Finansiel Stabilitet presents its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and with related interpretations issued by the Interpretations Committee (IFRIC).
The parent company, Finansiel Stabilitet IPC, presents its financial statements in accordance with the Danish Financial Business Act.
Certain disclosures have been omitted in order to provide a better overview and reduce the number of note disclosures. This has been the case where the amounts and qualitative information are regarded as insignificant.
As of 1 January 2022, the Finansiel Stabilitet Group has implemented the IFRS standards and interpretations that are effective in the EU for 2022. The implementation of the adopted amendments and new standards has not affected recognition or measurement for 2022.
Apart from the above, the accounting policies are consistent with those applied in 2021.
Standards and interpretations not yet in force
At the end of the financial year, a number of new or amended standards and interpretations had been issued that have not yet come into force or been adopted by the EU. Finansiel Stabilitet does not expect to implement the new accounting standards and interpretations until they become mandatory. None of the new standards or interpretations are expected to significantly affect the financial reporting of the Group.
Accounting estimates and judgments
The determination of the carrying amounts of certain assets and liabilities relies on judgments, estimates and assumptions about future events.
The estimates and assumptions applied are based on historical experience and other factors that Management considers reasonable, but which are inherently uncertain and unpredictable.
Such assumptions may be incomplete or inaccurate, and unexpected events or circumstances may occur. In addition, the Group and parent company are subject to risks and uncertainties that may cause actual outcomes to deviate from the estimates and assumptions made.
It may be necessary to change previous estimates as a result of changes to the assumptions on which the estimates were based or as a result of new information or subsequent events.
Estimates significant to the financial reporting include the following:
Accounting policies for the Group
Foreign currency translation
The functional currency of the Financial Stabilitet Group is Danish kroner, which is also the presentation currency.
On initial recognition, transactions denominated in foreign currencies are translated into the functional currency at the exchange rate ruling at the transaction date. Exchange differences arising between the exchange rate at the transaction date and the exchange rate at the payment date are recognised in the income statement as market value adjustments.
Receivables, payables and other monetary items in foreign currencies are translated to the functional currency at the exchange rates ruling at the balance sheet date. The difference between the exchange rate ruling at the balance sheet date and the exchange rate ruling at the date when the receivable or payable arose or the exchange rate applied in the most recent financial statements is recognised in the income statement as market value adjustments.
Offsetting
Receivables and payables are offset when the Group has a legally enforceable right to set off the recognised amounts and intends either to settle them on a net basis or to realise assets and settle the liability simultaneously.
Recognition and measurement
Assets are recognised in the balance sheet when it is probable that, as a result of past events, future economic benefits will flow to the business and the value of the asset can be reliably measured.
Liabilities are recognised in the balance sheet when the company has a legal or constructive obligation as a result of past events and it is probable that future economic benefits will flow from the business and the value of the liability can be reliably measured.
Financial instruments – general
Financial assets are classified and measured on the basis of Finansiel Stabilitet’s business model and the underlying contractual cash flows related to the characteristics of the financial assets, and comprise the following categories:
Subsequent to initial recognition, financial assets held with the objective of collecting contractual cash flows, and where the contractual cash flows are solely payments of principal and interest on the principal amount outstanding, are measured at amortised cost. This category comprises loans, receivables from credit institutions, commitments made by banks, mortgage credit institutions and investment companies and related interest.
Bonds are measured at fair value through the income statement because they are part of an investment strategy based on fair values, and information about the liabilities is provided on that basis in the internal management reporting. Shares and derivative financial instruments are also measured at fair value through the income statement, as contractual cash flows from these instruments are not solely payments of principal and interest on the principal amount outstanding. Finansiel Stabilitet has no financial instruments measured at fair value through other comprehensive income, as this requires that the instruments are held in a mixed business model and that contractual cash flows are solely payments of interest and principal on the principal amount outstanding.
Financial liabilities are classified and measured at amortised cost, with the exception of derivative financial instruments, which are measured at fair value and recognised in liabilities if their fair value is negative.
Consolidated financial statements
The consolidated financial statements comprise the parent company, Finansiel Stabilitet IPC, and subsidiaries which the parent company controls. Control is achieved by directly or indirectly owning or having disposal of more than 50% of the voting rights or otherwise having control of the company in question.
Enterprises in which the Group exercises significant influence, but not control, are classified as associates. Significant influence is generally achieved by directly or indirectly holding or having the disposal of more than 20%, but less than 50%, of the voting rights.
In assessing whether the parent company exercises control or significant influence, potential voting rights exercisable at the balance sheet date are taken into account.
The consolidated financial statements have been prepared consolidating the financial statements of the parent company and the individual subsidiaries stated under the Group’s accounting policies, eliminating intra-group income and expenses, shareholdings, intra-group balances and dividends as well as realised and unrealised gains on intra-group transactions.
Unrealised gains on transactions with associates are eliminated in proportion to the Group’s share of the enterprise. Unrealised losses are eliminated in the same way as unrealised gains, to the extent that no impairment has occurred.
Investments in subsidiaries are eliminated at the proportionate share of the subsidiaries’ fair value of identifiable net assets and recognised contingent liabilities at the takeover date.
Balance sheet
Due from credit institutions and central banks
Amounts due from credit institutions and central banks are on initial recognition measured at fair value with the addition of directly attributable transaction costs and subsequently at fair value according to the effective interest method less impairment losses. As Finansiel Stabilitet uses credit institutions with high credit ratings only, credit risk is considered low, and consequently the need for impairment write-down is considered insignificant.
Loans, advances and receivables at amortised cost
The item consists of loans taken over from distressed banks.
Classification and measurement:
Subsequent to initial recognition, loans and advances held with the objective of collecting contractual cash flows, and where the contractual cash flows are solely payments of principal and interest on the principal amount outstanding, are measured at amortised cost.
Finansiel Stabilitet is charged with resolving loans taken over in the best way possible. Accordingly, the business model regarding loans and advances is solely to collect outstanding amounts and the contractual cash flows are solely payments of principal and interest on the principal amount outstanding.
Loans, advances and receivables are initially measured at fair value plus transaction costs and less fees and commissions received that are directly related to the establishment.
As a result of the above-mentioned classification, loans, advances and receivables are subsequently measured at amortised cost using the effective interest method less write-downs for bad debt losses.
On takeover of existing loans, advances and receivables, any difference between the expected repayment price and fair value at the date of recognition will be amortised over the expected term to maturity as part of the effective rate of interest.
Impairment:
The rules on impairment of loans and provisions for financial guarantees and loan commitments are based on an expected loss model which implies earlier recognition of a loss allowance than the previous impairment model, under which there had to be objective evidence of credit impairment before an impairment loss could and had to be recognised.
Under the new expected credit loss rules, on initial recognition of a financial asset etc., a loss allowance will be recognised in an amount equivalent to the 12-month expected credit losses (stage 1). In the event of a subsequent significant increase in credit risk after initial recognition, a loss allowance will be recognised in an amount equivalent to the lifetime expected credit losses of the financial asset (stage 2). Where it is established that the instrument is credit-impaired (stage 3), a loss allowance is recognised at an amount equal to the lifetime expected credit losses of the asset, and interest income is recognised in the income statement according to the effective interest method in proportion to the impaired amount.
For assets and guarantees that are credit-impaired (stage 3) on acquisition, the lifetime expected credit loss of the asset or the guarantee is considered to be factored into the determined acquisition price. Such assets and guarantees will remain in stage 3 throughout their remaining life, and the effects of positive and negative changes in credit risk are recognised in the income statement as these occur.
As Finansiel Stabilitet is charged with resolving loans taken over in the best way possible, within a relatively short period after the takeover remaining loans and advances will be designated as credit-impaired on acquisition, as all other loans and advances will have been repaid and replaced by the counterparty by new loans taken out with other credit institutions. Accordingly, Finansiel Stabilitet’s portfolio of loans at the balance sheet date is generally considered to consist entirely of loans that were credit-impaired on acquisition. Consequently, Finansiel Stabilitet has not set out principles for the measurement of significant increases in credit risk or definitions of default and credit impairment, other than the above-mentioned assessment when loan portfolios are taken over.
After a long resolution process, the remaining loans and guarantees taken over by the Group from failing banks under Bank Packages I-IV and from Andelskassen J.A.K. Slagelse and Københavns Andelskasse are considered to be stage 3 exposures, which are either credit-impaired or in default. The remaining portfolio of loans is either in bankruptcy, reconstruction or debt restructuring, or their creditworthiness is so poor that no other banks have been willing to take over the exposures.
Accordingly, loss allowances and provisions relating to the Group’s loans and guarantees are treated in accordance with the IFRS 9 rules on assets and guarantees that are credit-impaired on acquisition.
The loss allowance is calculated on an individual basis for each exposure as the difference between the carrying amount of the loan and the present value of expected future cash flows from the loan. The expected future cash flows are determined based on the most probable outcome. Expected future cash flows are calculated with due consideration being given to the exposure’s repayment ability, dividends and any enforcement of collateral.
For fixed-rate loans, the original effective interest rate at the date of acquisition is used as discount rate. For floating-rate loans, the current effective interest rate on the loan is used.
Write-off:
Loans and advances are written off when it is assessed that there is no longer a reasonable expectation of full or partial recovery of the outstanding amount. At such time, the final loss is considered to have been incurred, and the loan is removed from the carrying amount of gross loans and accumulated impairment.
Finansiel Stabilitet continues its collection efforts after the loans have been written off, based on an individual assessment, including an assessment of the possibility of entering into a voluntary agreement with the customer, a renegotiation of terms or reconstruction of a business, so that debt collection or petition for bankruptcy is the ultimate measure of debt collection.
Bonds, shares, etc.
Listed securities are recognised at fair value at the trading date. Fair values are measured at closing prices at the balance sheet date. In a less active or inactive market, fair value may, however, be measured based on models or similar approaches.
Unlisted shares are stated at fair value. Fair values of unlisted securities are measured on the basis of models, agreed trading prices according to articles of association or similar approaches.
Investments in associates etc.
Associates are recognised at the lower of the proportionate share of net asset value and recoverable amount.
Investment properties
Investment properties are properties owned for the purpose of receiving rent and/or obtaining capital gains. Investment properties are recognised at cost on acquisition and subsequently at fair value. Fair value is calculated on the basis of current market data based on a rate of return model. The fair value of each property is reassessed annually, taking into consideration current rental market conditions and current return requirements. Fair value adjustments are recognised in Market value adjustments. Land is not depreciated.
Leases
All leases entered into (other than leases of short duration) in which the Group is the lessee are recognised in the balance sheet as a right-of-use asset and as a lease liability, measured at the present value of minimum lease payments over the term of the lease. The right-of-use asset is subsequently depreciated in the same way as other fixed assets, typically on a straight-line basis over the term of the lease, and interest is calculated on the lease liability.
Commitments made by banks, mortgage credit institutions and investment companies
The item comprises commitments made to the Deposit Guarantee Fund and measured at amortised cost, equivalent to nominal value, as the date when a commitment may be invoked cannot be reliably predicted or estimated.
Tax payable and deferred tax
Finansiel Stabilitet IPC is exempt from taxation and the subsidiaries of the Group are not subject to joint taxation.
Current tax liabilities and current tax receivables are recognised in the balance sheet as estimated tax on the taxable income for the year, adjusted for tax on prior years’ taxable income and for tax paid under the on-account tax scheme.
Deferred tax is measured using the balance sheet liability method on all temporary differences between the carrying amount and tax base of assets and liabilities.
Deferred tax assets are reviewed in connection with the year-end closing and recognised only to the extent that it is probable that they will be utilised.
Deferred tax assets and tax liabilities are offset if the enterprise has a legally enforceable right to set off current tax liabilities and tax assets or intends either to settle current tax liabilities and tax assets on a net basis or to realise the assets and settle the liabilities simultaneously.
Adjustment is made to deferred tax relating to eliminations of unrealised intra-group gains and losses.
Deferred tax is measured on the basis of the tax regulations and rates that, according to the rules in force at the balance sheet date, will apply at the time the deferred tax is expected to crystallise as current tax. Changes in deferred tax as a result of changes in tax rates are recognised in the income statement.
Other assets
The item comprises assets not classified under any other asset item, including interest and commissions receivable.
Financial liabilities
At the date of borrowing, deposits, issued bonds and amounts due to credit institutions, central banks, etc. are recognised at fair value less transaction costs. In subsequent periods, financial liabilities are measured at amortised cost, applying the “effective interest method”, to the effect that the difference between the proceeds and the nominal value is recognised in the income statement under financial expenses over the term of the loan. Other financial liabilities are measured at amortised cost.
Other liabilities
The item comprises liabilities not classified under any other liability item, including interest payable etc.
Provisions
The item Provisions comprises provisions made in connection with legal disputes, guarantees, employee benefits, etc.
Provision for losses on guarantees is measured by applying the expected loss model described under the accounting policy for loans and advances.
Other provisions are recognised when, as a consequence of an event occurring before or at the balance sheet date, the Group has a legal or constructive obligation, and it is probable that there may be an outflow of economic benefits to meet the obligation.
Provisions are measured as Management’s best estimate of the amount which is expected to be required to settle the liability.
In the measurement of provisions, the costs required to settle the liability are discounted if such discounting would have a material effect on the measurement of the liability. A pre-tax discount factor is used that reflects the general level of interest rates with the addition of risks specific to the provision. The changes in present values for the financial year are recognised in financial expenses.
A provision for onerous contracts is recognised when the unavoidable costs under a contract exceed the expected benefits to the Group from the contract.
Purchase price adjustment
Purchase price adjustment comprises the potential additional dividend payable to creditors and providers of dowry in the banks taken over under Bank Packages III-IV. Purchase price adjustment is included in provisions.
Equity
Finansiel Stabilitet’s assets, the Deposit Guarantee Fund and the Resolution Fund are shown as three separate items. Danish legislation provides that Finansiel Stabilitet’s assets and the two funds are only liable for their own obligations.
Proposed dividend
Proposed dividend is recognised as a liability at the time of adoption at the annual general meeting (the declaration date).
Dividend expected to be paid in respect of the financial year is stated as a separate line item under equity. Interim dividend is recognised as a liability at the date of decision.
Contingent assets and liabilities
Contingent assets and liabilities consist of possible assets and liabilities arising from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Finansiel Stabilitet Group. Contingent assets are disclosed when an inflow of economic benefits is probable.
Contingent liabilities are disclosed when an outflow of economic resources from the Group is possible but not probable. Disclosure also includes current liabilities which have not been recognised because it is not probable that the liability will entail an outflow of economic resources or where the liability cannot be reliably measured.
Income statement
Interest income and expense
Interest income and expense and current commission in respect of interest-bearing financial instruments measured at amortised cost are recognised in the income statement applying the effective interest method based on the cost of the financial instrument.
Interest includes amortisation of fees which are an integral part of the effective yield of the financial instrument, including origination fees, and amortisation of any additional difference between cost and redemption price.
Interest income and expense include interest on financial instruments carried at fair value, including forward premiums on forward contracts. Recognition of interest on loans and advances with individual impairment write-downs is made on the basis of the value net of impairment. Interest expense includes all interest-like expenses, including statutory interest arising from lawsuits.
Contributions to the Deposit Guarantee Fund
The item comprises the banks’ premium payments to the Deposit Guarantee Fund.
Contributions to the Resolution Fund
The item comprises the banks’, mortgage credit institutions’ and investment companies’ premium payments to the Resolution Fund.
Fee and commission income, net
The item comprises fees, commissions, remuneration, etc. which are not an integral part of the effective yield of a financial instrument. Income and expenses for services provided over a period of time, such as guarantee commissions, are accrued over the period. Transaction fees, such as brokerage and custody fees, are recognised at the transaction date.
Market value adjustments
Market value adjustments comprise value adjustments of assets and liabilities measured at fair value.
The item also includes exchange rate adjustments.
Other operating income
Other operating income comprises income of a secondary nature in relation to the Group’s activities and gains on the sale of activities, property, plant and equipment and the like.
Staff costs and administrative expenses
Staff costs and administrative expenses comprise salaries, social security costs, holiday allowances, pension costs, etc.
Most of the Group’s employees are covered by defined contribution plans. Under defined contribution plans, the Group makes regular contributions to pension funds or pension companies, and the contributions are recognised as expenses as they are earned by the employees.
With a few former members of Management of banks taken over, the Group has entered into defined benefit plans. The pension liability in this respect is based on an actuarial assessment of the present value of expected benefits. Present value is calculated on the basis of the most recent yield curve of the Danish FSA and benchmark mortality rates, etc. Any changes other than pension payments for the period are adjusted through the income statement/other comprehensive income.
Depreciation, amortisation and impairment of intangible assets and property, plant and equipment
Depreciation, amortisation and impairment of intangible assets and property, plant and equipment comprises depreciation, amortisation and impairment losses for the year.
Other operating expenses
Other operating expenses comprise items of a secondary nature relative to the Group’s activities, including losses on the sale of intangible assets and property, plant and equipment, properties taken over and operating expenses relating to letting activities, etc.
Impairment losses on loans, advances and receivables
The item comprises losses and impairment write-downs on loans, advances and receivables as well as provisions for guarantees and undrawn credit facilities. See the description under impairment of loans.
Income from investments in associates
Income from investments in associates comprises the proportionate share of the net results of the individual enterprises, adjusted for any impairment.
Tax
Tax for the year consists of current tax for the year and changes in deferred tax for the year. The tax attributable to the result for the year is recognised in the income statement, whereas the tax attributable to equity transactions is recognised directly in equity.
Special accounting issues relating to the parent company financial statements
Investments in subsidiaries
Investments in subsidiaries are recognised and measured at net asset value in the parent company financial statements in accordance with the Executive Order on Financial Reporting.
Purchase price and dowry adjustment receivable
The parent company’s expected receivables in FS Finans I-IV A/S.
Tax payable and deferred tax
Finansiel Stabilitet IPC is exempt from taxation.
Consolidated cash flow statement
The cash flow statement shows cash flows for the year from operating, investing and financing activities, changes for the year in cash and cash equivalents and cash and cash equivalents at the beginning and end of the year.
The cash flow effect of takeovers and divestments of enterprises is shown separately under cash flows from investing activities. In the cash flow statement, cash flows concerning enterprises taken over are recognised from the takeover date, while cash flows concerning divested companies are recognised until the date of divestment.
Cash flows from operating activities are calculated according to the indirect method, i.e. as the result for the year adjusted for non-cash operating items and changes in working capital.
Cash flows from investing activities comprise payments made in connection with the takeover and divestment of enterprises and activities and the purchase and sale of intangible assets, property, plant and equipment and other non-current assets.
Cash flows from financing activities comprise changes in the size or composition of share capital, subordinated debt, re-lending and distribution of dividend.
Cash and cash equivalents comprise cash as well as securities with a term to maturity of less than three months at the purchase date which can readily be converted to cash and are only subject to an insignificant risk of value changes.
Cash and cash equivalents consist of cash in hand and demand deposits with central banks, amounts due from credit institutions and central banks with remaining terms to maturity of less than three months and bonds with remaining terms to maturity of less than three months.
Segment information for the Group
Segment reporting is based on the internal operating segments applied in the management reporting which the executive operational management uses for resource allocation and follow-up on results. Segment information is prepared on the basis of the accounting policies applied by the Group.
Inter-segment transactions are settled on market terms. Costs incurred such as salaries, rent, depreciation, amortisation, etc. are allocated to individual segments based on direct and proportionate consumption.
There are three principal reporting segments: Bank Package activities, the Deposit Guarantee Fund under the Depositor and Investor Guarantee Scheme and the Resolution Fund.
Accordingly, the Group’s reporting segments are:
Bank Package activities
Bank Package I
This segment comprises the original Bank Package I activities.
Bank Packages III and IV
This segment comprises the former activities related to banks taken over under Bank Packages III and IV, i.e. FS Finans I (Sparebank Østjylland af 2012), FS Finans II A/S (Max Bank af 2011), FS Finans III A/S (Amagerbanken af 2011) and FS Finans IV A/S (Fjordbank Mors af 2011).
Counselling for mink farmers and administration of the government guarantee scheme for home loans in rural districts.
Deposit Guarantee Fund
This segment comprises Finansiel Stabilitet’s activities relating to the Deposit Guarantee Fund, which can be divided into four sub-departments: the Banking Department, the Mortgage Credit Department, the Investment and Portfolio Management Department and the Restructuring Department.
Resolution Fund
This segment comprises Finansiel Stabilitet’s activities relating to the Resolution Fund.
Segment information for the parent company
Finansiel Stabilitet comprises three principal reporting segments: Bank Package activities, the Deposit Guarantee Fund and the Resolution Fund, see above.