Group 2009 - DNB€¦ · Bank DnB NORD A/S Group provides a broad range of financial products and...

Group Business

Report 2009

Group Business Report 2009

2

TABLE OF CONTENTS

Welcome from the CEO 3

Vision, Mission and Values 4

Bank DnB NORD Group and its Owners 5

Letter from the Board of Directors 7

Group Financial Highlights 8

People 9

The Year in Review 10

Cross-Border Update 12

Economic Research Group 15

Estonia 16

Lithuania 20

Poland 28

Latvia 34

Group Risk Management 40

Management’s Statement 42

Significant Accounting Policies 43

Group Income Statement 44

Group Balance Sheet 45

Key Figures 46

Independent Auditor’s Report 47

Contact Information 48


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entities. This work will continue in 2010 as well as the restructuring of our business in Poland and Estonia to achieve operating improve-ments and exploit the business and growth opportunities.

As per 31.12.09 DnB NOR as our 51% owner has – in accordance with the joint venture agreement between DnB NOR and NORD/LB – initiated a so called “evaluation period” which could ultimately lead to changes in the ownership of DnB NORD Group.

During the evaluation period we as a Group will continue our busi-ness activities with the existing strong support from our parent banks benefitting from their broad financial expertise.

Success at DnB NORD Group is measured in terms of meeting the needs of our customers and I am proud to say that we have in-creased the number of customers from 870.000 to 930.000 within the last year mainly in Latvia and Lithuania by offering simple but efficient solutions and by the professional effort from our hard work-ing and loyal employees.

The values behind our corporate identity – reliability, team spirit, simplicity and dynamics – are brought to life by our staff everyday with their commitment and motivation. I am proud to be part of this strong team.

At the close of 2009, DnB NORD Group employed in its markets in Estonia, Latvia, Lithuania and Poland more than 3,100 people and operated 163 offices. The bank’s assets were totaling 10.0 billion. With our sharpened focus on the Baltic’s and Poland we will con-tinue to be one of the leading banks in these markets.

2009 was a challenging year for the DnB NORD Group, as the Group had to cope with the on-going economic downturn in the Baltic re-gion.

DnB NORD Group’s overall financial performance in 2009 was hit by a steep increase in write-downs on loans with a total loss of EUR 460 mill. in 2009, mainly coming from Lithuania and Latvia. Also due to the economic downturn in the Baltic region all goodwill in Latvia and Lithuania was written down in 2009 primarily as a result of future ex-pected loan losses. Primarily due to these issues the Group recorded a net loss in 2009 of EUR 480 mill.

On Group level the total lending volume decreased in 2009, partly as a result of selling parts of the Danish and Finnish customer portfolio to DnB NOR based on a strategic decision to concentrate on the Central Eastern European core markets, Estonia, Latvia, Lithuania and Poland. Another part of the decreasing net lending was the im-pairment of loans in Latvia and Lithuania.

DnB NORD Group sees early indications of stabilization of the Baltic economies and for some industries even growth, and therefore ex-pects the write-downs on loans in 2010 to decrease from 2009, and the positive trend is expected to continue in the following years. The Polish macro economic development in 2009 has been relatively ro-bust compared to other European countries and DnB NORD Group sees sustainable development opportunities in the Polish economy going forward.

In 2009 the DnB NORD Group started the transformation into be-coming “One True Banking Group” and initiated activities such as an organizational restructuring with the introduction of a new corporate governance model, one common IT-platform and improvement of its operational performance mainly due to vigorous cost cutting in all

WELCOME FROM THE CEO

Dear Ladies and Gentlemen,

With best regards

Thomas BuerkleBank DnB NORD Group CEO


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VISION, MISSION AND VALUES

Vision:

“Be a leading bank in the markets where we are present. We want to be acknowledged for;

Delivering superior customer responsive-ness Returning to sold financial performance for our shareholders continuously developing the competen-cies of our employees”

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Mission:

Bank DnB NORD’s mission as leading financial advisor is to help our customers achieve their maximum potential throughout their economic life.

Values:

Reliability: Our bank is built on trust and fairness.Team spirit: We understand that when we act together, we are stronger.Simplicity: We know that simple solutions are better than complicated structures.Dynamics: We act!


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DnB NOR51%

NORD/LB49%

DnB NORDCopenhagen

EstoniaBranch

Share capital: € 1,082,095k

Profit for the year:€ -479,856k

DnB NORDIT

(100%)Share capital:

€ 81kProfit for the year:

€ 156k

DnB NORD Liising, Estonia

(100%)Share capital:

€ 889kProfit for the year:

€ -5,459kSubsidiaries: 1

DnB NORDPoland(100%)

Share capital: € 152,193k


Subsidiaries: 6

DnB NORDLithuania

(99.92%)Share capital: € 190,198k


Subsidiaries: 4

DnB NORDLatvia(100%)

Share capital: € 189,567k


Subsidiaries: 6

FB40(100%)

Share capital: € 40k


Bank DnB NORD GROUP AND ITS OWNERS

Bank DnB NORD A/S Group provides a broad range of financial products and services to both the retail and corporate markets.

The Bank’s head office is located in Copenhagen, while the Bank has operations in Estonia, Latvia, Lithuania and Poland. The latter three operate as subsidiaries of the bank. Bank DnB NORD Group has approx. 3,100 employees, 930,000 customers and a consolidated ba-lance sheet of approx. EUR 10.0 billion.

Bank DnB NORD A/S is a joint venture owned 51% by DnB NOR of Norway and 49% by NORD/LB Norddeutsche Landesbank Girozentrale of Germany, giving the Bank a strength and position in North Eastern Europe, not least because of Bank DnB NORD A/S’ ability to secure its funding requirements. DnB NOR is Norway’s largest bank with 218 branches in Norway, and an international network of subsidiaries, branches and representative offices in 18 countries outside of Norway. NORD/LB, based in Northern Germany, is the fourth largest landesbank in Germany, with close ties to 69 savings banks and the bank is represented in the most important financial markets in the world.


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DnB NOR is Norway’s largest financial services group with total combined assets of EUR 267 billion, consisting of strong brands including DnB NOR, Vital, Nordlandsbanken, Cresco, Postbanken, Bank DnB NORD and Carlson, and employs approximately 14,000people on a full-time basis.

DnB NOR has more than 2.3 million retail customers and over 200,000 corporate customers, represented in more than 200 lo-cations in Norway, and includes Norway’s largest Internet banks, dnbnor.no and postbanken.no, with more than 1 million users. DnB NOR is also Norway’s largest life and pension insurance company (with around 1 million customers), largest asset management ope-ration (over 600,000 mutual fund customers in Norway and 283 in-stitutional clients in Norway and Sweden), largest investment bank and Norway’s leading real estate broker.

The bank has an international network of subsidiaries, branches and representative offices in 13 countries. It is one of the world’s leading shipping banks, Norway’s leading foreign exchange bank and has operations in Sweden within banking, asset management, insurance, car financing, real estate broking through Svensk Fas-tighetsförmedling and distribution of financial products through SalusAnsvar. DnB NOR is a major international player in the energy sector, and has a presence in north-west Russia through DnB NOR Monchebank, and offers private banking in Luxembourg.

With total assets over EUR 240 billion, NORD/LB is the leading universal bank in North Germany. NORD/LB functions as the Landesbank for the federal states Lower Saxony and Saxony Anhalt. It also acts as the central bank for 69 savings banks in Lower Saxony, Saxony-Anhalt and Mecklenburg-Western Pomerania as well as for the federal state of Bremen(through its almost wholly owned subsidiary, Bremer Landesbank).

The NORD/LB Group dates back to 1765 with the founding of Braunschweigische Staatsbank. In 1970, four large North-German banks merged to form the NORD/LB Norddeutsche Landesbank Girozentrale whose headquarters are in Hanover. The NORD/LB Group ranks among the top ten banks in Germany. NORD/LB offers a wide range of financial services to its private, corporate and insti-tutional clients and to the public sector. As an international com-mercial bank, NORD/LB maintains a presence

in all the major financial and trading centres, including London, Singapore and New York. It has branches and representative of-fices worldwide and a network of more than 1,500 correspondent banks.


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LETTER FROM THE BOARD OF DIRECTORS

The severe international economic deterioration in 2009 had negative impacts for DnB NORD Group.

The bank’s overall financial performance in 2009 was mainly hit by an increase in write-downs on loans and impairments, particularly in Lithuania and Latvia. Primarily due to these issues the bank recorded a net loss in 2009 of EUR 480 mill. and had to write down all goodwill in Lithuania and Latvia.

The bank’s total lending volume decreased in 2009, partly as a result of selling parts of the Danish and Finnish customer portfolio to DnB NOR in a strategic decision to con-centrate on the Eastern European core markets, Estonia, Latvia, Lithuania and Poland.

In reconsidering our strategy to reflect the current economic environment, we will focus on consolidation and increased efficiency during 2010. The DnB NORD Group will con-tinue the transformation into becoming one true Banking Group building on the already initiated activities such as the organizational restructuring, optimization of processes and one common IT-platform. This will ensure that we maximize the benefits to be reaped from the extensive investments in all business areas, in human capital and in the know-how and expertise that we have built since the outset of the joint venture.

It must be expected that the years to come will also represent considerable challenges to the bank in terms of write-downs and weak earnings even though the write-downs are expected to decrease from the 2009 level.

Customers in all of DnB NORD Group’s geographical locations, not the least the Baltic region, demonstrated, in 2009, their support towards DnB NORD Group, implicitly acknowledging the solidity of our financial group.

The Economic contraction was deeper than most anticipated, and we appreciate the strong commitment of DnB NORD Group’s staff during these challenging times. On be-half of the parent companies and the Board of Directors of DnB NORD Group, we would like to extend our gratitude to all staff of the DnB NORD Group.

Leif Teksum Dr. Johannes-Jörg Riegler


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2,000

4,000

6,000

10,000

12,000

14,000

8,000

31. Dec 2007 31. Mar 2009 30 Jun 200931. Dec 2008

2,564

2,735

1,075

1,210

2,614

3,392

1,150

2,357

2,457

3,278

1,254

2,121

2,710

3,487

1,179

2,675

Latvia

Lithuania

Poland

Other

Development in net lending to customers

379

Estonia

382374

30 Sept 2009

2,324

3,185

1,284

1,995

406

31 Dec 2009

2,240

3,060

1,435

1,011

390

100.000

200.000

300.000

500.000

400.000

2006 2007 2008

Write downs(EURO million)

80% 400.0

90% 450.0

100% 460.0

2009

9,212 15,047

160,904

460,759

2009 2008 2007 2006 2005Pro forma*

Net interest income 177,175 217,594 170,001 98,920 59,368

Trading and market value adjustments 40,346 32,205 26,212 11,120 8,018

Staff costs and administrative expenses 159,931 171,373 142,706 80,060 52,082

Impairment of loans, advances and receivables 460,217 160,904 15,047 9,212 7,450

Net gain/loss on the sale of fixed and intangible assets -1,464 1,438 1,786 1,135 2,013

Profit for the year -480,135 -63,843 59,966 32,795 25,770

Lending to customers 8,136,407 10,050,985 7,585,108 4,573,452 2,431,156

Total Equity 708,647 1,014,255 844,701 625,216 330,411

Total Assets 10,021,759 11,845,805 9,272,432 5,631,959 3,170,839

GROUP FINANCIAL HIGHLIGHTSBank DnB NORD A/S(EUR ‘000)

Key Figures

Capital adequacy ratio 11.4 9.9 8.7 12.1

Core capital ratio 6.4 7.2 6.9 9.8

Return on equity after tax pa (p.c.) -55.7 -6.9 8.2 6.9

Cost/income ratio (p.c.) 115.7 66.9 64.8 64.8

Deposits relative to loans (p.c.) 27.9 23.8 33.3 33.7

Growth in loans for the period (p.c.) -19.0 32.5 65.9 88.1

* The income statement 2005 is based on pro forma accounting figures which have been prepared as if the acquisition of the subsidiaries in Latvia, Lithuania and Poland took place on 1 January 2005.

Development in net lending to customers (EUR million)

Write downs (EUR million)


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GROUP FINANCIAL HIGHLIGHTSBank DnB NORD A/S(EUR ‘000)

PEOPLE

Well-educated employees at DnB NORD GroupOur employees are characterised by being very well educated as 61.72% have a Bachelor degree and 12.38% have a Master de-gree and 0.28% have a PhD degree.

DnB NORD Group’s human resource management policy con-tinue to be based on the belief that the ability of professional and dedicated employees to deliver high quality service to customers provides key impact on the bank’s ability to compete and further strengthens it’s business success.

Due to the financial situation the training in 2009 was at a re-duced level. However, the average training days during the year has been 1.07 days per employee. The courses, which were in focus, have been training in processes and products and sales training. But also professional courses for updating knowledge such as law courses, licenses etc. have been in focus.

Staff training is of vital importance to ensure individual excellence and organizational growth and change. Throughout 2009 the Hu-man Resources Training Centers across the Group implemented a wide range of training programs. In Latvia the Bank conducted a training need analy-sis to make it possible to identify more ac-curately the bank’s current and anticipated business issues and goals.

In order to uncover areas for improvement and to strengthen the leadership skills among the managerial staff surveys and workshops have been conducted in re-spectively Lithuania and in Poland. To seek professional advance the Bank has further developed training programs and self-learning tools using modern learning

tools, such as e-learning in Lithuania and in Poland, encouraging spreading the best cases and success stories across the Group.

Throughout 2009 much work was done on enhancing staff re-cruitment and the selection processes across the Group. In Latvia the framework and methodology for candidate screening were im-proved so that increased use of recruitment and selection tools such as structured interviews, a test of communications skills and psychometric testing to identity the most suitable candidates could find the most talented people for specific jobs.

Number of employees at DnB NORD GroupAs of 31 December 2009 the number of employees in DnB NORD Group was 3,174 FTE’s. 72% were women and 28% were men. The gender division reflects the nature of the banks business with a large retail branch network that is mainly populated by women as in the financial sector in general.

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100

200

300

400

500

600

700

800

-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-

Women Men

Age

Number


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THE YEAR IN REVIEW

ResultThe period saw recession in the Baltic countries with a strong decline in GDP. DnB NORD’s per-formance reflected the on-going economic downturn in the Baltic region: Decline in lending mar-gins due to increasing funding costs, considerably strong compe-tition for deposits caused a reduc-tion in net interest income, and a decrease in net lending volumes. Although the economic situa-tion was more favorable in Poland, DnB NORD Polska also faced a decrease in net interest income, mainly driven by increased funding costs in the first half of the year.

On Group level the total lending volume has decreased in 2009, which is a result of selling parts of the Danish and Finnish custom-er portfolio to DnB NOR. It was a strategic decision to concentrate on the Eastern European core markets, Estonia, Latvia, Lithuania and Poland. The sold portfolio represents approx. 50 per cent of the total Danish and Finnish portfolio.

Due to the present, negative development in the Baltic economy, impairment losses for goodwill relating to the subsidiary banks sums up to mEUR 54 in Lithuania, mEUR 37 in Poland and mEUR 16 in Latvia.

As a result of restructuring activities and group wide tightened cost control, operating expenses decreased by mEUR 15 (8 per cent).

DnB NORD’s overall financial performance was mainly hit by an increase in write-downs on loans, particularly in Lithuania and Latvia. Net write-downs on loans represented 4.9 per cent of average lending for the year up from 1.85 per cent in 2008 total. Write-downs on loans and assets amount to mEUR 460, mEUR 198 in Lithuania and mEUR 182 in Latvia.

OperationsDnB NORD’s business strategy is to offer efficient customer serv-ice through straightforward and flexible solutions. DnB NORD has 163 branches and subsidiaries in four countries: Estonia, Latvia, Lithuania and Poland. As a result of the restructuring activities in Poland, numbers of branch offices were reduced by 11. DnB NORD provides a broad range of products to both the retail and

corpo-rate markets and is committed to develop a strong brand as a full-service bank.

At year-end 2009, DnB NORD had approximately 930,000 cus-tomers, representing an increase of 60,000 during the year mainly in Lithuania and Latvia.

In 2009, DnB NORD was the third largest bank in Lithuania and number four in Latvia, measured by total assets. In Estonia, the bank was number five in terms of total lending.

Within insurance products DnB NORD and ERGO have signed a long-term cooperation agreement that will see ERGO life insur-ance products exclusively being sold together with DnB NORD Banking products across all of DnB NORD’s markets.

Operating performance DnB NORD has through out 2009 had continuous attention on improvements on the operating per-formance to fulfill the strategic goal of offering efficient customer service and tight cost-control. The two largest subsidiaries, Latvia and Lithuania, have both CIR more or less below 50 per cent, which among others results from an efficient operating model.

Group-wide reorganization In November 2009 DnB NORD announced significant changes in the corporate governance struc-ture. A new Group Management Team, with a clear mandate to transform DnB NORD into a true Banking Group, has been appointed.

The Group Management Team will among other focus on opti-mizing the sales activities across bor-ders, harmonising processes and procedures, and maximizing benefits from Group-wide solu-tions.

Changes in the Group Management Team Sven Herlyn left in February 2009 his position as group CEO in DnB NORD A/S and the Board of Directors appointed Thomas Bürkle as his successor. Thomas Bürkle came from a position as general manager in NORD/LB New York Branch and is also a


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former CEO of NORD/LB Lithuania (now DnB NORD Bankas in Lithuania). In November 2009 Jekaterina Titarenko was appointed Group Chief Financial Officer (CFO). She moved from her position as Member of the Management Board and Executive Vice-President at DnB NORD Bankas in Lithuania.

Andris Ozoliņš became at the same time the fifth member of the Group Management Team, taking the newly created role of Group Chief Sales Officer. He will be responsible for the sales results and the revenue side of all entities across the Group. He will maintain his position as Chairman of the Management Board and CEO of DnB NORD Banka in Latvia.

Margrethe Melbye Grønn was appointed COO of DnB NORD Group January 2010. She joined the bank from a position at DnB NOR as Executive Vice President for Operations, Payment Services.

With these changes in the Group Management Team, DnB NORD has strengthen the management competencies to implement the strategic focus areas for 2010 and onwards.

Future prospects On a macro level DnB NORD sees early indications of stabiliza-tion of the Baltic economies and for some industries even growth: Estonian GDP is expected to be positive in 2010, the Latvian real estate market indicates signs of stabilization, and the Lithuanian industrial production shows im-provements. The Polish macro economic development in 2009 has been relatively robust com-pared to other European countries. DnB NORD sees sustainable

development opportunities in the Polish economy going forward particularly in the retail segment.

The 1st half of 2010 Poland and Estonia will be going through a restructuring to achieve operating improvements within the ex-isting business. Based on the results from these activities DnB NORD will exploit the business opportunities and the potential growth within the 2nd half of 2010.

On Group level DnB NORD will continue the transformation into becoming one true Banking Group building on the already initi-ated activities such as the organizational restructuring and one common IT-platform.

DnB NORD expects the write-downs on loans in 2010 to decrease from 2009, which is based on the expectations for the region. The positive trend is expected to continue in the following years.

The Group Management team. Back row from left: Bartosz Chytła, CEO DnB NORD Polska, Thomas Bürkle, COE of DnB NORD Group, Hans Pajoma, General Manager of DnB NORD Pank, Werner Shilli, CEO of DNB NORD Bankas. Front row, frow left: Andris Ozoliņš, CSO of DnB NORD Group and CEO of DnB NORD Banka, Torstein Hagen, CRO of DnB NORD Group, Jekaterina Titarenko, CFO of DnB NORD Group, Margrethe Melbye Grønn, COO of DnB NORD Group & Maja Larsen, HR Group Manager


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CROSS-BORDER BANKING UPDATE

Safe and efficient cross-border banking solutions combined with reliable local services are essential for international companies. As its core competence, DnB NORD offers cash management, treasury and financing solutions. Based on local expertise and knowledge of the local markets the bank is able to provide the most excellent service. This combined with an international set-up, activities in four countries and strong parent banks covering the Nordic countries and Germany makes DnB NORD a most professional cross-border banking partner.

Nordic companies in the Baltics and Poland

Despite the economic downturn in the Baltic countries Esto-nia, Latvia and Lithuania still remains in the focus of Nordic companies. Approximately 1,000 Nordic investors are ac-tive in the Baltics, covering all sizes and industries, from a one-man-show to multinationals, from service industry to production. Also Poland continues to be an important mar-ket for Nordic investors with a similar number. While our Norwegian parent DnB NOR servicing corporate customers in the Nordic countries DnB NORD is offering all banking products in the Baltics and in Poland.

Focus on German customers in Poland

As Poland is the largest market of all the DnB NORD countries and is not facing the same economic turmoil as the Baltic countries, a special focus is set on cross-border activities in this country.

Poland still profits from a steady influx of new foreign investors especially from Germany and the Nordic countries and DnB NORD Polska is an active banking partner for these cross-border customers.

As DnB NORD’s 49% German parent NORD/LB is partly owned by the North- and North-east German Savings Banks, the bank applies a special approach towards these Savings Banks and their clients. At the end of 2008, DnB NORD Polska signed a co-operation agreement with the East-German Savings Banks associa-tion (OSV), aimed at becoming premium part-ner and bank of first choice for clients of Ger-man Savings Banks active in Poland.

Core elements of its offer for German clients, distinguishing the bank from competitors, are among others a dedicated team of German-speaking Relationship Managers, German lan-guage versions of the internet banking system, the bank’s homepage as well as main forms and agreements - all that are based on a deep understanding for the needs of German entre-preneurs active in Poland.

02000400060008000

10000120001400016000

2003

2004

2005

2006

2007

2008

2009

Latvia

Estonia

Lithuania

Nordic investments in the Baltics are increasingMill €

Norwegian, Swedish, Finnish and Danish companies with-in all industries have heavily invested in the three Baltics country

DnB NORD Polska’s internet bank in German


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Cross-border top clients

In 2009, DnB NORD entered into several new relationships with cross-border customers from different industries in all countries. Close daily cooperation between all entities within DnB NORD, NORD/LB and DnB NOR made it possible to serve cross-border clients most profession-ally. Streamlined procedures such as handling of internal guarantees secure a cost- and time-efficient processing.

Here are some selected examples:

Oil products and retail: DnB NORD Lithuania gained a new cross-border customer in this industry

Iron and steel, scrap recycling: A Polish subsidiary of one of Europe’s leading companies in this industry has recently entered the Baltic markets. DnB NORD became a leading banking partner of this Group.

Car-accessory: A Swedish company running three production plants in Poland has chosen DnB NORD Polska as its main bank for daily business, lending and a range of cash management solutions supporting local opera-tions.

Subcontractor for the automotive industry: DnB NORD Polska services a Norwegian company with a production site in Poland, handling daily business operations and providing financing.

Retail: DnB NORD finances a leading German retail chain active in Poland. In addition another German retailer active in the Baltics is holding accounts with DnB NORD. The bank also manages POS card systems.

Packaging material: A Norwegian company established a new production line in Estonia. DnB NORD Pank in Tallinn is successfully servicing the client.

Cosmetics: A leading European producer of cosmetics from Sweden is banking with DnB NORD Pank Estonia and DnB NORD Polska, profiting from their comprehensive product offering.

Real estate and construction: A Norwegian company produces modular houses in Estonia, which are sold locally and exported. The bank is providing accounts and loans.

Peat production: Both a Danish company active in Latvia and a German company active in Lithuania are clients of our respective banks. DnB NORD provides accounts, overdraft facilities and loans.

Sugar industry: one of the largest German entities active in the sugar market started co-operation with DnB NORD Group in Poland.


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CROSS-BORDER BANKING UPDATE

Our dedicated employees

For a professional, full-range service approach towards our cross-border clients, DnB NORD has dedicated employees in all four countries. All employees have been within the banking sector for many years and have a deep understanding of the needs of international companies. Thanks to close daily cooperation within the DnB NORD Group and with colleagues from DnB NOR and NORD/LB we ensure high-quality cross-border banking.

Poland: Tomasz Cichopek

Tomasz has joined the bank in 2008 and has some six years of experience within the bank-ing sector. Tomasz is heading the German & Nordic Desk. His dedicated team consists of Georg Winkler, Relationship Manager in Poznan, responsible for Western Poland and Dag-mara Gawarkiewicz, specialist credit analyst for cross-border clients. All colleagues speak fluently German and English. With all cross-border client relationships, Marta Wiśniewska from Cash Management Department actively supports the Geman & Nordic Desk.

Estonia: Maila Kirspuu

Maila has been with the bank for 4 years now and is working as a corporate client manager within corporate client department. Maila is the first contact point for cross-border customers and active as relationship manager for these clients. Besides Estonian Maila speaks fluently English.

Latvia: Inga Bendere

Inga joined the bank in 2003 as part of the corporate customer department. Inga speaks fluently English, German and Russian (and of course Latvian) and is the one-point of entry for all clients from abroad investing in Latvia.

Lithuania: Nerijus Mikoliunas:

Nerijus has been with the bank for 10 years and is working with cross-border SME and cor-porate customers. Nerijus is the first contact point for all questions a foreign investor might have in respect of banking and will channel the client to the right relationship manager. Nerijus Mikoliunas speaks fluently English and German and of course Lithuanian.

Coordination of all cross-border activities: Oliver Baake

Located at DnB NORD’s headquarter in Copenhagen Oliver is responsible for the coordina-tion of the network activities including DnB NORD and their parent owners DnB NOR and NORD/LB. Oliver joined the bank 2007 and speaks fluently German, English and Danish.


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ECONOMIC RESEARCH GROUP

DnB NORD Economic Research Team in Lithuania was established in 2003 to provide well-researched support and information regard-ing regional and domestic economic trends in Lithuania and Latvia. In 2006, the year after the DnB NORD Group has been created; the Economic Research Group started covering all the countries where DnB NORD is present. Currently DnB NORD’s Economic Research Group includes three members; Jekaterina Rojaka (Chief Econo-mist), Prof. Rimantas Rudzkis (Chief Analyst) and Indrė Genytė-Pikčienė (Senior Analyst). The Group cooperates closely with the economic expert in Latvia Pēteris Strautiņš.

The Economic Research Group provides detailed local and cross-country intelligence and insights into the macro-economic, financial and banking sectors across the region. To keep up-to-date on cur-rent economic issues the Group publishes both weekly and annual publications coving the Baltic countries and Poland.

Baltic Rim Economies: Growth & Constraints - annual publication aimed at comparative analysis of the six economies where DnB NORD Group provides services. Was launched in April, 2007. Baltic Rim Economies: By country (e-version) – annual publica-tion on key macroeconomic trends in the Baltic Rim countries, launched in March 2008. Baltic Rim Economies weekly newsletter (e-version) - a weekly review of economic and financial events. Launched in October 2003, enlarged to the span of the Baltic Rim countries since March 2008. Lithuanian Economic Outlook - annual publication provides in-depth coverage of the key macroeconomic developments and offers a thorough analysis of economic sectors.

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ESTONIA

Top: For the fourth year in a row DnB NORD Pank has sponsored a children’s charity relay-run, which helps to support the Haapsalu Neurological Rehabilitation Center, where children with movement disabilities are treated. Bottom left: DnB NORD Pank got a brand new website in late summer 2009, check it out on www.dnbnord.ee. Bottom right: Also by the end of 2009, the bank had its traditional end-of-the-year-run, which helped raise money for the same centre.


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Business activitiesDnB NORD’s fourth year in Estonia was influenced by the adverse economic environment, and occasioned many challenges during the year. Nevertheless, 2009 can be described as a year of hard work, internal optimization to meet the changes in the market, and renewal of the existing business model.

Much of the work in 2009 was focused on existing customers to ensure their continuing financial stability in the current challeng-ing economic situation. The overall objective in corporate and retail banking was to improve the quality of DnB NORD‘s current loan portfolio.

In 2009 several changes were made internally to further develop the bank’s business model in order to start offering financing products aimed at SME clients as well.

The Estonian branch offers a diverse range of financial products, having gained market position and increased recognition in Esto-nia over the past four years. Although the bank is relatively small compared to the larger and more established banks in the Estonian market, DnB NORD Pank nonetheless holds the 5th largest market share in the country in terms of lending volume.

Customers and marketThe goal of DnB NORD is to become the best corporate bank in Estonia. In corporate banking the bank has mainly focused on finan-cing projects with great volume but as the bank is now also becom-ing more active in the SME market, the activities in retail banking are being downsized.

For corporate clients DnB NORD provides a variety of different fi-nancing solutions; payments, loans, deposits and internet banking. DnB NORD’s existing retail clients also have the choice of all the principal financing solutions; payments, different saving products, different loans and internet banking. In 2009 the bank started to cooperate with our parent bank NORD/LB’s private banking unit in

Luxembourg and Switzerland in order to offer per-sonal asset management and investment advice through NORD/LB to retail and corporate clients

DnB NORD offers leasing solutions to both private and corporate customers. The products comprise car leasing and commercial vehicle as well as equip-ment leasing to corporate clients. By the end of 2009 DnB NORD held 6.5% market share in the Estonian leasing market.

In late autumn last year DnB NORD started offering both voluntary and obligatory insurance products to its new and existing leasing clients. The first months were quite successful and already more than 500 insurance policies have been signed.

In 2009 DnB NORD made significant investments to its IT-solutions and replaced the leasing company’s current sales and business software system by a new and more flexible one to better serve the leasing customers and facilitate the internal work processes. In ad-dition, a new and more effective document handling system was im-plemented. In Estonia DnB NORD has two branches, one in Tallinn and one in Tartu. Due to the challenging economic situation, the bank closed one branch in Pärnu and one leasing branch in Tallinn in the beginning of 2009.

Branding and promotionIn regard to marketing, DnB NORD Estonia has focused on work-ing with the existing client portfolio and has held back marketing activities. The bank focused on maintaining its positive image by communicating with its customers mainly via the internet and the social medias.

The most comprehensive marketing project was the launch of DnB NORD’s new website in August 2009. The bank’s overall objectives were to maximize the user-friendliness for the bank’s customers and visitors, and to modernize the website: both with respect to design and with respect to search engine optimization. The aim was also to increase sales through the internet and to cut costs from future projects.

2009 gave the bank the possibility to take the first steps in the fast-growing sphere of social media. In the beginning of 2009 the bank opened a website called Home Forum with the aim to give advice and useful information on banking products, offer a possibility for customers and non-customers to discuss on subjects connected to money and to gather the most important financial news every day. In cooperation with the Estonian leading business newspaper, Äripäev, it has also been possible for the bank to open its own blog on Äripäev’s webpage. The blog is called DnB NORD Money blog,

Hans Pajoma, General Manager DnB NORD Pank Estonia


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ESTONIA

and all uploaded articles appear automatically in the online ver-sion of Äripäev, which has approx. 30 000 visitors a day.

As the use of social medias has become increasingly more inevi-table, the bank has also started using some of the most popular channels. DnB NORD opened a micro-blog and started “tweet-ing” on Twitter. Also, a DnB NORD fan-page was opened on Face-book, and the bank used Youtube as a channel to forward Christ-mas greetings. The main aim is to direct more people to visit DnB NORD’s webpage.

SocietyFor the fourth year in a row DnB NORD Pank has sponsored a children’s charity relay-run, which helps to support the Haapsalu Neurological Rehabilitation Center, where children with move-ment disabilities are treated. In 2009, the relay-run that took place in May in 18 places across Estonia also broke the participation record, as amazingly 7500 children participated. The relay-run helped raise 4800 EUR in 2009.

Also by the end of 2009, the bank had its traditional end-of-the-year-run, which helped raise money for the same centre. During the past four years, the bank has helped the centre by raising 32 000 EUR in total.

The money raised from the charity runs is going to be used for building the biggest wheelchair park for disabled children in the Baltics. DnB NORD is the official patron of the park.

StaffAffected by the difficult economic environment in 2009 DnB NORD had to make several changes and to close down one office in Pärnu and one in Tallinn. Therefore the bank had to lay off ap-prox. 20% of its staff. Also due to the change of the bank’s business model, some in-ternal reorganisation has been made, mainly because of the ad-ditional SME sector. Retail client managers are now also servicing SME clients and retail and corporate assistants are now working

as one team helping both managers. These changes required in-ternal training and education to ensure a high level of service.

Internally, DnB NORD continues to place a strong emphasis on open communication. Staff information days are held on a quar-terly basis to discuss important issues and present upcoming plans. In 2009, DnB NORD held its corporate summer weekend and Christmas party, in which the employees enthusiastically par-ticipated. With the aim to improve the bank’s internal communi-cation each employee has received a book named DnB DNA that contains all the information necessary for people working in DnB NORD, including an overview of our visual identity, mission and vi-sion, values, contacts, client service standards, information about where to find important documents and all the rules and regula-tions. DnB NORD believes that every employee is like a gene that determines the genetic code of DnB NORD, how it looks like and how it performs and that our success depends on the contribution from each of us.

Focusing on continued performance improvement led to perform-ance-linked incentive schemes and regular training and development initiatives for the staff. Part of the training also in-cluded cross-border meetings and workshops with colleagues in the DnB NORD Group.

Outlook 2010In 2010 DnB NORD is focussing on Corporate and SME business areas and developing new business areas. The main focus is still to improve the quality and profitability of the credit portfolio. At the same time, the bank is improving internal processes in order to increase efficiency and to strengthen the position in the Estonian banking market.

The main interests in new business is in the corporate financing area, and the bank wants to be active in areas where it has strong competencies and which are attractive in accordance with the bank’s business strategies, like export-oriented companies, PPP, infrastructure-related transactions and international cross-border businesses.

There are no plans for further expansion to other regions in Esto-nia during 2010. However the bank will be available to all Esto-nian corporate clients, which will be serviced through the existing branches in Tallinn and Tartu and trough e-channels.

Other focus areas in 2010 are related to several changes coming from EU regulations and to the potential introduction of the EURO in Estonia. In addition to that, DnB NORD is still working on developing its main products and Internet banking.

Hans Pajoma, General Manager of DnB NORD Pank Estonia is handing over the money raised from the children’s charity relay-run to Haapsalu Neurologi-cal Rehabilitation Center


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Macroeconomic trends and outlook In 2009 Estonia’s economy contracted by 14.1%. Feeding on the diminished confidence and abating purchasing power Estonian domestic demand deteriorated drastically, while businesses proceeded with cautious financial planning. This is clearly reflected by marked drops in final consumption of households and expenditure on gross fixed capital formation. Depressed domestic demand and investments, coupled with the restricted lending conditions translated into the nosedive of internally oriented sectors. Domestic trade turnover dropped by nearly a fifth, real estate and construction activities also saw a sharp contraction. Industrial production, which has decelerated already in 2008, last year, went down by vast 26.2% year-on-year due to the vague demand on external markets. A sharp decline in imports resulted in a significant improvement in both current account and foreign trade balances. According to the preliminary data, foreign trade deficit last year stood at EUR 825 million – the lowest level since 1995 and three times below that of 2008. Meanwhile, the positive service balance and current transfers underpinned current account surplus, which reached 4.6%. Despite harsh economic meltdown, Estonia sustained leadership in foreign investments leaving Latvia and Lithuania far behind on foreign direct investment per capita results.

Deflation The recession stage in Estonian economy was trailed along by the deflationary processes. On the back of slackening domestic demand and shrinking households’ earnings rebounding to the negative trends in the global commodity markets, the annual consumer price acceleration ran out of steam in the mid of 2009. Since then Estonia has been registering year-on-year consumer price deflation, which decreased to 1.9% at the end of 2009. However, on the back of likely economic recovery and mounting energy prices in the global markets, the prices are expected to resile and step up by 1% at the end of the year.

UnemploymentThe unemployment rate mounted from 7.6% in the fourth quarter 2008 to 15.5% in the same period last year, accompanied by intimida-ting hikes of youth unemployment rate. The latter almost doubled over a year and in the Q4 of 2009 stood at 32.1% revealing that roughly one in three young persons in Estonia has no job. As a result, the average annual unemployment rate reached 13.8% and was the highest since the independence of Estonia was restored. Such trends in the labour market put a high downward pressure on wages. This resulted in a 6.5% annual drop in the average gross monthly earnings in the Q4 last year. The trends seen last year will continue in 2010 with some stabilisation by year-end.

Private sector Due to the last year’s deterioration in quality of the loan portfolio the crediting rigidity intensified. The net flows of loans to the private sector were negative, while at the end of last year the loan portfolio to non-financial corporations and households was smaller by 4.8% and 2.8% respectively, than a year ago. While the annual change of the private sector’s deposits (outstanding amounts) still remained positive and at the end of 2009 stood at 2.6%. The propensity to save usually increases in a crisis environment, however, in Estonia it was also reinforced by relatively favourable interest rates on national currency deposits last year.

Government spending and EUEstonian government succeeded in accruing a significant reserve during the economic upturn, which helped to manoeuvre within the Maastricht limits during the crisis. Nevertheless, the government underwent a severe fiscal consolidation in 2009, followed by a significantly restricted budget in 2010 with a view to bringing the budget deficit under 3% of GDP. The Euro introduction target in 2011 appears more and more realistic, stimulating the confidence of domestic companies and foreign investors. Domestic demand is forecasted to start re-bounding from 2011 onwards, adding to the economic expansion.

Estonia: Key macroeconomic indicators 2007 2008 2009 2010 2011

Real GDP, annual change, % -3.6 6.3 10.4

HICP inflation, end of period, % 7.5 9.7 5.1

Average monthly gross earnings, end of period, 7.2 20.2 18.9

Harmonized unemployment rate, sa, end of period, % 8.4 4.1 5.2

Current account balance, ratio to GDP, % -9.2 -18.1 -14.6

General government budget balance, ratio to GDP, % -3.0 2.7 2.9

Source: Eurostat, national central bank, national statistics office, DnB NORD forecasts


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LITHUANIA

Top: From one of the basket events in connection with the DnB NORD Bankas sponsorship of the national Lithuanian Basketball team. Bot-tom left: DnB NORD Bankas, renowned in the market for its Economic research team, held two economic forums for businesses in Vilnius attracting much attention from local businessmen. Bottom right: The advertisment campaing for the banks ‘Financial Guides’ programme.


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Business activities In the adverse economic environment characterized by a sharp decline of Lithuania’s gross domestic product (15 pct year-on-year), an increased number of corporate bankruptcies affected the labor market and disposable household income negatively. AB DnB NORD Bankas Group maintained its strong position among the country’s top three banking institutions, continued to lead the country’s investment products’ market and sustained the top creditworthiness rating in the local banking industry.

The concentrated focus on operating efficiency through streamlin-ing measures, strict cost control and the ability to exploit emerging business opportunities in the recession-stricken economy helped AB DnB NORD Bankas Group to record a growing income trend

that eased the negative impact of the increased risk costs on the Group’s 2009 result.

With solid backing of strong shareholders and their long-term commitment to the Lithuanian market AB DnB NORD Bankas Group that includes the bank, the asset management company UAB DnB NORD Investicijų Valdymas, the leasing arm UAB DnB NORD Lizingas, the real estate brokerage UAB DnB NORD Būstas and UAB Intractus, has maintained solid capital and liquidity po-sitions throughout the reporting period. To ensure the balanced performance of the Group in the recession-affected economy, the Bank’s shareholders invested EUR 55 million to the Bank’s re-serve capital also acquiring the new share issue for EUR 20.7 million.

With customer risks remaining high throughout the reporting year, AB DnB NORD Bankas Group set its focus on credit risk ma-nagement establishing the structures and processes needed. The Group enhanced the Loan Restructuring Department as well as the Special Assets Department in a quantitative and qualitative way, introduced standard models for loan restructuring to mini-mize the risks arising from acting fast and adequately.

In 2009 AB DnB NORD Bankas Group signed EUR 281 million of new loan agreements, however with credit demand declining and a smaller number of projects that met the credit risk criteria in the adverse economic environment, the Bank’s net individual customer loan portfolio decreased by 7.1 percent year-on-year to EUR 1.4 billion, whereas the net loan portfolio to legal entities eased by 12.4 percent year-on-year to EUR 1.5 billion.

Reflecting the trend of the loan portfolio, the Group’s assets de-clined by 11.8 percent year-on year or by EUR 0.5 billion to EUR

3.6 billion at the end of the reporting period.

Customers’ savings and investments at AB DnB NORD Bankas Group stood at EUR 1.2 billion at the end of De-cember 2009, of which issued debt securities amounted to EUR 0.2 billion and customers’ deposits made EUR 1,0 billion as the Bank offered an attractive investment option to institutional and private investors placing fixed rate one year government bonds worth EUR 322.4 million at par on the secondary market during the year.

Lifted by particularly strong commision income from oper-ations with securities, derivatives and foreign currency AB DnB NORD Bankas Group 2009 net income increased by 17.7 percent year-on-year to EUR 130.9 million in the reporting year. Net interest income of EUR 80.0 million earned by the Group in 2009 made the largest relative weight of 61.1 percent. In 2009, the net interest income decreased by 10.5 percent year-on-year. The Group earned EUR 50.9 million in non-interest income in 2009, an amount more than twice as high as the 2008 result.

Lithuania: Business activities(EUR ‘000)

2009 2008 Index

Net interest income 80,034 89,398 90

Net fee income 14,025 16,384 86

Trading and market value adjustments 33,832 3,466 976

Other income 3,049 1,964 155

Total income 130,940 111,212 118

Operating expenses 56,167 60,190 93

Profit before credit loss expenses 74,773 51,022 147

Credit loss expenses 198,487 27,936 711

Profit before tax -123,714 23,086 -536

Loans, end of year 3,060,465 3,486,952 88

Deposits, end of year 980,403 1,100,080 89

Cost/income ratio, % 54.1% 55.3% 98

DnB NORD Bankas CEO Werrner Schilli


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Non-interest income represented 38.9 percent of the total net op-erating income.

AB DnB NORD Bankas Group earned a pre-tax operating profit before provisions of EUR 74.8 million in 2009, a 46.6 percent increase compared to the year before. Taking into account the negative impact of a steep macro-economic downturn on Lithua-nia’s real economy, the Bank continued to pursue a conservative customer risk evaluation and provisioned EUR 195.8 million in 2009 on loans. As a result, AB DnB NORD Bankas recorded a loss before tax of EUR 123.7 million in 2009. The bulk of provi-sions made in 2009 were set-aside on loans extended to custom-ers operating in the real estate development, construction and transport sectors.

The negative impact on the operating result of the Group was alleviated somewhat through growth in the Bank’s income, tight spending control, constant efforts to streamline the Bank’s busi-ness lines and further improvement of operating efficiency. During 2009, the operating and other expenses of the Group decreased by EUR 4.0 million to EUR 56.2 million. The constant focus on op-erating efficiency and productivity resulted in an AB DnB NORD Bankas Group cost/income ratio of 42.9 percent, the Group’s best ever so far.

CustomersAB DnB NORD Bankas Group strongly believes that during peri-ods of economic downturn, customers need financial advice and professional service more than ever, and the bank must offer them the best possible guidance to ensure their further success and the success of the Bank’s business.

In 2009, AB DnB NORD Bankas launched an important initiative – to become a Financial Guide to its customers. As a result, AB DnB NORD Bankas customers should first of all expect that they will be carefully listened to and offered several options according to individual financial circumstances. Having a clear understand-ing of advantages and disadvantages of each option the customer will then be able to make a favorable choice for the present and for the future. This is a long-term business initiative based on con-fidence and responsibility that is a must for each and every em-ployee of AB DnB NORD Bankas Group. As a result the number of AB DnB NORD Bankas Group customers increased by 47,000 to a total of 671,000 in 2009.

To ensure an appropriate service level AB DnB NORD Bankas measured the compliance of its Customer Service and Sales Standards and the delivery of the newly introduced Financial Guide client promise several times per year.

The latest Mystery Shopping Survey carried out in December 2009 unveiled that the Bank achieved the best result ever (93 percent) in service quality standard compliance also reaching the annu-al strategic target of 90 percent. This result has been achieved thanks to the responsible attitude of the employees of the Bank

in their efforts to provide the best quality in our customer service and illustrates that the managers of AB DnB NORD Bankas Group do their utmost to focus their team on providing the best possible customer service. Following the findings of the survey the Bank will focus on sustaining the excellent results and improvement of the weaker aspects to keep the promise to its customers and maintain the targeted Customer Service and Sales Standards.

The firm intention of AB DnB NORD Bankas is to continue con-centrating on providing customers with comprehensive financial advice and guidance to fulfill the Bank’s promise to its clients, to boost cross selling of various products and make more customers choose AB DnB NORD Bankas as their home bank.

Retail bankingIn 2009, further progress in retail banking remained the prime focus area of AB DnB NORD Bankas Group that has a strong customer base, wide range of competitive products, extensive customer service branch network and user-friendly electronic banking solutions.

To offer convenient and high quality service to its customers, AB DnB NORD Bankas continued the optimization of its branch net-work. New banking outlets in Kaunas, Vilnius and Siauliai were opened, two inefficient outlets were closed, and two outlets were renewed and modernized in 2009. As at the end of the year AB DnB NORD Bankas Group served its customers in 85 branches and sub-branches across Lithuania running the country’s third largest customer service network.

For the convenience of its customers, the Bank installed five new ATMs including its second one with cash-in function and reloca-ted eight ATMs to locations more convenient to the customers. As at the end of the year, the Bank served its customers through its 178 ATMs and 333 ATMs of SEB Bankas according to the co-opration agreement. This made it Lithuania’s largest ATMs net-work available for the Group’s customers.

In the reporting year Metasite Business Solutions, a company that has been conducting researches of e-banking systems in Lithua-nia, Latvia and Estonia for the past seven years, reported that AB DnB NORD Bankas demonstrated the biggest qualitative leap in electronic banking in 2009 placing the Bank on top spot among e-banking service providers in Lithuania. The Bank advanced by five grades in the ranking from the 6th to the 1st place within a year.

In 2010 AB DnB NORD Bankas intends to give even more atten-tion to the functionality and clarity and convenience of its e-bank-ing services to maintain the close relationship with customers and to make them increasingly choose AB DnB NORD Bankas as their home bank.

Due to constant efforts to further improve the user-friendliness and functionality of the Internet banking system, the number of


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customers using AB DnB NORD Bankas Internet banking ser-vices increased by 24 percent year-on-year to 359,000 at the end of the year. In the reporting year, 90 percent of all money transfers were performed via Internet banking of AB DnB NORD Bankas.

In the year 2009 the Bank issued 55,700 new payment cards. At the end of the year, payment cards issued by the Bank amounted to a total of 351,400 cards. The annual turnover of transactions made by payment cards issued by the Bank in 2009 amounted to EUR 1.31 billion.

To provide high quality financial services to customers in the re-porting year the Bank launched new services and products and continued to develop the existing ones:

Introduced children’s program, which contains children’s deposit, long-term universal deposit, youth card, children’s life insurance, student travel insurance Introduced a package of services for seniors with the opportu-nity to fill the request for SODRA to transfer pension to a Bank account or cardOffered a new kind of term deposit; Deposit Plan 3,6,12 Carried out Basketball Deposit ™ and Fast interest deposit campaignsIntroduced a savings plan Money Factory Organized currency exchange campaign for British pound and Scandinavian currenciesOrganized a 3rd pillar pension sales campaign Introduced a new product in the Lithuanian market - DnB NORD gift cardIntroduced individualized design payment cards Renewed service package for Gold card holders Offered alternative savings option by actively distributing gov-ernment bonds Activated the conclusion of direct debit agreements and utility collection agreements with companies Organized a salary transfer campaign, offering additional discounts for clients Started extending state-backed loans to finance the studies of students Improved further customer service programs to identify cus-tomers’ needs more efficiently Developed customer relationship management systems Upgraded further Electronic decision support system with computerized granting of credit limits for paying card accounts

Corporate banking and small and medium size enterprises (SME)

In 2009 AB DnB NORD Bankas maintained its strong position in the corporate banking sector as a result of long-term constructive relationship with its customers, being a fast and flexible decision- maker increasing the number of corporate customers by 1,727 to 53,600 over the year. One of the goals of the Bank in the area of corporate banking is to be a financial guide ready to offer a range

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of financial products and personalized financial consultations de-signed for corporate customers.

With customer risk remaining high due to the country’s deep and protracted economic contraction, credit demand declining and a smaller number of projects meeting the credit risk criteria, the Bank’s corporate net loan portfolio decreased by EUR 186.0 mil-lion, or 10.8 percent to EUR 1.53 billion at the end of 2009.

In 2009 the Bank’s corporate loan portfolio to the public sector increased, whereas the loans extended to other sectors of the eco-nomy have decreased marginally, as the Bank aimed to ensure a balanced performance in the adverse economic environment by reducing the share of risky loans in its loan portfolio.

Since the start of 2009 the financing of wholesale, retail, trans-port and real estate sectors saw the biggest decline in financing, however following introduction of active measures helped to solve the temporary financial difficulties for the Bank’s customers and increased efficiency of credit restructuring, and a certain degree

In 2009 DnB NORD Bankas introduced a new product - the DnB NORD gift card


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of stabilization in the Bank’s mortgage credit and leasing portfolios has been observed.

The Bank, in cooperation with the leasing and investment ma-nagement subsidiaries, offered corporate customers a variety of solutions to meet their need for borrowing, investment and pay-ment. Advantageous offers were made not only for development of businesses, but also for employees of corporate customers.

AB DnB NORD Bankas Group consistently paid close attention to small and medium size enterprises (SMEs) offering them spe-cial service packages for business start-ups and already operating firms. With the intention to offer more opportunities to the coun-try’s businesses AB DnB NORD Bankas has signed a EUR 15 mil-lion Finance Contract with the European Investment Bank (EIB), thereby extending its successful cooperation with this financial institution dating back to 2003. AB DnB NORD Bankas intends to allocate the funds raised under the bilateral contract to finance investment projects of small and medium size businesses.

The Banks cooperation with the SME segment was positively af-fected by the further improvement of the SME rating system and the simplification of procedures linked to credit applications and applications for opening accounts and payment cards, etc.

Investment bankingAB DnB NORD Bankas’ investment banking activities include tra-ding in securities, liquidity management, funding arrangement for the bank and its subsidiary, full service brokerage services, opera-tions with securities finance, financial solutions development for private and corporate customers including derivative and struc-tured products, as well as corporate finance services, particularly mergers and acquisitions, fundraising and other services.

In the reporting period, AB DnB NORD Bankas was among the leading issuers of debt securities on the local market. During the year, the Bank was the leading underwriter of the debt securities issued by the Government of the Republic of Lithuania in the Bal-tic States. The total value of underwritten notes constituting EUR 320 billion AB DnB NORD Bankas, together with Citi, HSBC, RBS and CreditSuisse, has co-led EUR 500 mln and USD 1.5 billion international placements of Lithuanian Government bonds. The bank has also underwritten 11 EUR denominated, one US dollar denominated and three Estonian kroon denominated tranches of

Lithuanian Government notes with total nominal value of EUR 322 million.

In 2009 a new on-line trading platform was launched that en-abled the Bank’s customers to make financial instruments deals on-line.

Outlook 2010In 2010 AB DnB NORD Bankas intends to continue focusing on the development of efficient universal banking making use of its existing competitive advantages: fast decision making, Financial guide concept delivery, customer-oriented approach and a coun-try-wide sales network being large enough for economies of scale in product development as well as its efficiency of back-office and risk management.

In the adverse economic environment AB DnB NORD Bankas in-tends to pay close attention to the main strategic objectives: cost management, credit risk management and maintaining its market position.

In retail AB DnB NORD Bankas will further develop the approach of being the financial guide to its customers seeking a long-term relationship and providing clients with a comprehensive range of financial services as a home bank. The aim is to be on a custom-er’s shortlist of 2-3 banks for each major banking service deci-sion.

An important role for the 2010 business year will be assigned for continuing the control of the credit performance including stand-ard models for the change of credit conditions helping the cus-tomers to overcome the financial turmoil. The further business development shall be ensured by a more efficient sales organi-zation supported by innovative products, usage of the analytical Customer Relationship Management system (CRM), implementa-tion of multi-channel strategy principles and network optimiza-tion. The planned IT investments will primarily be used for further development of CRM and credit workflow (EDSS) system, leasing system integration and identity management project development and implementation.

AB DnB NORD Bankas goal in corporate banking for 2010 is to build, maintain and develop mutually beneficial long-term cus-tomer relationships by utilizing the Financial Guide concept, be-come the customer’s home bank and the country’s most reliable, dynamic and high-quality banking service provider in SME and corporate segments. Adequate credit risk management, customer centric approach and application of a more efficient sales organi-zation will achieve this.

Growth in treasury and investment banking will require relatively small investments as no significant balance sheet risk-taking busi-ness is planned. The strategy in this segment is to focus on inno-

LITHUANIA


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vation and higher margin products by applying an open-platform solution while moving all standard products to the internet.

In 2010 AB DnB NORD Bankas as a pioneer bank in the Bank DnB NORD Group will finalize the implementation of a unified IT platform, a very important project together with all banks of the DnB NORD Group. The new core banking system will provide a strong backbone supporting the continued growth of the group over the next years; it includes the possibility to share products, processes and resources as well as increased “time to market” and economy of scale. The unified IT solution will be the basis for further development of international cash management products allowing customers to manage their cross-boarder funds more easily and more efficiently.

StaffAB DnB NORD Bankas Group’s human resource management (HRM) policy continued to be based on the belief that the ability of professional and dedicated employees to deliver high quality service to customers provides key impact on the bank‘s ability to compete and further strengthens its business success.

The employee satisfaction survey conducted in 2009 revealed that the Group’s employee’s commitment index (TRI*M) was 64. It increased by 17 points compared to the survey conducted in 2007 also being 10 points above Lithuania’s average employee commitment index rate. That clearly indicates, that most employ-ees highly value AB DnB NORD Bankas as their employer, trust the company and believe in its success.

To seek the professional advance AB DnB NORD Bankas Group has further developed training programs and self-learning tools, encouraging to spread the best cases and success stories across the Group and using modern learning tools, such as e-learning. Special attention was paid to the development of the employees’ professional qualifications, practical sales skills and coaching of sales team skills.

In 2009 further steps of extensive management survey was taken and a 360-degree survey for the middle management of the head office was conducted. The results helped to identify the strengths of the leadership culture in the Bank and areas for improvement.

In the year 2009 a conference of all Bank employees was held to discuss main direction of activity, key tasks for the year and by which means to reach them.

To achieve a more efficient implementation of the Bank’s stra-tegic goals, the performance appraisal system has been further improved and was designed to align the targets set for employees

with the Bank’s strategy and focus on the quality of task formation and efficiency.

Successful cooperation with Lithuanian high schools and colleges was maintained and traineeship programs were further developed during 2009.

In the reporting year, the number of AB DnB NORD Bankas Group employees averaged 1,290. The number is basically unchanged compared to 2008 (1,289). After the leasing products sales func-tion was transferred to the Bank’s network, 1,263 employees worked in the Bank and 1,282 in the Group.

Sponsorship and societyAB DnB NORD Bankas sponsorship focus has been aligned with DnB NORD Group‘s sponsorship strategy – to promote priority focus areas and key values: reliability, team spirit, simplicity and dynamics.

The role of sponsorship marketing in AB DnB NORD Bankas has been that it delivers incremental revenue by increasing the Group‘s Brand relevance and awareness to targeted consumers and business segments beyond the walls of traditional retail out-lets. We wish to generate incremental opportunities for customers to experience and interact with the DnB NORD brand.

Whenever choosing one sponsorship opportunity over another, DnB NORD Bankas Group‘s golden rule has been to stay focused, think strategically and be consistent.

AB DnB NORD Bankas foundational sponsorship was Lithuania‘s National Men‘s Basketball team - a perfect display of the bank’s

The mascots from the Baskett Deposit campaign


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key values - team spirit and dynamics – and a good example of revenue generation.

Before the start of the 2009 European Championships in Poland, DnB NORD Bankas prepared a special present to the country’s basketball fans – the Basketball Deposit ™ – the rates of which were directly linked to the victories of the national team in Po-land. As a result of the enormous National interest, the bank was rewarded with over LTL 45 million deposited with the bank. This support further added to the bank’s brand recognition and general awareness of its Savings & Investment portfolio.

The other sponsorship of AB DnB NORD Bankas concerns the Culture and Arts. The bank, that seeks to be a partner not only in business but also in social life, supported Lithuanian cultural activities and selected organizations in local communities and on a national level.

From the 1st of January 2009 the city of Vilnius became the Eu-ropean Capital of Culture. Understanding the importance of the European Capital of Culture project to the city and its citizens AB DnB NORD Bankas became the bank for this event. An open-air ice rink in the heart of the Old Town was opened to all residents of Vilnius and their guests who could enjoy entertainments on ice throughout January. Children were invited to participate in a children’s drawing contest “Vilnius in winter” organized by the city of Vilnius, and AB DnB NORD Bankas with DnB NORD Children’s Deposit set as the main prize. The winner picture by 13-year-old Mindaugas Kazlauskas decorated the bank’s Christmas greeting card.

To promote the fact that DnB NORD Bankas is part of an interna-tional banking group owned by Norway’s largest Bank DnB NOR and Germany’s NORD/LB the sponsorship of Scanorama film fes-tival was picked up. One of the most awaited events in Lithuania’s cultural life that brings the best films from the Nordic countries and leads to better understanding, cooperation and eventually to business success.

The bank also sponsored the Christmas music week of National Philharmonics in Vilnius that alongside with a cozy area for net-working with the bank’s customers added positively to the brand-ing of the bank. Christmas Music Week features a series of con-certs presented by the Lithuanian National Philharmonic Society and is distinguished for the variety of traditions, epochs, styles and genres.

AB DnB NORD Bankas serves around half of Lithuania’s mu-nicipalities as clients and that is reflected in the bank’s regional sponsorship strategy of contributing to the successes of the re-gional communities. The sponsorship of the Musical Theatre in Lithuania’s second largest town Kaunas and the donation to the

Tall Ship Races in Lithuania’s port town Klaipėda earned the bank the appreciation of local communities. AB DnB NORD Bankas never stops searching for opportunities that help our brand and our customers and contribute profitably to the bank‘s shareholders.

Education and charityIn the reporting year AB DnB NORD Bankas, renowned in the market for its Economic research team, held two economic fo-rums for businesses in Vilnius attracting much attention from local businessmen, further boosting the bank’s brand as a customer-oriented financial powerhouse and economic think-tank. The team’s insights on the development of the economy were used for presentation to the Bank’s customers on regional level with the sales managers using the conferences to actively strengthen the relationship with existing customers and to attract new ones.

For the third year running AB DnB NORD Bankas was proud to sponsor the initiative of Lithuania’s young scientists to nominate the best master’s thesis of the year. AB DnB NORD Bankas prize for the best humanitarian and social science master’s thesis this year went to a young researcher of the Institute of International Relations and Political Science, Nerijus Maliukevičius, the award presented to the nominee by the country’s president Valdas Ad-amkus at the Presidential Palace.

As a social responsible member of the society, AB DnB NORD Bankas, also continued to donate to worthy deeds for the society allocating funds to the Social centre named after Vener-able J. Matulaitis in Vilnius. This Social centre is a non-govern-mental, non-profit organization that has been functioning for 10 years to analyze the community resources and fulfill its principal social needs by providing social services to various groups of the community.

At the president palace to give the DnB NORD Bankas grant for the best achievement in the category of humanitarian and social science. From left, Peter Tutlys – Marketing, Brand and communication depart-ment manager. Former President of Lithuania Valdas Adamkus.Nerijus Maliukevičius – the receiver of the DnB NORD Bankas grant.


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Macroeconomic trends and outlook In 2009 Lithuanian economy has slipped into the bottom-side of business cycle registering one of the deepest GDP declines in the EU. Ac-cording to the first estimate, the value added (at constant prices) created in the economy last year was 15% smaller than a year ago. Gross fixed capital dropped by almost 40% and household consumption expenditure shrank by 17%. Increasing unemployment, diminished consumer confidence and decreasing purchasing power contributed to a depressed domestic demand, while vague economic outlook, loss of traditional export markets and unfavourable borrowing conditions forced businesses to postpone expansion plans.

Inflation and unemployment The inflationary pressure observed in 2008 gradually evaporated on the back of economic downturn. At the end of 2009 the harmonised index of consumer prices was 1.2% higher than a year ago. Jump in energy and heating prices after the shutdown of Ignalina’s nuclear power plant is likely to feed consumer inflation throughout 2010. Labour market indicators deteriorated significantly due to the drastic con-traction of economic activities: seasonally, adjusted, harmonised unemployment rate mounted from 8.2% at the end of 2008 up to 15.8% in Q4 of 2009 and is forecasted to peak in mid-2010. The gradual deceleration in the number of unemployed people is seen afterwards on the back of intensifying emigration. The sharp rise in unemployment has put a downward pressure on the wages, which dropped by 8.7% year-on-year in Q4 of 2009, and are expected to decelerate further in 2010.

Key economic sector performanceWeak consumer confidence and decreasing purchasing power translated into diminishing domestic demand, which resulted into exceptio-nally poor performance of internally oriented economic activities. The only sector to show positive growth in 2009 was agriculture. Lithua-nian foreign trade and current account balances last year improved significantly, unfortunately not because of sudden increase in exports, but due to imports decelerating at a higher rate than exports. In 2009, exports of goods declined by 26.6% year-on-year, while imports slumped by 38.2%. Looking ahead, exports are expected to recover modestly in 2010 due to the anticipated rebound of the key Lithuanian export markets (i.e. Russia and Germany).

The banking sector Harsh economic slowdown and weak business outlook adversely affected financial indicators of the banking sector in Lithuania. After se-veral years of profitable operations, in 2009 the country’s credit system registered EUR 0.8 bn loss, due to the increasing special loan provi-sions. The loan portfolio to the private sector diminished by 7.1% (loans to non-financial corporations and households shrank by 9.4% and 4.3%, respectively), while the stock of deposits was 4.8% higher than in 2008. Outstanding amount of loans is expected to shrink further through 2010, reflecting the generally poor economic environment with a slight rebound in the second half of the year. However, as the tensions concerning solvency and exchange rate stability in the Baltics eased off, CDS and interbank interest rates started decelerating. 3-month VILIBOR declined more than two-fold during the 2nd half of last year, i.e. from the peak of 8.6% in June down to 3.9% in December, and returned to the levels registered before the global crisis.

Government spending Downside risks emerge from the weak public finances – Lithuania’s budget deficit to GDP ratio is estimated to be the worst (about 8-9%) among the Baltic States in 2009-2010. Shrinking GDP and large budget deficits have caused debt ratios to more than double since 2007. The government is planning to borrow intensively on the international capital markets in 2010 that may further escalate the debt level to a damaging level. The government will need to tighten fiscal policy significantly over the next few years to bring public finances under control.Despite increasing number of stabilisation signs, 2010 is not expected to bring substantial economic upturn. Unemployment will be high and still growing; purchasing power will remain suppressed. Real GDP is forecasted to pick up in the second half of the year on the back of improving performance of key export markets, with more robust economic growth since 2011.

Lithuania: Key macroeconomic indicators 2007 2008 2009 2010 2011

Real GDP, annual change, % 9.8 2.8 -14.8 -1.0 2.0

HICP inflation, end of period, % 8.2 8.5 1.2 1.0 2.0

Average monthly gross earnings, end of period, 18.5 13.0 -8.7 -2.0 3.0

Harmonised unemployment rate, end of period, % 4.1 8.1 15.8 15.0 14.5

Current account balance, ratio to GDP, % -14.5 -11.9 3.8 0.0 -2.0

General government budget balance, ratio to GDP, % -1.0 -3.2 - -7.5 -7.0

Source: Eurostat, national central bank, national statistics office, DnB NORD forecasts.


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POLAND


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Business activitiesThe Bank’s strategy and activities in 2009 were based on two main paths: to develop the model of an universal bank but with strong focus on selected areas, where growth was possible, achievable and in accordance with shareholders, and to start the restructuring proc-ess – to increase effectiveness and to prepare the organization for further growth.

From this perspective – one of the strategic priorities was to grow in the retail-banking segment - mainly by offering tailored-made, top class products for affluent clients (i.a. mortgage loans, investment products). The Bank also developed an efficient, external mobile sales network.

In the corporate banking and banking for small- and medium-sized companies (SMEs), the Bank’s strategy was concentrated primarily on the existing clients. The Bank’s goal was to keep existing relations with clients and at the same time renegotiate credit margins with se-lected customers. This re-pricing policy was successful. Additionally, the Bank conducted a divest strategy towards selected corporate clients with a high-risk profile.

In 2009, the Bank DnB NORD Polska increased its balance sheet by a total of 7% in comparison with the end of 2008 (EUR 1.89 billion as of the end of 2009 vs. 1.76 billion in 2008). This upward trend could also be seen in the value of credits and loans granted to cus-tomers, which reached a level of 22% to EUR 1.43 billion as of the end of 2009 vs. 1.18 billion in 2008.

In 2009, the Bank’s total income decreased by 13% compared to 2008 to EUR 57.5 million from EUR 66.3 million. Net interest in-come changed in comparison to the previous year by –26% to EUR 30.9 million from EUR 41.2 million and net fee and commission income changed in comparison to the previous year by -12% to EUR

11.6 million vs EUR 13.2 million. Trading and market value ad-justments changed from EUR 6.4 million to EUR 13.6 million and Other income from EUR 4.9 million to EUR 1.3 million.

Compared to 2008, the volume of loans granted by the Bank in-creased and the deposits volume grew by 22% and 8%, respec-tively. In figures from EUR 1.43 billion vs EUR 1.18 billion and EUR 705.3 million vs EUR 651.7 million. Conversely, in 2009 the Bank’s losses on loans and assets grew significantly to EUR 27.1 million as a consequence of the deteriorated macroeconomic situation of the companies after the global financial crisis. At the same time the cost base in the Bank had reached very high levels in comparison to the income (C/I ratio amounting to 91,1% at the end of 2009). All these elements resulted in a gross loss of EUR 21.9 million as of the end of 2009. By applying a conservative approach to the risks connected with the derivative products, the Bank did not incur any substantial losses in this area, unlike many other banks in Poland.

Due to the financial losses suffered in 2009 and a need to prepare the base for the future healthy growth, the Bank started a turna-round program in September. The primary objective of the program was to cover the losses, improve and stabilize the level of the finan-cial results and to improve profitability and efficiency. In order to achieve the objectives of this program, a number of activities are required, including:

Continuation of the development of retail bankingNew setup of the SME business line Redefinition of the corporate business line (concentration on ‘mid caps’ instead of ‘blue chips’)Reduction of the cost base in all the areasOptimization of the organizational structureProcess reengineeringClosing of unprofitable branches

The program, which started in September 2009, continues in 2010.

Customers and market Year 2009 was another year of building a strong and at the same time focused retail banking segment (excluding small- and medi-um-sized enterprises) which resulted in the exceeding of budgeted operational profits by 7% with 158% growth compared to 2008. The increasing volume of loan products at the year-end achieved 708% of the 2008 level, however the 2008 volume was low as the loan products were introduced in the Bank’s offer in late 2008.

The organic growth was stimulated by the improvement of banking services and products, adjusted to the varying individual needs of our customers in selected areas, being precisely in line with the strategy. Bundling new attractive banking products expanded our saving and investment product offers for individual customers into the packages “Klassik, Personale, Eksklusiv” and was launched for new customer segments in line with the defined strategy. Additionally, insurance deposits and saving accounts extended

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Bartosz Chytła, CEO DnB NORD Polska


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the deposit products offers, and the new subscription of targeted products in the form of launching life in-surance as well as extending the range of investment products. The Bank continued the development of its flagship products in retail banking – mortgage loans. In a very short time DnB NORD’s mortgage loans became the leading product among mortgage loans in Poland, and systematically came first in rankings published by the media and independent experts.

Due to the macroeconomic situation and increased costs of funding, the Bank’s involvement in the corpo-rate banking segment had to be verified. Temporarily, the Bank has put further growth in this particular seg-ment on hold. The activities were focused on renegotia-tion of credit margins with the existing customers and cross selling. Despite the difficult market situation, the corporate banking segment (including the municipali-ties) achieved the budgeted goals of 99 % as far as operational income is concerned whereas the loan volume in this segment increased by 26 % during the year.

2009 was a difficult year also for the SME segment. Revenue gained from this segment did not bring the expected results – i.a. due to the changes in the macro economy, lack of implemented tools for the loan process, manual loan monitoring, weak recognition of the brand and low quality of after-sale cus-tomer service. The budgeted goals in small and medium sized enterprise segment were achieved only by 82%.

Branding and promotion In 2009 the Bank’s activities related to branding and promotion followed the Bank’s business strategy, i.e. focus on the selected areas of growth. In the corporate banking and banking for small- and medium-sized companies (SMEs), the Bank’s promotional operations were concentrated primarily on the relationship-driven activities. Due to the limited range of activities and the executed strategy of concentration, the Bank did not conduct any wide-ranging image-building activities but rather turned to strictly fo-cused and measurable tactical campaigns directly supporting the marketing and sale of banking products and services. Among the most significant projects were:

Launching new product bundles (Klassik, Personale, Eks-klusiv) and - at the same time – introducing a fresh creative image of the promotional materials. In order to make DnB NORD’s unique mark and stand out in the Polish banking market, all the promotional materials include some Scandi-navian elements referring to the Norwegian origins of Bank DnB NORD Polska. This particular creative line became the benchmark for all new promotional materials to follow Further development of mortgage facilities, including the Bank’s flagship product – mortgage loans. Mortgage loans

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offered by Bank DnB NORD Polska became a reference product on the Polish banking market. In 2009, this product was highly positioned in many rankings of mortgage loans both in the media, as well as in independent on-line comparative models. Top placing in these listings was successfully used in the Bank’s promotional internet campaign. The campaign was focused on boosting the sales. The primary goal of this campaign was to generate customer leads and to approach customers, who are interested in our banking products via specially designed online campaigns. This particular activity was strongly supported by our call center staff “NORDfortjene deposit” – an innovative campaign launched on the internet, based on interactive advertising spots and ac-tive online marketing through a landing page Targeted investment products with capital protection guaran-tee: “NORD 4 effekt” and “NORD 5 plus” “One Double Deposit” – a sequence of innovative banking product on the Polish market combining 3- and 12-month fixed rate deposits New design of credit and payment cards – the design presents innovative and added-value holographic foil technology, which associates with modernity, progress and prestige (pictured below).

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POLAND

Poland: Business activities(EUR ‘000)

2009 2008 Index


Net fee income 11,577 13,172 88

Trading and market value adjustments 13,636 6,443 212

Other income 1,325 4,928 27

Total income 57,456 66,277 87



Credit loss expenses 27,051 6,481 417

Profit before tax -21,926 -4,576 479

Loans, end of year 1,434,790 1,179,489 122

Deposits, end of year 705,330 651,657 108



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Bezpieczeństwo w formie polisy lokacyjnej ■Zysk jak na lokacie 7% ■

Okres oszczędzania: 6 lub 12 miesięcy ■

Minimalna kwota inwestycji 5 tys.zł. Oprocentowanie podane w skali roku.

wzz

ochrona kapitałuszansa na dodatkowe premii z góryatrakcyjne zyski z

Odkryj

dla TwOich finansów

Advertisement campaign for: “NORD 4 effekt” and “NORD 5 plus”

Advertisement campaign for: “NORDfortjene deposit”

Martyna Wojciechowska’s a DnB NORD sponsored adventurer, see next page for more details

Visual of bundle ‘EKSKULUSIV’

Advertisement campaign for: the banks mortgage loans


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Sponsoring & society DnB NORD sponsorship focus has been aligned with DnB NORD Group’s sponsorship strategy – to promote priority focus areas and key values: reliability, team spirit, simplicity and dynamics. In 2009 Bank DnB NORD Polska stayed focused on the selected projects supporting its business activities. Most important initia-tives included:

Sponsoring program for the expedition organized by the well-known Polish female journalist and traveler Martyna Wojcie-chowska to Vinson Massif, the highest peak of Antarctica (4897m) as a part of the Seven Summits (or Crown of Earth) mountain climbing project run by Martyna Wojciechowska. A documentary footage co-produced by the Bank followed. Economic Forum in Krynica, Poland – the most important event gathering politicians, business people, scientists and journalists from the CEE region, also called ‘Polish Davos’. Bank DnB NORD Polska participated as the partner. A series of conferences for Polish companies. The confer-ences were focused on the cooperation between the compa-nies and the banks in the time of financial slowdown. Martyna Wojciechowska participated in the conferences as a special guest. Exhibition of photos from interesting places all over the world, arranged in the new Warsaw-based branch office. Sponsorship of a number of local events in order to strengthen the Bank’s presence and its position in the local markets.

StaffIn 2009 HR activities were concentrated on the supporting the strategy of the Bank and the restructuring process. Wide-ranging optimization activities lead not only to salary cuts but also to the reduction of the employment level. The managers were trained in change management and structured approach to transform the employees. Laid-off employees were offered professional out-placement support in order to improve or change their profes-sional qualifications.

Year 2009 initiated several other HR activities. Competence ap-praisals allowed for diagnosing the existing staff potential in the organization, to identify the Bank’s strengths but also areas re-quiring some improvement. The overall goal of the appraisals was also targeted on an ongoing development of the managerial com-petences among the staff, ensuring proper business continuity in the Bank and, moreover, taking into account the outcome of job performance in order to select the best candidates to participate in the talent management program.

The employees of the bank have an opportunity to develop their language skills in the English language at in-house lessons ar-ranged by the Bank. Moreover, the Bank organizes internal train-ings (products and processes, an adaptation program for the newcomers), as well as specialist trainings provided by external experts. Employees may also use the e-learning system, allowing

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them to improve their professional skills without leaving their of-fices.

The Bank also cares about the social life of the employees and the development of their hobbies. The Bank supports various forms of sporting activities; NORDclubs offer the employees various forms of spending free time actively by e.g. attending dancing lessons, sailing, playing basketball or climbing mountains. All employ-ees are offered special benefit packages such as life insurance, healthcare programs, as well as sport and recreational activities co-funded by the Bank.

Outlook 2010 The Bank’s long-term strategy assumes consistent and focused growth in the area of retail banking, covering small and medium-sized enterprises, as well as corporate banking. Retail banking activities will be focused on mortgage loans operating within Retail Plus and Personal Banking. Further development of investment products aimed at private and personal banking customers will be actively supported.

Implemented in 2009, effective distribution channel model based on internal network and external sale system will be continued (di-rect sale and cooperation with financial service brokers). On the other hand, internet banking matching the best market standards and operational functionality will be introduced.

The strategy being implemented in corporate banking is mainly based on the development in mid-caps (medium sized compa-nies) segment meaning the customers with a turnover of between PLN 40 and 200 million. The Bank intends to expand in this busi-ness segment based on a large variety of offers of tailor-made and targeted products, especially in the area of lending, factoring, cash management and treasury products. However in the big-sized enterprise segment, the Bank will focus on maintaining re-lationships with present customers. As a member of DnB NORD Group, the Bank will continue to pay special attention to customer services provided to the Group’s customers operating in Poland. The Bank plans the increase in non-interest income following the wider range of non-credit products and the diversification of the loan portfolio.

In 2010, the activities focused on the improvement of effective-ness of processes and customer service quality will be continued. Moreover, the activities performed in the Bank will result from the Group project initiated in 2009. The project’s goal is to imple-ment effective organizational structure in the whole of DnB NORD Group, achieve more effective cooperation and efficient coordina-tion within the Group, and unify the processes and procedures and implement strict cost control.

As a link in the process of executing the above operating effective-ness improvement program and in accordance with the budget for 2010, the Bank has agreed with the shareholders to the in-crease the equity by 20 million EUR in 2010.


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Macroeconomic trends and outlook Poland happily avoided the recession last year and was the only EU country to demonstrate positive economic growth of 1.7%. Despite the fact that in 2009 Poland faced a gradual economic slowdown the diverse response to the crisis proved the soundness of the Polish economic development. The composition of strong fundamentals, including relatively low dependency on export and a vital domestic mar-ket, and well-founded policies (early moderation of the monetary policy, weaker Polish złoty, lowered taxes, and infrastructure investments financed by EU funds, etc.) provide a fare background for further growth. The country is expected to enjoy a modest increase in real GDP of 2-2.5% in 2010.

Domestic demandNotwithstanding the economy lost substantial momentum last year, consumption was up by 2% with individual consumption showing an increase of 2.3%. The increase in GDP was underpinned mainly by solid results of market services, including the financial sector and real estate activities. The key bottleneck, as in the other European economies, appeared on the investment side. External demand, on the back of contracted imports, was relatively vital and contributed positively to the value added creation. Exports denominated in EUR dropped less than imports and the trade balance improved significantly. However, on-going production of modernisation processes are set to increase the trade deficit in the medium term, and economic acceleration is broadly associated with moderate deepening in the trade deficit.

Inflation The annual growth of consumer prices (HICP) in Poland last year stood at 3.8% in December 2009 and was significantly above the EU ave-rage. Slightly weakening demand could not offset external and internal inflation drivers. Strong annual inflation was mainly driven by rising energy prices on the back of improving global economic outlook. Excise tax increases for tobacco products and alcoholic beverages, to-gether with increasing administration costs (electricity and heating for households, water supply, etc.) also contributed to higher inflation.

UnemploymentDespite a gradually improving macroeconomic environment, the situation on the labour market remains worrying. The number of registered unemployed increased by 28.4% and stood at 1,893 thousand at the end of December 2009. The rise in Polish unemployment caused the rate to increase from 9.5% to 11.9%. Nevertheless, growth of both nominal and real wages persisted in Q4 of 2009 and proved to be among the strongest in the EU. Nominal wages increased by 4.7% year-on-year, showing only slight deceleration from the previous quarter.

Interest rateIn 2009, the National Bank of Poland acted aggressively by cutting the reference interest rate four times to a record low of 3.5% and is still valid. The National Bank of Poland is expected to keep the rates flat throughout the year, since the inflationary pressure slides down. Favourable macroeconomic data and fiscal consolidation plans pushed down yields of Polish bonds to below 6% in early 2010. However, the average annual yield on Polish long-term bonds in December 2009 was slightly above the Maastricht interest rate criterion.

Government spendingThe fiscal stance of the country deteriorated to 7.2% of GDP in 2009, mainly due to sharp worsening in the Social Security Fund balances. The forecasted deficits in 2010-2011 may force the ratio of public debt to GDP to rise above the constitutionally mandated threshold of 55%, above which restrictions on expenditure will have to be applied.

POLAND

Poland: Key macroeconomic indicators 2007 2008 2009 2010 2011

Real GDP, annual change, % 6.8 5.0 1.7 2.5 3.0

HICP inflation, end of period, % 4.2 3.3 3.8 3.0 3.0

Average monthly gross earnings, end of period, 10.4 7.1 4.1 3.0 4.0

Harmonized unemployment rate, sa, end of period, % 8.6 6.9 8.7 12.0 11.0

Current account balance, ratio to GDP, % -4.7 -5.1 - -2.0 -3.0

General government budget balance, ratio to GDP, % -1.9 -3.6 -7.2 -6.0 -5.5



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LATVIA

Top: DnB NORD Banka new headquarter are almost completed. The official opening are expected to take place in summer 2010. Bottom left: The www.nekrize.lv portal, which the bank set up in mid-July to offer people information about others who, in spite of the eco-nomic crisis, have had positive experiences and eager spirits. Bottom right: Urban summer festivals in co-operation with municipalities – the bank actively participated in several city festivals, thus shaping the image of the bank.


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Business activitiesDnB NORD Banka continued to enjoy a stable and sustainable development in 2009, focusing in particular on risks that were created by Latvia’s economic situation insofar as the bank’s op-erations were concerned. The bank sought to enhance its opera-tional income, promote its overall effectiveness, and work with its existing lending portfolio.

Operating profits for the DnB NORD Group before provisions and taxes in 2009 was at a level of EUR 48,2 million, or 24% more than in 2008. This was achieved despite the extremely difficult and challenging economic environment, which prevailed.

Income from core operations amounted to EUR 91.4 million, which was also more than the previous year. Operating expendi-tures in 2009, by contrast, were down by 14% in comparison to spending in 2008.

Total assets for the DnB NORD Group in Latvia at the end of 2009 amounted to EUR 2.7 billion compared to EUR 3.1 billion at the beginning of the year.

At the end of 2009, the group’s deposit portfolio amounted to EUR 545 million. The group’s lending portfolio amounted to EUR 2.4 billion before provisions at the end of 2009 – 11% less than in the previous year. New loans worth EUR 167 million were issued in 2009. Of these, EUR 112 million in loans went to companies.

The global and national economic situation in 2009 seriously af-fected the solvency of individuals and companies, and the DnB NORD Banka, like other commercial banks, had to make provi-sions for doubtful loans. During the first half of 2009, the bank made net provisions of EUR 110.5 million for this purpose. The sum was increased by EUR 41.3 million in the third quarter, with

another EUR 29.8 million being set aside in Q4, when the economic decline was slowing down. This amounted to a sum of EUR 181.6 million for the year.

During the fourth quarter of 2009, the DnB NORD Group in Latvia experienced losses of EUR 26.1 million after provisions and taxes. The total loss for 2009 after provisions and taxes was EUR 123.5 million.

In order to cover these losses over the course of the year, the bank received capital injections including

subordinated loans of EUR 110 million. On December 31, 2009, the equity basis for solvency purposes in DnB NORD Group in Latvia amounted to EUR 248.6 million.

StrategyDnB NORD Banka aims to become a leading customer-focused and universal bank balancing sources of income and achieving synergy among retail, corporate, and investment banking.

Customers and the marketDnB NORD Banka is a trusted business partner and professional advisor to many Latvian and international customers and compa-nies, as well as to governmental institutions and municipalities. High-quality services and customer-friendly solutions coupled with flexibility, creativeness, and the positive attitudes and high profes-sionalism of the bank’s team to provide for the virtues, which the bank’s customers appreciate highly.

During the course of 2009, the number of clients at the DnB NORD Banka increased by 5.9%, including a 13% increase in the number of small, medium and large companies, which joined the bank’s client base.

Branding and promotionDnB NORD Banka’s marketing activities in 2009 reflected ongo-ing efforts to reinforce the bank’s image as one of the leading universal banks in Latvia. At the same time, the goal was also to maintain a stable and positive image for the bank given the chal-lenging circumstances of an economic downturn.

The branding and marketing activities were very successful. Pub-lic recognition of and confidence in the DnB NORD Banka in-creased by 43% over the year – according to the results of a sur-vey published in the Kapitāls business magazine on the subject

DnB NORD Banka CEO Andris Ozoliņš


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of Latvia’s most respected brand names. This hap-pened despite the tough economic situation and the associated challenges, which the financial sector had to face. It was the biggest increase in reputation in the industry during the course of the year.

SocietyThroughout 2009, DnB NORD Banka continued to work on projects that are of importance to the Latvian people. These included:

The DnB NORD Latvian Barometer, which is the only study to research the moods, opinions and attitudes of the people of Latvia regularly and in the long term. Questions focus on various socio-economic issues

The “Latvia Can!” project, which the bank organised together with the business supple-ment of the newspaper Diena and with Latvian Television. The aim is to show that even during economically difficult times, there are still people and companies which are doing well in science, technologies, exports, etc.

The www.nekrize.lv portal, which the bank set up in mid-July to offer people information about others who, in spite of the economic crisis, have had positive experiences and eager spirits. The portal offers answers to questions which people might be afraid to ask in public. There are also ideas and recommendations as to how to overcome the crisis as quickly as possible, and without losing sight of success.

The bank also took part in a number of social and charitable ac-tivities in 2009:

Corporate social responsibility projects in co-operation with Latvia’s municipalities – the bank helped to finance children’s playgrounds in several of Latvia’s larger towns, thus forming a long-term and positive image and strengthening business rela-tionships with municipalities. DnB NORD Banka also provided financing for a unique and practical education course called

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“Export Management” at the Ventspils University College. It was designed to educate qualified export specialists.

Urban summer festivals in co-operation with municipalities – the bank actively participated in several city festivals, thus shaping the image of a bank, which is a valuable partner in terms of support and participating in events, which have direct economic benefits, as well as a cultural and social impact. The bank’s image as one that is simply and easily accessible for local residents was also strengthened.

“Green thinking” – DnB Nord Banka spent the year on an ongoing project to promote green thinking in Latvia, as well as the bank’s image as a responsible corporate entity. A series of lectures were delivered at Latvian schools in the spring of 2009, and these were followed up with a youth competition to find the best description of environmental protection measures in the autumn of the year. The bank set up an Environmental Rescue Team, which gathered information about environmen-tal problems in Latvia and then took care of these difficulties. This was a substantial contribution toward the ability of people to transfer natural heritage values to subsequent generations.

A social responsibility campaign for bank employees – the bank brings all of its employees into charitable projects, thus facilitating teamwork in pursuit of very good results. For the

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Latvia: Business activities(EUR ‘000)

2009 2008 Index


Net fee income 10,015 10,556 95

Trading and market value adjustments 9,560 489 1,955

Other income 7,333 10,526 70

Total income 91,356 85,968 106



Losses on loans and assets 181,625 25,608 709

Profit before tax -133,461 10,333 -1,292

Loans, end of year 2,240,343 2,709,849 83

Deposits, end of year 545,376 618,411 88


Latvian can


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third year in 2009, employees collected gifts for children at a specific boarding school.

StaffThe results, which the bank posted in 2009, were based on a culture of teamwork and conclusive goal setting. These processes have ensured the successful and stable development of the bank. DnB NORD Banka has human resource policies focused on in-creasing the skills and knowledge of colleagues, thus positioning the bank as one of Latvia’s best employers. Human resource pro-grammes and activities are always aimed at attracting, retaining and motivating highly qualified staff.

At the end of 2009, the bank and its subsidiaries had 833 employ-ees, as compared to 858 at the end of the previous year. More than 82% of all staff members have a higher education.

Throughout 2009, much work was done on enhancing staff re-cruitment and selection processes. The framework and methodology for candidate screening were improved, so that the most talented people could be found for specific jobs. There was also much more use of recruitment and selection tools such as structured interviews, a test of communication skills, and psy-chometric testing so as to identify the most suitable candidates – those with characteristics that would contribute to the organisa-tion’s long-term growth.

Staff training is critically important in ensuring individual excel-lence and organisational growth and change. It also provides broader opportunities for staff to pursue professional and perso-nal fulfilment. Throughout 2009, the Human Resources Training Centre instituted a series of initiatives designed to elevate the role of staff training to a more strategic level. One of the initiatives was the adoption of a more strategic business process in terms of training needs analysis. This is an annual process carried out in close collaboration with business leaders at the highest levels. The outcome of this analysis is a series of new training programmes that are proposed for the subsequent year. In 2009, the bank’s

training needs analysis procedures made it possible to identify more accurately the bank’s current and anticipated business is-sues and goals.

A proper rewards system is another important tool in encoura-ging organisational and individual performance. It is also essential in attracting and retaining talented staff at all levels. An annual benchmark study of comparable organisations was conducted in 2009 to look at compensation and benefits. Job evaluations were aimed at analysing the bank’s organisational structure, thus identifying ways of making it more effective. People were put into the right roles, and targeted pay and rewards programmes were instituted.

Outlook 2010In 2010, the bank will continue to work as a universal bank, with three main target areas – a bank for private individuals, a bank for large, medium and small companies, and a bank, which offers thorough investment banking services.

In 2010 DnB NORD Banka will target both existing and potential customers – private persons and legal entities. DnB NORD Banka will continue to sophisticate the services offered to the customers of the Private banking centre, as well as to pay special attention to offering advantageous financial products and services catering to the SMEs of Latvia, helping them to use the current economic environment to stabilize and develop their business.

DnB NORD Banka employees collected gifts for children at a specific boarding school


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Macroeconomic trends and outlook In 2009, real output of the Latvian economy declined by record high 18%, following a 4.6% downturn in 2008. Most of the contraction had already occurred in the first half of the year on the back of depressed exports. Agriculture was the only sector to grow in 2009. The value added by construction sector has decelerated steeply, by 33.6%, indicating weak domestic demand. Consumption and thus sectors dependent on it continued to slump, but in Q4 the pace slowed from 23.5% year-on-year on average in Q1-Q3 down to 18.3%.

Exports After a repeated dip at the turn of the year exports of goods are likely to perform strongly. Already in February it increased by 18% year-on-year. Moreover, the manufacturing associations declare a comprehensively good outlook for exports. Exports of services slipped to the lowest point in the cycle, there are signs of recovery in tourism, and transit of goods suffered severe losses. Nonetheless, the overall exports are expected to rebound by considerable 10% in 2010. However the effects of fiscal consolidation will mute spiralling export driven growth and moderate consumption revival.

Inflation As the economy stalled there was no inflationary pressure (apart from administrative changes) last year. However, in early 2010 prices rose by 0.6% in March from December 2009, driven by factors related to global recovery.

Unemployment Harmonized unemployment rate (according to a labour force survey) increased rapidly in 2009 from 10.2% in the end of 2008 to almost 22% in December 2009 and was the highest among EU Member States. However, there are strong signs that it is peaking – registered unemployment fell in early 2010, and an increasing number of manufacturers report re-hiring of staff. Nonetheless, significant decrease in unemployment is expected only from 2011 on the back of picking up on the economic activities. The bulk of wage reductions are already behind, however the downward slide will continue in 2010 as poor employment prospects give businesses significant bargaining power.

IMF and government spending On the basis of tough political decisions, pushed by the heavy hand of IMF, the financial situation of the country has stabilised. The adjusted 2009 budget targeted a deficit of 10% of GDP. However aggressive spending cuts allowed the 2009 general government budget deficit to stay at 9%, just below the previous target. The budget for 2010 targets a deficit of just above 7% of GDP in 2010.

Public sector However there is still a lot of work left to overcome fiscal noncompliance. Despite emergency reduction of deficit by about 10 percentage points since late 2008, the structural component of public sector deficit is still estimated to be at 6% of GDP in 2010. The consolidation of the health and education sector has just begun and close to nothing has been accomplished in tertiary education, which is largely dysfunc-tional. Thus, further fiscal consolidation may have a dampening effect on short to medium term growth.

Latvia: Key macroeconomic indicators 2007 2008 2009 2010 2011

Real GDP, annual change, % 10.0 -4.6 -18.0 -3.0 -3.5

HICP inflation, end of period, % 14.0 10.4 -1.4 0.0 1.5

Average monthly gross earnings, end of period, 29.8 12.1 -12.1 -5.0 3.0

Harmonised unemployment rate, end of period, % 5.5 10.2 21.9 18.0 16.0

Current account balance, ratio to GDP, % -22.3 -13.0 9.5 3.0 0.0

General government budget balance, ratio to GDP, % -0.3 -4.1 - -7.0 -4.0



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are approved by the Board of Directors and monitored by the Risk Reporting unit within Risk & Compliance.

Transfer risk is the probability of loss due to currency conversion (exchange) restrictions imposed by a foreign government that make it impossible to move money out of the country. It is a type of political risk. As Bank DnB NORD A/S has limited trading activities transfer risk is comparatively small.s comparatively small.

Customer ratingsThe Bank’s exposure on performing clients is divided into different risk categories from 1-10 where 1 is the lowest risk. The customer ratings constitute the basis for calculation of expected loss and re-quired capital.

Market riskMarket risk, related to trading or banking activities, includes risk, which the Bank incurs as a consequence of fluctuating exchange

GROUP RISK MANAGEMENT

Risk management is the process of measuring, or assessing risk and developingstrategies to manage it.

Relevant risk types of Bank DnB NORD A/S include credit risk, mar-ket risk, liquidity risk, operational risk and strategic risk.

Credit riskBank DnB NORD A/S defines credit risk as the risk of losses due to failure on the part of the Bank’s counterparties to meet their pay-ment obligations (either principalor interest or both).

The Bank’s credit risk occurs mainly from various forms of lending to corporate, -retail customers and municipalities including issued guarantees and documentary credits. Credit risk also comprises transfer risk and settlement risk.

Bank DnB NORD A/S ties up capital for credit risk according to the Basel II Standard Approach. In addition, Bank DnB NORD A/S performs internal calculations of credit risk in line with DnB NOR methodology, that incorporate the effect of internal customer risk assessments and risk concentrations.

In all units, consistent standards are applied in the respective credit decision processes. The approval of credit limits for customers and counterparties, and the management and review of existing expo-sures must fit within the credit strategies of all units and the credit policy of Bank DnB NORD Group. Decisions regarding customers and customer groups credit limits are made on different levels within Bank DnB NORD A/S. The handling of credit exposure is regulated by the credit manual of Bank DnB NORD A/S. Separate guidelines have been prepared and approved by the Board of Directors for establishment and monitoring of credit lines in favour of banks and countries.

The responsibility for credit risk lies with the customer responsible unit, whereas the overall credit risk evaluation as monitoring of con-centration risks and portfolio analysis is done centrally in Bank DnB NORD A/S.

A watch list routine evaluates the Bank’s situation as early as pos-sible in order to implement relevant actions to prevent losses. Watch listed customers are monitored more closely and the relationship manager must prepare an action plan with specific goals and dates for further follow-up. The action plan has to be presented as a credit proposal to the relevant decision making level.

Doubtful customers are monitored on a more regular basis in terms of current performance, business outlook, future debt service ca-pacity and the possible need for provisions.

Country risk is a credit risk attributable to borrowers who are domi-ciled in another country and is affected by changes in the economic and political situation of the country. The Bank manages its expo-sure to country risk through a framework of limits. Country risk limits

0%

10%

20%

30%

50%

60%

40%

1-4 5-6 7-10

Cost

Pre-tax profit before write-downsCost/income ratio

2009Q4

2008Q4

39.3% 25.8% 34.9%

48.7% 23.6% 27.7%

Retail 32%

Other 16%

Real Estate 16%

Manufacturing 13%

Trade 9%

State/Municipalities 5%

Wood Processing 3%

Transport 3%

Agriculture 3%

Risk distribution on perfroming customers

Industry distribution (year-end 2009)


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rates (foreign exchange risk), interest rates (interest rate risk) and equity prices (equity price risk).

Bank DnB NORD A/S allows interest rate- and FX risk according to limits set by the Board of Directors for each currency and for the total. Gapping limits further monitors interest rate risk. This implies that credits with long term fixed rate agreement are funded by in-struments with equivalent term. A controller function with reference to the CFO is responsible for measuring, monitoring and reporting interest rate- and FX risk to management and Board of Directors. In-terest rate risk, FX risk and equity risk based on proprietary trading is very limited. Bank DnB NORD A/S limits, monitors and performs stress testing for interest rate risk and FX risk according to guide-lines approved by the Board of Directors.

Bank DnB NORD A/S ties up capital for market risk according to the Basel II Standard Approach.

Liquidity risk, liquidity margin risk and liquidity manage-mentLiquidity is needed to accommodate liability maturities, fund asset growth and business operations, and to meet the contractual obli-gations from domestic sources at market rates and from the share-holding banks at rates agreed.

Liquidity risk is the risk that Bank DnB NORD A/S will be unable to meet its payment obligations. Although only minor parts of the funding are obtained by depositors of the Bank, insufficient liquidity on group level is considered to be highly unlikely as DnB NOR and NORD/LB are committed to contribute to the financing of Bank DnB NORD Group in terms of sufficient equity and liquidity according to the shareholder agreement and the agreed funding policy.

Liquidity margin risk is the risk of losses resulting from long term fixed margin agreements on assets funded by short term fixed mar-gin agreements on liabilities. The Bank has incurred liquidity mar-gin risks in 2009 due to higher funding costs by the parent banks. Maturity mismatches are monitored, as part of the liquidity risk ma-nagement and the resulting liquidity margin risk is stress tested on a regular basis.

The management of liquidity risk also involves developing and maintaining of contingency funding plans, evaluating the liquidity position under various operating circumstances and ensuring that Bank DnB NORD A/S, as well as the individual banking operations, are able to operate through a period of stress, i.e. in times when ac-cess to traditional funding sources is constrained. Prime source of funding is our parent companies.

Liquidity management involves forecasting and meeting funding needs and maintaining sufficient capacity to comply with regulatory reserve requirements and internal risk limits. Liquidity capacity shall also accommodate fluctuations in asset and liability levels due to changes in business operations or unanticipated events.

Bank DnB NORD A/S limits, monitors and performs stress testing for liquidity risk according to guidelines approved by the BoD. The

BoD has also established ALCO (Asset & Liability Committee) to advise and recommend on the treasury and trading operations and to monitor the liquidity risk on an ongoing basis.

A controller function with reference to the CFO is responsible for measuring, monitoring and reporting liquidity risk to management and Board of Directors.

Operational riskOperational risk is defined as all shortcomings or errors inherent in processes, work routines and system solutions, which may result in loss. Moreover, operational risk covers loss caused by own employ-ees (violation of policies, faults, fraud, etc.) as well as loss incurred due to external events (theft, fire damage, vandalism, etc.).

The Bank adheres to strict principles for the management of opera-tional risk. In order to improve group control, the Bank has developed a common organization and policy for the identification, assessment and monitoring of operational risk. The main focus is a centralized collection of loss events based on DnB NOR’s loss event database, as well as consolidated self-assessments of operational risk.

Bank DnB NORD A/S bears a higher level of operational risk related to a group wide IT project (Todo project) which aims at harmonising and simplifying large parts of the group’s IT landscape. In the course of this project main business processes and data are being migrated to group common systems, amongst others a new source system and data warehouse.

Bank DnB NORD A/S ties up capital for operational risk according to the Basel II basic indicator approach.

Strategic riskStrategic risk is defined as the risk of a negative financial impact on planned revenues or the capital basis due to external factors like adverse economic development, government regulation, business competition or high growth in new market segments with limited bank experience.

The basis for the capital amount tied-up is given by risk assessments to be carried out on a yearly basis. The most relevant external fac-tors have to be identified and evaluated by estimating the likelihood of appearance and the consequence. Risk assessments incorporate the targets of the business strategy


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The Executive Management have today considered and accepted the DnB NORD Group Business Report for 2009.

The Group Business Report has been prepared in accordance with the recognition and measurement criteria in International Financial Reporting Standards as adopted by EU and the accounting policies described on page 43.

We consider the accounting policies applied appropriate and the estimates made reasonable. There-fore, in our opinion, the Group Busi-ness Report presents fairly in all material respects the financial position at 31 December 2009 of the Group and the results of the Group operations for the financial year 1 January 2009 – 31 December 2009 in accordance with the recognition and measurement criteria in International Financial Reporting Standards as adopted by the EU and the accounting policies described on page 43.

Copenhagen, 17 May 2010

Executive Management

Thomas Bürkle Jekaterina Titarenko Torstein HagenCEO CFO CRO

Margrethe Melbye Grønn Andris OzoliņšCOO CSO

MANAGEMENT’S STATEMENT ON THE GROUP BUSINESS REPORT


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The Bank DnB NORD Group Business Report 2009 has been prepared in accordance with the recog-nition and measurement criteria in International Financial Reporting Standards as adopted by EU and in accordance with the accounting policies as applied in the latest ap-proved Annual Report of Bank DnB NORD A/S for 2009 with addition of the accounting policies mentioned below due to the fact that the Annual Report of Bank DnB NORD A/S does not contain consolidated figures for the Bank DnB NORD Group but only Parent Company financial statements for Bank DnB NORD A/S.

ConsolidationThe Consolidated Group Business Report comprise the Parent Company, Bank DnB NORD A/S, and subsidiaries in which the Parent Com-pany directly or indirectly holds more than 50 percent of the votes or in which the Parent Company, through share ownership or otherwise, exercises control. En-terprises in which the Group holds between 20 percent and 50 percent of the votes and exercises sig-nificant influ-ence but not control are classified as associates.

On consolidation, items of a uniform nature are combined. Elimination is made of intercompany in-come and expenses, shareholdings, dividends and accounts as well as of realised and unrealised profits and losses on transactions between the consolidated enterprises. The Parent Company’s investments in the consolidated subsidiaries are set off against the Parent Company’s share of the net asset value of subsidiaries stated at the time of consolidation.

On acquisition of subsidiaries, the difference between cost and net asset value of the enterprise ac-quired is determined at the date of acquisition after the individual assets and liabilities having been adjusted to fair value (the purchase method). Any remaining positive dif-ferences are recognised in in-tangible assets in the balance sheet as goodwill. Any remaining negative differences are recognised directly in the income statement.

Positive and negative differences from enterprises acquired may, due to changes to the recognition and measurement of net assets, be adjusted until the end of the financial year following the year of acquisi-tion. These adjustments are also reflected in the value of goodwill or negative goodwill.

Minority interestsThe Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that is recorded in the income statement. Purchases from minority interests result in goodwill, being the dif-ference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiaries.

ACCOUNTING POLICIES


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Bank DnB NORD A/S(EUR ‘000)

2009 2008 2007 2006

Interest income 485,167 669,104 421,495 214,499

Interest expense 307,992 451,510 251,494 115,579

Net interest income 177,175 217,594 170,001 98,920

Fee and commission income 52,431 56,739 52,057 25,588

Fee and commission expense 15,596 14,668 13,115 9,056

Net income from interest, fee and commission 214,245 259,665 208,943 115,452

Trading and market value adjustments 40,346 32,205 26,212 11,120

Other operating income 82 17,542 13,858 12,349

Staff costs and administrative expenses 159,931 171,373 142,706 80,060

Depreciation and impairment of fixed and intangible assets 132,782 36,442 19,866 10,641

Impairment of loans, advances and receivables 460,217 160,904 15,047 9,212

Net gain/loss on the sale of fixed and intangible assets -1,464 1,438 1,786 1,135

Profit before tax -499,956 -57,869 73,180 40,143

Tax -19,821 5,974 13,214 7,349

Profit for the year -480,135 -63,843 59,966 32,794

Portion attributable to:

Shareholders -480,135 -65,044 57,954 31,694

Minority interests 0 1,201 2,012 1,100

-480,135 -63,843 59,966 32,794

GROUP INCOME STATEMENT 2009


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Bank DnB NORD A/S(EUR ‘000)

2009 2008 2007 2006

ASSETS

Cash balances and deposits with central banks 305,266 309,674 369,860 220,691

Receivables from credit institutions and central banks 446,208 269,721 490,697 331,891

Lending to customers 8,136,407 10,050,985 7,585,108 4,573,452

Commercial paper and bonds at fair value 655,260 676,729 349,261 282,801

Shares at fair value 672 615 764 1,617

Financial derivatives 55,843 103,578 63,831 13,668

Investment in associated companies 227 206 93 0

Intangible assets 122,595 214,347 208,957 101,563

Deferred tax assets 40,526 22,847 13,675 1,915

Fixed assets 136,657 90,964 91,090 71,885

Other assets 113,634 91,382 81,403 21,582

Prepaid expenses and accrued income 8,464 14,757 17,693 10,894

Total assets 10,021,759 11,845,805 9,272,432 5,631,959

LIABILITIES AND EQUITY

LIABILITIES

Loans and deposit from credit institutions 6,190,526 7,556,407 5,252,869 3,096,275

Deposits from customers 2,272,638 2,393,814 2,526,115 1,543,159

Financial derivatives 81,882 113,703 33,321 3,865

Securities issued 240,529 357,285 335,725 189,554

Accrued taxes 1,388 6,457 9,166 2,142

Deferred taxes 14,073 15,474 8,728 1,382

Other liabilities 37,287 39,453 62,434 28,062

Accrued expenses and prepaid income 22,137 32,977 34,403 15,933

Provisions for commitments and expenses 18,209 6,608 4,022 2,342

Total liabilities 8,878,669 10,522,178 8,266,783 4,882,714

Subordinated loan capital 434,443 309,372 160,948 124,029

EQUITY

Minority interests 0 17,472 15,180 9,661

Share capital 1,083,822 882,095 632,095 482,095

Other reserves and retained earnings -375,175 114,688 197,426 133,460

Total equity 708,647 1,014,255 844,701 625,216

Total liabilities and equity 10,021,759 11,845,805 9,272,432 5,631,959

GROUP BALANCE SHEET AT 31. DECEMBER 2009


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KEY FIGURES

Key financial ratios Definitions

Solvency ratio Core capital + supplementary capital (total capital base less statutory deductions) as a percentage of risk-weighted assets.

Core capital ratio Core capital (less statutory deductions) as a percentage of risk-weighted assets.

Return on equity after tax, % Profit after tax as a percentage of own funds where own funds are calculated as an average of own funds at the beginning and the end of the period.

Cost/income ratio Operating expenses as a percentage of operating income, including value adjustments for changes in current pri-ces.

Deposits relative to Loans Deposits compared to loans and write downs.

Growth in loans Growth in loans for the period over total loans at the beginning of the period.

Exchange rates

31 December 2009EUR

2009 averageEUR

31 December 2008EUR

DKK 0.134376 0.134277 0.134196

LTL 0.289642 0.289638 0.289641

LVL 1.410878 1.418183 1.412977

PLN 0.243431 0.230911 0.239996

The exchange rates used are provided by DnB NOR Markets and used for all external reporting.

2009 2008 2007 2006

Capital adequacy ratio 11.4 9.9 8.7 12.1

Core capital ratio 6.4 7.2 6.9 9.8

Return on equity after tax pa (p.c.) -55.7 -6.9 8.2 6.9

Cost/income ratio (p.c.) 115.7 66.9 64.8 64.8

Deposits relative to loans (p.c.) 27.9 23.8 33.3 33.7

Growth in loans for the period (p.c.) -19.0 32.5 65.9 88.1


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To the reader of the DnB NORD Group Business Report for 2009 we have examined that the DnB NORD Group Business Report for the financial year 2009 set out in pages 44-46 is based on a con-solidation of the separate Annual Reports for the DnB NORD Group Companies for 2009. The DnB NORD Group Business Report for 2009 is prepared in accordance with the recognition and measure-ment criteria in International Financial Reporting Standards as adopted by EU and the significant accounting policies described on page 43.

Management is responsible for the preparation of the consolidation and the fair presentation of the DnB NORD Group Business Report for 2009 in accordance with the recognition and measurement criteria in International Financial Reporting Standards as adopted by EU and the significant accounting policies described on page 43.

Our responsibility is based on our work to express an opinion on whether the DnB NORD Group Business Report for 2009 is based on a consolidation of the separate Annual Reports for the DnB NORD Group Companies for 2009.

We have not performed an audit or a review.

Work performedWe have performed our work in accordance with International Standards on Auditing with the purpose to obtain reasonable assurance that the DnB NORD Group Business Report for 2009 is based on a consolidation of the separate Annual Reports for the DnB NORD Group Companies for 2009. As a part of our work we have examined that the DnB NORD Group Business Report for 2009 can be rec-onciled to the prepared consolidation and that the consolidation is based on the separate Annual Re-ports for the DnB NORD Group Companies for 2009.

OpinionWe can confirm that the DnB NORD Group Business Report for the financial year 2009 as set out in pages 42-46 is based on a con-solidation of the separate Annual Reports for the DnB NORD Group Companies for 2009.

Copenhagen, 17 May 2010

Ernst & YoungStatsautoriseret Revisionsaktieselskab

Henrik Barner Christiansen Morten Stokholm ChristiansenState Authorised Public Accountant State Authorised Public Accountant

INDEPENDENT AUDITOR’S REPORT REGARDING Bank DnB NORD GROUP BUSINESS REPORT 2009


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Head OfficeBank DnB NORD A/SAmerikakajDampfærgevej 28DK-2100 CopenhagenDenmarkTelephone: +45 76 700 200Telefax: +45 76 700 205E-mail: [email protected]

EstoniaBank DnB NORD PankTartu mnt. 1010145 TallinnTelephone: +372 68 68 500Telefax: +372 68 68 501E-mail: [email protected]

LithuaniaAB DnB NORD BankasJ. Basanaviãiaus str. 2603601 Vilnius - 6Telephone: +370 5 239 34 44Telefax: +370 5 213 90 57E-mail: [email protected]

Latvia (before July)AS DnB NORD BankaSmilshu 6Riga - 50, LV-1803Telephone: +371 67171880 Telefax: +371 7323449E-mail: [email protected]

PolandBank DnB NORD Polskaul. Postępu 15C02 - 676 Warsaw POLAND Telephone: +48 22 524 10 00Telefax: +48 22 524 10 01

Latvia (after July)AS DnB NORD BankaSkanstes iela 12LV-1013Telephone: +371 67171880 Telefax: +371 7323449E-mail: [email protected]

CONTACT INFORMATION

For information about press contacts across the DnB NORD Group, see www.dnbnord.com

For additional information please email: [email protected]

The DnB NORD Group Business Report 2008 has been produced by the Group Public Relations and Communications Department, Group Marketing Department and Group Finance Department.

Editor: Susanne HeltvedDesign and layout: Dennis MøllerSection editors: Iben Rothe (Finance), Maris Heinaru (Estonia), Teika Lapsa (Lavtvia), Andrius Vilkancas (Lithuania), Lukasz Piasta (Poland), Jekaterina Rojaka (Economic Analysis), Indre Genyte (Economic Analysis)Cover photo: Vaiva Jokuziene

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