113 406 3 195

3 406 3 195

Change in net debtNet debt regarding pension obligations at the beginning of the year 3 195 2 884

-11 165+ Interest expenses 140 135- Pension payments -37 -33+ Exchange rate differences 119 44= Net debt at year end 3 406 3 195

Of which credit insured by FPG/PRI 3 406 3 195

Pension costsPersonal pension planCost of earning pensions, etc. -11 165+ Interest expense (calculated discounting effect) 140 135= Pension expenses for personal pension plan excluding taxes 129 300

Pensions through insurance+ Insurance premiums or equivalent 4 009 3 415= Total pension costs excluding taxes 4 138 3 715

+ Pension expenses, excluding interest expense, reported in income statement

TotalProvision for Pensions

kEUR Currency Nom Interest rate Maturity date 2012 2011Subordinated loan 1 SEK 70 000 3,42% 2017-03-27 8 157 7 866Subordinated loan 2 NOK 35 000 4,14% 2017-03-27 4 770 4 518Subordinated loan 3 DKK 90 000 5,46% 2017-03-27 12 063 12 109Subordinated loan 4 EUR 15 000 5,21% 2019-12-17 15 000 15 000Subordinated loan 5 SEK 150 000 5,27% 2020-06-23 17 478 16 856Subordinated loan 6 SEK 50 000 5,27% 2020-08-25 5 826 5 618Total 63 294 61 967of which: Group companies 63 294 61 967

Reported value

Financial reports


34 Untaxed reserves

35 Equity The number of shares amounts to 10,002, with a quotient value of EUR 922. The quotient value represents the share capital divided by the num-ber of shares.

Restricted funds Restricted funds may not be reduced through the payment of dividends.

Statutory reserve The aim of the statutory reserve has been to save the portion of the net profits which are not used to cover a loss brought forward.

Fair value reserve The fair value reserve includes the accumulated, unrealised net change in the fair value of financial assets available for sale until the asset is removed from the balance sheet. Changes in value due to

impairment losses are, however, reported in the income statement.

This reserve also includes translation differ-ences when consolidating the Bank’s foreign branches.

Profit or loss brought forward Profit or loss brought forward consists of the previous year’s unrestricted equity after any dividend has been distributed. Together with the profit and loss for the year and the fair value reserve, this item comprises the total unrestricted equity, i.e. the amount available for distribution to the shareholders.

Changes in equity For a specification of changes in equity during the period, see the statement of changes in equity.

Change in fair value reserve

kEUR 2012 2011Accumulated depreciation in excess of planInventoriesOpening balance, 1 January 37 856 34 225Depreciation in excess of plan for the year 9 925 3 631Closing balance, 31 December 2012 47 781 37 856

Tax al location reservesTaxation 2013 12 934 -Closing balance, 31 December 2012 12 934 -

Closing balance, 31 December 2012 60 715 37 85 6

kEUR 2012 2011Fair value reserveOpening balance, fair value reserve 33 -20Financial assets available-for-saleChange in fair value reported in other comprehensive income 337 71Tax, revaluations -74 -18Closing balance, fair value reserve 296 33

Trans lation difference Opening balance, trans lation reserve 3 5 5 3 3 279Translation differences, branches 1 224 274Closing balance, trans lation reserve 4 777 3 5 5 3

Closing balance, fair value reserve 5 073 3 5 86

Financial reports


36 Memorandum items

37 Financial assets and liabilitiesThe information on reported and fair values per category of financial instrument is summarised below. Note 2 Accounting Principles contains descriptions of the manner in which the fair value is determined for financial assets and liabilities to be reported at fair value in the balance sheet. For current liabilities, deposits and lending at variable rates of interest, the carrying amount is consid-ered to reflect the fair value.

The following section describes the manner in which the fair value was determined for instru-ments which were not reported at fair value in the balance sheet.

Lending Lending at variable rates of interest is valued at amortised cost. When the credit spread remains unchanged, the amortised cost is considered to reflect fair value.

Deposits and borrowings Fair value on deposits and borrowings is calcu-lated on the basis of current market interest rates where the original credit spread of the borrow-ings has remained constant if there is no clear proof that a change in the Bank’s creditworthiness has led to an observable change in the Bank’s credit spread. For deposits and borrowings at variable rates of interest, the carrying amount is considered to reflect the fair value.

Other interest-bearing financial assets and liabilities For financial assets and liabilities in the balance sheet with a remaining maturity of less than six months, the carrying amount is considered to reflect the fair value.

kEUR 2012 2011Contingent L iabil it iesPRI 68 64Total 68 64

CommitmentsLoan commitments, irrevocable 20 276 15 891Unused credit limits 3 013 680 3 011 680Total 3 033 95 6 3 027 5 71

2012mEURFinancial assets

- 0 - - - - 0 0- - 117 - - - 117 117

Loans to credit institutions - 73 - - - - 73 73Loans to the public - 1 353 - - - - 1 353 1 353Bonds and other interest-bearing securities - - 209 - - - 209 209Shares and participations - - 0 - - - 0 0Derivatives 4 - - - - 6 9 9Accrued income - 11 - - - - 11 11Other financial assets - 46 - - - - 46 46Total 4 1 483 326 - - 6 1 818 1 818

Financial l iabil it iesLiabilities to credit institutions - - - - 114 - 114 114Deposits and borrowings from the public - - - - 1 617 - 1 617 1 617Issued securities - - - - 128 - 128 131Derivatives 1 - - - - - 1 1Other liabilities - - - - 58 - 58 58Accrued expenses - - - - 52 - 52 52Subordinated liabilities - - - - 63 - 63 64Total 1 - - - 2 033 - 2 034 2 038

CashTreasury bills etc.

Tot al c arrying amount Fair value

Other financial liabilities

Derivatives used in hedge

accounting

Financial assets at fair

value through

profit or lossLoans and

receivables

Financial assets

available-for-sale

Financial liabilities at

fair value through

profit or loss

Financial reports


The following table contains information on the manner in which the fair value is determined for the financial instruments reported at fair value in the balance sheet (excluding the items included in hedge accounting). Fair value is determined on the basis of the following three levels:

- Level 1: according to prices quoted on an

active market for the same instrument - Level 2: on the basis of direct, or indirect,

observable market data not included in level 1

- Level 3: on the basis of input data which is not observable on the market

2011mEURFinancial assets

- 0 - - - - 0 0- - 37 - - - 37 37

Loans to credit institutions - 60 - - - - 60 60Loans to the public - 1 305 - - - - 1 305 1 305Bonds and other interest-bearing securities - - 262 - - - 262 262Shares and participations - - 0 - - - 0 0Derivatives 8 - - - - 4 12 12Accrued income - 4 - - - - 4 4Other financial assets - 38 - - - - 38 38Total 8 1 407 299 - - 4 1 7 19 1 7 19

Financial l iabil it iesLiabilities to credit institutions - - - - 155 - 155 155Deposits and borrowings from the public - - - 68 1 354 - 1 421 1 425Issued securities - - - - 163 - 163 163Derivatives - - - - - 0 0 0Other liabilities - - - - 42 - 42 42Accrued expenses - - - - 41 - 41 41Subordinated liabilities - - - - 62 - 63 63Total - - - 68 1 819 0 1 886 1 890

CashTreasury bills etc.

Tot al c arrying amount Fair value

Other financial liabilities

Derivatives used in hedge

accounting

Financial assets at fair

value through

profit or lossLoans and

receivables

Financial liabilities at

fair value through

profit or loss

Financial assets

available-for-sale

2012kEUR Level 1 Level 2 Level 3 Total

Interest rate derivatives - 6 810 - 6 810Currency derivatives - 2 630 - 2 630

Available-for-sale financial assets82 548 126 090 - 208 63878 314 38 572 - 116 886

114 - 180 294

Interest rate derivatives - 267 - 267Currency derivatives - 507 - 5 07

Financial assets at fair value through profit or loss

Financial l iabil it ies at fair value through profit or loss


Shares and participationsTreasy bills etc.

Financial reports


38 Capital management and capital adequacy For the establishment of the statutory capital requirements, the Swedish Capital Adequacy and Large Exposures Act (2006:1371) and the Swedish Financial Supervisory Authority’s regulations and general guidelines (FFFS 2007:1) on capital ade-quacy and large exposures apply. Information is provided below on the information required concerning the capital base and the capital requirements in accordance with Chapter 3 paragraphs 1-2 and Chapter 4 of the Swedish Financial Supervisory Authority regulations and the general guidelines on publishing information on capital adequacy and risk management FFFS 2007:5.

The rules help to strengthen the resistance against financial losses and thereby protect the Bank’s customers. The rules imply that the Bank’s capital base must cover the prescribed minimum capital requirement by a margin, which for Ikano Bank includes the capital requirements for credit risks, operational risks and currency risks. The capital requirement also includes additional identified risks in the operations in accordance with the Bank’s capital assessment and the re-quirements imposed on the operations by the Board of Directors.

To ensure that the internal capital of Ikano Bank is sufficient, internal capital assessments (IKU) are performed under the Basel II principles. This process is a tool used by the Board of Direc-tors to assess the need for possible changes in the capital requirement in the event of changed circumstances. This might involve strategic com-mercial decisions or events in the surrounding environment impacting the operations and their development. The Bank performs stress tests and scenario analyses to assess the need for further capital. This assessment is performed for all risks that are identified under the Basel regulation’s

Pillar 2 principles. Risk Control is responsible for managing the process of the capital planning of the Bank. This is performed on an annual basis as an integral part of the strategic work of the Bank. The plan is monitored continuously and an overall risk analysis is carried out annually to ensure that the risks are correctly considered and that they reflect the Bank’s true risk profile and requirement of capital. The implementation and results of the capital assessment process are reported to the Swedish Financial Supervisory Authority on an annual basis.

Ikano Bank aims to ensure that the capital adequacy ratio does not fall below 14%, which can be compared with the statutory capital re-quirement of 8%. This buffer constitutes an addi-tional margin which is in line with the Bank’s risk profile, identified risks on the basis of their prob-ability and economic effects, stress tests, antici-pated lending expansion, freedom of strategic action and changes in the surrounding environ-ment.

When estimating the capital requirement, the Bank applies the standardised approach for credit risks and the base indicator approach for operational risks. At closing day, the capital base of the Bank totalled mEUR 319, compared to the statutory capital requirement of mEUR 155. Thus, Ikano Bank has a very good capital adequacy which fulfils the statutory minimum requirements, the so called pillar I requirements, as well as internal requirements.

A summary of the Bank's capital base and statutory minimum capital requirements is pro-vided in the tables below. For additional informa-tion on risk and capital requirements in accor-dance with the Financial Supervisory Authority's regulations and general guidelines FFFS 2007:5 refer to the Bank's website www.ikano.se.

2011kEUR Level 1 Level 2 Level 3 Total

Interest rate derivatives - 250 - 25 0Currency derivatives - 8 182 - 8 182

Available-for-sale financial assets

- 262 018 - 262 018- 36 549 - 36 5 49- - 172 172

Interest rate derivatives - 236 - 236Currency derivatives - 14 - 14

Financial assets at fair value through profit or loss

Financial l iabil it ies at fair value through profit or loss


Shares and participationsTreasy bills etc.

Financial reports


Capital base and capital requirement

kEUR 2012 2011Tier 1 capital 261 095 214 249Tier 2 capital 58 296 61 967Capital base, net 319 391 276 216

Capital requirements for credit risks in accordance with standardised approach 122 303 118 393

24 868 22 355Capital requirements for exchange rate risks 7 357 5 684Total capital requirements 15 4 5 28 146 432

Capital adequacy quotient 2,07 1,89

Capital ratio 16 ,5 % 15 ,1%

Capital baseTier 1 capitalEquity reported in the balance sheet 227 039 202 546Untaxed reserves (73.7% off which) 44 747 27 900Less: - Intangible assets and deferred tax assets -10 395 -16 164

- Unrealised changes in fair value reported in fair value reserve -296 -33Total t ier 1 capital 261 095 214 249

Tier 2 capitalSubordinated liabilities 58 296 61 967Total t ier 2 capital 5 8 296 61 967

Total capital base 319 391 276 216

Capital requirementsCredit risk in accordance with s tandardised approachInstitutional exposure 2 357 1 761Corporate exposure 9 345 20 098Retail exposure 102 318 89 263Past due items 4 176 4 133Covered bond exposure 418 114Other items 3 688 3 023Total capital requirements for credit risk 122 303 118 393

Operational riskBase indicator approach 24 868 22 355Total capital requirements for operational risk 24 868 22 35 5

Currency riskCurrency risk 7 357 5 684Total capital requirements for market risk 7 35 7 5 684

Total min imum capital requirement 15 4 5 28 146 432

Capital requirements for operational risks in accordance with base indicator approach

Financial reports


39 Related parties The Bank has related party relationships with companies in the group. Transactions with these companies are set out below. Consolidated financial statements are prepared by Ikano S.A., Luxembourg.

Transactions with related parties are priced on market conditions. No doubtful debt is attrib-utable to the outstanding receivables to related parties.

Transactions with key management personnel Loans and other payments, pensions and loans to key management personnel, see Note 11 General administrative expenses.

40 Important assessments and estimates The Bank's management has considered devel-opments and information regarding the Bank's significant accounting principles, and has as-sessed the choice and application of these ac-counting principles.

Important assessments when applying the Bank’s accounting principles

Hedge accounting In order for a financial instrument to qualify as a hedge relationship, the hedge transactions must be expected to be highly effective across the term of the hedging instrument. For quantitative infor-mation, see the section in Note 2 regarding As-sessments and estimates in the financial state-ments.

Impairments for loan losses Collective loss reserves are applied to loan losses for portfolios of a similar financial nature where

the objective indications suggest that there is a risk of loss in the portfolio. When assessing the need for collective loan loss reserves, factors, such as credit quality, customer behaviour, portfolio size, concentrations, historical experience and other financial factors are taken into considera-tion. For quantitative information see Note 3 Risks and risk management. Individual loss reserves are based on estimates of the present value of the expected cash flows. When estimating these cash flows, the customer’s financial situation and the value of any collateral are assessed.

Models and assessments applied when mak-ing impairments for loan losses are regularly monitored by the Bank’s department of independ-ent risk control.

kEUR Year Income Expenses

Receivables with related parties, 31 December

Liabilities with related

parties, 31 December

Ikano S.A. 2012 5 35 -5 35 1 139 62 322Ikano S.A. 2011 128 -3 222 502 62 473

Other Group companies 2012 16 766 -4 739 3 000 14 492Other Group companies 2011 10 420 -5 014 1 696 661


Älmhult, 10 April 2013 We hereby, provide an assurance that, to the best of our knowledge, this annual report has been drawn up in accordance with generally accepted accounting principles. The information provided reflects the actual situation in the Bank’s operations and nothing of any significance has been omitted which might influence the view of the Bank provided by the annual report. Birger Lund Arja Taaveniku Ingrid Persson Chairman of the Board Member of the Board Member of the Board Cecilia Daun Wennborg Mats Håkansson Klas Danielsson Member of the Board Member of the Board Member of the Board Our audit report was submitted on 10 April 2013. KPMG AB Anders Bäckström Authorised Public Accountant


Audit report To the annual general meeting of Ikano Bank AB (publ), Corporate Identity Number 516406-0922

Report on the annual accounts We have performed audit of the annual accounts of Ikano Bank AB (publ) for the year 2012.

Responsibilities of the Board of Directors and the CEO for the annual accounts The Board of Directors and the CEO are responsible for the preparation and fair presentation of annual accounts in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and for such internal control as the Board of Directors and the CEO determine is necessary to enable the preparation of annual accounts that are free from material misstate-ment, whether due to fraud or error.

Auditors’ responsibility Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the bank’s preparation and fair presentation of the annual accounts in order to design audit proce-dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effec-tiveness of the bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the CEO, as well as evaluating the overall presentation of the annual accounts.

We believe that the audit evidence we have ob-tained is sufficient and appropriate to provide a basis for our opinion.

Opinion In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies and present fairly, in all material respects, the financial position of the bank as of 31 December 2012 and of its financial performance and cash flows for the year then ended, in accordance with the Annual Accounts Act for Credit Institutions and Securities Companies. The statutory administration report is consistent with the other parts of the annual accounts.

We therefore recommend that the annual general meeting adopt the income statement and the balance sheet.

Report on other legal and regulatory requirements In addition to our audit of the annual accounts, we have also examined the proposed appropriations of the bank’s profit or loss and the administration of the Board of Directors and the CEO of Ikano Bank AB (publ) for the year 2012.

Responsibilities of the Board of Directors and the CEO The Board of Directors is responsible for the proposal for appropriations of the bank’s profit or loss, and the Board of Directors and the CEO are responsible for administration under the Swedish Companies Act and the Banking and Finance Business Act.

Auditors’ responsibility Our responsibility is to express an opinion with reason-able assurance on the proposed appropriations of the bank’s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.

As a basis for our opinion on the Board of Directors’ proposed appropriations of the bank’s profit or loss, we examined whether the proposal is in accordance with the Swedish Companies Act.

As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts, we examined significant decisions, actions taken and circumstances of the bank in order to determine whether any member of the Board of Directors or the CEO is liable to the bank. We also examined whether any member of the Board of Directors or the CEO has, in any other way, acted in contravention of the Swedish Companies Act, the Banking and Finance Business Act, the Annual Accounts Act for Credit Institutions and Securities Companies or the Articles of Association.

We believe that the audit evidence we have ob-tained is sufficient and appropriate to provide a basis for our opinion.

Opinion We recommend to the annual general meeting of shareholders that the profit be appropriated in accor-dance with the proposal in the statutory administration report and that the members of the Board of Directors and the CEO be discharged from liability for the financial year. Lund, 10 April 2013 KPMG AB

Anders Bäckström Authorised Public Accountant

Årsredovisning ikano bank se 2010

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