1 annual report 2010 Hypoteční banka, as

Transcription

annual report 2010
Hypoteční banka, a.s.
1
Mortgage
Yearbook
Contents
02
Who we are
05
The mortgage marke
t mir rors the econom
y
14 The mortgage
market in 2010
18 2010 in Hypot
eční banka at a glan
ce
20 Hypoteční ban
ka
34 Report of the
Board of Directors
40 Statutory bod
ies
42 Cor porate gov
ernance
45 Financial sec tio
n
1
Who we are
Mission
Vision
We are a profita
ble, modern an
d specialized
bank with a dist
inguished name
offering an
optimal spectrum
of mor tgage pr
oducts, in
particular in th
e field of financi
ng
real proper ty
intended for liv
ing of our custom
er
s. Thanks to
our professiona
l services and he
lp
fu
l approach
to clients and ou
r business partne
rs
we set the
tone in mor tgag
e banking.
Creed
We are
a fair
bank.
2
Annual Report 2010
We chleielpnts
our h ousing.
with
Values
› Sensibility
› Cooperation
› Openness
› Ambition
admiration
d
n
a
t
c
e
p
s
e
R
›
› Reliability
nd enjoyment
a
m
is
im
t
p
O
›
Profile
Hypoteční banka, a.s. was established on 10 January 1991. Its registered office is in Prague.
The Bank has 27 branches nationwide, of which 13 are regional. Hypoteční banka does not
operate any foreign branches. Since 2007 Hypoteční banka has been number one on the
Czech mortgage market in the segment of new mortgage loans for individuals. In addition,
it is a leader in the total volume of mortgage loans provided to individuals.
27
branches.
Brief history
Hypoteční banka, a.s., has been operating on the Czech market for nearly 21 years. In
the past 16 years it has specialized in providing mortgages and helping customers make
their dreams about a home come true. It was founded as a universal, regional commercial
bank. In 1994, Investiční a Poštovní banka, a.s. (IPB) became its majority shareholder
and the Bank again changed its name to Českomoravská hypoteční banka and moved its
headquarters from Hradec Králové to Prague. In 1995 it was awarded a license for issuing
mortgage bonds as the first domestic bank. Five years later, following IPB’s sale, ČSOB,
a.s., controlled by Belgium’s KBC Group NV, became the Bank’s new majority shareholder.
Hypoteční banka adopted its current business name in 2006 and has retained it to date.
Since 2009 ČSOB, a.s. has been the sole shareholder of Hypoteční banka.
17,010
17,439
39,636
28,443
28,629
119,813
136,759
145,070
2009
2010
2008
2009
2010
2008
2009
2010
Volume of receivables
due from clients
(in CZK million)
21,152
Volume of approved
mortgage loans
(in CZK million)
2008
Number of approved
mortgage loans
3
Who we are
ly
The on t in
lis
specia ch
e
the Cz
c!
Republi
Key operations
Hypoteční banka specializes in the provision of mortgage loans on the Czech market.
It provides mortgages predominantly to individuals. Its branch network offers banking
services related to mortgage financing; the Bank also maintains crown-denominated
current accounts pertaining to the provision and repayment of mortgage loans. Aside from
providing services through the branch network, Hypoteční banka also offers its products
in cooperation with strategic partners - ČSOB, Poštovní spořitelna and Českomoravská
stavební spořitelna. Hypoteční banka collaborates with a number of outside mortgage and
financial advisors. To finance its operations, the Bank issues mortgage bonds, executes
crown-denominated transactions on the interbank money market, and accepts crowndenominated deposits from major depositors.
4
Annual Report 2010
164,811
163,243
1,171
1,389
1,848
49.0
40.2
38.9
2009
2010
2008
2009
2010
2008
2009
2010
Capital adequacy
(in %)
138,177
Profit/loss after tax
(in CZK million)
2008
Balance sum
The mortgage
market mirrors
the economy
How did Hypoteční banka fare in the arduous year 2010, and what lies ahead of it in
2011? What was the real estate market trend in the Czech Republic and how is the market
expected to develop in the coming year? What is the trend of real estate prices? What
hurdles were financial advisors faced with and how important is their role for Hypoteční
banka? What is the anticipated movement of interest rates on mortgage loans? What has
been the most positive factor of the Czech mortgage market over its existence?
Four members of Hypoteční banka’s Board of Directors answer these and many other
questions on the following pages. We present expert opinions of experienced bankers:
Jan Sadil, Board of Directors Chairman and Chief Executive Officer; Petr Hlaváč, Board
of Directors Vice-Chairman and Chief Credit Officer; Vlastimil Nigrin, Board of Directors
member and Chief Business Officer; and Martin Vašek, Board of Directors member and
Chief Finance Officer.
15 years on market
the mortgage
Hypoteční banka has been a mortgage
specialist for 15 years. At the time of its
inception, mortgage loans were a marginal
option for most of home buyers. Hypoteční
banka has significantly contributed to
making this product play a key role in the
housing market nowadays.
5
The mortgage market
mirrors the economy
Jan Sadil: Our team does not shun hard work
What was the mortgage market trend in 2010?
It started at a slower pace than we anticipated, but the second half of the year surpassed
our expectations. We are satisfied, as the year unraveled quite well. For instance, the
volume of new mortgages reached exactly the projected level.
How do you see the mortgage market development in 2011?
This is always hard to predict. We are definitely going to face stiff competition, but we are
determined to retain our position of mortgage market leader. It won’t be easy, so 2011 is
certain to mean hard work, as every year. Fortunately, that is nothing new for us, we are
accustomed to working hard.
Financial targets
Market share
Number one on
the market
Was the past year successful for Hypoteční banka, and if so, what was key to the
success?
2010 was definitely successful for the Bank, in almost all respects. We met and even
surpassed financial targets, we managed well the current portfolio, we sustained a high
market share and the position of number one on the mortgage market. In particular I value
that the 2010 results show no segment where we would demonstrably fail.
Why is it so?
I believe it stems from our strategy and, of course, the performance of our staff who are
the foundation of our success. They have maintained long-term relations between each
other and with our business partners and clients, based on the Bank’s values. That is very
beneficial for all.
What have been the major changes in the mortgage market in the past 15 years?
I think everything has changed. Fifteen years ago, there were only four mortgage loan
providers and the mortgage market only began to grow. Today, there are 17 mortgage
lenders, and due to the maturity and knowledgeability of clients, the Czech mortgage
market has caught up with Europe’s developed markets. We are proud that Hypoteční banka
has helped to substantially shape and support the market from the very beginning.
Are you preparing any strategic changes?
No strategy is fixed and, similarly to other firms, we make some modifications from time
to time. But in principle, such modifications do not reroute our strategy. We have been and
want to remain a bank specializing in mortgage loans. That is the core of our operations.
What personally have you found most gratifying in 2010?
What is most gratifying for me is Hypoteční banka the way it is – our staff, our corporate
culture and the environment we share. I can’t forget an outdoor event organized for the
Bank’s entire staff, which was the best example of our team’s skills demonstrated not
just inside the Bank but also in a difficult terrain. That was a very enjoyable and strong
experience for me.
6
Annual Report 2010
1996
Looking back over the past fifteen
years, I can especially see a huge
amount of work carried out by all those who
actively influence living. I am happy that in
Hypoteční banka, we have jointly formed
a strong company with a recognized name,
a good partner for our clients and business
partners. Together with our strategic partners
from the ČSOB Group and other mortgage
providers, we have created a stable market
environment. Many companies and entities on
the construction market that influence not only
how people live in the Czech Republic, but also
what the Czech Republic looks like in general,
are very visible. And reflecting on this, I cannot
ignore our clients, whose satisfaction reflects to
a certain degree the success of our work. And
since I have an everyday opportunity to see
how we help our clients live, I can say the past
fifteen years have been good fifteen years.
And as regards myself personally, I have lost
some hair and gained several children,
but that’s the way life is .
Jan Sadil
Board of Directors Chairman
and Chief Executive Officer
2010
7
The mortgage market
mirrors the economy
Petr Hlaváč: Risk management based on prior years’
experience.
What major developments did 2010 bring in risk management?
The trend prevailing in 2009 continued throughout 2010. In terms of risk management, we
adopted a number of measures, specifically in the segment of loan approval, resulting in
tighter rules for provision of risky mortgages. With hindsight, we can say that we took a step
in the right direction and we intend to preserve a more prudent approach in the future.
Real estate
price index
HB INDEX
One of the frequent topics was stabilization of real estate prices. What trend did
you see in 2010?
Last year surely saw an overall stabilization of real estate prices. Although the end of 2009
indicated that the prices of properties would continue to fall, the reality turned out more
favorable and the price decline has stopped. This trend has been proved by our structured
data; for a year we have been monitoring the real estate price index. Some segments
do show a decrease, but a very small one. Conversely, prices of land plots grew last year.
What are your expectations for the coming years?
That’s a very complex question. It remains to be seen whether real estate prices will be
impacted by the scheduled change in the VAT rate and the related acceleration of demand
for new properties. On the whole, real estate prices are likely to remain stable with slight
growth potential.
What about the debt collection process?
Two years ago we created conditions for a total overhaul of the debt collection process and
last year was instrumental in terms of implementing these changes. We focused in particular
on late collections and we set up a new team composed mainly of attorneys specialized in
debt collection. The first results show it was the right approach to the problem.
What changes has risk management undergone in the past five years after you
joined Hypoteční banka?
Quite a lot has changed. The key changes ensued from the implementation of Basel II
standards that led to using scoring systems, models for determination of expected credit
losses. In addition, we have improved the methodology of creating provisions against risks,
credit losses, etc. These are the practical benefits of the implementation of Basel II in the
bank risk management. In the future, we can expect a continuation of this process through
implementation of Basel III that will also reflect the experience of the recent financial crisis.
8
Annual Report 2010
Petr Hlaváč
Board of Directors Vice-Chairman
and Chief Credit Officer
1996
Looking back over the past
15 years is so interesting.
Fifteen years ago I had no clue what credit
risk was, while today I am fully responsible
for it in Hypoteční banka. Fifteen years
ago I played the guitar occasionally at
a bonfire or on a hiking trip or the piano at
home and was not thinking about playing
with a band. Today, we play big beat with
Hypoband almost regularly and have
a rather large audience (from Hypoteční
banka ). Fifteen years ago I had no
children, and today I have four. Fifteen
years ago I had a lot of hair, and today
there is not much left.
2010
And I could go on. I think that much has
changed with and around me. But many
things have remained the same – I still
like my work, just like fifteen years ago
I enjoy working with people and feel
happy when they are satisfied,
be it colleagues in the bank, our
clients, partners or my family.
9
The mortgage market
mirrors the economy
Vlastimil Nigrin: Cooperation with independent financial
advisors is instrumental to distribution
What was the past year like in terms of the sales network?
Our branches focus on cooperation with outside partners, therefore the conditions on the
market of financial advisors had an impact on branch operations. We sold more mortgages,
insurance policies and open accounts year-on-year. We have considerably strengthened
our branch network by opening a new regional branch in Prague 5 that has been very
successful from the start. The Prague market is of key importance for us. We have also
executed positive changes in Mladá Boleslav, where we expanded the sales premises, and
in Znojmo, where we opened a brand new branch.
Great
success!
How did 2010 turn out in view of independent financial advisors?
It was a successful year for them, too, as the mortgage market went ahead full speed in the
latter part of the year. A year-on-year increase recorded in total mortgage loans sparked
optimism among the intermediaries. FINALLY, I’d like to add, since the years 2008-2009
had not been easy for independent financial and mortgage advisors and there were huge
fluctuations. But 2010 showed stabilization in their ranks and zeal to launch new projects.
Has the role of advisors changed in any way since the beginning of the mortgage
market?
Of course it has, and in a profound way. Originally, using intermediaries in distribution of
mortgage loans was not part of the plan. But gradually there were entities that established
themselves by specializing in a specific market segment, such as the developers segment.
Similarly to the insurance and building savings market, or pension funds, financial advisors
have been increasingly active in the mortgage business and nowadays are an integral
part of it. They are in an excellent position to assess offers of more banks, which provides
considerable added value to potential mortgage clients. Experienced sales representatives
are equally important for us, bankers. We confer with them about the processes and
specifications pertaining to our banking products.
Are you designing some new products for them?
Part of our strategy is the slogan: A Partners’ partner. Just so it doesn’t stay on paper only,
in 2010 we launched an extensive Partners’ Partner Program (PPP). We have seen the first
results this year already, such as new “Hypolisty” for external advisors, the continued
segmentation of sales agents, new benefits, working with feedback, and receiving fewer
complaints about commission payments. We are preparing another improvement of
mortgage loan processing. These are not changes conceived at the headquarters, but
based on field work and meetings with the best advisors, which tend to be very open
and inspirational. Cooperation with intermediaries continues to be instrumental to our
distribution network.
10
Annual Report 2010
In 1995, the Czech mortgage market was born again,
accompanied with the emergence of mortgage providers and
their clients. The picture would not be complete without mortgage
agents. And synergies – offers from banks, demand by clients and
services of financial brokers – have shaped the mortgage market into
the form we know now. The product portfolio has grown significantly,
interest rates have repeated their natural cycle several times, and
the quality of customer services has increased in corporate offices as
well as among independent financial advisors and agents. Along with
the changing bank offer and client preferences, the organization and
method of work of mortgage advisors have been changing as well.
Those 15 years have been interesting but what matters most is today.
I am sincerely happy that the possibilities offered to clients today are
huge, from product and service parameters to client services. There
are banks and their offices. There are highly specialized as well as
universal consultancies. There are smaller firms, mostly with a regional
reach. There are also advisors – individuals. And there are direct client
services provided by phone and electronic media. I am convinced that
clients can get the best information anywhere, helping them create
a good picture of the rather complex area of mortgages, so they could
make an informed decision on the funding of their new
living. And I am happy that Hypoteční banka is able to
combine all these types of client services wonderfully.
1996
2010
Vlastimil Nigrin
Board of Directors member
and Chief Business Officer
11
The mortgage market
mirrors the economy
Martin Vašek: People have regained confidence in
reasonable indebtedness
What do you think was the principal driver of the mortgage market last year?
In a sense, the mortgage market mirrors the economy, and so it was heavily influenced by
the improved outlook regarding the economic development, stabilization of the previous
GDP drop, and an end to unemployment growth. Pessimism disappeared, interest rates
fell, and the banks were more inclined to provide loans. What is of equal importance
that people regained confidence in reasonable indebtedness, and it all contributed to
the positive trend in the mortgage market as a whole. As for interest rates, their decline
slowed in the fall and almost ceased at the year-end. It is only logical as the price of
longer-term monies began to rise in October and with it the banks’ expenses related to
refinancing.
What trend in interest rates on mortgage loans do you expect in the coming year?
We do not have any crystal ball in Hypoteční banka, but it appears there is no more room
for a further drop in interest rates. Base rates of central banks have fallen to an all-time
low and inflation pressures will force the banks to respond and raise the rates again. The
interaction between base interest rates and mortgage loans is fairly loose, but the price of
longer-term monies has been rising for weeks now. As a result, interest on mortgage loans
is likely to go up.
What are Hypoteční banka’s sources of funding?
Our funding mix has not undergone any substantial changes since 2009. Our primary
financial sources are acquired from long-term issues of mortgage bonds, which are
a secure and much sought-for source of revenue for investors and a well-proven funding
source for us. After all, we are the leading provider of mortgage loans and also the leading
issuer of mortgage bonds. In addition, we get funding from interbank loans and interbank
deposits, primarily from the parent ČSOB Group.
What do you think was most beneficial for the Czech mortgage market during its
15-year existence?
I think the mortgage market benefited most from the wide popularity of mortgage loans
among the clients. The public has come to appreciate mortgages as they found out it
was the best method to finance their homes and fulfill their dreams. That has been
a fundamental change in the public perception that has thoroughly transformed the Czech
mortgage market.
12
Annual Report 2010
1996
Fifteen years ago I was leaving the happy
secondary-school years and was entering the
uncertain waters of real life. When I later worked
and travelled overseas, which is something I would
recommend every young student to do, I would have
never thought that my career would be linked to the
ČSOB Group and Hypoteční banka. Actually, I couldn’t
have, the green logo was not even born yet.
I knew for sure that I was interested in finance and
my professional steps would be in this sector. Looking
in hindsight, I am happy that the Czech banking
and financial world can be boldly compared to welladvanced financial markets. And it was this stability
of the Czech banking sector that helped the Czech
economy sail through the waters of the economic crisis
successfully.
And I believe the sails of the Czech banking and
mortgage funding markets will catch good winds even
in the years to come. Among many other
positives, this would especially benefit our
clients.
Martin Vašek
and Chief Finance Officer
2010
13
The mortgage
market in 2010
In 2010, the Czech mortgage market was still impacted by the economic crisis of the
previous year. Notably the initial months of the year saw a year-on-year decline in the
number and volume of mortgage loans provided. Despite mortgage loan providers’
apparent interest in lending, media coverage in particular and the related reduced client
appetite for borrowing contradicted customer demand. In the first quarter of 2010,
mortgage lending fell by 10% year-on-year. The decline in provided mortgage loans got
reversed in May 2010 when the volume of new loans showed year-on-year growth. This
was not a short-term change, but the growth trend continued throughout 2010. The
second quarter ended with a slight increase of 2% year-on-year in the volume of provided
loan mortgages, which jumped to 26% in the third quarter and to a fast growth rate of
44% in the last quarter of 2010. This accelerated growth at the year-end stemmed from
a number of factors, primary from an increased demand for new homes and the low
comparison base in the end of 2009.
r-end
The y ea cessful.
was suc
The 14-day repo rate announced by the Czech National Bank (ČNB), which serves as an
indicator of the interest rate level in the national economy, fell by 25 percentage points to
0.75% in May 2010. However, the repo rate has no immediate impact on the real interest
rates on mortgage loans. The rate stayed at the all-time low for the rest of 2010. In the
course of the year, interest rates applied to newly provided mortgage loans kept falling,
primarily due to promotional events introduced by mortgage providers. According to
Hypoindex statistics, in January 2010 new mortgages were provided at an average market
interest rate of 5.52% p.a., whereas in December 2010 the rate fell to 4.23% p.a. The pace
of the interest rate tumble fluctuated during the year, but toward the end it slowed down.
According to Ministry for Regional Development statistics, the total volume of new
mortgage loans amounted to CZK 84.8 billion in 2010, representing 15% year-on-year
growth. The number of new mortgage loans also grew by 15% to a total of 50,775.
The average mortgage loan remained almost unchanged in 2010 at CZK 1.67 million.
In terms of the volume of new mortgage loans provided, 2010 was the fourth most
successful year in the 15-year history of the Czech mortgage market.
In 2010, Hypoteční banka sustained the leading position on the market of new mortgage
loans. The Bank’s market share stayed above 30% for the entire year and accounted for
31.9% at the year-end. Komerční banka was number two provider of mortgage loans
on the Czech market with a 23.2% market share recorded at the end of 2010. The third
largest provider of new mortgage loans in the Czech Republic was Česká spořitelna with
a 17.1% market share at the end of 2010. The sum of market shares of the four leading
providers of mortgage loans in the Czech Republic was 86.6% at the year-end, according to
the statistics of the Ministry for Regional Development.
14
Annual Report 2010
Since the average interest rate on new mortgage loans in 2009 climbed above 5% p.a.,
in 2010 young people aged up to 36 could continue to apply for state subsidies for new
mortgages. The subsidy amounted to 1 percentage point of the interest rate and was
granted for purchases of older houses or apartments. The financial support is limited to
a maximum amount of CZK 800,000 for an apartment purchase and up to CZK 1,500,000
for a home with one housing unit. In 2010, state subsidies were applied to some 1,561
mortgages and applicants received in excess of CZK 2 billion.
Number one
on the market.
Since the start of mortgage lending by banks in the Czech Republic, Czech citizens
received 501,545 mortgage loans totaling CZK 748.3 billion, statistics of the Ministry for
Regional Development show. The amount of due principals of mortgage loans provided to
individuals totaled CZK 481.1 billion at the end of 2010, and the amount of due principals
of mortgage loans provided to individuals for housing totaled CZK 426.4 billion, says
the same source. At the end of 2010, Hypoteční banka topped domestic mortgage loans
providers with a 28.4% share in due principals of mortgage loans provided to individuals,
and a 29.9% share in due principals of mortgage loans provided to individuals for housing.
others
No major changes in refinancing mortgage loans were made in 2010. Pessimistic forecasts
that clients who took out mortgage loans in the strong years 2005-2007 would en masse
seek refinancing of their loans with other banks did not come to pass. Conversely, it was
apparent that the proportion of refinancing remained stable and that mortgage providers
offered their clients fair business terms and services.
Real estate prices stabilized in 2010. In some locations, real prices of selected properties
fell, and in other locations prices rose. The overall trend in real estate prices can be
described as either stagnating or stabilizing. In the second quarter of 2010, demand for real
estate began to slightly grow.
The product offer in the segment of mortgage financing did not change significantly in
2010. Some providers introduced products with variable interest rates, but a bulk of new
mortgage loans had fixed interest rates, most frequently for three or five years. In 2010,
some lenders picked up some pre-crisis practices and included riskier products in their
product portfolios, such as loans with a 100% collateral value, mortgages without proof of
income, etc. The current product offer of mortgage loans in the Czech Republic is so broad
that it meets all customer requirements pertaining to home financing.
Building savings loans, which in some respects compete with mortgage loans, saw higher
interest rates in 2010, mainly interests on bridging loans, whereby the number and volume
of provided building savings loans declined by 12% year-on-year. In total, 113,611 nonbuilding savings loans were provided in 2010 in the amount of CZK 57.8 billion.
At the end of 2010, there were 17 banking entities providing mortgage loans in the Czech
Republic.
2010 marked 15 years from the actual start of mortgage financing. Mortgages had been
subject to dramatic changes during that time, stemming from regulatory bodies, mortgage
lenders and, above all, customers. A safe and comfortable home is every person’s dream.
It need not be a home in their ownership because rented homes have always been an
available alternative to purchased homes. Nonetheless, purchased homes are becoming
increasingly popular.
15
The mortgage market
in 2010
Hypoteční banka took part in mortgage financing right at the start, at that time under the
name Českomoravská hypoteční banka, which was one of the first local banks to obtain in
September 1995 a license to issue mortgage bonds. Hypoteční banka showed the direction
to other Czech banks and, over the past 15 years, has been the trend-setter in mortgage
banking. In this period, major changes have been introduced and applied to the product
and service offerings, interest rates, customer service, the quality of advisory, amount of
required documentation, time needed for mortgage approval, average amount of mortgage
loans, and the number and volume of provided mortgage loans. The highly competitive
environment of the Czech mortgage market has contributed to shaping the changes that
benefited, most and foremost, the clients.
In some adjusted data, such as the amount of mortgage loans per capita or the ratio of the
mortgage volume to GDP, the Czech mortgage market still lags behind Europe’s developed
countries. These shortcomings result from the short span of the market’s existence. On
the other hand, the pace of catching up with the developed European markets is sufficient
evidence that the Czech mortgage market is functional and even inspirational for other
European and global markets. The positive phenomenon in the Czech mortgage market’s
history is that it has not experienced any major shake-ups and that the real estate market
has not been impacted by an unnatural price development and bubble creation. All this
demonstrates the outstanding quality of the mortgage environment built jointly by
mortgage loan providers, independent financial advisors, clients and the broad professional
community.
Selected mortgage loan
indicators for 1995 vs. 2010
1995
loans to
ortgage
LTV ratio
M
rate
Interest
olume
Market v
ed
of requir
Number ts
n
e
docum
period
approval
Average
cts and
of produ
Number
indicators
max. 70%
ca. 11%
1.17*
ca. 10
ne
within o
month
ng
ing, includi
ed for hous
loans provid
*Mortgage
s
legal entitie
4
2010
Mortgage loan
s to LTV ratio
Interest rate
Market volum
e
Number of re
quired
documents
Average appr
oval period
Number of pr
oducts and
indicators
100%
ca. 4.5%
58.9**
ca. 6 (4)
within one w
eek
28
**Mortgage loa
ns for 1-3Q
16
Annual Report 2010
1996
Lada Henclová
Independent mortgage advisor
Looking back at the past fifteen
years, I realize with joy that those
years have been happy, full of new
experience and learning as the financial
sector has been changing.
I have been working in financial consultancy
since 1994; in 2002 I linked my professional
career with Hypoteční banka because
I found the professional and forwardlooking approach to clients as well as to us,
sales agents, very appealing. This balance
has survived until now and is one of the
reasons why my work has also become my
hobby and pastime. A bank, it is not just
excellent methodology, top-quality variable
products, fast-paced processes and perfect
PC programmes for sales personnel; a bank is
especially a team of people. And if everything
works fine within the team, we can fund each
client’s living with a smile.
2010
For me, a satisfied client is the biggest
motivation for further work, and
Hypoteční banka is simply very dear
to me.
17
2010 in Hypoteční
banka at a glance
1
2
3
4
5
Valentine mortgage
6
Spring advertising
campaign
Forming the Marketing
Analyses department
Zlatá konference
(Gold Conference)
spring mortgage
Hypotéka po webu
Opening the Prague 5 branch
15 years of Hypoteční banka – corporate events
1995
1998
-Bank is awarded an operating - Change of strategy
license
– end of corporate
-Bank is licensed to issue
lending, focus on FO,
mortgage bonds
municipalities and
-Bank is transformed into
housing co-operatives
a specialized bank (13 branches
+ 150 IPB branches)
18
2005
2007
2009
- Change of name to
Hypoteční banka and
company logo
-ČSOB becomes a 100%
shareholder
- Mortgage of the Year
award
-Production up 44% year-on-year - Mortgage of the
-Bank becomes No. 1 in the volume
Year award
of new loans
- Mortgage of the Year award
1996
2003
2006
2008
2010
- First 1997 mortgage bond
issue
- Market share exceeds 50%
- Jan Sadil appointed
Chairman of the Board
of Directors and Chief
Executive Officer
-Launch of the multibranding concept
-Strategic target set out
to regain No. 1 position
in new mortgage loans
-Bank adopts the
Mortgage Code
-Best-quality client
service according
to a Market Vision
survey
- HB’s website places
first in its category in
WebTop100 for the third
time in a row
- 2010 Hypotéka po webu
scores in the Bank of the
Year contest
Annual Report 2010
7
8
9
10
11
Fee holiday
3 years since moving to new
Radlice headquarters
12
Bank-wide
outdoor event
Autumn advertising campaign
Hypoden for the second time
Company website wins
a WebTop100 award
Mortgage of the Year award
in the Bank of the Year
competition
New model of client lending
Opening show of photographs
from the Bank-wide outdoor event
Christmas party
Implementation of an
amendment to the Consumer
Loans Act
15 Years of Hypoteční banka – Product events
2001
2003
2005
2007
- P-plus
introduced
tied to
PRIBOR
- E-archive launched
(electronic
document
administration)
- Mortgage loan without
proof of income launched
- Special mortgage for
foreigners launched
- Hypotéka on-line launched
- Solvency insurance offered
- Principle of guaranteed rates equal for all clients introduced in
September
- Free remote access to the Real Estate Cadaster
2002
2004
2006
2008
2009
- 100% mortgage
- Mortgage loans
Progres and
Degres
- 3-year, 10-year and 15-year
fixations offered
- American mortgage
- Mortgage for co-op housing
- Free 30-day interest rate
guarantee introduced
- Fee-free mortgage loan
- Express fee cancelled
- Express apartment
valuation offered for
free
- Unit-linked mortgage
introduced
- Hypotéka po webu
launched
- New service: Extra 10%
installment allowed
19
Hypoteční banka
Unambiguously, 2010 was a year of success for Hypoteční banka. The targets it set
out were met: the Bank effortlessly retained its position of the largest provider of new
mortgage loans and reaffirmed its leadership in overall mortgage lending. Hypoteční banka
maintained the top place on the mortgage market not just on the national scale, but
also in all regions of the Czech Republic. Its business policy of multi-branding has proved
to be both unique and effective. The most significant synergic effects of multi-branding
are sufficient market coverage, exploitation of business opportunities, and ensuring
satisfaction of clients, employees, business partners and shareholders. Hypoteční banka
has been fully entitled to dub itself the Mortgage Number One.
Multi-branding
In 2010, the multi-branding policy centered on collaboration with strategic partners of the
ČSOB Group. Hypoteční banka provides mortgage loans through its own branch network
with nation-wide operations. Hypoteční banka’s branches provide services to end clients
and external business partners. In addition to traditional distribution channels, the Bank has
been developing direct sales via the Internet, namely a product marketed under the name
Hypotéka po webu (Mortgage via web). Strategic partner brands, including ČSOB, Poštovní
spořitelna and Českomoravská stavební spořitelna (ČMSS), provide mortgage loans through
their own sales networks, whereby Hypoteční banka backs them as a specialized mortgage
“factory”. This business model was further developed in 2010 with the aim to boost quality
and effectiveness of the business partnerships.
20
Annual Report 2010
To meet the ambitious business and financial targets, Hypoteční banka had to work hard
in 2010. The pace of the mortgage market accelerated only gradually and did not show
comparable growth until the second half of the year. As a market leader, Hypoteční banka
was challenged by tough competition from an array of mortgage providers. In their effort to
get a larger chunk of the mortgage cake, both minor and traditionally strong players adopted
an aggressive pricing policy and reduced interest rates. Thanks to its staff, Hypoteční banka
succeeded in this complex game by offering a high-quality product range meeting all needs
of home financing. The employees’ expertise, experience and motivation helped develop
long-standing cooperation with business partners based on mutual trust, reliability and
transparency. Without its employees, Hypoteční banka would never become number one in
the sector and a valued specialist providing top services to its clients and business partners.
Products
In 2010, Hypoteční banka’s product portfolio was not significantly modified. The Bank
emerged from the crisis period of 2008 and 2009 without any major reduction in offerings,
which was highly appreciated by both clients and business partners. It is understandable
then that, at a time when the economy began to recover and grow again, Hypoteční banka
has retained the portfolio unmodified. The Bank offers an optimum range of mortgage
financing products providing clients and business partners with comfortable solutions to
all home financing needs. This approach is one of the facets of specialization that sets
Hypoteční banka apart from competition.
A mortgage loan is a medium- to long-term loan, repayment of which including interest
is secured by a lien placed on a property, including a property under construction.
The mortgage loan may be used for purchase, renovation or construction of real estate,
settlement of property ownership pertaining to real estate or a share in a co-operative,
and transfer of membership rights and obligations or repayment of a membership
stake (co-operative share). In addition, Hypoteční banka offers an option of combining
a mortgage loan with capital life assurance, unit-linked insurance or investing in securities.
A non-purpose-tied mortgage loan, so-called “American mortgage”, can be used for any
purpose.
Hypoteční banka as a specialist offers clients a broad range of optional parameters
to choose from, such as mortgage amount, type of repayment, type of mortgage,
etc. Mortgages are provided for up to 70%, 85% or 100% of the value of real estate.
Another option is Co-operative housing mortgage, i.e. a purpose-tied loan for purchasing
a co-operative share or renovation of a co-op apartment. In this case, collateral must
always be real estate other than the mortgaged real estate. Another product, Mortgage
without proof of income, does not require the applicant to submit standard documents
to prove income enabling loan repayment. When choosing the No-fee mortgage, the
customer is not required to pay the fees related to loan execution and administration as
these are reflected in the interest rate and may be included in tax deductions.
5 %, 100%
8
,
%
0
7
LTV
quent
Most fre
Clients may also choose various types of repayment, such as classic annuity installments,
progressive or degressive repayment. A frequently used supplementary product is Nonpurpose part of a mortgage loan which, together with a mortgage, allows a certain
amount of funds to be obtained for non-specified purposes at the same interest rate. The
client may repay this part to the bank anytime with no sanctions, pursuant to the Act on
Consumer Loans.
21
Hypoteční banka
Organization
Hypoteční banka’s organizational structure has been relatively stable. A new Marketing
Analyses department was set up in 2010 with the aim to gather, analyze and assess
information on market conditions and Hypoteční banka’s client portfolio. Another newly
formed department, Lending Policy and Risks, is in charge of methodology support and
oversight of product and service risks. In June 2010, Hypoteční banka opened a second
Prague regional branch (Prague 5) to improve services for clients and business partners.
The foregoing organizational changes evidence Hypoteční banka’s focus on paying
increased attention to clients, business partners and risks.
Risk management
In the risk management area, Hypoteční banka benefited from the changes initiated
in the previous years. Forming a new department, Lending Policy and Risks, expanding
the capacity of departments involved in risk transactions, restructuring debt collection
processes, and quality system and application support were only a part of internal
measures that were necessary to adopt for improving the loan portfolio quality. Regular
monitoring and predictive management of all inherent risks is one of the cornerstones
of every bank’s operations, particularly in the current volatile economic conditions.
A targeted identification of potential risks provides early warnings and allows avoiding
potential threats to the Company. For the foregoing reasons, Hypoteční banka places
an emphasis on identifying, monitoring and eliminating business risks. All measures and
processes pertaining to risk management are governed by a Board of Directors-approved
and annually updated Risk Management Strategy, which is described in more detail in the
Company documents.
For its internal needs, Hypoteční banka groups risks it encounters in its business operations
into several categories: credit risk, interest rate risk, liquidity risk, operating risk, market
risk and concentration risk. With regard to Hypoteční banka’s product portfolio and typical
market segments, credit and interest rate and operating risks are the critical risks.
Risk identification, ongoing monitoring and assessment is performed by specific
departments of Hypoteční banka, namely the Collections department, the Risk
Management and Compliance department, and the Lending Policy and Risks department.
The Finance Management department is the executive section for active balance
management. The Board of Directors receives regular reports on the Bank’s actual risk
levels.
The Bank’s credit risk and its management are assigned to the Collections department
and the Lending Policy and Risks department, which primarily work to prevent the
occurrence of credit risk. The Collections department also administers and settles
classified receivables. Close cooperation of the Collections department with the Bank’s
other departments helps improve the credit process in the long run and mitigate the risks
arising from the Bank’s business operations. Reports on the credit portfolio risk levels are
regularly discussed at meetings of the Board of Directors and the Supervisory Board. In
addition, Hypoteční banka works closely with ČSOB and KBC in managing credit risk.
The no less critical interest rate risk arises from unpredictable fluctuations of interest
rates on the financial markets, which may result in a sudden drop in interest income due
to a different time structure of interest-sensitive assets and liabilities. Hypoteční banka
monitors its interest rate risk exposure with the help of the BPV index method derived
from the ČSOB Group methodology. In 2010, the Bank used solely internal hedging to
22
Annual Report 2010
Fifteen years is a rather long time in the life of a man as well
as that of a company. Over fifteen years, a newborn grows
to be a secondary-school student. Over fifteen years, Českomoravská
hypoteční banka has become a mortgage market leader, a specialized
banking institution whose importance reflects not only the balance
sum, but in particular the formation and development of the Czech
mortgage market.
Thinking back 15 years, I am happy I had the chance to personally
witness the formation of the new mortgage market in the Czech
Republic, at that time as the Assistant Director of Mortgage Trading
in Agrobanka Prague. Work for Českomoravská hypoteční banka had
a profound impact on my professional career.
Without the work and activity of all people working in Hypoteční
banka in the past as well as at present, the Czech mortgage market
would not look as we know it now. Without clients, who trusted
Hypoteční banka with their huge decisions influencing their whole
lives, and without cooperation with external partners, Hypoteční
banka would be much different from what it is now.
1996
I wish Hypoteční banka many satisfied clients and partners as well as
active, creative and satisfied customers and shareholders. And also
much business success, endurance, humility and resolve to be the
best in the mortgage market competition in the future.
A secondary-school student will then become the student
of a mortgage university of Central European importance.
2010
Jan Kruntorád
Chief Executive Officer
and Board of Directors Chairman
GEPARD FINANCE a.s.
23
Hypoteční banka
manage and sustain an acceptable level of interest rate risk, consisting mainly of making
an active impact on the volume and time distribution of items in balance sheet liabilities
and assets so as to ensure the tightest possible correlation of interest-sensitive assets and
liabilities in specific time zones.
Liquidity risk is less critical for Hypoteční banka, which focuses on ensuring liquidity for
redeeming mature mortgage bonds and other resources used for loan refinancing. To
monitor liquidity risk, Hypoteční banka uses the cumulative liquidity GAP and, at the same
time, set liquidity crisis parameters are being calculated to indicate the Bank’s liquidity
status. As a rule, client deposits are not accepted (with the exception of deposits by major
depositors and deposits serving to secure credit products); similarly, standard payment
services are not provided to customers. The Bank’s branches focus primarily on commercial
activities (provision of new loans, information, etc.), thus there is no risk of a sudden
outflow of deposits.
Operating risk permeates across all operations of the Bank and, according to the definition,
is comprised of losses resulting from inadequacy or failure of the internal processes,
the human factor, or the Bank’s systems, or the risk of losses due to outside events,
including the risk of losses due to a breach of or non-compliance with legal regulations.
All Bank employees are obligated to strictly observe the set in-house rules and regulations
and conduct themselves in a way to prevent possible losses. In addition, they are obligated
to report operating risk exposure events to the relevant department. The operating risk
agenda is centrally managed by the Risk Management and Compliance department, which
monitors all reported risk occurrences and provides methodological support. In selected
departments with high-level exposure, LORMs (Local Operating Risk Managers) were
appointed who are responsible for monitoring exposure to and identifying operating risks.
The LORMs also collaborate in dealing with other specific tasks pertaining to operating risk.
Naturally, the Bank is faced with other types of risks in conducting business, e.g.
business and strategic risks. Business risk entails the risk of a sudden significant drop in
market opportunities and a subsequent decline in revenues. Strategic risks may result in
permanent changes to the Bank’s organizational structure or to its position on the financial
and real estate markets. Other risks include risk of loss of good reputation, risk of tax
system changes, and real estate-related risks. All these risks are closely monitored and
managed by the Board of Directors.
Hypoteční banka has no exposure to market risk, i.e. the risk of loss of the business
portfolio as a result of price, exchange rate, and financial market rate changes, since it does
not maintain a business journal and all its transactions are denominated in Czech crowns.
The value of the credit portfolio quality in 2010 was comparable with the average values
of the financial market as a whole. The good results achieved by Hypoteční banka prove
that the measures adopted and planned in the risk management segment have been
adequate.
24
Annual Report 2010
Hypoteční banka brandname
Fifteen years ago, mortgage loans were of marginal interest for both customers and
professionals. Hypoteční banka played a key role in boosting the demand for home
financing. After shortening its business name and focusing on target groups, the Bank
continued its effort to improve the public awareness of mortgage loans.
The growing popularity of mortgage loans goes hand in hand with the increasing
awareness of the Hypoteční banka brand, which in 2010 reached a level comparable
with strong banking organizations providing universal services. The mortgage specialist
brand has earned an even higher prestige with the professional business community
– independent financial advisors and intermediaries. Contributing to this success were
targeted advertising campaigns utilizing proven media formats and also some lesstraditional communication models, specifically digital media. Hypoteční banka’s website
won an award for the best web design in the prestigious WebTop100 competition four
times in a row. In addition to awards won in segment categories, Hypoteční banka also
scored a number of prizes for implementing specific marketing instruments boosting
business, notably Hypotéka po webu, which in 2010 was subject to more innovations
streamlining the process of mortgage loan application via the Internet.
4X excellent
success!
Hypoteční banka is perceived as a specialized, customer-friendly and trustworthy bank. Its
typical graphic design using illustrated images for communication with clients, business
partners and the broad professional community aptly presents the Bank’s services
and highlights its specialization. The green color, as one of the permanent features of
Hypoteční banka’s communication style, reaffirms the perception of the Bank as a fresh
and modern organization. A strong brandname has been one of the pillars of Hypoteční
banka’s business success.
2005
2009 First online
mortgage
25
Hypoteční banka
Employees
1!
We are No.
Staff is the pillar of every successful company. This applies to Hypoteční banka as well.
A stable and well-coordinated team of mortgage specialists is backed by the Bank’s clearly
formulated and communicated basic principles. The mission and vision of Hypoteční banka
has been in force for more than five years and an overwhelming majority of the employees
are not just familiar with them, but frequently applies them. In 2009, Hypoteční banka’s
values were added that became natural guidelines for day-to-day work.
To make the set of basic principles complete, in 2010 Hypoteční banka updated its strategy
for the next three years. The strategy devised in 2006 for the 2007-2009 period was fulfilled
in all key segments. A revised strategy for 2010-2012 does not fundamentally differ from
the previous one. Hypoteční banka will continue to provide mortgage loans for individuals’
housing needs, it aspires to remain the market leader, and it will focus on its external staff,
external partners, new and current clients, and employees. In addition, Hypoteční banka
will conduct business with the objective to increase the Bank’s value. Although the strategic
targets have not changed significantly, it is crucial that in 2010 the Bank’s strategy was
conveyed to all employees in a clear and entertaining form of a short film, in which the
Bank’s management evaluated the recent period in terms of meeting strategic targets and
introduced a strategy devised to facilitate achieving the set goals in the coming three years.
As good strategy has to cover the entire organization, the film showed specific strategies for
the Bank’s individual departments. The employees thus received comprehensive information
about what’s ahead for Hypoteční banka. In the spirit of the corporate culture comprising
openness, sensibility, cooperation, reliability, ambition, respect, recognition, enjoyment
and optimism, representing Hypoteční banka’s characteristic values, all employees had an
opportunity to speak with members of the Board of Directors. The spontaneity of the debate
was evidence that the Bank has truly adopted these values and that its strategy is what
Hypoteční banka’s staff inherently trusts and what provides an invaluable guidance for them
in their everyday work.
Training is an ongoing employment policy priority. Employees have access to a variety of
specialist training sessions, organized through its in-house lecturers or outside contractors,
workshops, conferences, language courses, etc. The comprehensive training system
comprises standard forms of developing professional, character and management skills. Aside
from training, Hypoteční banka supports fostering team collaboration through organizing
informal retreats and after-work meetings.
Part of the employee benefit program offered to the Bank’s employees are practical benefits,
such as access to discounted financial products and services of the ČSOB Group and partner
suppliers. Also within the employee benefit program, increased attention is being paid to the
employees’ health. The Bank offers preventive health care provided by a contractual medical
facility, distributes vitamins and financially contributes to massages for the staff.
To strengthen the values of Hypoteční banka, it is important to seek activities that clearly
declare and manifest those values. As in previous years, in 2010 staff members could openly
provide feedback through the co-called Evaluation 360. Several online chats were conducted
with management. Traditionally, a Christmas party was held at the end of the year in
a friendly and informal atmosphere. A music group Hypoband, composed of the Bank’s
employees, performed at the party.
An extraordinary experience for more than half of Hypoteční banka’s employees was an
outdoor event organized for the entire staff. This time it had a philanthropic mission and
comprised volunteer work. In September 2010, 250 Bank employees lent a hand to improve
the surroundings of the Brno state castle Veveří. For two days they worked with shovels and
26
Annual Report 2010
1996
I remember very well what was going
on fifteen years ago because I had just
finished my studies and graduated
from the Faculty of Operations and Economy at
Mendel University of Agriculture and Forestry
in Brno. In September 1996 I started working as
an assistant auditor in KPMG, where I worked
in several positions on audits of manufacturing
and trading companies, mostly with Germanspeaking owners.
I came to Hypoteční banka in 2004, three
months before its name was “truncated”, to
work as an internal auditor. Since March 2005,
I have been in charge of internal audits for
the whole bank. I am happy to be employed
by Hypoteční banka – a successful, open bank
with a great approach to people.
Apart from work, a lot has changed in my life –
I have changed my surname, my husband and
I have taken a mortgage and bought
a family house, and so on :-).
Jitka Narovcová
Director of Internal Audit
2010
27
Hypoteční banka
pick-axes to trim the green space around the castle, remove weeds and wild bushes. The joint
mission not just fostered the team spirit and was good fun, but also helped prepare a slope
adjacent to the Castle for sowing grass. Hypoteční banka also made a financial contribution
to renewing the grass area around the castle. It was the first major joint volunteer activity
organized by the Bank for its employees, and it was a great success.
Partners’ Partner
Cooperation between Hypoteční banka and its external business partners has been almost
as long as the Bank’s history. It is one of the pillars upon which Hypoteční banka’s current
market success is built. As mortgage is a fairly complex financial product, Hypoteční banka
provides its employees and external business partners alike with top methodological
support, which is instrumental in processing the most complicated business deals in
a swift manner and in utmost detail. First, outside partners are regularly trained in the
area of mortgage financing products. In addition, training sessions are organized in regions
to make them accessible for all sales agents directly at the locations of their operations.
Aside from training, Hypoteční banka also maintains a methodology support hot line.
Hypoteční banka pays increased attention to communication with external partners.
Personal relations of branch managers, directors of the headquarters’ specialized
teams and top management are backed by an online portal offering external partners
a host of practical guidelines for making the most of business potential. The best sales
representatives gather at a number of joint events organized by Hypoteční banka with
the aim to present key information from its day-to-day operations, mortgage market and
economic trends.
To boost the effectiveness of business collaboration, all Hypoteční banka’s business
partners are grouped into segments reflecting their needs and market position. Specialists
from the Strategic Alliances team focus primarily on the development of business
cooperation within ČSOB Group. Key account managers from the External Networks team
are in charge of partners with their own sales networks, whether specialized in mortgages
or providing universal services pertaining to broad financial advisory.
Specialists in Hypoteční banka’s branches cooperate with partners conducting regional
business. These business partners are grouped into segments according to the scope of
business collaboration. The Bronze Partners segment includes potential agents who are
interested in collaboration with Hypoteční banka but have yet to develop it sufficiently.
The Silver Partners segment comprises external sales representatives showing promising
potential. Partners capable of transforming their potential into high-quality cooperation
with Hypoteční banka are promoted to Gold Partners. The most efficient external partners
have the privilege of membership in Hypoteční banka’s Platinum Club.
None of the segments of Hypoteční banka’s external partners is closed; conversely,
possibilities of elevation to a higher-level club are wide open. The only decisive factor is
the scope and quality of cooperation with Hypoteční banka. Membership in Hypoteční
banka’s segments yields benefits for the partners. The best are eligible for special benefits,
such as all kinds of discounts, an option to set up special advisory centers, marketing and
communication support, participation in workshops, social events and meetings with
Board of Directors’ members, sharing employee benefits provided by Hypoteční banka and
ČSOB Group, and an array of other benefits.
Hypoteční banka highly values collaboration with its business partners. The results of such
partnerships prove that this collaboration has been successful. Hypoteční banka is the
partners’ partner.
28
Annual Report 2010
The Group
ČSOB and ČSOB Group profile
Brief history of ČSOB
1964ČSOB founded by the state as a bank providing services in foreign trade financing
and free currency transactions, operating on the then Czechoslovak market.
1993After the split of Czechoslovakia, ČSOB continues operations on both the Czech
and Slovak markets.
1999Privatization of ČSOB, Belgium’s KBC Bank becomes ČSOB’s majority owner.
2000ČSOB takes over Investiční a Poštovní banka (IPB).
2007After the buyout of minority stakes, KBC Bank becomes ČSOB’s sole stockholder.
2007ČSOB headquarters moves to a new green building in Prague – Radlice for 2,600
employees (Building of the Year in 2007).
2008Slovak branch of ČSOB transformed as at 1 January to an independent entity,
controlled through KBC Bank holding 100% of voting rights.
Československá obchodní banka, a.s. (ČSOB) operates in the Czech Republic as a universal
bank. It represents the key entity of the ČSOB financial group and is 100% controlled by
KBC Group.
In the retail banking segment, the Company maintains two brand names – ČSOB and
Poštovní spořitelna. All customer segments comprising retail clientele, small and mediumsized businesses and corporate and institutional clients are served via the branch network
of ČSOB, Poštovní spořitelna’s financial centers and Česká pošta’s post offices. The ČSOB
branch network offers, aside from its own products and services, a complete range of
the ČSOB Group products and services. Both ČSOB and Poštovní spořitelna also provide
services through distribution channels within ČSOB Group and various direct banking
distribution channels.
As an entity subject to Czech legislation, ČSOB’s operations are governed by regulations
applicable in the territory of the Czech Republic, and are regulated primarily by the Act on
Banks, Act on Capital Market Undertakings and the Commercial Code.
KBC
B
O
S
Č
HB
29
Hypoteční banka
ČSOB Group
ČSOB Group is the leading provider of financial services in the Czech Republic. ČSOB
is a multi-purpose bank offering its customers a broad range of banking products and
services, including products and services of other companies affiliated in ČSOB Group.
ČSOB Group’s product portfolio is comprised of financing housing-related needs
(mortgages and building savings loans), insurance products and pension funds, collective
financing products, asset management and specialized services (leasing and factoring).
ČSOB Group operates on the Czech market through its subsidiaries and under four major
brandnames, specifically ČSOB, Poštovní spořitelna, Hypoteční banka and ČMSS. ČSOB
Group serves all types of customers - individuals, small and medium-sized businesses
and corporate and institutional clientele. ČSOB Group groups its business operations into
the following segments: retail clientele and small and medium-sized businesses (SME);
corporate clientele; ALM and financial markets; the Group headquarters.
Since KBC’s acquisition of ČSOB in 1999, integration of both Groups has intensified,
allowing for utilization of business synergies, such as customer distribution channels,
system integration, exchange of professional knowledge and experience, and launching
new products. The integration also involves ČSOB’s adoption of IFRS reporting standards,
applying KBC’s policies in management reporting, risk management and internal audit.
One of the key integration outcomes is provision of ICT services to the ČSOB Group and
implementation of a centrally controlled ICT system by the entire KBC Group in 2009.
Total assets in the amount of CZK 885.1 billion and net profit for 2010 of CZK 13.6 billion,
reported as at 31 December 2010, rank ČSOB Group among the three leading banking
groups operating in the territory of the Czech Republic. As at 31 December 2010, ČSOB
Group’s client deposits totaled CZK 596.1 billion and client loans CZK 401.9 billion.
For annual reports and other information on ČSOB and ČSOB Group, go to www.csob.cz.
ČSOB Group key figures
As at 31 December 2010
Headcount (adjusted)1)
Customers
7,641
>4 million
Payment cards (Bank)
2,043 thousand
Branches and client centers
581
ČSOB retail/SME branches
237
ČSOB corporate branches
11
PS financial centers
53
Other
280
2)
Česká pošta points of sale
Cash machines
3)
ca 3,260
782
Notes:
1) Adjusted number (FT). The figure does not include the employees who were transferred to KBC GS Czech Branch.
2) Including branches of Hypoteční banka, client centers of ČMSS, and branches of ČSOB Leasing and ČSOB Pojišťovna.
3) Customers may receive cash through the CashBack service at cash registers of Albert and COOP supermarkets and
ČeproEuroOil filling stations.
30
Annual Report 2010
KBC Group profile
ČSOB is a wholly-owned subsidiary of KBC Bank. The sole owner of KBC Bank is KBC
Group.
KBC Group is an integrated, bank-assurance group that focuses primarily on retail clientele,
small and medium-sized businesses and medium-sized corporations. KBC Group holds
a prominent position in its home markets in Belgium and in five countries of Central and
Eastern Europe (Czech Republic, Slovakia, Poland, Hungary, and Bulgaria), but it conducts
business in other countries and regions worldwide.
At the end of 2010, KBC Group served some 12 million customers in its home markets and
had staff of more than 50 thousand employees (adjusted).
KBC Group shareholders
(%)
KBC Ancora
23
Cera
7
MRBB (Farmers’ association)
13
Other core shareholders
11
KBC Group companies
5
Tradable shares
41
Total
100
Source: www.kbc.com
KBC Group key figures
Total assets
EUR billion
320.8
Client loans and receivables
EUR billion
150.7
Client deposits and debt certificates
EUR billion
197.9
Net profit
EUR billion
1.9
Sustainable net profit
EUR billion
1.7
Tier 1 indicator, KBC Group (under Basel II)
%
12.6
Expenses to revenues ratio (C/I, sustainable)
%
56
For more information, go to www.kbc.com
Long-term rating
Long-term rating
Fitch
Moody’s
S & P
KBC Bank
A
Aa3
A
KBC Insurance
A
-
A
KBC Group NV
A
A1
A-
For more information, go to www.kbc.com.
31
Hypoteční banka
ČSOB as the controlled and controlling person
Within the KBC Group and ČSOB Group, ČSOB operates as both the controlled and
controlling person, pursuant to Commission Regulation (EC) No. 809/2004.
ČSOB is the controlled person. The sole shareholder of ČSOB is KBC Bank NV (Business
Registration No. 90029371). The sole shareholder of KBC Bank is KBC Group NV (Business
Registration No. 90031317). The registered office of KBC Bank and KBC Group is at
Havenlaan 2, B-1080 Brussels (Sint-Jans Molenbeek), Belgium.
KBC Bank and KBC Group control ČSOB on the basis of holding 100% of voting rights
ensuing from KBC Bank’s ownership interest in ČSOB. The Bank has strictly adhered to
legislation applicable in the Czech Republic which prevents any misuse of the control. In
the period from 1 January 2010 to 31 December 2010, ČSOB was not in possession of any
treasury shares or shares of KBC Bank and KBC Group.
ČSOB is also the controlling person. Information about companies controlled by ČSOB
as at 31 December 2010 pursuant to Section 66a of the Commercial Code are listed in
chapter ČSOB Group companies.
ČSOB is independent of any other company in the Group.
Major companies of KBC Group
in the Czech Republic
Freely
tradable shares
Core
shareholders
59% 1), 2)
41% 1)
(as at 31 December 2010)
KBC Group
100%
100%
KBL EPB
100%
KBC Bank
100%
KBC Insurance
KBC GS
Org. unit
99.84%
KBC Securities
100%
100%
75%
25%
Patria Finance
ČSOB
ČSOB Pojišťovna 3)
KBC GS CZ
Česká republika
Notes:
Figures in the chart represent a share in the Company’s equity.
1) Source: www.kbc.com
2) Including 5% of shares held by KBC Group’s companies.
3) Share in voting rights of ČSOB Pojišťovna is as follows: 40% ČSOB, 60% KBC Insurance.
A detailed overview of KBC Group’s companies is included in the Annual Report of KBC Group for 2010.
32
Annual Report 2010
So many things have happened over the 15 years
that I don’t know where to start and end with my
memories. We live in a different world. I do the
same work, though I have grown a bit older. I do it because
it is worthwhile and I like it.
1996
I came to the bank in 1991, namely to the predecessor
of Hypoteční banka, so the business name was different,
but the Registration Number identical. I was honoured to
witness the bank getting a license for an issue of mortgage
bonds in 1995, which virtually triggered mortgage lending.
I was also lucky to see the bank change into a specialized
institution, cutting off a part of its name and becoming
the Hypoteční banka as we know it now. I have learned the
differences brought by professional life in the bank’s offices
in Chrudim, Pardubice, Prague and Hradec Králové, where
I have had an opportunity to run the bank’s office. I have
learned that there is nothing more important than satisfied
people – clients, sales partners, employees. Travelling
throughout the region, I can see all the houses built by our
satisfied clients; I can stop by and ask: “How do you like
your living?” Their answer is a huge reward for me.
I am happy we have a great team in the bank, our work
goes well and we do something that brings us joy.
Together we help our clients live, which is in fact our
mission. And I am also happy that my son
already works in the bank as well :-).
František Mareček
Director, Hradec Králové regional office
2010
33
Report of the Board
of Directors
Report of the Board of Directors on Company business
operations and assets for 2010
profit
growth
32 %
Hypoteční banka was the first bank that in 1995, then under the name Českomoravská
hypoteční banka, applied for a license to provide mortgage loans and issue mortgage
bonds. From a multi-purpose bank, it transformed itself into a bank specialized in
mortgage loans only. The Bank never abandoned the specialization strategy ever since
and the year 2010 reaffirmed that it had made the right decision. Hypoteční banka
strengthened its number one position on the home mortgage market in two segments:
new mortgage loans in the amount of CZK 28,629 million, accounting for a 32% market
share and, as of the third quarter of 2009, the total mortgage lending volume. According
to statistics of the Ministry for Regional Development, Hypoteční banka provides more
than 28% of mortgage loans of the total provided across the Czech Republic. In addition,
in 2010 Hypoteční banka posted the highest ever net profit after taxes in the amount of
CZK 1,848 million.
Macroeconomic environment
2010 saw GDP growth. Although the growth rate of the Czech economy did not match
that of Germany, for example, the growth trend that started in the second half of 2009
continued in 2010. Czech GDP grew at a rate of 3.2% at the year-end, stemming primarily
from an increase in foreign demand in some countries, though initially boosted by
government stimulus packages. As a result, industrial firms recorded double-digit growth
in new orders which led to a quick recovery of the industrial sector and to rising exports.
Unlike the industry, production in the construction sector that at the beginning was not
hit so hard by the recession continued to fall in 2010. This was due to a decline in both
private and public construction projects resulting from cutting budget expenditures.
Developers had not launched new residential building projects until the end of 2010, but
only in locations with the greatest demand in new housing, such as in the Prague and
Brno markets. In other places, potential home buyers had to choose from already finished
construction projects or from older properties placed on the market.
Economic recovery helped stabilize the Czech labor market in 2010. The unemployment
rate stopped rising and showed 9.5% at the end of the year. Nonetheless, the recovery was
not strong enough to generate a sufficient number of jobs or trigger an increase in real
wages. The resumed growth trend of the economy is yet to spark inflation pressures. At
34
Annual Report 2010
the year-end, the inflation rate met the Central Bank’s target, but mainly due to growing
prices of agricultural and energy commodities. This allowed ČNB to keep the base interest
rate at the minimum level of 0.75%, a reduction introduced in May. In 2010, the Czech
crown strengthened against the euro from around CZK 26/EUR to around CZK 25/EUR.
The current economic recovery is expected to continue throughout 2011, but budget cuts
in social expenditures and investment restrictions are likely to hinder GDP growth. In
addition, the inventory restocking cycle is expected to come to an end and foreign demand
will be of key importance. Also, 2011 will not see a significant improvement on the
labor market and average real wages might even decrease. Although inflation should not
substantially divert from the target rate, the period of record-low interest rates is coming
to an end, primarily due to rising costs of long-term financing.
Hypoteční banka in 2010
In 2010, the mortgage market saw a slight recovery, following two years of decline. The
volume of provided mortgages rose by 14.8% year-on-year, according to Ministry for
Regional Development statistics. After the recovery of the mortgage market began in
May, year-on-year growth in the volume of new mortgages continued for the remaining
months of the year. Thus the overall growth of the mortgage market in 2010 stemmed
predominantly from lending effected in the second half of the year.
Hypoteční banka in 2010 provided a total of 17,439 mortgage loans to individuals,
amounting to CZK 28,629 million. The Bank retained its top place in the market of new
mortgage loans with a cumulative market share of 32%, according to Ministry for Regional
Development statistics, and met the financial targets it had set out. Statistics from the
same source as at 31 December 2010 show that Hypoteční banka’s share in total mortgage
loan volume accounted for 28%.
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Thaerketl
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In 2010, the Bank’s organizational structure underwent several changes. In April 2010,
Marketing Analyses department was incepted. In November 2010 a new department,
Lending Policy and Risks, was set up with the aim to provide methodological support for
products and services and supervise risk management pertaining to these products. In
December, a new Assets and Liabilities Management division was formed as part of the
Finance Management department.
Hypoteční banka continued to closely collaborate with ČSOB Group throughout 2010. Of
key importance was cooperation in the business area, but also in the segments of banking
risk, risk transactions and refinancing.
Hypoteční banka was the first bank to apply in May 1995 for a license to issue mortgage
bonds. The license was awarded on 14 September 1995 and the first mortgage bond issue
was launched at the beginning of 1996. Hypoteční banka has been a long-standing largest
issuer of mortgage bonds in the Czech Republic. As at 31 December 2010, mortgage bonds
issued by Hypoteční banka accounted for 33% of all mortgage bonds issued in the country.
The Bank in 2010 issued new mortgage bonds in the amount of CZK 500 million, which
made the total volume of mortgage bonds on its balance sheet reach the nominal value of
CZK 87,025 million at 31 December 2010. The overall nominal volume of mortgage bonds
issued by Hypoteční banka since 1996 amounted to CZK 138,400 million.
35
Report of the Board of Directors
Business strategy
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Annual Report 2010
In 2006, Hypoteční banka chose to use the power of multi-branding in its business
strategy. As a result, for several years the Bank’s products and services have been
sold under several brands. Last year, Hypoteční banka’s products were available, in
addition to its own sales network, at branches of parent ČSOB, Poštovní spořitelna, and
Českomoravská stavební spořitelna. The ČSOB, Poštovní spořitelna and ČMSS are the
only strategic partners of Hypoteční banka’s multi-branding business policy. In addition
to the strategic partners, Hypoteční banka also cooperates with a number of independent
advisors. The quality of collaboration with outside business partners is a key factor of
Hypoteční banka’s business success.
Hypoteční banka continued to utilize the Internet sales channel. Hypotéka po webu,
launched in May 2009, was redesigned and its parameters modified. Evidence of the
benefit of new sales channels are awards won in 2010. The freshly innovated Hypotéka
po webu was awarded the 2010 Mortgage of the Year prize in the Bank of the Year
competition organized by Fincentrum. This unique service also scored with the jury in the
WebTop 100 competition where it placed second in the Marketing Instruments category
for the second time running. The Bank appreciates these awards, but also feels greater
responsibility and will continue to develop this supplemental instrument of mortgage
sales. Furthermore, Hypoteční banka received a valuable award for its website, which
was recognized in the WebTop 100 contest for the fourth time running as the best in the
“Finance” category. However, it still applies that more important than these awards are
satisfied customers and external partners. In the course of the year, Hypoteční banka
organized for them a variety of marketing campaigns and commercial events.
Business results
Hypoteční banka’s profit before tax for 2010 amounted to CZK 2,288 million, and profit
after tax to CZK 1,848 million, which accounts for 32% and 33% year-on-year growth,
respectively, in accordance with the International Financial Reporting Standards as adopted
by the European Union (EU IFRS). As in previous years, labor productivity improved
in 2010. Due to an increase in operating revenues by 33% against a hike in operating
expenses by 9%, the C/I indicator dipped to 0.17 in 2010 from 0.20 in 2009.
The balance sum fell to CZK 163,243 million as at 31 December 2010 from CZK 164,811
million at 31 December 2009. The year-on-year decrease in assets stemmed from a lower
volume of Hypoteční banka’s deposits from other banks. The balance volume of loans and
receivables from clients amounted to CZK 145,070 million as at 31 December 2010, a 6%
increase year-on-year. In terms of the balance sum amount, Hypoteční banka ranks among
six largest banks in the Czech Republic. Mortgage loans for individuals constitute the
largest proportion of the balance sum.
it
HB 's prof x.
after ta
Hypoteční banka’s portfolio quality reflected the home financing market trend monitored
by ČNB. In risk management, the Bank closely collaborates with ČSOB and its majority
owner, Belgium’s KBC Bank NV. Once again in 2010, the Bank made optimum use of client
information registry services via the Czech Banking Credit Bureau (CBCB) and the Central
Credit Register (CRÚ).
In line with the sole shareholder’s decision, in 2010 dividend payments were made in the
amount of CZK 130 per share corresponding to net profit posted for 2009 after a statutory
allocation to the reserve fund.
Intangible assets, property, plant and equipment
The net book value of all Hypoteční banka’s intangible assets, property, plant and
equipment totaled CZK 206 million as at 31 December 2010. The net book value of
the Bank’s intangible assets amounted to CZK 49 million and showed a stable year-onyear trend. In comparison with 2009 when 92% of intangible assets were comprised of
software, this proportion rose to 98% in 2010. This increase helped retain the assets’ value
and reflected the Bank’s strategy of heavily investing into IT upgrades in recent years.
Property, plant and equipment had a net book value of CZK 157 million, accounting for
a year-on-year decline of CZK 3 million, or 2%. The ratio of intangible assets, property,
plant and equipment to the Bank’s total assets was 0.13% as at the last day of the year.
Information technology
Among Hypoteční banka’s key goals in the IT field in 2010 was enhancing accessibility of
the Bank’s information system for users and improving application support for users. In
addition, the Bank streamlined the application upgrade process and stepped up efforts to
ensure a high level of information security. One of the most ambitious IT projects in 2010
was a replacement of server infrastructure for the Bank’s main transaction system.
37
Report of the Board of Directors
Key role of employees
The stability of Hypoteční banka and its market position had a positive impact on the
Bank’s employee policy and the team stability, evidenced by a stable headcount compared
to 2009. At the end of 2010, Hypoteční banka had 426 employees, a 1.8% decrease
compared to the end of 2009. The minimum rate of staff turnover attests to the quality of
the Bank’s personnel policy.
Training is an ongoing employment policy priority. For this purpose, the Bank organizes,
alone through its in-house lecturers or in collaboration with ČSOB Group or outside
contractors, a variety of specialist training sessions, workshops and language courses for
its employees. In 2010, the Bank expanded training opportunities for key employees in
non-management positions, in addition to increased focus on the skills of managers for
whom an independent educational module was introduced. Hypoteční banka’s employee
program also pays utmost attention to the employees’ health; the Bank offers preventive
health care provided by a contractual medical facility, distributes vitamins and financially
contributes to massages. The staff work in an advanced environment while observing the
occupational safety and fire prevention rules, which the Bank complies with and reviews in
due periods pursuant to statutory requirements. Finally, the Bank encourages motivational
team or work retreats and employees’ leisure activities.
To strengthen the values of Hypoteční banka, it is important to seek activities that clearly
declare and manifest those values. As in previous years, in 2010 staff members could
openly provide feedback through the co-called Evaluation 360. Several online chats were
conducted with management. Traditionally, a Christmas party was held at the end of the
year in a friendly and informal atmosphere. A music group Hypoband, composed of the
Bank’s employees, performed at the party.
An extraordinary experience for more than half of Hypoteční banka’s employees was
a team-building event organized for the entire staff, involving volunteer work aimed to
improve green spaces and remove weeds and wild bushes in the vicinity of the Veveří
castle. Hypoteční banka also made a financial contribution to renewing the grass area
around the castle.
38
Annual Report 2010
Responsible stance
Even though the nature of Hypoteční banka’s operations does not result in production
of substances harmful for the environment, through its specialized departments the
Bank monitors the impact of its activity on the environment and makes the utmost
effort to mitigate any potential adverse effects. Hypoteční banka strives to act in an
environmentally-friendly manner and minimize energy consumption. It encourages its
employees to recycle waste directly at all workplaces. In addition to sorting common
waste, the Bank also engages in separation of used material from printers, fax and copying
machines, typewriters, batteries from calculators, etc. When concluding contracts with
suppliers, the Bank takes into account sorting, recycling and eco-friendly disposal of waste
material left behind during construction activity in the branch network.
Similarly to previous years, in 2010 Hypoteční banka continued to provide charitable aid
to SOS dětské vesničky (children’s villages). For every loan agreement concluded, the Bank
donated CZK 20 to this organization, thus fulfilling its mission and “helping with housing
needs” in the children’s world as well. A total of CZK 348,780 went to SOS dětské vesničky
last year. Since the beginning of Hypoteční banka’s cooperation with the organization in
2001, it contributed to the housing of children lacking traditional family care in excess of
CZK 2.5 million.
Outlook for 2011
In 2011, Hypoteční banka will continue its successful operation on the Czech mortgage
market. The Bank plans to sustain the position of the mortgage market leader, measured
by both the volume of new loans provided to retail clientele and the overall lending
balance. Hypoteční banka will foster its proven multi-branding model in 2011, and in its
specialist role will offer customers and business partners alike the best mortgage loans.
In addition, Hypoteční banka will continue to closely monitor the quality of the credit
portfolio.
In the future, Hypoteční banka will do what it is good at, what has worked for it and what
yields the Bank, its clients and shareholders favorable results. Customer satisfaction will
always be the top priority along with solid relations with business partners. Hypoteční
banka will focus on the quality, stability and professional growth of its employees. In
these endeavors, the Bank will count on the values that it has tirelessly promoted among
the staff: sensibility, cooperation, openness, reliability, respect and recognition, ambition,
optimism and enjoyment.
39
Statutory bodies
The Board of Directors
Jan Sadil
Board of Directors Chairman and Chief Executive Officer
Jan Sadil started in Komerční banka in 1995, where he finally landed the position of
director of the retail lending department. In 2001 he joined Hypoteční banka where he was
appointed a member of the Board of Directors and deputy managing director for sales. Since
17 December 2003, Mr. Sadil has chaired the Board of Directors and held the position of
managing director of Hypoteční banka.
Petr Hlaváč
Board of Directors Vice-Chairman and Chief Credit Officer
Petr Hlaváč has gained banking experience in Komerční banka (1991-1999), where he was
director of retail lending department, in Bank Austria Creditanstalt Czech Republic (19992001), and Česká spořitelna (2001-2004). In Bank Austria Creditanstalt Czech Republic he
co-developed the Majordomus mortgage product and headed up the Mortgage Factory
division. In Česká spořitelna he participated in running the mobile sales network and, later,
he managed sales of Sporoservis consumer loans. On 17 January 2005, Hypoteční banka
appointed Mr. Hlaváč vice-chairman of the Board of Directors and deputy director for credit.
Martin Vašek
Board of Directors member and Chief Finance Officer
After graduating from the Of Economy, Martin Vašek began his career in 2000 at the Prague
office of PricewaterhouseCoopers. Since 2005, he continued at ČSOB in positions of director
of the financial markets support department, responsible for trading and settlement system
support management, settlement of transactions with financial and capital market products,
and financial and capital market product process management. From 2007, Mr. Vašek headed
the newly created operations department in ČSOB.
Vlastimil Nigrin
Board of Directors member and Chief Business Officer
Vlastimil Nigrin commenced his professional career in Komerční banka in 1987-2002, his
last position there being executive director of operations. In 2002-2004, he worked in
eBanka as operations executive director and Board of Directors member responsible for
foreign and domestic transactions. During his assignment in the PPF Group in 2002-2006,
he was in charge of developing a complex business model for Home Credit Finance Bank
Moscow. In 2006-2008, he held the position of director of the foreign sales and cooperation
department in Česká spořitelna, a.s., where he managed foreign sales of ČS Group’s selected
products. On 1 June 2008, Mr. Nigrin was appointed deputy managing director for commerce
at Hypoteční banka and has been responsible for the segment of mortgage product sales.
40
Annual Report 2010
Supervisory Board
As at 26 February 2011
Petr Hutla
Senior Executive Officer and
member of the Board of Directors,
ČSOB Supervisory Board Chairman
Koen Wilmots
Senior Executive Officer and
member of the Board of Directors,
ČSOB Supervisory Board member
Martin Jarolím
Executive Director of Retail ČSOB branch
network management
Supervisory Board member
Martin Brabenec
Supervisory Board member
elected by employees
David Borges
Executive Director of the Assets and
Liabilities Management department,
ČSOB Supervisory Board member
Václav Moravec
Supervisory Board Member
elected by employees
41
Corporate governance
The Board of Directors as the Company’s governing body and the Supervisory Board
constantly strive to improve the standards of corporate governance. Their activity is
governed primarily by statutory requirements.
Aside from the statutory requirements, another significant document is the Corporate
Governance Code, based on OECD principles (2004), as recommended by the Czech
National Bank. Hypoteční banka implements proposals and recommendations of the Code
continually and to an applicable extent with regard to the actual needs of the market, the
Company, its key products and customer segments. With regard to the ownership interest
held by the Bank’s majority stockholder, there are no non-executive members on the
Supervisory Board. The Bank duly observes the rules of proper corporate governance.
Company bodies
4
6
Board of Directors
members
Supervisory
Board members
The statutory body of the Company (the Board of Directors) consists of experts whose
previous experience, predominantly in the banking sector, and a high level of education are
a sound basis for their knowledge of the systems and risks involved in banking operations,
transactions and decision-making processes, and control mechanisms. Assignment of the
Board of Directors’ responsibilities to specific Bank departments corresponds with line
management functions executed by the managing director and his deputies. The merging
of the positions of Board of Directors members and the managing director and his deputies
is based on the executive board model, in compliance with the Czech Act on Banks. All
Board of Directors members were approved by the Czech National Bank. The Supervisory
Board is comprised of ČSOB employees holding executive positions in the parent bank,
with the exception of two employee board members who have been elected by their
fellow Hypoteční banka employees. The Supervisory Board meets regularly and the Board
of Directors chairman frequently meets with the Supervisory Board chairman.
The sole shareholder has the power to elect four Supervisory Board members. The
Supervisory Board appoints and evaluates Board of Directors members.
Members of the Bank’s bodies have ample access to information needed to perform their
duties; in the capacity of their line positions, Board of Directors members are in fact the
Corporate Officers who are obligated to ensure that the required information is available,
accurate, timely, and complete. The Bank’s Office Department supports the activities of
the Bank’s bodies.
Both the Supervisory Board and the Board of Directors hold regular meetings at intervals
stipulated by the Bank’s Articles of Association. The Supervisory Board meets at least
four times a year, and the Board of Directors twice a month. In reality, Board of Directors
42
Annual Report 2010
members meet more frequently and discuss the relevant agenda outside the scope of
formal sessions within the authority of their line positions.
Shareholder relations
Československá obhodní banka, a.s. has been the sole shareholder of Hypoteční banka as of
4 May 2009. Pursuant to the provisions of Section 190 of the Commercial Code, the sole
shareholder exercises the powers of the General Meeting.
The Audit Committee
Pursuant to Act No. 93/2009 Coll., on Auditors and on amendments to some laws (Auditors’
Act), an Audit Committee was set up based on the sole shareholder’s decision and came into
effect as of 8 December 2009. In compliance with Hypoteční banka’s Articles of Association,
this new Company body has three members and will perform its tasks as defined by the
foregoing law, the Company’s Articles of Association and the approved rules of procedure.
Information openness
Hypoteční banka meets all information-related obligations stipulated by relevant
legislation. In addition, the Bank regularly informs the public about its activities, business
and financial results and important events through the media and the Company website.
The web pages feature a broader scope of information than required by law. The Bank
operates in-house intranet, making information easily accessible for all employees.
Conflict of interests
Hypoteční banka makes every effort to prevent any misuse of corporate data and ensure
the security of processed information. This involves preventing any information leaks
at points of sale and ensuring personal data protection. Loans provided to the Bank’s
employees in executive positions at all levels are subject to specific sign-off procedures
requiring Board of Directors approval. The Bank also examines possible links between
individuals and corporate entities.
or
Long-term aid f
Company policy toward corporate stakeholders
Hypoteční banka adheres to principles ensuring its fulfillment of the role of good ‘corporate’
citizen. The Bank offers each and every client tailor-made, proven products and services.
Employees receive fair remuneration for their work, plus a good-quality Employee benefits
program and friendly and sound workplaces. The Bank promotes charity through donations to
the SOS Children’s Villages program, which ties in with its overall orientation toward housing
support. Investors may acquire mortgage bonds that in essence represent safe and transparent
capital market instruments. Marketing campaigns and public and media relations are
conducted in a fair and courteous manner. In general, the Bank’s communication corresponds
to its stance and market role. Hypoteční banka is a specialized organization providing highquality and swift services to customers whom it respects. The Company’s media image is
respectful and positive. All Company and employee activities are subject to the Code of Ethics.
SOS!
Villages
In late 2005, Hypoteční banka acceded to the Code of Conduct between Banks and
Customers, recommended by the Czech Banking Association. Hypoteční banka was
also the first financial institution in the Czech Republic to adopt the Code of Conduct
(Mortgage Code), a European Commission form available to any customer who requests it
to compare mortgage terms in specific EU countries’ banks.
43
44
Annual Report 2010
financial section
46 Report on Supervisory Board control activities
47 Independent Auditor’s Report
49 Balance Sheet for the year ended 31 December 2010
50 Income Statement for the year ended 31 December 2010
50 Statement of Changes in Equity for the year ended 31 December 2010
51 Statement of Cash Flows for the year ended 31 December 2010
52 Notes to the Financial Statements for the year ended 31 December 2010
86 Report on Relations Between Related Parties
90 Organizational Structure
91 Financial Performance Analysis
96 Explanatory Summarized Report
98 Supplementary Information in Compliance with Statutory Requirements
111 Points of Sale of Hypoteční banka
112 Identification and Contact Information
Annual Report 2010
45
Report on Supervisory Board Control Activities
The Supervisory Body held regular meetings as required by the Company Articles of Association. The Board met four times in 2010
and, in line with the approved year-long plan, routinely discussed the Bank’s financial results and the development of classified loans.
The Board monitored drafting of the Bank’s business and financial plans, Hypoteční banka’s updated strategy, risk management agenda, Compliance Reports, the results of internal audit reviews and the most significant litigation proceedings conducted by the Bank.
The Board also reviewed the Report on Relations between Related Parties.
In early 2010, the Supervisory Board changed its composition. In January 2010 Petr Hutla was elected new member of the Supervisory
Board and in February 2010 he was appointed its chairman. Supervisory Board member Ladislav Mach left the Board in February 2010
and was replaced by Koen Wilmots.
A newly established Audit Committee began its regular work in January 2010 in the composition of Michal Babický as an independent
member, Koen Wilmots and David Borges. The Committee centered on the agenda stipulated by national legislation and KBC Group’s
rules and regulations. At its sessions, the Supervisory Board was regularly briefed on the outcome of the Committee’s deliberations.
The Board again focused on corporate governance issues, external audit and, in more detail, the development of the Bank’s sales and
financial performance. Increased attention was paid to the credit portfolio quality and credit risk. Furthermore, the Supervisory Board
continued to discuss the aspects of cooperation within ČSOB Group. The Board of Directors informed the Supervisory Board on all key
issues concerning the Bank’s operations and assisted it in duly performing its oversight duties.
Similarly to previous years, cooperation and communication between the Supervisory Board and the Board of Directors was ensured
through the Board of Directors’ participation in the Supervisory Board meetings and regular meetings between the two Boards’ chairmen. Sharing Hypoteční banka’s headquarters in Radlice with the parent company further contributed to improving communication,
in addition to Hypoteční banka’s involvement in a number of committees and work groups across the ČSOB financial group.
The Supervisory Board reviewed the Financial Statements audited by the audit company Ernst & Young Audit, s.r.o., dated 14 March
2011, and the auditor’s opinion, which was unqualified.
The Supervisory Board is pleased to observe that, in spite of another arduous year in economic terms, efforts made by the Bank’s
Board of Directors, managers and all employees came to fruition. The projected targets of the financial plan were surpassed and the
2010 financial performance showed a net profit in the amount of CZK 1,847.7 million, in accordance with the International Financial
Reporting Standards.
On the basis of the foregoing facts, the Supervisory Board presents the following proposal to Hypoteční banka’s sole shareholder
which, pursuant to the provisions of Section 190, Subsection 1 of the Commercial Code, exercises the powers of the General Meeting:
1. In accordance with the Independent Auditor’s Report to the shareholders of Hypoteční banka, a.s., prepared by Ernst & Young Audit,
s.r.o. on 14 March 2011, the Supervisory Board has no objections to the audited Financial Statements of the Company for 2010
(Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement, and Notes to the Financial Statements).
2. Having assessed the operations of Hypoteční banka, a.s., a task assigned to the Supervisory Board by applicable legal regulations,
and the Company Articles of Association, the Supervisory Board ascertained no shortcomings.
3. Pursuant to Section 66a, Subsection10 of the Commercial Code, the Supervisory Board reviewed the Report on Relations between
Related Parties and expressed no reservations thereon.
4. The Supervisory Board recommends that the General Meeting approve the annual Financial Statements of Hypoteční banka, a.s. for
the year ended 31 December 2010, including a proposal for the distribution of profits for 2010, as presented to the General Meeting
by the Board of Directors.
Approved by the Supervisory Board on 21 April 2011.
On behalf of the Supervisory Board of Hypoteční banka, a.s.
Petr Hutla
Supervisory Board Chairman
46
Annual Report 2010
Zpráva nezávislých auditorů
47
48
Statement of Financial Position as at 31 December 2010
Note
31 December 2010
CZK million
Cash and balances with central banks
14
21
19
Investment securities
15
9
832
Loans and advances to banks
16
17,906
26,949
Loans and advances to customers
17
145,070
136,759
Intangible assets
18
49
50
Property, plant and equipment
18
157
160
Other assets
19
29
39
2
3
163,243
164,811
Assets Prepayments and accrued income
Total assets
31 December 2009
CZK million
Liabilities
Due to banks
20
39,700
32,596
Due to customers
21
455
494
Liabilities from debt securities
22
101,566
110,852
Other liabilities
23
216
170
Provisions
10
0
3
Deferred tax liability
12
106
78
Current tax liability
Total liabilities
115
59
142,158
144,252
5,076
5,076
13,864
13,864
296
226
0
3
Equity
Share capital
24
Share premium
Reserve funds
Revaluation reserve
Retained earnings
Total equity
Total liabilities and equity
1,849
1,390
21,085
20,559
163,243
164,811
These financial statements were approved on 14 March 2011.
Jan Sadil
Board of Directors Chairman
and Chief Executive Officer
Martin Vašek
and Chief Finance Officer
Annual Report 2010
49
Statement of Comprehensive Income for the year ended 31 December 2010
INCOME STATEMENT
Note
31 December 2010
CZK million
31 December 2009
CZK million
Interest and similar income
5
8,647
7,637
Interest and similar expense
5
(4,985)
(4,954)
Net interest income
3,662
2,683
Fee and commission income
6
408
367
Fee and commission expense
6
(17)
(16)
391
351
Net fee and commission income
Other operating income
7
165
14
Other operating expense
7
(163)
(3)
8
(674)
(618)
11
(1,093)
(690)
Administrative expense
Impairment losses on assets
Profit before income tax
Income tax expense
2,288
1,737
12
(440)
(348)
1,848
1,389
24
182,02
136,82
13
(3)
6
1,845
1,395
Net profit for the year
Basic and diluted earnings per share (in CZK per share)
OTHER COMPREHENSIVE INCOME
Net profit/(loss) from revaluation of available-for-sale securities
Total comprehensive income for the year
Statement of Changes in Shareholders’ Equity for the year ended 31 December 2010
Balance as at 1 January 2009
Share
capital
CZK million
Share
premium
CZK million
Reserve funds
CZK million
Revaluation
reserve
CZK million
Retained
earnings
CZK million
Total
CZK million
5,076
7,864
168
(3)
4,130
17,235
Total comprehensive income
0
0
0
6
1,389
1,395
Issuance of shares
0
6,000
0
0
Dividend distribution
0
0
0
Allocation to reserve fund
0
6,000
(4,071)
(4,071)
0
0
58
0
(58)
0
5,076
13,864
226
3
1,390
20,559
Total comprehensive income
0
0
0
(3)
1,848
1,845
0
0
0
0
(1,319)
(1,319)
Allocation to reserve fund
0
0
70
0
(70)
0
5,076
13,864
296
0
1,849
21,085
Balance as at 31 December 2009
Balance as at 31 December 2010
50
Annual Report 2010
Statement of Cash Flows for the year ended 31 December 2010
Note
2010
CZK million
2009
CZK million
2,288
1,737
Cash flow from / (used in) operating activities
Allowances for loans, advances and receivables
11
Allowances for property, plant and equipment
Amortisation of intangible assets and depreciation of property, plant and equipment
18
Amortisation of discounts of investment securities
Amortisation of discounts, premium and accrued interest of investment securities
issued
Net loss/(gain) on disposal of property, plant, equipment and intangible assets
1,093
708
0
(18)
52
41
(8)
(34)
3,679
4,070
(1)
(1)
(Increase) / decrease in operating assets
Other assets
19, 14
Prepayments and accrued income
9,051
(10,152)
(9,405)
(17,655)
7
(1)
1
2
6,927
13,150
(39)
(100)
44
(46)
13,689
(8,299)
(355)
(313)
13,334
(8,612)
(48)
(61)
828
527
Increase / (decrease) in operating liabilities
Due to banks – term deposits
Due to customers
21
Other liabilities, including tax liabilities
Net cash flow from/(used in) operating activities before income tax
Income tax paid
Net cash used in operating activities
Cash flow from / (used in) investing activities
Purchase of property, plant, equipment and intangible assets
18
Disposal of investment securities
Disposal of property, plant, equipment and intangible assets
Net cash flow from / (used in) investing activities
1
1
781
467
0
6,000
Cash flow from/(used in) financing activities
Increase in share capital
24
Issue of debt securities
Repayment of debt securities
24
Net cash flow from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
26
500
19,825
(13,466)
(13,591)
(1,319)
(4,071)
(14,285)
8,163
(170)
18
(28)
(46)
(198)
(28)
(6,063)
(5,241)
7,413
7,509
Operational cash flow from interest
Interest paid
Interest received
Annual Report 2010
51
Notes to the Financial Statements for the year ended 31 December 2010
1 GENERAL INFORMATION
Hypoteční banka, a.s. (“the Bank”) was incorporated on 10 January 1991. The Bank has its registered office at Radlická
333/150, 150 57, Prague 5 and as of 31 December 2010 was organized into a headquarters and 27 branches, 13 of which
are regional. The Bank does not have any branches outside the Czech Republic.
On 19 June 2000, Československá obchodní banka, a.s. (“ČSOB”) acquired 55.3% of the shares, thus acquiring a majority
share in the Bank. ČSOB has since substantially increased the share capital of the Bank and, following the completion of
a share buy-out (see Note 24), ČSOB became the sole shareholder of the Bank in 2009.
The Bank’s operations consist of providing mortgage loans and other related loans, including other bank operations and
services related to the provision of mortgage loans in compliance with the Act on Banks. In addition, the Bank issues
mortgage bonds in compliance with specific local laws.
The Bank is a specialised mortgage institution covering the entire territory of the Czech Republic. It was the first bank in
the Czech Republic to obtain a licence for issuing mortgage bonds and is the largest issuer of mortgage bonds in the Czech
Republic.
Annual reports and other information about the Bank are available at the Bank’s website www.hypotecnibanka.cz.
ČSOB operates in the Czech market. As a universal bank, it offers a full range of banking services to individuals and
companies. A significant milestone in ČSOB’s history was its privatisation in June 1999, when KBC Bank NV became the
majority owner of ČSOB.
ČSOB has its registered office at Radlická 333/150, 150 57, Prague 5.
KBC Bank NV is the parent company of ČSOB.
The Annual reports and other information about ČSOB are available at the website www.csob.cz.
2 Summary of Significant Accounting Polices
(A) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted
by the European Union (“EU IFRS”). The financial statements have been prepared under the historical cost convention as
modified by the revaluation of available-for-sale securities.
The financial statements are rounded to millions of Czech Crowns (“CZK million”) unless stated otherwise. The Bank’s
financial statements are included in the consolidated financial statements of its parent company, ČSOB, which are
prepared in accordance with EU IFRS. The Bank does not own any investments in subsidiaries or associates.
The preparation of financial statements in conformity with EU IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Bank’s accounting policies.
The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant
to the financial statements are disclosed in Note 4.
(B) Segment reporting
The Bank reports the following business segments: individuals, legal entities, treasury and other. An operating segment
is a distinguishable component of the Bank engaged in providing products or services, generating profit or loss. The
performance of individual operating segments is periodically monitored and assessed by the Bank.
52
Annual Report 2010
(C) Foreign currency translation
Items included in the financial statements of the Bank are measured using the currency of the primary economic
environment in which the Bank operates (“the functional currency”). The Bank’s financial statements are presented in
Czech Crowns, which is the Bank’s functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at year end of exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement at the reporting date.
(D) Financial assets
The Bank classifies its financial assets with a regular delivery time in the following categories: loans and advances; heldto-maturity investments and available-for-sale financial assets. The classification is based on the purpose for which the
financial assets were acquired.
Purchases and sales of financial assets are recognised on the settlement date. Under settlement date accounting,
a financial asset is recognised or derecognised in the statement of financial position on the date that it is physically
transferred to or from the Bank. The date on which the Bank becomes a party to the contractual provisions of a financial
asset purchase or the Bank loses control of the contractual rights from a financial asset sale is commonly referred to as
the “trade date”.
Fair value movements in available-for-sale financial assets between the “trade date” and the “settlement date” relating to
purchases and sales are recognised in the “Revaluation reserve”.
Financial assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the
rights to receive cash flows from the financial assets have expired or have been transferred and the Bank has transferred
substantially all risks and rewards of ownership.
Loans and advances
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They arise when the Bank provides money, goods or services directly to a debtor with no intention of
trading the receivable.
Loans and advances are subsequently carried at amortised cost using the effective interest rate method, less impairment
losses. Interest income on loans and advances is recognised in “Interest and similar income” in the income statement.
Losses on the impairment of loans are recognised as “Impairment losses on assets” in the income statement.
Held-to-maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the Bank’s management has the positive intention and ability to hold to maturity.
Held-to-maturity investments are subsequently carried at amortised cost using the effective interest rate method. Income
on held-to-maturity investments is recognised as “Interest and similar income” in the income statement.
Available-for-sale
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in
response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Available-for-sale investments
represent financial assets that do not meet the criteria for classification as financial assets at fair value recognised through
profit or loss, loans and advances or held-to-maturity investments.
Available-for-sale financial assets are subsequently carried at fair value. Unrealised gains and losses on changes in the fair
value of securities classified as available-for-sale are recognised in other comprehensive income; realised gains and losses
are recognised in “Other operating income” in the income statement.
Annual Report 2010
53
When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised
in equity are included in the income statement as gains and losses from available-for-sale securities. Interest income on
available-for-sale investments is calculated using the effective interest rate method and recognised as “Interest and similar
income” in the income statement.
The fair values of investments quoted in active markets are based on current bid prices. If the market for a financial asset
is not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the
use of recent arm’s length transactions, referencing to other instruments with identical characteristics, discounted cash
flow analysis and other valuation techniques.
(E) Offsetting
Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when
there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.
(F) Interest income and expense
Interest income and expense are recognised in the income statement for all instruments measured at amortised cost using
the effective interest rate method.
The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability
and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or,
when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the
financial instrument (for example, prepayment, call and similar options), but does not consider future credit losses. The
calculation includes all fees and interest paid or received between parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss,
interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
(G) Fee and commission income and expense
Fees and commissions are generally recognised on an accrual basis when the loan has been provided. Loan commitment
fees and commissions for loans are deferred (together with related direct costs) and recognised as an adjustment to the
effective interest rate on the loan. Non-incremental commission and fees, commission and fees arising from transactions
for a third party or fees for one-off transactions are recognised on completion of the underlying transaction.
(H) Impairment of financial assets
Financial assets carried at amortised cost
The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if,
and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset (a “loss event”) and that the loss event (or events) has an impact on the estimated future cash
flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial
asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the following
loss events:
(a) significant financial difficulty of the issuer or obligor;
(b) a breach of contract, such as a default or delinquency in interest or principal payments;
(c) the Bank granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty,
a concession that the lender would not otherwise consider;
(d) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
54
Annual Report 2010
(e) the disappearance of an active market for that financial asset because of financial difficulties; or observable data
indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since
the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets
in the group, including:
i) adverse changes in the payment status of borrowers in the group; or
ii) national or local economic conditions that correlate with defaults on the assets in the group.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant, and individually or collectively for financial assets that are not individually significant. If the
Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether
significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively
assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or
continues to be recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on loans and advances or held-to-maturity investments carried
at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the
use of an allowance account and the amount of the loss is recognised in the income statement.
If a loan, advance or held-to-maturity investment has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash
flows that may result from foreclosure less costs for obtaining and selling the collateral.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk
characteristics (i.e. on the basis of the Bank’s rating process that considers asset type, industry, geographical location,
collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future
cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the
contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the
contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar
to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of
conditions in the historical period that do not exist currently.
Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in
related observable data from period to period (for example, changes in unemployment rates, property prices, payment status,
or other factors indicative of changes in the probability of losses in the group and their magnitude). The methodology and
assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss
estimates and actual loss experience.
If possible, the Bank prefers loan restructuring to the realisation of loan collateral. Loan restructuring can result in changes
in payment schedules or in loan terms and conditions. The Bank continuously evaluates whether a borrower meets all the
loan terms and conditions after the restructuring and whether it is probable that all future loan repayment amounts will
be received, i.e. that no impairment of the restructured loans has occurred.
When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written
off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent
recoveries of amounts previously written off decrease the amount of the impairment losses in the income statement.
Annual Report 2010
55
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the
impairment loss is reversed through the income statement.
Assets carried at fair value
The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial
assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in
the fair value of the security below its cost is considered in determining whether the assets are impaired.
If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in
other comprehensive income, is transferred from other comprehensive income and recognised in the income statement.
Impairment losses recognised in the income statement on equity instruments are not reversed through the income
statement.
If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase
can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the
impairment loss is reversed through the income statement.
(i) Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are recorded at cost including value added tax. Amortisation /
depreciation is calculated by applying the straight-line method over their estimated useful lives which are as follows:
Buildings and constructions
45 years
Equipment
15 years
Fixtures and fittings
8 years
Motor vehicles
4 years
Information technologies
4 years
Software
3 years
Land is not depreciated.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item
can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial
period in which they are incurred.
Assets that are subject to amortisation are reviewed for impairment at the reporting date to determine whether events or
changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written
down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable
amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use.
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software. These costs are amortised on the basis of the expected useful lives.
Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred.
Costs that are directly associated with the production of identifiable and unique software products controlled by the
Bank, and that will probably generate economic benefits beyond one year, are recognised as intangible assets. Computer
software development costs recognised as assets are amortised over their useful lives.
56
Annual Report 2010
(J) Leases
Bank as a lessee
Leases entered into by the Bank are primarily operating leases. The total payments made under operating leases are
charged to the income statement on a straight-line basis over the period of the lease and recognised as an “Administrative
expense”.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor
by way of penalty is recognised as an expense in the period in which termination takes place.
Bank as a lessor
The Bank leases part of its property to third parties under operating leases. Assets leased to third parties under operating
leases are included as “Property, plant and equipment” in the statement of financial position. They are depreciated over
their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of
any incentives given to lessees) is recognised on a straight-line basis over the lease term as “Other operating income” in
the income statement.
(K) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months
maturity from the date of acquisition, including: cash and non-restricted balances with central banks, treasury bills and
other eligible bills, loans and advances to banks repayable on demand and amounts due to banks repayable on demand.
Minimum obligatory reserves, which the Bank holds with the Czech National Bank, are not included.
(L) Value added tax
The Bank is group registered for value added tax (“VAT”).
Intangible assets and property, plant and equipment are stated at acquisition cost including the appropriate VAT. In
accordance with applicable legislation, the Bank claims input VAT in the amount of 1%, as the ratio of the taxable income
to the total income of the Bank is lower than 1%. Other input VAT (i.e. except for intangible assets and property, plant and
equipment) is expensed immediately.
(M) Income taxes
There are two components of income tax expense: current and deferred income tax.
Deferred tax is provided on all temporary differences between the carrying amount of an asset or liability in the
statement of financial position and its tax base using the full liability method. A deferred tax asset is recognised to the
extent that it is probable that future taxable profit will be available against which this asset can be utilized.
The approved tax rate for the period in which the Bank expects to utilise the deferred tax asset or settle the deferred tax
liability is used for the deferred taxation calculation.
Deferred tax related to the fair value revaluation of available-for-sale securities, which is charged or credited directly to
equity, is also credited or charged directly to equity.
The current income tax expense approximates cash to be paid or refunded in respect of income taxes for the appropriate
period. The calculation of current income tax expense is based on the income tax rate and tax legislation applicable as at
the reporting date.
(N) Staff costs, pensions and social fund
Staff costs are included in “Administrative expense” and include emoluments of the Board of Directors, Supervisory Board
and Audit Committee.
The Bank makes contributions on behalf of its employees to a defined contribution pension plan. Contributions paid by the
Bank are accounted for directly as an expense and recognised as “Staff costs”.
Annual Report 2010
57
(O) Related parties
The Bank’s related parties are as follows:
–
members of the Bank’s body corporate, key management personnel and close members of their families;
–
entities that directly or indirectly control the Bank and their key management personnel;
–
entities directly or indirectly controlled or jointly controlled by those entities, which directly or indirectly control the Bank.
Other related parties as defined in IAS 24 are not relevant for the Bank. The following related party balances and
transactions are disclosed in Notes 5, 7, 8, 9, 16, 17, 19, 20, 22, 23, 24:
–
the total amount of loans provided by the Bank to members of the Board of Directors, Supervisory Board, Audit
Committee, other key management personnel of the Bank and other related parties;
–
receivables from and liabilities to entities controlling the Bank directly or indirectly;
–
receivables from and liabilities to entities directly or indirectly controlled or jointly controlled by those entities, which
directly or indirectly control the Bank;
–
interest income and interest expense incurred in respect of related parties;
–
other income and expenses incurred in respect of related parties;
–
staff costs incurred in respect of related parties.
The outstanding balances arose in the ordinary course of business and are subject to the substantially same terms,
including interest rates and security, as for comparable transactions with third party counterparties.
(P) Financial liabilities
Liabilities are recognised initially at fair value, net of transaction costs incurred. Liabilities are subsequently stated at
amortised cost; the difference between received performance (net of transaction costs) and the nominal value of liabilities
is recognised in the income statement over the period of the liabilities using the effective interest method.
Financial liabilities are derecognised from the statement of financial position when the obligation to provide cash flows in
relation to financial liability has expired, has been cancelled or has been transferred.
Financial liabilities include due to banks, due to customers and liabilities from debt securities.
(Q) Provisions
Provisions are recognised when the Bank, as a result of a past event, has a present obligation (legal or constructive) and
it is probable that it will be required to provide performance to counterparty and a reliable estimate of the obligation
amount can be made. The estimate is recognised in the income statement. Upon the performance, the provision is
derecognised against actual costs incurred.
(R) IFRS accounting and reporting developments
The accounting policies adopted are consistent with those used in the previous financial year except that the Bank has
adopted the following standards, amendments and interpretations effective as of or before 1 January 2010. Their adoption
did not have any effect on the financial performance or position of the Bank. However, they did give rise to additional
disclosures.
IFRS 1 First-time Adoption of IFRS (Amendments) is effective for periods beginning on or after 1 January 2010. The
amendment deals with accounting for oil and gas assets and with determining whether an arrangement contains a lease.
IFRS 2 Share-based Payment (Amendments) is effective for periods beginning on or after 1 January 2010. This
amendment clarifies the scope and accounting for group cash-settled share-based payment. The amendment incorporates
the interpretations IFRIC 8 (Scope of IFRS 2) and IFRIC 11 (IFRS 2 – Group and Treasury Share Transactions).
IFRS 3 Business Combinations (Amendments) is effective for periods beginning on or after 1 July 2009. The amendment
broadens the scope of the original standard, and amends the definition of business combinations, measurement of noncontrolling interests and accounting for transaction costs.
Business combinations will be measured at fair value of the acquiree and the costs in connection with the business
combination will not be included in the cost of the acquiree. The assets acquired and liabilities assumed will be measured
at their fair value at the date of acquisition.
58
Annual Report 2010
IAS 27 Consolidated and Separate Financial Statements (Amendments) is effective for periods beginning on or after
1 July 2009. The amendment relates to accounting of non-controlling interests and the loss of control of a subsidiary. The
amendment requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as
a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor
will it give rise to a gain or loss.
IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items (Amendments) is effective for
periods beginning on or after 1 July 2009. The amendment provides additional guidance on the designation of a hedged
item. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow
variability of a financial instrument as a hedged item.
IFRIC 17 Distributions of Non-cash Assets to Owners is effective for periods beginning on or after 1 July 2009. The
interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to
shareholders either as a distribution of reserves or as dividends.
IFRIC 18 Transfers of Assets from Customers is effective for periods beginning on or after 1 July 2009. The interpretation
clarifies transfers of assets used to connect customers to a public utility network.
Improvements to IFRS (April 2009) were issued primarily with a view to removing inconsistencies and to clarify wording.
There are separate transitional provisions for each standard and interpretation.
Certain new standards, amendments and interpretations have been published that are mandatory for preparing the Bank’s
financial statements for the periods beginning on or after 1 January 2011. The Bank has not decided for their earlier adoption.
The Bank expects the standards, amendments and interpretations described below to be adopted in accordance with the
respective effective dates. Unless otherwise described below, the new standards, amendments and interpretations are not
expected to significantly affect the Bank’s financial statements.
IFRS 1 First-time Adoption of IFRS (Amendments) is effective for periods beginning on or after 1 July 2010. The
amendment provides guidance on limited exemption from capital comparative IFRS 7 disclosures for first-time adopters.
IFRS 9 Financial Instruments (the first phase) is effective for periods beginning on or after 1 January 2013. The standard
has not been endorsed by the European Union to date. The project to replace the current IAS 39 Financial Instruments:
Recognition and Measurement has been divided into three phases. The first phase focuses on classification and
measurement of financial instruments.
The new standard has reduced the number of asset measurement categories from four to two. Financial assets are
classified at amortised cost or fair value on the basis of both:
–
The entity’s business model for managing financial assets; and
–
The contractual cash flow characteristics of the financial asset.
Debt instruments may be measured at amortised cost if both conditions are met:
–
The asset is held within the business model whose objective is to hold the assets to collect the contractual cash
flows; and
–
The contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest
on the principal outstanding.
Reclassifications between the two asset categories are required when the entity changes its business model. IFRS 9 retains
a fair value option. At initial recognition entities can elect to measure financial assets at fair value, although they would
otherwise qualify for amortised cost measurement. IFRS 9 removes the separation of derivatives and the instrument is
assessed in its entirety as to whether it fulfils the above two conditions.
All equity instruments are measured at fair value either through Other Comprehensive Income or profit or loss.
Annual Report 2010
59
Financial liabilities are classified and measured either at amortised cost or at fair value through profit or loss. A financial
liability can be designated as measured at fair value through profit or loss if doing so results in more relevant information,
because either:
–
It eliminates or reduces a measurement or recognition inconsistency;
–
A group of financial liabilities is managed and its performance is evaluated on a fair value basis.
Original requirements related to derecognition of financial assets and financial liabilities are carried forward unchanged
from IAS 39 to IFRS 9.
The standard will have a significant impact on the Bank financial statements, however due to the uncertainties about the
provisions of the subsequent two phases the impact of the IFRS 9 is not reasonably estimable. The IASB’s work on the second
phase on impairment of financial instruments and the third phase on hedge accounting is still ongoing and the completion of
the entire project is expected in 2011.
IAS 24 Related Party Disclosures (Revised) is effective for periods beginning on or after 1 January 2011. The standard
amends a definition of related parties and government agencies and introduces a partial exemption of disclosure
requirements for government-related entities.
IAS 32 Financial Instruments: Presentation (Amendments) is effective for periods beginning on or after 1 February
2010. This amendment proposes a limited change specific to rights issues.
IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendments) is effective for periods beginning on or
after 1 January 2011. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The
amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments is effective for periods beginning on or after 1 July
2010. The interpretation addresses the accounting whereby the entity extinguishes financial liability by issuing equity shares.
Improvements to IFRS (May 2010) were issued primarily with a view to removing inconsistencies and to clarify wording.
There are separate transitional provisions for each standard and interpretation.
3 Financial Risk Management
(A) Risk management organization
Board of Directors
The Board of Directors is responsible for the Bank’s general approaches to risk management and approves risk
management strategies and procedures.
Credit risk and concentration risk are managed by the Credit Risks and Policies Department. Operational risk, interest rate
risk and liquidity risk are managed by the Risk and Compliance Department.
Supervisory Board
The Supervisory Board monitors the structure of the risk management processes in the Bank.
Audit Committee
The Audit Committee is responsible for assessing effectiveness of internal controls, of the internal audit department,
and of the risk management system. It also monitors the audit of financial statements and assesses external auditor’s
independence. In addition, the Audit Committee supervises the compliance of Bank’s processes with laws and regulations.
Internal Audit Department
Risk management processes are periodically reviewed by the Internal Audit Department. The reviews relate to the setting
and monitoring of risk management processes in the Bank. The Internal Audit Department reports the results of the
reviews to the Bank’s management, and provides the Supervisory Board and the Board of Directors with findings and
recommendations.
60
Annual Report 2010
(B) Strategy in using financial instruments
The Bank operates as a specialized mortgage bank. The Bank’s activities are related to the provision of mortgage loans,
primarily to private individuals (since 2008 exclusively). The main source of financing for these loans is represented by
issued mortgage bonds and medium-term inter-bank deposits. In 2009, it was decided to gradually abandon funding of
the Bank’s activities through the issue of mortgage bonds and to increasingly use ČSOB’s financial resources through loans
and deposits. The equity of the Bank along with short-term inter-bank credit lines are used as complementary financing
sources. The Bank does not accept primary deposits from clients, except for selected bulk-depositors and clients resources
designated for the repayment of mortgage loans. The share of primary deposits of total liabilities is less than 1% in the long
term.
In planning for funds, the Bank considers the characteristics of its loan portfolio according to maturity (fixing) of interest
rates and the expectation for new loan contracts within an active statement of financial position management. Using this
approach, the Bank makes an effort to mitigate interest rate risk arising from the timing difference between the Bank’s
assets and liabilities. As mortgage bonds represent the principal source of financial resources (with a declining importance
in the future) and the crucial profit driver is the margin between interest income from loans and interest expense on
funds, the Bank derives its interest rate policy from mortgage bond interest rates along with its resource costs, taking into
account the conditions in the highly competitive market of mortgage loans.
The Bank purchases bonds issued by the Ministry of Finance and treasury bills issued by the CCNB to control liquidity risk
and meet liquidity limits. The Bank does not have any other securities. The Bank does not issue bank guarantees. The Bank
does not use financial derivatives and all of its transactions are denominated in Czech Crowns.
(C) Credit risk
The Bank is exposed to credit risk, which is the risk that counterparty will not settle its liabilities in time or in full, leading
to a financial loss.
The Bank uses both internal and external resources to gather information for credit risk management purposes. Internal
resources include the Bank’s own portfolio; external resources mainly include credit registers, which automatically provide
positive and negative data as part of the application process. The Bank makes extensive use of the database, which serves
as a basis for credit risk modelling, application process, debt recovery and financial impact calculations.
Credit risk measurement
The Bank uses the IRB (Internal Rating Based) approach to calculate capital requirements for its retail and non-retail
exposures. As a result, credit risk is measured, monitored and managed based on the principles of this approach. For the
retail exposure, statistical models have been developed for PD (Probability of Default), LGD (Loss Given Default) and
EAD (Exposure at Default). Risk factors are determined based on risk-homogenous sets of exposure (so called pools). The
models are validated and reassessed on a regular basis.
Statistical models, whose purpose is to predict the probability of default, are also used in the application process in the
form of application scorecards that measure risk-sensitive characteristics.
The credit risk monitoring process is based on aggregated data and looks particularly at the development of default within
the different sub-portfolios classified by product, distribution or client profiles. Different product portfolios are followed
up at least monthly based, inter alia, on so-called vintages (time elapsed between loan origination and default). This
provides information about portfolio developments in different periods.
Exposure limits and concentration risk
The Bank manages the level of credit risk accepted by setting the limits of risks acceptable in relation to one debtor or to
a group of debtors. Such risks are periodically monitored and reviewed on an annual basis, and in the event of negative
indicators are examined even more frequently. The limits set by the Bank are approved by the Board of Directors.
The credit portfolio of the Bank may be characterized as highly diversified, particularly with regard to individual debtors.
It comprises of a large number of small loans to clients employed in different industries, trades and regions, which at the
same time include different age groups, professions and qualifications. The only exception is a loan of CZK 1,802 million
Annual Report 2010
61
provided to a ČSOB Group company, Centrum Radlická, a.s. (2009: CZK 1,802 million). With the exception of this loan, the
Bank is not exposed to an increased risk resulting from credit exposure concentration in relation to a particular entity or
a group of interrelated parties.
Application process
The application process in retail is based on application scorecards for new customers and their individual assessment.
Score calculations are fully automated. The application process makes extensive use of credit registers (delivering both
positive and negative information) and additional external resources.
Collateral and method of collateral valuation
The Bank uses commonly tradable real estate and units, in particular residential premises, as eligible loan collateral. The
main collateral class includes residential premises, i.e., houses and appartments. Other acceptable collateral includes
building land, recreational facilities, apartment houses, universal operating facilities - non-residential premises and offices.
The analysis of collateral values, i.e. determination of the current prices and long-term value of the pledged real estate
is based on market valuation principles. The analysis is performed by trained and accredited personnel of the Bank or
selected external appraisers.
The Bank monitors the market value of collateral on a regular basis and requests additional collateral in accordance with
the underlying loan agreement should the value of collateral decrease below the required level.
Recovery of claims
When dealing with impaired loans, the Bank uses both legal proceedings and out-of-court settlements. Among the
measures applied most frequently are modifications to payment schedules, changes in the debtor entity, sale of loans,
restructuring measures, sale of collateral (real estate properties) at auction as well as the direct sale of properties,
proposals for payment orders and executory sale of properties, bankruptcy proceedings, etc. The Bank also uses the
services of private bailiffs. The Bank prefers out-of-court settlements whenever possible.
Analysis of financial instruments
The table below analyses the structure of the financial assets of the Bank based on the maturity and classification thereof.
The total amounts represent the maximum credit risk related to the individual asset class. For assets carried at fair value
the current credit risk is shown; the maximum credit risk may increase in the future due to changes in the fair values of
assets.
31 December 2010
Not impaired instruments
Assets
Impaired instruments
Total
Not overdue
CZK million
1–30 days
overdue
CZK million
Watched
CZK million
Doubtful
CZK million
Loss
CZK million
CZK million
21
0
0
0
0
21
9
0
0
0
0
9
9
0
0
0
0
9
– Available-for-sale securities
17,906
0
0
0
0
17,906
130,052
7,956
3,049
2,449
1,564
145,070
– Individuals
125,628
7,929
3,005
2,448
1,560
140,570
– Legal entities
4,424
27
44
1
4
4,500
147,988
7,956
3,049
2,449
1,564
163,006
Undrawn commitments
6,855
400
42
15
5
7,317
– Individuals
6,855
400
42
15
5
7,317
– Legal entities
0
0
0
0
0
0
Total
62
Annual Report 2010
31 December 2009
Impaired instruments
Total
Not overdue
CZK million
1–30 days
overdue
CZK million
19
0
0
0
0
19
832
0
0
0
0
832
– Available-for-sale securities
413
0
0
0
0
413
– Held-to-maturity securities
Assets
Watched
Doubtful
Loss
CZK million CZK million CZK million CZK million
419
0
0
0
0
419
26,949
0
0
0
0
26,949
123,566
7,563
2,614
2,516
500
136,759
– Individuals
118,711
7,547
2,493
2,514
498
131,763
– Legal entities
4,855
16
121
2
2
4,996
151,366
7,563
2,614
2,516
500
164,559
Undrawn commitments
Total
6,866
335
132
39
3
7,375
– Individuals
6,866
335
132
39
3
7,375
– Legal entities
0
0
0
0
0
0
Criteria for including loans into the loan portfolio
A loan is classified as not impaired if principal or interest payments are not overdue for more than 30 days, or the
information about the debtor’s financial / economic position is available, i.e. is unavailable for less than 60 days, and the
instrument was not restructured within the previous 24 months.
Watched loans
A loan is classified as a watched advance if principal or interest payments are overdue for more than 30 days and less than
91 days, or the information about the debtor’s financial / economic position is unavailable for more than 60 days and less
than 91 days, or the loan was restructured within the previous 6 to 24 months.
Doubtful loans
A loan is classified as a doubtful advance if principal and interest payments are overdue for more than 90 days and
less than 361 days or the information about the debtor’s financial / economic position is unavailable for more than 90
days and less than 361 days or the loan was restructured within the previous 6 months. This category also includes
the advances of debtors in administrative proceedings, except for bankruptcy, settlement or execution proceedings or
liquidation.
Loss loans
A loan is classified as a loss advance if principal and interest payments are overdue for more than 360 days, or the
information about the debtor’s financial / economic position is unavailable for more than 360 days, or there are petitions
against the debtor of either bankruptcy, settlement or execution proceedings or the debtor is in liquidation.
Annual Report 2010
63
Carrying amount of financial instruments that would otherwise be overdue whose terms have been renegotiated
2010
CZK million
2009
CZK million
1,029
440
Loans and advances to customers incl. undrawn commitments
– Individuals
– Legal entities
Total
24
18
1,053
458
(D) Market risk
The Bank takes on exposure only to interest rate risk which arises from the time structure differences of assets and
liabilities. The Bank does not take exposure to currency and equity risk. For further details about these types of risks see
below.
(E) Derivative financial instruments
The Bank does not utilise any derivative financial instruments.
(F) Currency risk
The financial positions and cash-flows of the Bank are not exposed to the risk of changes in foreign exchange rates, since
all the operations of the Bank are performed in Czech crowns, except for a limited amount of operational transactions.
(G) Interest rate risk
The financial position and cash-flows of the Bank are exposed to the risk of movements of market interest rates due to
the different time structure of the items on the asset side and liabilities side of the statement of financial position.
The Bank uses the basis point value method (hereinafter “BPV”) as its main method of estimating the interest rate risk
that its positions are exposed to. The Board of Directors sets the limit of acceptable risk for the BPV method which is
monitored on a weekly basis. The BPV is based on a calculation of the present value of differences between assets and
liabilities, including interest cash flows, reflecting a time spread determined by their maturity dates or revaluation, as
appropriate.
The BPV compares the present value of the above differences in terms of the current yield curve and a parallel shift of the
yield curve by +1bps (see table).
For operational management and detailed analysis of interest-rate exposures, the Bank uses the spread BPV method,
where the overall BPV is broken down to different time spreads. The spread BPV position is monitored on a weekly basis,
and the limits for selected time bands are set by the Board of Directors.
In compliance with the parent company’s methodology, the liabilities reflect simulated cash flows from capital funds and
the estimated drawing of approved loans. Other liabilities include the premium from mortgage bonds issued above par,
assigned pursuant to the date of payment of the coupon relating to respective mortgage bond issues.
To quantify a potential loss amount for unfavourable interest rate development, the Bank performs stress testing of interest
rate risk on a quarterly basis. As recommended by the Basel Committee on Banking Supervision, the basic stress testing is
based on the calculation of the present value of differences between interest rate sensitive assets and liabilities in individual
time spreads for yield curve shifts, while an overall impact of an interest rate shock should not cause a capital decrease
exceeding 20%. The calculation takes into account monthly spreads and parallel shifts of the yield curve by 200 bps.
With respect to interest rate risk, loans are continuously analyzed on a premature redemption. The monthly volume of
extraordinary redemption outside the period of the interest rate re-fixing is below 1% of the overall volume of loans and
thus rather insignificant. Moreover, by the most common products (mortgage loans to individuals) sanctions for premature
redemption may apply, which compensate for the interest-rate risk incurred by the Bank.
64
Annual Report 2010
The following table summarizes the spread BPV values used to operatively monitor and control the interest-rate risk, and
documents the interest rate risk that the Bank’s positions are exposed to.
31 December 2010
1M
3M
6M
1Y
3Y
5Y
10Y
15Y
20Y
25Y
30Y
BPV value in CZK million
0
0
0
4
4
(8)
1
1
2
1
0
Total BPV (in CZK million) 5
1M
3M
6M
1Y
3Y
5Y
10Y
15Y
20Y
25Y
30Y
Hodnota BPV v mil. Kč
0
0
0
3
8
(11)
5
0
1
1
0
Total BPV (in CZK million) 7
31 December 2009
The following table summarizes the sensitivity of net interest income and equity to changes in market interest rates,
provided the other market conditions remain constant.
The sensitivity of net interest income represents the change of net interest income within a period of one year arising
from the fluctuation of the interest rates of financial assets and liabilities that bear a variable interest rate and are held by
the Bank as at 31 December 2010 and 31 December 2009, respectively.
The sensitivity of equity represents the change of the revaluation of available-for-sale securities bearing a fixed interest
rate arising from possible movements of market interest rates. The analysis of equity sensitivity also reflects the maturity
of financial instruments. The overall sensitivity of the equity is based on the assumption of even/parallel shifts of yield
curves, whereas the analysis taking into account the maturity of the financial instruments shows the sensitivity thereof to
non-parallel shifts of the yield curves.
31 December 2010
Basis points change
10
(10)
Sensitivity of equity
Sensitivity of the net
interest income
CZK million
0–1 year
CZK million
1–3 year
CZK million
3–5 years
CZK million
Over 5 years
CZK million
Total
CZK million
0.2
0
0
0
0
0
(0.2)
0
0
0
0
0
31 December 2009
Basis points change
10
(10)
Sensitivity of equity
Sensitivity of the net
interest income
CZK million
0–1 year
CZK million
1–3 year
CZK million
3–5 years
CZK million
Over 5 years
CZK million
Total
CZK million
(0.6)
(0.32)
0
0
0
(0.32)
0.6
0.32
0
0
0
0.32
(H) Liquidity risk and maturity analysis
Liquidity risk arises from situations when the Bank is not able to meet its liabilities within the due date or prematurely. To
reduce the risk, the Bank performs regular monitoring of expected future cash flows and liquidity.
The Bank is exposed to daily calls on its available cash resources especially due to drawdown on mortgage facilities and
the repayment of inter-bank transactions. The Bank does not maintain cash resources to meet all of these needs as the
Bank uses its experience of patterns of mortgage loan drawdown and repayments of inter-bank loans to predict a safety
Annual Report 2010
65
level of reinvestment of maturing funds with a high level of certainty. The Board of Directors sets limits on the maximum
allowed liquidity gap (cumulated) in individual time buckets, which is monitored on a monthly basis.
The table below analyses assets and liabilities of the Bank into relevant maturity bands based on the period remaining at
the reporting date to contractual maturity.
31 December 2010
Assets
Within
1 month
CZK
million
1–3
months
CZK
million
3–12
months
CZK
million
1–5 years
CZK
million
Over
5 years
CZK
million
Not
specified
CZK
million
Total
CZK
million
21
0
0
0
0
0
21
0
0
0
0
0
9
9
12
148
176
7,500
10,070
0
17,906
1,985
1,184
3,785
20,596
117,520
0
145,070
Other assets
6
0
4
0
0
227
237
Total assets
2,024
1,332
3,965
28,096
127,590
236
163,243
124
312
2,357
4,520
4
0
7,317
3,623
2,543
3,034
30,300
200
0
39,700
Undrawn commitments
Liabilities
Due to banks
Due to customers
Other liabilities
Total liabilities
Net assets / (liabilities)
452
0
0
3
0
0
455
29
479
4,989
5,647
90,422
0
101,566
0
0
115
0
0
0
115
59
92
0
0
0
171
322
4,163
3,114
8,138
35,950
90,622
171
142,158
(2,015)
(1,470)
(1,816)
(3,334)
36,972
65
28,402
Within
1 month
CZK
million
1–3
months
CZK
million
3–12
months
CZK
million
1–5 years
CZK
million
Over
5 years
CZK
million
Not
specified
CZK
million
Total
CZK
million
19
0
0
0
0
0
19
31 December 2009
Assets
0
0
823
0
0
9
832
1,485
4,564
8,090
2,180
10,630
0
26,949
1,665
1,220
4,081
19,352
110,441
0
136,759
Other assets
10
0
14
0
0
228
252
Total assets
3,179
5,784
13,008
21,532
121,071
237
164,811
143
369
2,678
4,185
0
0
7,375
156
146
3,294
28,800
200
0
32,596
Undrawn commitments
Liabilities
Due to banks
Due to customers
491
0
0
0
3
0
494
2,100
2,733
5,782
6,101
94,136
0
110,852
0
0
59
0
0
0
59
Other liabilities
36
62
4
0
0
149
251
Total liabilities
2,783
2,941
9,139
34,901
94,339
149
144,252
539
3,212
6,547
(9,184)
26,732
88
27,934
66
Annual Report 2010
The table below analyses contractual undiscounted cash flows from financial assets and liabilities.
31 December 2010
Financial assets
Within
1 month
CZK
million
1–3
months
CZK
million
3–12
months
CZK
million
1–5 years
CZK
million
Over
5 years
CZK
million
Not
specified
CZK
million
Total
CZK
million
21
0
0
0
0
0
21
0
0
0
0
0
9
9
12
178
420
9,507
14,882
0
24,999
1,983
2,937
9,668
49,321
192,683
0
256,592
Total financial assets
2,016
3,115
10,088
58,828
207,565
9
281,621
3,614
2,556
3,524
33,344
325
0
43,363
Financial liabilities
Due to banks
Due to customers
Total financial liabilities
Net financial assets / (liabilities)
452
0
0
3
0
0
455
0
572
7,253
19,770
130,577
0
158,172
4,066
3,128
10,777
53,117
130,902
0
201,990
(2,050)
(13)
(689)
5,711
76,663
9
79,631
Within
1 month
CZK
million
1–3
months
CZK
million
3–12
months
CZK
million
1–5 years
CZK
million
Over
5 years
CZK
million
Not
specified
CZK
million
Total
CZK
million
19
0
0
0
0
0
19
31 December 2009
Financial assets
0
0
836
0
0
9
845
1,485
4,589
8,529
4,125
14,882
0
33,610
1,825
4,428
19,047
43,622
164,272
0
233,194
Total financial assets
3,329
9,017
28,412
47,747
179,154
9
267,668
162
178
3,751
32,198
333
0
36,622
Due to banks
491
0
0
0
3
0
494
Due to customers
2,084
2,870
8,519
23,672
153,604
0
190,749
Total financial liabilities
2,737
3,048
12,271
55,870
153,940
0
227,865
592
5,969
16,141
(8,123)
25,214
9
39,803
Net financial assets / (liabilities)
Annual Report 2010
67
The table below analyses expected cash flows from assets and liabilities.
31 December 2010
Assets
Within
1 year
CZK million
Over
1 year
CZK million
Total
CZK million
21
0
21
0
9
9
336
17,570
17,906
38,880
106,190
145,070
Other assets
10
227
237
Total assets
39,247
123,996
163,243
9,200
30,500
39,700
Liabilities
Due to banks
Due to customers
452
3
455
5,497
96,069
101,566
115
0
115
Other liabilities
151
171
322
Total liabilities
15,415
126,743
142,158
23,832
(2,747)
21,085
Within
1 year
CZK million
Over
1 year
CZK million
Total
CZK million
19
0
19
31 December 2009
Assets
823
9
832
14,139
12,810
26,949
53,217
83,542
136,759
Other assets
24
228
252
Total assets
68,222
96,589
164,811
3,596
29,000
32,596
491
3
494
10,615
100,237
110,852
59
0
59
Liabilities
Due to banks
Due to customers
Other liabilities
102
149
251
Total liabilities
14,863
129,389
144,252
53,359
(32,800)
20,559
68
Annual Report 2010
4 Significant Accounting Estimates and Judgements
(A) Impairment of loans
The Bank assesses its loan portfolio on a monthly basis. The Bank regularly reviews whether there is any observable data
indicating that there is a measurable decrease in the estimated future cash-flows from a portfolio of loans before the
individual loan is impaired which may influence the quality of the portfolio. The evidence that the asset is impaired may
include observable data indicating an adverse change in the payment status of borrowers as a group or related national
or local socio-economic conditions that correlate with defaults on the assets in the group. The Bank’s management uses
estimates based on the historical loss experience of the loan portfolio.
(B) Held-to-maturity investments
In compliance with IAS 39 and related regulations, the Bank must exercise judgement in classifying financial assets as
held-to-maturity investments at the date of acquisition as it must evaluate if it has the positive intention and ability to
hold the asset until maturity. If the Bank fails to fulfil these conditions and sells the investment before its maturity under
other than specific circumstances, for example, selling an insignificant amount close to maturity, it will be required to
reclassify the entire class as available-for-sale. In such cases, the investments are revalued from amortized cost to fair
value.
The Bank had no held-to-maturity investments as at 31 December 2010. As at 31 December 2009, the revaluation of
held-to-maturity investments to fair value would increase the Bank’s equity by CZK 6 million.
(C) Available-for-sale securities
The Bank determines that available-for-sale instruments are impaired when there has been a significant or prolonged
decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. Also, for
an impairment assessment of equity instruments evidence of deterioration in the financial health of the issuer, industry
and sector performance, changes in technology, operational and financing cash flows are taken into account.
5 Interest and Similar Income
Interest on loans and advances to customers
2010
CZK million
2009
CZK million
7,855
6,914
Interest on investment securities
8
34
– available-for-sale securities
2
12
– held-to-maturity securities
6
22
Interest on balances with central bank and loans and advances to banks
784
689
8,647
7,637
Included within interest income for 2010 is CZK 502 million (2009: CZK 194 million) of interest income accrued on
impaired loans and advances.
In 2010, interest income includes CZK 784 million related to ČSOB (2009: CZK 689 million) and CZK 70 million related to
Centrum Radlická a.s. (2009: CZK 70 million).
Annual Report 2010
69
2010
CZK million
2009
CZK million
3,679
4,062
0
1
Interest on liabilities from debt securities
Interest on due to customers
Interest on due to banks
1,306
891
4,985
4,954
Interest expense includes CZK 4,610 million related to ČSOB, Českomoravská stavební spořitelna, a.s. (“ČMSS”) and
ČSOB Investment Banking Services, a.s. (“ČSOB IBS”), (2009: CZK 4,223 million related to ČSOB, ČMSS, ČSOB IBS, ČSOB
Investiční společnost, a.s. (“ČSOB IS”) and Auxilium, a.s.).
6 Fee and Commission Income and Expense
2010
CZK million
2009
CZK million
401
361
7
6
408
367
17
16
Credit related fees
Commissions from Ministry of Regional Development
Brokerage fees paid and other fees and commissions
17
16
391
351
2010
CZK million
2009
CZK million
Rental income
6
4
Income from sale of property
1
1
Net fees and commissions income
7 Other Operating Income
Income from a premature termination of money market deposits
Other income
Reversal / use of provisions (Note 10)
151
0
4
9
3
0
165
14
All lease contracts relate to the lease or sub-lease of real estate and are concluded for an indefinite period of time;
therefore, the value of future minimum payments received from these contracts cannot be determined.
All money market deposits that were prematurely terminated were entered into with ČSOB.
Other Operating Expense
2010
CZK million
2009
CZK million
160
0
3
3
163
3
Expense from a premature termination of money market deposits
Other expenses
All money market deposits that were prematurely terminated were entered into with ČSOB.
70
Annual Report 2010
8 Administrative Expense
Staff costs (Note 9)
2010
CZK million
2009
CZK million
410
376
Marketing and public relations expenses
65
58
Amortisation of intangible assets and depreciation of property, plant and equipment (Note 18)
52
41
Operating leases
42
43
Other real estate expenses
9
8
Creation of provisions (Note 10)
0
3
Other administrative expenses
96
89
674
618
In 2010 the expense associated with the operation of vehicles relating to ČSOB Leasing, a.s. (“ČSOB L”) amounted to
CZK 3 million (2009: CZK 4 million). Operating leases due to ČSOB were CZK 21 million (2009: CZK 22 million) and other
services amounted to CZK 11 million (2009: CZK 7 million).
Future minimum payments under operating lease
2010
CZK million
2009
CZK million
Within 1 year
10
8
1–5 years
15
8
Over 5 years
0
0
25
16
The information above relates to a lease contract for non-residential premises which was concluded for a definite period
of time. All other lease contracts also relate to the lease or sub-lease of real estate, however, these were concluded for
an indefinite period of time; therefore, the value of future minimum payments received from these contracts cannot be
determined.
9 Staff Costs
Wages and salaries
Salaries and bonuses of the Board of Directors members
Salaries and bonuses of the Supervisory Board members and Audit Committee
2010
CZK million
2009
CZK million
217
206
29
24
2
1
Salaries and bonuses of other key management personnel
47
42
Social and health insurance
93
83
Other personnel costs
22
20
410
376
Annual Report 2010
71
Staff statistics
Average number of employees
2010
2009
426
436
Number of Board of Directors members
4
4
Number of Supervisory Board members
6
5
Number of Audit Committee members
3
0
Salaries and bonuses of the members of statutory bodies represent the remuneration from the employment and from the
membership in statutory bodies.
10 Provisions
In 2009 a restructuring provision of CZK 2 million was established due to a fundamental reorganisation of the Bank’s
process relating to correspondence and a part of the process relating to the electronic processing of existing loan
agreements. The change resulted from the outsourcing of these services to the parent company, ČSOB. A material portion
of the restructuring was performed in 2009. The project was completed in the first half of 2010, when a substantial
portion of the provision was used and the remaining portion reversed.
In 2009 a provision for legal disputes of CZK 1 million was established due to the risk of cash outflows arising from legal
claims. The litigation was closed in 2010 and, accordingly, the grounds for maintaining the provision ceased.
Restructuring
provision
CZK million
Provision for legal
disputes
CZK million
Total
CZK million
Opening net book value
0
0
0
Creation of provisions
2
1
3
Reversal of provisions
0
0
0
Year ended 31 December 2009
Use of provisions
0
0
0
Closing net book value
2
1
3
2
1
3
0
0
0
Reversal of provisions
(1)
(1)
(2)
Use of provisions
(1)
0
(1)
0
0
0
31 December 2010
CZK million
31 December 2009
CZK million
11 Impairment Losses on Assets
The Bank has the following allowances for assets:
Allowances
Allowances for loans and advances to customers (Note 17)
1,857
843
Total allowances for financial assets
1,857
843
Allowances for other assets (Note 19)
1
0
Total allowances for operating assets
1
0
1,858
843
Total allowances
72
Annual Report 2010
The movements in allowances can be analysed as follows:
Loans and
Loans and
Property, plant
advances to
advances to
Operating assets
and equipment
customers –
customers –
– individually
– individually
individually
collectively
created allowances created allowances created allowances created allowances
CZK million
CZK million
CZK million
CZK million
As at 1 January 2009
86
185
Use of allowances
(10)
Reversal of allowances
(36)
Creation of allowances
Transfers between categories
Total
CZK million
18
0
289
(126)
0
0
(136)
(31)
(18)
0
(85)
149
626
0
0
775
(24)
24
0
0
0
165
678
0
0
843
(2)
(83)
0
0
(85)
Use of allowances
Reversal of allowances
(73)
(117)
0
0
(190)
Creation of allowances
200
1,089
0
1
1,290
Transfers between categories
(4)
4
0
0
0
286
1,571
0
1
1,858
Net increase in allowances for impairment losses on assets
Recoveries
Write-offs and net loss from the assignment of receivables
2010
CZK million
2009
CZK million
(1,015)
(554)
1
0
(79)
(136)
(1,093)
(690)
2010
CZK million
2009
CZK million
12 Income Tax Expense
2,288
1,737
Tax calculated at applicable tax rate of 19% (2009: 20%)
435
348
Tax effect of non-taxable income
(34)
(41)
10
5
411
312
29
36
Tax effect of tax non-deductible expenses
Current tax expense 19% (2009: 20%)
Deferred tax (income) / expense
Income tax expense
Effective tax rate
440
348
19.23%
20.02%
Annual Report 2010
73
Net deferred tax asset / (liability) includes the following items:
2010
CZK million
2009
CZK million
7
6
Deferred tax liability
Accelerated tax depreciation
Application of effective interest rate to loans and advances to customers
103
72
110
78
Net profit/(-)loss from revaluation of available-for-sale assets (Note 15)
0
(1)
0
1
Other
4
0
4
0
(106)
(78)
(78)
(41)
(1)
0
(31)
(32)
1
(2)
0
(4)
(1)
1
Deferred tax asset
Net deferred tax (liability) / asset
Net deferred tax (liability) / asset
Opening balance
Change in accelerated tax accumulated depreciation
Change due to effective interest rate of loans and advances to customers
Change in the net profit/(-)loss from revaluation of available-for-sale securities
Change in revaluation of property, plant and equipment
Change in provisions
Change in other items
Closing balance
4
0
(106)
(78)
The enacted tax rate for 2010 was 19% (2009: 20%).
Deferred tax is calculated for all taxable temporary differences using the full liability method using a tax rate of 19%,
which is the income tax rate to be used for 2010 and the following years, respectively.
The Bank expects that the net deferred tax asset will be fully utilized against future taxable profits. The estimated amount
of the deferred tax realizable within 12 months is CZK 2 million in 2010 (2009: CZK 3 million).
13 Components of other Comprehensive Income
Net profit/(loss) from the revaluation of available-for-sale securities includes unrealised gains or unrealised losses
on changes in the fair value of available-for-sale securities, which was CZK (3) million in 2010 (2009: CZK 6 million).
Unrealised gains and losses arising from fair value changes were not reflected in the income tax calculation. However, they
were reflected in the deferred tax calculation (Note 12).
14 Cash and Balances with Central Banks
Mandatory minimum reserves
31 December 2010
CZK million
31 December 2009
CZK million
21
19
Mandatory minimum reserves are the Bank’s mandatory deposits with the ČNB and are not available for use in the Bank’s
day-to-day operations. These deposits bear interest at the CZK repo rate, which was 0.75% p.a. as at 31 December 2010
(31 December 2009: 1.00% p.a.).
74
Annual Report 2010
15 Investment Securities
31 December 2010
CZK million
31 December 2009
CZK million
0
404
Available-for-sale securities
Government debt securities in dematerialised form
Shares
9
9
Total available-for-sale securities
9
413
0
419
Held-to-maturity securities
Government debt securities in dematerialised form
Total held-to-maturity securities
0
419
Total investment securities
9
832
In 2006 the Bank acquired a 9% investment in LEXXUS, a.s., at a cost of CZK 9 million which was accounted for as
available-for-sale securities. Being an unquoted equity instrument, its fair value cannot be measured reliably due to the
following reasons:
–
No quoted company has entered the stock exchange which resembles LEXXUS, a.s., in respect of its scope of business;
–
LEXXUS, a.s., does not pay dividends;
–
An accurate estimate of future cash flows utilising the models for determining the fair value of an instrument by
discounting the future cash flows is not possible.
For these reasons the carrying amount of the financial asset was stated equal to its acquisition cost. The Bank’s
management believes this cost approximates the fair value of the investment.
Government debt securities held by the Bank were traded on the Prague Stock Exchange (“BCPP”), the treasury bills held
by the Bank were traded over-the-counter (“OTC”). Fair value revaluation of available-for-sale government debt securities
was based on prices quoted at BCPP as at the reporting date.
16 Loans and Advances to Banks
31 December 2010
CZK million
Current accounts with banks (Note 26)
Term deposits with banks
31 December 2009
CZK million
10
3
17,896
26,946
17,906
26,949
31 December 2010
CZK million
31 December 2009
CZK million
146,601
136,724
326
878
All current accounts and term deposits are held with ČSOB.
17 Loans and Advances to Customers
Mortgage loans
Other loans
Allowances for loans and advances to customers (Note 11)
Total
(1,857)
(843)
145,070
136,759
As at 31 December 2010 the Bank accepted collateral of CZK 140,756 million (31 December 2009: CZK 131,872 million) received
for mortgage loans granted. This collateral consists mainly of real estate and is used to secure mortgage loans. The real estate is
stated at fair value and individually recorded at the lower amount of the fair value and the total exposure of the secured loan.
Annual Report 2010
75
Loans to related parties
Loans and advances to customers include the following loans to related parties:
31 December 2010
CZK million
31 December 2009
CZK million
1,802
1,802
16
10
Group companies:
Centrum Radlická a.s.
Bank’s management:
Board of Directors
Supervisory Board
Other key management personnel
Total
2
6
38
33
1,858
1,851
As at 31 December 2010 the Bank accepted collateral of CZK 1,853 million (31 December 2009: CZK 1,851 million)
received for mortgage loans granted to related parties.
18 Intangible Assets, Property, Plant and Equipment
Intangible assets
Software
CZK million
Other
CZK million
Total
CZK million
183
9
192
(158)
(8)
(166)
25
1
26
25
1
26
Cost
Accumulated amortisation
Net book value
Additions
Amortisation charge
38
4
42
(17)
(1)
(18)
46
4
50
Cost
221
13
234
(175)
(9)
(184)
46
4
50
46
4
50
Additions
31
1
32
Net book value
Disposals
Amortisation charge
0
(4)
(4)
(28)
(1)
(29)
49
0
49
252
10
262
(203)
(10)
(213)
49
0
49
Cost
Net book value
76
Annual Report 2010
Land and
buildings
CZK million
Equipment
CZK million
Other
CZK million
Total
CZK million
Cost
165
119
42
326
Accumulated depreciation
(59)
(94)
(26)
(179)
Net book value
106
25
16
147
106
25
16
147
Additions
1
18
0
19
Disposals
(1)
(8)
(6)
(15)
Disposals – accumulated depreciation
0
12
2
14
Depreciation charge
(3)
(17)
(3)
(23)
Impairment losses on assets (Note 11)
18
0
0
18
121
30
9
160
Cost
165
129
36
330
Accumulated depreciation
(44)
(99)
(27)
(170)
Net book value
121
30
9
160
121
30
9
160
Additions
0
14
6
20
Disposals
0
(15)
(3)
(18)
Disposals – accumulated depreciation
0
15
3
18
Depreciation charge
(4)
(15)
(4)
(23)
117
29
11
157
Cost
165
128
39
332
Accumulated depreciation and impairment losses on assets
(48)
(99)
(28)
(175)
Net book value
117
29
11
157
The Bank does not have any assets acquired under finance lease contracts and has no pledged intangible assets or pledged
property, plant and equipment.
19 Other Assets
31 December 2010
CZK million
Operating advances granted
31 December 2009
CZK million
4
4
13
11
Receivables from the sale of loans and advances
0
11
Receivables from brokerage fees
5
3
Estimated receivables
Other receivables
7
10
29
39
As at 31 December 2010 other assets include receivables of CZK 15 million from ČSOB related to loan cross-selling
(31 December 2009: CZK 10 million related to loan cross-selling).
Annual Report 2010
77
20 Due to Banks
31 December 2010
CZK million
Liabilities repayable on demand (Note 26)
Term liabilities to banks
31 December 2009
CZK million
208
31
39,492
32,565
39,700
32,596
31 December 2010
CZK million
31 December 2009
CZK million
452
491
3
3
455
494
31 December 2010
CZK million
31 December 2009
CZK million
All deposits from banks are due to ČSOB.
21 Due to Customers
Liabilities repayable on demand
Term accounts with maturity
22 Liabilities from Debt Securities
Effective interest rate
(%)
2010
(%)
2009
- HZL2 CZ0002000029 5 years (fix)
0
0
2
2
- HZL4 CZ0002000094 5 years (fix)
0
0
7
7
- HZL5 CZ0002000136 5 years (fix)
0
0
3
3
- HZL6 CZ0002000144 5 years (fix)
0
0
2
2
Mortgage bonds
- HZL7 CZ0002000169 5 years (fix)
0
0
1
1
- HZL13 CZ0002000300 7 years (fix)
0
3.79
1
2,018
- HZL19 CZ0002000474 5 years (fix)
0
3.35
0
2,080
- HZL21 CZ0002000532 5 years (fix)
0
2.84
1
2,583
- HZL22 CZ0002000581 30 years (float)
4.22
4.16
2,586
2,588
3.55
3.50
2,053
2,054
- HZL24 CZ0002000615 15 years (fix)
3.18
3.14
238
255
0
0
3,136
3,164
3.09
3.04
1,018
1,019
2.40
3.31
2,035
2,038
2.78
2.75
3,052
3,053
2.52
3.13
1,017
1,018
- HZL31 CZ0002000797 5 years (fix)
3.60
3.55
2,583
2,607
- HZL34 CZ0002000862 5 years (fix)
3.63
3.58
1,533
1,549
- HZL37 CZ0002000961 3 years (fix)
0
3.29
0
2,076
- HZL38 CZ0002000979 5 years (fix)
3.50
3.45
1,049
1,060
3.56
3.51
2,018
2,039
2.18
3.61
2,361
2,389
- HZL41 CZ0002001019 5 years (fix)
3.93
3.87
1,042
1,051
3.99
3.93
1,258
1,263
78
Annual Report 2010
Effective interest rate
(%)
2010
(%)
2009
31 December 2010
CZK million
31 December 2009
CZK million
2.40
3.96
3,129
3,167
2.27
4.07
2,501
2,530
- HZL45, CZ0002001118, 30 years (float)
2.23
4.06
1,853
1,874
2.16
3.81
2,475
2,499
4.04
3.99
2,268
2,298
2.25
3.98
1,848
1,863
- HZL49, CZ0002001233, 20 years (fix)
4.68
4.61
597
600
- HZL50, CZ0002001241, 15 years (fix)
4.60
4.54
576
581
4.38
4.32
618
621
2.26
3.92
2,218
2,256
4.25
4.19
1,689
1,711
2.36
4.06
2,457
2,471
4.21
4.15
1,549
1,572
2.20
3.92
5,604
5,695
4.00
3.95
5,707
5,794
4.29
4.23
7,443
7,469
2.90
4.19
8,766
8,897
4.12
4.06
7,709
7,738
2.75
4.14
7,545
7,655
2.33
4.13
7,517
7,642
- HZL63, CZ0002002256, 5 years (fix)
3.00
0
501
0
101,566
110,852
Mortgage bonds
The Bank’s related parties, ČSOB, ČMSS and ČSOB IBS (in 2009 also ČSOB IS and Auxilium, a.s.), held CZK 92,509 million
(at amortized cost) mortgage bonds as at 31 December 2010 (31 December 2009: CZK 95,876 million).
The mortgage bond balances with no effective interest rate disclosed in the table above relate to liabilities from unpaid
coupons of issues which have already matured.
23 Other Liabilities
31 December 2010
CZK million
31 December 2009
CZK million
108
67
0
1
Liabilities from other unsettled financial transactions (clearing system, credit withdrawals)
48
65
Other liabilities
60
37
216
170
Estimated payables
Liabilities from unsettled transactions with securities
As at 31 December 2010 other liabilities did not include any liabilities to related parties except for outstanding wages and
emoluments of the Board of Directors of CZK 13 million (31 December 2009: CZK 11 million).
As at 31 December 2010 and 2009 the Bank did not have any overdue liabilities.
Annual Report 2010
79
24 Equity and Profit Distribution
Share capital
31 December 2010
CZK million
31 December 2009
CZK million
5,076
5,076
Issued and fully paid
Issuance of shares
Date of registration
at Commercial Register
Decrease of nominal value of shares
Nominal value of
share CZK
Number of
shares Units
Nominal value
CZK million
17 July 2002
500
1,328,373
664
Issue XI
13 August 2003
500
1,310,060
655
Issue XII
1 September 2004
500
2,631,044
1,316
Issue XIII
25 January 2007
500
1,646,737
823
Issue XIV
11 April 2008
500
3,236,442
1,618
Issue XV
11 December 2009
500
6
0
Total as at 31 December 2009
10,152,662
5,076
Total as at 31 December 2010
10,152,662
5,076
All the issues bear the same ISIN CZ0008030509.
The share capital did not see any changes in 2010. The latest change took place in 2009 when on 20 November 2009,
the sole shareholder of the Bank decided on a share capital increase. The share capital increase was performed by the
subscription of 6 units of bearer ordinary shares, issued in dematerialised form with a nominal value of CZK 500 each and
became effective as at 11 December 2009. The total amount of issued and paid shares (including share premium) was
CZK 6,000 million.
Shareholders
The structure of the Bank’s shareholders is as follows:
31 December 2010
%
Name
ČSOB
31 December 2009
%
100.00
100.00
100.00
100.00
On 31 December 2010 ČSOB was directly controlled by KBC Bank NV, which had an ownership interest in ČSOB of 100%
(31 December 2009: 100%). On the same date KBC Bank NV was controlled by KBC Group NV. Thus, KBC Group NV was
indirectly exercising ultimate control over the Bank.
On 4 May 2009 the Annual General Meeting decision dated 9 September 2005 on the buy-out of shares by the majority
shareholder in accordance with Section 183i et seq. of the Commercial Code (a so-called “squeeze-out”) became effective.
Since that date, ČSOB has been the sole shareholder of the Bank.
Until 4 May 2009 the Bank’s shares were registered for trading in the RM-System. Since that date the shares were
excluded from the RM-System.
Reserve fund
Under the Commercial Code, the Bank is required to allocate 5% of annual profit to a non-distributable statutory reserve
fund until the balance reaches 20% of share capital.
80
Annual Report 2010
Profit distribution
The distribution of 2010 profit was not yet decided. The distribution of 2009 and 2008 profit is shown in the Statement of
Changes in Shareholders’ Equity.
Basic and diluted earnings per share
Basic and diluted earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted
average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by
the Bank and held as treasury shares.
2010
Net profit (CZK million)
2009
1,848
1,389
Weighted average number of ordinary shares in issue (in millions)
10.152
10.152
Basic and diluted earnings per share (in CZK per share)
182.02
136.82
Dividends per share
In 2010 the Bank paid total dividends of CZK 1,319 million (2009: CZK 4,071 million), i.e. CZK 130 per share and
(2009: CZK 401 per share).
Equity management
The Bank’s primary objective is to manage the volume and structure of capital in compliance with legal requirements
(changes in economic conditions and activities of the Bank). The amount of the Bank’s capital is monitored according to
rules and indicators defined by the Basel Committee on Banking Supervision (Basel II) and accepted by the Czech National
Bank (CNB’s Decree No. 123/2007 Coll., effective as of 1 July 2007).
In 2010 and 2009 the Bank complied with its regulatory imposed capital requirements.
Carrying amount
2010
CZK million
Carrying amount
2009
CZK million
Capital – Tier 1
19,188
19,118
Capital – Tier 2
275
3
Deductible items
Total capital
Minimal capital requirement
0
(305)
19,463
18,816
4,003
3,742
Capital adequacy under Tier 1
38.35%
40.87%
Capital adequacy
38.90%
40.23%
The Bank’s capital consists of Tier 1 and Tier 2. Tier 1 comprises share capital, share premium, retained earnings and
reserve fund. Tier 2 includes positive revaluation difference from changes in the fair value of securities and a surplus of the
coverage of loan losses expected under the IRB approach.
25 Contingent Liabilities and Undrawn Credit Facilities
As at 31 December 2010 and 2009 the Bank had no contingent liabilities to third parties.
Undrawn credit facilities include:
Undrawn credit facilities by customers
31 December 2010
CZK million
31 December 2009
CZK million
7,317
7,375
Annual Report 2010
81
Undrawn credit facilities represent a contractual obligation to provide or renew a loan, usually within a fixed time frame.
The undrawn credit limits need not be used in full and, accordingly, their contractual value need not represent the total
amount of contingent liabilities.
26 Cash and Cash Equivalents
31 December 2010
CZK million
Current accounts with banks (Note 16)
Due to banks repayable on demand (Note 20)
31 December 2009
CZK million
10
3
(208)
(31)
(198)
(28)
27 Fair Values of Financial Assets and Liabilities
The following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented
on the Bank’s statement of financial position at their fair value:
31 December 2010
Carrying
value
CZK million
31 December 2009
Fair
value
CZK million
Carrying
value
CZK million
Fair
value
CZK million
Financial assets
0
0
419
425
17,906
18,034
26,949
26,648
145,070
152,040
136,759
147,285
39,700
40,138
32,596
33,229
455
454
494
493
101,566
105,095
110,852
108,310
Due to banks
Due to customers
The following methods and assumptions were used in estimating the fair values of the Bank’s financial assets and
liabilities:
Fair values for held-to-maturity securities are based on quoted market prices. Such quotes are obtained from relevant
stock exchanges, if stock exchange activity for the particular security is considered sufficiently liquid. The Bank does not
invest into securities which do not comply with such requirements.
The carrying values of current account balances are, by definition, equal to their fair values. The fair values of term
deposits with banks are estimated by discounting their future cash flows using current interbank market rates.
The fair values of loans to customers are estimated as the present value of discountable future cash flows using current
market rates. Fair value incorporates expected future losses, whilst the carrying value includes only losses incurred at the
reporting date.
82
Annual Report 2010
Due to banks
The fair values of amounts due to banks are estimated by discounting their future cash flows using current interbank
market rates.
Due to customers
The fair values of current accounts and term deposits with equal to or less than one year remaining maturity approximate
their carrying values. The fair values of other term deposits are estimated by discounting their future cash flows using
rates currently offered for deposits of similar characteristics and similar remaining maturities.
Bonds issued are publicly traded and their fair values are based upon quoted market prices. If quoted market prices are not
available, the fair values are estimated using quoted fair values of similar securities or using expert valuation models.
28 Segment Reporting
All the operations of the Bank are performed in the Czech Republic, therefore only business segmentation is relevant for
the Bank.
Definitions of segments:
–
Legal entity – trading company established for business purposes or municipality.
–
Individual – private individual applying for the loan under their personal identification number.
–
Treasury – include all assets and liabilities, except for loans and advances to customers and due to customers, which
are used for financing needs, placement of free cash resources
–
Other – includes all other assets, liabilities and equity not included in other segments.
The profit of segments of legal entities and individuals generated by the income from provided loans is partially set off by
the loss of the treasury segment due to financing of these loans.
Annual Report 2010
83
The Bank classifies its operations in the following segments:
31 December 2010
Legal entities
CZK million
Individuals
CZK million
Treasury
CZK million
Other
CZK million
Total
CZK million
0
0
21
0
21
0
0
9
0
9
0
0
17,906
0
17,906
Assets
4,500
140,570
0
0
145,070
Other assets
0
0
0
237
237
Total assets
4,500
140,570
17,936
237
163,243
0
7,317
0
0
7,317
0
0
39,700
0
39,700
Undrawn loans
Liabilities and equity
Due to banks
Due to customers
56
399
0
0
455
0
0
101,566
0
101,566
0
0
0
115
115
Deferred tax
0
0
0
106
106
Other liabilities
0
0
0
216
216
Equity
0
0
0
21,085
21,085
56
399
141,266
21,522
163,243
4,610
136,146
0
0
140,756
Collateral received
Legal entities
CZK million
Individuals
CZK million
Treasury
CZK million
Other
CZK million
Total
CZK million
238
7,617
792
0
8,647
0
0
(4,985)
0
(4,985)
238
7,617
(4,193)
0
3,662
Statement of comprehensive income
Net interest income
2
406
0
0
408
0
(17)
0
0
(17)
2
389
0
0
391
0
0
151
14
165
0
0
(160)
(3)
(163)
0
0
0
(674)
(674)
0
(1,093)
0
0
(1,093)
Profit/loss of the segment
240
6,913
(4,202)
(663)
2,288
Income tax expense
Net profit of the segment for the year
Available-for-sale securities – net loss on revaluation
recognised directly in equity
Total comprehensive income of the segment for the year
84
Annual Report 2010
0
0
0
(440)
(440)
240
6,913
(4,202)
(1,103)
1,848
0
0
(3)
0
(3)
240
6,913
(4,205)
(1,103)
1,845
31 December 2009
Legal entities
CZK million
Individuals
CZK million
Treasury
CZK million
Other
CZK million
Total
CZK million
0
0
19
0
19
0
0
832
0
832
0
0
26,949
0
26,949
Assets
4,995
131,764
0
0
136,759
Other assets
0
0
0
252
252
Total assets
4,995
131,764
27,800
252
164,811
0
7,375
0
0
7,375
0
0
32,596
0
32,596
67
427
0
0
494
0
0
110,852
0
110,852
Undrawn loans
Liabilities and equity
Due to banks
Due to customers
0
0
0
59
59
Deferred tax
0
0
0
78
78
Other liabilities
0
0
0
173
173
Equity
0
0
0
20,559
20,559
Collateral received
67
427
143,448
20,869
164,811
5,012
126,860
0
0
131,872
Legal entities
CZK million
Individuals
CZK million
Treasury
CZK million
Other
CZK million
Total
CZK million
255
6,659
723
0
7,637
(1)
0
(4,953)
0
(4,954)
254
6,659
(4,230)
0
2,683
Statement of comprehensive income
Net interest income
2
365
0
0
367
0
(16)
0
0
(16)
2
349
0
0
351
0
14
0
0
14
0
0
0
(3)
(3)
0
0
0
(618)
(618)
0
(708)
0
18
(690)
Profit/loss of the segment
256
6,314
(4,230)
(603)
1,737
Income tax expense
Net profit of the segment for the year
Available-for-sale securities – net loss on revaluation
recognised directly in equity
Total comprehensive income of the segment for the year
0
0
0
(348)
(348)
256
6,314
(4,230)
(951)
1,389
0
0
6
0
6
256
6,314
(4,224)
(951)
1,395
29 Subsequent Events
No subsequent events occurred between the reporting date and the date of authorisation of the accompanying financial
statements, which would have a material impact on the financial statements of the Bank.
Annual Report 2010
85
Report on Relations Between Related Parties
pursuant to the provision of Section 66a) of Act No. 513/1991 Coll., the Commercial Code, as amended (hereinafter the “CC”)
of the Board of Directors of Hypoteční banka, a.s.
1. Controlled Entity
Prague 5, Radlická 333/150, postal code 150 57
Business Registration No. (IČ): 13584324
Entered in the Commercial Register maintained by the Regional Court in Prague, Section B, Insert 3511
(hereinafter the “Company”)
2.
Period under Review
This Report describes the relations between Related Parties pursuant to Section 66a of Act No. 513/1991 for the last
reporting period, i.e., the period from 1 January 2010 to 31 December 2010 (hereinafter the “Period under review”)
3. Structure of the Group
Ultimate Controlling Entity: KBC Group N.V. (Belgium, 1080 Brussels, Havelaan 2)
Controlled Entities with which Hypoteční banka, a.s. executed agreements:
Československá obchodní banka, a. s., Business Registration No. (IČ): 00001350
Českomoravská stavební spořitelna, a.s., Business Registration No. (IČ): 49241397
Centrum Radlická a.s., Business Registration No. (IČ): 26760401
ČSOB Penzijní fond Stabilita, a. s., člen skupiny ČSOB, Business Registration No. (IČ): 61859265
ČSOB Penzijní fond Progres, a. s., člen skupiny ČSOB, Business Registration No. (IČ): 60917776
ČSOB Leasing, a.s., Business Registration No. (IČ): 63998980
ČSOB Leasing pojišťovací makléř, s.r.o., Business Registration No. (IČ): 27151221
ČSOB Asset Management, a.s., člen skupiny ČSOB, Business Registration No. (IČ): 63999463
ČSOB Investiční společnost, a.s., člen skupiny ČSOB, Business Registration No. (IČ): 25677888
ČSOB Factoring, a.s., Business Registration No. (IČ): 45794278
Bankovní informační technologie, s.r.o., Business Registration No. (IČ): 63987686
ČSOB Pojišťovna, a. s., člen holdingu ČSOB, Business Registration No. (IČ): 45534306
KBC Global Services Czech Branch, organizační složka, Business Registration No. (IČ): 28516869
4.
Relations between Related Parties
4.1. Basic banking transactions
Note: Balances of these transactions are disclosed in the financial statements for the year ended 31 December 2010.
(A) Accounts
In the reporting period, Hypoteční banka entered into agreements with ČSOB for the purpose of obtaining services related
to maintaining various types of accounts (current, loro accounts, interbank deposits); alternatively, these services may
have been provided in the Period under review on the basis of existing agreements executed in previous periods. Fees
and interest pertaining to these services were paid in accordance with the price list. All agreements were executed under
standard business terms and conditions and their performance resulted in no detriment to Hypoteční banka.
(B) Payment cards
In the reporting period, Hypoteční banka entered into agreements with ČSOB on the issuance of payment cards;
alternatively, these payment cards were issued in the Period under review on the basis of existing agreements executed
in previous periods. All agreements were executed under standard business terms and conditions and their performance
resulted in no detriment to Hypoteční banka.
86
Annual Report 2010
(C) Electronic banking
In the reporting period, Hypoteční banka entered into agreements with ČSOB on Electronic Banking - ČSOB Businessbanking
24; alternatively, these products were provided in the Period under review on the basis of existing agreements executed in
previous periods. Services were rendered per agreement and resulted in no detriment to Hypoteční banka.
(D) Loan products
In the reporting period, Hypoteční banka entered into agreements with ČSOB on overdraft loan; alternatively, these
services were provided in the Period under review on the basis of existing agreements executed in previous periods. In
previous periods, the Bank provided a mortgage loan to Centrum Radlická and concluded respective contracts arising
from the relationship. All agreements were executed under standard business terms and conditions and their performance
resulted in no detriment to Hypoteční banka.
(E) Investment products
In the reporting period, Hypoteční banka entered into agreements with ČSOB on the procurement, purchase and sale of
securities, escrow and depositing of securities, settlement of transactions with local securities and their administration;
alternatively, these services were provided in the Period under review on the basis of existing agreements executed in previous
periods. The Related Parties provided counter-performance in the form of transaction settlements. All agreements were
executed under standard business terms and conditions and their performance resulted in no detriment to Hypoteční banka.
(F) Mortgage bonds
In the reporting period, Hypoteční banka entered into mandate agreements with the Related Parties to procure mortgage
bond issues on the local market within the bond program, an agreement on underwriting and purchase of mortgage bonds,
agreements on administration of bond issues and procurement of payments; alternatively, these services were provided in the
Period under review on the basis of existing agreements executed in previous periods. The Related Parties secured issuance of
mortgage bonds, purchases of mortgage bonds, and payments of yields from mortgage bonds. All agreements were executed
under standard business terms and conditions and their performance resulted in no detriment to Hypoteční banka.
4.2. Other relations
Note: Balances of these transactions are disclosed in the financial statements for the year ended 31 December 2010.
(A) Lease and sub-lease agreements
In the reporting period, Hypoteční banka entered into agreements with the Related Parties on the lease of non-residential
premises, parking spaces and movable assets; alternatively, these services were provided in the Period under review on the
basis of existing agreements executed in previous periods. The Related Parties provided counter-performance in the form
of sub-lease or contractual prices. All agreements were executed under standard business terms and conditions and their
performance resulted in no detriment to Hypoteční banka.
(B) Insurance agreements
In the reporting period, Hypoteční banka entered into insurance agreements with ČSOB Pojišťovna; alternatively, insurance
was provided in the Period under review on the basis of existing agreements executed in previous periods. Counterperformance was provided in the form of insurance coverage. All agreements were executed under standard business
terms and conditions and their performance resulted in no detriment to Hypoteční banka.
(C) Cooperation agreements – employee benefits
In the reporting period, Hypoteční banka entered into a multilateral cooperation agreement with ČSOB Group companies
on the provision of benefits, or executed separate cooperation agreements. Performance of these agreements resulted in
no detriment to Hypoteční banka.
(D) Cooperation agreements – sale of products and services
In the reporting period, Hypoteční banka entered into cooperation agreements with certain related parties on cooperation in
the field of sales of products, mediation of sales, sales support, alternatively, performance was provided by related parties in the
Period under review on the basis of existing agreements executed in previous periods. The counter-performance provided by
related parties comprised the sales of products, cooperation or contractual commission. All agreements were executed under
standard business terms and conditions and their performance resulted in no detriment to Hypoteční banka.
Annual Report 2010
87
(E) Agreement for cooperation in the field of taxes
Hypoteční banka entered into an agreement for joint registration for VAT with certain related parties. The Group is regarded
as one individual entity towards the Financial Authority. Entering into this agreement resulted in no detriment to Hypoteční
banka.
(F) Confidentiality agreements
Hypoteční banka has entered into agreements with ČSOB Group companies on confidentiality and classified information
protection. Performance of these agreements resulted in no detriment to Hypoteční banka.
(G) Other agreements
I. Československá obchodní banka, a. s., IČ: 00001350, Praha 5, Radlická 333/150 postal code 15057
Counter-performance pertaining to agreements executed in the Period under review:
Name of agreement
Counter-performance
Detriment
Implementary agreement No. 1 Audit and other assurance services to the Framework
internal service agreement
audit, training
none
Agreement for the provision of services regarding digitalization of documents
provision of services
none
Agreement for the provision of mailroom services
provision of services
none
Counter-performance pertaining to agreements signed prior to the Period under Review:
Name of agreement
Counter-performance
Detriment
Cooperation agreement on compliance
cooperation
none
Cooperation agreement on provision of Company information at ČSOB Call Center,
including amendments
provision of information
on product offer
none
Cooperation agreement on internal audit
audit
none
Cooperation agreement on credit risk management
cooperation
none
Framework agreements (on terms of providing assistance in collecting bad loans)
cooperation
none
Agreement on provision of services related to back-office systems and processes,
including an amendment
contractual services
Agreement on provision of services related to information systems and technology
IT services
none
Agreement for the provision of administrative services
services
none
none
Other legal actions:
Name of agreement
Detriment
Payment of dividends
none
II.
ČSOB Leasing, a.s., IČ: 63998980, Praha 4, Na Pankráci 310/60, postal code 14000
Counter-performance pertaining to agreements executed before the Period under review:
Name of agreement
Counter-performance
Detriment
Agreement on fleet management outsourcing
services
none
Assignment of Agreement on CCS cards to leasing
services
none
Framework agreement on legal relations
services
none
88
Annual Report 2010
III. KBC Global Servis Czech Branch, organizační složka; IČ: 28516869, Praha 5, Radlická 333/150, postal code 15057
Counter-performance pertaining to agreements executed before the Period under review:
Name of agreement
Counter-performance
Detriment
Agreement on assuming obligations and rights (Agreement on provision of services related
to information systems and technology and Agreement on personal data processing)
IT services
none
5. Conclusion
The Company Board of Directors hereby represents that it has exercised due care and diligence in determining the group
of Related Parties for the purposes of this Report, primarily by soliciting information from the Controlling Entity on the
group of entities controlled by this entity.
The Company Board of Directors hereby affirms that any pecuniary performance or counter-performance arising from the
foregoing relations was effected on an arm’s- length basis.
Prague, 14 March 2011
Board of Directors of Hypoteční banka, a.s.:
Jan Sadil
Petr Hlaváč
Vlastimil Nigrin
Martin Vašek
Annual Report 2010
89
Organizational structure
Hypoteční banka’s key organizational units are comprised of the headquarters, regional branches and local branches.
The Chief Executive Officer and his deputies manage assigned divisions, departments and teams, or regional and local
branches and departments.
Internal audit
Board of Directors
Chief Executive Officer
Chief Credit Officer
Chief Business Officer
Chief Finance Officer
Corporate office
Credit risks and policy
External networks
Finance managment
Marketing and PR
Real estate
Strategic alliances
Accounting
Marketing analyses
Operations
Branch management
Facility management
Risk management and
compliance
Customer service
Collections
90
Annual Report 2010
Regional branches
Branches
Information technology
Projects and processes
Financial Performance Analysis
Financial position
The overall financial position of Hypoteční banka continues to be robust with a positive outlook for the years to come.
Hypoteční banka succeeded in retaining the top place in the slightly growing mortgage market with a nearly one-third
share in new loans. In 2010, Hypoteční banka for the first time took a lead in the overall volume of provided mortgages,
resulting in a 28% market share. A steadily rising number and volume of provided mortgage loans in the Bank’s balance
sheet and the related increase in operating revenues was accompanied by stringent management of operating expenses in
2010. As a result, the C/I indicator declined by almost 4 percentage points year-on-year to an all-time low of 16.63%.
Hypoteční banka has sufficient capital. As at 31 December 2010, capital adequacy in accordance with Basel II accounted
for 38.90%. As a result of the sole shareholder’s decision, Hypoteční banka paid out dividends in the amount of
CZK 1,319 million in total, corresponding to the net profit for 2009 after the statutory reserve fund allocation.
As shown in the table “Characteristics/Financial and operating indications”, in the period under review year-on-year
profit continued to grow. In 2010, Hypoteční banka recorded a 33% increase in net profit compared to 2009. This is due
particularly to significant growth in net interest income, however, these favorable factors were to some extent offset by
a year-on-year hike in the costs of credit risk coverage. A more detailed comment on specific components of the financial
performance follows in this section of the Annual Report.
Operating results
The key factor influencing Hypoteční banka’s profit is the volume of mortgage loans provided. Receivables from loans
provided at 31 December 2010 accounted for 89% of total assets. Therefore, the volume had the most significant impact
on net interest income and income from fees, in addition to allowances against credit receivables, which constitute the
basis of the Bank’s operating profit. Operating expenses mostly depend on the volume and number of mortgage loans.
The development of new loans and the volume of loan balances for respective years are illustrated in the “Characteristics/
Financial and operating indicators” table: the volume of new loans in 2010 rose 1% year-on-year, and the volume of
receivables from lending to clients went up 6% in the same period.
Analysis of significant changes in net income
As indicated above, the key factor influencing Hypoteční banka’s revenues is income from mortgage loans provided.
The data included in the Financial Statements for the year ended 31 December 2010 and commented on hereinafter
show that the key factor impacting the Bank’s profits is the difference between interest income and interest expense (net
interest income) together with administrative expenses. In 2010, net interest income rose by 36% compared to a 33%
increase in 2009. Net interest income growth was due to high year-on-year growth in the volume of receivables from
loans provided in 2010 (6%) and in 2009 (14%). These revenues are also significantly influenced by a favorable rate of
expenses pertaining to financing, recorded mainly in the first half of the year.
Net income from fees collected and commissions paid also developed positively, increasing by 11% year-on-year in 2010.
In accordance with the change to EU IFRS, effective from 1 January 2005, and using the effective interest rate method,
revenues from fees do not include loan processing fees upon its provision and expenses for commissions paid to outside
agents; these are accrued in interest income over the expected loan contract duration.
In addition to significant growth in operating revenues, administrative expenses rose by 9% year-on-year. The bulk of
administrative expenses fell into the personnel and general operating expenses categories, and partially it stemmed from
a lower comparison base and one-time cost savings achieved in the previous year.
A major factor that in 2010 had a negative impact on profit-making were growing expenses arising from the Bank’s
credit risk management, i.e. credit costs, which rose by CZK 385 million year-on-year to CZK 1,093 million (net creation
of allowances against receivables and a net impact of amortized and ceded receivables). This growth stemmed from
the general economic conditions in the Czech Republic in prior years (the economic downturn) which undermined the
Annual Report 2010
91
customers’ ability to repay loans. The outcome is a slightly increased proportion of classified loans in the Bank’s portfolio
and imposition of more stringent rules for creating allowances with regard to potential credit risks.
Statement of Financial Position
In 2010, the balance sum fell by 1% year-on-year to CZK 163,243 million, compared to a 19% increase in 2009. The
volume of receivables from lending to clients rose by 6% and, at the year-end, receivables from mortgage loans accounted
for more than 99% of total receivables. The increase in lending was in 2010 funded primarily through medium-term and
long-term bank deposits and bank loans (up 22% year-on-year).
At 31 December 2010, key assets of Hypoteční banka were as follows:
Receivables from banks
This balance sheet item declined by CZK 9,043 million to CZK 17,906 million, which accounted for a 34% decrease. In
terms of receivable structure, these were predominantly medium-term and long-term deposits which the Bank actively
used in management of its interest position. The Bank executed the foregoing transactions solely with ČSOB.
Loans to and receivables from customers
In 2010, the volume of loans to customers grew by CZK 8,311 million to CZK 145,070 million as at 31 December 2010,
whereby new mortgage loans amounted to CZK 28,629 million. Growth in the volume of lending was generated mostly by
provision of mortgage loans for individuals; the volume of non-mortgage loans, comprising primarily pre-mortgage loans,
tumbled by 63% year-on-year.
Intangible assets, property, plant and equipment
Intangible assets, property, plant and equipment of Hypoteční banka reported a net book value of CZK 206 million
at 31 December 2010, down by CZK 4 million compared to 2009 year-end.
At 31 December 2010, key liabilities of Hypoteční banka were as follows:
Liabilities to banks
In 2010, the Bank’s key source of financing were medium- and long-term deposits and loans from other banks. This
approach was in contrast to the previous years when the primary financing source were mortgage bond issues.
As a result, liabilities to other banks increased by CZK 7,104 million year-on-year to a total of CZK 39,700 million
at 31 December 2010.
Liabilities to customers
Liabilities to customers amounted to CZK 455 million at year-end, of which non-term deposits accounted for 99%.
Compared to 2009, liabilities to customers fell by CZK 39 million. With the exception of deposits in current accounts
intended for loan repayment, Hypoteční banka does not accept primary deposits.
Liabilities arising from debt securities
In 2010, Hypoteční banka executed only one new bond issue in the amount of CZK 500 million. Four mortgage bond
issues in the total nominal volume of CZK 8,500 million were fully redeemed, as well as a part worth CZK 15 million of
a non-public 24th mortgage bond issue (issued in the amount of CZK 300 million), under the terms of the respective
issue. The nominal value of mortgage bonds in the balance sheet fell by CZK 8,015 million to CZK 87,025 million, which
altogether with aliquot interest income and share premium amounted to CZK 101,566 million. At the end of 2010,
mortgage bonds accounted for 71% of the Bank’s total liabilities, down by 6 percentage points year-on-year.
Equity
As at 31 December 2010, Hypoteční banka’s equity totaled CZK 21,085 million, accounting for a year-on-year increase of
CZK 526 million.
The increase stemmed generating an after-tax profit of CZK 1,848 million for 2010, coupled with the aforementioned
shareholder’s decision. Based on the sole shareholder’s decision, dividends were paid out in 2010 in the total amount of
CZK 1,319 million, i.e. CZK 130 per share.
92
Annual Report 2010
Profit
As at 31 December 2010, retained earnings, including profit pending in approval proceedings, amounted to
CZK 1,849 million, of which profit for the year 2010 totaled CZK 1,848 million; for more detailed comments, please see
the next chapter of this section.
Capital adequacy
Throughout 2010, Hypoteční banka maintained its capital adequacy well above the minimum stipulated level (8%).
As at 31 December 2010, the capital adequacy indicator reached 38.90%.
31 December 2010
1.
a)
Information about capital
CZK million
Aggregate amount of original capital (Tier 1)
19,188
Paid up registered capital entered in the Commercial Register
5,076
Treasury shares
0
Share premium
13,864
Reserve funds and retained earnings
297
Profit for the year
0
Loss for the year
0
Net profit from capitalization of future income from securitization
0
Gain/loss on fair value measurement of liabilities arising from credit risk
0
Other items deductible from original capital
(49)
b)
Aggregate amount of additional capital (Tier 2)
275
c)
Aggregate amount of capital designated to cover market risks (Tier 3)
0
Aggregate amount of all deductible items
0
Lack of coverage of expected credit losses pursuant to IRB Approach
0
d)
e)
Aggregate amount of capital after the consideration of deductible items from original and additional capital
and stipulated limits applicable to items of capital
19,463
31 December 2010
2.
Information about capital requirements
Amount of capital requirements relating to
CZK million
Capital requirements in aggregate
1.
Credit risk in aggregate
1.1.
Capital requirements relating to credit risk pursuant to STA in aggregate
4,003
3,811
1
Capital requirements pursuant to STA under IRB Approach for equity exposures
1
1.2.
Capital requirements relating to credit risk pursuant to IRB Approach in aggregate
3,810
1.2.1.
Capital requirements relating to credit risk under IRB Approach for other exposures
1.2.2.
Capital requirements relating to credit risk under IRB Approach for selected exposures in aggregate
15
Capital requirements pursuant to IRB Approach for business exposures
3,795
248
Capital requirements pursuant to IRB Approach for retail exposures
3,059
Capital requirements pursuant to IRB Approach for exposures related to central governments and banks
Capital requirements pursuant to IRB Approach for exposures related to institutions
0
488
1.2.3.
Capital requirements relating to credit risk pursuant to IRB Approach for equity exposures
0
1.2.4.
Capital requirements relating to credit risk pursuant to IRB Approach for securitized exposures
0
2.
Capital requirements relating to operating risk in aggregate
3.
Other and transitory capital requirements
192
0
Annual Report 2010
93
31 December 2010
3.
Information about financial position of the Bank
Ratio indicators
a)
Capital adequacy (%)
CZK million
38.90
b)
Rate of return on average assets (ROAA) (%)
1.12
c)
Rate of return on average equity (ROAE) (%)
9.64
d)
Assets per employee
382
e)
Administrative expenses per employee
1
f)
After-tax profit per employee
4
Income statement
Interest income and expense
Similarly to previous years, interest income and expense had the the most significant impact on Hypoteční banka’s
performance in 2010. Interest income in the amount of CZK 8,647 million rose by CZK 1,010 million year-on-year, while
interest expense in the amount of CZK 4,985 million increased by merely CZK 31 million year-on year. The net interest
margin exceeded the 2009 figure by CZK 979 million (36%) and reached CZK 3,662 million.
The positive net interest margin resulted from year-on-year growth in the volume of receivables from loans to clients by
6% and a favorable trend in expenses for financing throughout 2010.
Fee and commission income and expense
Income from fees and commissions received amounted to CZK 408 million, a year-on-year increase of CZK 41 million. Fees
and commissions paid totaled CZK 17 million. Net income from fees and commissions thus amounted to CZK 391 million,
an increase of CZK 40 million (11%) compared to 2009.
Administrative expenses
In 2010, the Bank’s administrative expenses totaled CZK 674 million, up by CZK 56 million, which accounts for a yearon-year increase of 9%. The positive ratio of administrative expenses to operating income resulted in a lower cost to
income(C/I) ratio of 16.63%, compared to 20.41% in 2009.
Losses resulting from impaired assets
The impact of creation, reversal and use of allowances for receivables, recovery of previously written-off receivables and
receivable write-offs on the 2010 profit amounted to CZK (1,093) million in comparison to CZK (708) million in 2009;
the increase stemmed primarily from year-on-year growth in the proportion of classified loans in the credit portfolio to
6.07% from 4.70%. In addition, an allowance for non-financial assets worth CZK 18 million was reversed in 2009.
Profit
Hypoteční banka’s profit for 2010 amounted to CZK 2,288 million before taxes, a year-on-year increase of CZK 551 million
(32%). Profit after taxes amounted to CZK 1,848 million, an increase of CZK 459 million (33%) year-on-year. Profit
developed favorably owing to the positive trend in operating revenues and expenses, albeit it was adversely affected by
the credit risk development.
Cash flow
The cash flow statement is included in another section of the Annual Report. The most important cash flows of Hypoteční
banka are those related to drawing and repayment of loans (flows from operating activities) and to loan financing, which
Hypoteční banka secures primarily through mortgage bond issues (flows from financing activities), and increasingly
through medium- and long-term deposits and loans from other banks (cash flows from operating activities). The Bank
places the short-term surplus liquidity on the interbank market or, conversely, borrows short-term funds (flows from
94
Annual Report 2010
operating activities). The growing mortgage loan portfolio yields a constantly increasing volume of such flows. To ensure
liquidity and substitute coverage of mortgage bonds, the Bank occasionally invests part of its funds in liquid assets in the
form of government bonds and treasury bills (flows from investing activities).
In 2010, the volume of net cash flows from operating activities amounted to CZK 13,334 million [(8,612) million in
2009] according to EU IFRS, whereby cash flows related to loan drawdown/repayment represented CZK (9,405) million
[CZK (17,655) million in 2009]. Similarly to previous years, loan drawdowns predominated; sales volumes are discussed
in more detail in the chapter including the Bank’s balance sheet. At the same time, in relation to managing the Bank’s
interest position, cash flows were impacted by a decline in receivables from banks by CZK 9,051 million. Financing of
mortgage loans and interest position management resulted in an increase in net liabilities to banks by CZK 6,927 million
(CZK 13,150 million in 2009). Cash flows from investing activities amounting to CZK 781 million (CZK 467 million in
2009) relates to maturity and non-renewal of investment of the remaining portion of the portfolio in treasury bills. Cash
flows from financing activities fell to CZK (14,285) million (CZK 8,163 million in 2009). The value of redeemed mortgage
bonds exceeded the volume of a new mortgage bond issue by CZK 12,966 million (an adverse impact on cash flows from
financing activities), compared to a reverse situation in 2009 showing a positive difference between the value of issued
and redeemed mortgage bonds (CZK 6,234 million). In addition, cash flow from financing activities in 2010 was affected
by dividend payments totaling CZK 1,319 million (CZK 4,071 million in 2009). The overall cash balance in 2010 fell by
CZK 170 million, compared to an increase of CZK 18 million in 2009. Cash and cash equivalents totaled CZK (198) million
at the year-end [CZK (28) million in 2009].
Solvency of Hypoteční banka
Hypoteční banka mainly finances its assets using mortgage bonds (62% of liabilities at 31 December 2010), liabilities
to banks (24%), and its own funds (13%).The proportion of primary deposits is minuscule (0.3%). Mortgage bond issues
always have specifics with regard to the time structure of mortgage loans used for due coverage of such mortgage bonds,
and when due, enough funds are always available to be paid out to the bearers. The total volume of receivables from loans
to clients represented 89% of total Bank assets as at 31 December 2010. Considering the structure of the Bank’s balance
sheet, where the life of most assets and liabilities and related cash-flows is agreed on a contractual basis and known in
advance, Hypoteční banka is able to maintain its solvency and meet its due obligations at any time.
Performance outlook for 2011
In 2011,Hypoteční banka expects to see a continued boost to demand for mortgage products, on the part of both
customers and providers, depending on the country’s economic conditions and recovery of the mortgage market that
began in mid-2010. The overall mortgage market development will have a key impact on the Bank’s financial performance
and the objective to sustain its market share. Stiff competition on the mortgage market is likely to continue, along with
growth in market interest rates caused by rising inflation. This trend will result in a gradual drop in interest margins
pertaining to new and refinanced production. Another factor affecting interest margins aside from competition will be
a more pressing need to secure the Bank’s liquidity and mitigate credit risk related to the provision of mortgage loans.
The foregoing factors will impact the dynamics of the net interest margin volume, the year-on-year increase of which
will be driven primarily by previous years’ sales and a higher mortgage loan balance, rather than significant growth in
new sales. Given the various sales events and discounts offered by different banks to gain a competitive advantage in the
battle for new clients in the shrinking market, the total volume of collected fees will decrease, as will the amount of fees
per mortgage loan.
Annual Report 2010
95
Explanatory summarized report
An explanatory summarized report pursuant to Section 118, Subsection 4, Letter b), c), e) and j) and Subsection 5, Letter a)
to l) of Act No. 256/2004 Coll., on Capital Market Undertakings, as amended. (An amendment to Act No. 256/2004 Coll.,
on Capital Market Undertakings)
Subsection 4, Letter:
b) information about the principles and processes of internal controls and the rules of addressing potential risk exposure
of the issuer and its consolidated unit in terms of financial reporting; the issuer includes this information in the
Annual Report or the consolidated Annual Report as part of a separate section comprising information listed under j)
hereon;
In terms of risks arising from financial reporting processes, the Bank has implemented standard procedures
corresponding to a financial organization of its size and status. The Bank performs a number of activities ensuring that
financial reports in all material aspects give a fair and true view of the financial position of the Bank and its financial
results and provide a complete image of the Company. Among them are e.g. standardized and automated processes,
four-eyes controls, the system of regular reviews ensuring accuracy of individual accounts and their development,
automated procedures of compiling financial reports, coordinated procedures and controls in the process of preparation
of the financial statements. In addition, the Company monitors any legislative changes pertaining to financial reporting
standards. These procedures and processes ensure compliance of the Bank’s financial reports with applicable legislation
and accounting standards. In the event of operational risk occurrence, the Bank’s processes and plans are implemented
in a way that preparation of financial reports in the required quality and time is not jeopardized.
c) description of processes of decision-making and composition of the issuer’s statutory body, the supervisory body or
other executive or control body and their committees, if if applicable;
Standard decision-making processes pursuant to the Commercial Code and Company Articles of Association. More
details in chapters Statutory bodies and Corporate governance.
e) description of decision-making processes and the basic scope of powers of the issuer’s General Meeting or a similar
gathering of owners of securities representing an interest in the issuer;
Standard decision-making processes pursuant to the Commercial Code and Company Articles of Association.
More details in chapters Administrative, management and supervisory bodies and top management and Articles of
Incorporation and Company Statutes. Since May 2009 the General Meeting powers have been exercised by the sole
shareholder.
j) information about the Company’s Corporate Governance Codes, which are binding or which are voluntarily observed,
and information about where the Codes are available for inspection; or information about possible non-compliance
with some provision of the Code, or non-compliance with any Code, including explanation why such provision or
Code has not been observed; the issuer includes this information in the Annual Report or the consolidated Annual
report as a separate section;
the Bank observes the OECD Corporate Governance Code.
Subsection 5, Letter:
a) information about the structure of the issuer’s equity, including securities which have not been admitted for trading
on a regulated market with a registered office in an EU Member State and, if applicable, specification of the various
classes of shares, including rights and obligations arising from similar securities, and specification of the share of each
class of securities in the issuer’s share capital;
the Company’s share capital amounts to CZK 5,076,331,000. It is divided into 10,152,662 bearer shares with the nominal
value of CZK 500 per share.
b) information about limitations on the transferability of securities;
no Company shares have limited transferability.
c) information about significant direct and indirect participation in the issuer’s voting rights;
Hypoteční banka’s sole shareholder is ČSOB.
d) Information about the owners of securities with special rights, including description of such rights;
the Company issued no shares with special rights.
e) information about limitations on voting rights;
the Company issued no shares with restricted voting rights.
96
Annual Report 2010
f)
g)
h)
i)
j)
k)
l)
information about agreements between the shareholders that may reduce the transferability of shares or the
transferability of the voting rights, if known to the issuer;
the Company has no knowledge of any such agreements.
information about special rules governing the election and recalling of members of the Board of Directors and
changes to the Articles of Association or similar documents of the issuer;
no special rules have been laid down.
information about special powers of the Board of Directors members, particularly authorizations pursuant to Sections
161a and 210 of the Commercial Code;
the members of the Board of Directors have no special powers.
information about significant agreements to which the issuer is party and which will become effective, modified or
terminated in the event of change of control of the issuer as a result of a take-over bid, and about the effects arising
from such agreements, with the exception of agreements whose disclosure would cause harm to the issuer; this does not
restrict any other obligation to disclose such information pursuant to the law thereof or other legal regulations in force;
the Company has not entered into any such agreements.
information about agreements between the issuer and the members of its statutory body or employees that bind the
issuer to take on any obligations in the event of termination of their office or employment as a result of a take-over bid;
the Company has not entered into any such agreements.
information about any schemes on the basis of which employees and the Board of Directors members may acquire
participation securities in the Company, options concerning such securities, or any other rights related to these
securities, under more favorable terms, and information about how these rights are exercised;
the Company has not introduced any such schemes.
information about reimbursements to the state for the right to mining in the event the isssuer’s core operations
pertain to the mining industry;
the provision does not apply to the Bank.
Annual Report 2010
97
Supplementary Information in Compliance with Statutory Requirements
Equity and issued securities
Share capital
As at 31 December 2010, Hypoteční banka’s share capital totaled CZK 5,076 million and was comprised of 10,152,662
ordinary shares with a nominal value of CZK 500 per share. The shares are book-entered, listed bearer shares. The share
capital has been fully paid up. Hypoteční banka issued no preferential or employee shares, nor any bonds with the right
to request the issue of shares at a stipulated time, or with a pre-emptive right for shares in the stipulated nominal value.
Hypoteční banka holds no treasury shares. No options were issued on any share of Hypoteční banka.
Issues of shares
In accordance with a General Meeting decision of 30 May 1996, and on the basis of authorization granted by the Ministry
of Finance of the Czech Republic for the issue of shares and their public trading, Hypoteční banka issued 1,128,373 bearer
shares with a nominal value of CZK 1,000. All these shares are book-entered with assigned ISIN CZ0008030509.
In accordance with a General Meeting decision of 24 June 1999, Hypoteční banka increased share capital through
a subscription of new shares on 18 February 2000, including a total of 200,000 ordinary bearer shares with a nominal
value of CZK 1,000 up to the amount CZK 1,328,373,000. A Securities Commission decision of 31 May 2000 assigned this
new share issue the same ISIN, CZ0008030509, and approved their public trading.
On 30 November 2001, the General Meeting passed a resolution on a share capital reduction to CZK 664,186,500.
This decrease was required to cover accumulated losses from previous years, arisen primarily as a consequence of the
liquidation of bad assets of the former Regiobanka and its transformation. The share capital reduction was effected
by means of a reduction in the nominal value of shares from CZK 1,000 to CZK 500. This reduction was entered in the
Commercial Register on 18 July 2002.
In accordance with a General Meeting decision of 11 March 2003, a total of 1,310,060 shares with a nominal value of
CZK 500 and a total nominal amount of CZK 655,030,000 were subscribed in June 2003 and paid up in compliance with
the issue terms and conditions. This share capital increase was entered in the Commercial Register on 13 August 2003.
A Securities Commission decision of 24 September 2003 assigned this new share issue the identical ISIN, CZ0008030509.
The newly issued shares were registered by the Securities Center on 23 October 2003.
In accordance with a General Meeting decision of 7 May 2004, a total of 2,631,044 shares with the total nominal
value of CZK 1,315,522,000 were subscribed in July 2004 (the nominal value per share was CZK 500) and paid up in
compliance with the issue terms and conditions. This share capital increase was entered in the Commercial Register on
1 September 2004. A Securities Commission decision of 12 October 2004 assigned this new share issue the identical ISIN,
CZ0008030509.The newly issued shares were registered by the Securities Center on 29 November 2004.
In accordance with a General Meeting decision of 30 October 2006, a total of 1,646,737 shares with the total nominal
value of CZK 823,368,500 were subscribed in December 2006 (nominal value per share was CZK 500) and paid up in
compliance with the issue terms and conditions. This share capital increase was entered in the Commercial Register on
25 January 2007. A Czech National Bank decision of 16 February 2007 assigned this new share issue the identical ISIN,
CZ0008030509. The newly issued shares were registered by the Securities Center on 10 April 2007.
In accordance with a General Meeting decision of 17 December 2007, a total of 3,236,442 shares with the total nominal
value of CZK 1,618,221,000 were subscribed in March 2008 (nominal value per share was CZK 500) and paid up in
compliance with the issue terms and conditions. This share capital increase was entered in the Commercial Register
on 11 April 2008. A Czech National Bank decision of 14 May 2008 assigned this new share issue the identical ISIN,
CZ0008030509. The newly issued shares were registered by the Securities Center on 11 July 2008.
98
Annual Report 2010
At its 41st meeting held on 20 November 2009, the ČSOB Board of Directors in its position of a 100% shareholder of
Hypoteční banka, a.s. approved an increase in Hypoteční banka’s capital by CZK 3,000. The increase was effected through
subscription of six share units with the nominal value of CZK 500. This capital increase was entered in the Commercial
Register on 11 December 2009. A Czech National Bank decision of 19 January 2010 assigned this new share issue the
identical ISIN, CZ0008030509.
No shares that do not represent capital have been issued. Hypoteční banka issued no preferential or employee shares, nor
any bonds cum warrants (bonds with the right to request the issue of shares at a stipulated time, or a pre-emptive right
for shares in the stipulated nominal value). No shares of Hypoteční banka are held by Hypoteční banka or on its behalf
or held by its subsidiaries. Hypoteční banka issued no transferable securities, convertible securities or securities with
warrants. Hypoteční banka did not issue, acquire or hold any interim certificates. No options were issued and no option
agreements were concluded in respect of any share of Hypoteční banka.
Mortgage bond issues
More detailed information on mortgage bond issues is included in the chapter Mortgage bond issues.
The table below lists all Hypoteční banka’s mortgage bond issues as at 31December 2010:
Issue volume
in CZK mn
Discount
Issue date
Maturity date
HZL 1
CZ0002000011
1,000
11.00%
5 September 1996
5 September 2001
HZL 2
CZ0002000029
700
11.00%
20 December 1996
20 December 2001
HZL 3
CZ0002000060
1,000
12.00%
19 June 1998
19 June 2003
HZL 4
CZ0002000094
3,600
8.90%
8 February 1999
8 February 2004
HZL 5
CZ0002000136
2,000
8.20%
24 June 1999
24 June 2004
HZL 6
CZ0002000144
2,000
6.40%
19 May 2000
19 May 2005
HZL 7
CZ0002000169
4,000
6.85%
7 December 2000
7 December 2005
HZL 8
CZ0002000193
2,000
6.85%
16 May 2002
16 May 2007
HZL 9
CZ0002000219
1,000
Pribor12M + 2%
4 December 2002
4 December 2007
HZL 10
CZ0002000227
1,500
3.00%
20 February 2003
20 February 2008
HZL 11
CZ0002000243
2,500
2.71%
19 June 2003
19 June 2008
HZL 12
CZ0002000284
1,500
3.60%
25 September 2003
25 September 2008
HZL 13
CZ0002000300
2,000
4.40%
27 November 2003
27 November 2010
HZL 14
CZ0002000318
2,500
4.30%
9 February 2004
9 February 2009
HZL 15
CZ0002000334
2,000
Pribor12M – 0.33%
25 March 2004
25 March 2014
HZL 16
CZ0002000367
2,000
4.95%
24 June 2004
24 June 2009
HZL 17
CZ0002000375
1,000
Pribor12M + 2%
24 June 2004
24 June 2009
HZL 18
CZ0002000425
2,500
4.50%
11 November 2004
11 November 2007
HZL 19
CZ0002000474
2,000
4.20%
24 January 2005
24 January 2010
HZL 20
CZ0002000490
1,500
3.50%
31 March 2005
31 March 2008
HZL 21
CZ0002000532
2,500
4.45%
19 May 2005
19 May 2010
Annual Report 2010
Note
no bond program
ISIN
1st bond program
Issue
99
ISIN
Discount
Issue date
Maturity date
HZL 22
CZ0002000581
2,500
Swap 3Y
21 July 2005
21 July 2035
HZL 23
CZ0002000607
2,000
Swap 3Y
15 September 2005
15 September 2035
HZL 24
CZ0002000615
300
4.00%
15 September 2005
15 September 2020
HZL 25
CZ0002000656
3,000
Pribor12M + 1%
27 October 2005
27 October 2015
HZL 26
CZ0002000714
1,000
Swap 3Y
24 November 2005
24 November 2035
HZL 27
CZ0002000722
2,000
Swap 5Y
24 November 2005
24 November 2035
HZL 28
CZ0002000730
3,000
Swap 3Y
7 December 2005
7 December 2035
HZL 29
CZ0002000748
1,000
Swap 5Y
7 December 2005
7 December 2035
HZL 30
CZ0002000789
2,000
4.15%
26 April 2006
26 April 2009
HZL 31
CZ0002000797
2,500
4.60%
4 May 2006
4 May 2011
HZL 32
CZ0002000821
1,500
Pribor 12 M + 2%
10 July 2006
10 July 2016
HZL 33
CZ0002000839
1,000
4.35%
10 July 2006
10 July 2009
HZL 34
CZ0002000862
1,500
4.70%
30 August 2006
30 August 2011
HZL 35
CZ0002000870
2,000
4.75%
27 September 2006
27 September 2011
HZL 36
CZ0002000938
2,000
4.55%
29 November 2006
29 November 2011
HZL 37
CZ0002000961
2,000
4.25%
21 February 2007
21 February 2010
HZL 38
CZ0002000979
1,000
4.65%
22 March 2007
22 March 2012
HZL 39
CZ0002000987
1,800
Swap 5Y + 1.5%
26 April 2007
26 April 2017
HZL 40
CZ0002001001
2,000
Swap 3Y + 1%
16 May 2007
16 May 2037
HZL 41
CZ0002001019
1,000
4.90%
24 May 2007
24 May 2012
HZL 42
CZ0002001076
1,000
Swap 4Y + 1.5%
13 June 2007
13 June 2035
HZL 43
CZ0002001092
2,500
Swap 3Y+1.5%
21 June 2007
21 June 2037
HZL 44
CZ0002001100
2,000
Swap 3Y+1.5%
24 July 2007
24 July 2037
HZL 45
CZ0002001118
1,500
Swap 3Y+1.4%
9 August 2007
9 August 2037
HZL 46
CZ0002001167
2,000
Swap 3Y + 1.4%
23 August 2007
23 August 2037
HZL 47
CZ0002001183
2,000
Swap 5Y + 2%
13 September 2007
13 September 2037
HZL 48
CZ0002001217
1,500
Swap 3Y + 1.4%
27 September 2007
27 September 2037
HZL 49
CZ0002001233
500
6.30%
11 October 2007
11 October 2027
HZL 50
CZ0002001241
500
6.20%
11 October 2007
11 October 2022
HZL 51
CZ0002001258
500
Swap 10Y + 1.4%
11 October 2007
11 October 2037
HZL 52
CZ0002001266
2,000
Swap 3Y + 2%
25 October 2007
25 October 2037
HZL 53
CZ0002001308
1,500
Swap 5Y + 2%
15 November 2007
15 November 2037
HZL 54
CZ0002001621
2,000
Swap 3Y + 1.4%
22 November 2007
22 November 2037
HZL 55
CZ0002001738
1,500
Swap 5Y + 1.6%
14 December 2007
14 December 2037
HZL 56
CZ0002001712
5,000
Swap 3Y + 2.0%
20 December 2007
20 December 2037
HZL 57
CZ0002001720
5,000
Swap 5Y + 2.0%
20 December 2007
20 December 2037
HZL 58
CZ0002001936
6,000
Swap 5Y + 1.4%
20 December 2007
20 October 2037
HZL 59
CZ0002001944
7,000
Swap 3Y + 1.4%
19 December 2007
19 February 2037
HZL 60
CZ0002001951
6,000
Swap 5Y + 1.4%
20 December 2007
20 July 2037
HZL 61
CZ0002001969
6,000
Swap 3Y + 1.4%
19 December 2007
19 March 2037
HZL 62
CZ0002001977
6,000
Swap 3Y + 1.4%
19 December 2007
19 April 2037
HZL 63
CZ0002002256
500
3.00%
25 November 2010
25 November 2015
Note
2st bond program
Issue volume
in CZK mn
Issue
As at 31 December 2010, the first fourteen mortgage bond issues, 16th-21st issues, part of 24th issue, 30th issue,
33rd issue and 37th issue were duly redeemed under the issue terms. Four issues (15, 32, 35 and 36) were retired early
under the issue terms.
100
Annual Report 2010
Mortgage bond issues 25, 31, 34, 38, 41, 47, 52–53 and 56–57 are book-entered, listed bearer securities. They are traded in
the official open market of the Prague Stock Exchange and, with the exception of mortgage bond issues 41, 47, 52, 53, 56
and 57, also in the RM-Systém.
Mortgage bond issues 22-24, 26-29, 39-40, 42-46, 48-51, 54-55 and 58-63 are certificated, unlisted bearer securities.
Mortgage bond issues 8-21 (including unlisted ones) were issued as part of Hypoteční banka’s first bond program, which was
approved on 19 March 2002 by Securities Commission Resolution No. 45/N/468/2002/1. At the same time, the Commission
approved the prospectus compiled for the bond program. The highest volume of non-repaid bonds issued within the bond program
is CZK 30 billion. The bond program duration is ten years. The maturity of any bond program issue does not exceed ten years.
Mortgage bond issues 22-63 were issued as part of Hypoteční banka’s second bond program, approved on 9 May
2005 by Securities Commission Resolution No. 45/N/36/2005/1. At the same time, the Commission approved the
prospectus compiled for the bond program. The highest volume of non-repaid bonds issued within the bond program is
CZK 100 billion. The duration of this bond program is 30 years.
Coverage of liabilities arising from mortgage bonds
Hypoteční banka keeps records of coverage of liabilities arising from the mortgage bonds issues pursuant to
Act No. 190/2004 Coll. on Bonds, as amended, and the Czech National Bank’s regulations. The Bank has adopted an
internal regulation that governs bond liabilities coverage.
The Bank’s specialized department constantly monitors and analyses real estate price developments in the Czech Republic.
The actual market situation is instantly incorporated into the Bank’s real estate valuations and supervision. In accordance
with the Bank’s regulations, regular revaluations of existing collateral are performed. For loan approvals, the value of real
estate collateral is determined by applying coefficients that take into account a possible long-term decline in the market price,
depending on property type and location.
To manage coverage of liabilities arising from issued mortgage bonds, Hypoteční banka has laid down internal limits that
are more stringent than the statutory requirements. For instance, the Bank has placed a cap on the volume of assets for
substitute coverage or the volume of mortgage loans refinanced by sources other than mortgage bonds.
In compliance with the Czech National Bank measures, and based on its own information system data, Hypoteční banka
continually keeps track of receivables from mortgage loans serving to cover liabilities arising from mortgage bonds. From
this data the Bank compiles an overview of mortgage bond liabilities, their due coverage and a list of assets available for
substitute coverage. The relevant department regularly reviews bond coverage. In conjunction with the review results, the
Bank adopts remedial measures, if necessary.
As at 31 December 2010, liabilities arising from mortgage bond issues (principal plus pro-rata interest income) totaled
CZK 88,477 million; the volume of due coverage amounted to CZK 124,318 million at the same date.
Overview of mortgage bond liabilities coverage as at 31 December 2010
CZK million
Total coverage
124,317
Due coverage (by receivables after valuation)
124,317
Substitute coverage
0
Mortgage loans agreements for due coverage (number)
102,836
Collateral value of secured real estate
246,762
Overdue receivables from ML for coverage (current amount) – principal
124,567
Overdue receivables from ML for coverage (current amount) – interest
195
Overdue receivables from ML for coverage (after valuation) - principal
124,044
Overdue receivables from ML for coverage (after valuation) - interest
273
Annual Report 2010
101
Statutory bodies and top management
Board of Directors
Jan Sadil
Business address: Radlická 333/150, 150 57 Prague 5
In 1995 he got his first banking job at Komerční banka, where he finally landed the position of director of the retail lending
department. In 2001 he joined Hypoteční banka, which appointed him member of the Board of Directors and deputy
director for commerce. Since 17 December 2003, Mr. Sadil has chaired the Board of Directors and held the position of
managing director of Hypoteční banka.
Membership in bodies of other companies: in the past five years, member of the Supervisory Committee of the Czech
Bank Association and member of the Management Board of the Association for Real Estate Market Development.
Petr Hlaváč
He gained banking experience at Komerční banka (1991-1999) as head of the retail lending department, continued at
Bank Austria Creditanstalt Czech Republic (1999-2001) and Česká spořitelna (2001-2004). In Bank Austria Creditanstalt
Czech Republic he co-developed the Majordomus mortgage product and headed the Mortgage Factory division. In Česká
spořitelna he participated in running the mobile sales network and, later, he managed sales of Sporoservis consumer loans.
On 17 January 2005, Hypoteční banka appointed Mr. Hlaváč vice-chairman of the Board of Directors and deputy director
for credit.
Membership in bodies of other companies: none.
Martin Vašek
After graduation from Prague University of Economics, Martin Vašek joined the Prague office of PWC in 2000. In 2005 Mr.
Vašek joined ČSOB as director of Financial Markets Support department, where he was responsible for managing trading and
settlement system support, settlement of transactions related to financial and capital markets products, and managing the
processes of financial and capital markets products. In 2007 Mr. Vašek was appointed head of the newly created Operations
division in ČSOB.
Vlastimil Nigrin
He commenced his banking career at Komerční banka in 1987-2002 where his last position was executive director for
operations. In 2002-2004 he spent three years at eBanka as operations executive director and Board of Directors member
responsible, among others, for foreign and domestic transactions. During his assignment in the PPF Group in 2002-2006,
he was in charge of developing a complex business model for Home Credit Finance Bank Moscow. In 2006-2008, Česká
spořitelna appointed Mr. Nigrin director of the foreign sales and cooperation department. He managed foreign sales of ČS
Group’s selected products. On 1 June 2008, he became deputy director for sales at Hypoteční banka responsible for the
segment of mortgage product sales.
102
Annual Report 2010
Supervisory Board
Petr Hutla
Senior Executive Officer and member of the ČSOB Board of Directors, Supervisory Board member (since 13 January 2010),
Supervisory Board Chairman (since 25 February 2010)
He graduated from Czech Technical University, Faculty of Electrical Engineering. In 1983-1993 he worked in Tesla Pardubice
and in 1991 he was appointed deputy director for economics in Tesla Pardubice-RSD. In 1993 Mr. Hutla joined ČSOB, first
as director of the Pardubice branch and the central branch in Hradec Králové, later in 1997-2000 as director of the Prague
1 central branch. In 2001 he was appointed senior director of the Corporate Banking department and in 2005 senior
director for Personnel and Strategic Management. In 2006-2009 Mr. Hutla held the position of senior director of the Human
Resources and Services department, since 2009 he has been senior executive officer of the Distribution department.
Membership in bodies of other companies: Board of Directors member of ČSOB, member of the ČVUT Management Board
and the Nadace Karla Pavlíka Management Board.
Ladislav Mach
Director of Operations department, ČSOB, Supervisory Board member (until 25 February 2010)
Participant in a number of domestic and international courses. Mr. Mach has been working in the banking sector since
1991. Since January 2000, he has held various executive positions at ČSOB. At present, Mr. Mach is executive director of
ČSOB’s Operations department.
Membership in bodies of other companies: Supervisory Board member at Czech Banking Credit Bureau, a.s.
Martin Jarolím
Executive Director for Retail branch network management, ČSOB, Supervisory Board member
Graduated from Charles University in Prague, Mathematics and Physics Department, where he studied from 1990 to 1995
specializing in Optimization and Mathematical Economics. From 1995 to 2000 he studied at Charles University, Prague,
Center for Economic Research and Graduate Education (CERGE), where he earned his Ph.D. with the thesis Foreign Direct
Investment and Foreign Trade. He has also attended various specialist and management courses. In 2000 he joined ČSOB,
where he has worked in various professional and management positions. Since 2006, he has been executive director for
retail marketing, currently he holds the position of director of ČSOB’s RETAIL/SME segment.
Membership in bodies of other companies: CERGE-EL, Supervisory Board member.
David Borges
Executive Director of the Assets and Liabilities Management department, ČSOB, Supervisory Board member
He graduated from University of Economics, Prague, Faculty of International Relations. From the start he focused his job
career on ČSOB, where he gained experience in Back Office and financial market segments in 1994-1997. In 1997-2002 he
held executive positions in Middle Office and Treasury departments. In 2002-2005 he was program manager for Basel II.
In 2005-2008 he managed the Credit Modeling and Reporting and later Corporate Lending departments. Since 2008
Mr. Borges has held the position of executive director of ČSOB’s Assets and Liabilities Management department.
Membership in bodies of other companies: ČSOB Factoring – Supervisory Board member.
Koen Wilmots
Senior Executive Officer and member of the ČSOB Board of Directors, Supervisory Board member (since 26 February 2010)
He graduated from the Law School of Leuven University in Belgium where he specialized in European law. Then he was
advisor to the Belgian Vice-Premier and held a number of management positions in banks in Belgium and Germany. In
1999 he joined ČSOB where he held executive positions in the Corporate Banking a Credits department. Since 2005 he has
been executive director of ČSOB‘s Credits department.
Membership in bodies of other companies: member of the ČSOB Board of Directors.
Annual Report 2010
103
Martin Brabenec
Supervisory Board member elected by employees
He graduated from Higher Business School in 1997. He joined ČSOB in February 1997, first as economist and
methodologist. Currently he is banking specialist in the External Networks Management department specialized mainly in
commission systems.
Membership in bodies of other companies: none
Václav Moravec
Supervisory Board member elected by employees
After graduation from University of Economics, Prague, in 1988, he joined ČSKD – Intrans to work as head of the newly
established Marketing department. In 1993 he transferred to Komerční banka’s Retail Credit department. Since 1995 he
has worked at (Českomoravská) Hypoteční banka in various positions, including management. He represented the Bank
in negotiations with the Ministry of Finance and the Ministry for Regional Development of the Czech Republic and was
a member of the Banking Association Sub-Committee for Mortgages and Building Savings. Since 1999 he has been focused
on marketing and currently holds the position of marketing communications specialist. He took up a short-term internship
with the Bank of Scotland and attended a number of professional training courses.
None of the members of the Board of Directors or Supervisory Board has been sentenced for fraud or other criminal
offenses in the past five years.
None of the members of the Board of Directors or Supervisory Board has participated in bankruptcy, forced administration
or liquidation proceedings in their positions in the past five years.
None of the members of the Board of Directors or Supervisory Board has been publicly charged, subject to sanctions
or rendered incapable of performing as member of administrative, executive or supervisory bodies of any company, or
management or operating position in any company in the past five years.
No conflict of interests occurs pertaining to the Board of Directors and Supervisory Board members and top management.
No public charges were made or sanctions imposed on the foregoing persons or bodies by statutory or regulatory bodies,
None of the foregoing persons has been rendered incapable of performing the function of member of administrative,
management or supervisory bodies of any issuer or the function pertaining to management or operations of any issuer.
Audit Committee
Michal Babický
Audit Committee independent member
Graduate of Silesian University in Opava (1993-1997). In 2001-2004 he worked as an assistant in KPMG audit firm, and
until 2007 as head of the General Ledger Shared Service Centre (SSC) department in JCI. In 2007 he joined Alpiq, first
as head of the Accounting department for CEE, and since 2010 as an external consultant in the accounting and financial
management field.
David Borges
See Supervisory Board
Koen Wilmots
See Supervisory Board
104
Annual Report 2010
Procedures of administrative, management and supervisory bodies
Term of office
Term of office
to
Jan Sadil
1 September 2001
1 September 2011
Petr Hlaváč
17 January 2005
16 January 2010
Vlastimil Nigrin
13 February 2009
13 February 2014
Martin Vašek
29 May 2009
29 May 2014
Petr Hutla
13 January 2010
13 January 2015
David Borges
6 May 2009
6 May 2014
Koen Wilmots
26 February 2010
26 February 2015
Ladislav Mach
16 November 2005
25 February 2010
Martin Jarolím
2 September 2006
22 November 2011
Martin Brabenec
7 February 2007
7 February 2012
Václav Moravec
25 April 2007
25 April 2012
Představenstvo
Supervisory Board
The Bank has entered into employment contracts with its top management, i.e. including Board of Directors members.
The contracts do not stipulate other than statutory requirements as to the termination of their employment. The Bank
does not provide any benefits under the employment agreements for performance of the duties of a Supervisory Board
member upon termination of the term of office of Supervisory Board member.
The Supervisory Board, given the small number of its members, does not make decisions in committees, but in board.
An Audit Committee was set up and came into force on 31 December 2009 that acts pursuant to Act No. 93/2009 Coll.,
the Company Articles of Association and the approved Rules of Procedure.
Principles of remuneration
Supervisory Board
The Company pays Supervisory Board members a monthly remuneration for their supervisory activities, participation in
Supervisory Board meetings, due preparation for meetings and other activities related to performance of the function of
Supervisory Board member. All Supervisory Board members have waived the remuneration.
Board of Directors
The Company pays Board of Directors members a monthly remuneration for their management activities, participation in
Board of Directors meetings, due preparation for meetings and other activities related to performance of the function of
Board of Directors member. The remuneration rules were approved by the General Meeting held on 30 November 2001
and are reviewed by the Supervisory Board annually.
Payment of the variable component of the remuneration to Board of Directors members is contingent on the Bank’s
financial and business results for the respective reporting period and the external auditor’s opinion. The Supervisory Board
sets and assesses indicators through evaluation of the assigned tasks as performed by each member during the evaluation
period. The variable part of the remuneration may amount up to 60% of the fixed component.
Top management
The Bank’s management receives remuneration in accordance with standard management contracts and under the
standard terms in the banking sector. The Board of Directors lays down the rules for management remuneration. Payment
of the variable part of management paychecks depends on the Bank’s business and financial results for the respective
reporting period and the external auditor’s opinion. The Board of Directors sets and assesses indicators through evaluation
of the assigned tasks as performed by each management member during the evaluation period. The variable part of the
remuneration may amount up to 30% of the fixed component.
Annual Report 2010
105
Conflict of interest at the level of administrative, management and supervisory bodies
The Bank is not aware of any possible conflict of interest between the obligations of the above persons to the Bank and
their personal interests or other obligations. Hypoteční banka has drafted a Code of Ethics stipulating the procedure to be
employed in the event of any conflict of interests.
The Bank is not aware of any arrangements or agreements with major shareholders, customers, suppliers or other
entities, under which a person on the Board of Directors or Supervisory Board was selected as member of administrative,
management and supervisory bodies or top management member.
None of the current members of the Supervisory Board or Board of Directors conducts primary business activity outside
their activities for the Bank, which could have a significant impact on the Bank’s assessment.
As none of the persons at the level of administrative, management and supervisory bodies is an owner of shares or rights
to shares, no limitation of disposal thereof can be arranged.
Ownership of the issuer’s participating securities and options
None of the members of the Board of Directors, the Supervisory Board and top management hold any Hypoteční banka’s
participating securities or options and comparable financial instruments, nor have they concluded any similar agreements.
Shares and options held by members of administrative, management and supervisory bodies
None of the members of the Board of Directors and the Supervisory Board hold any shares of Hypoteční banka or options,
on the basis of which these individuals may acquire other participating securities of Hypoteční banka or execute their
transfers. Hypoteční banka is not aware of any persons closely related to the above mentioned persons owning shares of
Hypoteční banka or the options thereof.
Receivables from the Board of Directors and top management (in CZK millions)
Total previous receivables
Board of Directors
13
Supervisory Board
7
Top managers
40
Total
60
Receivables balance including interest as at 31 December 2010
Board of Directors
Supervisory Board
16
2
Top managers
38
Total
56
Performance in CZK provided by entities controlled by the issuer for the year
Hypoteční banka does not control any entities.
Employee option of participating in Hypoteční banka’s capital
Employees of Hypoteční banka, except for members of the Board of Directors and employees of the Mortgage Bonds and
Refinancing department, may participate in basic capital of Hypoteční banka through the standard purchase of the Bank’s
shares via the RM-Systém. Since ČSOB has become Hypoteční banka’s sole shareholder in May 2009, registration of shares
for trading in the RM-Systém was terminated.
106
Annual Report 2010
Other information on the Bank
Principal markets
As of 1 January 2010, Hypoteční banka, as a specialist in mortgage financing, continued to develop its activities in the
mortgage lending market solely in the segment of mortgage loans for individuals. As in previous years, Hypoteční banka
provided mortgage loans only in Czech crowns and only in the Czech market. More detailed information is included in the
chapter “Hypoteční banka”.
At the end of 2010, receivables from provided mortgage loans represented 89% of the Bank’s overall asset balance,
whereas the volume of receivables from mortgage loans provided to individuals rose by 0.6% year-on-year and accounted
for 97% of the Bank’s overall portfolio at the end of 2010. Income from provided mortgage loans accounted for 91.2% of
the Bank’s total operating income.
Bank assets
The net book value of all Hypoteční banka’s intangible assets, property, plant and equipment totaled CZK 206 million at
31 December 2010. The net book value of Bank’s intangible assets, 100% of which is comprised of software, amounted to
CZK 49 million, representing a year-on-year decrease of CZK 1 million, down 2%. Property, plant and equipment had a net
book value of CZK 157 million, accounting for a 2% year-on-year drop, or CZK 3 million. The ratio of intangible assets,
property, plant and equipment to total Bank assets was 0.13% as at the last day of the year.
Breakdown of administrative expenses – audit, legal and tax advisory
2010
CZK millions
2009
CZK millions
Auditor’s services – audit
2
2
Legal and notary services
3
3
Total
5
5
The following table provides an overview of real estate owned by Hypoteční banka at 31 December 2010:
Buildings
acquisition price
CZK million
Buildings
net book value
CZK million
Buildings
area m2
Land
CZK million
Hradec Králové
61
41
707
6
Rychnov nad Kněžnou
21
14
769
0
Kolín
22
15
1,481
1
Jihlava
18
12
580
0
122
82
3,537
7
Region
Total
Historical financial data audit
The Report on Related Parties, financial data including historical data, and compliance of financial information in the
Annual Report with the Financial Statements have been reviewed by auditors.
Hypoteční banka’s Financial Statements for 2006, 2007, 2008, 2009 and 2010 were audited by:
Business name: Ernst & Young Audit, s.r.o.
License No.: KA ČR 401
Registered office: Karlovo nám. 10, 120 00 Praha 2
Business registration number (IČ): 26704153
Auditor for 2010: Roman Hauptfleish, License No. 2009
Annual Report 2010
107
Investments
Key non-financial investments
In 2010, Hypoteční banka invested a total of CZK 52 million in tangible and intangible assets. The most significant item
was investment in information technology in the amount of CZK 47 million; other investments of CZK 5 million included
branch modifications and car fleet renewal.
In 2009, Hypoteční banka invested a total of CZK 61 million in tangible and intangible assets. The most significant
item was investment in information technology in the amount of CZK 50 million; other investments amounted to
CZK 6 million.
Key financial investments
Hypoteční banka’s financial investments in 2010 comprised merely the sale and repayment of the remaining portion of
government bonds, as no new investments were made in the course of the year. In 2006 the Bank acquired a minority 9%
ownership interest in the real estate company LEXXUS, a.s. with the aim to extend its product line to include real estate.
Future investments
In 2011, the Bank plans to make non-financial investments in the amount of roughly CZK 113 million. Again, the most
significant spending will be on information technology (information system development, purchases of hardware
and software and electronic document processing) in the amount of approximately CZK 82 million. The remaining
CZK 31 million will be spent primarily on renewing the car fleet and appreciation and renovation of real estate.
Aside from potential investment into government bonds and treasury bills, the Bank does not intend to hold any other
securities and financial investments.
Transactions with Related Parties
Information on transactions with Related Parties is included in the Notes to the Financial Statements for the Year Ended
31 December 2010 and in the Report on Related Parties.
Statutory minimum reserve
Except for deposits in current accounts designed for the repayment of loans, Hypoteční banka does not accept any
primary deposits. Throughout 2010, primary deposits did not exceed 1% of the total balance sum of Hypoteční banka.
During this period, Hypoteční banka maintained its statutory minimum reserve at a stipulated level (currently 2%) at
all times.
108
Annual Report 2010
Trends
In mid-2010, demand for new loans began to grow, still accompanied by Hypoteční banka’s more prudent approach to
assessing credit risk. More information on current trends can be found in chapters “Hypoteční banka”, “Report of the Board
of Directors” and “Financial Performance Analysis”.
Ownership interest
At 31 December 2010, Hypoteční banka held no ownership interest other than in LEXXUS, a.s. The Bank holds no direct or
indirect stake in another entity, which would constitute at least 10% of its equity or 10% of the Bank’s annual net profit/
loss. Except as stated above, the Bank does not intend to acquire other ownership interests.
Factors impacting the Bank’s operations
Information on government, economic, budget, currency or general policies and factors that have had or could have
a material impact, direct or indirect, on the Bank’s operations is included mostly in chapters “The mortgage market in
2010” and “Report of the Board of Directors”.
Significant contracts
The Bank entered into no contracts from which obligations or claims might arise of any member of the Group, which
would significantly impact the Bank’s ability to meet its obligations. Furthermore, the Bank is not aware of any of the
Group members having concluded other contracts containing any provision that would give rise to any obligation or claim
with a significant impact on the Group as at the date of the Annual Report.
Exercise of takeover bids
The Bank has no knowledge of any takeover bids.
Foreign branches
The Bank has no foreign branches.
Patents and licenses
Hypoteční banka owns several trademarks registered with the Industrial Property Office, pertaining primarily to the
identification of the Company and its products, and has filed some applications for registration. Hypoteční banka owns no
patents and licenses.
Information on administrative, court or arbitration proceedings
At the date of this Annual Report, the Bank has not been party to any court, administrative or arbitration proceedings
brought against it either in the Czech Republic or abroad, which may have a significant negative impact on the Bank’s
financial position and, at the same time, may be material with regard to publishing the Annual Report.
Third parties and experts‘ representations and representations of any interest
Aside from the Auditor’s Report, the Annual Report does not include any representations or reports of a person acting
as an expert. Information from third parties comprised in the Annual Report is referenced as to the respective source.
Information provided by third parties was reproduced exactly and to the best knowledge of Hypoteční banka. The Bank
ascertains to the greatest degree possible from the information disclosed by the respective third party that no facts were
omitted which could render the reproduced information inaccurate or misleading.
Disclosures
The full wording of the Bank’s audited Financial Statements including annexes and auditors’ opinions thereon are available
upon request at the Bank’s registered office during business hours and on the Bank’s website together with the Annual and
Semi-annual Reports and quarterly information summaries.
Any other Bank-related documents and material indicated in the Annual Report, as well as the Bank’s Articles of
Association, are also available for review at the Company’s registered office.
Annual Report 2010
109
Hypoteční banka employees
2010
2009
2008
Index
2010/2009
Index
2009/2008
Recorded
426
436
440
0.98
0.99
Adjusted
422
434
433
0.97
1.00
Average headcount
Two-thirds of employees (banking clerks) work in the Prague headquarters and one-third in the sales network covering the
entire territory of the Czech Republic.
Persons responsible for the Annual Report
Hypoteční banka, a.s., with its registered office at Radlická 333/150, Prague 5, postal code 150 57, is responsible for the
data included in the Annual Report of Hypoteční banka, a.s. for 2010.
Hypoteční banka, a.s. hereby represents that, having exercised reasonable due care and diligence, the data comprised in
the Annual Report of Hypoteční banka, a.s. for 2010 is accurate to the best of its knowledge and that no events were
omitted that might change the meaning thereof.
Jan Sadil
Petr Hlaváč
Vlastimil Nigrin
Martin Vašek
110
Annual Report 2010
Points of sale of Hypoteční banka
Regional branch
Branch
Address
E-mail
Telephone
Fax
České Budějovice
Riegrova 2
37001 České Budějovice
info.cb@hypotecnibanka.cz
383 835 311-312
383 835 334
Jihlava
Masarykovo náměstí 13
58601 Jihlava
info.ji@hypotecnibanka.cz
565 659 141
Brno
Malinovského náměstí 4
66317 Brno
info.br@hypotecnibanka.cz
542 422 713 (711)
542 422 795
Hodonín
Štefánikova 13
695 01 Hodonín
info.ho@hypotecnibanka.cz
518 321 886
Znojmo
Horní Česká 248/19
669 02 Znojmo
info.zn@hypotecnibanka.cz
515 294 911
Karlovy Vary
Moskevská 2
36021 Karlovy Vary
info.kv@hypotecnibanka.cz
355 329 052-6
355 329 060
Hradec Králové
Ulrichovo náměstí 735
50002 Hradec Králové
info.hk@hypotecnibanka.cz
495 062 111
495 062 342
Jičín
Jungmannova 1132
50601 Jičín
info.jc@hypotecnibanka.cz
493 538 011
Rychnov
nad Kněžnou
Sokolovská 1494
51601 Rychnov nad Kněžnou
info.ry@hypotecnibanka.cz
494 535 234
Trutnov
Krakonošovo náměstí 127
54101 Trutnov
info.tr@hypotecnibanka.cz
499 811 421
499 811 422
Liberec
Rumunská 655/9
46001 Liberec 4
info.li@hypotecnibanka.cz
484 847 167
484 847 169
Ostrava
Nádražní 81
70200 Ostrava
info.os@hypotecnibanka.cz
599 508 811
599 508 835
Opava
Dolní náměstí 18
74601 Opava
info.op@hypotecnibanka.cz
553 791 932
739 249 999
Ostrava
Přívozská 3
70200 Ostrava
info.ot@hypotecnibanka.cz
596 117 745
596 117 745
Olomouc
Riegrova 12
77200 Olomouc
info.ol@hypotecnibanka.cz
588 516 688
588 516 694
Pardubice
Masarykovo náměstí 1458
53002 Pardubice
info.pd@hypotecnibanka.cz
464 647 445-9
Svitavy
Náměstí Míru 108/28
56802 Svitavy
info.pd@hypotecnibanka.cz
461 541 054
737 204 648
Plzeň
Klatovská 40
30100 Plzeň
info.pl@hypotecnibanka.cz
373 731 822-8
373 731 812
Praha 1
Na Poříčí 40/1051
11000 Praha 1
info.ph@hypotecnibanka.cz
242 419 498-499
242 419 480
Praha 5
Štefánikova 203/23
150 00 Praha 5
info.ps@hypotecnibanka.cz
257 286 930
Kolín
Legerova 148
28002 Kolín
info.ko@hypotecnibanka.cz
321 727 530
321 726 897
Mladá Boleslav
Českobratrské náměstí 1321
29301 Mladá Boleslav
info.ph@hypotecnibanka.cz
326 326 084
326 326 084
Teplice
28. října 711/16
41501 Teplice
info.te@hypotecnibanka.cz
414 128 915,
414 128 918
414 128 923
Ústí nad Labem
Masarykova 132
40001 Ústí nad Labem
info.ul@hypotecnibanka.cz
475 200 375
475 200 435
Zlín
Kvítková 4323
76001 Zlín
info.zl@hypotecnibanka.cz
577 212 460
(462, 464, 466)
577 212 467
Kroměříž
Moravcova 263/1
76701 Kroměříž
info.kr@hypotecnibanka.cz
573 331 093
573 344 462
Uherské Hradiště
Na Splávku 1182
68601 Uherské Hradiště
info.uh@hypotecnibanka.cz
603 253 815
Annual Report 2010
111
Identification and contact information
Business name: Hypoteční banka, a.s. (Českomoravská hypoteční banka, a.s. until 31 December 2005)
Registered office: Prague 5, Radlická 333/150
Business registration number (IČ): 13584324
Tax identification number (DIČ): CZ13584324
Bank code (BANIS): 2100
Date of incorporation in the Commercial Register: 10 January 1991
Duration: the Company was established for an indefinite period
Registry Court: Municipal Court in Prague
Registry Court entry number: Section B, Entry 3511
Key legislation governing the Bank’s operations: Act No. 21/1992 Coll., on Banks, Act No. 6/1993 Coll.,
on the Czech National Bank
Legal form: joint-stock company
Registered capital: CZK 5,076 million as at 31 December 2010
Scope of business: Article 2 of the Articles of Association:
1. Conducting banking business pursuant to the Act on Banks and the performance of other activities to the extent
laid down by binding legal regulations and, where applicable, Czech National Bank (ČNB) licenses for and approvals of
performing business activities thereof.
2. Issuance of mortgage bonds pursuant to special legislation.
Auditor: Ernst & Young Audit, s.r.o., Prague 2, Karlovo nám. 10, postal code 120 00
Telephone: 224 116 515
Fax: 224 119 722
E-mail: info@hypotecnibanka.cz
Website: www.hypotecnibanka.cz
112
Annual Report 2010
©2011
Design, consultancy and production: ENTRE s.r.o.
Printed by: Integraf, spol. s r.o.

1 annual report 2010 Hypoteční banka, as

Transcription

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