KAS BANK N.V. ANNUAL REPORT 2011 · KAS BANK N.V. is the independent European specialist in...

KAS BANK N.V.

ANNUAL REPORT 2011

FIVE YEARS IN FIGURES KAS BANK N.V.

* The BIS ratio for 2007 is based on Basel I. The BIS ratios for 2008-2011 are based on Basel II.

Consolidated, in millions of euros 2011 2010 2009 2008 2007

172.3 187.0 193.4 167.5 254.9

Own funds

subordinated liabilities 172.3 187.0 193.4 167.5 266.3

Total assets 5,345.4 6,017.3 6,329.7 7,360.2 8,371.8

Income

Net interest 27.5 20.6 30.6 28.9 21.6

Net commission 68.1 69.7 74.7 87.4 91.7

Trading/AFS investment income 9.1 24.7 28.9 10.9 32.9

Other income 10.6 2.2 2.0 0.7 26.2

115.3 117.1 135.9 127.8 172.4

Operational operating expenses 97.9 97.5 104.4 106.4 100.4

Impairment losses 2.1 -2.6 -0.3 73.4 4.7

Operating expenses 100.0 94.9 104.0 179.8 105.1

Result for the period before tax 15.3 22.3 31.8 -52.0 67.3

10.2 18.5 24.6 -39.9 50.9

Figures per share of €1.00 nominal value (in euros)

Net asset value after proposed dividend 11.36 12.83 13.27 11.49 14.19

Basic earnings per share 0.70 1.27 1.69 -2.70 3.41

Dividend 0.50 0.73 0.73 0.45 2.60

Share price, high 12.25 14.24 14.40 29.30 29.69

Share price, low 7.72 11.00 6.95 9.45 20.49

Share price, year-end 8.55 11.76 14.05 9.90 25.00

Ratios

Net return on average shareholders' equity (%) 5.8 10.0 13.7 -20.2 23.7

Efficiency ratio (excluding impairments) 85 83 77 83 58

BIS ratio (average)* 23 21 21 15 16

Equity attributable to equity holders of the bank plus

Result for the period attributable to equity holders

of the bank

Equity attributable to equity holders of the bank

ANNUAL REPORT 2011

The annual report and accounts have been prepared in the Dutch language. This document is a translation.

Where differences arise between the English and Dutch texts, the latter takes precedence.

Profile of KAS BANK N.V.

KAS BANK N.V. is the independent European specialist in securities services and risk control and reporting

services for professional clients in the pensions and securities industry.

KAS BANK pursues a ‘pure play’ strategy, underlining the bank’s absolute neutrality and independence. A low

risk profile is integral to its services and is reflected in the quality of its balance sheet and its high solvency

ratio.

Our role as a specialist in securities custody, clearing and settlement is complemented by compliance services,

risk control and management information. We view the market from our clients’ perspective. Outsourcing their

administrative functions to KAS BANK enables our clients to focus primarily on their own core activities. Tailor-

made services and complete transparency are paramount: this is achieved by combining a proactive approach

with advanced information technology and rigorous process control.

Founded in 1806 and listed on the NYSE Euronext Amsterdam stock exchange, KAS BANK is a European

institution with a strong international presence. KAS BANK has offices in Amsterdam, London and Wiesbaden

and employs around 750 staff, representing over 35 nationalities.

Annual Report 2011

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Contents

Personal notes 4

Information for shareholders 7

Report of the Supervisory Board 11

Report of the Managing Board 20

Financial statements

• Consolidated income statement 39

• Consolidated statement of comprehensive income 40

• Consolidated balance sheet 41

• Consolidated statement of changes in equity 42

• Consolidated statement of cash flows 43

• Accounting policies 44

• Notes to the consolidated income statement 58

• Notes to the consolidated balance sheet 62

• Notes on off-balance-sheet commitments and contingent liabilities 76

• Risk management 77

• Segmentation 96

• Share-based payments and related parties 98

• Notes on the auditors’ fees 103

• Company income statement 104

• Company balance sheet 105

• Notes to the company financial statements 106

• Management declaration and signature 108

Other information

• Appropriation of result for 2011 109

• Independent auditors’ report 111

Various reports and statements

• Report of Stichting Administratiekantoor Aandelen KAS BANK (KAS BANK Registrar’s office) 113

• Report of Stichting Administratiekantoor Aandelen KAS BANK Effectenbewaarbedrijf

(KDTC Registrar’s Office) 115

• Report of Stichting Administratiekantoor Aandelen KAS BANK Derivaten Clearing

(KASDC Registrar’s Office) 116

Corporate governance 118

Annual report 2011

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Personal notes

Situation as at 1 March 2012

Supervisory Board

R. Smit (1950), chairman

J.M.G. Frijns (1947), vice-chairman

A.H. Lundqvist (1945)

R.A.H. van der Meer (1949)

R. Icke (1957)

R. Teerlink (1961)

R. Smit, chairman

Current principal position General Manager of 5 Park Lane B.V. and Rope Consultancy B.V.

Previous principal position Chief Financial Officer (CFO) of the Dutch division of ABN Amro

N.V., Group Treasurer of ABN Amro Bank N.V. and Chief Executive

Officer (CEO) of the German division of ABN Amro Bank

Other positions Chief Financial Officer (CFO) Synerscope B.V. in Eindhoven;

Beiratsmitglied FinanzDesk Krediet Management GmbH in

Düsseldorf

First appointed 2010

Current term of office expires 2014

J.M.G. Frijns, vice-chairman

Current principal position Endowed Professor of Investment Theory at VU University, Amsterdam

Previous principal position Chief Investment Officer and member of the Board of Governors of

Pensioenfonds ABP

Other positions Chairman of the Supervisory Board of FMO; member of the Supervisory

Board of IMC International Marketmakers B.V. and Bouwinvest B.V.;

member of the Board of Directors of JP Morgan Funds (Luxembourg);

member of the Investment Committee of pension fund Zorg en Welzijn,

pension fund Progress and pension fund Medische Specialisten; member of

the Advisory Committee of Nauta Dutilh



A.H. Lundqvist

Current principal position Chairman of the Board of Trustees of Stichting Surf

Previous principal position CEO of IBM Nederland N.V.; Chairman of the Executive Board of

Eindhoven University of Technology

Other positions Chairman of the Supervisory Board of Generali Verzekeringsgroep N.V.;

member of the Supervisory Board of Surfnet B.V., Surfdiensten B.V. and

Surf SPS B.V.; chairman of UvA Holding BV; member of Stichting Preferente

Aandelen ASML; chairman of the High Tech Systems Platform, Point One

and Boegbeeld High Tech Systemen en Materialen branch organisation



Annual Report 2011

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R.A.H. van der Meer

Current principal position Professor of Finance at Groningen University; General Manager of P&C B.V.

and Lesuut Finance B.V.

Previous principal position Member of the Executive Board of Fortis

Other positions Chairman of the Supervisory Board of BNP Paribas Obam, Stadsherstel Den

Haag N.V. and vice-chairman of Cório N.V.; member of the Supervisory

Board of European Asset Trust N.V., J.P. Morgan (sicav) and Teslin Capital

Management N.V.; deputy member of the Enterprise Section of the

Amsterdam Court of Appeal



R. Icke

Current principal position None

Previous principal position Chief Executive Officer (CEO) of USG People N.V.

Other positions Chairman of the Supervisory Board of Ormit Holding B.V., DPA Group N.V.,

orizon GmbH; Member of the Supervisory Board and chairman of the Audit

Committee of Heijmans N.V.; member of the Supervisory Board of

Kinderopvang Nederland B.V., VvAA Groep B.V. and Gropeco B.V.; member

of the Supervisory Board of the Dutch Land Registry; member of the

Investment Committee of the Project Holland Fund



R. Teerlink

Current principal position Chief Administrative Officer of Royal Bank of Scotland Group plc

Other positions None



The members of the Supervisory Board are Dutch nationals.

Managing Board

A.A. Röell (1959), chairman

R.J. Kooijman (1961), Chief Financial Officer

S.A.J. van Katwijk (1964)

Managing Director KAS BANK UK branch

L.G. Vis

Managing Director Germany

KAS Investment Servicing GmbH

J. W. Sittmann, M.B.L.

Chief Risk Officer

K.H.J. Wulteputte

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Compliance Officer

A. van Tijum

Internal auditor

J. Voskuilen

Secretary to the Managing Board

M.G.F.M.V. Janssen

Senior management

M.J.W.H. Janssen

G.J. Kremer

J.N.P. Laan

J. W. Sittmann

M. Schilstra

M.A. van der Sluis

M. van Weezenbeek

K.H.J. Wulteputte

Annual Report 2011

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Dear shareholder,

Was the glass half empty or half full in 2011? The majority of the financial sector seems inclined to say half

empty. And no wonder, since 2011 did not bring the economic and financial recovery many had hoped it would.

KAS BANK prefers to see the glass half full however.

In light of the economic and financial circumstances, KAS BANK once again held its own in 2011. Solvency and

liquidity remained excellent and even grew further. Client satisfaction also rose, partly thanks to the

introduction of some very innovative applications including a special app for the iPad. Unfortunately, profit did

not keep pace with these positive developments and fell once again. The main reasons for this were the

persistently low short-term interest rates and the much lower trading volumes as a result of the ongoing

uncertainty on the financial markets. Despite this bleak climate, we remain focused on retaining our low risk

profile and continue to base our management on long-term goals and results.

An excellent example of our long-term vision is our partnership with the Deutsche WertpapierService Bank AG

announced in 2011. The joint development of a retail securities platform for first the Dutch and then the

European market will pave the way for a structural improvement of how the entire European securities industry

is organised. Moreover this new platform will be established in Amsterdam. And that is certainly an excellent

boost for the Dutch financial sector as a whole.

There are more reasons why the glass is half full however. The euro crisis is teaching us once again that

financial institutions only have the right to survive if they control their business model properly and make it

entirely at the service of their clients, for example. Our pure play strategy, which dates from long before the

credit crisis incidentally, responds well to the need for client-centred, comprehensible business models that

offer added value and do not involve unnecessary risk.

This strategy is increasingly recognised and valued among our most important client groups, namely

institutional investors (pension funds, investment funds and insurers) on the one hand and banks and brokers

on the other. This is expressed in the growing interest for KAS BANK's support in setting up the governance

function at their companies, for instance. After all, clients, but all other stakeholders as well, must be able to

unconditionally count on the fact that their interests are the primary motivation for the actions of bankers or

pension fund managers. Only then will society's and the consumer's trust in the financial sector as a whole be

restored. We are not alone in this view. Kofi Annan, Nobel Peace Prize winner and former secretary-general of

the United Nations, emphasised during an event on pension fund governance organised by KAS BANK the

importance of the Dutch pension sector in promoting 'good governance' in the countries and companies in

which these pension funds invest.

With a few caveats, therefore, the glass was definitely half full in 2011. No doubt there will be ample

opportunities to once again top up the glass in 2012. In the meantime, true to tradition we thank our clients,

employees and shareholders for their ongoing positive commitment to our bank, now 206 years old. An old and

dear institution which looks forward full of life and full of confidence.

Amsterdam, 1 March 2012

Albert Röell

Chairman Managing Board

KAS BANK N.V

Annual Report 2011

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Information for shareholders

Attendance at General Meetings of Shareholders in 2011

92.3% of the issued capital was represented and entitled to vote at the annual General Meeting of Stockholders

held on 28 April 2011. The shareholders and depositary receipt holders in attendance represented 37.2% of the

voting capital. Stichting Administratiekantoor Aandelen KAS BANK (‘KAS BANK Registrar’s Office’), acting on

behalf of holders of depositary receipts who did not attend the meeting in person, therefore represented 62.8%

of the voting shares. All depositary receipt holders attending the meeting were automatically authorised to vote

by KAS BANK Registrar’s Office. Virtually all resolutions at the meeting were adopted unanimously. The result of

the voting was published on the company website immediately after the meeting.

Listing

The ordinary shares have been listed on the Official Market of the stock exchange of NYSE Euronext Amsterdam

N.V. in the form of depositary receipts for shares since 1986. KAS BANK is part of the Amsterdam Smallcap

Index (AScX index) of NYSE Euronext.

Dividend policy

In accordance with the dividend policy discussed with the General Meeting of Shareholders, our target is to

distribute 60-80% of the net result, where the profit permits and unless prevented by exceptional

circumstances.

It is proposed that a dividend of € 0.50 per ordinary share be declared for 2011. An interim dividend of € 0.33

per ordinary share already having been distributed, the final dividend will be € 0.17. The final dividend will be

paid out in cash.

5% holdings

The following institutions have given notification of holdings of 5% or more in KAS BANK pursuant to the

Financial Supervision Act and the Decree on Disclosure of Control and Major Holdings in Listed Companies.

- Delta Lloyd N.V. 12.2%

- APG Algemene Pensioen Groep N.V. 8.8%

- Delta Deelnemingen Fonds N.V. 8.6%

- ING Groep N.V. 7.9%

- All Capital Holding B.V. 5.3%

- KAS BANK N.V. 5.1%

Share price

Movements in the (indexed) price of KAS BANK depositary receipts over the past ten years are compared with

the AEX Index in the graph on the next page.

Annual Report 2011

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During the past year, the price of KAS BANK shares has fallen by around 27% from € 11.76 (at year-end 2010)

to € 8.55 (at year-end 2011). The basic earnings per KAS BANK share in 2011 were € 0.70 (2010: € 1.27).

The figures per KAS BANK ordinary share can be found in the ‘Five years in figures’ summary.

KAS BANK was given an ‘A–’ long-term rating and an ‘A2’ short-term rating by Standard & Poor’s.

2012 financial calendar

2 March 2012 - announcement of 2011 figures

- analysts' meeting

14 March 2012 - publication of 2011 annual report

- notice convening the Annual General Meeting of Shareholders

28 March 2012 - registration date for the Annual General Meeting of Shareholders

25 April 2012 - Annual General Meeting of Shareholders

- interim information: first-quarter 2012

27 April 2012 - ex-dividend quotation of KAS BANK N.V. depositary receipts

2 May 2012 - record date for determination of dividend entitlement

4 May 2012 - 2011 final dividend payable

30 August 2012 - publication of 2012 interim figures

- analysts' meeting

31 August 2012 - ex-dividend quotation of KAS BANK N.V. depositary receipts

4 September 2012 - record date for determination of dividend entitlement

13 September 2012 - 2012 interim dividend payable

31 October 2012 - interim information: third-quarter 2012

Annual Report 2011

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2013 financial calendar

1 March 2013 - announcement of 2012 figures

- analysts' meeting

13 March 2013 - publication of 2012 annual report

- notice convening the Annual General Meeting of Shareholders

27 March 2013 - registration date for the Annual General Meeting of Shareholders

24 April 2013 - Annual General Meeting of Shareholders

- interim information: first-quarter 2013

26 April 2013 - ex-dividend quotation of KAS BANK N.V. depositary receipts

30 April 2013 - record date for determination of dividend entitlement

3 May 2013 - 2012 final dividend payable

29 August 2013 - publication of 2013 interim figures

- analysts' meeting

30 August 2013 - ex-dividend quotation of KAS BANK N.V. depositary receipts

3 September 2013 - record date for determination of dividend entitlement

5 September 2013 - 2013 interim dividend payable

30 October 2013 - interim information: third-quarter 2013

Annual Report 2011

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Report of the Supervisory Board

To the General Meeting of Shareholders,

We hereby present the annual report and financial statements for the 2011 financial year, as prepared by the

Managing Board. The Supervisory Board discussed the 2011 financial statements with the Managing Board and

the external auditor. The Supervisory Board agrees with this annual report, the financial statements and the

report from the external auditor. We propose to the General Meeting of Shareholders that

- the 2011 financial statements be adopted;

- the 2011 dividend be set at € 0.50 per ordinary share. An interim dividend of € 0.33 per ordinary share

already having been distributed for 2011, the final dividend, which will be payable in cash, will be € 0.17.

The proposed dividend is consistent with the company's dividend policy;

- the members of the Managing Board be discharged of liability for their management and the members of

the Supervisory Board for their supervision in 2011.

In this report, we inform you of the working method and activities of the Supervisory Board and its committees

in 2011, how we have supervised the bank’s policy and general course of affairs, and the remuneration policy

for the members of the Managing Board.

General

2011 was a difficult year for KAS BANK too; the cramp in the financial markets mid-year had repercussions for

the volume of the business and, because of the lower share prices, for the height of the income. Sharply rising

tensions prompted heightened attention for the bank's risk positions. The decision to maintain a low risk profile

and the strengthening of the internal controls following the 2008 crisis paid off during this crisis. There were no

substantial losses however.

The Supervisory Board ensured it was frequently and extensively informed on the state of affairs via regular

reports and oral updates. Below is a brief explanation of some of the important issues discussed in the

Supervisory Board's meetings during the past year. Please see the relevant section further on in this report for

the reports from the individual Supervisory Board committees.

Important issues in 2011

Strategy

The Supervisory Board discusses the calibration of the bank's strategy with the Managing Board during every

meeting. The Managing Board sets down KAS BANK's strategic options in different scenarios, all of which were

discussed in detail during the past year. These discussions explicitly focused on the impact of these scenarios

on KAS BANK's most important stakeholders: the clients, employees and, last but not least, the capital

providers and, in particular, the shareholders. The general conclusion was that the present strategy focused on

independent growth in combination with efforts towards greater operational efficiency and a concentration on

services that do not depend on scale is the right one in the current market conditions. The commercial

developments in the bank's core markets (the Netherlands, Germany and the United Kingdom) were also

regularly discussed in this context. The decision to focus the bank's commercial strategy on three key groups

(pension funds in the Netherlands, the German institutional market and transaction management services), to

offer more added-value services and to achieve a stronger client base, for example through further

investigation of the possibilities of new acquisitions in Germany, is also very important. In combination, these

choices offer good opportunities for KAS BANK to grow further on the Dutch, German, British and other

European markets. This strategy does not rule out cooperation with other parties to increase operational

Annual Report 2011

12

efficiency and expansion of the client base and the assets in custody since these too can contribute to the

company's development and profitability.

dwpbank

The Supervisory Board devoted a great deal of detailed attention to the proposed cooperation with dwpbank.

A separate subcommittee, consisting of the Supervisory Board chairman and Supervisory Board members Icke

and Teerlink, was created in order to properly guarantee the Supervisory Board's commitment and

responsibility. The members meet once every two to three weeks and report on this discussion during the

plenary meeting of the Supervisory Board. The Supervisory Board also meets periodically with the supervisory

directors (‘Aufsichtsrat’) of dwpbank since the Memorandum of Understanding was signed.

The Supervisory Board feels that the proposed cooperation offers an excellent opportunity to achieve greater

efficiency in processing, while profiting from dwpbank's size. The proposed transition of the operational

departments to dwpbank will help structurally reduce the bank's operating expenses. This cooperation will also

make it possible to increase KAS BANK's client base, market position and assets in custody. This is true both for

the Dutch and European securities processing markets and for the German market for wholesale services to

professional investors. The interests of all stakeholders were carefully considered. Cooperation with dwpbank

will create significant future opportunities for all of the bank's stakeholders.

Corporate social responsibility

The Supervisory Board discussed KAS BANK's approach to corporate social responsibility with the Managing

Board and reached the conclusion that the topic of good governance in particular ties in with the bank's

strategy and position. The asset servicing products and services that the bank offers to pension funds help the

pension fund board fulfil its administrative and social responsibilities. In this context KAS BANK organised a

Governance Event in 2011 at which Kofi Annan was welcomed as guest speaker.

Operations

Operations were discussed in detail. The Supervisory Board believes that stable operations are crucial in the

current market conditions. KAS BANK sends a clear message to the market with its low risk profile and strong

solvency and liquidity. This is an important reason why market parties choose to work with KAS BANK.

The ongoing financial unrest on the markets prompted close attention to collateral management both at the

bank and at KAS BANK's clients.

Composition of the Managing Board

The Supervisory Board decided to reduce the company's Managing Board from four to three members. After

Mr Blom's departure as member of the Managing Board in July 2011 the focal areas were redistributed among

the various Managing Board members. The main reasons for reducing the number of Managing Board members

were the size of the company and the strengthening of senior management during the past years.

Strengthening the level immediately below the Managing Board meant more responsibilities could be situated

lower in the organisation, thus simplifying control of the company. The Supervisory Board also expects this to

have a positive effect on the company's innovative strength. The Supervisory Board and the Managing Board

are very grateful to Mr Blom for his many years of dedication and his important contribution to KAS BANK's

development and growth.

Corporate culture

Regulator the Nederlandsche Bank (DNB) started a single-item study into the role of conduct and culture in the

decision-making at financial institutions. In DNB's opinion, conduct and culture largely determine the company's

performance and these aspects are one of its supervisory priorities therefore. The study also yielded several

Annual Report 2011

13

action points for KAS BANK with regard to decision-making, internal communication and internal culture. It is

important that the interests of all stakeholders involved are explicitly identified and weighed in important

decision-making processes; this consideration process must also be documented. The Supervisory Board

tightened this up for its own decision-making. The Supervisory Board will also supervise that conduct is in line

with strategic goals set earlier. Furthermore, the Supervisory Board held talks with the works council and

employees on the internal culture and internal communication.

Risk appetite

Every year the Supervisory Board discusses the policy concerning KAS BANK's risk appetite. This topic is

addressed in an open discussion between the Supervisory Board, Managing Board and Chief Risk Officer. It was

investigated whether there could be reasons for changing the low risk appetite. KAS BANK's dividend policy and

capital policy were also examined in this context. Finally, how KAS BANK deals with the fact that risk changes

over time was considered.

The outcome of the discussion was the Supervisory Board's confirmation that a low risk profile continues to be

appropriate for KAS BANK. The reasons for this have not changed. KAS BANK's low risk appetite is suitable in

order to protect the bank's reputation, safeguard the continuity of the bank (even under stress), and guarantee

the interests of all stakeholders of the bank, the majority of which (clients, shareholders, employees, regulators

and other participants in the financial infrastructure) enter into a long-term relationship with KAS BANK. The

low risk profile also has a clear signalling function in the market.

Regulations for Sound Remuneration Policy

The Supervisory Board discussed the Regulations for Sound Remuneration Policy with the Managing Board

several times. The regulations focus on further management of the risks inherent in variable remuneration and

apply to the whole banking sector. KAS BANK's remuneration policy was adjusted in line with the regulations.

The Supervisory Board approved the revised remuneration policy. The Managing Board's remuneration will also

be revised in line with the regulations where necessary.

Research by DNB indicates that the regulations require further tightening up at most companies. A further

specification of the remuneration policy will follow in the next few months therefore. In particular the threshold

for application of the regulations must be adjusted and the determination of which employees belong to the

'identified staff' must be further substantiated. Specific requirements concerning variable remuneration apply

for the identified staff.

The material impact of the regulations on the total remuneration policy at KAS BANK is virtually zero. Because

of its business model and corporate culture, variable remuneration at KAS BANK has never resulted in

incentives with undesirable effect. The regulations do entail a great deal of extra work because of their level of

detail and emphasis on formal procedures. Internal procedures must be adapted and there must be a

framework in which formal account can be rendered.

Permanent education

The members of the Supervisory Board and Managing Board started an intensive permanent education

programme in 2011, provided by a number of external experts. Senior management also made a number of

presentations to the Supervisory Board during various meetings of the Supervisory Board and its committees.

The Supervisory Board found that its members' knowledge of and involvement in the operations and related

risks could be further deepened through permanent education. A programme for this will be started in 2012

(see below in the section headed ‘Self-evaluation by the Supervisory Board').

Annual Report 2011

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Governance

Composition and working method of the Supervisory Board

The Supervisory Board consists of six members. See pages 4 and 5 of the annual report for the members'

personal details. All members of the Supervisory Board are independent in the sense of the Dutch corporate

governance code. Former members of the Managing Board cannot serve on the Supervisory Board. The

members of the Supervisory Board receive no profit-related remuneration. None of the members of the

Supervisory Board holds KAS BANK shares or options.

At its meetings and outside, the Board focuses fully on its supervisory and advisory tasks. The allocation of

duties and the working method of the Supervisory Board are set down in regulations which can be found on the

company's website, under Investor Relations, Corporate Governance.

The Supervisory Board has formed three committees: the Risk Management Supervision Committee, the Audit

Committee, and the Appointments and Remuneration Committee. The task of these committees is to prepare

for decision-making by the Supervisory Board. The composition and duties of these three committees are

described further on in this report.

The members of the Supervisory Board retire by rotation. None of the members of the Supervisory Board was

due to retire by rotation in 2011. Supervisory Board member Frijns is due to retire by rotation in 2012.

Supervisory Board members Lundqvist and Van der Meer are due to retire by rotation in 2013. The full rotation

schedule can be found on the company’s website.

Profile

The Supervisory Board has formulated a membership profile that defines its size and composition. The profile

has been posted on the company’s website. A properly constituted Supervisory Board should encompass

knowledge of or experience or familiarity with IT, administrative organisation, national and international

banking, securities and derivatives, social policy, national and international business, the workings of

institutional investors and financial institutions, and the (European) securities industry.

The diversity of the Supervisory Board is an important point for attention. If a vacancy arises on the

Supervisory Board, this point will be a priority and a female candidate will explicitly be sought.

Cooperation with the management

The Supervisory Board was once again very involved in the company's business in 2011. The chairman of the

Supervisory Board regularly has contact with the chairman of the Managing Board outside of meetings. Contact

between the other Supervisory Board members and Managing Board members also intensified. Supervisory

Board members regularly attended presentations by the Managing Board to the employees, the bank's seminars

for its clients, and other formal and informal occasions. There is increasing contact with the senior management

both inside and outside of meetings as well. The Supervisory Board will continue to talk with the bank's senior

management on a structural basis, both in one-on-one talks and in group meetings, formally and informally.

This gives a good picture of the governance within the bank and is also important in succession planning.

Number of meetings

The Supervisory Board met with the Managing Board six times in 2011 in accordance with the meeting schedule

adopted. One meeting took place in Wiesbaden, during which KAS BANK's strategic developments in Germany

were the focus. The Supervisory Board also met in the absence of the Managing Board on three occasions. The

turnout at the meetings was 100%. Supervisory Board members twice participated in the Works Council's

consultative meeting.

Annual Report 2011

15

Self-evaluation by the Supervisory Board

The Supervisory Board evaluates its own performance annually. In 2011 the Supervisory Board decided this

evaluation would take place with the assistance of an external expert in 2012. The survey was carried out using

questionnaires that were filled in anonymously by the Supervisory Board members and Managing Board

members. The questions touched on, among other things, the functioning of the Supervisory Board and of its

committees, the Supervisory Board's membership profile, the competencies represented on the Supervisory

Board, and the relationship between the Supervisory Board and Managing Board.

The outcomes of the self-evaluation were discussed in a supplementary Supervisory Board meeting at the

beginning of 2012. The main conclusions were:

- A good understanding of operations and risk is necessary in order to be able to properly perform the task

of Supervisory Board member. One of the action points is to set up an operations programme which

focuses on knowledge and understanding of the key basic processes at the bank.

- The Supervisory Board and Managing Board each has its own duties and responsibilities within the two-tier

model, and yet elements from the one-tier model are gradually appearing in the relationship between the

Supervisory Board and Managing Board. The Supervisory Board's involvement will have to be stepped up

on a number of points, also given the special market circumstances. This involvement has already

increased significantly with respect to strategy over the past few years, which necessitates good

coordination between the Managing Board and Supervisory Board.

- It will be looked into how the Risk Management Supervision Committee's view can be focused more

forward. The allocation of duties between the Risk Management Supervision Committee and Audit

Committee will also be examined.

Priority areas for 2012:

The Supervisory Board has decided that the priorities for 2012 will be further cooperation with dwpbank,

operations and risk management, expansion of the offering of products and services, the commercial strategy,

and human resources.

Corporate governance code and the Banking Code

Comprehensive information on how the bank has applied the principles of the Dutch corporate governance code

and the Banking Code can be found at the end of this annual report in the chapter ‘Corporate governance’,

which also explains the bank’s corporate governance structure. A discussion on corporate governance will be on

the agenda of the forthcoming Annual General Meeting of Shareholders.

Committees formed by the Supervisory Board

The Supervisory Board has formed three committees: the Risk Management Supervision Committee, the Audit

Committee, and the Appointments and Remuneration Committee. The Supervisory Board receives the minutes

from every committee meeting. The chairmen of the committees report orally on the discussions and

recommendations from every meeting to the plenary meeting of the Supervisory Board.

The Risk Management Supervision Committee

The Risk Management Supervision Committee is responsible for supervising the Managing Board with regard to

all banking-related aspects of the company’s internal risk control and monitoring systems, including credit risks,

liquidity risks, market risks, operational risks and Business Continuity Management. The Risk Management

Supervision Committee consists of Supervisory Board members Van der Meer (chairman), Teerlink and Frijns.

Annual Report 2011

16

The committee met three times in 2011. The committee devoted a great deal of attention to the management's

translation of the low risk profile into concrete risk limits and/or measures to mitigate operational, IT and

outsourcing risks. It was also discussed how the reporting on operating risk can be further quantified and

monitored and how a risk appetite for this area can be determined. Henceforth the IT risk will be handled by

the Risk Management Supervision Committee rather than the Audit Committee. The committee discussed the

bank's liquidity policy. KAS BANK's business is managed to ensure an ample liquidity position. In translating

these into the Internal Liquidity Adequacy Assessment Process (ILAAP), the specific characteristics of the bank

were taken into account, whereby the business itself continuously generates liquidity.

The committee is satisfied with how KAS BANK's required capital is calculated in the Internal Capital Adequacy

Assessment Process (ICAAP) on the basis of, among other things, (stress) scenarios. This has made the ICAAP

specific for KAS BANK and ensures it ties in well with the service provision. In relation to Compliance, the client

acceptance policy and need for the policy to be monitored were discussed, among other things. The

consequences of Basel III and the opportunities these create for KAS BANK were also discussed.

Audit Committee

The Audit Committee exercises supervision on the Managing Board in relation to the aspects of the internal risk

management and control systems within the company from a financial, administrative and technical

perspective. The quality and integrity of and decisions made in relation to the financial information provision,

the role and functioning of the Internal Audit department and the relationship with the external auditors,

especially their independence, are priorities in this committee's work. The Audit Committee consists of

Supervisory Board members Icke (chairman), Van der Meer, Lundqvist and Smit.

The Audit Committee met three times in 2011. The external auditor attended these meetings. The main items

on the agenda were the annual and interim reporting, the developments in legislation and regulations (liquidity

management, stress-testing, Basel III, QIS), the report on the quality of internal control by the Internal Audit

department and the report from the external auditor, the loss analyses, the 2011 budget, and the Internal

Audit department’s audit plan for the coming year. The bank's IT security and being 'in control', by means of a

clean ISAE 3402 statement (previously SAS 70-II), were points of attention from the external accountant letter.

Appointments and Remuneration Committee

The Appointments and Remuneration Committee is responsible for defining the selection criteria and

appointment procedures for members of the Supervisory Board and Managing Board and carrying out

preliminary work in connection with appointments and reappointments to the Managing Board and Supervisory

Board. The committee also submits proposals to the Supervisory Board relating to the remuneration policy and

the remuneration of the individual members of the Managing Board. The Appointments and Remuneration

Committee consists of Supervisory Board members Lundqvist (chairman), Icke and Smit.

The Committee met five times in 2011. Some of the meetings were also attended by Supervisory Board

member Frijns. The resolution to reduce the Managing Board from four to three members was prepared during

a number of these meetings. Mr Blom's severance scheme was closely supervised to guarantee that it remained

within the agreements of the codes. The variable remuneration of the Managing Board members was also

discussed and the outcomes of the targets were determined. The individual performance of the Managing Board

members was evaluated and new targets were set for the coming year. The bank's remuneration policy was

adopted and tested against the Regulations on Sound Remuneration Policy. The pension scheme of the

Managing Board and of the bank was also discussed.

Annual Report 2011

17

The appointment term for the Managing Board members was also discussed, partly in the context of the

introduction of the Management and Supervision Act (Wet bestuur en toezicht) on 1 July 2012. It was decided

that the permanent contracts currently in effect for the Management Board members in office would be

maintained, also since the Supervisory Board evaluates the Managing Board members closely every year.

The Supervisory Board's self-evaluation was prepared and the structure, performance and after-care of the

study were discussed in detail with the independent third party in advance. The upcoming vacancies on the

Supervisory Board were discussed.

Principles of remuneration policy/remuneration report

The remuneration policy for the Managing Board, which was adopted and approved by the General Meeting of

Shareholders in November 2010, is posted on KAS BANK’s website under Investor relations, Corporate

governance. The remuneration of the Managing Board is set by the Supervisory Board in accordance with the

adopted policy on the recommendation of the Appointments and Remuneration Committee. The Supervisory

Board is assisted by KAS BANK’s Internal Audit department in determining the components of the variable

remuneration.

The fixed salary is related to and measured against two market reference groups, one comprising European

financial institutions or parts of such institutions that are comparable with KAS BANK in terms of services

and/or size, and the other comprising the companies included in the AScX index. Total remuneration is below

the median level for both reference groups. The remuneration policy is reviewed every two years in the light of

developments in the market and is examined every four years by a remuneration expert.

The fixed annual salary of the chairman of the Managing Board was set at € 370,000 and the fixed annual

salary of the other members of the Managing Board was set at € 267,500 with effect from 1 January 2011. At

the instigation of the Managing Board and in the light of the current conditions, the Supervisory Board decided

to implement the increase in Managing Board salaries under the policy adopted by the General Meeting of

Shareholders in two stages. The policy level below will apply as of 1 January 2012: € 390,000 for the chairman

of the Managing Board and € 285,000 for the other members of the Managing Board.

The system for short-term variable remuneration came into effect on 1 January 2011. The annual short-term

variable remuneration of members of the Managing Board is determined with reference to a number of

performance criteria set by the Supervisory Board. Of these criteria, 70% are quantitative, in the form of

KAS BANK’s external financial targets, and 30% are qualitative, relating to strategy and risk. The quantitative

criteria include the growth in income versus the growth in expenses, the efficiency ratio, the return on equity,

and the operational growth in earnings per share. In addition to the performance criteria, a personal rating of

0.8 to 1.2 is given at the Supervisory Board’s discretion to reflect how effectively the individual has functioned

as a member of the Managing Board. The performance criteria are selected such that they do not encourage

members of the Managing Board to act in their own interests or take risks that are inconsistent with the

approved strategy.

For ‘at target’ performance, the variable remuneration for the members of the Managing Board is 41.67% of

the salary under the approved remuneration policy. The maximum short-term variable remuneration is 50% of

the fixed salary, which applies if 120% of the ‘at target’ performance is achieved. To determine the actual

payment (between 0% and 50% of the fixed salary), bandwidths are set for the performance targets to be

achieved with respect to the relevant criteria.

The short-term variable remuneration for 2011 is assessed in accordance with the 2011 remuneration policy.

With regard to the quantitative criteria, the targets for return on equity and efficiency ratio were met in 2011,

Annual Report 2011

18

though both were in the lower end of the target bandwidth. The targets for growth in income versus growth in

expenses and growth in earnings per share were not met. The qualitative criteria for 2011 related mainly to

strategic development and risk management. On these criteria, the Managing Board’s performance was ‘at

target’.

Based on these results, the Supervisory Board determined the short-term variable remuneration for 2011 and

awarded the members of the Managing Board short-term variable remuneration of 19.8% of the fixed salary.

The new long-term variable remuneration system came into force on 1 January 2010. Under the new system,

the long-term variable remuneration may consist exclusively of shares which are granted unconditionally only

after three years, if certain performance criteria are met. The long-term variable remuneration is calculated on

the basis of three performance measures: earnings per share, total shareholder return (TSR) relative to the

AScX Index, and TSR relative to the Stoxx Europe 600 Banks Index.

The system used to determine the performance targets for growth in earnings per share is based on a

bandwidth which is consistent with the bank’s risk profile and takes into account the dividend policy and payout

percentage.

The system used to determine the performance targets for TSR is based on a bandwidth relative to the AScX

Index or Stoxx Europe 600 Banks Index, respectively. TSR performance is ‘at target’ if it matches the chosen

indices. The ‘at target’ bandwidth is from 80 to 120 percentage points of the target.

If ‘at target’ performance is achieved, the members of the Managing Board receive 25% of their fixed salary.

The long-term variable remuneration is subject to a maximum of 50% of fixed salary. Any exceptional results

are discounted.

A transitional arrangement applies for the 2009–2011 period in terms of performance criteria. One third of this

period falls under the old system of the 2007 remuneration policy and two thirds of the period falls under the

new system of the 2011 remuneration policy. The old system only focused on a single performance criterion,

namely the growth in the earnings per share. The previous remuneration policy also involved variable

remuneration in options and shares.

The measurement of performance over the 2009-2011 period would normally have been based on the result for

the previous year, which was 2008. However, given the fact that 2008 was an exceptionally bad year, this

would not be a realistic starting point since the performance targets would have been far too easily met. It was

therefore decided to base the starting point on the budget for 2009.

For the long-term variable remuneration for the 2009-2011 period, a number of shares and options were

conditionally awarded to the members of the Managing Board, assuming the targets would be met, at the

beginning of this period, still under the old system therefore. The numbers were based under the old system on

50% of the fixed salary at the time for the chairman of the Managing Board and 40% of the fixed salary at the

time for the other members of the Managing Board. The Supervisory Board assessed the performance over this

3-year period and determined the unconditional number of shares and options.

Earnings per shares grew well in excess of the target during the 2009-2011 period. In terms of TSR, the

KAS BANK share outperformed the Stoxx Europe 600 Banks index, but not the AScX index in that period. The

long-term variable remuneration for the 2009-2011 period has been determined by the Supervisory Board, on

the basis of performance against these three criteria, at 127.6% of the number of shares and options

conditionally granted at the beginning of 2009 assuming ‘at target’ performance. This results in an

unconditional granting of the following numbers of shares and options:

Annual Report 2011

19

- A.A. Röell: 11,277 shares and 54,198 options

- R.J. Kooijman: 6,444 shares and 30,970 options

- S.A.J. van Katwijk: 2,686 shares and 14,580 options

- N.E. Blom: 5,799 shares and 27,873 options.

The exercise price of the options is € 9.90 and they have a remaining term of five years. The shares must be

retained for a further two years. The variable remuneration will be paid out in accordance with the Regulation

on Sound Remuneration Policies pursuant to the Financial Supervision Act 2011.

Based on these results, the Supervisory Board determined the short-term variable remuneration for 2011 and

awarded the members of the Managing Board short-term variable remuneration of 19.8% of the fixed salary.

Under the agreed pension plan for the Managing Board, which is a defined contribution (DC) scheme, a fixed

contribution of 24.9% of the gross annual fixed salary was paid into each member’s pension and life-course

savings plan for 2011. The company also bore the cost of term life insurance and incapacity benefit insurance

for members of the Managing Board. Under the new pension scheme with effect from 1 July 2011, the pension

contribution will be related to age, on the basis of the defined contribution sliding scale under the tax rules. The

Managing Board members no longer receive an expense allowance.

A change-of-control clause was agreed with the Managing Board in early 2011, under which a member of the

Managing Board may claim one year’s gross salary if dismissed as the consequence of a change of control.

The 2011 remuneration report by the Supervisory Board will be posted on the company’s website. The report

explains how the remuneration policy has been applied in practice in the past year and provides an overview of

the proposed remuneration policy for the coming years.


The Supervisory Board:

R. Smit, chairman

J.M.G. Frijns, vice-chairman

A.H. Lundqvist

R.A.H. van der Meer

R. Icke

R. Teerlink

Annual Report 2011

20

Report of the Managing Board

Results

Profit comes to € 10.2 million in 2011, down 45% on 2010 (€ 18.5 million). Adjusted for individual items the

profit rose 33% to € 8.0 million (2010: € 6.1 million). Income fell fractionally to € 115.3 million (2010:

€ 117.1 million). Operating expenses were almost stable at € 97.9 million (2010: € 97.5 million).

Due partly to the higher short-term Euro-market interest rate, interest income rose 33% to € 27.5 million

(2010: € 20.6 million). Commission income fell fractionally to € 68.1 million (2010: € 69.7 million), due

primarily to lower transaction volumes. The result on trade and investments in securities and foreign currency

fell € 15.6 million to € 9.1 million (2010: € 24.7 million) due to lower income from the sale of shares and bonds

from the investment portfolio.

Consultancy expenses for strategic projects, including the partnership with dwpbank, were responsible for the

fractional increase in operational expenses.

Individual items contributed to the total net profit to a far lesser extent in 2011. The individual items consist

primarily of sales results and changes in the value of the equities and bonds in the investment portfolio; on

balance, exceptional changes in value and the income from the surrender of a client contract contributed € 2.2

million to the net profit in 2011 (2010: € 12.4 million). After the deduction of the individual items, the total

profit in 2011 increased by 33% from € 6.1 million in 2010 to € 8.0 million in 2011 illustrating the improvement

in the operating profit and the quality of the profit in 2011.

The return on equity in 2011 comes to 6% (2010: 10%) and the efficiency ratio is 85% (2010: 83%).

Solvency

KAS BANK’s focus on a low risk profile is reflected in the quality of its balance sheet and a relatively high

solvency ratio. In 2011, the BIS ratio was 23% on average (2010: 21%). At year-end 2011 the BIS ratio is

26% (year-end 2010: 23%) and the tier 1 ratio 24% (year-end 2010: 20%).

Income

Income fell fractionally to € 115.3 million (2010: € 117.1 million). Lower results on investments were largely

offset by higher interest and other income.

Interest income rose 33%, to € 27.5 million (2010: € 20.6 million), due to a higher interest margin caused, in

particular, by the higher short-term Euro-market interest rate.

Commission income decreased fractionally to € 68.1 million (2010: € 69.7 million). This was caused primarily

by a fall in the transaction servicing commission due to lower clearing and settlement volumes.

In millions of euros 2011 2010 change %

Interest 27.5 20.6 6.9 33%

Commission 68.1 69.7 -1.6 -2%

Result on investments 9.1 24.7 -15.6 -63%

Other income 10.6 2.1 8.5

Total income 115.3 117.1 -1.8 -2%

Annual Report 2011

21

Breakdown of commission income

The asset servicing commissions, comprising custody, investment management services and securities lending,

increased by 4% to € 41.5 million (2010: € 39.8 million). Assets under Administration grew to € 276 billion

(2010: € 271 billion).

The result on investments is analysed in the table below.

The fall in the result on investments in 2011 is largely explained by the reduced result on investments, chiefly

as a result of lower income on the sale of bonds and equities from the investment portfolio. It also reflects the

negative impact (-/- € 4.8 million) of the fall in prices of a number of bonds in respect of which impairment

losses were performed in 2008 whereas, in 2010, the price rises had a positive impact on the result (€ 1.6

million).

Other income increased by € 8.5 million, to € 10.6 million (2010: € 2.1 million), due chiefly to exceptional

income on the commutation of an existing client contract. A large proportion of this income was used to

amortise capitalised goodwill and client value.

Operating expenses

Operating expenses were almost stable at € 97.9 million (2010: € 97.5 million). Lower staff costs, due in

particular to lower costs of hiring in external staff, were offset by higher general overheads, which were chiefly

the result of increased consultancy costs in regard to strategic projects.

The relatively sharp rise in premises costs in 2011, which increased by € 1.2 million to € 3.6 million (2010:

€ 2.4 million), is largely explained by the release of a provision (€ 0.7 million) for a loss-making lease contract

in 2010.

Impairment losses

In 2011, previous impairment losses from in particular 2008 were reversed in the amount of € 1.9 million

(2010: € 2.6 million). As a result of the amortisation of capitalised goodwill and client value in 2011, totalling

€ 4.0 million, the impact on the result of impairment losses in 2011 is negative on balance in the amount of

€ 2.1 million (2010: € 2.6 million positive).


Asset Servicing 41.5 39.8 1.7 4%

Transaction Servicing 20.2 23.4 -3.2 -14%

Other commissions 6.4 6.5 -0.1 -2%

Total commission 68.1 69.7 -1.6 -2%


Trading – foreign-exchange transactions 10.5 12.1 -1.6 -13%

Trading – securities and derivatives -3.5 -3.3 -0.2 6%

Investments – investment portfolio 2.1 15.9 -13.8 -87%

Result on investments 9.1 24.7 -15.6 -63%


Staff costs 62.6 64.6 -2.0 -3%

Premises 3.6 2.4 1.2 50%

IT 14.1 14.1 - 0%

General overheads 10.4 8.4 2.0 24%

Depreciation/amortisation 7.2 8.0 -0.8 -10%

Total operating expenses - normal

operations

97.9 97.5 0.4 0%

Impairment losses 2.1 -2.6 4.7

Total operating expenses 100.0 94.9 5.1 5%

Annual Report 2011

22

Taxation

The tax burden increased from 17% of the result before taxation in 2010 to 32% in 2011. An agreement with

the Tax and Customs Administration about a partial amendment to the fiscal accounting principles resulted in a

lower tax burden in 2010. The higher tax burden in 2011 is attributable to the fact the depreciation of goodwill

and client value is not deductible for taxation purposes.

Investment portfolio quality

The securities in the available-for-sale portfolio and the investments at fair value through profit or loss are

analysed by credit rating (Moody’s Investor Services) in the table below.

At year-end 2011, 96% of the investments were rated Aa3 or higher (year-end 2010: 95%).

Risk-weighted value of the assets

KAS BANK’s focus on a low risk profile is expressed in the relatively high BIS ratio, which averaged 23% in

2011 (2010: 21% on average). At year-end 2011, the BIS ratio is 26%. The increase compared with year-end

2010 (23%) is primarily explained by the decrease in weighted assets in the investment portfolio.

Liquidity

The following maturity calendars show the non-discounted cash flows from financial assets (excluding equities)

on the basis of the contractual maturity date.

In millions of

euros

31/12/2011 Percentage of

portfolio

31/12/2010 Percentage of

portfolio

Aaa - Aa3 1,288 96% 1,430 95%

A1 - A3 17 1% 27 2%

Baa1 - Baa3 39 3% 32 2%

P1 - P2 - 0% - 0%

Shares 6 0% 14 1%

Total 1,350 100% 1,503 100%

Carrying

amount as at

Risk-weighted

value

Carrying

amount as at

Risk-

weighted In millions of euros 31/12/2011 2011 31/12/2010 2010

Banks 517.6 84.8 2,262.6 66.7

Loans and advances 1,435.2 36.9 766.6 29.2

Reverse repurchase agreements 656.1 0.7 524.1 0.6

Derivative financial instruments 154.2 65.0 100.9 69.6

Investments at fair value through profit or loss 181.9 - 176.3 -

Available-for-sale investments 1,168.3 117.6 1,326.9 206.6

Property and equipment 37.4 37.4 41.6 41.6

Other balance sheet items 1,194.6 39.9 818.2 43.1

5,345.3 382.4 6,017.2 457.5

Contingent liabilities 26.7 0.6 27.2 4.3

Irrevocable facilities 25.9 - 21.0 -

Operational risk - 239.8 - 244.8

Securities lending - 73.1 - 61.6

Total of the risk-weighted items 695.9 768.2

2011 BIS 2011 2010 BIS 2010

Tier 1 164.3 24% 157.2 20%

Tier 2 14.1 20.4

Total BIS 178.4 26% 177.6 23%

Annual Report 2011

23

The financial assets remain highly liquid, with 76% having a maturity of up to three months at year-end 2011

(year-end 2010: 83%).

In the fourth quarter of 2011, the average liquidity surplus by the Dutch Financial Supervision Act’s (Wft)

definition was € 1.5 billion (Q4 2010: € 1.1 billion).

Strategy and objectives

KAS BANK aims to occupy a top position in Europe in wholesale securities services in the areas of transaction

processing, custody, risk management and information services. By outsourcing the investment administration

and position administration to KAS BANK, professional investors reduce the risks and complexity of their

investment portfolios. This administrative service provision is the basis for the bank's other value-added

services. These are primarily focused on transparent information on risks, benchmarking, costs and other key

information on the client's investments.

Our independence and focus on our core services and key values guarantee that conflicts of interest with our

clients' core activities are avoided at all times. This 'pure play' strategy, in combination with our financial

solidity, client orientation and focus on specific target groups, is increasingly paying off.

Target groups and focal areas

KAS BANK primarily operates on the wholesale market. The bank focuses on institutional investors and financial

institutions in Europe, with the Netherlands, the United Kingdom and Germany as core markets. We service

private clients solely via professional asset managers and retail banks.

Our clients can be divided into six groups: pension funds (including their clients, such as savers, and their

administrative organisations), insurance companies, investment funds, asset managers, banks and brokers. In

order to facilitate further growth as efficiently as possible, three focal areas have been determined: institutional

investors in the Netherlands (in particular the pension market), Transaction Management Services (directed at

European brokers) and the German institutional market. We reserve extra IT and development capacity and

deploy extra commercial capacity for each of these segments.

Progress was made in all three focal areas in the past year. The number of clients increased on balance, as did

the total assets under administration.

In Germany we are the only independent specialist for both fund administration and Depotbank services. There

are ample possibilities for further independent growth, therefore, including acquisitions. German financial

institutions also want to improve their wholesale securities services to institutional parties inside and outside

On

demand< = 3

months

< = 1

year

< = 5

year

> 5

year Total Total

Banks, loans and advances and other financial assets 46% 50% 1% 0% 3% 0% 100%

Available-for-sale investments 0% 11% 8% 59% 22% 0% 100%

Total financial assets 35% 41% 3% 14% 7% 0% 100%

On

demand< = 3

months

< = 1

year

< = 5

year

> 5

year Total Total

Banks, loans and advances and other financial assets 81% 15% 0% 1% 3% 0% 100%

Available-for-sale investments 0% 39% 18% 35% 7% 1% 100%

Total financial assets 63% 20% 4% 9% 4% 0% 100%

Maturity calender as at year-end 2011

Maturity calender as at year-end 2010

Annual Report 2011

24

Germany. In that context, KAS BANK is going to approach dwpbank's wholesale clients as a 'preferred supplier'

for fund and investment administration and related reporting, global custody services and value-added services.

London continues to be the preferred location for an office for US firms with a registration in the United

Kingdom. KAS BANK UK Branch is excellently positioned to act as a 'single point of entry' to Europe for this

group of clients.

All activities are managed from Amsterdam. The primary function of the offices in London and Wiesbaden is to

provide commercial support to institutional investors and financial institutions. Our direct European network,

together with our worldwide network of almost 100 correspondent banks, guarantees high-quality global

custody services in the countries outside our core markets.

Products and services

Our services are divided into Transaction Servicing (supporting the settlement of securities transactions in the

broadest sense), Asset Servicing (custody and management of securities, including administration, valuation,

monitoring and risk management) and Treasury. A new division will be set up in 2012 for the administration

and processing of securities transactions of retail banks and other financial institutions and their underlying

clients.

We process transactions both in listed securities and in derivatives as Over-The-Counter transactions (OTC,

unlisted securities) for our clients. For the target group of institutional investors, in addition to the traditional

securities services, we also offer a broad range of value-added services related to treasury, risk management,

compliance and management information services. For brokers and financial institutions, our broker services,

position administration and integrated back-office solutions offer significant added value for their own core

service provision. Via our Transaction Management Services, we give a growing number of non-European

brokers access to the European market.

The increasing complexity of international securities transactions prompts European banks and other financial

institutions to seek further-reaching economies of scale and quality improvement in the processing of their

securities transactions. In that context, we are investigating together with Deutsche WertpapierService Bank

AG (dwpbank), the largest transaction bank for retail securities processing in Germany, the establishment of a

new pan-European securities platform for the efficient processing of both wholesale and retail securities

transactions. The new platform ensures that participating financial institutions can reduce their operational risks

in the total securities chain. The platform also facilitates the rapidly growing market for individual pension

facilities (bank savings, giro and defined contribution schemes) and back-office services for Premium Pension

Institutions. KAS BANK supplies the specialised and operational knowledge of the Dutch and European

securities infrastructure required for wholesale securities services. The platform will be established in

Amsterdam, thus helping the Netherlands strengthen its position as financial centre in Europe.

Environmental analysis

As part of the financial infrastructure, KAS BANK is sensitive to fluctuations on the international securities and

currency markets. The euro crisis has translated into disappointing European economic growth figures,

uncertain financial markets and long-term negative sentiment on the European securities markets. Across the

board, the commission income from stock market-related activities is decreasing as a result of the significant

decline in volumes on the international stock markets. The sustained low interest rate has also been a negative

factor for the bank.

Annual Report 2011

25

Despite a great many measures to defuse the euro crisis, the danger of a long European recession is still

looming. An energetic tackling of the euro crisis must therefore become a priority ahead of more supplementary

regulations and supervision for the financial sector. The pile-up of Basel III, the new capital requirements for

banks, additional bank taxes and the creation of a new deposit guarantee system for savers at Dutch banks is

jeopardising not only the extension of credit to businesses and private individuals, but is also putting pressure

on the competitive relationships between large and small banks. Especially since the Dutch government still has

a great deal of direct involvement in a few large banks.

Our low risk profile and traditionally conservative attitude tie in well with the developments in new primary and

secondary legislation for banks in the Netherlands and Europe. Meeting the Basel III capital requirements, for

example, involves relatively little effort on KAS BANK’s part thanks to the historically high quality and high

levels of our capital and liquidity. With a BIS ratio of over 26 per cent, the bank easily satisfies the solvency

requirements of Basel III. This is also the case for the European Commission's requirement that system banks

must have a buffer capital of at least nine per cent.

Because of the growing number of requirements from regulators in relation to governance, compliance and

more intensive risk management, the number of independent pension funds in the Netherlands, Germany and

the United Kingdom is expected to decline further. We believe that small and medium-sized pension funds can

certainly continue to exist independently, however, provided they can access the right tools for independent

risk management and information management. After all, transparent information and independent risk reports

are increasingly important as an independent touchstone for effectively taking on management responsibilities.

KAS BANK is meeting this need with its risk-monitoring services and supplementary (management) reporting

which focus on the objective ‘in control status’ of pension funds. Our good reputation in the Dutch institutional

market ensures that we can continue to expand our position as independent adviser for pension fund

managers. For instance, we are increasingly asked to act as an independent risk manager and 'countervailing

power' for pension fund managers. This enables pension funds to comply with the recommendations for good

pension management as defined by regulator the Nederlandsche Bank (DNB) in April 2011.

Technology

High-grade technology is essential to ensure the best possible quality of service in the environment in which

KAS BANK operates. Our IT processes and procedures are therefore continuously updated and optimised to

keep pace with the rapid developments in the securities industry. We will work with external partners where

necessary to further develop our systems. Continuity and 'secure systems' are the priorities here.

Social/cultural

All members of the Managing Board signed the Moral and Ethical Declaration from the Dutch Banking Code in

2010. In consultation with the Works Council, the declaration was translated last year into principles that serve

as guiding principles for the conduct of all the bank's employees. These principles have been included in the

staff handbook and all employees are expected to adhere to these. Upon hire, the content of these principles is

explicitly pointed out to new employees during a joint signing session with the Managing Board.

Market/client

KAS BANK has a cyclical dependence on the financial sector in general and on trading volumes in particular. In

order to reduce that dependency, the bank has been further expanding its non-cyclical services (administration,

reporting, specific treasury services) for some time. Outsourcing our operational processes related to securities

processing enables a more flexible cost structure and structurally reduces the operating expenses. This allows

us to focus our attention even more firmly on innovative risk-monitoring solutions for the Dutch pension sector

and value-added services for European brokers and expansion of our position in the German institutional

Annual Report 2011

26

market. This enables us to keep pace with the consolidation and move towards greater efficiency at our clients

and within the securities infrastructure.

A trend can be observed in Europe in which market parties are withdrawing to within national borders to

continue their service provision from there. This development is undesirable for the Dutch financial sector, not

only from the viewpoint of employment, but also because of the growing complexity of the market. Investors

benefit from a safe environment for the custody and administration of their investments. Compared to the

Anglo-Saxon market, the fiduciary responsibility of custodians is well provided for in the Netherlands.

Institutional investors are therefore better protected from the growing number of risks, such as the derivative

and foreign currency risk and the counterparty risk for brokers. Cross border collateral management is also

becoming increasingly important. Also from the viewpoint of 'good governance', institutional investors must

therefore be very aware of where they outsource the administration and asset management of their

investments.

The need for information on the part of pension fund boards is increasing exponentially as the result of the

growing number of regulations and regulatory requirements. Account must be rendered to all stakeholders

transparently on the investment policy pursued. Pension funds must also be able to demonstrate to the

regulator that they are 'in control' of the implementation of the investment policy. In performing these duties,

the pension fund managers are not so much lacking in expertise as they are in good information. Together with

its clients KAS BANK develops the necessary instruments for independent information provision and adequate

risk management.

A properly functioning internal governance function is essential for pension funds. This not only enables them to

control their risks better, but also to satisfy society's call for transparency on and accountability for their

investment policy. In this way all 'stakeholders' maintain their confidence that the pension fund will be able to

follow through on the accrued pension commitments for the long-term as well. KAS BANK already fulfils the risk

and investment guideline monitoring function required by the regulator on behalf of many pension fund boards

and pension departments. Consequently the board always has the overview it needs of the (operational) risks

inherent in the investment policy implemented under its responsibility. Our position as the most important

governance partner of pension funds and fiduciary managers in the Netherlands is further reinforced by this.

The European Solvency II directive for insurers comes into effect on 1 January 2014. With Solvency II, insurers

will be subject to the same economic and risk-based solvency requirements for the first time. Adequate internal

risk management will become even more important for them as a result. KAS BANK has explicitly opted to be

compliant with Solvency II. We are actively preparing for this together with our clients. A special project team

of internal and external experts has been making system analyses and organising expert sessions and seminars

on the impact of Solvency II. Our risk-management products and services related to performance

measurement, risk management and reporting to the regulator constitute a solid basis for our clients to satisfy

the requirements stipulated by Solvency II.

The trade in derivative financial instruments and the lack of supervision on this trade are widely seen as a

significant cause of the financial crisis. The European Commission hopes that the European Market

Infrastructure Regulation (EMIR) will achieve more transparency in the trade in derivative financial instruments.

This can tackle both the operational risks and the trading costs in this segment of the market. Mandatory

central settlement of all eligible derivatives transactions will also be introduced. KAS BANK is therefore an

active proponent of a mandatory central clearing institution for derivatives.

Under EMIR, all OTC derivatives transactions must be reported to the so-called 'trade repositories'. In order to

be able to offer specific guaranteed security levels, the CCPs will ask all trading parties for a (daily) margin.

KAS BANK supports this kind of requirement. In order to prevent a possible new system risk, however, the

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margin should be spread across a number of parties bilaterally rather than concentrated at a CCP, for instance.

This kind of approach would also increase the accessibility of the market.

Trends

It has been possible to set up a Premium Pension Institution (‘Premiepensioeninstelling’, PPI) in the Netherlands

since 1 January 2011. A PPI implements defined contribution schemes for a number of employers throughout

Europe. This brings us a step closer to a single ‘European' pension fund. Since a number of employers put their

defined contribution investments in the same PPI, it is to be expected that collaborations will arise within a

'collective PPI'. This kind of approach maximises cost savings and optimises risk management, while employers

maintain direct control of the PPI. Cooperation results in combining pension expertise, another aspect long

wished for in the European Union.

KAS BANK has high expectations for PPIs as the Dutch answer to the opening up of the European borders for

pension scheme providers. We have developed a new service especially for PPIs in order to support the pension

sector in this: the Pension Custodian. In this role we meet the PPI's need for independent supervision,

transparency and risk management. As Pension Custodian we take care of the prescribed property-law

separation between the different pension assets within a PPI and with that for the desired security.

KAS BANK already acts as Pension Custodian. As approximately 10 PPIs are expected to be active on the Dutch

market by the end of 2012 we expect to expand this new service further in 2012.

The European MiFID directive implemented in 2007 opened the door to more competition by introducing two

new types of trading forms alongside the established regulated markets: Multilateral Trading Facilities and

‘systematic internalisers’. The purpose of MiFID is mainly to promote 'best execution' through more

competition. MiFID also imposes far-reaching requirements for pre and post-trade transparency. These

requirements are worked out in more detail in the legislative proposal for MiFID II published in October 2011.

More transparency is complicated by the fact that the European infrastructure remains fragmented along

national lines, however. This is partly due to the European Commission's inability to indicate clearly how it

wants to tackle the major challenge of cross-border post-trade consolidation. In the meantime, MiFID II forces

brokers to seek a short-term solution for reducing the complexity, risks and costs of their back-office activities.

An already perceptible consequence of MiFID II for KAS BANK is the growing demand for our integrated

Transaction Management Services. In these services we combine the clearing and settlement of our clients'

transactions on the most important European markets with an efficient back-office solution. We expect a

marked increase in the demand for Transaction Management Services in the coming years. This is one of the

reasons why this segment is a focal area for the bank in the coming years.

Despite the progressive harmonisation, the complexity of the European infrastructure is increasing rather than

decreasing. The introduction of new clearing organisations and new trading platforms complicates the desired

interoperability between stock markets and clearing organisations in Europe. Nonetheless some progress has

recently been achieved. A number of European trading facilities and CCPs have announced that they do in fact

want to achieve interoperability. This has significant consequences for the European post-trade infrastructure.

Growing consolidation will eventually result in an actually harmonised capital market in Europe and efficient

settlement of transactions in listed and unlisted securities. KAS BANK welcomes these developments. In the

meantime, we maintain our connections with the European CCPs. Our clients continue to be assured that their

securities transactions are settled and administered uniformly therefore.

Tactical approach

KAS BANK concentrates entirely on securities services to wholesale clients and their underlying (retail) clients.

For KAS BANK, ‘pure play’ means:

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* Focus on wholesale securities services Specialised in administrative services; no active asset

management

Trading solely at the expense of third parties; no

active trading for own account

Client interest is the priority; no conflict of interest

with our clients' activities

* Focus on core values Infrastructurally driven; professional and transparent

Low risk; high risk awareness

Operational excellence; management ‘in control’

* Client-driven More and better integration with clients by focusing

on specialism

Product development in cooperation with clients and

the market

Specialism

Banks are under increasing political pressure to (once again) make a clear separation between their own

business activities and their general activities, so-called utility banking. The financial crisis and reinforced

capital requirements of Basel III also force financial institutions to reconsider their business models and core

activities. Specialisation and good risk management are central to this. Generic financial institutions will

therefore be increasingly interested in outsourcing their non-core activities. Specialist KAS BANK is in a good

starting position to take over securities processing-related activities from existing and new clients. This is true

in particular for the investment and position administrations of pension funds and insurers and the post-trade

back-office activities of banks and brokers. Our specialism and low risk profile are an important consideration

for these parties.

Operational Excellence

KAS BANK is following the developments in the market and the European infrastructure closely. In our constant

striving towards 'operational excellence', changes to primary and secondary legislation are implemented in our

services as quickly as possible. Our Risk Management, Compliance and Legal departments have been the

cornerstones of our product development process for many years. We continue to further refine this process by

closely monitoring all operational risks. We attach a great deal of importance to excellent internal process

management in this context. All process owners, division heads and group heads have signed an 'in control'

statement together with the members of the Managing Board for the arrangement and functioning of the

internal processes for which they are responsible. In order to facilitate the managers in being and staying 'in

control', a dashboard has been developed for every process which makes it possible to better manage the so-

called 'key controls' in the process. It also gives the 'manager's manager' insight into the measures taken.

Management in Control has therefore been realised throughout the entire organisation.

Client-driven

Contact with our clients has been intensified further with the introduction of Client Service Reviews (CSR).

The intake process for new clients has also been accelerated and professionalised. The objective is to further

optimise the quality of our service and client satisfaction. The average rating from our clients rose in 2011

compared to 2010.

Financial targets

KAS BANK publishes its longer-term financial targets each year. These targets represent averages over a

number of years. It may happen, therefore, that the targets are not achieved in any one year, for example due

to unrest on the financial markets or an acquisition.

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29

Ratio Standard 2011 2010

Growth in income versus growth

in expenses*

≥3% -2% -7%

Efficiency ratio** 70-77% 85% 83%

Return on equity*** 10-yr interest rate + 5-8% 6% 10%

Growth in earnings per share >8% -45% -25%

Dividend pay-out 60-80% 71% 58%

Solvency (av.) BIS ratio Basel ≥13.5% 23% 21%

* Excluding impairment losses

** Excluding impairment losses

*** 10-year interest rate for 2011: 3.0%, 2010: 3.0%

The financial targets confirm KAS BANK’s low risk appetite. A relatively high BIS ratio, a realistic return for the

shareholders and a growth target that is related to the trend in expenses mean that KAS BANK is able to

prevent undesirable incentives distorting the relationship between growth, risk and return.

Risk control and monitoring systems

KAS BANK has a low acceptance of risk (‘risk appetite’). This was again reaffirmed by the Managing Board in

2011 and endorsed by the Supervisory Board. This low risk appetite is consistent with KAS BANK's 'pure play'

strategy, with the role the bank plays as reliable party within the financial infrastructure of the Netherlands,

and with the expectations of all stakeholders of KAS BANK. Our clients count on reliable service provision, our

shareholders on the protection of the value of their investments, our employees commit to the bank for the

long term, and the regulators and other players in the financial infrastructure benefit from stability.

A low risk appetite is part of the bank's strategic positioning. This low risk appetite is monitored and managed

in three complementary ways:

disciplined management of the business mix;

systematic risk management;

capital and liquidity management.

In setting up new activities, offering new products or tapping into new client groups, it is systematically gauged

at an early stage whether these activities, products or client groups are consistent with the low risk profile. This

is also reflected in the commercial policy and remuneration policy. For example, staff remuneration at all levels

was checked again in 2011 for consistency with the bank’s low risk profile and to ensure that no incentives

were included that could jeopardise the sustainable operations in the long term.

Secondly, the risks inherent to the permitted activities are actively managed. Based on the low risk appetite,

management frameworks are set up and room to manoeuvre is limited for all risks to which there is exposure.

The nature of its activities means that KAS BANK is mainly exposed to counterparty risk and operational risk.

Strict limits apply for the counterparty risk. The starting point that applies here is the maximum loss permitted

for a counterparty corresponding to a low risk appetite, depending on the counterparty's risk profile and the

quality of the collateral received. For the exposure to market risk, the low risk appetite also dictates strict limits

for KAS BANK's own trading positions, for the interest mismatch on the balance sheet, and for the investment

risk. KAS BANK wants to be 'in control' when it comes to operational risk. In the year under review, a

operational dashboard was introduced which can be used to constantly monitor whether all key controls of the

operational processes are within the limits that apply for a low risk profile.

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Qualitative and quantitative information on KAS BANK’s exposure to credit risk, market risk, liquidity risk,

operating risk and compliance risk can be found in the ‘Risk management’ section. This section also discusses

the purposes of and the principles and procedures used in measuring and controlling these risks.

The third component of the management framework is prudent management of liquidity and capital. After all,

maintaining a high level of liquidity and a generous capital buffer, even in difficult conditions, is essential for

our role as custodian. The bank met the internal and external liquidity requirements and consistently

maintained ample buffers in the year under review. If liquidity falls below the desired level, a procedure is

initiated to rectify the position immediately. Liquidity has not approached this minimum level and therefore this

plan was not implemented in the year under review.

With an average BIS ratio of above 20%, capitalisation remained well above the regulatory minimum

throughout the year. Both the regulatory requirements and capital adequacy testing strictly in accordance with

the ICAAP (Internal Capital Adequacy Assessment Process) were used in determining the bank’s solvency

position. The emphasis here was on the cumulative counterparty exposure and limiting concentration risks.

With regard to liquidity, the ILAAP (Internal Liquidity Adequacy Assessment Process) was carried out for the

first time. The findings of both assessments were discussed with the regulator the Nederlandsche Bank in the

context of the supervisory review process (SRP). A formal Recovery Plan for KAS BANK was also worked out in

detail, with measures to restore the bank's capital, liquidity and reputation under stress.

The risk management framework comprises the standard three lines of defence. The first is line management,

which is responsible for the result and the related risk. The second comprises a number of staff departments

(including the central Risk Management department), which perform advisory and monitoring functions. The

third is the Internal Audit department, which performs an independent checking and auditing function.

Risk policy is determined by the bank’s Risk Management Committee (RBC) and balance sheet policy is

implemented by the Asset & Liability Committee (ALCO). During the year under review, the multidisciplinary

Committee in Control (CiC) was set up, which focuses on the standardisation of and grip on internal processes.

The Audit and Risk Management Supervision Committees of the Supervisory Board monitor compliance with

KAS BANK's risk management policy and risk procedures.

Financial reporting risks

KAS BANK reports in accordance with International Financial Reporting Standards (IFRS), as adopted within the

European Union. Continuous improvement of financial and risk-management information is kept under constant

review by the bank.

The structure and functioning of the internal risk control and monitoring systems are regularly evaluated in the

light of the bank’s objectives and risk profile and assessed by internal and external supervisors. Discussion with

(a delegation from) the Supervisory Board also takes place in the Risk Management Supervision Committee.

Environmental factors

KAS BANK has a cyclical dependence on the financial sector in general and on trading volumes and market

prices in particular. In that context, the bank is further expanding its non-cyclical services (administration,

reporting, specific treasury services). The demographic trends combined with heightened economic uncertainty

are expected to translate into higher levels of savings rate and asset growth in the market as a whole.

The landscape for the basic services of custody, clearing and settlement are consolidating and the margins are

under pressure. The proposed cooperation with dwpbank for the operational performance of our basic services

was announced in the year under review. Cooperation with this German specialist will enable KAS BANK to

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31

achieve economies of scale in the operational processing of securities transactions and to introduce a variable

cost basis in this area.

A significant extent of the turnover will be generated by additional forms of service provision. KAS BANK is

expecting to growing its business by focusing on innovative risk-monitoring solutions for the Dutch pension

sector and value-added services for European brokers and expansion of its position in the German institutional

market.

The growing pressure of rules promulgated by regulators and legislators is adding to the administrative burden.

However, these new rules also apply to our clients, creating opportunities for us to offer solutions to facilitate

compliance. In the aftermath of the credit crunch, we expect greater recognition of the value of services

provided by an institution which is close to home, has local expertise, and is in control in its own legal

environment. KAS BANK’s low risk profile and traditionally conservative approach also fits well with

developments in primary and secondary legislation.

There is a clear trend among our client groups towards outsourcing their settlement and back-office activities to

a specialist like KAS BANK. A similar trend can be observed among the general banks, which are reconsidering

their business models and core activities. KAS BANK is equipped to insource certain specialist activities within

its core services.

Developments

In addition to the efforts concerning the ICAAP, the ILAAP and the Recovery Plan, bank-wide attention was also

devoted in the year under review to the internal culture, the Business Continuity Management and further

increasing the maturity level of the IT control environment.

With regard to operational risk management, the operational dashboard was refined further, the SAS-70

certificate was replaced with the ISAE 3402 certificate, and the Committee in Control was set up. The efforts in

relation to control translate into continuous further improvement of our operational processes.

Because of the general uncertainty in the financial markets associated with the sovereign crisis, extra attention

was devoted to testing the default management process and the set-up of special management. The overrun of

the credit spreads of the national states was also a matter for concern.

In the year under review, plans were made to flesh out the new proposals from the Basel Committee aimed at

strengthening the financial sector's ability to cope (Basel III). Means for doing this include an increase in the

capital, an improvement of the quality of the capital, restriction on the leverage in the bank balance sheet and

the prescription of minimum liquidity ratios for the short and long term. The introduction of these new

requirements involves relatively little effort on KAS BANK’s part thanks to the historically high quality and high

levels of its capital and liquidity.

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2011 in retrospect

General

KAS BANK performed adequately in 2011 given the current market conditions. The number of clients increased

on balance once again. Moreover, the growth was realised across all the client groups. The costs also remained

nearly the same. The rising curve in the bank's performance gives confidence for further independent growth in

our core markets of the Netherlands, Germany and the United Kingdom. The constant pressure on the bank's

financial results as a consequence of the unstable financial markets, low market interest rate, persistent

pressure on prices and declining trading volumes on the stock markets in Europe has been less positive.

Client satisfaction has been rising. KAS BANK rises in the ‘value chain’ among clients. Our clients clearly see

KAS BANK as a good partner for achieving their own company objectives. This was also evidenced by the great

interest in the Pension Fund Monitor app for the iPad introduced in April 2011, yet another way in which we

demonstrated our innovative capacity.

Thought leadership

The expert meetings on market-related topics that KAS BANK organises on a regular basis underline its

reputation as a securities specialist in the European market. Bank employees are also regularly asked to attend

trade fairs and seminars for the pension and securities industry as guest speakers. We also host events put

together by organisations like the DACSI, SWIFT and the Nederlandsche Bank.

The most important event was the Governance Event held on 15 September 2011 for the key players in the

Dutch pension, banking and securities sector. Guest speaker Kofi Annan, Nobel Peace Prize winner and former

secretary-general of the United Nations, saw clear parallels between global governance and pension fund

governance. As large investors, pension funds can play an important role in promoting transparency, awareness

and accountability on the social consequences of the policy pursued by countries and listed companies.

Stress-testing

In August 2011, the European Central Bank once again carried out a European stress-test for banks. Just as in

2010, KAS BANK carried out this test on a voluntary basis as supplement to its regular risk management

procedures and internal stress scenarios. The outcome once again confirmed our low risk profile and the high

quality of our investment portfolio and balance sheet. In the most negative scenario, KAS BANK's Core Tier 1

ratio was 19.0%, almost four times the minimum level of 5.0% required by the stress-test. As of the end of

2010, the starting point for the stress-test, the Core Tier 1 ratio was 20.4% and the total solvency ratio (BIS

ratio) was 23.2%.

Internal organisation

KAS BANK strengthened its internal organisation on a number of points. Among other things, the operational

responsibilities have been situated lower in the organisation. In its policy determination, the Managing Board is

structurally supported by the managers of the bank's six client groups and the heads of Human Resources and

Risk Management. The other senior management members form a supporting body of in total 20 members

which can provide solicited and unsolicited advice. The members are asked in a personal capacity to serve on

this body and together are a good reflection of the bank as a whole.

Because operational responsibilities have been situated lower in the organisation, the Managing Board's duties

have changed. That is why the Managing Board was reduced from four to three members as of 1 January 2012.

The duties of Managing Board member Nico Blom were already transferred to the remaining members of the

Managing Board as of 1 July 2011, after which a redistribution of duties and focal areas took place. The

Supervisory Board and the Managing Board are very grateful to Mr Blom for the many years he contributed to

KAS BANK's development and growth.

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Management in Control

The International Auditing and Assurance Standards Board (IAASB) has drawn up a new guideline for reporting

on the design, existence and operating effectiveness of control measures for internal business processes, the

International Standards on Assurance Engagements (ISAE) 3402 ‘Assurance Reports on Control of a Service

Organization’. The ISAE Standard 3402 type 2 report is the successor to the SAS 70 Type II report. The report

gives insight into the design, existence and operating effectiveness of the internal control measures of the

Transaction and Asset servicing and the IT General Controls at KAS BANK.

In contrast to SAS 70 Type II, ISAE requires an explicit statement from the management on the functioning of

the control measures. Every manager at KAS BANK, from the operational level to the strategic level, must be

able to actually demonstrate that he/she was 'in control' of the processes for which a statement was issued.

The independent auditor will then determine whether the management has a reasonable basis to substantiate

its conclusion. A dashboard has been developed and implemented for each ISAE 3402 process in order to

facilitate the managers in being and staying 'in control'. This makes it possible to better manage the so-called

'key controls' in the process and gives the 'manager's manager' the desired insight into the measures taken.

Finally, a Committee In Control was appointed to supervise implementation of internal and external standards

objectives bank-wide. Management in Control has therefore been realised throughout the entire organisation.

Transaction Servicing

Our clearing and settlement service provision has been further expanded with clearing services for Over The

Counter (OTC) transactions using the 'cats' trading platform. This platform provides for the OTC trade in

structured products between brokers and market makers/issuing institutions. In total we are connected to 24

trading platforms on nine Central Counter Parties (CCPs) throughout Europe as a General Clearing Member.

There is clear demand in the market for services related to capital accumulation (bank savings, giro, PPI, etc.).

Transaction Servicing facilitates these services for our clients, where necessary in combination with our banking

licence. Payment organisation Currence once again certified KAS BANK as a licence holder in the role of Debit

Bank for Incasso (direct debit), Credit Bank for Incasso (direct debit) and Credit Bank for Acceptgiro

(acceptance giro). Therewith the bank is ready for the impending introduction of European payment procedures

within the European Single Euro Payments Area (SEPA).

Asset Servicing

Pension funds are increasingly asking KAS BANK to act as an independent guide and expert in the area of asset

servicing. The Institutional Risk Management department advises pension funds, among others, on the set-up

of their ‘countervailing power’ with respect to the asset managers of the fund. We also act as a partner for

pension fund boards when setting up the internal risk and compliance function of the pension fund itself. The

accompanying reports and management information are made available online by the Institutional Management

Services department (IMS) via our special IMS dashboard for pension fund managers and trustees. The

dashboard is constantly updated in line with the newest requirements and regulations from regulator DNB. The

dashboard gives management and directors of pension funds real-time insight into the funding ratio and

performance measurement of the fund. These data are also the basis for the Pension Fund Monitor app for the

iPad which we launched in April 2011. The app gives condensed key information on the current state of affairs

at the pension fund 24 hours per day. The drilldown function can be used to easily call up more detailed

information, in relation to, among other areas, compliance and the ESG (environmental, social, governance)

factors that are important in determining the investment policy. Therewith, the app provides important control

information for the risk management of the pension fund itself and the pension fund directors have insight into

the most important key data and current state of affairs at the pension fund 24 hours per day.

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Although the precise details of the Pension Accord between the Dutch government, employers and trade unions

have not yet been fully elaborated, KAS BANK is already preparing itself for the effects it will have for our

clients and our service provision.

Fund Services

Investing in unlisted funds is becoming increasingly interesting for professional investors seeking to generate

additional return. Our clients use our Global Fund Services for the execution of their buy and sell orders for

unlisted funds. Using a special ‘portal’, they submit entirely automated orders which are then processed also

automatically. Thanks to this automation of what used to be largely manual transactions, the number of clients

on our own Fund platform has continued to grow.

We set up a special service directed at investment funds, the KAS BANK Fund Desk, at the beginning of 2011.

The Fund Desk provides starting fund managers support with primary and secondary legislation and the fiscal

aspects of setting up and managing an investment fund, for instance. Existing and new funds alike have shown

a great deal of interest in this service provision.

IT

Production management for the mainframe was outsourced to an external partner during the past year, along

with the maintenance and development of the applications for the mainframe. The internal 'In Control

Statements' for the operational IT processes have been further expanded in accordance with the guidelines

from the new standard for services organisations ISAE 3402 Type 2. We received a subsidy for a combination of

innovative automation projects under the Research and Development Promotion Act (WBSO), confirming that

KAS BANK's IT projects are independently developed in a unique technical and innovative manner.

A disaster recovery test is carried out four times per year in the context of continuity management. The

emergency scenarios for crisis situations are examined during these tests to determine whether they satisfy all

the standards. All tests were successful. In the Netherlands, KAS BANK also regularly participates in continuity

tests on the infrastructural level.

Treasury

Treasury's products are mainly focused on supporting our clients' risk management and trading activities. The

cautious recovery of the securities lending market continued in 2011 but volumes are still far below the level of

before the credit crisis in 2008.

KAS BANK continues to be as conservative as ever on the financial markets. The bank has more than sufficient

liquid assets but, given the bank's low-risk profile, the investment opportunities on the interbank market are

still limited because of the ongoing euro crisis.

KAS BANK German Branch

The client base in Germany remained stable with respect to 2010. The Assets under Administration are

nonetheless under pressure because of the revision of the strategic policy at a number of clients. On the

operational level, the focus was on further increasing the degree of straight-through processing after the quick

and successful implementation in our systems of our 2010 acquisitions. The emphasis at the Depotbank was

also on increasing the degree of straight-through processing and on the set-up of new funds.

The management of KAS BANK German Branch in Wiesbaden was strengthened in view of the proposed

cooperation with dwpbank and the growth of our activities in Germany.

KAS BANK UK Branch

KAS BANK UK Branch in London further expanded its client base in 2011. In addition to new partnerships,

attention was focused primarily on our role as 'the trustees' custodian'. Institutional clients and prospects have

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shown a great deal of interest in KAS BANK's governance solutions. The UK Branch helps pension fund

management and directors to be able to satisfy their (reporting) obligations. Our Pension Fund Monitor app is

an important instrument in this, since it is the first application in the UK that combines analyses of the

investments with analyses of the liabilities and reports directly on this to the relevant managers and directors.

In the Financial Institutions segment, there has been a marked increase in US-based clients. The North

American region continues to be an important focal area in 2012.

Corporate Social Responsibility

KAS BANK endorses the UN Principles for Responsible Investment. We support our clients in implementing their

policy for socially responsible investing via our Sustainability Risk Screening service. We monitor, detect and

report daily on any deviations from the investment guidelines with reference to a Watch List of prohibited

investments drawn up by the client. When outsourcing activities, such as the production management of the

mainframe and the disaster recovery location for our decentralised systems, we explicitly look at the CSR policy

of the various providers, in particular with regard to the environment. In purchasing office supplies and other

equipment, we investigate to make sure that no child labour has been used during the production process.

When applicable, we confront our suppliers about this or terminate the relationship with the particular

company.

A number of measures ensured that KAS BANK's total CO2 emission was further reduced in 2011. Criteria such

as energy consumption and the re-use of goods play an important role in the purchase of office supplies,

hardware and other equipment. Whenever possible, lease cars are replaced with hybrid cars after the end of

the lease contract. For short-distance urban driving, the feasibility of purchasing an electric van is looked into.

Finally, we are currently working with the municipality of Amsterdam to investigate the use of heat pumps to

heat both our office buildings. The increasing use of electronic applications for information provision has further

reduced the use of paper. The quantity of physical output for our clients has been declining for years. All

members of the Supervisory Board use an iPad in order to hold 'paperless' meetings as much as possible. At

the end of December 2011, all employees were given a tax-friendly opportunity to purchase an iPad for

business use. More than 90 per cent of all employees made use of this opportunity.

Human Resources

A great deal of time was spent last year on information provision on the proposed introduction of a new,

reduced pension scheme for employees who joined the bank before 1 January 2011. Constructive talks were

held on this with the Stichting Pensioenfonds of the KAS BANK, the Works Council and the collective industrial

organisations. These consultations will continue in 2012. The aim is to be able to introduce a new scheme in

2012. For employees who joined the bank after 1 January 2011 the new pension scheme already applies.

Thanks to an active policy to prevent absence due to illness, both the duration and causes of long-term

sickness absence have been reduced. The management followed a training course on sickness absence in order

to detect signs of possible long-term sickness absence at an early stage and actively start a discussion on this

with the employee. Consultation regularly takes place between the company doctor, the absence adviser from

the occupational health and safety service and the Case Manager from Human Resources.

Various internal training programmes and expert sessions further improved the commercial strength of our

employees. The appointment of a new Head of Human Resources and Organisational Development strengthens

our ability to achieve the bank's ambitious growth targets in the Netherlands and Europe.

Finally, the Managing Board formulated policy principles, objectives and actions for putting more women in

senior management positions. This can perhaps speed up the envisioned improvement in diversity.

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Outlook for 2012

The cooperation with dwpbank will be worked out in more detail in 2012 both in the Netherlands and in

Germany. The new central securities platform reinforces our position on the Dutch and European market for

wholesale and retail securities services. This cooperation also strengthens our position as provider of wholesale

securities services and global custody services on the Dutch and German markets.

In dialogue with our clients, we constantly work to implement new primary and secondary legislation in the

bank's service provision and products. The introduction of the European AIFM directive, for example, offers

good opportunities to further expand our role as custodian for investment funds. We are also actively

substantiating our status as participating FFI (Foreign Financial Institution) in the context of the Foreign

Account Tax Compliance Act (FATCA). According to this US law, financial institutions will be required to forward

information on their American clients to the US Internal Revenue Service as of 1 January 2013. A special

project group is inventorying and implementing all necessary measures in order to comply with FATCA as of

1 January 2013.

Although the definitive implementation date of the European Market Infrastructure Regulation (EMIR) has not

yet been set, we expect this new regulation to take effect in 2012. Under EMIR, all OTC derivatives transactions

must be reported to the so-called 'trade repositories'. Mandatory central settlement of all eligible derivatives

transactions will also be introduced. KAS BANK is a proponent of central settlement of derivatives transactions

and we are actively preparing our clients for the new requirements.

We will also continue to work on expansions and new uses for our Pension Fund Monitor app in 2012. An app is

also being developed for the German fund market, just as for Dutch investment funds. The Service Level

Agreements for IT services are being further optimised both internally and externally and the reporting on

these is being adjusted structurally. This is part of the continuous process of further increasing client

satisfaction.

In view of the general economic situation in Germany, the outlook for KAS BANK's German Branch is positive.

The focus remains fully directed at high-quality solutions for fund administrations, custody, clearing and

settlement, and Depotbank services. The proposed strategic alliance with dwpbank is a strong boost for the

growth ambitions in the German market. New acquisitions in the area of fund administration are also up for

discussion.

In response to changing market conditions in the United Kingdom, including a heightened counterparty risk, we

foresee growing demand for our Model B service provision for pre and post-trade services.

Corporate governance statement

The corporate governance statement pursuant to Section 2a of the Decree on additional requirements for

annual reports (Vaststellingsbesluit nadere voorschriften inhoud jaarverslag) of 1 April 2009 is posted on the

company’s website: www.kasbank.com/investorrelations/corporategovernance. The corporate governance

statement is deemed to have been inserted and repeated here.

Annual Report 2011

37

Management declaration

Pursuant to Section 5, subsection 25.c, of the Financial Supervision Act, the Managing Board affirms that the

annual report provides a true and fair view of the company’s position on the balance sheet date and the course

of affairs during the financial year of the company and the related enterprises whose figures are included in its

financial statements and that the annual report describes the principal risks to which the company is exposed.


Managing Board:

A.A. Röell, chairman

R.J. Kooijman, CFO

S.A.J. van Katwijk

38

FINANCIAL STATEMENTS 2011

Financial statements 2011

Consolidated income statement

39

For details, reference is made to the notes on the financial statements, starting at page 62.

In thousands of euros 2011 2010

Income

Interest income 1 74,751 52,087

Interest expense 2 47,255 31,474

Net interest 27,496 20,613

Commission income 3 81,186 85,210

Commission expense 3 13,065 15,533

Commission 3 68,121 69,677

Investments at fair value through

profit or loss 4 7,022 8,761

Available-for-sale investments 4 2,064 15,906

Result on investments 4 9,086 24,667

Other income 5 10,566 2,170

Total income 115,269 117,127

Operating expenses

Staff costs 6 62,629 64,550

Other administrative expenses 7 28,110 24,945

Depreciation/amortisation 8 7,216 7,996

Operating expenses 97,955 97,491

Impairment losses 9 2,064 -2,630

Total operating expenses 100,019 94,861

Result for the period before tax 15,250 22,266

Tax expense 10 4,900 3,800

Result for the period 10,350 18,466

Attributable to:

Equity holders of the bank 10,230 18,455

Minority interests 120 11

Earnings per share 11

- basic (in euros) 0.70 1.27

- diluted (in euros) 0.70 1.26


Consolidated statement of comprehensive income

40


In thousands of eurosBefore

tax Tax

After

tax

Before

tax Tax

After

tax


Unrealised impairment losses on land

and buildings in use by the company 34 -3,151 788 -2,363 - - -

Unrealised revaluation on available-for-

sale investments 34 -22,044 5,987 -16,057 1,737 -421 1,316

Realised gains recognised in the income

statement 34 -6,656 1,664 -4,992 -13,664 3,484 -10,180

Actuarial gains and losses on pensions 35 5,381 -1,345 4,036 -7,938 2,024 -5,914

Income and expense recognised directly

in equity -26,470 7,094 -19,376 -19,865 5,087 -14,778

Total comprehensive income for the

period -9,026 3,688

Attributable to:

Shareholders of the bank -9,146 3,677

Minority interests 120 11

Total comprehensive income for the

period -9,026 3,688

2011 2010


Consolidated balance sheet

41


31/12/2011 31/12/2010

Assets

Cash and deposits at the central bank 12 1,135,738 731,545

Banks 13 517,628 2,262,587

Loans and advances 14 1,435,221 766,564

Reverse repurchase agreements 15 656,056 524,111

Derivative financial instruments 16 154,187 100,898

17 181,871 176,328

Available-for-sale investments 18 1,168,288 1,326,911

Current tax assets 19 7,996 31,068

Other assets 20 8,872 11,604

Prepayments and accrued income 21 14,784 20,456

Property and equipment 22 37,402 41,642

Intangible assets 23 12,659 18,684

Deferred tax assets 24 1,740 3,079

Employee benefits (assets) 30 12,857 1,784

Total assets 5,345,299 6,017,261

Equity and liabilities

Banks 25 457,866 2,056,755

Funds entrusted 26 4,476,611 3,578,903

Derivative financial instruments 16 212,484 124,998

17 - 17,044

Current tax liabilities 19 603 5,748

Other liabilities 27 88 16,988

Accruals and deferred income 28 19,284 18,926

Provisions 29 - -

Deferred tax liabilities 24 9,430 9,896

Employee benefits 30 887 1,096

Total liabilities 5,177,253 5,830,354

Share capital 31 15,699 15,699

Treasury shares 32 -25,324 -25,324

Share premium 33 21,569 21,569

Revaluation reserve 34 -5,332 18,181

Other reserves 35 156,003 143,247

Unappropriated result 36 5,419 13,644

Total equity attributable to the equity holders of the bank 168,034 187,016

Minority interests 12 -109

Total equity 168,046 186,907

Total equity and liabilities 5,345,299 6,017,261

Contingent liabilities 37 26,703 27,211

Irrevocable facilities 38 25,889 20,958

In thousands of euros

Investments at fair value through profit or loss



Consolidated statement of changes in equity

42

* For details, reference is made to the consolidated statement of comprehensive income on page 40.


Share

capital

Treasury

shares

Share

premium

Revaluation

reserve

Other

reserves

Unappro-

priated

result

Total

attributable

to equity

holders

Minority

interests

Total

equity

Balance as at 1 January

2010 15,699 -25,417 21,569 27,688 134,057 19,772 193,368 -170 193,198

Comprehensive income

for the period

Result for the period 18,455 18,455 11 18,466

Realised gains and losses

recognised directly in equity -264 264 - - Income and expense

recognised directly in

equity1 -8,864 -5,914 -14,778 -14,778

Total - - - -9,128 -5,650 18,455 3,677 11 3,688

Transactions with

shareholders


equity

Profit appropriation for

previous year 14,274 -14,274 - -

Dividend 2009 -5,498 -5,498 -5,498

Purchase of treasury - -

Sale of treasury shares 93 -93 - -

Share-based payments 636 636 636

Interim dividend 2010 -4,811 -4,811 -4,811

Other movements -379 23 -356 -356

Acquisition of minority

interests - 50 50

Total - 93 - -379 14,840 -24,583 -10,029 50 -9,979

Balance as at 31

December 2010 15,699 -25,324 21,569 18,181 143,247 13,644 187,016 -109 186,907

Balance as at 1 January

2011 15,699 -25,324 21,569 18,181 143,247 13,644 187,016 -109 186,907

Comprehensive income

for the period

Result for the period 10,230 10,230 120 10,350

Realised gains and losses

recognised directly in equity -101 101 - Income and expense


equity1 -23,412 4,036 -19,376 -19,376

Total - - - -23,513 4,137 10,230 -9,146 120 -9,026

Transactions with

shareholders


equity

Profit appropriation for

previous year 7,812 -7,812 - -

Dividend 2010 -5,832 -5,832 -5,832

Purchase of treasury - -

Sale of treasury shares - -

Share-based payments 821 821 821

Interim dividend 2011 -4,811 -4,811 -4,811

Other movements -14 -14 1 -13

Acquisition of minority

interests - -

Total - - - - 8,619 -18,455 -9,836 1 -9,835

Balance as at 31

December 2011 15,699 -25,324 21,569 -5,332 156,003 5,419 168,034 12 168,046


Consolidated statement of cash flows

43


2011 2010

Cash flow from operating activities

10,350 18,466

Adjustments for:

Interest recognised in the income statement 1/2 -27,496 -20,613

Dividends recognised in the income statement 4 -212 -724

Depreciation/amortisation 8 7,216 7,996

Impairment losses 9 2,064 -2,630

10 4,900 3,800

Changes in:

Banks (not on demand) 13/25 -1,626,213 84,027

Loans and advances 14 -668,657 140,140

Reverse repurchase agreements 15 -131,945 60,235

Derivative financial instruments 16 34,197 97

- Purchase and sale of investments held for trading 17 7,915 7,349

- Purchase and sale of investments at fair value through profit or loss -7,030 -26,100

Funds entrusted 26 897,708 -70,163

Other movements in respect of operating activities -58,668 11,513

Payments and receipts in respect of:

Interest income 1 74,669 51,966

Interest expense 2 -47,196 -32,035

Dividends 4 212 724

Tax 19 21,835 -2,715

Employer's contribution to retirement benefits 30 -6,781 -14,868

Total cash flow from operating activities -1,513,132 216,465

Cash flow from investing activities

Investments and acquisitions

Available-for-sale investments

- Money market paper 18 - -13,434,487

- Bonds 18 -726,302 904,781

- Shares 18 - -402

Property and equipment 22 -2,088 -1,113

Intangible assets (excluding goodwill) and other assets 23 -2,090 -2,145

-730,480 -12,533,366

Disposals, repayments and sales


- Money market paper 18 483,678 13,192,394

- Bonds 18 386,857 -719,770

- Shares 18 9,798 13,904

880,333 12,486,528

Total net cash flow from investing activities 149,853 -46,838

Cash flow from investing activities

Sale of own stock 35 - 93

Dividend paid 36 -4,811 -4,811

Total net cash flow from financing activities -4,811 -4,718

Net cash flow -1,368,090 164,909

Cash and cash equivalents at the beginning of the year 2,953,153 2,788,244

Net cash flow -1,368,090 164,909

Cash and cash equivalents at the end of the year 1,585,063 2,953,153

Reconciliation of cash flow statement with balance sheet items

Cash and deposits at the central bank 12 1,135,738 731,545

Due on demand from other credit institutions 13 449,325 2,221,608

Cash and cash equivalents at the end of the year 1,585,063 2,953,153


Result for the period

Tax expense on the result recognised in the income statement



Accounting policies

44

General

KAS BANK N.V. has its registered office in Amsterdam, the Netherlands. The company’s consolidated financial

statements for the year ending 31 December 2011 include the parent company and all its subsidiaries, together

referred to as ‘KAS BANK’. A list of the principal subsidiaries is included in these notes.

KAS BANK is a solid European wholesale bank offering a wide range of securities and investor services. KAS

BANK’s focus is on value-added services in the field of treasury, risk management and management

information, which have evolved from its basic services of investment administration, custody, clearing and

settlement. KAS BANK’s main target groups are institutional investors (pension funds, insurance companies,

investment funds and asset managers) and financial institutions (banks and brokers). KAS BANK does not

provide active asset management services itself and is independent, guaranteeing its impartiality and

autonomy. KAS BANK aims to have a low risk profile.

The financial statements were prepared by the Managing Board on 1 March 2012 and were approved in the

meeting of the Supervisory Board held on 1 March 2012. They will be presented to the General Meeting of

Shareholders for adoption on 25 April 2012.

Statement of compliance

The consolidated financial statements of KAS BANK have been prepared in accordance with International

Financial Reporting Standards (IFRS) as adopted within the European Union and with Part 9, Book 2 of the

Netherlands Civil Code.

Basis of consolidation

Subsidiaries are entities which are controlled by KAS BANK. Control of an entity exists if KAS BANK is able to

directly or indirectly govern its financial and operating policies in order to obtain economic benefits from its

activities. Subsidiaries are consolidated as from the date on which control is acquired and are eliminated from

the consolidation as from the date on which KAS BANK relinquishes control.

As at 31 December 2011, the most important subsidiaries were:

Amsterdam Depositary Company N.V. Amsterdam

KAS Derivaten Clearing N.V. Amsterdam

KAS BANK Effectenbewaarbedrijf N.V. Amsterdam

KAS Trust B.V. Amsterdam

KAS Servicing B.V. Amsterdam

KAS Participatiemaatschappij B.V. Amsterdam

Centrum voor Fondsenadministratie B.V. Amsterdam

Addition Knowledge House B.V. Amsterdam

KAS BANK OG Spuistraat B.V. Amsterdam

KAS BANK OG NZVW B.V. Amsterdam

KAS Europe BVBA Brussel

KB Deutschland Holding GmbH Wiesbaden

o KAS Investment Servicing GmbH Wiesbaden

A complete list of subsidiaries has been deposited with the Trade Register of the Amsterdam Chamber of

Commerce. Apart from an interest of 50% plus one share in Addition Knowledge House B.V., KAS BANK’s

interest in all the subsidiaries is 100%.


Accounting policies

45

A minority interest is presented separately in the consolidated balance sheet as a component of shareholders’

equity. The result for the period attributable to the minority interest is also separately presented.

Intragroup balances, any unrealised gains and losses on transactions within the group, and income and

expenses relating to such transactions have been eliminated in the preparation of the financial statements.

Basis of preparation of the financial statements

The accounting policies have been applied consistently to KAS BANK and its subsidiaries for all periods

presented in these financial statements. The financial statements are presented in thousands of euros, unless

stated otherwise. The amounts presented in the tables have been computed using figures which have been not

rounded and it is therefore possible for differences to occur due to the effects of rounding. The euro is also KAS

BANK’s functional currency.

To facilitate comparison, the comparative figures have been restated where necessary.

Basis of measurement

The financial statements have been prepared on a historical cost basis except for the following:

Financial instruments shown at amortised cost



Reverse repurchase agreements

Derivative financial instruments

Land and buildings in use by the company

Long-term employee benefits (assets and liabilities)

Share-based payments

Income is recognised in the income statement when an increase in future economic benefits related to an

increase in an asset or a decrease in a liability has arisen that can be measured reliably. Expenses are

recognised in the income statement when a decrease in future economic benefits related to a decrease in an

asset or an increase in a liability has arisen that can be measured reliably.

Use of estimates and judgements

In preparing the financial statements, the Managing Board is required to form judgements and make estimates

and assumptions which affect the items presented in the balance sheet and explanatory notes and the items

presented in the income statement and the statement of comprehensive income for the reporting period.

Although these estimates are based on past experience and take into account the latest developments, the

reality may differ. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognised in the period in which the estimate is revised and in any future periods

affected.

In particular, information about significant areas of estimation uncertainties and critical judgements in applying

accounting policies that have the most significant effect on the amount recognised in the financial statements

are described in the following notes:

Note 9; impairment losses on available-for-sale investments and loans and advances measured at

amortised cost

Note 16; measurement of derivative financial instruments


Accounting policies

46

Note 22; measurement of land and buildings in use by the company

Note 23; measurement of the recoverable amount of cash-generating units including goodwill

Note 24; measurement of term and rate realisation and/or settlement of deferred tax assets and liabilities

Note 30; measurement of defined benefit obligations and/or receivables

Notes 49 and 50; measurement of share-based payments.

New and amended standards and interpretations issued by the IASB

The following new standards and amendments to or revisions of existing standards and interpretations have

been issued by the International Accounting Standards Board (IASB) and adopted within the European Union

and are applicable with effect from financial years commencing 2011 or later. For KAS BANK, the standards

concerned either do not apply or their impact is limited.

Revision of IAS 24 Related Party Disclosures. The revised standard provides a simplified definition of

Related Parties especially in situations in which government participation is present. As stated in the 2010

Annual Report, the impact for KAS BANK is nil.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. This new interpretation provides rules

governing the exchange of financial liabilities for equity instruments. So far KAS BANK has not executed

any such exchange transactions.

Amendment to IAS 32 Financial Instruments: Presentation: Classification of Rights Issues. This amendment

relates to claims issued in foreign currency. KAS BANK has not issued any such claims. The impact is

therefore nil (see 2010 Annual Report).

Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement. This amendment relates to

entities subject to a minimum funding ratio. In such cases, prepayments should be treated as an asset.

KAS BANK will take this amendment into account in the annual report, if applicable.

Amendment to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters.

KAS BANK is not a first-time adopter so the amendment is not applicable.

Improvements to IFRSs (issued 6 May 2010) (Annual improvement project). As already stated in the 2010

annual report, in particular the amendments concerning IAS 1 (presentation of the financial statements)

and IFRS 7 (Financial instruments: disclosures) announced as 'Improvements' are applicable for

KAS BANK. These are both presentation guidelines. KAS BANK will take this amendment into account in the

annual report.

Set-off

Amounts receivable and payable and due on demand or maturing at the same time which relate to one person

or legal entity or group of jointly and severally liable legal entities are shown net in the balance sheet where the

bank has a right of set-off and it is the intention to settle the liability on a net basis or realise the asset at the

same time as the liability is settled. Income and expenses are not set off unless related to hedging or to assets

and liabilities which are set off in accordance with the foregoing.

Transactions in foreign currencies

Income and expenses relating to transactions in foreign currencies are translated at the exchange rate

prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currencies are

translated on the balance sheet date at the known exchange rate on that date. Exchange gains and losses

arising on the aforesaid transactions and carrying amounts are recognised in the income statement in income

from investments at fair value through profit or loss.

Unrealised exchange gains and losses on non-monetary financial assets are part of the total movement in the

carrying amount of the asset. In the case of non-monetary financial assets which are classified as investments

at fair value through profit or loss or as derivative financial instruments, exchange gains and losses are part of


Accounting policies

47

the gains and losses on the financial asset concerned. In the case of non-monetary assets which are classified

as available for sale, unrealised exchange gains and losses are recognised directly in equity.

Financial instruments

KAS BANK’s financial instruments consist of cash and deposits at the central bank, banks, loans and advances,

funds entrusted, investments at fair value through profit or loss, available-for-sale investments, reverse

repurchase agreements and derivative financial instruments.

Recognition and derecognition

A financial instrument is recognised if KAS BANK becomes a party to the contractual provisions of the

instrument. Financial assets are derecognised if KAS BANK’s contractual rights to the cash flows from these

financial assets expire or if KAS BANK transfers the financial asset to another party without retaining control or

substantially all risks and rewards of the asset. Financial liabilities are derecognised if KAS BANK’s obligations

specified in the contract expire or are discharged or cancelled.

All purchases and sales of financial assets are recognised on the transaction date, i.e. the date on which KAS

BANK commits itself to purchasing or selling the asset.

Measurement on initial recognition

On initial recognition, financial instruments are measured at fair value plus, in the case of instruments not

subsequently carried at fair value through profit or loss, any directly attributable transaction costs.

Measurement at fair value

The fair values represent the amounts for which the financial instruments could be exchanged on a realistic

economic basis between knowledgeable, willing parties in an arm’s length transaction.

The fair values of financial instruments are measured on three levels:

Level 1: The fair values are based on quoted bid prices on active markets. A financial instrument is

considered to be listed on an active market if a quoted price is regularly available and such prices reflect

current, regularly occurring arm’s-length transactions on that market.

Level 2: In the case of financial instruments for which an active market does not exist or quoted bid prices

are not available, use is made of valuation methods. Valuation methods involve such things as reference to

recent transactions conducted on a realistic economic basis between knowledgeable, willing parties or

reference to similar instruments for which market prices or valuation models are available. The data used

in the valuation methods are observable market-related data originating from reliable external sources. The

valuation methods used are internally evaluated and approved. Tests are performed to determine whether

the measurement process has produced an appropriate fair value for an item and whether the carrying

amounts thus arrived at have been properly reflected through profit or loss.

The main observable market-related data used is obtained from:

o Credit spreads: where available, these figures are derived from the prices of credit default swaps;

o Interest rates: benchmark rates, such as the interbank yield curve and the swap yield curve, are

generally used;

o Exchange rates: market rates are available for both spot transactions and forwards/futures

involving the majority of currencies;

o Volatility: the measure of movements up and down in the price of a share or bond or exchange

rate, as derived from historical data;

o Counterparty credit rating: market prices are adjusted if the credit rating of a counterparty differs

from the credit rating assumed in the market price;


Accounting policies

48

o Recovery rates: recovery rates are used in the case of clients who are expected not to be able to

repay all or part of a loan. They are based on information from suppliers of market data or derived

from visible credit spreads.

Level 3: Measurement is based on valuation models using variables that are not related to observable

market-related data.

Unquoted equity instruments whose fair value cannot be measured reliably are carried at cost.

Fair values reflect the credit risk embodied in a financial instrument and, where applicable, take account of the

credit risk of KAS BANK or the counterparty.

Financial instruments shown at amortised cost

Investments at amortised cost are non-derivative financial instruments which are not quoted on an active

market and on which interest is payable at a fixed or floating rate. These arise when KAS BANK has raised

funds or advanced funds to a client where it is not the intention to sell the financial instrument immediately or

in the near future.

The principal sums are accounted for in the balance sheet in banks, loans and advances and funds entrusted.

Interest income and expenses are recognised in net interest in the income statement, using the effective

interest method.


There are two categories of investments at fair value through profit or loss:

Investments held for trading: accounted for under this heading are those securities that are acquired in

order to generate short-term profits;

Investments classified as investments at fair value through profit or loss by the Managing Board. This

classification is only made if the related investments are managed on a fair-value basis or in the interests

of consistency of approach.

Investments at fair value through profit or loss are measured at fair value on initial recognition, with directly

attributable transaction costs recognised as an expense as and when incurred. The investments are

subsequently carried at fair value. All realised and unrealised gains and losses are recognised in the income

statement under investments at fair value through profit or loss.


Securities which are held for an indefinite period and can be sold if cash is needed or if warranted by

movements in market value are classified as available-for-sale investments. After initial recognition, available-

for-sale investments are carried at fair value on the balance sheet date.

Except for impairments and, in the case of monetary items, exchange differences, unrealised gains and losses

arising out of movements in the fair value are accounted for in equity. If the securities are sold or in the event

of impairment, the attributable accrued gains and losses recognised directly in equity are recognised in the

income statement under available-for-sale investments or impairment losses, as the case may be.

If these securities are interest-bearing, the interest, calculated using the effective interest method, is

recognised in interest income in the income statement. Dividends received are accounted for in the income


Accounting policies

49

statement in income from available-for-sale investments on the date that KAS BANK’s right to receive payment

is established, which in the case of quoted securities is the ex-dividend date.

Reverse repurchase agreements

Securities which are purchased subject to the binding condition that they will be sold back in the future at a

predetermined price (reverse repurchase agreements) are accounted for as secured loans. The monetary

receivable, including accrued interest, is included in reverse repurchase agreements on the assets side of the

balance sheet. Securities acquired by means of reverse repurchase agreements are used mainly as collateral

and are not carried on the balance sheet. The interest on reverse repurchase agreements – calculated using the

effective interest method – is amortised over the term of the agreement and accounted for in interest income in

the income statement.

Derivative financial instruments

KAS BANK uses derivative financial instruments (derivatives) mainly to hedge currency, credit, price and

interest-rate risks arising from its operating, financing and investing activities.

Derivatives, including currency, interest-rate, credit and share contracts, are measured at fair value on initial

recognition, with directly attributable transaction costs expressed in income from investments at fair value

through profit or loss as and when incurred. After initial recognition, these derivative financial instruments are

carried at fair value, with gains and losses recognised in income from investments at fair value through profit or

loss in the income statement.

Derivatives are recognised as assets if the fair value is positive and as liabilities if the fair value is negative.

Hedge accounting

KAS BANK employs hedge accounting by designating derivative financial instruments as hedges against

changes in the fair value of the fixed-income assets on the balance sheet relating to movements in interest

rates. All hedge accounting relationships are documented and their effectiveness is periodically tested.

A movement in the fair value of a hedging transaction which has been classified as a fair-value hedge is

accounted for in net interest in the income statement. The simultaneous movement in the fair value of the

hedged asset or liability which is attributable to the specific hedged risk is also accounted for in net interest in

the income statement. Unhedged movements in the fair value of assets or liabilities classified as available for

sale are accounted for in the revaluation reserve.

If a transaction relating to an interest-bearing instrument covered by a fair value hedge no longer satisfies the

hedge accounting criteria or the hedging relationship is terminated, the carrying amount of the hedged asset or

liability is adjusted through net interest in the income statement over the remaining term, using the effective

interest method.

Some transactions in derivatives which KAS BANK regards as economically effective hedging transactions in the

context of its risk control policy do not qualify for hedge accounting. Gains and losses on these transactions in

derivatives are recognised directly in income from investments at fair value through profit or loss in the income

statement.


Accounting policies

50

Property and equipment

Property in use by the bank is carried in the balance sheet at fair value as determined by an external appraiser,

less depreciation. Part of the property is appraised periodically. Changes in value as a result of periodic

reappraisal, less a provision for deferred tax liabilities, are accounted for in equity. Depreciation is charged to

the income statement on a straight-line basis over the estimated useful life of the property. No depreciation is

charged on land. The estimated useful life of the buildings is fifty years.

Equipment is stated at cost, less accumulated depreciation and impairment losses. Depreciation is charged to

the income statement on a straight-line basis over the estimated useful life. Machines and computer hardware

are depreciated over three years, furniture over five years, technical installations over ten years and alterations

to leased property over the term of the lease. The residual value is assessed annually.

Intangible assets

Goodwill

Goodwill arises on the acquisition of subsidiaries. It is the difference between the price paid for an acquisition

(including acquisition costs) and the fair value of the identifiable assets, liabilities and contingent liabilities

acquired at the time of acquisition. If the difference is negative, the result is recognised immediately in the

income statement. On initial recognition, goodwill is measured at cost less cumulative impairment losses.

Goodwill is not amortised.

Software

Software purchased from third parties and software development costs are capitalised if they can be directly

related to the production of identifiable software which will probably generate economic benefits for KAS BANK

for more than one year.

The capitalised costs concern directly attributable costs, including the costs of staff employed on the

development of the software. Capitalised development costs are recognised at cost less accumulated

amortisation and impairment losses. Amortisation is charged to the income statement over the estimated useful

life, which is three years.

Other intangible assets

Other intangible assets comprise separately identified assets deriving from the acquisition of subsidiaries, viz.

customer bases and licences. At the time of acquisition, these intangible assets are measured at fair value.

Customer bases and licences are subsequently carried at cost less cumulative amortisation and impairment

losses. Amortisation is charged to the income statement over the estimated useful life, which is three years.

The estimated useful life of the customer bases depends on management estimates and lies between five and

15 years. The estimated useful life of licences is five years.

Provisions

A provision is recognised in the balance sheet when KAS BANK has a present obligation (legal or constructive)

as a result of a past event, a reliable estimate can be made of the amount of the obligation, and it is probable

that an outflow of resources embodying economic benefits will be required to settle the obligation. The amount

of the provision is calculated by discounting the expected future cash flows using a discount rate before tax

reflecting the current market estimates of the time value of money and the specific risks relating to the

oligation. The amount added to provisions is recognised in the income statement in other administrative

expenses, with the carrying amount of the provisions presented as such on the face of the balance sheet.


Accounting policies

51

Loss-making contracts

A provision is recognised in the balance sheet for loss-making contracts when the benefits which KAS BANK can

expect to obtain from a contract are less than the unavoidable cost of settling the obligations under the

contract. The amount of the provision is measured at the lower of the present value of the expected costs of

terminating the contract and the present value of the expected net costs of continuing the contract. Before a

provision is recognised, KAS BANK may recognise an impairment loss in relation to the contract concerned.

Lease agreements

A lease agreement is classified as a finance lease if substantially all the risks and rewards incidental to

ownership are transferred from the lessor to KAS BANK. In all other cases, lease agreements are classified as

operating leases.

Assets acquired via a finance lease are carried at the lower of their fair value and the present value of the

nominal lease payments upon inception of the lease, less accumulated depreciation and impairment losses. The

discount rate used to calculate the present value of the nominal lease payments is the interest rate implicit in

the lease. Capitalised finance lease assets are depreciated in accordance with the criteria stated in relation to

property and equipment.

Lease payments made under an operating lease are recognised in the income statement on a straight-line basis

over the term of the lease. If an operating lease contract is terminated before expiry, any penalties are

recognised in the period in which the lease contract is terminated.

Impairment losses

Financial assets at amortised cost

At each balance sheet date, an assessment is made of whether there is objective evidence of impairment. A

financial asset is impaired and impairment losses are incurred if, and only if, there is objective evidence of

impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss

event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset

that can be reliably estimated.

The impairment loss is the difference between the asset’s amortised cost and the value of future cash flows,

discounted at the financial asset’s original effective interest rate. Impairment losses are recognised in

impairment losses in the income statement.

If the financial asset is collateralised, account is taken of future cash flows that may result from foreclosure of

the collateral, less costs of selling, irrespective of whether foreclosure is probable.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognised, the previously recognised impairment

loss is reversed and the reversal is accounted for in impairment losses in the income statement.

Financial assets at fair value

At each balance sheet date, an assessment is made of whether there is objective evidence of impairment. An

asset is regarded as impaired if there is objective evidence that one or more events have had a negative impact

on the expected future cash flows from that asset.


Accounting policies

52

Objective evidence of impairment may be provided by:

significant financial problems affecting the issuing institution

default

concessions on the part of the bank to the borrower for economic or legal reasons connected with the

financial problems facing the borrower which the bank would not consider making in other circumstances;

probability of financial failure or other financial reorganisation of the borrower, or

collapse of an active market for the financial asset concerned because of financial difficulties.

Additionally, in the case of equity investments, objective evidence of impairment is provided by a prolonged

(longer than nine months) or considerable (more than 20%) drop in the fair value below cost.

If there is objective evidence of impairment of an available-for-sale investment, the difference between cost

and current fair value, less any previously recognised impairment losses, is transferred from equity to

impairment losses in the income statement.

If, in the case of interest-bearing securities, in a subsequent period, the amount of the impairment loss

decreases and the decrease can be related objectively to an event occurring after the impairment was

recognised, the previously recognised impairment loss is reversed and the reversal is accounted for in

impairment losses in the income statement. If the decrease in the amount of the impairment loss cannot be

related objectively to an event occurring after the impairment was recognised, the decrease in the amount of

the impairment is accounted for in the result on investments in the income statement. Reversals of previously

recognised impairment losses relating to equity instruments are credited to equity.

Non-financial assets

The carrying amount of KAS BANK’s assets, excluding deferred tax assets, is reviewed at each balance sheet

date to ascertain whether there are any objective indications that an asset may be impaired. If any such

indication exists, an estimate is made of the recoverable amount of the asset. Impairment losses are

recognised in impairment losses in the income statement.

In the case of goodwill relating to assets and intangible assets that are not yet in use, an estimate of the

recoverable amount is made the same date every year.

For an individual asset or a cash-generating unit, the recoverable amount is equal to the value in use or the fair

value less costs to sell. In measuring the value in use, the present value of the estimated future cash flows is

calculated using a discount rate before tax reflecting both the current market estimates of the time value of

money and the specific risks relating to the asset concerned. For impairment testing, assets are grouped into

the smallest identifiable cash-generating units on the basis of continuing operations that are substantially

independent of other assets and groups of assets. For the purposes of impairment testing, the goodwill

acquired in a business combination is attributed to cash-generating units that are expected to profit from the

synergistic gains of the business combination.

An impairment loss is recognised if the carrying amount of an asset or a cash-generating unit of which the

asset forms part is higher than the estimated recoverable amount. Impairment losses recognised in respect of

cash-generating units are first deducted from the carrying amount of any goodwill attributed to the units and

then from the carrying amounts of the other assets in the unit (or group of units) on a pro rata basis.


Accounting policies

53

Impairment losses recognised in respect of goodwill are not reversed. In the case of other assets, previously

recognised impairment losses are assessed on each balance sheet date for indications that the loss has

diminished or no longer exists. An impairment loss is reversed if the impairment loss indication used as the

basis for measuring the recoverable amount has changed. An impairment loss is only reversed as long as the

resultant carrying amount of the asset does not exceed the carrying amount of the asset net of depreciation or

amortisation which would have applied if no impairment loss had been recognised.

Equity

Share capital

KAS BANK’s authorised capital comprises ordinary shares and preference shares. The issued and fully paid

registered ordinary shares are accounted for in the balance sheet in equity. The issued and fully paid registered

preference shares are accounted for in the balance sheet in other liabilities. The preference share capital is

classified as borrowed capital because, pursuant to Article 25 of the Articles of Association, dividend

distributions are not voluntary. Dividends on these shares are accounted for in interest expense in the income

statement.

Repurchase of own shares

Upon the repurchase of shares in the company’s capital which are included in equity in the balance sheet, the

consideration paid, including directly attributable costs, is recognised as a movement in equity. Repurchased

shares which are not cancelled are deducted from equity.

Dividend on shares

Dividend paid on shares is recognised in equity in the period in which it is approved by the shareholders.

Dividend for the year which is declared after the balance sheet date is disclosed in the notes on equity and the

other information.

Interest income and expense

Interest income and expense in respect of financial instruments are accounted for in the income statement

using the effective interest method. Movements in the fair value of derivative financial instruments used for

hedge accounting are accounted for in net interest in the income statement.

Commission income and expense

The commission which KAS BANK earns on a wide range of services can be divided into two broad categories:

net commission earned on services provided over a period, for which the clients are invoiced periodically, and

net commission earned on transaction-driven services. Commission earned on services which are provided over

an extended period is allocated to the period on a pro rata basis. Commission earned on transaction-driven

services is accounted for directly in the income statement.

Employee benefits

Pension obligation

KAS BANK’s pension plans are defined contribution and defined benefit plans. KAS BANK has delegated the

management of the Dutch defined benefit plans to Stichting Pensioenfonds van de KAS BANK, which has

reinsured the obligations fully with a life insurance company. The pensions of UK employees are managed by

the KAS UK Retirement Benefit Scheme, which has reinsured the obligations with a UK life insurance company.

The pension plan for the employees in Germany is a defined contribution plan.


Accounting policies

54

Defined contribution plan

The defined contribution plan is a retirement benefit scheme under which KAS BANK makes fixed contributions

to a separate entity and has no legal or constructive obligation to make any additional payments. The plan

applies to members of the Managing Board and the employees in Germany. When the amounts become

payable, the expenses related to this plan are included in the income statement under staff costs. For the

defined contribution plan, the company does not run any actuarial risks and no pension obligations are included

in the balance sheet.

Defined benefit plan

For the defined benefit plan the company incurs the actuarial risks and the employee is assured of a defined

benefit upon reaching pensionable age. The pension obligations are determined individually for each plan by

deducting the fair value of the plan assets from the present value of promised retirement benefits at the

balance sheet date, taking into account unrecognised past-service costs. Future retirement benefits are

calculated on the basis of estimates of the rights vested in employees in exchange for their services in the

reporting period and previous periods. These defined benefits are discounted at the yield on high-grade

corporate bonds that have maturity dates matching those when the benefits become payable. The calculation is

performed annually by an actuary using the ‘projected unit credit method’.

The net benefit expense is accounted for in staff costs in the income statement and the net benefit obligation or

receivable is accounted for in employee benefits in the balance sheet. Actuarial gains and losses result from

changes in actuarial assumptions and differences between the actuarial assumptions at the beginning of the

year and the realised results at year-end. Actuarial gains and losses are accounted for in equity.

If the benefits under a plan are adjusted, the portion of the adjusted benefits which relates to employees’ past

service is recognised in staff costs in the income statement over the average period until the benefits become

vested. Adjustments to benefits which become vested immediately are accounted for in staff costs in the

income statement.

If the plan assets exceed the liabilities, recognition of an asset is limited to an amount not exceeding the net

amount of any unrecognised past-service costs and the present value of any future repayments by the pension

fund in respect of lower future pension contributions.

Other long-term employee benefits

KAS BANK’s net liability in respect of long-term employee benefits other than retirement benefit provision

comprises future remuneration earned by employees in exchange for their services in the reporting period and

previous periods, taking into account mortality risk and the probability of employees remaining in company

service and participating in the plans. The liability is discounted to present value and recognised in the balance

sheet in employee benefits.

Expenses are accounted for in staff costs in the income statement.

Share-based payments

Part of the remuneration given to members of the Managing Board and other staff in exchange for service

rendered takes the form of share-based payments. The cost of the service received is measured on the basis of

the fair value of the shares or options granted on the date of award. The fair value is accounted for in staff

costs in the income statement over the vesting period, with a corresponding movement in equity.


Accounting policies

55

The value of the options granted is calculated using the trinominal model, taking into account the exercise price

of the options, the share price at grant date, the risk-free interest rate, the volatility of KAS BANK shares during

the vesting period of the options, and the expected dividend yield. From 2010 onward, options are no longer

granted as part of the Managing Board's remuneration.

In the case of such payments which are granted unconditionally, terms and conditions without a market basis

are taken into account by adjusting the number of shares or options used to measure the cost of the service

rendered so that the cumulative amount recognised in the income statement reflects the number of shares or

options ultimately becoming vested.

Short-term employee benefits

Short-term employee benefits relate to periodically paid remuneration and variable remuneration accounted for

in staff costs in the income statement as and when the related service is rendered. A provision is recognised for

the amount expected to be paid under a variable-remuneration or a profit-sharing plan if KAS BANK has a

present legal or constructive obligation to pay this amount as a result of past service provided by the employee

and the obligation can be estimated reliably.

Tax

Tax on profit or loss

Tax on the profit or loss for the periods presented comprises the tax expense payable, eligible for set-off and

deferred in respect of the reporting period. Tax on income is recognised in the income statement, except

insofar as it relates to items recognised directly in equity, in which case the tax is recognised in equity.

The tax payable and eligible for set-off in respect of the financial year is the expected liability in respect of the

taxable profit/loss for the year, calculated using the tax rates ruling on the balance sheet date, and

adjustments to the tax payable in respect of prior years.

Deferred tax assets and liabilities

Deferred tax assets and liabilities relate to differences between the carrying amounts and tax bases of certain

assets and liabilities. The deferred tax asset or liability is determined on the basis of the current tax rate and is

recognised at face value. A deferred tax asset is recognised if it is probable that taxable profits will become

available in future against which it can be set off. The carrying amount of the deferred tax assets is assessed on

each balance sheet date.

Deferred tax assets and liabilities are set off where there is a legally enforceable right to set off such assets and

liabilities and they relate to the same entity.

Earnings per share

KAS BANK presents basic and diluted earnings per share data for its ordinary share capital. The basic earnings

per share are calculated by dividing the profit or loss attributable to ordinary shareholders of KAS BANK by the

weighted average of the number of ordinary shares outstanding during the period. Diluted earnings per share

are determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average

number of ordinary shares in issue for the effects of all the dilutive potential ordinary shares, including share

options and conditionally awarded shares granted to employees and the members of the Managing Board.

Securities lending transactions

Securities lending transactions are entered into with securities as collateral. The related assets and liabilities in

the form of securities are not recognised in the balance sheet. Securities received as collateral may be

repledged. Collateral received in the form of cash is accounted for in banks and funds entrusted.


Accounting policies

56

Trust activities

Through the vehicle of KAS Trust B.V., KAS BANK acts as trustee in connection with the holding or placing of

assets on behalf of third parties. Such assets do not constitute assets of the bank and are not included in the

financial statements.

Cash flow statement

The cash flow statement has been prepared by the indirect method and shows the source of the cash which

became available in the reporting period. Cash flows are divided into three categories: operating activities,

investing activities and financing activities.

Cash and cash equivalents is understood to mean cash deposits at the central bank. Balances due on demand

from other credit institutions are accounted for in banks.

Segment information

KAS BANK discloses segment information for the operating and geographical segments. An operating segment

is a strategic business segment on which internal reports are regularly submitted to the Managing Board, on the

basis of which the Managing Board evaluates the performance of the segment and allocates resources to it. A

geographical segment is defined by the location where the revenues are generated.

Segment results comprise results which are directly attributable or may reasonably be allocated to the

segment. Segment information is based on the same accounting policies as are used for KAS BANK’s

consolidated balance sheet and income statement.

Custody and registration of securities and derivatives

Securities other than those kept as specifically numbered certificates and those not covered by the Giro

Securities Transfer Act are held in safe custody by KAS BANK Effectenbewaarbedrijf N.V. (KAS Depositary Trust

Company) or KAS Nominees Ltd. The rights and obligations arising from third-party positions in derivatives are

vested in KAS Derivaten Clearing N.V. Since clients’ securities and derivatives are thus divorced from the

company’s assets, they are not included in the financial statements.

New IFRS standards and interpretations not yet adopted

A number of new standards and amendments to or revisions of existing standards and interpretations issued by

the IASB, and European Union (EU) endorsed comments, were not yet effective in 2011 and have not been

applied in preparing the 2011 financial statements. These will be applied from 2012 or later.

- Amendment to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-Time Adopters. This

amendment applies to reporting years which start on or after 1 July 2011 and has currently not yet been

endorsed by the EU. KAS BANK has applied IFRS since 2005 and is therefore not affected by this

amendment.

- Amendment to IFRS 7 Financial Instruments: Disclosures. This amendment applies to reporting periods

beginning on or after 1 July 2011. It requires additional disclosures concerning the transfer of financial

assets and any risks relating to the transferred assets remaining with the entity. The expected impact on

KAS BANK is limited.

- Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities. This amendment

applies to reporting years which start on or after 1 January 2013 and has currently not yet been endorsed

by the EU. The amendment relates to the disclosures concerning offsetting and is expected to have limited

impact on KAS BANK.

- IFRS 9 Financial Instruments. The new standard is the result of the first phase of the IASB project to


Accounting policies

57

replace the existing standard IAS 39 Financial Instruments: Recognition and Measurement. The new

standard becomes mandatory with effect from 1 January 2015 and has currently not yet been endorsed by

the EU. It is expected to have a major impact on KAS BANK.

- IFRS 10 Consolidated Financial Statements. This standard applies to reporting years which start on or after

1 January 2013 and has currently not yet been endorsed by the EU. This standard stipulates rules for

control and for the presentation of the consolidated financial statements. The impact on KAS BANK is

limited.

- IFRS 11 Joint Arrangements. This standard applies to reporting years which start on or after 1 January

2013 and has currently not yet been endorsed by the EU. KAS BANK is not a party to any 'joint

arrangements' and is therefore unaffected by the introduction of this standard.

- IFRS 12 Disclosure of Interests in Other Entities. This standard applies to reporting years which start on or

after 1 January 2013 and has currently not yet been endorsed by the EU. This standard requires detailed

information on entities included in the consolidated financial statements and on participating interests that

are not consolidated. The impact on KAS BANK is limited.

- IFRS 13 Fair Value Measurement. This standard applies to reporting years which start on or after 1 January

2013 and has currently not yet been endorsed by the EU. This standard explains the use of fair value

measurement as required in other standards. The impact on KAS BANK is limited.

- Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets. This amendment applies to reporting

years which start on or after 1 January 2012 and has currently not yet been endorsed by the EU. The

amendment mainly relates to assets which are not depreciated/amortised. The impact on KAS BANK will be

very limited.

- IAS 19 Employee Benefits. This standard applies to reporting years which start on or after 1 January 2013

and has currently not yet been endorsed by the EU. This standard relates to the valuation of pension

obligations and pension costs. The expected impact on KAS BANK is significant.

- IAS 27 Separate Financial Statements. This standard applies to reporting years which start on or after

1 January 2013 and has currently not yet been endorsed by the EU. This standard contains reporting

requirements for investments in participating interests if separate financial statements are prepared. No

separate financial statements are prepared for the participating interests, so this standard has no impact

on KAS BANK.

- IAS 28 Investments in Associates and Joint Ventures. This standard applies to reporting years which start

on or after 1 January 2013 and has currently not yet been endorsed by the EU. This standard relates to

investments in participating interests and the requirements for using the equity method. The impact on

KAS BANK is limited.

- Amendment to IAS 32 Offsetting Financial Assets and Financial Liabilities. This amendment applies to

reporting years which start on or after 1 January 2014 and has currently not yet been endorsed by the EU.

This amendment clarifies the criteria for offsetting and is expected to have limited effect on KAS BANK.

- IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. This standard applies to reporting

years which start on or after 1 January 2013 and has currently not yet been endorsed by the EU. The

interpretation applies to the mining industry, the impact on KAS BANK is therefore nil.


Notes to the consolidated income statement

58

1. Interest income

Included in this item is income from lending and related transactions and other income in the nature of interest.

Interest income not qualifying for set-off is included gross.

2. Interest expense

This item comprises the costs of borrowing and related transactions and other expense in the nature of interest.

Interest expense not qualifying for set-off is included gross.

3. Commission income and expense

Commission income includes income from custody, settlement, securities lending, derivatives clearing services,

and added-value services. Commission expense includes expenses relating to custody, settlement, securities

lending, and derivatives clearing services.

4. Result on investments


This item comprises interest and similar income from:

Loans and advances 21,811 17,122

Total loans and advances 21,811 17,122

Available-for-sale investments 30,109 22,107

Available-for-sale investments subject to impairment 666 679

Total available-for-sale investment 30,775 22,786

Reverse repurchase agreements 7,281 3,309

Derivative financial instruments 9,103 3,561

Investments at fair value through profit or loss 5,781 5,292

Gains and losses in the fair value of fair value hedges -26,034 -3,195

Gains and losses in the fair value of positions hedged by fair value hedges 26,034 3,212

Total 74,751 52,087


This item comprises interest and similar income from:

Financial instruments at amortised cost 30,311 22,094

Investments at fair value through profit or loss 339 70


Total 47,255 31,474


Net commission by type of service:

Asset Servicing 41,523 39,817

Transaction Servicing 20,230 23,374

Other commission 6,368 6,486

Total 68,121 69,677


Investments held for trading

Changes in the fair value of securities and derivatives -11,587 -6,037

Foreign-exchange trading results 10,546 12,093

Total -1,041 6,056

Investments classified as assets measured at fair value through

profit or loss

Changes in fair value of securities 8,063 2,705

Total investment at fair value through profit or loss 7,022 8,761


Result on sales of securities 6,656 13,570

Trading results -4,804 1,612

Dividends received 212 724

Total available-for-sale investments 2,064 15,906

Total result on investments 9,086 24,667



59

Of the result on investments, € 1.3 million (2010: € 0.4 million) is accounted for by the negative fair value of

an interest rate derivative. This is offset by increases in the value of investments due to development of

interest rates. In conformity with accounting standards, this negative effect (2010: positive), is recognised in

equity (revaluation reserve).

Included in the result on investments is a loss of € 4.8 million due to the drop in the price of securities on which

an impairment loss was recognised in 2008. In 2010 the result from these securities was a gain of € 1.6 million.

5. Other income

This item includes non-recurring income indirectly generated by operations which cannot be classed under any

other heading. This item includes the buyout of an existing client contract for € 8.4 million.

6. Staff costs

Other staff costs includes the cost of temporary staff (2011: € 5.4 million; 2010: € 7.1 million) and expenses

arising from secondary terms of employment (2011: € 2.8 million; 2010: € 2.9 million).

Pension costs

The expenses regarding the defined benefit plan are € 1.1 million (2010: € 2.6 million). The expenses regarding

the defined contribution plan for members of the Managing Board are € 0.3 million (2010: € 0.3 million). The

pension costs also include employee benefits amounting to € 1.0 million (2010: € 1.0 million) with regard to the

life-course savings scheme.

The pension costs for staff in the United Kingdom and Germany totalled € 0.1 million (2010: € 0.2 million).

7. Other administrative expenses


Salaries 43,434 42,902

Share-based payments 820 636

Pension costs 2,509 3,869

Other social security charges 5,443 5,379

Other staff costs 10,423 11,764

Total 62,629 64,550

Number of employees 2011 2010 2011 2010

Average (including temporary staff)

Netherlands 769 798 694 703

United Kingdom 21 23 21 22

Germany 34 30 33 29

Total 824 851 748 754

Year-end (including temporary staff)

Netherlands 794 767 711 681

United Kingdom 20 23 19 22

Germany 37 31 35 31

Total 851 821 765 734

Number of employees Full-time equivalents


Premises costs 3,634 2,435

ICT costs 14,032 14,085

General overheads 10,444 8,425

Total 28,110 24,945



60

8. Depreciation/amortisation

9. Impairment losses

In 2011 for a number of outstanding loans and advances, the estimate of future recovery increased. KAS BANK

regularly assesses the fair values applied for the financial instruments included in the investment portfolio in

the light of the situation on the international financial markets.

Banks and loans and advances

KAS BANK extends credit in the form of both cash and securities (securities lending) against the collateral of

securities. Chiefly as a consequence of the financial crisis, some clients have become insolvent while others are

expected to be unable to settle their obligations vis-à-vis KAS BANK fully. The value of the furnished collateral

also depends on share prices. The KAS BANK Managing Board periodically makes estimates of the

creditworthiness of clients and of any indications justifying the recognition of impairment losses or the reversal

of previous impairments. Based on these estimates, the bank reversed several previously recognised

impairments, leading to a net reversal of impairment losses totalling € 1.0 million in 2011 (2010: € 2.6 million).


The portfolio of available-for-sale investments is largely made up of shares and bonds. KAS BANK regularly

assesses whether the instruments included in this portfolio have undergone an impairment, on the basis of

objective evidence. In 2011 this resulted in a reversal of an impairment of € 1.0 million (2010: nil) recognised

in previous years.

Intangible assets

KAS BANK regularly assesses the value of the goodwill and other intangible assets recognised. This test is

explained under 23. 'Intangible assets'. As the result of the buyout of a client contract, KAS BANK wrote off an

amount of € 4.1 million (2010: nil) on part of the goodwill recognised and the capitalised client file.

10. Taxes

This item relates to the tax burden for the year on the profit for the year shown by the income statement. The

calculation of the tax expense takes account of existing tax facilities, including tax-exempt profit components

and non-deductible items. The effective tax rate amounts to 32.1% (2010:17.1%). The standard tax rate was

25.0% (2010:25.5%).


Land and buildings in use by the company 642 722

Other property and equipment 2,534 2,811

Intangible assets 4,040 4,463

Total 7,216 7,996


Banks and loans and advances -992 -2,630

Available-for-sale investments -1,021 -

Immaterial assets 4,077 -

Total 2,064 -2,630



61

11. Earnings per share

The calculation of the basic and diluted earnings per share at year-end 2011 is based on the result attributable

to holders of ordinary shares, amounting to € 10.2 million profit (2010: € 18.5 million profit).


Tax expense:

Current tax charge for the year 1,920 2,948

Change in estimates - -1,121

Non-deductible items 948 -

Adjustments for prior year 65 -677

2,933 1,150

Deferred tax:

Temporary differences and reversals 1,967 2,650

Total 4,900 3,800

Reconciliation with effective tax rate 2011 % 2010 %


Tax at standard tax rate 3,812 25.0 5,679 25.5

Change in estimates - - -1,121 -5.0

Differences in rates -80 -0.5 -295 -1.3

Non-deductible costs relating to staff options 212 1.4 162 0.7

Other non-deductible items -57 -0.4 52 0.2

Tax liability for the year 3,887 25.5 4,477 20.1

Non-deductible items 948 6.2 - -

Adjustments due to prior-year assessments 65 0.4 -677 -3.0

Tax liability at effective tax rate 4,900 32.1 3,800 17.1

(in thousands of euros, except where otherwise stated)

Number in thousands 2011 2010

Result for the period attributable to equity holders of the bank 10,230 18,455

Issued share capital 15,699 15,699

Own shares held by the company -1,120 -1,122

Weighted average number of ordinary shares 14,579 14,577

Effect of share options and conditionally awarded shares 92 110

Weighted average number of ordinary shares (diluted) 14,671 14,687

Basic earnings per share (in euros) 0.70 1.27

Diluted earnings per share (in euros) 0.70 1.26


Notes to the consolidated balance sheet

62

ASSETS

12. Cash and deposits at the central bank

This item includes all amounts in legal tender and demand deposits with the central bank.

13. Banks

This item comprises all receivables from credit institutions under official banking industry supervision and from

central banks, other than funds included in cash and deposits at the central bank or investments at fair value

through profit or loss and available-for-sale investments.

14. Loans and advances

Included in this item are all amounts receivable, including receivables covered by securities, other than

receivables from credit institutions and items in the form of bonds and other fixed-income securities. Lending

mainly concerns loans and advances to professional clients in the Netherlands and the United Kingdom.

Included in loans and advances are receivables totalling € 34.0 million (2010: € 32.4 million) in respect of

which a provision for doubtful debts has been recognised amounting to € 26.5 million (2010: € 27.3 million).

The change of the provision for doubtful debts is presented in the income statement in impairment losses.

15. Reverse repurchase agreements

Utilisation of deposited securities collateral due to reverse repurchase agreements amounted € 247.8 million

(2010: € 192.4 million). All reverse repurchase agreements are current.

16. Derivative financial instruments

Derivatives are used for trading and to hedge balance sheet positions.

The open positions on the balance sheet date are presented in the table below, which shows the contract totals

and corresponding fair values of the underlying assets and liabilities.

In thousands of euros 31/12/2011 31/12/2010

Due on demand from other credit institutions 449,325 2,221,608

Not due on demand from other credit institutions - current (< = 1 year) 68,303 40,979

Total 517,628 2,262,587


Advances 1,428,410 759,422

Mortgage loans 6,811 7,142

Total 1,435,221 766,564

Due on demand 1,281,657 656,736

Non-demand deposits- current (< = 1 year) 141,753 102,611

Non-demand deposits- non-current ( > 1 year) 11,811 7,217

Total 1,435,221 766,564


Assets 154,187 100,898

Liabilities -212,484 -124,998

Total -58,297 -24,100

Of which current (< = 1 year) 9,870 -6,577

Of which non-current (> 1 year) -68,167 -17,523



63

Note 46 contains details of the way in which the fair value is measured.

17. Investments at fair value through profit or loss

The carrying amounts of the assets and liabilities recognised at fair value through profit or loss are presented in

the table below.

As at 31 December 2011


Face value of

contracts with

positive fair

value

Face value of

contracts with

negative fair

value

Fair value

assets

Fair value

liabilities

Derivatives for risk management purposes

to which hedge accounting is not applied

Foreign exchange contracts

- Forward contracts 329,486 99,851 14,669 3,980

- Swaps 3,684,994 3,456,233 97,607 95,928

Total foreign exchange contracts 4,014,480 3,556,084 112,276 99,908

Interest contracts

- Swaps 72,000 664,161 8,327 29,950

- Swaptions 210,000 210,000 33,108 33,199

Total interest rate contracts 282,000 874,161 41,435 63,149

Credit contracts

Credit Default Swaps - 50,000 - 56

Share contracts

Options - - - -

Derivatives to which hedge accounting is

applied

Interest contracts 47,000 638,000 476 49,371

Total 4,343,480 5,118,245 154,187 212,484

As at 31 December 2010


Face value of

contracts with

positive fair

value

Face value of

contracts with

negative fair

value

Fair value

assets

Fair value

liabilities

Derivatives for risk management purposes

to which hedge accounting is not applied


- Forward contracts 458,902 361,823 12,060 3,525

- Swaps 2,952,508 3,015,433 54,868 65,109

Total foreign exchange contracts 3,411,410 3,377,256 66,928 68,634

Interest contracts

- Swaps 92,000 536,129 12,789 22,325

- Swaptions 540,000 540,000 20,529 20,855

Total interest rate contracts 632,000 1,076,129 33,318 43,180

Credit contracts

Credit Default Swaps - 50,000 - 295

Share contracts

Options - - - -

Derivatives to which hedge accounting is

applied

Interest contracts 33,000 245,500 652 12,889

Total 4,076,410 4,748,885 100,898 124,998


Assets 181,871 176,328

Liabilities - -17,044

Total 181,871 159,284



64

Movements in the investments at fair value through profit or loss were as follows:

1 Excluding derivative financial instruments


18. Available-for-sale investments

This item includes bonds issued by public authorities and others at fixed or floating interest, other fixed-income

securities and shares. The unlisted shares relate mainly to strategic interests in securities and clearing

organisations for which no reliable financial information is available that can be used to calculate the fair value

at year-end.

In 2011 an impairment loss on an interest-bearing instrument recognised in previous years was revised (€ 1.0

million). In 2010, no impairment losses were recognised on shares and interest-bearing securities in the

available-for-sale investment portfolio. See note 9 for a further explanation of these impairments.

Movements in available-for-sale investments were as follows:

2011


Investments

held for

trading

Investments

classified as

assets

measured at

fair value

through profit

or loss Total

Carrying amount as at 1 January -8,113 167,397 159,284

Purchases -8,501 7,030 -1,471

Sales 16,416 16,416

Movements in fair value1 198 7,444 7,642

Carrying amount as at 31 December - 181,871 181,871

Of which current (< = 1 year) - 51,455 51,455

Of which non-current (> 1 year) - 130,416 130,416

2010


Investments

held for

trading

Investments

classified as

assets

measured at

fair value

through profit

or loss Total

Carrying amount as at 1 January - 154,630 154,630

Purchases 8,460 35,311 43,771

Sales -15,809 -25,020 -40,829

Movements in fair value1 -764 2,476 1,712

Carrying amount as at 31 December -8,113 167,397 159,284

Of which current (< = 1 year) - - -

Of which non-current (> 1 year) -8,113 167,397 159,284


Securities lodged as collateral were employed as follows: 878,412 503,310

2011


Money

markets

instruments Bonds Shares Total

Carrying amount as at 1 January 483,678 828,977 14,256 1,326,911

Purchases - 726,302 - 726,302

Sales -483,678 -91,552 -9,798 -585,028

Movements in fair value - -6,712 1,099 -5,613

Redemptions - -295,305 - -295,305

Impairment losses - 1,021 - 1,021

Carrying amount as at 31 December - 1,162,731 5,557 1,168,288

Of which current (< = 1 year) - 226,569 - 226,569

Of which non-current (> 1 year) - 936,162 - 936,162

No current - - 5,557 5,557



65


19. Current tax assets and liabilities

20. Other assets

These are assets which cannot be classed with any of the other balance sheet items, including amounts

outgoing for account of clients which have not yet been processed.

21. Prepayments and accrued income

This balance sheet item includes prepaid expenses which relate to a subsequent period or periods, sums not yet

invoiced and not yet received, and accrued interest.

22. Property and equipment

KAS BANK had a valuation performed by an independent external appraiser in 2011. The value determined by

this appraiser is designated as fair value and was arrived at on the assumption that the company buildings

would continue to be used. The value concept of 'continuing use of the company buildings' is the amount that

the buildings could reasonably command in a private sale to a third party, whereby the aim would be to

continue the activity established in the buildings in the same or a similar way.

The remaining useful life of the buildings remained unchanged for the determination of the fair value and was

25 years at the end of 2011. Installations not integral to the buildings have been disregarded for the purposes

of valuation. The value of the land has been based on the gross floor area related to the area of the site,

applying market prices per square metre.

As a result of the recent valuation, the fair value of the company buildings was written down by € 3.2 million.

The effective date of this depreciation is the end of 2011, whereby the depreciation for the current reporting

year and the accumulated depreciation have also been revised. The depreciation is recognised in the

revaluation reserve as at 31 December 2011.

2010


Money

markets

instruments Bonds Shares Total

Carrying amount as at 1 January 240,000 1,021,572 27,698 1,289,270

Purchases 13,434,487 -904,781 402 12,530,108

Sales -13,192,394 1,051,512 -13,904 -12,154,786

Movements in fair value 1,585 -7,584 60 -5,939

Redemptions - -331,742 - -331,742

Impairment losses - - - -

Carrying amount as at 31 December 483,678 828,977 14,256 1,326,911

Of which current (< = 1 year) 483,678 267,062 - 750,740

Of which non-current (> 1 year) - 561,915 - 561,915

No current - - 14,256 14,256


Current tax assets 7,996 31,068

Current tax liabilities -603 -5,748

Net tax liabilities/assets 7,393 25,320

Carrying amount as at 1 January 25,320 24,239

Settled with tax authority -21,835 2,715

Tax payable for year -1,920 -1,150

Changes in deferred tax liabilities relating to revaluation reserve 6,024 -332

Dividend tax assets in respect of prior years 52 85

Other -248 -91

Carrying amount as at 31 December 7,393 25,466



66

The carrying amount of the buildings and land, calculated using the cost method, is € 15.8 million (2010:

€ 16.3 million).

23. Intangible assets

This item includes the costs of software developed in-house and software purchased from third parties, goodwill

paid in connection with acquisitions and the value of acquired customer bases and licences (other intangible

assets). Movements in this balance sheet item were as follows:


Land and buildings in use by the company

Carrying amount as at 1 January 2011 35,003 35,725

Amortisation for year -642 -722

Fair value adjustment on revaluation -3,151 -

Carrying amount as at 31 January 2011 31,210 35,003

Gross book value at 31 December 59,161 59,161

Accumulated amortisation -20,582 -18,467

Accumulated adjustment on revaluation -7,369 -5,691

Carrying amount as at 31 December 2011 31,210 35,003

In thousands of euros Hardware Furniture

Technical

installations Total 2011

Other property and equipment

Carrying amount as at 1 January 2011 877 384 5,378 6,639

Investments 1,611 303 174 2,088

Amortisation for year -698 -211 -1,625 -2,534

Cost 4,849 1,275 15,030 21,154

Accumulated amortisation -3,059 -800 -11,103 -14,962

Carrying amount as at 31 December 1,790 475 3,927 6,192

Total property and equipment 37,402

In thousands of euros Hardware Furniture

Technical

installations Total 2010

Other property and equipment

Carrying amount as at 1 January 2011 861 525 6,951 8,337

Investments 838 79 196 1,113

Amortisation for year -822 -220 -1,769 -2,811

Cost 3,628 1,038 16,863 21,529

Accumulated amortisation -2,751 -654 -11,485 -14,890

Carrying amount as at 31 December 877 384 5,378 6,639

Total property and equipment 41,642

In thousands of euros Goodwill

Purchased

software

In-house

software

Other

intangible

assets Total 2011

Carrying amount as at 1 January 5,787 2,549 4,105 6,243 18,684

Investments - 1,361 729 - 2,090

Amortisation for year - -1,687 -1,383 -970 -4,040

Impairment -3,037 - - -1,040 -4,077

Cost 11,021 10,189 8,610 8,069 37,889

Accumulated amortisation - -7,966 -5,159 -2,794 -15,919

Accumulated impairments -8,271 - - -1,040 -9,311

Carrying amount as at 31 December 2,750 2,223 3,451 4,235 12,659



67

The goodwill and other intangible assets accounted for in the above table relate to KAS Investment Servicing

GmbH and Deutsche Postbank Privat Investment Kapitalanlagegesellschaft mbH (merged to create a cash-

generating unit). At the end of 2011, the recoverable amount of this cash-generating unit was measured on

against the carrying amount ('impairment test'). This test resulted in an impairment of the goodwill by € 3

million. The most important assumptions of the test are shown below. In addition to the impairment of the

goodwill, KAS BANK wrote down € 1 million on the capitalised client base at the end of 2011. This client base is

included in the other intangible assets.

The most important assumptions in determining the recoverable amount of the cash-generating unit are:

The recoverable amount is based on a long-term prognosis (2012-2017) for the cash-generating unit

approved by the Managing Board and the management. This prognosis is based on continued use of the

cash-generating unit.

The prognosis initially assumes a decline in the net results, followed by a sharp rise.

In calculating the net present value of the expected cash flows, a discount rate of 12% (after tax) is used,

in line with previous years.

Reasonable alternative assumptions would have the following impact on the value in use (ceteris paribus):

A decrease in the growth rate of the net result by 10% would produce a value in use € 0.8 million lower;

An increase of 1% in the discount rate would produce a value in use € 0.4 million lower.

24. Deferred tax assets and liabilities

Deferred tax assets are recognised in the balance sheet if it is probable that they will be set off against future

profits.

In thousands of euros Goodwill

Purchased

software

In-house

software

Other

intangible

assets Total 2011

Carrying amount as at 1 January 5,787 3,181 4,730 7,304 21,002

Investments - 1,332 813 - 2,145

Amortisation for year - -1,964 -1,438 -1,061 -4,463

Cost 11,021 14,211 8,204 8,068 41,504

Accumulated amortisation - -11,662 -4,099 -1,825 -17,586

Accumulated impairments -5,234 - - - -5,234

Carrying amount as at 31 December 5,787 2,549 4,105 6,243 18,684


Deferred tax assets 1,740 3,079

Deferred tax liabilities -9,430 -9,896

Net -7,690 -6,817



68

Movements in deferred tax assets and liabilities:

1 The tax loss carryforwards do not expire.

In thousands of euros 01/01/2011

Changes

recognised

in income

Changes

recognised in

equity 31/12/2011

Pension obligation -447 -1,421 -1,345 -3,213

Available-for-sale investments -1,807 - 1,626 -181

- Other property and equipment 1,638 -197 - 1,441

- Buidlings in use by the company -4,679 - 818 -3,861

- In-house software -1,026 163 - -863

- Intangible assets -1,950 627 - -1,323

Tax loss carryforwards1 1,383 -1,074 - 309

Other 71 -65 -5 1

Total -6,817 -1,967 1,094 -7,690

Differences between reporting and tax

In thousands of euros 01/01/2010

Changes

recognised

in income

Changes

recognised in

equity 31/12/2010

Pension obligation 662 -3,183 2,074 -447

Available-for-sale investments -4,639 - 2,832 -1,807

- Other property and equipment 1,815 -177 - 1,638

- Buidlings in use by the company -4,863 - 184 -4,679

- In-house software -1,124 98 - -1,026

- Intangible assets -2,281 331 - -1,950

Tax loss carryforwards 1,102 281 - 1,383

Other 71 - - 71

Total -9,257 -2,650 5,090 -6,817

Differences between reporting and tax



69

EQUITY AND LIABILITIES

25. Banks

This item comprises non-subordinated liabilities to credit institutions other than amounts in the form of debt

securities.

26. Funds entrusted

This item comprises all non-subordinated liabilities other than amounts owed to credit institutions and amounts

in the form of debt securities.

27. Other liabilities

These are liabilities which cannot be classed with any of the other balance sheet items, including amounts

received for account of clients which have not yet been processed.

Other liabilities include KAS BANK cumulative preference shares. Of the 12,500,000 preference shares of € 1.00

nominal value, 25 have been issued and are registered in the name of Stichting Preferente Aandelen

KAS BANK. A right has been granted to Stichting Preferente Aandelen KAS BANK to subscribe for cumulative

preference shares in the capital of the company up to a nominal amount corresponding to 50% of the nominal

value of the capital in the form of ordinary shares in issue at the time of subscription for those shares.

28. Accruals and deferred income

This item includes amounts received in advance in respect of income attributable to a subsequent period or

periods and payables such as accrued interest.

29. Provisions

In 2011 this balance sheet item remained nil.

30. Employee benefits

The item concerns the liabilities or assets relating to the pension, long-service bonus and disability benefit

schemes.


Due on demand by other credit institutions 332,081 1,970,839

Not due on demand by other credit institutions - current (< = 1 year) 125,785 85,916

Total 457,866 2,056,755


Savings 419,668 349,854

Time deposits 301,547 372,641

Other funds entrusted 3,755,396 2,856,408

Total 4,476,611 3,578,903

Demand deposits 3,755,396 2,856,408

721,215 722,495

Totaal 4,476,611 3,578,903

Non-demand deposits- current ( 1 < = year)


Pensions 12,857 1,784

Other long-term employee benefits -887 -1,096

Totaal 11,970 688



70

Pensions

For members of the Managing Board and for the staff in Germany, KAS BANK has a defined contribution plan.

For the remaining employees, there is a defined benefit plan.

The Dutch defined benefit plan, under which the pensionable age is 65, is a part final-pay and part average-pay

plan. The final-pay plan applies up to an income of € 47,000 per annum, with the average-pay plan applying

above that amount. The accrual rates are 1.8% and 2%, respectively. Contributions are paid by the employee

as long as the contribution rate is 10% or below. If it exceeds this percentage, half of the excess is paid by the

company and half by employee, up to a maximum of 5%. If the contribution rate exceeds 20%, all of the

excess over 20% is paid by the company. A maximum of 5% applies for the personal contribution system.

The UK pension plan, under which the pensionable age is 60, is predominantly a defined benefit plan. If the

contributions under the plan do not reach a minimum level, they are supplemented by the company.

The measurement is based on the actuarial calculations performed by the actuary as at 31 December 2011. The

actuarial gains and losses are largely accounted for by changes in the discount rate, mortality table

adjustments, adjustments based on experience as a result of changes in the membership of the plan, the

positive return on the plan assets, and increased probability of indexation of the rights of those members with

deferred pensions and already in receipt of pensions as expected by the bank’s management.

Recovery in reserves of Stichting Pensioenfonds van de KAS BANK

In order to strengthen the pension fund's equity as at year-end 2010, KAS BANK paid a recovery premium to

the bank's pension fund in 2010 (€ 3.8 million), giving the pension fund a funding ratio of 103% as at the end

of 2010. As at year-end 2011, the provisionally calculated funding ratio of the pension fund was 98.9%, i.e.

below the year-end 2010 level. The main reason for this was the fall in interest rates.

In the pension administration agreement covering the period 2010 and 2011, it was agreed that, in a situation

in which the pension fund’s assets were less than the minimum required level of funding, the bank would make

a supplementary contribution to the pension fund for the purposes of recovery amounting to the higher of the

cost of administering the scheme plus 20% of the relevant payroll and the amount of the cost-covering

contributions plus € 0.6 million, subject to a limit equal to the difference between the minimum required capital

and the actual plan assets.

The employee benefit asset/liability can be analysed as follows (see next page):



71

Actuarial gains and losses are accounted for in equity. In 2011, € 5.4 million was credited to equity (2010:

€ 7.9 million charged).

The return on plan assets in 2011 amounted to € 16.9 million positive (2010: € 16.8 million positive). The

expected return on plan assets is calculated by expressing the nominal interest on the bonds in the portfolio as

a percentage of the market value of the portfolio (including accrued interest). To reflect the higher risk, the

return on shares is assumed to be 4 percentage points higher than the bond return. The expected return is then

weighted to reflect the ratio of shares to bonds.


Present value of benefit obligation 174,778 166,405

Fair value of plan assets -187,635 -168,189

Total assets/liabilities -12,857 -1,784

Balance as at 1 January 166,405 143,119

Current service cost 2,930 2,938

Interest cost on obligation 8,562 8,095

Benefits paid and disbursement costs -5,065 -5,190

Employee contributions 1,301 1,224

Actuarial gains and losses 645 16,219

Balance of benefit obligation as at 31 December 174,778 166,405

Movements in the fair value of plan assets were as follows:


Expected return on plan assets 10,868 8,482

Employer contributions 6,781 14,868

Employee contributions 1,301 1,224

Benefits paid and disbursement costs -5,530 -5,190

Actuarial gains and losses 6,026 8,281

Balance plan assets as at 31 December 187,635 168,189

Pension costs comprise:

Current service cost 3,403 2,938

Interest cost on obligation 8,562 8,095

Expected resturn on plan assets -10,868 -8,482

Net benefit expense 1,097 2,551

Movements in the present value of the benefit obligation were as follows:


The plan assets comprise:

Shares 46,603 25% 51,525 31%

Bonds 119,899 64% 110,284 66%

Derivatives 15,054 8% 1,075 1%

Cash 6,079 3% 5,305 3%

Total 187,635 100% 168,189 100%



72

1 Promotion increases were also taken into account here. The contributions to the defined benefit plan, including employee contributions, expected to be made in 2012

amount to € 10.1 million (the expected level of contributions in 2011 was € 7.6 million; the actual level of

contributions in 2011 was € 7.6 million (2010: € 16.1 million).

Other long-term employee benefits

Other long-term employee benefits represent the liabilities in respect of long-service bonuses and disability

benefits. The applied assumptions are in line with the parameters used in determining the pension obligations.

31. Share capital

The authorised capital is € 25 million.

Of the shares in issue, 15,616,019 (2010: 15,616,019) are registered in the name of Stichting Administratie-

kantoor Aandelen KAS BANK, which has issued bearer depositary receipts for them, likewise in denominations

of € 1.00. Most of the remaining 82,998 (2010: 82,998) ordinary shares are held by Admitted Institutions of

NYSE Euronext Amsterdam N.V.

Capital management

KAS BANK’s policy is aimed at maintaining a strong capital base in order to meet the bank’s existing and future

capital requirements and to satisfy the external capital adequacy standards at all times. The Managing Board

monitors capital adequacy on the basis of the BIS capital ratio, which is calculated by comparing the risk-

weighted assets and off-balance-sheet items with actual own funds. Own funds comprise core capital (Tier 1

capital) plus supplementary capital (Tier 2 capital). The ratio is reported to the Managing Board and the

Historical information

In thousands of euros 2011 2010 2009 2008 2007

The principal actuarial assumptions employed are:

Discount rate 5.00% 5.10% 5.60% 5.60% 5.30%

Return on plan assets 6.08% 6.30% 5.95% 6.07% 5.50%

Pay increases1 2.10% 1.90% 2.00% 1.00% 2.00%

Pension liability

Present value of benefit obligation 174,778 166,405 143,119 129,040 146,129

Fair value of plan assets -187,635 -168,189 -140,524 -127,145 -140,349

Surplus/deficit -12,857 -1,784 2,595 1,895 5,780

Experience adjustments

Pension obligation

Adjustment of career table - 1,477 784 3,161 -5,081

Adjustment of assumption regarding -359 143 - - -

Increases for non-active members -1,094 -1,959 -2,429 11,071 -

Adjustment of life table -1,868 -4,462 -4,344 - -

Adjustment of discount rate -2,949 -12,004 - 5,409 21,619

Adjustment of price inflation rate -938 -167 - - -

Adjustment of incapacity rates - -701 - - -

Adjustment of turnover table -1,317 583 22 3,587 -

Changes in plan membership 7,880 871 -2,096 1,443 2,175

Actuarial gains/losses on benefit obligation -645 -16,219 -8,063 24,671 18,713

Plan assets

Actual return on plan assets 16,894 16,763 12,135 -16,558 2,615

Expected return on plan assets 10,868 8,482 7,944 7,796 7,524

Actuarial gains/losses on plan assets 6,026 8,281 4,191 -24,354 -4,909

Actuarial gains/losses recognised directly in equity 5,381 -7,938 -3,872 317 13,804

Ordinary shares of € 1.00 nominal value number 2011 number 2010

Shares 25,000,000 25,000,000

Shares in portfolio 9,300,983 9,300,983

Issued share capital 15,699,017 15,699,017



73

Nederlandsche Bank N.V., as regulator, each month. KAS BANK’s internal standard is a minimum figure of

13.5% (2010: 12.5%). The significant role KAS BANK fulfils as system bank in the settlement of securities

transactions in combination with the turbulent conditions on the financial markets prompted KAS BANK to

increase this minimum figure with respect to 2010. The BIS capital ratio to be maintained by law is at least 8%.

In addition, the amount of actual own funds is tested on a regular basis against a model specifically tailored to

KAS BANK’s risk profile.

The capital composition bandwidths are set out in the Balance Sheet Management Guidelines and approved by

both the Managing Board and the Supervisory Board. Movements in both the capital and the risk weighted

balance sheet and off-balance-sheet items are addressed on a monthly basis by the Asset & Liability

Committee. If needed, changes in the required minimum capital are reported more frequently either generally

or for specific asset classes. Management of the required minimum capital mainly involves changes in the

Treasury investment policy, changes in collateral requirements and decisions concerning acceptance policy with

regard to different categories of client and credit product. The existing amount of equity/actual own funds and

any action on this front that is required are reviewed on a quarterly basis by the Asset & Liability Committee.

At the same time, constant attention is given to balancing the benefits of a strong capital base with the higher

yield potential inherent in a narrower capital base. The Managing Board aims to achieve an average return on

equity of 5–8 percentage points above the 10-year government bond yield. The average return on equity in

2011 was 5.8% (2010: 10.0%). In assessing the profitability of the various KAS BANK activities, the return on

risk-allocated capital plays an important part.

32. Treasury shares

Each year, KAS BANK awards conditional shares and options to the members of the Managing Board and to

other staff and awards conditional shares to the members of the Managing Board. From 2011 onwards,

however, options are no longer granted to the Managing Board as part of the remuneration package. Further

details of this share and stock option plan are contained in the note on share-based payments. As at 31

December 2011, there were 1,176,383 (2010: 1,280,700) options outstanding in the hands of existing and

former members of the Managing Board and other staff, of which 580,336 (2010: 861,673) were conditional. In

addition, as at

31 December 2011, there were 64,743 (2010: 37,853) conditional shares outstanding in the hands of existing

and former members of the Managing Board.

It is KAS BANK’s policy to cover the obligations arising from the grant of these options by repurchasing shares.

In this connection, shares were purchased at an average price of € 22.61 (2010: € 22.61) (FIFO method). The

nominal value of the repurchased shares totalled € 1,120,127 (2010: € 1,120,127).

Movements in the numbers of shares repurchased to cover the options granted and shortly to be granted,

together with the associated average purchase prices, were as follows:

Capital ratios 2011 2010

Tier 1, based on Basel II as at year-end 24% 20%

BIS ratio based on Basel II as at year-end 26% 23%

BIS ratio based on Basel II average for the year 23% 21%

Number 2011 Number 2010

Opening balance at 1 January at € 22,61 (2010 € 22,58) 1,120,127 1,125,579

Awarded as share-based payments - 5.452

Closing balance at 31 December at € 22,61 (2010 € 22,58) 1,120,127 1,120,127



74

33. Share premium

Of the share premium, € 19.6 million (2010: € 19.6 million) may be distributed free of tax. The share premium

reserve is formed by payments from shareholders in excess of the nominal value of shares.

34. Revaluation reserve

Revaluation reserve for land and buildings in use by the company

This reserve comprises the accumulated net changes in the fair value of properties owned by KAS BANK.

Revaluation reserve for available-for-sale investments

This reserve comprises the accumulated net changes in the fair values of available-for-sale investments.

As at 31 December 2011, the revaluation reserve for available-for-sale investments does not include any

exchange differences on shares. As at 31 December 2010, the revaluation reserve included an amount of € 0.9

million negative in respect of exchange differences on shares in the investment portfolio.

35. Other reserves

36. Unappropriated result


The revaluation reserve is analysed as follows:

Revaluation reserve for land and buildings in use by the company 11,575 14,038

Revaluation reserve for available-for-sale investments -16,907 4,143

Balance as at 31 December -5,332 18,181


Movements in this item were as follows:


Revaluation of land and buildings in use by the company -3,151 -

Transferred to other reserves -101 -264

Transferred from deferred tax liabilities 789 92

Transferred to current tax assets - -92

Change in corporation tax rate - 92

Balance as at 31 December 11,575 14,038




Revaluation reserve for available-for-sale investments -22,044 1,737

-6,656 -13,664

Transfer to deferred tax assets and liabilities 1,626 2,832

Transfer to current tax assets 6,024 -240

Balance as at 31 December -16,907 4,143

Gains and losses on available-for-sale investments




Profit appropriation for previous year 7,812 14,274

Share-based payments awards - -93

Share-based payments 821 636

Actuarial gains and losses on pensions 5,381 -7,938

Adjustment of deferred tax liabilities -1,345 2,024

Tranferred from revaluation reserve 101 264

Other movements -14 23




Interim dividend -4,811 -4,811




75

Based on the results achieved in the first half of 2011, an interim dividend of € 4.8 million, equating to € 0.33

per ordinary share (2010: € 0.33) was declared. The General Meeting of Shareholders will be invited to declare

a final dividend for 2011 of € 0.17 per ordinary share. If this resolution is passed, the total remaining amount

of the final dividend will be € 2.5 million.


Notes on off-balance-sheet commitments and contingent liabilities

76

37. Contingent liabilities

Guarantees

This includes all transactions in which the bank has guaranteed the liabilities of third parties. Guarantees have

been given on behalf of clients in relation to the bank’s direct connections to a foreign stock exchange.

In addition to the guarantees disclosed below the balance sheet, there are non-quantified guarantees vis-à-vis

a number of clearing organisations.

Funds entrusted to KAS BANK are funds which fall under the Nederlandsche Bank’s deposit guarantee system.

38. Irrevocable facilities

Irrevocable facilities mainly comprise credit lines which have been irrevocably agreed for corporate clients but

not yet drawn upon. In the case of the majority of the irrevocable credit lines, some form of collateral security

or counter-guarantee has been provided.

39. Operational lease commitments and long-term rental and maintenance contracts

The operating lease commitments and long-term rental and maintenance contracts mainly relate to computer

hardware, software, cars and office premises. Expenses totalling € 7.8 million (2010: € 8.1 million) relating to

these contracts have been included in the income statement under the heading of Other administrative

expenses.


Up to one year 5,353 4,351

Between one and five years 8,709 6,565

After more than five years 39 150

Total 14,101 11,066

The operating lease commitments and long-term rental and maintenance

contracts fall due as follows:


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40. Risk management

Most significant risk-related developments in 2011

2011 was marked by persistent attention to risk management and the management of market stress as the

result of national and international developments. The other main points addressed in 2011 were:

The Internal Capital Adequacy Assessment Process (ICAAP) was carried out once again in 2011 and several

aspects of this process were expanded with respect to 2010, such as the further elaboration of

concentration and accumulation risk.

Several stress scenarios in which the effects of specific and generic scenarios were tested on KAS BANK as

an entire organisation were practised in the year under review. The test results were evaluated and

translated into actions and manuals in order to ensure that the bank is able to respond optimally in the

event of actual stress scenarios.

The management of credit risks was further automated and optimised.

Further qualitative and quantitative improvement of the Risk Management team.

The remuneration policy and the Individual Performance Contracts of employees were checked for

consistency with the low risk appetite of KAS BANK, as was the new remuneration proposal for the

Managing Board.

An Internal Liquidity Adequacy Assessment Process (ILAAP) focused on KAS BANK's liquidity risk was

carried out during the year under review.

As a follow-up to earlier years, a large number of Risk Culture Self-Assessments were conducted within the

organisation, which have led to various improvements.

The operational risk policy was further fleshed out with an update of, among other things, the outsourcing

policy.

Constant monitoring of the developments for the infrastructure of which the organisation is an important

part and an estimation of the risks for KAS BANK and its business relations as a result of the infrastructure

and the developments therein.

The Commission in Control (CiC) was set up to coordinate all efforts for being 'In Control' at KAS BANK.

It was also formally confirmed, as in previous years, by the Managing Board and affirmed by the Supervisory

Board that KAS BANK has a low risk appetite. Further steps were also taken to translate this attitude into the

management frameworks for the various classes of risk distinguished by KAS BANK. In other words, further

answers to the question of what it means to be low risk were formulated for credit policy, operational policy,

remuneration structure, collateral policy, legal risks, investment policy, market risk, etc.

The Risk Management department is an integral part of the organisation, as expressed in its active involvement

as adviser on new developments and its role as monitor for current situations. The organisation of the Risk

Management department reflects the main categories of risk to which KAS BANK is exposed. The department

has dedicated risk managers for each category of risk. Policy frameworks have also been determined for

managing credit risk, market risk and operational risk. The limits are set by the bank's Risk Management

Committee. KAS BANK makes use of an internal network of risk coordinators with links to more than fifty

processes into which the bank’s activities can be divided as part of the operational risk management effort.

KAS BANK’s risk management framework

Risk appetite

KAS BANK has a low risk appetite. This was again explicitly reaffirmed by the Managing Board in 2011 and

endorsed by the Supervisory Board. The low risk appetite is monitored and managed in three complementary

ways:


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78

disciplined management of the business mix;

systematic risk management;

capital and liquidity management.

With regard to the variables used to guide management decisions, there is careful scrutiny to ensure that the

key performance indicators used are reconcilable with a low risk profile. The remuneration policy was reviewed

by the Risk Management department to identify risk-increasing elements.

Structure

KAS BANK’s risk management framework is structured around three lines of defence which are designed to

ensure that risks are managed within the framework of risk objectives defined by the Managing Board. The

allocation of responsibility for risk management is structured accordingly, with the Managing Board bearing

ultimate responsibility for the organisation and oversight of the risk management framework.

The operational and commercial departments, together with senior management, are the first line of defence.

These departments have primary responsibility for managing day-to-day risks in their operating processes.

The main parties in the second line of defence are the Risk Management, Compliance, Legal and Finance

departments and various committees. The risk management function has special responsibility for risk analysis,

policy preparation and coordination of efforts to control the bank’s risks, as well as responsibility for monitoring

risk, with a remit that generally extends across the entire bank. It is the responsibility of the Chief Risk Officer

to formulate risk policy with regard to the objectives set by the Managing Board. This policy is used as the basis

for setting a series of limits and guidelines on managing market, liquidity, credit, operational, and compliance

risks throughout the bank. The Chief Risk Officer reports directly to the Managing Board.

The third line of defence comprises the Internal Audit department, which conducts operational, IT, compliance

and financial audits as a means of independently and objectively assessing the effectiveness of internal

controls.

The bank has established various committees for risk management purposes, and these also form part of the

second line of defence. These committees operate within the mandate granted by the Managing Board, with the

latter remaining ultimately responsible for structuring and supervising the overall risk management framework.

The Risk Management Committee is responsible for developing and monitoring the bank’s risk

management policy. The committee has set procedures, guidelines and limits for market, liquidity, credit,

and operational risks. The members of the Managing Board and the Chief Risk Officer form the permanent

core of the Risk Management Committee. The members of operational divisions and staff departments

complete the Risk Management Committee on invitation. The Risk Management Committee meets every

two weeks. The main providers of information to the Risk Management Committee are the Chief Risk

Officer, the Treasury Risk Management Committee and the Internal Audit department.

The Asset & Liability Committee advises the Risk Management Committee concerning market risk policy,

ensures that agreed proposals are implemented, and approves proposals for purchases and sales of

securities in the bank’s portfolios. The Asset & Liability Management Committee comprises the members of

the Managing Board, the Head of Treasury, the Controller and the Chief Risk Officer and meets once a

month. The main provider of information is the Chief Risk Officer.

The Committee in Control monitors standards within the bank and coordinates all efforts aimed at being

'In Control'.

At a Supervisory Board level, the Audit Committee and the Risk Management Supervision Committee monitor

the Managing Board’s compliance with KAS BANK’s risk management policy and procedures. The Risk

Management Supervision Committee focuses on aspects of internal risk management and control systems


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79

within KAS BANK from a banking operations perspective. This includes credit, liquidity and market risks. The

Audit Committee focuses on aspects of internal risk management and control systems within the bank from an

accounting perspective, including operational and compliance risks.

Meetings of the Audit Committee are attended by a delegation from the Managing Board, the Controller and the

internal auditor and also generally by the external auditors. Meetings of the Risk Management Supervision

Committee are attended by a delegation from the Managing Board and the Chief Risk Officer.

Types of risks faced by KAS BANK

By virtue of its business activities and its use of financial instruments, the main risks to which KAS BANK is

exposed are as follows. In the list below, the counterparty risk and operational risk are the most important risks

to which KAS BANK is exposed:

Credit risk: the risk of financial losses if counterparty defaults on its contractual obligations.

Market risk: the risk that the fair value of a financial instrument will fluctuate as a result of changes in

market variables. In the case of KAS BANK these relate to changes in the prices of securities, the value of

foreign currencies and movements in interest rates.

Liquidity risk: the risk that the bank will be unable to meet its financial obligations on time.

Operational risk: the risk that losses will occur as a result of weaknesses or failures in internal processes

and/or systems, human frailties or outside events. These include operational risks such as IT problems,

shortcomings in the organisation structure, absence of or inadequate internal control, human error, fraud,

and external threats.

Compliance risk: the risk that KAS BANK’s reputation will be damaged by failure to comply with applicable

legislation and regulations or internal policies and procedures. If KAS BANK fails to manage its compliance

risk effectively, this could result in fines for the company or management, disciplinary measures, or, in the

worst case, suspension or cancellation of licences.

This section of the notes contains information on KAS BANK’s exposure to each of the above risks and KAS

BANK’s objectives, basic approaches and procedures for managing and measuring these risks. More detailed

quantified notes are also included.

41. Market risk

General

Market risk concerns the risk of the value of a financial instrument changing as a result of changes in market

variables. In the case of KAS BANK these relate to changes in the prices of securities, the value of foreign

currencies and movements in interest rates. Market risk arises in respect of positions held for our own account

and risk and concerns trading positions held in order to benefit from short-term movements in prices and non-

trading positions held for the longer term or until maturity.

Managing market risk

KAS BANK’s policy is designed to maintain a conservative approach to exposure to market risks such as interest

rate and currency risks. The bank’s Risk Management Committee has adopted procedures and guidelines and

set limits with regard to market risks. The Asset & Liability Committee (ALCO) and the Risk Management

Committee monitor compliance with the market risk policy and procedures. Treasury is responsible for

managing the treasury position in terms of cash and securities within the guidelines and limits established by

the Risk Management Committee.

KAS BANK uses the value-at-risk (VaR) model in combination with Stress Testing to monitor the risks in its

securities, foreign currency and derivatives positions. The VaR is defined as the maximum possible loss that is


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80

likely to occur, with a certain statistical level of confidence, in normal circumstances as a result of changing risk

factors over a predetermined time horizon. In calculating the value-at-risk, KAS BANK employs the method of

historical simulation based on weighted historical data over a period of approximately 18 months (using the

ageing method), with a confidence level of 99.0% and a time horizon of five working days. The Risk

Management Committee has set a VaR limit of € 1.5 million for the trading position.

A so-called signal VaR of € 5 million applies for the total portfolio of shares and fixed or variable-interest bonds

issued by public authorities and others. If the calculated VaR exceeds this signal value, heightened attention is

required. If the VaR rises to above € 7 million, the ALCO must take a decision on what action must be taken.

Risk Management monitors the VaR for the proprietary securities and derivatives position and submits a

monthly report of the latest figures to the Asset & Liability Committee.

The system of using the VaR to measure risk does, however, have some limitations. The VaR quantifies the

potential loss only on the assumption of normal market circumstances. In practice, however, this assumption is

not always correct, specifically in extreme conditions. This could result in the extent of potential losses being

underestimated. The VaR calculation also makes use of historical data to predict the pattern of future price

fluctuations. Future fluctuations may differ substantially from those observed in the past. On top of that, the

use of a time horizon of one week assumes that all positions in the portfolio can be liquidated within one week,

which may not hold good in periods of illiquidity or extreme events affecting the market. Using a

confidence level of 99.0% also means the VaR takes no account of losses outside this level of confidence.

In order to compensate for the limitations of the VaR method outlined above, KAS BANK complements the VaR

analysis with a Stress Test, a scenario analysis which takes into account extremely unfavourable market

conditions (like a market crash, natural disaster or terrorist attack). These crisis situations do not often occur in

practice, but can cause major losses.

Market risk exposure

The following table shows the internally reported VaR figures for 2010 in millions of euros:

Other control measures concerned with market risk management involve limits on overnight proprietary

positions in foreign currencies. Back Office Treasury reports the actual foreign-currency proprietary overnight

positions, compared with the limits set by the Risk Management Committee to the Treasury Risk Management

Committee on a weekly basis.

Currency risk

The currency risk concerns the risk that the fair value of future cash flows from a financial instrument will

fluctuate as a result of changes in exchange rates. The following table presents the year-end amounts

outstanding in foreign currencies:

In millions of euros Year-end Highest Lowest Average

VaR total (no limit) 2011 4.0 4.0 2.3 3.3

VaR total (no limit) 2010 1.7 2.0 0.7 1.4

VaR - trading portfolio (included in total VaR)

(limit € 1,5 million) 2011 0.5 0.6 0.2 0.4

(limit € 1,5 million) 2010 0.0 0.0 0.0 0.0


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A large proportion of the forward exchange transactions outstanding relate to hedging balance sheet foreign-

exchange positions. The other forward foreign exchange transactions relate to trading positions.

The effect of a rise of 1% in the value of a foreign currency at the balance sheet date would result in an

equivalent increase/decrease in pre-tax income, depending on whether the particular position was a net asset

or liability.

Conversely any similar weakening of the foreign currency would have the opposite effect.

Interest rate risk

The interest rate risk concerns the risk that the fair value of future cash flows from a financial instrument will

fluctuate as a result of changes in market interest rates.

The interest rate risk present in ordinary banking operations is small, as interest rate terms are essentially

variable. The main interest rate risks relate to the AFS (available-for-sale) portfolio. The impact of interest rate

fluctuations is determined on the level of the balance sheet using an interest rate model that predicts the

effects for both the income statement and the market value of the shareholders' equity. The interest rate risks

in the AFS portfolio are monitored using VaR calculations.

The basic principles on which our interest rate risks are managed are detailed in the balance sheet

management guidelines and approved by the bank's Risk Management Committee. We use an interest rate risk

model to monitor the interest rate risk. This model is used to perform scenario analyses, stress-testing

scenarios and Monte Carlo simulations. The Risk Management department reports the results of the analyses to

the Asset & Liability Committee on a quarterly basis.

A gradual increase of 200 basis points in the market interest rate for each maturity band from balance sheet

date onwards would lead to a 15% increase (2010: 11% increase) in net interest income over a full year

and a decrease in the market interest rate of 200 basis points would lead to a 17% decrease (2010: 14%

decrease) in net interest income over a full year.

A sudden increase of 200 basis points in the market interest rate would result in a 2% decrease (2010: 5%).

while a sudden decrease of 200 basis points in the market interest rate would result in a slight 0.2% decrease

(2010: 3% increase).

31 december 2011

In thousands of euros Assets

Equity and

liabilities Net Derivatives Open (abs.)

USD 96,645 352,823 -256,178 259,058 2,880

GBP 171,082 339,172 -168,090 174,457 6,367

CHF 28,099 7,069 21,030 -19,801 1,229

SEK 11,390 3,261 8,129 -7,936 193

JPY 48,070 73,680 -25,610 19,624 -5,986

AUD 2,303 58,080 -55,777 61,145 5,368

CAD 8,197 6,463 1,734 -1,293 441

Other 42,727 55,933 -13,206 16,788 3,582

Total 408,513 896,481 -487,968 502,042

31 December 2010

In thousands of euros Assets

Equity and

liabilities Net Derivatives Open (abs.)

USD 92,026 342,882 -250,856 252,734 1,878

GBP 109,515 194,895 -85,380 90,865 5,485

CHF 23,426 34,991 -11,565 13,810 2,245

SEK 3,488 8,839 -5,351 6,289 938

JPY 75,671 34,492 41,179 -45,023 -3,844

AUD 2,638 29,549 -26,911 31,502 4,591

CAD 6,370 12,199 -5,829 7,028 1,199

Other 92,105 38,426 53,679 -52,931 748

Total 405,239 696,273 -291,034 304,274


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These calculations assume that all financial instruments in the balance sheet as at balance sheet date are held

until maturity and, if they mature within one year, are replaced by identical financial instruments.

KAS BANK’s fair value hedges comprise interest rate swaps used to hedge the interest rate risk on part of the

AFS portfolio. Of the hedged positions, € 685 million (2010: € 278.5 million) relates to bonds with a fixed

redemption date. The hedges take the form of interest rate swaps and relate to the interest rate risk incurred

during the fixed-interest period.

Movements in the fair value of the interest rate derivatives used to hedge fair values are shown in ‘Interest’

under the same heading as movements in the fair value of hedged positions.

42. Liquidity risk

General

The liquidity risk concerns the risk that the bank will be unable to meet its financial obligations on time. The

basic approach to managing the liquidity risk is to ensure that adequate liquidity is available to meet our

financial obligations in both normal and difficult circumstances.

Managing liquidity risk

The operating systems and departments notify Treasury on a daily basis of inward and outward flows of funds,

future financial assets and liabilities and requirements for collateral lodged with central banks and clearing

institutions to facilitate settlement and payment processes on behalf of clients. Using this information, Treasury

keeps a day-to-day watch on the bank’s liquidity position and ensures that sufficient collateral is held.

The Asset & Liability Committee (ALCO) advises the overarching Risk Management Committee on liquidity policy

and monitors compliance. To back up the Liquidity Policy, a Liquidity Contingency Plan has been drawn up and

adopted by the ALCO. A report on the liquidity position is submitted on a monthly basis to the ALCO and the

Nederlandsche Bank.

Basel III introduces two new liquidity ratios to measure the adequacy of the buffers: the Liquidity Coverage

Ratio (LCR) and the Net Stable Funding Ratio (NSFR). These ratios follow naturally from the liquidity

supervision already exercised by DNB in the Netherlands. The LCR requires sufficien liquid assets to cover the

net outgoing cash flow for thirty days. The aim of the NSFR is to ensure that banks finance their assets more

with stable medium and long-term resources. KAS BANK's LCR and NSFR are both greater than 100% (based

on figures from year-end 2010) and the bank therefore satisfies the Basel III liquidity requirements.

Developments in 2011

Even after the introduction of tighter regulation (the Supervisory Regulation on Liquidity [Regeling liquiditeit wft

2011]), KAS BANK had access to ample liquidity throughout the year. The liquidity surplus on a monthly basis,

as reported to DNB, is considered amply sufficient - within KAS BANK's low risk appetite - to cover any day-to-

day events. The permanently high level was due to the stable character of the liquidity with a highly operational

nature, the maintenance of the level of funds entrusted, and the deliberate liquidity policy.

Liquidity risk exposure

The following maturity calendar shows that KAS BANK had a good liquidity position at year-end, partly thanks

to the highly liquid nature of its balance sheet. This good liquidity position is largely attributable to the stable

balances maintained by our clients in the context of their operational relationship with KAS BANK.


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Finding a market for interbank deposits, however, continues to be problematic. KAS BANK strives to ensure that

it has sufficient access to credit lines in order to cover any temporary need for liquidity. We also hold large

amounts of collateral at institutions such as the Nederlandsche Bank and clearing institutions so that we can be

sure of being able to settle client transactions properly even in the event of substantial rises in volumes.

The following maturity calendar shows the non-discounted cash flows from KAS BANK’s financial assets,

liabilities and derivatives as at the contractual due dates.

43. Credit risk

Credit risk is the risk of financial losses if a counterparty defaults on its contractual obligations.

KAS BANK is exposed to the following causes of credit risk.

The credit risk resulting from loans and advances related to the securities transactions of clients is always

based on collateral in the form of securities and cash, and on the limits set.

Maturity calendar as at 31 December 2011

In thousands of euros Direct <= 3 months <= 1 year <= 5 years > 5 years

Non-

current Total

Assets

Cash and deposits at the central bank 65,738 1,070,000 - - - - 1,135,738

Banks 449,325 68,303 - - - - 517,628

Loans and advances 1,281,657 121,753 20,000 5,000 6,811 - 1,435,221

Reverse repurchase agreements - 656,056 - - - - 656,056

Investments at fair value through profit or loss - 36,050 15,405 - 130,416 - 181,871

Available-for-sale investments - 131,381 95,188 690,880 245,282 5,557 1,168,288

1,796,720 2,083,543 130,593 695,880 382,509 5,557 5,094,802


Banks 332,081 125,785 - - - - 457,866

Funds entrusted 3,755,396 713,315 7,900 - - - 4,476,611

Liabilities at fair value through profit or loss - - - - - - -

4,087,477 839,100 7,900 - - - 4,934,477

Derivatives


· Incoming cash flow - 7,631,269 344,492 - - - 7,975,761

· Outgoing cash flow - -7,618,416 -345,378 - - - -7,963,794

Interest contracts

· Incoming cash flow

· Outgoing cash flow - 2,482 9,266 60,768 38,469 - 110,985

Share contracts - -4,565 -14,778 -103,683 -57,790 - -180,816

- 10,770 -6,398 -42,915 -19,321 - -57,864

Contingent positions

Liquidity surplus/(deficit) -52,592 - - - - - -52,592

Liquidity surplus/(deficit) -2,343,349 1,255,213 116,295 652,965 363,188 5,557 49,869

Maturity calendar as at 31 December 2010

In thousands of euros Direct <= 3 months <= 1 year <= 5 years > 5 years

Non-

current Total

Assets

Cash and deposits at the central bank 731,545 - - - - - 731,545

Banks 2,221,773 40,814 - - - - 2,262,587

Loans and advances 648,694 109,653 1,000 75 7,142 - 766,564

Reverse repurchase agreements - 524,111 - - - - 524,111

Investments at fair value through profit or loss - - - 52,381 123,947 - 176,328

Available-for-sale investments 1,161 511,922 237,706 468,062 93,852 14,256 1,326,911

3,603,173 1,186,500 238,706 520,518 224,941 14,256 5,788,046


Banks 1,970,839 85,916 - - - - 2,056,755

Funds entrusted 2,856,409 718,794 3,700 - - - 3,578,903

Liabilities at fair value through profit or loss - - - 17,044 - - 17,044

4,827,248 804,710 3,700 17,044 - - 5,652,702

Derivatives


· Incoming cash flow - 6,633,958 281,964 - - - 6,915,922

· Outgoing cash flow - -6,636,860 -281,990 - - - -6,918,850

Interest contracts

· Incoming cash flow - 2,355 6,725 34,641 23,255 - 66,976

· Outgoing cash flow - -3,947 -8,475 -46,556 -31,510 - -90,488

- -4,494 -1,776 -11,915 -8,255 - -26,440

Contingent positions

Liquidity surplus/(deficit) -48,169 - - - - - -48,169

Liquidity surplus/(deficit) -1,258,036 377,296 233,230 491,559 216,686 14,256 60,735


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The credit risk relating to treasury activities arises with respect to:

Securities lending and reverse purchase transactions;

Investments in money market instruments and derivatives;

Maintaining individual proprietary securities portfolios.

The Credit Risk Management group is responsible for measuring and managing KAS BANK’s credit risk. The

Back Office Treasury department is in charge of monitoring the credit risk arising from our treasury activities,

while the Credit Risk Management group has an oversight role here. The Credit Risk Management group reports

directly to the Risk Management Committee.

KAS BANK’s credit policy is designed to limit the bank’s credit risks by ensuring that credit is provided

exclusively in return for collateral in the form of securities or cash. The Head of Credit Risk Management

advises the Risk Management Committee on, among other things, setting guidelines and limits for each

counterparty. The bank’s Risk Management Committee’s approval is required for the finalised guidelines and

limits. Approval for exceeding limits on a temporary or more permanent basis is the responsibility of the Chief

Risk Officer or the Head of Credit Risk Management under the terms of an established mandate.

Developments in 2011

KAS BANK further improved and developed the management of its credit risks in 2011. A few examples of this

development are:

Exercises involving a number of stress scenarios in which a situation of heightened market stress resulting

from external factors was simulated and then managed.

The set-up of an ICAAP in which various stress scenarios and market influences are addressed. The

process and results were then recorded in an ICAAP report discussed with the regulator.

The development and implementation of an aggregate system of limits for each counterparty.

Increased frequency of checking developments in counterparty risk and country risk.

Automation of the percentages of securities allowed to be used as collateral, whereby these percentages

are adjusted in line with the value of the securities and external market information. This introduced

system-technical controls for monitoring the credit risk.

More stringent monitoring of the quality of collateral, including its liquidity, diversity, spread, type of

collateral and, where applicable, creditworthiness.

Further professionalisation of the Special Management policy and a boost to the knowledge on special

management situations.

A start was made on replacing important Risk Management supporting IT systems, which will enable the

service provision to even better satisfy the increased demand for risk management.

This has resulted in a reduction in losses due to credit risks.

Loans and advances relating to securities transactions

To monitor the loans and advances to clients in connection with the settlement of securities transactions, the

Credit Risk Management group makes use of a credit risk information system which quantifies the risks and

performs a check on the collateral which has been put up. This system takes account of a client’s financial

position on an integral basis across the various markets on which the client is active. This enables KAS BANK to

also monitor the risks inherent in clients’ transactions which have not yet been settled. Internal authorisation of

client instructions is also run through this system. The credit risk management group reports excesses to the

Head of Credit Risk Management and to the bank's Risk Management Committee.


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The settling of securities transactions involves a settlement risk if KAS BANK delivers securities and/or cash, but

does not receive anything from the counterparty. The standard basis for settling securities transactions is

delivery on payment, meaning that securities are transferred as and when funds are received. Settlement does

not take place until the adequacy of funds and/or security has been verified. The underlying securities are also

generally pledged to KAS BANK. The limits and collateral for transactions not based on delivery on payment are

outlined below.

KAS BANK uses an internal rating system for monitoring credit risks on financial institutions. These internal

ratings are reassessed every 1 to 3 years, depending on the risk classification and any interim developments on

the markets or at clients. The rating system is based partly on an analysis of clients’ financial positions and

partly on an analysis of the operational and business risks associated with the clients. The internal ratings are

used for setting limits and to determine the level of margins required to be held in respect of securities

transactions still to be settled.

Loans and advances based on collateral in the form of securities and cash

Loans and advances relating to settlement and clearing facilities is based on collateral in the form of securities

and cash, with KAS BANK having a first pledge on the securities and cash. Advances against securities are

made on the basis of policy drawn up by Credit Risk Management and approved by the Risk Management

Committee. A fundamental requirement is that advances are only made against securities matching KAS

BANK’s low risk profile.

Credit Risk Management developed policy for advances against securities, which policy was implemented after

approval from the Risk Management Committee. The list of qualifying securities is updated and signed off at

least once a year, taking particular note of the liquidity and the volatility of the specific shares. Approval of the

set of conditions on which advances are made is the prerogative of the bank’s Risk Management Committee.

The percentages which can be advanced against securities are determined on the basis of historical market

analysis combined with the percentages from Basel II. The way in which these percentages are applied takes

account of such things as: a) a system reflecting portfolio diversification, in which percentages are reduced for

portfolios with limited diversification; b) exclusion of emerging markets; and c) no advances against shares

with a market capitalisation of less than € 200 million.

KAS BANK provides only limited amounts of credit against unlisted securities in client portfolios. The Risk

Management Committee has authorised exceptions for a number of clients, with a maximum being set both as

a percentage and in absolute terms. These clients, most of whom are hedge funds and funds of funds, use

these facilities mainly to facilitate changes in their investment portfolios. The investment funds in which the

hedge funds and funds of funds have invested are used as collateral for these credit facilities.

Loans and advances based on limits

A system of limits is also used, in addition to loans and advances on the basis of collateral. The purpose of such

limits is to facilitate settlement transactions, and their use is in principle temporary. Line management is

responsible for submitting a limit request and it is then the job of Risk Management to assess the request and

perform a credit analysis. The limits are set by the bank's Risk Management Committee.


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Loans and advances relating to treasury activities

Loans and advances arising from treasury activities relates primarily to securities lending and reverse purchase

transactions, investments in money market instruments and derivatives, and the proprietary securities

positions.

Securities lending and reverse purchase transactions

KAS BANK acts, amongst other things, as principal in securities lending transactions. The borrower of the

securities is under obligation to deposit collateral equivalent to the effective value plus a mark-up depending on

the quality of the collateral furnished. Collateral may be lodged in the form of securities or cash. Where

collateral takes the form of securities that may be repledged, it is lodged subject to the condition that the

securities are returned. Collateral is lodged on behalf of lenders in the form of repledged securities or securities

associated with reverse purchase agreements and the proprietary securities portfolio.

As part of the process of managing the risks in securities lending transactions, Back Office Treasury assesses

the amounts receivable from counterparties and the receipt of collateral of sufficient quality on a daily basis.

Back Office Treasury reports any deficits in collateral to Risk Management, and also reports any excesses on the

maximum lending positions set for each counterparty by the bank’s Risk Management Committee. These limits

are reassessed at least once a year, and earlier if necessary, based on an estimation of the market and the

client’s financial position.

The receivables and liabilities in respect of securities lending mainly relate to receivables from and liabilities to

financial institutions in the Netherlands and the European Union.

The following table shows the amounts receivable and payable in respect of securities lending, including the

collateral received:

Treasury enters into reverse repurchase agreements in order to meet the bank’s requirements for collateral.

KAS BANK’s reverse purchase agreements involve temporary purchases of government bonds, which are then

sold to the same party for delivery at a later date. These agreements are always based on delivery on payment,

which means there is no settlement risk. The Financial Reporting group reports daily to the members of the

Treasury Risk Management Committee regarding any exceeding of the limits.

Investments in money market instruments and derivatives

Each year, and earlier if necessary, the Risk Management Committee sets limits for money market instruments

and foreign currency positions for each counterparty. These limits are recorded in a risk management

information system. Excesses on money market and currency limits have to be approved by the Head of


Receivables in respect of securities lending

Banks 6,198,090 3,261,050

Other parties 367,865 20,635

6,565,955 3,281,685

Collateral received

Securities 6,987,991 3,644,211

Cash 121,983 68,684

7,109,974 3,712,895

Liabilities in respect of securities lending

Banks 17,696 96,961

Other parties 5,703,482 2,793,794

5,721,178 2,890,755

Collateral on behalf of lenders

Borrowers' repledged securities 4,958,779 2,446,797



6,084,951 3,003,607


Risk management

87

Treasury. The Financial Reporting group reports daily to the members of the Treasury Risk Management

Committee regarding any exceeding of the limits.

KAS BANK uses investments in money market instruments (call money and deposits) primarily in order to

manage liquidity surpluses and deficits. In principle, all money market investments are short-term investments

and no collateral is provided. The credit risk relates to the nominal value of these investments. KAS BANK uses

derivatives (currency and interest rate swaps) to hedge against changes in value relating to movements in

exchange and interest rates.

As well as using limits, KAS BANK also settles foreign currency transactions with a CLS (Continuous Linked

Settlement) member. A CLS member ensures that incoming and outgoing transactions are settled

simultaneously so that no counterparty risk arises for KAS BANK. We also use master agreements of the

International Swaps and Derivatives Association (ISDA) for derivative transactions. In addition, we have

established a Credit Support Annex (CSA) with various parties that requires cash collateral to be deposited to

cover movements in the fair value of derivatives. In these cases, the credit risk is the fair value of the

derivative less the collateral provided.

For interest rate swaps, KAS BANK uses limits that are part of the limit system used to restrict accumulation

risk. With all parties with which interest rate swaps are contracted, KAS BANK establishes a CSA that requires

cash collateral to be deposited to cover movements in the fair value of derivatives. In these cases, the credit

risk is the fair value of the derivative less the collateral provided.

Proprietary securities portfolio

KAS BANK limits the exposure to credit risk in its proprietary securities portfolio by investing solely in

marketable securities and conducting transactions solely with counterparties with credit ratings of at least ‘A’

from both Moody’s and Standard & Poor’s. The Asset & Liability Committee must approve any waiver of this

minimum requirement.

The financial assets are rated as follows (by Moody's):

The credit quality of financial assets not included in the above analysis is monitored on the basis of set limits

and the collateral received instead of ratings.

The shares in the proprietary portfolio are deliberately kept limited given the high correlation between

KAS BANK's business model and the share markets. The shares in the proprietary portfolio are predominantly

interests in securities and clearing organisations and positions that the bank has appropriated in the context of

special management.


Available-for-

sale

investments

Investments

at fair value

through

profit or loss Total

Available-for-

sale

investments

Investments

at fair value

through profit

or loss Total

Government / government-

guaranteed 579,630 181,871 761,501 235,578 176,328 411,906

Other Aaa - Aa3 526,903 - 526,903 1,017,721 - 1,017,721

Total Aaa - Aa3 1,106,533 181,871 1,288,404 1,253,299 176,328 1,429,627

A1 - A3 17,435 - 17,435 26,925 - 26,925

Baa1 - Baa3 38,763 - 38,763 32,432 - 32,432

P1 - P2 - - - - - -

Shares 5,557 - 5,557 14,255 - 14,255

Total 1,168,288 181,871 1,350,159 1,326,911 176,328 1,503,239

2011 2010


Risk management

88

Maximum credit risk

For all financial assets, the maximum credit risk, without taking account of collateral received, is equal to the

carrying amounts included in the consolidated balance sheet. The carrying amounts of the assets concerned

already have any impairment losses deducted.

Concentration risk

The credit risk also includes the concentration risk, which can take two forms. Firstly it can arise from excessive

amounts placed with a single party or a number of closely related parties. This is managed by means of a

system of limits and the large-exposure regulations and is also limited, given the spread of clients. Secondly,

credit risks may also be concentrated in a single country or sector. Most of the credit risk exposure is to

financial institutions, and this means an element of concentration risk. Mitigating factors here are:

- the spread of risk within the bank’s client base (and among our clients’ clients),

- the fact that most of our loans and advances are secured by collateral,

- the existence of a good infrastructure on and off exchange with guarantees for the settlement of securities

transactions entered into and effective supervision of our client groups.

Financial sector concentration risk

1 No sovereign investments of GIIPS countries (Greece, Ireland, Italy, Portugal, Spain)

Collateral received for loans and advances

Loans to banks and other loans and advances are largely covered by the pledge of securities. Where possible,

agreements are also reached with clients to enable receivables and payables to be settled on a net basis.


Central

government

Financial

Institutions

Institutional

Investors Other Total

Concentration by segment 20111,135,738 - - - 1,135,738

Banks and loan and advances - 538,885 1,122,465 291,499 1,952,849

Reverse repurchase agreements - 656,056 - - 656,056

Derivative financial instruments (assets) - 49,864 103,445 878 154,187

130,416 51,455 - - 181,871

Available-for-sale 388,370 779,918 - - 1,168,288

1,654,524 2,076,178 1,225,910 292,377 5,248,989

Concentration by segment 2010731,545 - - - 731,545

Banks and loan and advances - 2,408,855 552,784 67,512 3,029,151

Reverse repurchase agreements - 524,111 - - 524,111

Derivative financial instruments (assets) - 48,624 51,510 764 100,898

123,947 52,381 - - 176,328

Available-for-sale 107,114 1,197,976 - 21,821 1,326,911

962,606 4,231,947 604,294 90,097 5,888,944

Cash and deposits at the central bank





The

Netherlands

Rest of European

Union1 Other Total

Concentration by region 2011

1,135,738 - - 1,135,738

Banks and loan and advances 1,682,102 187,355 83,392 1,952,849

- 656,056 - 656,056

111,140 43,047 - 154,187 181,871 - - 181,871

553,472 600,161 14,655 1,168,288

3,664,323 1,486,619 98,047 5,248,989

Concentration by region 2010

731,542 3 - 731,545

Banks and loan and advances 2,801,194 170,069 57,888 3,029,151

208,214 315,897 - 524,111

57,635 5,933 37,330 100,898 167,397 8,931 - 176,328

334,719 968,689 23,503 1,326,911

4,300,701 1,469,522 118,721 5,888,944


Available-for-sale

Reverse repurchase agreementsDerivative financial instruments (assets)


Available-for-sale


Reverse repurchase agreementsDerivative financial instruments (assets)



Risk management

89

KAS BANK is not at liberty to dispose of or pledge securities furnished as collateral as long as clients meet their

obligations.

Risk-weighted value of loans and advances

The credit-risk exposure, weighted at the percentages used for regular reporting to the Nederlandsche Bank, is

shown in the following table. These weightings are generally 0% for receivables from or guaranteed by

European public authorities, 10% for covered bonds, 20% for receivables from or guaranteed by European

banks, and 100% for receivables from other counterparties.

Overdue accounts and recognised impairments

Appropriated collateral

If there is no alternative, the collateral security provided to KAS BANK is appropriated. KAS BANK policy is to

cash in appropriated assets by selling them immediately. If the market for the particular assets is not

sufficiently liquid, a phased approach is used to maximise the sales proceeds.

No collateral security was appropriated by KAS BANK in 2011.

Carrying amount Risk-weighted

amount

Carrying amount Risk-weighted

amount

In thousands of euros 31/12/11 31/12/11 31/12/10 31/12/10

Banks 517,628 84,835 2,262,587 66,718

Loans and advances 1,435,221 36,916 766,564 29,178

Reverse repurchase agreements 656,056 724 524,111 617

Derivative financial instruments 154,187 65,008 100,898 69,622

181,871 - 176,328 -

Available-for-sale investments 1,168,288 117,635 1,326,911 206,638

Property and equipment 37,402 37,402 41,642 41,642

Other balance sheet items 1,194,646 39,862 818,220 43,060

5,345,299 382,382 6,017,261 457,475

Contingent liabilities 26,703 646 27,211 4,327

Irrevocable facilities 25,889 - 20,958 -

Operational risk - 239,763 - 244,812

Securities lending - 73,078 - 61,560

Total of the risk-weighted items 695,869 768,174

31/12/11 BIS 31/12/11 31/12/10 BIS 31/12/10

Tier 1 164,356 24% 157,220 20%

Tier 2 14,071 20,418

Total BIS 178,427 26% 177,638 23%



Cash and

deposits

at the

central

bank

Banks and

loans and

advances

Reverse

repurchase

agreements

Derivative

financial

instruments

(assets)

Investments at

fair value

through profit or

loss

Available-for-

sale

investments

2011

Total carrying amount 1,135,738 1,952,849 656,056 154,187 181,871 1,168,288

Individual impairments:

Carrying amount before

impairments

- 33,968 - - - 30,694

Impairment losses - -26,103 - - - -15,371

Carrying amount after

impairments

- 7,865 - - - 15,323

Not overdue 1,135,738 1,944,984 656,056 154,187 181,871 1,152,965

2010

Total carrying amount 731,545 3,029,151 524,111 100,898 176,328 1,326,911

Individual impairments:

Carrying amount before

impairments

- 32,383 - - - 40,093

Impairment losses - -27,306 - - - -23,123

Carrying amount after

impairments

- 5,077 - - - 16,970

Not overdue 731,545 3,024,074 524,111 100,898 176,328 1,309,941


Risk management

90

44. Operational risk

General

The operational risk is the risk that losses will occur as a result of weaknesses or failures in internal processes

and/or systems, human frailties or outside events. These include operational risks such as IT problems,

shortcomings in the organisation structure, absence of or inadequate internal control, human error, fraud, and

external threats.

Managing operational risk

In 2009, the Managing Board adopted a more stringent operational risk policy, fundamental to which is that

management is responsible for identifying and analysing operational risks and implementing adequate internal

control measures. In the performance of this task, management is supported by experts in the field of systems

organisation and internal control and by the operational risk manager. The Internal Audit department performs

a monitoring role involving operational audits.

KAS BANK’s operational risk policy is also underpinned in the following ways:

For each process there is a control structure in place in which the process, inherent risks, control

objectives and control measures are all documented. These control structures are periodically evaluated

on the basis of risk self-assessments, assessments performed by the Risk Management department and

operational audits;

Operational risks are continuously monitored by means of the Quality Dashboard that was set up during

the year;

Systematic records are kept of losses attributable to operational risks in an Operational Loss Database.

The recorded events are periodically analysed;

Analysis of events and risks, including proposals for improving processes;

Ongoing attention to further enhancing risk and quality awareness among staff;

Training and professional development as important elements in staff performance;

In order to manage the continuity risk we have established a Business Continuity function, which keeps

and updates recovery and resolution plans. The Business Continuity Manager reports directly to the Risk

Management Committee;

The Internal Audit department systematically evaluates the control, risk management and overall

management processes and reports its findings to the Risk Management Committee and the Audit

Committee.

The three internal lines of defence and, as a fourth independent line of defence, the external auditors and the

regulators, report any shortcomings identified in the design, existence and operating effectiveness of internal

controls to the bank’s Risk Management Committee, the Managing Board and/or Audit Committee.

The bank’s Risk Management Committee assesses the risk and decides on action to be taken in the form of

temporary and/or structural measures in order to remedy the shortcoming. The Chief Risk Officer and Internal

Audit department report to the Risk Management Committee on how such decisions have been followed up.

Various scenarios have been examined in order to see the effects that operational risk stress-testing has on

shareholders’ equity. These exceptional, but still plausible scenarios were selected and examined in liaison with

the line management organisation and based partly on actual or extrapolated losses. The stress-testing

framework is reassessed at least once every year and any required changes are made. The conclusion drawn

from stress-testing is that the bank’s reserves are sufficient to absorb the expected losses under the various

stress scenarios.


Risk management

91

The Risk Self-Assessment (RSA) is an important instrument for identifying, quantifying and evaluating

operational risks in the bank’s internal processes and for managing those risks by implementing adequate

internal control measures.

Preparation and execution of RSAs involves the collaboration of the risk coordinator of the relevant process, the

facilitator and the operational risk manager, with the risk coordinator playing a particularly important role in the

process. He or she is the key figure in preparing an RSA and is also responsible for addressing the points raised

by an RSA leading to further measures to minimise risks. The results produced by the RSAs conducted were

such that the system of RSAs, risk coordinators and facilitators will be continued and expanded in 2012.

2011 was the first year in which KAS BANK published an ISAE 3402 report, the successor to the SAS 70 Type II

report published in the past. This new report (the ‘in control statement’) is compiled in order to indicate the

extent to which the internal control measures are effective in achieving the process objectives.

45. Compliance risk

Compliance risk concerns the risk of sanctions imposed under the law or by regulators and of material financial

losses or damaged reputation which the bank might suffer as a result of the failure to comply with legislation

and regulations relating to integrity.

Poor control of compliance risks may result in violations of legislation or regulation, with consequent financial or

reputational implications for the bank if sanctions are imposed by regulators. These sanctions could range from

a fine, an order subject to a penalty (which may or may not be made public), an instruction, an interview about

compatible standards to, in the most extreme case, placing the financial institution under (undisclosed)

administration and the loss of licence (licences).

Violations of legislation or regulations can also result in the organisation being liable under civil law, which

would adversely affect the organisation’s reputation and may cause clients to leave.

Managing the compliance risk

KAS BANK has a compliance function in place to manage the compliance risk, as required under the Financial

Supervision Act [Wet op het financieel toezicht]. The purpose of the compliance function is to promote

compliance with the legislation, regulation and internal rules relating to integrity by KAS BANK, its employees

and its corporate bodies. In addition, KAS BANK’s aim is to ensure a certain conduct amongst its employees

(automatism).

KAS BANK’s compliance function enables it to act in accordance with applicable legislation and regulation in

respect of the integrity of the bank, its Managing Board and employees.

In order to do this, the compliance function has the knowledge and experience necessary in order to identify

the integrity risks within KAS BANK. It is also able to propose or take appropriate preventative, remedial or

punitive measures in order to achieve a level of integrity that is not only consistent with legislation and

regulation, but also anticipates the social standards and values that are taking shape.

By acting in this way, the compliance function will be able to contribute to a balanced value creation for all KAS

BANK’s stakeholders in the long term.


Risk management

92

On a strategic level, the compliance function promotes compliance with the rules and codes for good

governance. The compliance function's focus on the tactical level involves the requirements stipulated for the

design of ethical business operations. On an operational level, the compliance function promotes the application

of integrity rules in concrete cases.

Embedding the compliance function in the organisation

The compliance function operates under the functional responsibility of the Group Compliance Officer (GCO) and

is part of KAS BANK's risk management structure. The GCO reports to the Chief Risk Officer (CRO) primarily in

a functional and hierarchical sense. The GCO also has a direct formal line to both the chairman of the Managing

Board and the chairman of the Supervisory Board.

In the performance of his role, the GCO focuses primarily on the management of the process concerned. If the

escalation structure detailed above fails to offer a solution, the GCO may turn directly to the supervisory

authorities, the Nederlandsche Bank N.V. (DNB) and the Netherlands Authority for the Financial Markets (AFM).

The compliance function consists, together with the GCO, of a deputy compliance officer, the local compliance

officers in Germany and the United Kingdom, a number of specialists for the performance of monitoring

activities, and an integrity officer in Human Resources. KAS BANK also has three confidential intermediaries

who play an important role in detecting issues. Finally, the bank has an Integrity Committee which, among

other things, guarantees independence and discretion in the implementation of the whistleblower scheme. An

organisation-wide compliance meeting takes place periodically with relevant individuals from the various

divisions of the bank.

The compliance function forms the ‘second line of defence’ in respect of the management of the compliance

risk. The point of departure is that, in addition to this formal embedding, every employee has his/her own

responsibility in respect of compliance and integrity.

The members of the Managing Board perform their functions in a careful, expert and ethical manner taking due

account of all applicable legislation and regulation, codes and rules. Every member of the Managing Board has

signed a moral and ethical declaration. KAS BANK’s employees are deemed to be aware of the fact that the

members of the Managing Board have signed this declaration, and all the employees are similarly expected to

act in accordance with this moral and ethical declaration. Specifically this means that, when appropriate,

employees should prudently weigh up the interests of the clients, the shareholders, their colleagues and society

as a whole. When weighing up these interests, employees should, as far as possible, deem the clients’ interests

paramount.

Compliance function duties

KAS BANK has numerous regulations to guarantee integrity, including arrangements for dealing with insider

information and private securities transactions and a whistleblower scheme. The whistleblower scheme

encourages employees to report any actual or suspected violations of the law and regulations or internal policy

and is designed to protect KAS BANK employees who report abuses.

An important condition for complying with the rules is that staff know and acknowledge the importance of these

rules (‘awareness’). Various forms of regular training and communications are used to support this process.

As well as providing support for the organisation, the compliance officer primarily devotes attention to limiting

client-related integrity risks (such as money laundering, terrorism financing) and integrity risks arising from the

behaviour of individuals (such as insider trading). He also oversees the regulations for protecting personal data,


Risk management

93

the policy on gifts, the order execution policy, the regulations on loans and advances to Managing Board

members, and the regulation to prevent conflicts of interest.

Other focal areas for the compliance function include the primary and secondary legislation relating to financial

institutions enacted as a consequence of the EC Markets in Financial Instruments Directive (MiFID) and the

various codes concerning the proper governance of banks and businesses in general, including the Banking

Code and the rules regarding a sound remuneration policy at financial undertakings.

The emphasis of the compliance function in 2011

Whilst historically the compliance function concentrated on the prevention of money laundering and financing of

terrorism, the function has now been broadened, as explained above. This trend has, in part, been prompted by

increased legislation and regulation, the credit crisis and the developing social norms and values in respect of

integrity.

The updating of the compliance function started in 2010 was continued in 2011 by the redefinition of both the

compliance function and its compliance activities in a revised charter. A bank-wide compliance risk self-

assessment was also carried out in order to gain insight into management of the compliance risk.

Another area of attention in 2011 was the implementation of the Restrained Remuneration Policy Regulations

(Financial Supervision Act) 2011.

There is a definite feeling that, as indicated in the 2010 report, the credit crisis accelerated the existing increase

in financial supervision and regulation and that this will, in the coming years, continue to require the attention

of KAS BANK and its compliance function.

46. Fair value of financial assets and liabilities

The following table presents the financial instruments that are carried at fair value, analysed by the method by

which the fair value is measured. There are three levels of measurement methods:

Level 1: Quoted bid prices in an active market

Level 2: Valuation techniques or models using observable market-related data other than quoted bid prices

as used in level 1, whether direct (e.g. actual prices) or indirect (e.g. derived prices)

Level 3: Valuation techniques or models using variables not based on observable market-related data.

Level 1 Level 2 Level 3 Total

Derivative financial instruments (assets) - 154,187 - 154,187

181,871 - - 181,871


· Money market instruments - - - -

· Bonds 1,071,747 89,377 1,607 1,162,731

· Shares - 4,516 53 5,557

Subtotal 1,253,618 248,080 1,660 988 1,504,346

Derivatives financial instruments (liabilities) - 212,484 - - 212,484

Total 1,253,618 35,596 1,660 988 1,291,862

-

-

988

31 december 2011

In thousands of euros Cost price

-

Investments at fair value through profit or loss -


Risk management

94

Reconciliation of fair value at level 3

The changes in financial instruments where the fair value is measured using a level 3 method were as follows:

47. Classification of financial assets and liabilities

The following table gives an insight into the classification of KAS BANK’s assets and liabilities.


Position as at 1 January 2011

Reclassification from Level 2 to Level 3

Result on reclassification

Total income and charges

· Available-for-sale investments (impairments)

· Available-for-sale investments (through profit or loss) 159

Position as at 31 December 2011

1,021

1,660

Available-for-

sale investments

53

449

-22

Designated

Trading

purposes

Hedge

accounting

No hedge

accounting

Hedge

accounting

Assets

Cash and deposits at

the central bank 1,135,738 1,135,738

Banks 517,628 517,628

Loans and advances 1,435,221 1,435,221

Reverse repurchase

agreements 656,056 656,056

Derivative financial

instruments 153,710 476 154,186

Investments at fair

value through profit or

loss 181,871 181,871

Available-for-sale

investments 321,104 847,184 1,168,288

Total assets 3,744,643 181,871 153,710 476 321,104 847,184 5,248,988


Banks 457,866 457,866

Funds entrusted 4,476,611 4,476,611


instruments 163,113 49,371 212,484

Total equity and

liabilities 4,934,477 - 163,113 49,371 - - 5,146,961

31 December 2011

In thousands of

euros

Financial

instruments at

amortised cost

Financial instruments at fair value

through profit or loss

Available-for-sale

investments

Total

Level 1 Level 2 Level 3 Total

Derivative financial instruments (assets) - 100,898 - 100,898 176,328 - - 176,328

Available-for-sale investments · Money market instruments 483,678 - - 483,678 · Bonds 776,871 52,106 - 828,977 · Shares 9,494 3,721 53 14,256 Subtotal 1,446,371 156,725 53 988 1,604,137

17,044 - - 17,044 Derivatives financial instruments (liabilities) - 124,988 - - 124,988 Total 1,446,371 31,737 53 988 1,462,105

- -

988

Investments at fair value through profit or loss -

31 december 2010 In thousands of euros Cost price

- Investments at fair value through profit or loss -


Risk management

95

Designated

Trading

purposes

Hedge

accounting

No hedge

accounting

Hedge

accounting

Assets

Cash and deposits at

the central bank 731,545 - - - - - 731,545

Banks 2,262,587 - - - - - 2,262,587

Loans and advances 766,564 - - - - - 766,564

Reverse repurchase

agreements 524,111 - - - - - 524,111


instruments - - 100,246 652 100,898

Investments at fair


loss - 167,397 8,931 - - - 176,328

Available-for-sale

investments - - - - 1,036,018 290,893 1,326,911

Total assets 4,284,807 167,397 109,177 652 1,036,018 290,893 5,888,944


Banks 2,056,755 - - - - - 2,056,755

Funds entrusted 3,578,903 - - - - - 3,578,903


instruments - 112,109 12,889 - - 124,998

Investments at fair


loss - - 17,044 - - 17,044

Total equity and

liabilities 5,635,658 - 129,153 12,889 - - 5,777,700

31 December 2010

In thousands of

euros

Financial

instruments at

amortised cost

Financial instruments at fair value

through profit or loss

Available-for-sale

investments

Total


Segmentation

96

48. Segment information

KAS BANK’s specialised products and services are aimed at two main target groups, viz. Institutional Investors

and Financial Institutions. Another important activity is treasury. This segmentation reflects the structure of the

internal management information provided to the Managing Board.

Operating segmentation

1 Interest income and expense is allocated to the financial institutions and institutional investors segments on the basis of the

difference between the external interest rates and benchmarks. The benchmarks are based on interbank or central bank rates.

Geographical segmentation

KAS BANK has Dutch, European and other international clients. Support is provided to these clients from

Amsterdam, London and Wiesbaden. The London office serves the UK market and many of the international

clients. The Wiesbaden office serves several German investment funds. Processing is mainly carried out on the

IT systems in Amsterdam.

The following tables present the total revenue analysed into the Netherlands and other European countries

(United Kingdom and Germany) on the basis of the country of residence of the KAS BANK offices. Segmentation

on the basis of the markets in which the transactions are conducted and the income is generated shows that

approximately half of the commission income is attributable to countries outside the Netherlands.

Financial

institutions

Institutional

investors Treasury Other Total

Interest income and expense1 5.0 15.9 6.6 - 27.5


- Asset Servicing 2.9 37.4 1.3 - 41.6

- Transaction Servicing 10.2 10.0 - - 20.2

- Other commissions 1.7 4.6 - - 6.3

Result on investments 0.5 7.8 1.3 -0.5 9.1

Other income 0.4 1.3 - 8.9 10.6

Total income 20.7 77.0 9.2 8.4 115.3

Operating expenses (overhead) -26.1 -47.0 -3.0 - -76.1

Contribution -5.4 30.0 6.2 8.4 39.2

Operating expenses (overhead) -23.9 -23.9

15.3

2011

In millions of euros

Result for the period before tax

Financial

institutions

Institutional

investors Treasury Other Total

Interest income and expense1 5.8 12.6 2.2 - 20.6


- Asset Servicing 2.9 35.5 1.4 - 39.8

- Transaction Servicing 13.8 9.6 - - 23.4

- Other commissions 1.7 4.8 - - 6.5

Result on investments 0.7 7.9 16.0 - 24.6

Other income 0.2 1.4 - 0.6 2.2

Total income 25.1 71.8 19.6 0.6 117.1

Operating expenses (overhead) -31.6 -43.8 -2.6 -1.2 -79.2

Contribution -6.5 28.0 17.0 -0.6 37.9

Operating expenses (overhead) -15.6 -15.6

22.3

2010

In millions of euros

Result for the period before tax

2011 2010

Country of residence KAS BANK

Netherlands 91.1 100.4

Other Europe 24.2 16.7

Total 115.3 117.1

Geographical segmentation of income

(in millions of euros)

2011 2010

Country of residence KAS BANK

Netherlands 42.0 46.9

Other Europe 8.1 13.4

Total 50.1 60.3

Geographical segmentation of the property and equipment and intangible

assets (in millions of euros)


Segmentation

97

Concentration of income

KAS BANK has a broad client base. KAS BANK’s 25 largest clients account for 37% (2010: 41%) of the total

revenue. At the same time, KAS BANK does not have any one client (2010 none) accounting for more than 10%

of the total revenue.


Share-based payments and related parties

98

49. Share-based payments

Description of share and option plans

KAS BANK operates share and option plans for the members of the Managing Board, former members of the

Managing Board and other staff. Each option confers the right to one depositary receipt for a share of € 1.00

nominal value.

Staff option plan

The following table presents the characteristics of the options awarded to staff. In the case of all tranches, the

expiry date can be extended by two years for one third of the options granted.

Variable remuneration for the Managing Board

In 2010, responding in part to the implementation of the Banking Code and based on a desire to realign the

existing system – particularly with regard to the long-term variable remuneration element – KAS BANK made

changes to the system which has been effective since the beginning of the 2009 financial year. As a

consequence of these changes, from 2011 the members of the Managing Board are no longer awarded options

as part of the long-term variable remuneration. The Managing Board members are only granted shares under

the current long-term variable remuneration system.

The Managing Board's remuneration also consists of a short-term variable component, in addition to the long-

term variable component. This short-term variable component is granted in cash on the basis of performance

criteria.

Features of the long-term variable remuneration

The Appointments and Remuneration Committee determines the number of shares to be awarded each year

according to the performance of the Managing Board members, submitting its recommendation to the

Supervisory Board for ratification.

The shares are conditionally granted, becoming vested three years after being granted on condition that the

members of the Managing Board have achieved their targets. Members of the Managing Board to whom shares

have been granted must also still be in the company’s employment or have retired from company employment

on a retirement pension at the time when the award becomes unconditional. After the award of shares becomes

unconditional, they must be kept for at least a further two years. The award and vesting of shares in 2011 is

based on the scheme prior to the changes discussed below.

Other features of the long-term variable remuneration are:

The long-term variable remuneration will be payable annually in shares, provided target performance is

achieved; the award is made conditionally and the number of shares awarded depends on the ex-dividend

share price.

Options not yet vested

Expiry date March 2011 March 2010 March 2009

Fair value at date of award € 2.93 € 3.32/€ 3.37 € 1.84/€ 2.00

Share price at date of award € 11.82 € 13.55 € 8.31

Excercise price € 11.82 € 13.55 € 8.31

Validity of options (including vesting period) 5 years 5/7 years 5/7 years

Vesting period 3 years 3 years 3 years

Vesting condition Uninterrupted

employment

contract

Uninterrupted

employment

contract

Uninterrupted

employment

contract

Expected dividend yield 4.50% 4.50%/4.50% 4.50%/4.50%

Expected volatility 34.91% 35.43%/30.91% 31.73%/29.74%

Risk-free interest rate 3.00% 2.49%/2.99% 2.74%/3.08%

Options



99

The shares only become vested after three years; they are awarded in the form of a contingent right to

depositary receipts for KAS BANK ordinary shares (performance shares).

In the fourth year after the conditional award is made, the Supervisory Board sets the vested amount of

the long-term remuneration.

When the awarded performance shares have become vested, the members of the Managing Board are at

liberty to sell half of them immediately but the remaining half must be held for a further two years or until

employment is terminated, whichever comes first – a restriction imposed by tax rules.

The amount of the long-term variable remuneration awarded is calculated by reference to three

performance benchmarks, each carrying equal weight: 1) growth in earnings per share; 2) Total

Shareholder Return (TSR) performance relative to the AScX Index; 3) TSR performance relative to the

Stoxx Europe 600 Banks Index.

Achievement of target performance is rewarded by the payment of long-term remuneration amounting to

25% of the fixed salary. The long-term variable remuneration is subject to a maximum of 50% of fixed

salary.

The characteristics of the awarded options and shares are:

Share-based payments in the income statement

The fair value is calculated using the trinomial valuation method on the basis of the input from the above

statements. The expected volatility is estimated on the basis of the historical average volatility over a period

equal to the validity of the share or option plan. This value is charged to the income statement (staff costs)

over the vesting period and credited to equity.

The fair value of the shares and options awarded in the year can be analysed as follows:

The characteristics of the additional options becoming vested are:

Expiry date January 2011 January 2010 January 2009 January 2010 January 2009

Fair value at date of award € 9.78 € 11.46 € 8.07 € 3.77 € 2.68

Share price at date of award € 11.99 € 14.05 € 9.90 € 14.05 € 9.90

Exercise price n.v.t. n.v.t. n.v.t. € 14.05 € 9.90

Validity of options (including vesting period) 5 years 5 years 5 years 8 years 8 years

Vesting period 3 years 3 years 3 years 3 years 3 years

Vesting condition Uninterrupted

employment

contract plus

above criteria

Uninterrupted

employment

contract plus

above criteria

Uninterrupted

employment

contract plus

above criteria

Uninterrupted

employment

contract plus

above criteria

Uninterrupted

employment

contract plus

above criteria

Expected dividend yield 4.50% 4.50% 4.50% 4.50% 4.50%

Expected volatility 34.57% 35.47% 31.67% 30.93% 30.85%

Risk-free interest rate 3.07% 2.84% 3.25% 3.44% 3.62%

OptionsShares


Option plans, Managing Board - 433

Shares plans, Managing Board 215 190

Option plans, other staff 331 469

Total 546 1,092


Option plans, Managing Board 341 86

Shares plans, Managing Board 236 28

Option plans, other staff 244 522

Total 821 636



100

Options awarded

The following statement presents the position with regard to the numbers of options awarded to existing and

former members of the Managing Board and the other staff.

1 Mr N.E. Blom resigned as member of the Managing Board under the Articles of Association as at 1 July 2011.

Exercise of options

No options were exercised in 2011.

Shares awarded

The following statement presents the position with regard to the numbers of shares awarded to existing and

former members of the Managing Board.

Expiry date

Exercise

price in euro

Outstanding

as at

31/12/2010

Conditionally

awarded Vested Expired

Outstanding

as at

31/12/2011 Status

Managing Board

A.A. Röell March 2012 17.10 407 407 Vested

March 2011 20.74 9,760 9,760 - Vested

March 2013 20.74 4,880 4,880 Vested

March 2012 22.89 9,760 9,760 Vested

March 2014 22.89 4,880 4,880 Vested

January 2016 25.00 6,627 6,627 Vested

January 2017 9.90 42,475 11,723 54,198 Not yet vested

January 2018 14.05 43,253 43,253 Not yet vested

R.J. Kooijman January 2017 9.90 24,271 6,699 30,970 Not yet vested

January 2017 9.90 37,136 37,136 Vested


S.A.J. van Katwijk January 2017 9.90 11,426 3,154 14,580 Not yet vested


N.E. Blom1 March 2011 20.74 2,667 2,667 - Vested

March 2013 20.74 1,333 1,333 Vested

March 2012 22.89 7,813 7,813 Vested

March 2014 22.89 3,907 3,907 Vested

January 2016 25.00 3,408 3,408 Vested

January 2017 9.90 21,844 6,029 27,873 Not yet vested


March 2011 15.32 4,880 4,880 - VestedMarch 2012 17.10 11,067 11,067 VestedMarch 2011 20.74 7,813 7,813 VestedMarch 2012 22.89 19,693 19,693 - VestedMarch 2013 20.74 9,847 9,847 VestedMarch 2014 22.89 3,907 3,907 Vested

Other March 2011 15.32 3,000 3,000 - VestedMarch 2012 17.10 6,000 6,000 VestedMarch 2011 20.74 134,872 134,872 - VestedMarch 2013 20.74 9,697 9,697 VestedMarch 2012 22.89 153,896 7,499 146,397 VestedMarch 2014 22.89 8,948 8,948 VestedMarch 2013 26.00 168,140 8,988 159,152 VestedMarch 2015 26.00 159,120 6,052 153,068 VestedMarch 2014 8.31 124,899 4,927 119,972 Not yet vestedMarch 2016 8.31 6,599 6,599 Not yet vestedMarch 2015 13.55 114,109 44,707 69,402 Not yet vestedMarch 2017 13.55 26,690 2,310 29,000 Not yet vestedMarch 2018 11.82 1,355 1,355 Not yet vestedMarch 2018 11.82 111,458 111,458 Not yet vested

Total 1,280,700 142,728 - 247,045 1,176,383

Former

Managing Board

members



101

1 Mr N.E. Blom resigned as member of the Managing Board under the articles of association as at 1 July 2011..

50. Related parties

Parties are related if one controls the other or has significant influence on its financial and operating policies.

In the case of KAS BANK, related parties are the members of the Managing Board, the members of the

Supervisory Board and the pension fund Stichting Pensioenfonds KAS BANK.

2 Mr N.E. Blom's other remunerations include one additional annual salary and a contribution to his pension.

Basic pay

This comprises salary payments.

Variable remuneration

This remuneration is set by the Supervisory Board on the basis of a proposal made by the Appointments and

Remuneration Committee. Within the variable remuneration package, a distinction is made between short-term

and long-term benefits.

The short-term benefits are based on the results and depend on the achievement of qualitative and quantitative

targets for the year. This concerns the variable remuneration paid in cash for the year.

The long-term benefits are linked to the average growth in earnings per share over a period of three years and

are paid in the form of shares.

Expiry date

Outstanding

as at

31/12/2010

Conditionally

awarded

Unconditionally

awarded Expired

Outstanding

as at

31/12/2011 Status

Managing Board

A.A. Röell January 2008 506 506 - VestedJanuary 2009 8,838 2,439 11,277 Not yet vestedJanuary 2010 6,228 6,228 Not yet vestedJanuary 2011 8,128 8,128 Not yet vested

R.J. Kooijman January 2009 5,050 1,394 6,444 Not yet vestedJanuary 2010 3,559 3,559 Not yet vestedJanuary 2011 5,940 5,940 Not yet vested

S.A.J. van Katwijk January 2009 2,105 581 2,686 Not yet vestedJanuary 2010 3,559 3,559 Not yet vestedJanuary 2011 5,940 5,940 Not yet vested

N.E. Blom1 January 2008 260 260 - VestedJanuary 2009 4,545 1,254 5,799 Not yet vestedJanuary 2010 3,203 3,203 Not yet vestedJanuary 2011 1,980 1,980 Not yet vested

Total 37,853 27,656 766 - 64,743

Basic

pay

Short-term

variable

renumeration

Pension

contribution

Other

renumeration

Total

renumeration

in cash

Value of

options

granted

Value of

shares

granted

Total

renumeration

2010

A.A. Röell 350 48 87 23 508 163 71 742

250 26 62 24 362 93 41 496

S.A.J. van Katwijk 250 26 62 53 391 93 41 525

N.E. Blom 225 23 56 19 323 84 37 444

Totaal 1,075 123 267 119 1,584 433 190 2,207

Renumeration

Managing Board


R.J. Kooijman

Basic pay

Short-term variable

renumeration Pension

contribution Other

renumeration Total

renumeration in cash

Value of options granted

Value of shares

granted Total

renumeration

2011 A.A. Röell 370

77 92

21 560

31 100

691

268 56

67 21

412 16

68 496

S.A.J. van Katwijk 268

56 67

45 436

8 63

507

N.E. Blom (until 1/7/2011) 268 56

67 403 2 794

18 30

842

Total 1,174 245

293 490

2,204 73

261 2,536

Renumeration Managing Board In thousands of euros

R.J. Kooijman



102

Pension contributions

This item comprises the pension charges recognised in the income statement for the members of the Managing

Board.

Other remuneration

This item comprises the costs of commutation arrangements, long-service awards, non-activity arrangements,

contribution to mortgage costs, lease costs and employer’s contributions.

Value of options and shares granted

This concerns the value of the stock options and shares granted by the Supervisory Board in respect of the

year, on the basis of target performance (see note 49).

Current Managing Board member A.A. Röell and former Managing Board member N.E. Blom hold 3,228 (2010:

2,722) and 1,415 (2010: 1,155) depositary receipts for shares in the company, respectively.

Loans

No loans, advances or guarantees have been granted to the active members of the Managing Board (2010:

none). If the bank’s lending facilities are utilised by members of the Managing Board, the same terms apply as

to other employees.

51. Remuneration of the Supervisory Board

The number of members of the Supervisory Board as at year-end 2011 was six (2010: six). The following

remuneration was received by the members of the Supervisory Board, including fees for membership of

subcommittees formed by the Supervisory Board and VAT (in thousands of euros).

The total amount of loans advanced to and guarantees given on behalf of members of the Supervisory Board

was nil (2010: nil).


R. Smit 48 5

J.M.G. Frijns 40 41

A.H. Lundqvist 40 37

R.A.H. van der Meer 46 42

R. Icke 45 29

R. Teerlink 32 20

D.J.M.G. Baron van Slingelandt (until 5 May 2010) - 15

H. Donkervoort (until 22 April 2010) - 10

C. Griffioen (until 22 April 2010) - 10

Total 251 209


Notes on the auditors’ fee

103

52. Audit fee

The following table presents the costs recognised in the income statement in respect of KAS BANK’s external

auditors KPMG Accountants N.V. for services rendered.

The above amounts include VAT which is not recoverable amounting to € 121,000 (2010: € 119,000).


KPMG Accountants N.V.:

Audit of the financial statements 423 443

Other audit assignments 390 278

Other KPMG departments:

Tax consultancy 64 71

Other non-audit assignments 127 241

Total 1,004 1,033


Company income statement

104


Income

Interest income 74,699 52,137

Ìnterest expense 47,245 31,568

Net interest 27,454 20,569

Commission income 75,457 77,491

Commission expense 13,065 15,533

Net commission 62,392 61,958

Results of subsidiaries 2,510 2,080

Investments at fair value through

profit or loss 7,021 8,759


Result on investments 9,090 24,551

Other income 1,744 1,092

Total income 103,190 110,250

Operating expenses

Staff costs 59,513 61,438

Other administrative expenses 28,631 24,838

Depreciation/amortisation 3,948 4,689

Operational operating expenses 92,092 90,965

Impairment losses -2,013 -2,630

Total operating expenses 90,079 88,335


Tax 2,881 3,460



Company balance sheet

105

31/12/2011 31/12/2010

Assets

Cash and deposits at the central bank 1,135,736 731,545

Banks 511,553 2,254,347

Loans and advances 1,443,330 774,596



Investments at fair value through profit or loss 181,871 176,328

Available-for-sale investments 1,168,288 1,326,911

Current tax assets 9,520 32,517

Other assets 10,242 11,519

Prepayments and accrued income 10,408 18,518

Financial assets 127,450 127,335

Property and equipment 3,008 2,106

Intangible assets 5,148 5,898

Deferred tax assets 1,314 1,423

Employee benefits (assets) 12,857 1,839

Total assets 5,430,968 6,089,891


Banks 457,397 2,056,500

Entrusted funds 4,571,534 3,662,783


- 17,044

Current tax liabilities - 5,748

Other liabilities 1,452 16,977

Accruals and deferred income 14,971 14,449

Provisions - -

Deferred tax liabilities 4,262 3,280

Employee benefits 835 1,096

Total liabilities 5,262,935 5,902,875

Share capital 15,699 15,699

Share premium 21,569 21,569

Revaluation reserve -5,332 18,181

Statutory reserve 3,451 4,105

Other reserves 127,227 113,818

Unappropriated result 5,419 13,644

168,033 187,016

Total equity and liabilities 5,430,968 6,089,891

Contingent liabilities 26,703 27,211

Irrevocable facilities 25,889 20,958



Total equity attributable tot the equity holders of the bank


Notes to the company financial statements

106

Summary of accounting policies

The company financial statements have been prepared in accordance with Part 9 of Book 2 of the Netherlands

Civil Code, applying the same accounting policies as for the consolidated financial statements, as provided by

Section 362:8 of Part 9 of Book 2 of the Netherlands Civil Code except for those relating to financial assets and

the statutory reserve.

The financial statements are presented in thousands of euros, unless stated otherwise. The amounts presented

in the tables have been computed using figures which have been not rounded and it is therefore possible for

differences to occur due to the effects of rounding. The euro is also KAS BANK’s functional currency. To

facilitate comparison, the comparative figures have been restated where necessary.

Where applicable, reference is made to the notes to the consolidated financial statements. Differences relate to

the consolidation of the subsidiaries.

Group companies and receivables from group companies

The consolidated subsidiaries and associates in respect of which KAS BANK has significant influence on financial

and operating policy decisions are carried in the company financial statements at KAS BANK’s share in their net

asset value, calculated in accordance with KAS BANK’s accounting policies. The share in the results of

subsidiaries is presented in the income statement under the heading ‘results of subsidiaries’.

As at 31 December 2011, the most important subsidiaries were:

Amsterdam Depositary Company N.V. Amsterdam

KAS Derivaten Clearing N.V. Amsterdam

KAS BANK Effectenbewaarbedrijf N.V. Amsterdam

KAS Trust B.V. Amsterdam

KAS Servicing B.V. Amsterdam

KAS Participatiemaatschappij B.V. Amsterdam

Centrum voor Fondsenadministratie B.V. Amsterdam

Addition Knowledge House B.V. Amsterdam

KAS BANK OG Spuistraat B.V. Amsterdam

KAS BANK OG NZVW B.V. Amsterdam

KAS Europe BVBA Brussel

KB Deutschland Holding GmbH Wiesbaden

o KAS Investment Servicing GmbH Wiesbaden

A complete list of subsidiaries has been deposited with the Trade Register of the Amsterdam Chamber of

Commerce. Apart from an interest of 50% plus one share in Addition Knowledge House B.V., KAS BANK’s

interest in all the subsidiaries is 100%.

Group companies and receivables from

group companies

In thousands of euros Group companies

Receivables from

group companies Total

Position as at 1 January 2011 127,335 8,945 136,280

Loan - -788 -788

Receivable from operational activities - -523 -523

Result for the period 2,510 - 2,510

Revaluation reserve -2,395 - -2,395

Position as at 31 December 2011 127,450 7,634 135,084


Notes to the company financial statements

107

Property and equipment and revaluation reserve

In 2009, KAS BANK N.V. transferred its premises in Amsterdam together with associated assets to two separate

private limited liability companies, KAS BANK OG Spuistraat B.V. and KAS BANK OG NZVW B.V. The revaluation

reserve related to these premises was also transferred.

Statutory reserve

The Statutory reserve is built up from the other reserves and concerns capitalised in-house developed software.

Repurchase of own shares

The company’s shares which have been repurchased have been deducted from other reserves in the company

financial statements.

Off-balance-sheet financial commitments

Pursuant to Section 403, subsection 1.f, of Part 9, Book 2, of the Netherlands Civil Code, the company has

assumed joint and several liability for debts arising out of the legal acts of the above subsidiaries apart from

Addition Knowledge House B.V., KAS Europe BVBA, KB Deutschland Holding GmbH, KAS BANK OG Spuistraat

B.V., and KAS BANK OG NZVW B.V. KAS BANK has also allocated € 5.0 million internally in connection to the

Depotbank services (custodian bank) within KAS BANK’s German branch to cover possible liabilities of the

Depotbank.

Tax

The companies mentioned on page 106 form part of the KAS BANK tax group for corporate tax, except for

Amsterdam Depositary Company N.V., KAS Derivaten Clearing N.V., KAS BANK Effectenbewaarbedrijf N.V.,

Addition Knowledge House B.V., KAS Europe BVBA, KB Deutschland Holding GmbH and KAS Investment

Servicing GmbH. The VAT tax group comprises KAS BANK N.V., KAS Derivaten Clearing N.V., Addition

Knowledge House B.V., KAS BANK OG Spuistraat B.V. and KAS BANK OG NZVW B.V.

KAS BANK is jointly and severally liable for the tax liabilities of the tax group as a whole.

Related parties

In 2009, KAS BANK sold the land and buildings used by the company to KAS BANK OG Spuistraat B.V. and

KAS BANK OG NZVW B.V. and now leases the premises it uses from these companies.


Management declaration and signature

108

Management declaration

KAS BANK’s Managing Board and Supervisory Board hereby declare that the financial statements give a true

and fair view of the assets, liabilities, financial position and profit or loss of the issuing institution and the

companies included in the consolidation.


KAS BANK Managing Board and Supervisory Board

Managing Board

Supervisory Board

A.A. Röell, chairman R. Smit, chairman

R.J. Kooijman, CFO J.M.G. Frijns

S.A.J. van Katwijk A.H. Lundqvist

R.A.H. van der Meer

R. Icke

R. Teerlink


Other information

109

Appropriation of result for 2011

The provisions of the Articles of Association concerning the appropriation of profit read as follows:

Article 25 - Distributions, reserves, losses

1. The company may pay dividends and make distributions to shareholders and others with entitlement

to the distributable profit only insofar as its shareholders’ equity exceeds the amount of the paid and

called capital together with the reserves which the company is required to maintain by law.

2. Out of the profit for the preceding financial year, a dividend will if possible first be paid on the preference

shares of a percentage of the amount paid on those shares, said percentage being related to the average

yield on the five longest-dated government loans, calculated in the manner set forth below. The

percentage dividend payable on the preference shares will be calculated by taking the arithmetic mean

of the average effective yield of the loans referred to above, as computed by the Central Bureau of

Statistics and published in the Official Price List of NYSE Euronext Amsterdam N.V., calculated over the

first twenty trading days of the twenty-two trading days prior to the date of first issue of preference

shares, plus a percentage of a maximum of one-half percentage point, to be determined by the

Managing Board and approved by the Supervisory Board, with reference to the prevailing market

conditions. If and to the extent that the profit is not sufficient to pay the dividend referred to in this

paragraph in full, the deficit will be made good by a charge on the reserves.

3. In the event of cancellation and repayment of preference shares, a payment shall be made on the

cancelled preference shares, calculated as far as possible in accordance with the provisions of

paragraph 2 and paragraph 4, proportionately over the period from the date on which a payment

referred to in paragraph 2 and paragraph 4 was last made – or, if the preference shares were issued

after that date, from the date of issue – up to the date of repayment.

4. If in any financial year the profit or the distributable reserves are not sufficient to make the

distributions referred to in this article, the provisions of the first two sentences of paragraph 2 and the

provisions of paragraphs 5 and 6 will not apply until the deficit has been made up.

5. The Managing Board, with the prior approval of the Supervisory Board, is empowered to appropriate all

or part of the profit to reserves

6. Any profit remaining after the deduction of an appropriation to reserves as referred to in the preceding

paragraphs will be at the disposal of the General Meeting. If the General Meeting resolves to pay a

dividend, it will be paid to the holders of ordinary shares in proportion to their holdings of ordinary

shares.

7. Insofar as the General Meeting resolves not to pay a dividend in respect of any year, the profit will be

added to the reserves.

8. The Managing Board may, with the approval of the Supervisory Board, resolve to pay an interim

dividend, provided that the requirements of paragraphs 1 and 13 of the present Article have been met.

The provisions of paragraph 10 of the present Article will be applicable mutatis mutandis to the

payment of the interim dividend.

9. The General Meeting may resolve, only on a proposal of the Managing Board as approved by the

Supervisory Board, to pay a dividend from a distributable reserve.

10. Without prejudice to the provisions of Article 4 of the present Articles of Association, the General

Meeting may resolve, on a proposal of the Managing Board as approved by the Supervisory Board, to

pay a dividend from the profit – or from a distributable reserve – in the form of shares in the company

or depositary receipts there for.

11. Dividends will be payable at such place and at such time as the Managing Board may determine, but at

the latest within one month of the resolution adopted by the General Meeting to that effect. Payment


Other information

110

of dividend will be announced to the shareholders by letter and by means of an advertisement placed

in a national daily newspaper and in the Official Price List of NYSE Euronext Amsterdam N.V.

12. Dividends which have not been taken up within five years of the date on which they became payable

will revert to the company.

13. Interim distributions will be made in accordance with Section 105, subsection 4, of Book 2 of the

Netherlands Civil Code

Proposed appropriation of result for 2011

The Managing Board, with the approval of the Supervisory Board, proposes that the General Meeting of

Shareholders approve the following appropriation of the result:

Based on the result for 2011, the General Meeting of Shareholders will be invited to declare a dividend of

€ 0.50 per share.Taking account of the interim dividend for 2011 amounting to € 0.33 per share, the final

dividend will amount to € 0.17 per share. The dividend distribution thus amounts to € 7.3 million, of which

€ 4.8 million has already been distributed as interim dividend.

Result for the period 10,230

Interim dividend -4,811

Proposed final dividend -2,478

Proposed addition to other reserves 2,941

Appropriation of the result according to the consolidated income statement for 2011


Independent auditors’ report

111

To: Shareholders’ meeting of KAS BANK N.V.

Report on the financial statements

We have audited the accompanying financial statements 2011 of KAS BANK N.V., Amsterdam. The financial

statements include the consolidated financial statements and the company financial statements. The

consolidated financial statements comprise the consolidated statement of financial position as at 31 December

2011, the consolidated income statement, the consolidated statements of comprehensive income, changes in

equity and cash flows for the year then ended, and notes, comprising a summary of the significant accounting

policies and other explanatory information. The company financial statements comprise the company balance

sheet as at 31 December 2011, the company profit and loss account for the year then ended and the notes,

comprising a summary of the accounting policies and other explanatory information.

Management’s responsibility

Management is responsible for the preparation and fair presentation of the financial statements in accordance

with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of

the Netherlands Civil Code, and for the preparation of the management board report in accordance with Part 9

of Book 2 of the Netherlands Civil Code. Furthermore, management is responsible for such internal control as it

determines is necessary to enable the preparation of the financial statements that are free from material

misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our

audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply

with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of

the risks of material misstatement of the financial statements, whether due to fraud or error. In making those

risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair

presentation of the financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal

control. An audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of

the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion with respect to the consolidated financial statements

In our opinion, the consolidated financial statements give a true and fair view of the financial position of KAS

BANK N.V. as at 31 December 2011 and of its result and its cash flows for the year then ended in accordance

with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of

the Netherlands Civil Code.

Opinion with respect to the company financial statements

In our opinion, the company financial statements give a true and fair view of the financial position of KAS BANK

N.V. as at 31 December 2011 and of its result for the year then ended in accordance with Part 9 of Book 2 of

the Netherlands Civil Code.

Independent auditors’ report

112

Report on other legal and regulatory requirements

Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Netherlands Civil Code, we have

no deficiencies to report as a result of our examination whether the management board report, to the extent

we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and if the information as

required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the management board

report, to the extent we can assess, is consistent with the financial statements as required by Section 2:391

sub 4 of the Netherlands Civil Code.


KPMG ACCOUNTANTS N.V.

M.A. Hogeboom RA

Annual Report 2011

Various statements

113

Report of Stichting Administratiekantoor Aandelen KAS BANK (KAS BANK Registrar’s

Office)

Stichting Administratiekantoor Aandelen KAS BANK (KAS BANK Registrar’s Office) administers and manages

almost all ordinary shares in the issued capital of KAS BANK N.V. and, with the cooperation of the company,

issues in exchange depositary receipts with limited exchangeability. The Registrar’s Office itself exercises voting

rights only in respect of shares for which no proxies have been granted to the depositary receipt holders and

shares for which no voting instructions have been received. This arrangement is conducive to the continuity of

decision-making within the General Meeting of Shareholders and preserves the balance of the meeting by

preventing a chance majority of those entitled to exercise voting rights influencing the decision-making process

of the Meeting of Shareholders.

The Executive Committee hereby reports on its activities in the financial year in accordance with Article 18 of its

Administration Conditions.

The Executive Committee met once in 2011 prior to the Annual General Meeting of Shareholders. The members

of the Executive Committee also kept in touch by telephone, letter and e-mail. The Executive Committee was in

attendance at the Annual General Meeting of Shareholders on 28 April 2011.

The amendment of the Constitution and Administrative Conditions of the Registrar's Office in line with the

change to the Securities Giro Transfer Act (Wet giraal effectenverkeer) was discussed in the meeting. The

amendment of the Constitution and Administrative Conditions involved deleting all references to ‘bearer

depositary receipts’ and replacing these with ‘registered depositary receipts’. The Constitution and

Administrative Conditions were amended on 30 September 2011. The membership profile for the Executive

Committee of the Registrar's Office was adjusted in line with the new governance structure of the Registrar's

Office after the previous amendment of the Constitution in 2009.

Discussion also turned to the general state of the company’s affairs, the recent developments in the field of

corporate governance and the amendment of the company's Articles of Association. The Executive Committee

discussed all the topics on the agenda for the Annual General Meeting of Shareholders and the specific

resolutions tabled by the Managing Board and Supervisory Board. Following these discussions, the Executive

Committee put various questions to the Managing Board of the company, seeking further explanation on a

number of points. Based on this information and having regard to the interests of the holders of depositary

receipts, along with the interests of the company, its related enterprise and all stakeholders, the Registrar’s

Office decided to vote in favour of all the resolutions on the agenda. The Registrar’s Office did not seek external

advice.

For the Annual General Meeting of Shareholders on 28 April 2011, the Registrar’s Office issued proxies to 49

depositary receipt holders and/or their proxies, compared with 103 the previous year.

The shareholders and depositary receipt holders in attendance represented 37.2% of the voting capital in the

meeting. The Registrar's Office therefore represented 62.8% of the voting right.

The total number of ordinary shares in the issued capital of the company remained unchanged in 2011 at

15,699,017. As at year-end, the Registrar’s Office had 15,616,019 ordinary shares under administration, in

exchange for which the same number of depositary receipts had been issued. Depositary receipts have been

issued for approximately 99.5% of the total issued share capital. No additional depositary receipts were issued

for shares in 2010.

Annual Report 2011

Various statements

114

The actual administrative procedures are performed by the company. The expenses of the Registrar’s Office in

2011, which amounted to approximately € 20,000, related mainly to the remuneration of the members of the

Executive Committee and the contribution to the Centrum voor Fondsenadministratie. The company has

undertaken to make an annual sum available to the Registrar’s Office from which it can defray these and other

expenses incurred by the Registrar’s Office.

In 2011 it was the turn of Mr A. Baan to step down as member of the Executive Committee. Mr Baan is

available for reappointment for a period of two years until 2013. As of 2013, Mr Baan will have served on the

Executive Committee of the Registrar's Office for 12 years. The Executive Committee advised the holders of

depositary receipts for the company’s shares regarding the vacancy arising on the Executive Committee in a

notice posted on the website of the Registrar’s Office, inviting them to put forward the names of candidates for

appointment to the Executive Committee. The Executive Committee did not receive any nominations. The

Executive Committee accordingly reappointed Mr Baan to sit on the Executive Committee, with effect from

1 July 2011, and serve a term of office of two years. In 2012, it will be the turn of Mr Zwarts to retire by

rotation and Messrs Scheffers and Baan are due to retire by rotation in 2013.

The members of the Executive Committee receive an annual fee of € 6,000 for their services to the Registrar’s

Office. The members of the Executive Committee who are designated as independent are not persons

associated with the company within the meaning of Article 4, paragraph 1, of the Constitution of the Registrar’s

Office.

A list of the positions held by the members of the Executive Committee of the Registrar’s Office is available for

inspection at the company’s office and on the dedicated website of the Registrar’s Office

(www.stichtingadministratiekantoor.kasbank.com).

Amsterdam, 22 February 2012

The Executive Committee:

A. Baan, chairman (2013)

H. Zwarts (2012)

H. Scheffers (2013)

Annual Report 2011

Various statements

115

Report of Stichting Administratiekantoor Aandelen KAS BANK Effectenbewaarbedrijf

(KDTC Registrar’s Office)

Stichting Administratiekantoor Aandelen KAS BANK Effectenbewaarbedrijf (‘KDTC Registrar’s Office’) holds all

the shares in KAS BANK Effectenbewaarbedrijf N.V. (KDTC), in exchange for which it has issued non-

exchangeable depositary receipts for shares to KAS BANK. KDTC acts on KAS BANK’s behalf as a custodian of

securities for KAS BANK’s clients, to the extent that such securities would be counted as KAS BANK’s assets by

virtue of KAS BANK’s custody thereof. KDTC’s object expressly excludes the conduct of any business other than

the custody of securities which involves commercial risk. Custody is provided by KDTC subject to the ‘Terms

concerning custody of securities’ (Terms), in which KAS BANK guarantees to its clients the due performance of

all of KDTC’s obligations to them.

The activities associated with custody operations are performed by KAS BANK, which also acts as the

Management of KDTC. Changes and additions may be made to the Terms by KAS BANK and KDTC acting

together, provided that the prior approval of KDTC Registrar’s Office is obtained. The Articles of Association of

KDTC Registrar’s Office stipulates that at least half of the members of the Executive Committee must be

persons who are not employed by KAS BANK or any institution associated with it. This requirement is met.

The Executive Committee of KDTC Registrar’s Office met on 2 February 2012 to consider KDTC’s 2011 financial

statements. The Executive Committee also received a report that the auditors had determined that, as to their

design and existence, the arrangements made by KAS BANK with regard to the segregation of assets complied

with the relevant regulations. The amendments to the Securities (Bank Giro Transactions) Act as of 1 January

2011 and the possible effects these could have for the custodial companies were also discussed. After approval

and adoption of the financial statements, the General Meeting of Shareholders of KDTC discharged the

Management of the company of liability for its conduct of affairs in 2011.

In 2011 it was the turn of Mr D.H. Cross to step down as member of the Executive Committee. With the

approval of KAS BANK’s Supervisory Board, Mr Cross was reappointed by the Executive Committee.

In 2012 it will be the turn of Mr R.P. Voogd to step down as member of the Executive Committee. Subject to

the approval of KAS BANK’s Supervisory Board, Mr Voogd has been reappointed by the Executive Committee.



D.H. Cross, chairman (2014)

R.P. Voogd (2012)

R.J. Kooijman (2013)

Annual Report 2011

Various statements

116

Report of Stichting Administratiekantoor Aandelen KAS Derivaten Clearing (KASDC

Registrar’s Office)

Stichting Administratiekantoor Aandelen KAS Derivaten Clearing (‘KASDC Registrar’s Office’) holds all the

shares in KAS Derivaten Clearing N.V. (‘KASDC’), in exchange for which it has issued non-exchangeable

depositary receipts for shares to KAS BANK. KASDC acts on KAS BANK’s behalf as clearing member and holder

of derivatives positions for KAS BANK’s clients. KASDC’s object expressly excludes the conduct of any other

business which involves commercial risk. KASDC holds derivatives positions for clients subject to the ‘Terms

concerning the holding of derivatives’ (Terms) in which KAS BANK guarantees to its clients the due performance

of all of KASDC’s obligations to them. The positions are administered by KAS BANK. Changes and additions may

be made to the Terms by KAS BANK and KASDC acting together, provided that the prior approval of KASDC

Registrar’s Office is obtained. The Articles of Association of KASDC Registrar’s Office stipulates that at least half

of the members of the Executive Committee must be persons who are not employed by KAS BANK or any

institution associated with it. This requirement is met.

The Executive Committee of KASDC Registrar’s Office met on 2 February 2012 to consider KASDC’s 2011

financial statements. The Executive Committee also received a report that the auditors had determined that, as

to their design and existence, the arrangements made by KAS BANK with regard to the segregation of assets

complied with the relevant regulations. After approval and adoption of the financial statements, the General

Meeting of Shareholders of KASDC discharged the Management of the company of liability for its conduct of

affairs in 2011.

In 2011 it was the turn of Mr D.H. Cross to step down as member of the Executive Committee. With the

approval of KAS BANK’s Supervisory Board, Mr Cross was reappointed by the Executive Committee.

In 2012 it will be the turn of Mr R.P. Voogd to step down as member of the Executive Committee. Subject to

the approval of KAS BANK’s Supervisory Board, Mr Cross has been reappointed by the Executive Committee.



D.H. Cross, chairman (2014)

R.P. Voogd (2012)

R.J. Kooijman RA (2013)

Annual Report 2011

Corporate governance

117


The revised Dutch corporate governance code produced by the Corporate Governance Code Monitoring

Committee came into operation on 1 January 2009. The corporate governance code contains principles and

best-practice provisions to be observed by managing boards, supervisory boards and shareholders of listed

companies in the Netherlands vis-à-vis each other. This concerns rules with respect to modern, widely

supported and generally held views on good corporate governance. In addition, the Banking Code, issued by

the Netherlands Bankers’ Association, came into operation on 1 January 2010. The Banking Code relates mainly

to functioning in a specifically banking context, with the emphasis on risk management, customer focus and

remuneration policy. The present section of the report covers compliance with the corporate governance code

and the Banking Code and the main elements of KAS BANK’s corporate governance structure.

Given below is a summary of the recent developments in the field of corporate governance affecting the

company. This is followed by an outline of KAS BANK’s corporate governance structure, explaining its system of

management by the Managing Board, supervision of management by the Supervisory Board, reporting to

capital providers on the management and supervision of the management and the powers vested in the capital

providers. The remuneration policy, the capital structure and the financial reporting are also explained. This

exposition takes as a basis the Articles of Association as formulated since 19 May 2011.

Recent developments

Dutch corporate governance code

The Dutch corporate governance code was updated by the Corporate Governance Code Monitoring Committee

in December 2008, the updated code coming into operation into operation on 1 January 2009. With effect from

1 January 2010, the corporate governance code has been designated as the official code of conduct to be

adhered to by Dutch listed companies. The main changes compared with the previous code, dating from

December 2004, concerned the remuneration of managing board members, risk management, the

responsibilities of shareholders and diversity in the composition of supervisory boards. The corporate

governance code was published in the Bulletin of Acts, Orders and Decrees (Staatscourant) of 3 December

2009, no. 18499, and can be found online at www.commissiecorporategovernance.nl.

KAS BANK has published a report on the way in which it applies the corporate governance code on the

company’s website, indicating for each best-practice provision that the company complies or explaining why it

does not comply. KAS BANK will be applying almost all of the best-practice provisions, giving an explanation of

non-compliance in the case of two provisions only. This concerns best-practice provision II.1.1 (the existing

members of KAS BANK’s Managing Board have been appointed indefinitely) and III.5.10/14 (KAS BANK has a

combined Appointments and Remuneration Committee). With regard to best-practice provision II.1.1,

incidentally, this will be applicable to new members of the Managing Board. The report (‘Toepassing door KAS

BANK van de Nederlandse corporate governance code’/’KAS BANK’s application of the Dutch corporate

governance code’) can be found at www.kasbank.com/investorerelations/corporategovernance.

Banking Code

The Banking Code came into operation on 1 January 2010 and applies to all banks in the Netherlands. The

Banking Code concentrates on further strengthening corporate governance within the banks, improved risk

management, auditing and restrained remuneration policy. The Banking Code is a form of self-regulation and

can be seen as assumption of responsibility by the Dutch banks following the financial crisis. The banks have

drawn lessons from the financial crisis and are hard at work implementing the Banking Code. The Banking Code

can be found on the website of the Netherlands Bankers’ Association (www.nvb.nl).

Annual Report 2011


118

KAS BANK has published a report on the way in which it applies the Banking Code on the company’s website,

indicating for each principle that the company complies or explaining why it does not comply. KAS BANK

complies with all of the principles. The report (‘Toepassing door KAS BANK van de Code Banken’/’KAS BANK’s

application of the Banking Code’) can be found at www.kasbank.com/investorerelations/corporategovernance.

The following paragraphs report on the way in which KAS BANK is applying the corporate governance code and

Banking Code and the extent to which it is complying with these codes.


KAS BANK made further progress with the implementation of the Banking Code during the year. The bank’s risk

appetite and low risk profile were again endorsed and approved by the Supervisory Board. The strategic

developments and proposed collaboration with a German partner were discussed in all the Supervisory Board's

meetings. A new – carefully constructed, restrained and durable – remuneration policy was adopted for the

bank as a whole. The Managing Board was reduced from four to three members and the focal areas were

reallocated among the members of the Managing Board. A programme of permanent education was

implemented for the Supervisory Board and Managing Board. These various points are covered in greater detail

below.

Risk Management:

• The approach to risk management within KAS BANK, the aim of risk management and the steps required in

order to put in place an effective risk management organisation were discussed with the Supervisory Board

and generally tightened up within the bank. The description of the structure and operation of the internal

risk management and control systems was further refined.

• The bank’s risk appetite was discussed with the Supervisory Board and received the Board’s endorsement.

• The bank's remuneration policy was adopted and tested against the Regulations on Sound Remuneration

Policy once again; the bank's remuneration policy was discussed with the Supervisory Board.

• The bank has in place a product approval process.

• The internal audit function performed an audit of the implementation of the Banking Code at the end of

2010.

Remuneration policy

• Prompted by the introduction of the Regulations on Sound Remuneration Policy and other considerations, a

new remuneration policy was outlined for the bank. The underlying principles were that the new policy

should be carefully constructed, restrained and durable, should be in line with the bank’s strategy and risk

appetite, should reflect the bank’s long-term interests and the relevant international context, and should

have public support.

• The remuneration policy was discussed with the Supervisory Board and satisfies the requirements of the

Banking Code.

Permanent education

• A format was established in 2010 providing a standard means for the members of the Managing Board and

Supervisory Board to record how much time they were spending on permanent education. The format

comprises a number of categories covering relevant developments within the bank and the financial sector,

duty of care vis-à-vis customers, integrity, risk management, financial reporting, and auditing (all topics

mentioned in the Banking Code).

Annual Report 2011


119

• At the beginning of 2011, an intensive programme of permanent education was organised for the members

of the Supervisory Board and Managing Board by a number of outside experts.

• When new members are appointed to the Supervisory Board, an introduction programme is put together

for them, with presentations by senior management. Members of the Supervisory Board have also visited

various departments within the bank to see what goes on at first hand.

Self-evaluation by the Supervisory Board

• At the end of 2011 the Supervisory Board started a self-evaluation of its own performance and that of the

committees with the assistance of an external expert. The outcomes of this evaluation were discussed at

the beginning of 2012 and a number of action points were identified. It was decided, for instance, to set up

an operations programme to further increase the members' knowledge and understanding of the key basic

processes.

• The self-evaluation also focused on the membership profile of the Supervisory Board, the competencies

represented on the board and the relationship between the Supervisory Board and Managing Board.

Moral and Ethical Declaration

• Each member of the Managing Board has signed a Moral and Ethical Declaration. The Declarations were

signed in March 2010 and have been posted on the company’s website. The wording of the Declaration, as

signed by the members of the Managing Board, is identical to that proposed by the Maas Committee.

• At the beginning of 2011, an interpretation of the Moral and Ethical Declaration was applied to the

workforce in general and incorporated into the company’s staff handbook. All employees at the bank are

required to adhere to the principles contained in the staff handbook in their daily activities.

Client focus

• Introduction of Client Service Reviews: Contacts with our clients were further intensified with the

introduction of Client Service Reviews. Almost the entire client base was involved in this exercise. The

purpose of the reviews was to eliminate risks and irregularities and further enhance the standard of service

and improve client satisfaction. The average rating from our clients rose in 2011 compared to 2010. Work

on this project proceeded with undiminished vigour in 2011. The intake process for new clients was also

accelerated and professionalised.

• KAS BANK only has corporate clients, for whom the duty of care involves something slightly different.

Amendment of Articles of Association

• KAS BANK's Articles of Association were amended on 19 May 2011 in line with a few changes in Dutch

company law. These amendments relate to the revision of the capital maintenance rules (change to the law

that the company may buy its own paid-up shares up to maximum half of the issued capital), the

introduction of the Shareholders' Rights Act (the revised notice period for the AGM, introduction of the

mandatory registration date, possibility of using electronic means of communication to participate in

decision-making, possibility of announcing the AGM electronically) and the European transparency directive

(requirement to prepare the financial statements within 4 months without the possibility of extending this

period). In addition, a number of textual changes were implemented.

• The Constitution and Administration Conditions of Stichting Administratiekantoor Aandelen KAS BANK

(KAS BANK Registrar’s office) were amended in line with the change to the Securities Giro Transfer Act.

These amendments included the deletion of any reference to ‘bearer depositary receipts’. The new

Annual Report 2011


120

Securities Giro Transfer Act is aimed at better protection of the securities investor and further-reaching

dematerialisation in securities transactions.

Outline corporate governance structure

Managing Board

As a two-tier company (structuurvennootschap), KAS BANK is subject to the provisions of Title 4, Part 6, of

Book 2 of the Netherlands Civil Code. The company is managed by a Managing Board consisting of two or more

members. In the performance of its duties, the Managing Board is guided by the interests of the company and

the enterprise associated therewith, weighing the interests of all stakeholders in the company. The procedures

of the Managing Board are defined in the company’s Articles of Association and the by-laws of the Managing

Board. The Articles of Association and by-laws are posted on the company’s website.

Members of the Managing Board are appointed and may be removed by the Supervisory Board. The

Supervisory Board is required to notify the General Meeting of Shareholders of a proposal to appoint a member

of the Managing Board. The Employees’ Council is given an opportunity to state its position on a proposed

resolution to appoint or dismiss a member of the company’s Managing Board. The General Meeting of

Shareholders is consulted by the Supervisory Board on a proposal to dismiss a member of the Managing Board.

Certain management decisions are subject to the prior approval of the Supervisory Board or the General

Meeting of Shareholders.

The Managing Board has been authorised by the General Meeting of Shareholders to issue shares up to a

maximum of 10% of the company’s issued share capital, including the granting of rights to acquire shares, and

an additional 10% of the company’s issued share capital if the issue of this additional 10% is in connection with

a merger or acquisition, subject to the approval of the Supervisory Board. The Managing Board has also been

authorised by the General Meeting of Shareholders to repurchase the company’s own shares, subject to the

approval of the Supervisory Board. The General Meeting of Shareholders is invited each year to renew these

authorisations in respect of the number of shares specified therein, each for a period of 18 months.

Conflicts of interest of all kinds between the company and members of the Managing Board are avoided. The

prior approval of the Supervisory Board is required for transactions involving conflicts of interest with members

of the Managing Board which are of material significance for the company and/or the relevant members of the

Managing Board. In the event of any conflict of interest arising between the company and members of the

Managing Board, the best-practice provisions (II.3.2–II.3.4) of the Code are applied. No conflicts of interest

arose between the company and members of the Managing Board during the year under review.

Supervisory Board

The Supervisory Board of KAS BANK is charged with supervising the policy of the Managing Board, the general

course of affairs within the company and the enterprise associated therewith. It also assists the Managing

Board in an advisory capacity. In the event of the absence or inability to act of all the members of the

Managing Board, the Supervisory Board is charged with the temporary management of the company. In the

performance of their duties, the members of the Supervisory Board are guided by the interests of the company

and the enterprises associated therewith, weighing the relevant interests of the stakeholders in the company.

The procedures of the Supervisory Board are defined in the company’s Articles of Association and the

Supervisory Board’s by-laws. The Supervisory Board has also formulated a profile, which defines the Board’s

ideal size and composition. The Supervisory Board is composed such that the members are able to operate

Annual Report 2011


121

independently of and adopt a critical stance with respect to one another, the Managing Board and any partial

interests. The by-laws and profile of the Supervisory Board are posted on the company’s website.

Members of the Supervisory Board are appointed by the General Meeting of Shareholders on nomination by the

Supervisory Board. The Managing Board, the General Meeting of Shareholders and the Employees’ Council may

nominate individuals for appointment to the Supervisory Board. The Employees’ Council may object to an

appointment proposed by the Supervisory Board. The Employees’ Council has an enhanced right of

recommendation with respect to the member of the Supervisory Board whose portfolio includes social policy.

Conflicts of interest of all kinds between the company and members of the Supervisory Board are avoided. The

prior approval of the Supervisory Board is required for transactions involving conflicts of interest with members

of the Supervisory Board which are of material significance for the company and/or the relevant members of

the Supervisory Board. In the event of any conflict of interest arising between the company and members of

the Supervisory Board, the best-practice provisions (III.6.1-III.6.4) of the Code are applied. No conflicts of

interest arose between the company and members of the Supervisory Board during the year under review.

A member may be appointed to the Supervisory Board up to three times for a term of four years. Supervisory

Board members retire at the age of 72. In certain instances (such as neglect of his or her duties or material

changes in circumstances), a Supervisory Board member may be suspended or dismissed by the Enterprise

Division of the Court of Amsterdam at the request of the Supervisory Board.

General Meeting of Shareholders

KAS BANK encourages full participation by the shareholders in decision-making at the General Meeting by

actively inviting as many shareholders and depositary receipt holders as possible to attend and minimising the

restrictions on voting rights. Subject to certain conditions, a holder of shares or depositary receipts

representing one per cent (1%) of the issued capital can have an item placed on the agenda. The principle that

shareholders have voting rights in the meeting and depositary receipt holders are only able to address the

meeting is increasingly being abandoned. At least one General Meeting of Shareholders is held each year.

Depositary receipt holders attending the General Meeting of Shareholders in person or represented by a proxy

are, if requested, granted unrestricted and unconditional voting rights automatically by KAS BANK Registrar’s

Office (‘Registrar’s Office’). This means that voting rights will also be granted in time of ‘war’ (for example, if a

hostile bid is imminent, if 25% or more of the issued share capital is held by one party or if the interests of the

company are in jeopardy). Depositary receipt holders are free to vote as they see fit. They may also issue

binding instructions to the Registrar’s Office to vote on their behalf.

The powers of the General Meeting of Shareholders are defined by law and the Articles of Association.

Its principal powers are those of:

• approving decisions that involve a material change in the identity or character of KAS BANK or its

operations;

• adopting the remuneration policy and approving the share and option scheme for the Managing Board;

• approving the appointment and remuneration of members of the Supervisory Board;

• taking a vote of no confidence in the Supervisory Board;

• adopting the financial statements;

• appropriating the profit remaining after allocation to the reserves for distribution to the shareholders or

addition to the reserves;

• discharging the Managing Board of liability for its management;

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• discharging the Supervisory Board of liability for its supervision;

• authorising the Managing Board to issue and repurchase shares;

• resolving to amend the company’s Articles of Association, undertake a legal merger or demerger, or wind

up the company (on the joint proposal of the Managing Board and Supervisory Board).

The company’s Articles of Association impose no restriction on the transfer of ordinary shares or depositary

receipts for shares issued with the cooperation of the company or the exchange of depositary receipts for

ordinary shares in the company.

Remuneration policy

The remuneration policy for the Managing Board is adopted by the General Meeting of Shareholders on a

proposal of the Supervisory Board. Within the constraints of the adopted remuneration policy, the remuneration

of the individual members of the Managing Board and the award of short-term and long-term variable

remuneration are determined by the Supervisory Board on a proposal of the Appointments and Remuneration

Committee. The remuneration report by the Supervisory Board describes how the remuneration policy has been

applied in practice in the past financial year. The remuneration report, the principles of remuneration policy and

the calculation of the various components of the salaries of the individual members of the Managing Board are

included in the report of the Supervisory Board. The remuneration policy and the remuneration report are also

posted on the company’s website.

Capital structure

The company’s share capital consists of ordinary shares and cumulative preference shares. All shares are

registered and no share certificates are issued. As at year-end 2011, there were 15,699,017 KAS BANK

ordinary shares in issue (unchanged from year-end 2010). In addition, 25 cumulative preference shares have

been issued to Stichting Preferente Aandelen KAS BANK. Most of the ordinary shares in the company’s issued

capital (approximately 99.5% as at year-end 2011) are managed and administered by KAS BANK Registrar’s

Office, which has issued the same number of registered depositary receipts in exchange. The nominal value of

KAS BANK shares and depositary receipts is one euro (€ 1.00). Each share and depositary receipt entitles the

holder to cast one vote. No special controlling rights attach to the shares or depositary receipts. No voting

rights attach to KAS BANK shares and depositary receipts held by the company itself.

Financial reporting

The company’s financial statements are examined by external auditors appointed by the General Meeting of

Shareholders. The financial statements are drawn up by the Managing Board and are presented, after the

above-mentioned audit and approval by the Supervisory Board, to the General Meeting of Shareholders for

adoption and to the Employees’ Council for discussion. Simultaneously with the presentation of the financial

statements to the General Meeting of Shareholders, the Managing Board submits a written report on the course

of affairs of the company and its management. The meeting of the Supervisory Board at which the financial

statements are discussed is attended by the external auditors.

At the Annual General Meeting of Shareholders, the Managing Board renders account to the capital providers

for its management in the past financial year and the Supervisory Board renders account for its supervision.

The resolution at the General Meeting to approve the financial statements is followed by a resolution that, with

respect to the financial statements and related matters dealt with by the General Meeting, the Managing Board

be discharged of liability for its management and the Supervisory Board of liability for its supervision in the past

financial year.

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Amendment of the Articles of Association

Resolutions amending the company’s Articles of Association, which must be jointly proposed by the Supervisory

Board and the Managing Board, require to be passed by a General Meeting of Shareholders at which at least

two thirds of the issued share capital is represented. If the required share capital is not represented at the

meeting, a new meeting will be convened, to be held not less than three and not more than five weeks after the

first meeting, at which a resolution can be passed regardless of the represented share capital. The notice of the

meeting will state ‘Amendment of the Articles’ as the business of the meeting and a copy of the proposed

amendment will be laid open for inspection at the company’s office and copies made available free of charge.

KAS BANK’s anti-takeover defences

Stichting Preferente Aandelen KAS BANK (KAS BANK Registrar’s Office for preference shares)

The object of Stichting Preferente Aandelen KAS BANK (‘Registrar’s Office’) is to protect the interests of the

company, the enterprise associated therewith and all stakeholders, including safeguarding against influences

which might impair the independence, continuity and/or identity of the company and the enterprise. A right has

been granted to the Registrar’s Office to subscribe for cumulative preference shares in the capital of the

company up to a nominal amount corresponding to 50% of the nominal value of the capital in the form of

ordinary shares in issue at the time of subscription for those shares.

This right (call option) will be exercised by the Registrar’s Office at the discretion of its Executive Committee, on

such grounds as the existence of (threatened) hostile intent or danger to the independence, continuity or

identity of the company. The Registrar’s Office cannot be compelled to subscribe for preference shares (no put

option).

The Executive Committee of the Registrar’s Office consists of three independent members: Messrs H.G. van

Everdingen (chairman), R.A.L. Verstraeten and A.H.G. Rinnooy Kan. The members of the Executive Committee

are appointed by the Executive Committee itself, in consultation with the Managing Board and Supervisory

Board of the company.

A list of the past and present posts held by members of the Executive Committee of the Registrar’s Office which

may be relevant to the performance of their duties is available for inspection by shareholders and depositary

receipt holders at the company’s offices.

Annual Report 2

124

KAS BANK AMSTERDAM

P.O. Box 24001

1000 DB Amsterdam

The Netherlands

Spuistraat 172

1012 VT Amsterdam

The Netherlands

T: +31 20 557 59 11

KAS BANK LONDON

5th Floor

10 Old Broad Street

London EC2N 1AA

United Kingdom

T: +44 20 7153 36 00

KAS BANK WIESBADEN

Biebricher Allee 2

65187 Wiesbaden

Germany

T: +49 611 1865 3800

KAS BANK N.V. ANNUAL REPORT 2011 · KAS BANK N.V. is the independent European specialist in...

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