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The Baltic innovation - Swedbank-ag


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									Hansabank is the biggest financial institution in the Baltic countries.

The keys to our success are our consistent vision, mission and values.

         The Baltic
Innovation is one of our four key values. It is a philosphy that

connects the brightest and the cleverest minds in the Baltics.

That is why we call our innovation the Baltic innovation.
              Hansabank Group in Brief

              Swedbank Group in Brief

      Statement by the Chairman of the Council

                Statement by the CEO

       Corporate Citizenship and Responsibility

                  Financial Review

               Corporate Governance

          Consolidated Financial Statements

          Consolidated Income Statements

            Consolidated Balance Sheets

        Consolidated Statement of Cash Flows

        Analysis of Cash and Cash Equivalents

    Consolidated Statement of Changes in Equity

     Notes to Consolidated Financial Statements

            Independent Auditors’ Report

Recommendation of the Board for Distribution of Profit

          Declaration of Management Board

        Declaration of the Supervisory Council

         AS Hansapank Supervisory Council

          AS Hansapank Management Board
By understanding and acting on our customers’ needs we can offer them the most valu-
able fi nancial solutions, thus improving their everyday life. This way, we can continuously
increase our company’s value and play a positive part in society.

We want to be the leading financial institution in the Nordic and Baltic region. By lead-
ing we mean: the highest customer satisfaction; the most profi table in each market; the
most attractive employer in each geographic market.

We believe that the Group’s strong performance and growing international recognition
is the result of a performance-oriented culture, transparent communication, willingness
to change and the high commitment of our employees. The Group values are: Result-
oriented – we want to achieve good results in everything we do; Open – we are transparent
and open in our communication; Innovative – we are learning and ready to change;
Committed – we are building a long-term sustainable business.

 in Brief

Earnings per share
in euros



 2003      2004   2005          2006   2007


            We want to be a clear leader in each Baltic market
            • Biggest growth in volumes (in absolute terms).
            • Highest profit (in absolute terms).
            • Highest customer satisfaction.


            We operate in the Baltic countries. As a universal bank our business model is based
            on a large customer base. New customer acquisition and retention is a key for us. In
            customer relations, we value long-term partnerships. We offer professional service,
            convenient access and all that for a competitive price.

                                                                                              yield of interest-earning assets, per cent
Lending                    annual growth, per cent                        Margins
                           loans, in billions of euros, December 31                           spread, per cent
                                                                                              cost of interest-bearing liabilities, per cent

                     58              59
                                                                                5.7                                         6.1
                                                                                       5.2                   5.2
            35                                                                                4.8
      32                                                                        3.9
                                                                                       3.5                                  3.3
                                    14.9                                                                     2.8
                     9.4                          19.9
            5.9                                                                                                             2.8
     4.4                                                                                                     2.4
                                                                                1.9    1.7    1.8
    2003   2004     2005          2006           2007                         2003    2004   2005         2006            2007

                   FINACIAL TARGETS

                   • Our focus must be on profitable growth. Hansabank is having the culture of high
                     performance and stretched goal setting.
                   • To be the dominant player measured by market share gives us the opportunity to
                     utilize the economies of scale, optimize our funding cost and cross sell products to
                     wide customer base. It is important to create value in every period and we are
                     measuring the performance against the following financial targets:

                      To increase the operating profit before taxes by                                                             20%
                      Return on equity at least                                                                                    20%
                      Cost-income ratio below                                                                                      42%
                      Net loan losses below                                                                                       0.35%*
                      *Target changed to P&L based ratio (provisions+write-offs – recoveries/ beginning of the year portfolio).

                   Market Position 2007
                                                                       Estonia                  Latvia                 Lithuania
                      Retail deposits                                       1                         1                      1
                      Corporate deposits                                    1                         4                     2
                      Retail loans                                          1                         1                      1
                      Corporate loans                                       1                         1                     2
                      Pension II                                            1                         1                      1
                      Cards                                                 1                         1                      1

Cost-income                                                                         Return on equity
per cent                                                                            per cent                                                          29.0


                   45.8                       46.0

                                                            41.0                               20.8

           2003    2004       2005          2006          2007                                 2003        2004          2005          2006           2007

                                                                                    Cost-income ratio and return on equity for periods before 2005 (2003-2004) have
                                                                                    not been adjusted for the change in loan fee calculation. In these charts, revenues
                                                                                    for 2003-2004 include 100% of loan fees for that period. Starting from 2005 loan
                                                                                    fees are amortised over the maturity of the loan contract.

 in Brief

Swedbank’s vision is to be the leading financial institution in the markets in which we
are present. Swedbank serves a total of around 9 million private customers and
500,000 corporate customers with 459 branches in Sweden, 299 branches in Estonia,
Latvia and Lithuania and 191 branches in Ukraine. The group also has operations in
Copenhagen, Helsinki, Kaliningrad, Luxembourg, Marbella, Moscow, New York, Oslo,
Shanghai, St. Petersburg and Tokyo.

SWEDISH BANKING                                                     Markets                                       Sweden
                                                                    Lending                                       SEK 867bn
Through its 459 branches, ATMs and telephone and Internet           Deposits                                      SEK 308bn
banking services, as well as the cooperation with independent       Income                                       SEK 17,678m
savings banks and partly owned banks, Swedbank offers its           Profit for the year                          SEK 6,182m
4.5 million Swedish customers unrivalled access to banking          Private Customers                                 4.1
services. Swedish Banking has a complete range of financial         Corporate Customers                            395,000
services for consumers, businesses, organizations, munici-
                                                                    Branches                                         459
palities and county councils. Swedbank is a leader in several
important market segments in Sweden.

BALTIC BANKING                                                      Markets                           Estonia, Latvia and Lithuania
                                                                    Lending                                       SEK 177bn
Baltic Banking comprises the group’s operations in Estonia,         Deposits                                      SEK 102bn
Latvia and Lithuania, with 5.2 million customers. Operations        Income                                       SEK 8,773m
are conducted under the Hansabank name. Through a com-              Profit for the year                          SEK 4,322m
prehensive branch network and telephone and Internet                Private Customers                                5.0
bank, a complete range of products and banking services is          Corporate Customers                            219,000
offered to consumers and businesses. Hansabank is the               Branches                                         299
market leader in the most important segments of the rapidly
growing Baltic markets.


International Banking comprises Swedbank’s growing inter-
national operations outside its home markets of Sweden              Markets
                                                                                                   Ukraine, Russia, Norway, Denmark,
and the Baltic countries. The long-term objective is to develop                                  Finland,Spain, Luxembourg and Japan
at least Ukraine and Russia into geographical home markets.         Lending                                       SEK 34bn
Aside from Ukraine and Russia, the business area includes           Deposits                                      SEK 13bn
smaller operations in Luxembourg, Finland, Denmark and              Income                                       SEK 1,279m
Norway as well as the representative offices in Japan and           Profit for the year                           SEK 268m
Ukraine.                                                            Private Customers                              179,000
                                                                    Corporate Customers                             19,000
                                                                    Branches                                         200

Income, by business area                                           Profit for the year, by business area
                                                                   Attributable to Shareholders of Swedbank AB

             Asset Management                                                                         Asset Management
                                 Others                                                               and Insurance
                 and Insurance
               Swedbank      7% 2%                                                          Markets   8%
                 Markets                                                                        8%
                   10 %                                                         International
              Banking                     Swedish                                         2%                             Swedish
                                          Banking                                                                        Banking
                                          51 %                                                                           50 %
                   Baltic                                                                 Banking
                                                                                          32 %
                   26 %

                              2007                                                                     2007

SWEDBANK MARKETS                                                     Markets                          Sweden, Norway, USA and China
                                                                     Lending                                       SEK 24bn
Swedbank Markets is Swedbank’s investment bank, offer-               Deposits                                      SEK 27bn
ing equity, fixed income and currency trading; project,              Income                                       SEK 3,557m
export and business financing; and corporate finance                 Profit for the year                          SEK 1,010m
services. Outside Sweden, Swedbank Markets operates
through the subsidiaries First Securities in Norway and
Swedbank First Securities in the U.S., as well as the
branch offices in Oslo, New York and Shanghai.

ASSET MANAGEMENT AND INSURANCE                                       Markets                                         Sweden
                                                                     Assets under management                      SEK 606bn
Asset Management and Insurance comprises the subsid-                 Income                                       SEK 2,183m
iary Swedbank Robur, with operations in fund manage-                 Profit for the year                           SEK 975m
ment, institutional and discretionary asset management,
insurance and individual pension savings. Swedbank
Robur is Sweden’s largest fund manager. Products are
sold and distributed mainly by Swedish Banking and by
the savings banks and partly owned banks in Sweden.

SHARED SERVICES AND GROUP STAFFS                                     Markets                                         Sweden
                                                                     Income                                       SEK 2,749m
Shared Services and Group Staffs includes the development            Profit for the year                          SEK –298m
and operation of IT systems in Sweden and other shared
service functions primarily in Sweden, although increas-
ingly also for other markets as the group’s international
presence grows. Treasury, Group Executive Management,
Group Staffs and the group’s insurance company, Sparia, are
included as well.

Lending, by business area                                          Employees, by business area
                                                                   Total 22,148 full-time employees

                                Swedbank                                            Asset Management Shared Services
                                Markets                                                 and Insurance and Group Staffs
                          3% 2%
                                                                                       Swedbank    2% 7%               Swedish
                 Baltic                                                                  Markets
               Banking                                                                       3%
                                                                                                                       28 %
                 16 %                                                             International
                                                                                           18 %

                                           Banking                                                         Baltic
                                           79 %                                                            Banking
                                                                                                           42 %
                             2007                                                                        2007

opening doors
 to unknown

               Statement by the Chairman of the Council

Swedbank is growing from being primarily a Swedish                  In Estonia, Latvia and Lithuania, we continue to generate
bank to an international banking group with Swedish                 more business from our customers. While the strong
roots. Through the acquisition of TAS-Kommerzbank in                growth of recent years has led to economic imbalances,
Ukraine in 2007, we have secured a position in one of               we remain optimistic that economic growth will exceed
the fastest growing banking markets in Eastern Europe.              the EU average over the long term.

Swedbank’s vision is to be the leading financial institution        In the Russian market, Swedbank currently has three
in the markets where we are present. Though Sweden is               branches. After a temporary suspension due to an in-
our base, the Baltic countries account for a growing share          vestigation by the central bank, we are back in business.
of the Group’s overall profit. What is currently a limited          A reassessment of earlier strategies is under way to
presence in the emerging markets of Russia and Ukraine              determine our future direction.
will come to represent a more significant share of our
earnings in the long term.                                          Through TAS-Kommerzbank, we are now one of the 15
                                                                    largest banks in Ukraine. The Ukrainian banking market is
Our customer offering is based on competitively priced              still in its infancy, and our hope is to create a full-service
products and services that are easy to understand and               universal bank.
use, combined with the market’s best service, regardless
of whether customers contact us through our branches,               Through our presence in the rest of the Nordic region
online or by telephone.                                             and Europe, North America, Japan and China, we have
                                                                    a complete, international offering for our customers.

                                                                    Growth adds
                                                                    shareholder value
The driving forces behind Swedbank’s expansion are an
increased internationalization and our efforts to sustain           Growth is an important part of Swedbank’s strategy. To be
growth and secure long-term economies of scale. For our             successful, growth must be managed carefully to ensure
customers, cross-border banking comes naturally. The                efficiency, profitability and shareholder value. We are
expansion of our operations to new markets benefits them            therefore working systematically to encourage decen-
as well as the bank. More customers can take advantage              tralized decision-making while identifying and realizing
of the bank’s expertise and product portfolio. We ensure            the economies of scale available to a large organization.
stable earnings today and continued profitability over              We are keeping hierarchies to a minimum and sharing
time by dividing our operations between mature markets              knowledge between the different parts of the company.
and growth markets.                                                 This is combined with strict demands on cost efficiency.

                                                                    In 2007 we increased new business from customers in all
Market leader in                                                    our markets. We are optimistic going forward and are
                                                                    convinced that we are correctly positioned to maintain the
broad-based segments                                                highest customer satisfaction, stay the most profitable
                                                                    and be the most attractive employer.
In Sweden, we are the market leader in broad-based seg-
ments. We want to make our customers happier by giving              I would like to express my gratitude to the bank’s more than
them more value. Our goal is to grow in the insurance               21,000 employees for their fine efforts and the success we
market, where we anticipate new opportunities. We are               achieved together in 2007!
Sweden’s largest bank for small businesses, but also see
the potential to gain a larger market among medium-sized
and large companies.

                                                        Jan Lidén
                                                       President and CEO

                                            Statement by the CEO
2007 was another very successful year for the Hansabank                     The behaviour of Hansabank and other major banks in the
Group – it was the ninth consecutive year in which our                      region has a strong impact on the overall trends in the
business volumes showed strong growth, where new                            market. Since the second half of 2006 we have gradually
profit levels were reached and operating efficiency was                     become more conservative in our lending policies to limit
higher than ever before. At the same time, 2007 was also                    excessive growth in sectors that have seen the highest
different from our recent history as it marked a change                     growth and are related to domestic consumption (real-
in the economic cycle that has brought us new challenges.                   estate development, construction, retail/wholesale). Hansa-
                                                                            bank has tightened its credit policy both for corporate as
                                                                            well as retail loans through higher risk pricing in certain
Developments                                                                products and segments as well as higher requirements
                                                                            for collateral or debt servicing capability. As a result of
in the environment                                                          the actions taken our portfolio growth slowed to 34% in
                                                                            2007 which was in line with our targets for reaching more
The region has developed tremendously since the Baltic                      balanced and sustainable growth levels. Total market
countries entered the European Union in 2004. Most of us                    growth was at a slightly higher level of 39%.
had probably underestimated the effect this change has had
on our region. The economies have benefited from rising                     We have seen an increase in different risk ratios towards
confidence levels, low interest rates as well as a strong                   the end of the year, which reflect the overall developments
inflow of foreign capital. From mid-2006 it has become                      in our operating environment. We expect these trends to
clear that excessive growth is causing imbalances and                       continue in 2008 and our risk cost ratio will most likely rise
growth rates should be decreased. The Estonian and Lat-                     above our over the cycle average of 35bp. However, we are
vian economies peaked in 2005 and 2006 and Lithuania                        confident that our risk profile is sound and our risk cost will
experienced the same just at the very end of 2007. The                      remain below the targeted level in the medium-term.
rapid growth in the Baltics has been largely driven by do-
mestic consumption, financed by foreign borrowing and
the resulting imbalances threaten to be the short-term                      Business overview
challenge for the Baltics. The region has become a concern
in investors’ eyes and in 2007 the country ratings of all                   Despite the volatile and challenging market developments
three Baltic countries were revised due to the heightened                   we have closed another highly successful year exceeding
risk of a so-called “hard landing”. However, I would like to                expectations. All targets were achieved by a solid margin.
stress that regardless of these short-term trends I am con-                 We benefited from rising base rates, which supported our
vinced that the long-term outlook for the Baltics remains                   net interest income. In addition, low credit losses allowed
positive. The fundamentals remain strong, penetration                       better than expected results to be reached. The second
rates are low and convergence levels compared to their                      half of the year was clearly more volatile than the first
EU peers are modest.                                                        with turbulent securities and debt markets. The effects can
                                                                            be seen in our 4th quarter results, where trading income
There is a consensus among market participants that the                     was clearly below the annual average and the average
current growth rates are not sustainable, but there is no                   cost of funding increased considerably.
common view on the pace and extent of the adjustment.
The correction was already visible in Estonian macroeco-                    FINANCING
nomic indicators in first quarter of 2007 and the first
signs were also observed in Latvia. Hansabank has taken                     The key words in financing activities during the year 2007
into account the likely negative developments and made                      were sustainability and adjustment. With a detailed and
necessary preparations for operating in a more difficult                    systematic approach we have been able to gradually re-
economic environment.                                                       duce lending growth to more sustainable levels. At the

GDP growth                                                                                       11.9
per cent                                                                                  11.2
                  10.3                                   10.2 10.6                                                         10.2
                                8.3 8.7                                   7.9                           7.7
      7.2 7.2                               7.3                                                                      7.1

                                                  2.5                                                         3.0                       2.9
                         1.3                                                    1.8

      EST   LAT   LIT    EU27   EST   LAT   LIT   EU27   EST   LAT    LIT       EU27      EST    LAT    LIT   EU27   EST   LAT    LIT   EU27

            2003                      2004                     2005                               2006                      2007

same time we have managed to maintain our overall                     ment products and up-to-date and convenient communi-
market position and long-term client relationships.                   cation channels. Increasing international activity by local
                                                                      customers and expansion into neighbouring markets has
The mortgage market was one of the focal points during                increased the demand for cross-border banking solutions
the past year. In the first half of the year we raised several        and regional coverage. Reliability, usability and integration
key requirements such as loan to value ratio and debt                 of e-channels into clients’ systems have become more im-
service capability to cool lending demand. In May, we also            portant factors in selecting a bank.
introduced a special campaign to promote responsible
borrowing in order to be proactive and educate our clients            The number of cards issued (both debit and credit) in-
about making sensible lending decisions. As a result of all           creased 9% in 2007 and our clients in the Baltics hold
these actions our housing loan portfolio growth slowed                more than 3.35 million cards. Payment turnover of cards
from 75% to 39% in 2007. A more conservative stance has               we have issued grew 42 % annually with strong growth
also had its effect on our market shares - over the year, our         rates in all three countries. Our clients are increasingly
market share in the Baltics decreased from 37% to 34%.                more IT literate and the proportion of electronic payments
                                                                      in total payments reached 98% in Estonia, 96% in Latvia,
Consumer finance volumes are relatively low in the Baltic             and 96% in Lithuania by the end of 2007.
countries and even with high growth rates the portfolio is
amortising quickly. The product yield is high and our diver-          RUSSIA
sified portfolio provides a very good risk and return re-
lationship. Although consumer finance had the highest                 In June 2007, the Central Bank of Russia (CBR) imposed
annual growth, 41% in 2007, the decrease in growth from               operational restrictions on OAO Swedbank Russia. CBR
2006 was significant. We stopped active advertising of                suggested that Swedbank may have violated federal laws
consumer finance products in 2007 and instead have                    and the normative acts of the CBR. The Group’s manage-
focused on more targeted offers to selected target groups.            ment formed a team to work on the issues discovered
                                                                      and in September CBR announced its decision to let Swed-
The growth of our corporate finance portfolio (lending                bank resume full-scale operations in Russia. OAO Swed-
and leasing) came down to a more sustainable level of                 bank can proceed with executing its strategy to become a
32% in 2007. In the second half of 2006, we had already               universal bank in the North-West of Russia.
started to set higher requirements for financing of early
development stage real estate. The policy was further                 The remaining part of the year was spent strengthening
tightened in 2007. At the end of 2007, 28% of our corpo-              our internal capabilities and organization, revitalizing frozen
rate lending portfolio was related to the real estate sector.         business and working out a new and adjusted universal
In absolute growth terms the share of real estate related             banking strategy. After the two years of hard work, a major
lending remained stable in 2007 and was slightly down from            win was achieved in our leasing tax dispute and part of our
2006. However, the growth differs by country. In Estonia and          claimed VAT refund was returned to the bank. In addition
Latvia, the absolute growth slowed while in Lithuania where           to the positive financial result it allows us to reopen our
real-estate lending penetration is much lower the growth              leasing business. Despite the restrictions posed on the
accelerated during 2007.                                              company, a portfolio growth of 50% was achieved in 2007.
                                                                      We have successfully entered the mortgage market and
SAVING AND INVESTMENT PRODUCTS                                        we keep expanding our network in Russia.

All banks in the Baltic countries actively promoted savings
and investment products during 2007 and the popularity of             Our strategy
investing has increased significantly. In addition, economic
development and an increase in personal wealth have led to            Hansabank Group’s overall strategy has remained focused
more interest in investing in general. The sale of new invest-        on the same main aspects for several years. Every year
ment products (equity funds, real estate funds, structured            we review the focus areas, adjusting and changing them
deposits) has been developing at a fast pace, especially dur-         as needed, taking into account both developments in the
ing the first half of 2007 and we have been able to increase          surrounding environment as well as the natural growth
our market share and widen client offerings. Towards the              and changing of the organization over time.
end of 2007, volatile financial markets both globally and in
CEE put pressure on the performance of investment products            We have been consistent in the strategy process and
and caused caution amongst investors. The total volume of             enjoy the sense of familiarity that has been established
clients’ assets gathered amounted to EUR 2,6 bn at the end            over the past three years. These processes are giving
of 2007 with an annual growth of 41%.                                 valuable results and have become very central to our or-
                                                                      ganisation. The economic environment of 2007 has guided
SETTLEMENTS                                                           us to scrutinize the development scenarios further in the
                                                                      light of the economic cycle, a slowing convergence process
Our strong position in settlements was further increased              as well as a maturing lending market. A more volatile busi-
in 2007. We are the largest settlement bank in all three              ness environment going forward will bring new challenges
Baltic markets, offering our clients a wide range of settle-          but also new opportunities.

We have highlighted the most important activities that                Operational excellence – increase operational effec-
ensure the achievement of our objectives. These activities            tiveness. We want to be more efficient in our operations.
form the cornerstone of our strategic development.                    Improving the speed and quality of our processes will result
                                                                      in higher customer and employee satisfaction. We need
• We set ourselves stretched targets and follow through               to move from one-time process improvement efforts to a
    with dedicated execution. We regularly assess our per-            change of mindsets.
    formance and communicate the evaluation of the results
    clearly.                                                          Business intelligence – further build our capabilities to
•   We offer high-quality products with accessible, proactive         work with data. Building our capabilities to work with client
    and uncomplicated service.                                        data and competence to use it enables us to enhance our
•   We want to provide our customers with the widest distri-          offers to the customers, as well as run our business smarter.
    bution network regardless of their preferred channel.
•   We want to excel in our capabilities to analyse and model         People challenge – invest in leadership development
    customer data. By building capabilities to work with this         and improve employee productivity. High business growth,
    information we are able to enhance our offers to the cus-         several new group-wide strategic initiatives and a tight la-
    tomers as well as run our business in a smarter way.              bour market have impacted on employee productivity. In
•   We want to be perceived as a credit specialist with               addition, growing scale, complexity and cross-border activi-
    strong expertise and wide client offerings. We continu-           ties cause higher demands on our managers’ capabilities.
    ously develop our credit skills to achieve a better risk-
    return ratio than the market in general.                          Corporate banking – manage corporate business
•   In recruitment, we want to be the first choice for talent.        through the cycle. Our goal is to be acknowledged as the
    We look for people who fit with our value-set.                    first choice partner for local and pan-Baltic corporate
•   We make decisions close to the customer - business                customers and the natural first choice as the regional bank
    responsibility is with the people servicing the customer.         for multinational companies in the Baltics.
    By having a lean organisational structure we reduce
    complexity and provide clear responsibility and authority.        Retail lending – better credit selection and risk-based
                                                                      pricing. The retail credit portfolio has been one of the key
During 2007 we have moved forward strongly in a number                growth drivers during the recent years. However, as debt
of areas building a more sound and lasting business foun-             penetration grows and economic volatility increases it is
dation. In the IT area we revised the structure of the gover-         increasingly important to improve our credit selection skills.
nance and decision-making processes. Our business intelli-
gence initiative has added structure and increased our                Daily banking – strengthen our client offer. Daily banking is
capabilities for working with valuable client data. We have           at the centre of our interaction with clients. Moving towards
prepared the design for the Pan-Baltic mass-market product            combining separate services and developing a unified client
harmonisation and its future development. The operational             offer will form the core of our client relationship.
excellence initiative was launched to build capabilities and
run the first pilots to rationalise our business processes.           Investment management – build regional business model.
These initiatives will be the core for further development            With strong economic growth and an increase in wealth,
of our company – to face the competition of the matured               the demand for investment products is increasing rapidly.
markets, to develop and deliver new offerings to our clients,         We want to develop our excellent advisory capabilities in
and to reach our primary long-term goal.                              all channels into our main competitive advantage, supported
                                                                      by pan-Baltic leveraged leading product expertise.

Priorities for 2008                                                   Today we are in the middle of a change in the economic
                                                                      cycle. The developments so far have mostly met our
In 2008, the following eight areas are in focus:                      expectations but worsening international capital markets
                                                                      can and probably will negatively influence our business
Build a new organisation model in Baltic banking.                     region. These are challenging times when true client
Hansabank has built strong local businesses in all three              relationships are formed and maintained. This is also the
countries. We want to move further and go after cross-                time when Hansabank can leverage from the investments
border business synergies. Our goal is to build a regional            made into organizational development and demonstrate
banking organisation which leverages on cross-border                  its internal strength and quality.
capabilities and which has a value larger than the asso-
ciated increase in complexity.

                                                      Erkki Raasuke
                                                        CEO of Hansabank

breaking out
 of the box.

We believe in long-term partnerships and feel that only by giving
due attention to all stakeholders – our clients, employees, the
mother bank and its shareholders, our partners from different
fields and the community we work and live in – will we be able to
sustain today’s success in the future.

In 2007, Hansabank’s managers continuously dedicated                   towards the advancement of society. We have consciously
a high level of attention to our own employees and talent              readjusted our focus to offset classic sponsorship, the
management. The bank also continued with its support                   main goal of which is brand visibility, against social devel-
policies that aim to maintain and enhance a good balance               opment projects, which are designed to solve problems
between sports, culture and social issues, and to build                that are of the biggest importance to Estonian society as
and develop strategic partnerships in order to carry out               a whole.
socially influential initiatives.
                                                                       In the field of education our biggest proportion of finan-
                                                                       cial and employees’ voluntary help was invested in the
Thinking and acting as                                                 Youth to School (Teach First in UK and USA) project, which
                                                                       is designed to reduce educational inequality among
a responsible corporate                                                schools, alleviate the shortage of teachers and improve
                                                                       the profession’s reputation by bringing the best university
citizen                                                                graduates to teach in the ordinary schools of Estonia. The
                                                                       recruitment campaign that was held in spring 2007 result-
“Doing well by doing good” has become a fashionable                    ed in 76 applications received for 11 teachers’ position. The
mantra for businesses all around the world. Over the whole             chosen candidates received training at the University of
Swedbank Group, corporate social responsibility (CSR) is               Tallinn during the summer, and were beginning the first
defined as the bank’s responsibility for the impact of its             year of their two-year programme in autumn 2007. A new
decisions and activities on society and on the environment,            recruitment drive to find young teachers for 2008 has
through transparent and ethical behaviour that:                        already been launched, with competition set to be just as
• Is consistent with sustainable development and the
  welfare of society;                                                  In addition to the success of Youth to School, autumn
• Takes into account stakeholders’ expectations;                       2007 marked the launch of another large-scale project –
• Complies with current legislation and is consistent with             the University of Tartu IT professorship. Hansabank,
  international standards and practice;                                together with Swedbank, is supporting the project with the
• Is integrated into all of Swedbank’s operations.                     aim of training globally competitive software specialists
                                                                       for all the Baltic States.
Hansabank has always felt privileged to share its success
with the community in which we live and work. We under-                Our investments in health have been in areas where our
stand and believe that with reach and power comes re-                  support is designed to enhance the state’s efforts in re-
sponsibility – a licence to operate. Therefore, we do our              solving the most acute problems. Estonia is known, re-
best to contribute to the positive developments and trends             grettably, for its growing number of HIV-positive people.
in the region. Hansabank shows its concern and care for                According to the figures of the National Institute for
the community in many different ways – by serving our                  Health Development (NIHD), a sub-office of the Estonian
clients with the highest professionalism and care; by hon-             Ministry of Social Affairs, more than 1% of the population
ouring and maintaining an open and transparent business                is now HIV-positive, which means that the virus is being
culture; by taking very good care of our own employees;                spread more and more among perfectly ordinary people.
and by supporting different initiatives in the fields of sport,        Against the backdrop of these sobering statistics, Hansa-
culture, education and society. Our intention during 2008              bank decided to take concrete steps to inform both its
is to implement CSR issues further into the bank’s strategy            staff and the public of the threat of HIV. In 2007, we or-
and policies. In order to better achieve that, Hansabank               ganised HIV-related courses for employees which resulted
Estonia has hired a full-time CSR manager. Special people              in 800 voluntary participants. At the end of the year we
responsible for CSR issues were also appointed in Latvia               organised a social campaign in association with NIHD and
and Lithuania. We will monitor and report the results in               MTV in which singers, popular among teenagers, encour-
four large areas – workplace, marketplace, community and               aged people to get tested. We also made testing available
environment.                                                           to the staff working in our main buildings. More than 200
                                                                       people chose to take an anonymous HIV test.
In 2007, the country organisations of the Hansabank
Group spent up to EUR 7 mln on different sponsorship
and CSR projects. Below, there’s a short overview of                   One of the biggest social projects we have launched in the
highlights from 2007 as well as plans for 2008                         field of sports is also related to health: Estonian Health
                                                                       Tracks is designed to provide year-round exercise possi-
                                                                       bilities on tracks and trails in the Estonian countryside.
Estonia                                                                For now, 17 such tracks in different parts of Estonia have
                                                                       received new covering, lighting, track machinery and
HIGHLIGHTS FROM 2007                                                   equipment for the production of artificial snow. Estonian
                                                                       Health Tracks played host to a record attempt on 25 Feb-
In Hansabank Estonia’s sponsorship and CSR budget in                   ruary 2007 designed to measure the distance covered by
2007 the largest growth compared to 2006 was directed                  all of the people exercising on that day. 7756 skiers and

other sports enthusiasts registered their contributions,            same as for our banks in Estonia and Lithuania - sports,
with the total recorded distance covered on skis amount-            culture, education, and social projects. In sports, the bank
ing to 81,051.3 kilometres – the equivalent of twice                supports mainly top-level athletes – national teams as well
around the Earth.                                                   as the Olympic team. There are also several regional pro-
                                                                    jects of national importance. As for culture, the key words
In culture our focus was a partnership with Kumu, the               are contemporary, high quality, and creativeness. In edu-
Art Museum of Estonia, of which Hansabank became the                cation, professional as well as academic growth are en-
main sponsor at the beginning of 2007. With the bank’s              hanced and supported.
support Kumu was able to present two major exhibitions,
one of Estonian classic Henn Roode and the other of                 In 2007, one of the highlights of Hansabanka support
Catalonian master Joan Miró. The Miró exhibition is con-            activities was the the Anniversary Celebrations of the
sidered one of the key cultural events in Estonia in 2007,          Cities – the bank supported anniversary celebrations for
and one which we wanted to be able to share with as                 24 major cities and towns of Latvia. In addition long-term
many people around the country as possible. So Hansa-               cooperation with the New Riga Theatre continued – the
bank organised a charity campaign at the end of the year            theatre is rather successful with new, well-appreciated
with the aim of bringing special-needs children from the            productions, prizes and awards gained in competitions in
farthest corners of Estonia to Kumu.                                Latvia. With the help of Hansabanka, the theatre was
                                                                    able to give different performances in 10 Latvian cities.
In our support of social development and civic society we
have continued with the Let the Stars Shine project, which          Another long-term partnership for Hansabanka is the one
funds children’s and youth initiatives, and in which we pro-        with the Latvian National Opera which was successfully
vide almost 65,000 euros twice a year for the launch of             continued in 2007 as well. The bank also supports the
programmes promoting young people’s lives. In 2007 Han-             Kremerata Baltica orchestra. According to the words of
sabank launched the Million rain (Miljonisadu) programme            Maris Avotins, Head of Hansabanka: “High professionalism
for active bank clients who were able to vote for a range           and a desire to achieve the best results at anything we do
of non-profit organizations. The bank’s support was divided         are the values the bank shares with Kremerata Baltica.
in accordance with the votes given and by the end of the            Music is the best investment in the future because excellent
year 2007 Hansabank donated almost 110,000 euros to 16              musical values are unveiled as the time goes by.”
organisations involved in very different fields (cancer pre-
vention; environmental protection; support of the elderly,          In sports, the highlights of 2007 included the windsurfing
young, children with disabilities, etc).                            competition Hansabanka Cup – Regatta Riga. In basket-
                                                                    ball, which is another priority support area for Hansa-
PLANS FOR 2008                                                      banka, several important events took place – the Euro-
                                                                    basket 2007 competition, a meeting of Hansabanka
In 2008 we will continuously focus our support activities on        executive management with national basketball teams
the four main areas: sports, education, culture and society.        at the headquarters of the bank, an exclusive calendar of
Our primary focus in each field will be as follows: sport –         the Latvian National Women Basketball Team produced
skiing; education – Youth to School project; culture – co-          for charity purposes, an installation of 24 streetball bas-
operation with Kumu, plus closer co-operation also with             kets, regional basketball championships, a wheelchair
Estonian Concert in presenting Saaremaa Opera Days; and             baskeball contest, and more.
society – HIV prevention in association with the state and
the coalition of Estonian companies against HIV established         In education, support was provided for 15 Latvian univer-
in 2007, one of whose founding members was also Hansa-              sities. The bank also supports academic growth via the
bank.                                                               scholarship competition Open Mind. Teacher First, the
                                                                    project similar to the Estonian Youth to School, was also
We are also contributing to social development and to               launched in 2007 and Hansabanka aims to strongly con-
changes in people’s attitudes and behaviour with the new            tinue in this direction in 2008.
charity section on our new Internet bank where donating
is going to be made as simple as possible. Our partner in
the majority of these social initiatives and philanthropic          PLANS FOR 2008
projects is Estonia’s most well-known non-profit organi-
sation - the Good Deeds Foundation, with whom we are                Priority areas and directions for the bank will continue to
looking to promote social enterprises and society’s problem-        be basketball, hockey, the Olympic movement and support
solving through the most innovative ideas.                          for the Latvian Olympic Committee. In the cultural sphere,
                                                                    the bank will continue its existing long-term partnerships
                                                                    with the Latvian National Opera, the New Riga theatre and
Latvia                                                              Kremerata Baltica. Contemporary art will be another focus.
                                                                    In education, the Teacher First project will be continued as
HIGHLIGHTS FROM 2007                                                well as the awards for regional teachers. Similar to 2007,
                                                                    several cultural projects and events are planned for Russian
The key support areas for Hansabanka are largely the                audiences in 2008 as well.

                                                                         national investment conference organised by Hansabankas
Lithuania                                                                was granted to “Encurage the Future” and „Lithuanian Junior
                                                                         Achievement“ in order to initiate financial education projects
HIGHLIGHTS FROM 2007                                                     to the schoolchildren.

Similar to Estonia and Latvia, Hansabankas is one of the                 In 2007, Hansabankas signed a cooperation agreement
biggest companies and most well-known brands in Lithua-                  with the National Student Academy (NSA) and became
nia, therefore carrying the responsibility of being regarded             the general sponsor of the organisation. The main objec-
as a role model in business and society. The expectations of             tive of the NSA is to enhance the intellectual potential of
the stakeholders are high and in order to meet them through              Lithuania investing in gifted and motivated schoolchildren,
the years Hansabankas has demonstrated consistent and                    providing them with additional opportunities to improve
enduring commitment to society by not only being a re-                   their knowledge in different subjects and to develop their
sponsible player in the banking business, but also being an              personality. Hansabankas, as a general sponsor of this or-
attractive employer and active participant in social issues.             ganisation also committed to provide intellectual support
                                                                         – the bank’s employees delivered lectures during the annual
We believe that people’s ability to make informed and re-                sessions of the NSA.
sponsible financial decisions has a great impact on individual
achievements and welfare and thus on the economy of the                  Significant attention has been devoted to training and edu-
country. Therefore in 2007 Hansabankas has further                       cation of Hansabankas employees too. In its pursuit to en-
strengthened its efforts to provide financial education to               hance the business and consulting skils of the employees, in
not only Hansabankas clients, but also the wider public in               2007 the bank has been implementing EU co-funded project
Lithuania.                                                               for employees, who are working with small and medium
Starting with the newly launched programme for young
clients called ZOOM, which is a great example of integrating             Several other successful long-term initiatives were continued.
social responsibility into banking services, Hansabankas be-             The bank’s traditional money-box contest for children
came the first in Lithuanian the market to offer such specia-            celebrated its 10th anniversary in 2007. The annual contest
lised services for young people and thus embarks on an im-               has a different theme each year and this time it was aimed
portant educational mission: to teach young people about                 at increasing ecological awareness of children.
their finances and develop responsible attitudes towards
money. Moreover, in order to provide clients with first-hand             The Green City project was also successfully continued for
knowledge about investments and savings, Hansabankas                     the 3rd consecutive year. More than 3000 trees, bushes
organised a series of events: a conference with high-ranked              and flowers were planted by Hansabankas employees in
international experts, a so called “Investment day” exhibi-              more than 20 cities of Lithuania. The Green City project
tion providing all relevant information in one place and con-            also inspired another significant initiative – planting of the
centrated manner, etc. The bank also created a new format                Avenue of Professors in the territory of the biggest hospital
of events – Investment week - to deliver current information             in Lithuania – Santariskes Clinics.
about investments and savings to smaller cities and towns,
where usually access to such information is limited.                     At the end of 2006, Hansabankas joined Global Compact
                                                                         and has since been actively participating in the activities
Hansabankas has successfully continued its flagship project              of the local network in Lithuania. As one of the active
– National Awards of Advancement – that honors people,                   members of the Global Compact network, Hansabankas
whose ideas, discoveries and original solutions inspired de-             started to chair the network in Lithuania at the end of
velopment in Lithuania. The works nominated for award are                2007 for the half year period. The bank considers it both
assessed by the the Committee consisting of key figures in               a great honour and commitment to contribute to CSR
science, business and culture. In 2007 the Award gained                  development in Lithuania.
even more appreciation and publicity in society in Lithuania
and awards were granted for Lithuanian language research,
development of world-class laser products and education of               PLANS FOR 2008
Lithuanian youth in opera singing.
                                                                         During 2007 we have brainstormed ways to strengthen
When engaging in sponsorship projects, Hansabankas gives                 CSR further. In 2008 Hansabankas will undertake the
priority to educational initiatives. The bank has been for the           challenge of putting these ideas into action, firstly by
third year in turn participating in the project involving school-        raising general awareness among employees about CSR
children “Encourage the future”. The main purpose of the                 and its importance and then, planning internal and external
project is to strengthen the motivation of the youth of                  actions. Moreover, during 2008, Hansabankas will keep on
Lithuania by encouraging them to achieve their goals. In co-             focusing its efforts on education and plans to launch a new
operation with the organisation „Lithuanian Junior Achieve-              project involving university students. Together with other
ment“ we have been implementing several projects for the                 Swedbank colleagues we are also looking forward to jointly
promotion of entrepreneurship and economic education                     starting a new project against bullying in schools with the
among the youth. In 2007, the fee collected from the inter-              Save the Children organisation.

being ahead
of your time.


In 2007 Hansabank Group once again had a successful year: the
Group’s net profit increased by 49% to 484 million euros, and
EVA result increased by 43% to 320 million euros.

The focal points of 2007 are highlighted below:                       • Operating profit before taxes increased by 52% to 536
                                                                        million euros during 2007
• Changing economic cycle. After two years of very high               • Return on total equity was 29%
  credit growth fueled by the European Union accession,               • The cost-income ratio was reduced from 46% to 41%
  low interest rates and better access to foreign funding,              during 2007
  the risk of overheating became increasingly apparent in             • Net credit losses amounted to 0.21%
  the Baltic economies. Careful selection of industries
  financed and tightened credit policies brought down the             Operating profit* growth
  lending growth from 59% in 2006 to 34% in 2007.                     per cent *before taxes
  Though asset quality remained solid throughout 2007,                                                             54     52
  a slow-down in the real estate sector cautioned us to
  reassess the debt servicing capabilities of some of our                                       42
  real estate clients. Credit policies have been tightened
  and proactive measures reinforced.
• Efficiency and cost growth. With stabilizing growth                                                                           20   target
  rates, efficiency improvement and managed cost growth                                                      15
  have been increasingly in focus. We have been re-assess-
  ing resource requirements and our Baltic employee
  growth declined considerably during the second half of
                                                                                 2003          2004   2005        2006   2007
  2007: 1,014 people were hired during the first six months
  and only 111 (66 in Russia) during the second half of the
  year. Improving and streamlining our processes with an
  operational excellence program helps to build a lean or-            ROE
  ganization that can adjust to the changes.                          per cent
• Turmoil in the world financial markets. The second                                            26     25          26
  half of 2007 brought high volatility and squeezed liquidity
  on financial markets. The turbulence has affected avail-                                                                      20   target
  ability and cost of funding. Our cost of foreign funding
  jumped to 4.73% in the fourth quarter compared to
  4.11% six months earlier. In addition there has been an
  effect on our trading and asset management activities
  in the form of fair value revaluation losses on our asset
  management and proprietary trading portfolio. Hansa-
  bank’s own trading activities are relatively small so the
                                                                                 2003          2004   2005        2006   2007
  negative impact was below 5 million euros.

• Developments in Russia. The overall Group, and Russian
  business unit’s results in 2007 were affected by the growth         Cost-income ratio
  and operational restrictions imposed by the Central Bank            per cent
  of Russia (CBR). On June 6, CBR decided to restrict our                          49                  49
                                                                                                46                 46
  Russian operations for a period of three months. CBR                                                       45           41
                                                                                                                                42   target
  suggested that Swedbank OAO may have violated federal
  laws and the normative acts of the CBR. The sanctions
  were lifted in September allowing operations in Russia
  to resume at full scale. On the positive side, several court
  hearings were won regarding ongoing litigation con-
  cerning VAT treatment in the leasing business. In the
  fourth quarter, after the reimbursement from tax au-
  thorities, the operational risk provision was reversed in                      2003          2004   2005        2006   2007
  the amount of 6.4 million euros.

Hansabank upgraded some of its medium-term financial
targets starting from 2007. The group is targeting an in-
crease in pre-tax profit by at least 20% annually. The
cost-income ratio target is 42%, ROE target 20% and
net credit losses target is 0.35%. The Group achieved all
its medium-term financial targets in 2007.

                                                                                            Revenue distribution by business units
Changes in Reporting
                                                                                                                        Russia 5%

                                                                                                        Lithuania 26%
There were the following changes to reporting principles                                                                                     Estonia 39%

from the beginning of 2007.

                                                                                                                 Latvia 30%

Hansabank Group is using the following Tier I capitaliza-                                                                      2007
tion and cost of equity levels.
                                                                                            Net interest income grew by 47% to 663 million euros.
per cent                            2006                             2007
                                                                                            The growth was especially strong during the first half of
                        Baltic units         Russia         Baltic units    Russia
                                                                                            2007 as both growing volumes and rising base rates con-
Cost of equity                8               8                 10            11
                                                                                            tributed to the increase. Towards the end of the year our
Tier I capital*               8               11                 8            11
                                                                                            portfolio growth declined while the cost of funding expe-
* % of business unit’s risk-weighted assets
                                                                                            rienced a notable increase.

                                                                                            The shift in our liability structure towards more expensive
                                                                                            external funding intensified in 2007 as deposit growth
                                                                                            was significantly below lending growth. Higher average
In the second quarter of 2007, Hansabank unified the
                                                                                            cost of external funding (4.33%) compared to average
principles of accounting for trainees and interns in the
                                                                                            cost of deposits (2.27%) accelerates the interest expense
group. Historical employee numbers have been adjusted
                                                                                            growth. Also, a large part of our liabilities (external fund-
to comply with the unified rules.
                                                                                            ing and time deposits) is sensitive to base rate movements,
                                                                                            which has been pushing up the total cost of liabilities over

Review of                                                                                   the year.

Income Statement                                                                            Client margins on the lending side continued to decrease
                                                                                            in 2007, however the margin pressure eased slightly.
                                                                                            Base rate (primarily the 6-month Euribor) increase par-
                                                                                            tially offset the margin decline since Hansabank Group
                                                                                            has more Euribor and USD Libor rate sensitive assets
Total revenues increased by 41% to 1,003 million euros
                                                                                            than liabilities. The annual average 6-month Euribor rate
in 2007. Strong growth of net interest income was the
                                                                                            increased from 3.23% to 4.35% in 2007. Total deposit
major growth driver, though good performance was ob-
                                                                                            margins improved notably in all three Baltic business units
served in all core items.
                                                                                            throughout the year.

Net interest margin
                                                                                            CLIENT MARGINS
per cent                          Net interest margin                6-month Euribor
                                                                                            per cent                    2005          2006             2007
           3.7                                                                              HBG total                   0.84          1.53                 2.47
                                                                                               Estonia                  0.61          1.25                 1.72
                        3.3                           3.2
                                                                                               Latvia                   1.22          2.19                 3.57
                                                                                               Lithuania                0.90          1.47                 2.68
                                                      2.9            3.0
           2.3                         2.2                                                  Loans
                        2.2                                                                 HBG total                   2.81          2.52                 2.42
           2003       2004          2005           2006              2007                      Estonia                  3.00          2.65                 2.63
                                                                                               Latvia                   2.62          2.31                 2.23
                                                                                               Lithuania                2.11          1.89                 1.80

                                                                                            Net fee income rose by 23% to 203 million euros in 2007.
                                                                                            Three major revenue groups can be presented among the
                                                                                            fee revenues. Payment-related fees amounted to 59%, in-
                                                                                            vestment & trading related fees 20% and lending-related
                                                                                            fees 12% of the total fee revenues in 2007. Remaining fees
                                                                                            accounted for 9% of the total fee revenues.

Payment-related fees grew 21% in 2007. Strong growth                                    OPERATING EXPENSES
rates can be seen both in card payments as well as trans-
fers as customers change from cash payments to more                                     Operating expenses increased by 24% compared to 2006,
convenient electronic transactions. Turnover of card                                    totaling 406 million euros in 2007.
payments grew by 42% during 2007 while the number of
cards increased by 9% over the year to 3.4 million with                                 The 2006 results of the Group were reduced by a 16.2
particularly strong growth in Latvia.                                                   million euro operating risk provision in our Russian unit
                                                                                        due to ongoing litigation concerning VAT treatment in the
Investment & trading related fees include fees from bro-                                leasing business. In 2007, Hansabank won several court
kerage & investment services together with custody. Fee                                 hearings and consequently decreased the provision for
income from these areas grew the fastest - by 53% to 55                                 VAT by 6.4 million euros. Operating expenses’ growth in
million euros during 2007. Asset management and pension                                 2007, without the VAT provision effect, was 32%. Cost-
savings products continue to develop at a rapid pace. The                               income ratio amounted to 41% in 2007, which is better
Group’s total assets gathered amounted to 2.63 billion,                                 than the revised mid-term target of 42%.
growing by 41% over the past year with especially strong
growth in Lithuania 71% yoy.                                                            The largest cost item for the Group is personnel expense
                                                                                        which forms 57% of all operating expenses. In 2007,
Lending-related fees increased by 27% during the year                                   personnel costs increased by 35% compared to 2006
to 32 million euros.                                                                    and amounted to 232 million euros. Growth in employee
                                                                                        numbers, increases in both average salary and Group’s
Trading income increased by 33% compared to 2006. In                                    strong financial performance related bonus reserve were
the first half of 2007 there was a healthy growth in the                                all driving personnel growth. Hansabank has been invest-
bank’s trading income: the increase was strong in both                                  ing in organization and distribution capabilities both in
clients’ activities as well as in trading with proprietary                              2006 and 2007. The number of employees increased by
securities. Negative trends in the stock market in the sec-                             1,125 people to 9,574 during the year. Recruiting was lim-
ond half of 2007 led to decreased activity and fair value                               ited in the second half of 2007 as the economy presented
revaluation of our portfolio. Nevertheless, for the full year                           signs of cooling. Falling unemployment levels and increase
trading reported very good results. Of the main sub-items,                              in average salary have been influencing our personnel
income from client margins increased by 37% and income                                  expenses in all business units. In Hansabank, the average
from proprietary securities trading increased by 85%.                                   salary per employee grew 13% in 2007. The employee
Hansabank’s own trading activities are relatively small                                 performance pay reserve grew by 45% over the year.
and the bank earns most of its trading income (68%)
from client margins.                                                                    Number of employees*
                                                                                        *full time equivalent
Income from insurance operations increased 115% and                                                                                     9,574
amounted to 23 million euros in 2007. In late 2006 we es-
tablished non-life insurance business in Estonia. The first
full year of operations was a success story – Hansabank’s
non-life insurance business won 10% market share in Estonia                                         5,771
in one year. The performance in the life-insurance business
was also very good in 2007. The number of life insurance
customers increased by 39 thousand and the volume of
premiums doubled compared to 2006.

Revenues and expenses
in millions of euros    Revenues          Expenses         Cost-income, per cent                   2003         2004    2005    2006    2007

              49                     49                                                 Other expenses (except personnel) grew 11% in 2007. The
                         46                      46                                     growth of administration expenses was the fastest in this
                                                                41                      group at 32% compared to 2006. Expanding the office
                                                                                        and branch network drove the growth of rental expenses.
                                                            1,003                       Professional services increased by 44% over the year.
                                                                                        Ongoing strategic projects in the areas of operational ex-
                                               713                                      cellence and preparation for Basel II were the main reasons
                                                                                        behind higher costs.
                       421                                        406
           359                                       328
                                         242                                            ASSET QUALITY
                 183         201

                                                                                        The Group’s asset quality remained solid. Hansabank has
            2003       2004        2005        2006           2007                      set its target net loan losses to beginning of the year
                                                                                        portfolio ratio at 0.35% that in our opinion reflects the

reasonable average over the economic cycle. As antici-                                    smarter pricing decisions. Our portfolios grew 25% in Es-
pated, during the second half of 2007 and especially in                                   tonia and 34% in Latvia in 2007. For the Lithuanian busi-
the fourth quarter our net loan losses increased, reaching                                ness unit, 2007 was a year of continuous strong growth of
62 million euros for 2007. The economic slowdown and                                      46% yoy. Russian growth was hampered by the audit of
stagnation period in the real estate sector have lead us                                  CBR during the second and third quarter of 2007. Despite
to further scrutinize the debt servicing capability of our                                the restrictions, 50% portfolio growth was achieved.
real estate sector clients. At the end of 2007 non-per-
forming loans, i.e. loans that are overdue by more than                                   Loan growth by business units
60 days, formed 0.68% of total loans (based on internal                                   in millions of euros
risk measurement principles the Group uses 12-month old                                                   25%         34%         46%         50%         Growth

portfolio volume for calculating this ratio since it gives a
more adequate picture of the portfolio’s quality). A year
earlier the ratio was 0.44%. Net loan losses formed                                                   6,027             5,877
0.41% of beginning of the year portfolio in 2007 (0.35%                                                                             5,367
in 2006).                                                                                                           4,451
Asset quality
per cent of total loans          Non-performing loans / 12-month old portfolio
                                 Net loan losses / beginning of the year portfolio                                                          716
                                                                                                       2006 2007    2006 2007   2006 2007   2006 2007

                                                                                                       Estonia       Latvia     Lithuania   Russia

            0.5                                                                           Loans to private individuals grew by 39% in 2007. Our
                           0.4        0.4         0.4                                     mortgage portfolio grew by 39% to 6.6 billion euros in
                                                                                          2007 with the fastest growth in Lithuania (+53%) and
                                      0.4                       0.4                       Latvia (+39%). 2007 was a passive growth year for con-
                           0.3                     0.3                                    sumer finance. After it became evident that measures
          2003            2004     2005         2006          2007                        need to be taken to limit loan growth, we withdrew above
                                                                                          the line marketing of our consumer finance products. The
                                                                                          growth was still strong at 41% given the lower market

Review of the                                                                             The growth of our corporate financing (lending + leasing)
                                                                                          portfolio was 32% in 2007. Higher internal requirements
Balance Sheet                                                                             for real estate lending slowed this sector portfolio growth
                                                                                          from 90% in 2006 to the level of our overall portfolio growth
Hansabank Group’s total assets grew by 33% to 25.83                                       at 35%. The share of real estate lending in our corporate
billion euros in 2007. The share of loans to total assets                                 portfolio has remained stable from 2006 to 2007 at 27%.
was stable at 77% over the year. Credit growth continues                                  Other core sectors such as industry (29% yoy) and other
to outpace that of savings and the loans to deposits ratio                                business services, such as security, maintenance, advisory
increased from 159% to 183% by the end of 2007. The                                       (59% yoy) showed healthy growth.
Group has been increasingly relying on funding from the
parent company to finance lending growth. The balance of                                  At the end of December 2007, the Group’s total lending
dues to other banks and issued debt securities increased                                  (bank lending, leasing and factoring) market share was
by 53% over the year from 7.7 billion euros to 11.9 billion                               44% in Estonia, 23% in Latvia and 21% in Lithuania versus
euros.                                                                                    47%, 25% and 20% respectively in 2006.

LENDING                                                                                   DEPOSITS AND SAVINGS

After two years of very high growth rates, the focus in                                   2007 was another year in which we saw a very strong
2007 was on more balanced and sustainable growth levels                                   growth in the “alternative” savings market. Deposits are
in order to help the cooling of the Estonian and Latvian                                  still the main method of saving, but other savings products
economies. Our lending portfolio increased 34% yoy. In                                    are becoming increasingly popular. Customer deposit
absolute terms, the credit portfolio increased by 5.07 bil-                               growth was 17% or 1.58 billion euros in 2007. At the
lion euros to 19.95 billion euros (repos excluded).                                       same time, assets gathered increased by 41% or 0.77
                                                                                          billion euros. In addition, the volume of investment de-
Our market position in Estonia and Latvia is well estab-                                  posits grew to EUR 413 million, which is growth of 256%
lished. Managed lending growth in these countries directed                                from last year. Pension savings continue to grow and at
our focus to more thorough customer selection and                                         the end of 2007 over 2.4 million people had already

joined the individual pension system launched in the            Our solid performance was recognized and at the Invest-
Baltics in 2002. Our market leader position was even            ments and Pensions Europe Awards event, Hansa Pension
strengthened this year by an increase in market share           Fund K3 was awarded the Best European Pension Fund in
in Estonia to 55%, Latvia 54% and Lithuania 43%.                fixed income investments. By the end of the year the share
                                                                of active clients with investment products (including in-
In addition, 2007 was a year in which the popularity of         vestment deposit) reached 15% in Estonia, 8% in Latvia
investing increased significantly. Targeted marketing           and 21% in Lithuania.
campaigns, investment conferences and training for our
clients resulted in a substantial increase in the number
of clients with investment and life insurance products.

Results by Business Units: Estonia
in millions of euros                                                                                  2007            2006              Change
Total income                                                                                          397.3           304.5               31%
Operating expenses                                                                                    149.5            118.1              27%
Operating profit before provisions                                                                    247.8            186.4              33%
Net profit                                                                                            225.3            175.9              28%
EVA**                                                                                                 163.5           140.8               16%

Return on allocated equity*                                                                          36.9%            40.8%
Cost-income ratio                                                                                    37.6%            38.8%
Net loan losses***                                                                                   0.39%            0.28%
Net interest margin                                                                                  2.72%            2.53%

Loans****                                                                                          7,532.8           6,032.4               25%
Deposits                                                                                           4,719.6           4,096.2               15%
Allocated equity*                                                                                    667.4             540.7               23%
Assets                                                                                            10,336.9           8,104.0               28%

Number of employees (full-time equivalent)                                                            3,246           2,940                10%
* Cost of equity used for EVA calculation was 8% in 2006 and 10% in 2007
** based on 8% capital adequacy for 2006 and 2007
*** net loan losses equals to (provisions+write-offs – recoveries) / beginning of the year loan portfolio
**** Loans to customers (excluding repos)

The Estonian business unit had another solid year of                                        has established itself as an important market player win-
performance. Being the market leader in Estonia, the                                        ning 10% market share by the end of 2007.
bank has played a vital role in balancing loan growth.
Strengthening the organization internally and building                                      Our deposit base has been stable with annual growth of
sound business intelligence capabilities has enabled                                        15%. Estonia continues to lead in the offering of alterna-
better understanding of customer behavior and related                                       tive savings and investment products in the Baltics. Our
risks leading to new achievements in the areas of cor-                                      fees received from investment services grew +43% during
porate lending, consumer finance and mortgage lending.                                      2007, with especially strong growth in custody.

The net profit of the Estonian business unit amounted                                       EXPENSES
to 225 million euros in 2007, an increase of 28% com-
pared to the previous year. Higher base rates and grow-                                     Hansabank Estonia’s total operating expenses increased
ing cost of funding together with managed operating                                         by 27% yoy to 150 million euros. The highest growth was
expenses growth were the key drivers of Hansabank                                           in administrative expenses (35%) due to the opening of
Estonia’s performance.                                                                      new offices. Personnel expenses increased by 29% yoy;
                                                                                            219 new employees (excl. Group-level units and IT) were
REVENUES                                                                                    hired during the year.

Total income grew 31% in 2007 and reached 397 million                                       Estonia has the lowest cost-income ratio in the Group and
euros. Growth was strongest in net interest income at                                       during 2007 they were able to improve the ratio further to
39% where increasing base-rates, growing portfolio and                                      38%.
stable margins helped to achieve solid performance. During
the third and fourth quarters growth started to level off as                                ASSET QUALITY
increasing funding expenses put pressure on our net inter-
est margin. The loan portfolio of Hansabank Estonia in-                                     Asset quality has been solid throughout the year. Towards
creased by 25% yoy, only half of the portfolio growth one                                   the end of 2007, the slowdown of the real estate sector
year ago. The mortgage portfolio grew by 31%, the con-                                      cautioned us to reassess the financial situation and debt
sumer finance portfolio by 33% and the corporate portfolio                                  servicing capabilities of some of our clients. As a result
by 23%. We have witnessed a slight drop in our market                                       the net loan losses have increased to 23 million euros in
shares – our bank lending market share declined from 46.7%                                  2007. Net loan losses formed 0.39% of beginning of the
at the end of 2006 to 44% a year later.                                                     year portfolio in 2007. The ratio of non-performing loans
                                                                                            (over 60 days overdue) to loan portfolio (12-month old
The start-up of non-life insurance business in the second                                   portfolio) was 0.58% at the end of December 2007 com-
half of 2006 has been a success story – the business unit                                   pared to 0.32% year ago.

Results by Business Units: Latvia
in millions of euros                                                                                  2007             2006               Change
Total income                                                                                          297.8             198.5              50%
Operating expenses                                                                                    115.5              85.9              34%
Operating profit before provisions                                                                    182.3             112.6              62%
Net profit                                                                                            133.8              88.8              51%
EVA**                                                                                                  91.2              67.7              35%

Return on allocated equity*                                                                          31.9%             34.4%
Cost-income ratio                                                                                    38.8%             43.3%
Net loan losses***                                                                                   0.56%             0.44%
Net interest margin                                                                                  3.25%             3.12%

Loans****                                                                                           5,976.5           4,456.8               34%
Deposits                                                                                            2,445.1           2,210.1               11%
Allocated equity*                                                                                     473.8             340.0               39%
Assets                                                                                              7,261.2           5,511.0               32%

Number of employees (full-time equivalent)                                                            2,577             2,247               15%
* Cost of equity used for EVA calculation was 8% in 2006 and 10% in 2007
** based on 8% capital adequacy for 2006 and 2007
*** net loan losses equals to (provisions+write-offs – recoveries) / beginning of the year loan portfolio
**** Loans to customers (excluding repos)

Despite the volatile and challenging market develop-                                        EXPENSES
ments, 2007 was another highly successful year for
Hansabank Latvia. Coming from the very high volume                                          The Latvian business unit has been investing heavily into
growth environment the difficult task of controlled                                         initiatives increasing the future efficiency and stability of
growth was well executed and accomplished.                                                  the organization. Operating expenses grew by 34% yoy
                                                                                            with highest growth in data networking expenses +41%
Net profit of the Latvian business unit increased by                                        yoy. Personnel expenses grew by 37% annually. The
51% yoy to 134 million euros in 2007. The bank has                                          employee growth is gradually decreasing – the annual
benefited from rising base-rates and growing volumes.                                       growth rate declined from 20% in 2006 to 15% in 2007.

REVENUES                                                                                    Despite the highest annual growth rate of operating
                                                                                            expenses in the Baltics, even stronger volume growth
The total income of the Latvian business unit increased                                     allowed the Latvian unit to further increase its efficiency
by 50% yoy to 298 million euros. Loan portfolio growth                                      as cost income ratio declined to 39%.
and rising RIGIBOR (especially pronounced in the second
and third quarter) contributed the most to the increase                                     ASSET QUALITY
in net interest income - the main driver behind strong re-
sults. Strong growth was also seen in net fees (37%) sup-                                   Similar to the situation in Estonia, the real estate sector
ported by the development of investment products and                                        has been on hold toward the end of 2007 with a notewor-
higher lending fees from escalated refinancing of LVL                                       thy decline in transaction numbers though a less signifi-
nominated loans due to the increase in RIGIBOR.                                             cant drop in average prices. At the end of 2007, expected
                                                                                            cash flows of several corporate clients with real estate
The Latvian unit’s loan portfolio increased by 34% during                                   exposure were revised to be more conservative. Net loan
2007. All core portfolios performed well – the mortgage                                     losses for the Latvian business unit totaled 25 million euros
portfolio grew by 39%, consumer finance by 51% and cor-                                     in 2007. The ratio of net loan losses to beginning of the
porate financing by 24%. Lending margins decreased over                                     year portfolio was 0.56% which is higher than in our
the year by 7bp while deposit margins reached record level                                  Estonian unit. Non performing loans amounted to 0.87%
of 3.57%. The net interest margin was 3.25% for 2007                                        of the total loan portfolio (12-month old portfolio).
which is the highest ratio among the Baltic business units.
Deposit growth was a modest 11% and tougher competi-
tion for local deposits has led to a slight decrease in our
market share – from 20% to 19% over the year. On the oth-
er hand, our market share in pillar 2 pension products has
increased both in terms of volumes and number of clients.

Results by Business Units: Lithuania
in millions of euros                                                                                  2007            2006              Change
Total income                                                                                          264.9            173.8             52%
Operating expenses                                                                                    119.5             90.9             31%
Operating profit before provisions                                                                    145.4             82.9             75%
Net profit                                                                                            112.0             61.7             82%
EVA**                                                                                                  77.2             42.9             80%

Return on allocated equity*                                                                          32.7%            26.6%
Cost-income ratio                                                                                    45.1%            52.3%
Net loan losses***                                                                                   0.23%            0.31%
Net interest margin                                                                                  2.80%            2.62%

Loans****                                                                                           5,367.5          3,685.2              46%
Deposits                                                                                            3,633.1          2,940.4              24%
Allocated equity*                                                                                     406.5            277.4              47%
Assets                                                                                              7,278.2          5,087.1              43%

Number of employees (full-time equivalent)                                                            3,380           3,027               12%
* Cost of equity used for EVA calculation was 8% in 2006 and 10% in 2007
** based on 8% capital adequacy for 2006 and 2007
*** net loan losses equals to (provisions+write-offs – recoveries) / beginning of the year loan portfolio
**** Loans to customers (excluding repos)

2007 brought swift improvements and impressive fi-                                          EXPENSES
nancial results to Hansabankas. The organization has
strengthened tremendously over the past few years                                           The Lithuanian business unit’s operating expenses grew
and impressive revenue growth together with improve-                                        by 31% in 2007. Similarly to the Latvian unit, investments
ments in efficiency are a direct result of these achieve-                                   into efficiency improvement initiatives have in the short
ments.                                                                                      term increased administrative expenses (33% yoy). Per-
                                                                                            sonnel expenses grew by 28% compared to the previous
The net profit of the Lithuanian business unit increased                                    year. The number of employees in Lithuania grew by 353
by 82% yoy, making Hansabankas clearly the growth                                           over the year (+12%) leaving the peak of employee growth
leader of the Group in 2007. Lithuanian net profit                                          to 2006.
amounted to 112 million euros in 2007. Significant im-
provement in efficiency is reflected in the decreasing                                      ASSET QUALITY
cost-income ratio – 45% in 2007, well below the tar-
geted 50%.                                                                                  Asset quality in Lithuania was very good. Net loan losses
                                                                                            amounted to 8 million euros in 2007, a modest 10% annual
REVENUES                                                                                    increase compared to the 46% growth of the loan port-
                                                                                            folio. They formed 0.23% of the beginning of year port-
Total income increased by 52% to 265 million euros in                                       folio. Non-performing loans (overdue more than 60 days)
2007. Strong performance was achieved in core net in-                                       to loan portfolio were 0.74% at the end of the year.
terest income (54%) by leveraging from positive market
and base rate developments. In addition, the Lithuanian
business unit has been able to almost double the trading
income, benefiting from the launching of investment de-
posits. Other revenues were notable due to fees from the
Ministry of Finance for intermediating the rouble deposits
compensation and from the sale of the subsidiary, Hansa
Insurance Brokerage.

The Lithuanian loan portfolio increased by 46% yoy with
equally strong growth in retail lending (+53%) and corpo-
rate financing (+41%). The deposit growth rate has been
the strongest in the Baltics – 24% yoy. Noticeable results
were achieved in investment management and assets
gathered increased 72% from 2006.

Results by Business Units: Russia
in millions of euros                                                                                  2007            2006               Change
Total income                                                                                           53.5            42.8                 25%
Operating expenses                                                                                     24.7            35.9                -31%
Operating profit before provisions                                                                     28.8              6.9              317%
Net profit                                                                                             20.2              0.4            4,950%
EVA**                                                                                                  11.1             -4.4             -352%

Return on allocated equity*                                                                          24.7%             0.6%
Cost-income ratio                                                                                    46.1%            84.0%
Net loan losses***                                                                                   0.74%            0.75%
Net interest margin                                                                                  4.80%            5.32%

Loans****                                                                                           1,071.9            715.9              50%
Deposits                                                                                              116.2             84.2              38%
Allocated equity*                                                                                      92.8             66.9              39%
Assets                                                                                              1,261.0            884.6              43%

Number of employees (full-time equivalent)                                                              371             233               59%
* Cost of equity used for EVA calculation was 8% in 2006 and 10% in 2007
** based on 8% capital adequacy for 2006 and 2007
*** net loan losses equals to (provisions+write-offs – recoveries) / beginning of the year loan portfolio
**** Loans to customers (excluding repos)

The Russian business unit’s performance was challenged                                      The Russian unit’s operating costs totaled 25 million euros
in spring 2007 when the Central Bank of Russia (CBR)                                        in 2007, though without the reversal of the VAT operating
carried out an audit of OAO Swedbank and prescribed a                                       risk provision the expenses would have been 6.4 million
number of actions to be taken to comply with the certain                                    euros higher. Excluding this item, expense growth was 56%
acts of Russian Federal Law. Group’s management                                             compared to 2006. The number of employees grew by
formed a team to work on the issues discovered and in                                       59% to 371 during 2007. The Russian unit has continued to
September CBR announced their decision to let Swed-                                         build their banking organization and corporate lending
bank resume its operations in Russia at full scale. In                                      operations. The loan portfolio of the Russian business
2008, the supervision of the Russian business will be                                       unit increased by 50% to 1,072 million euros and the vol-
transferred to Swedbank International Banking unit.                                         ume of deposits grew 38% to 116 million euros.

Our Russian business unit’s financial performance was                                       ASSET QUALITY
affected by the restrictions and growth limitations im-
posed by the CBR. On the positive side, the first major                                     The Russian asset quality remains excellent. Net loan
victory in VAT related dispute led to a reversal of provi-                                  losses totaled 5.3 million euros over the year.
sion in the amount of 6.4 million euros. The net profit
of the Russian unit was 20 million euros in 2007.


Total income increased by 25% to 54 million euros in
2007. The main revenue item is net interest income,
which increased by 28% to 48 million euros. The net in-
terest margin of our Russian unit is decreasing given the
heightened competition and growing funding costs. Still,
the ratio is at a strong level of 4.8% - well above that of
the Baltic business units.

During the year, Hansa Leasing won several VAT related
court hearings and operational risk provision in the amount
of EUR 6.4 million was reversed at the end of 2007. In
addition to the stronger financial result the positive de-
velopment allows the Russian unit to reopen the leasing

   is finding
simple solutions
  to complex


COUNCIL                                                             Board consisted of nine members: Erkki Raasuke (Chair-
                                                                    man), Priit Põldoja (Deputy Chairman), Giedrius Dusev-
According to the Articles of Association of AS Hansapank,           icius, Kristina Siimar, Aivo Adamson, Andres Trink, Maris
the Council shall consist of at least five, but not more            Avotinš, Antanas Danys and Maris Mancinskis.
than twelve members. The members of the Council shall
be elected and recalled by the General Meeting of the               According to the Principles for Corporate Governance,
shareholders. As Swedbank AB (publ) holds 100% of AS                the Board is the highest executive body of Hansabank
Hansapank shares, there is no requirement to convene                Group, and directs and monitors the activities thereof,
the shareholder’s meetings - instead the sole shareholder’s         pursuant to the strategies and general principles approved
resolutions should be adopted. According to the sole share-         by the Council. In addition, each Board member acts as
holder resolution dated 17 April 2006, five members were            the executive officer of a respective business or support
elected to the Council: Jan Lidén (Chairman), Anders Ek             unit of the Group. During 2007 the Board started discus-
(Vice-Chairman), Lennart Lundberg, Annika Wijkström                 sions on establishing the position of Chief Operating Offi-
and Lars Lundquist. The term of office of the Council mem-          cer and the recruitment process commenced. It was also
bers was extended to three years and the corresponding              decided that the COO will be a member of the Board. On
change was made to the Articles of Association. There               10 January 2008 Helo Meigas was approved as Chief
were no changes in the membership of the Council during             Operating Officer and elected to the Board.
2007. On 18 December 2007 Lennart Lundberg submitted
his resignation letter due to his retiring. The resignation         Regular Board meetings are held on a monthly basis. The
took effect on 1 February 2008. As 5 members is the regu-           Board held 27 meetings in 2007, 13 of which were held
latory minimum for the credit institution’s council, Magnus         without convening a meeting and 3 meetings were dedi-
Francke was elected as a new Council member starting 1              cated for strategy discussions.
February 2008.
                                                                    The working language for the Board is English and the
According to the General Principles for Corporate Gover-            minutes are also prepared in English.
nance in Hansabank Group and the Bylaws of Hansabank
Group, the Council’s key functions include, inter alia: en-
suring the effectiveness and efficiency of operations and           BOARD COMMITTEES
creation of shareholder value; approving the Group’s
strategies, targets and policies; deciding on strategic in-         The Board committees are the Board Credit Committee,
vestments, acquisitions and divestments; and approving              Group Asset and Liabilities Management Committee
the procedures for monitoring Group’s activities. As a              (ALMCO), Group Financial Committee, Group Retail Bank-
general principle, the consent of the Council is required           ing Committee, Group Corporate Banking Committee,
for all issues of strategic (i.e. issues that are beyond the        Group Project Committee, Group Investment Management
scope of everyday business activities) or principal signifi-        Committee and Group Operations Committee. The Group
cance with regard to Hansabank Group operations.                    Operations Committee was renamed as the Operational
                                                                    Excellence Steering Committee. During 2007 three new
In accordance with the Bylaws of Hansabank Group, the               Board committees were established: Group Business
Council is entitled to establish and dissolve the Council           Continuity Committee, Group Enterprise Data Warehouse
sub-committees. No Council sub-committees were estab-               (EDW) Steering Committee and Group Risk Capital Pro-
lished in 2007 as the tasks of the sub-committees have              gramme Steering Committee. The Board committees’
been delegated to the Swedbank Group level committees               competence, regulation and membership shall be deter-
and bodies.                                                         mined by the Board.

Pursuant to the law and Articles of Association, regular            The Board Credit Committee is the highest institution of
Council meetings should be held at least once every quarter.        the credit risk management of the Group and it governs
The Council held 8 meetings in 2007, 4 of which were held           operations of all the highest credit committees of struc-
without convening a meeting.                                        tural units of the Group. The committee is entitled to pass
                                                                    resolutions in all matters concerning the credit risk man-
The working language of the Council is English and minutes          agement of the Group. Its principal responsibility is to de-
of the meetings are also prepared in English.                       cide upon credit applications within its confirmed limits of
                                                                    competence as established by the Council. Decisions on
                                                                    exposures exceeding 100 million euros are submitted for
BOARD                                                               final approval to the Swedbank Board Credit Committee.
                                                                    The Credit Committee convenes on a weekly basis.
The Articles of Association states that the Management
Board (hereinafter the Board) shall consist of at least six         The functions of the Financial Committee include setting
and not more than twelve members, elected by the Council            financial counterpart limits and determining market risk
for a term of three years. On 12 February 2007 Andres               limits on different portfolios. The meetings of the Financial
Trink was approved as Chief Risk Officer and elected to             Committee take place at least every two weeks.
the Board. As a result of the aforementioned change, the

The ALMCO is the highest institution of the Group’s assets              ing, constantly seek and exploit synergies and align pro-
and liabilities’ management, liquidity management, fund-                cesses across the Group EDW and Business Intelligence
ing strategy, financial risk management, capital planning               activities. The Committee is responsible for Group-level
and fund transfer pricing. The meetings of the ALMCO                    coordination of operational efficiency, quality improve-
take place at least once a month.                                       ment activities and investments across various Business
                                                                        Intelligence and EDW projects. The committee comprises
The Group Retail and Corporate Banking Committees have                  of up to five (5) members: Group CEO (Chairperson of the
been established to foster knowledge sharing inside the                 committee), Group CFO, Group CIO, Group CRO and CEO
Group, create synergies between the various business units              of Hansabank Estonia. The Committee meetings take
and improve competitiveness. Both committees meet at                    place at least once every two months.
least bimonthly.
                                                                        The Group Risk Capital Programme Steering Committee
The Group Project Committee is responsible for approv-                  was established on 18 June 2007 in the following compo-
ing, prioritizing, monitoring and evaluating product de-                sition: Members of the Board and Swedbank Group CRO.
velopment projects within the Group. The committee                      Chairperson of the committee is Group CEO. The overall
meets at least once every month.                                        goals of Risk Capital Programme are: increased competi-
                                                                        tiveness through more efficient credit process; improved
The Group Investment Committee has been created to                      risk selections and improved corporate governance tools;
exploit synergies and exchange know-how at Group level                  improved tools, methods and knowledge for the business
in the areas of investment management, life insurance and               organisations supporting increased effectiveness and
custody services. The committee meets every quarter.                    profitability in the business processes; improved ability to
                                                                        act towards rating bureaus, supervisors and other stake-
The Group Operational Excellence Steering Committee                     holders in issues concerning risk, capital and profitability;
is a Group-level working and decision-making body es-                   and to achieve the approval of internal rating based (IRB)
tablished to motivate employees to achieve increased                    approach. The regular meetings take place monthly.
performance targets, lead decision-making, proactively
engage in problem solving for value delivery, and to                    The working language for the above Board committees is
constantly seek and exploit synergies and align pro-                    English and the minutes are also prepared in English.
cesses across the Group in the area of operations. The
Committee is responsible for implementation of the
Operational Excellence Initiative in the Group, as well
for Group-level leadership and coordination of opera-
tional efficiency and quality improvement activities
across various product lines, channels and processes.
The chairperson of the committee is the Group COO.
The Committee meetings shall take place once every
month during implementation of the Operational Excel-
lence program and afterwards upon need, but not less
frequently than quarterly.

The Group Business Continuity Committee is the highest
working body at Group level created in order to establish
the organisation and principles of business continuity
management. Among other competences this committee
reviews the reports of business continuity test results and
the reports of business continuity incidents, approves the
agreed action plans and monitors their implementation.
The committee comprises of up to seven (7) members
including Group CRO, Group CIO, Group IT Risk Manager,
Head of Group Corporate Banking Committee, Head of Group
Retail Banking Committee, Head of Group Investment
Management Committee and Head of Group Operational
Excellence Steering Committee. The chairperson of the
committee is Group CRO. The regular meetings take place
quarterly; in the event of business continuity incidents (crises
and disasters) the committee shall convene within 3 working

The Group Enterprise Data Warehouse (EDW) Steering
Committee is a Group level decision-making body estab-
lished to oversee performance, coordinate decision-mak-


Consolidated Income Statement
                                                                             EEK                         EUR
in millions, for the year                               Notes     2007             2006         2007           2006

Interest income                                                   21,173.1         12,239.7    1,353.2          782.3
Interest expense                                                -10,803.5           -5,193.2    -690.5         -331.9
Interest income, net                                     6       10,369.6            7,046.5     662.7          450.4

Fee and commission income                                         4,250.4           3,388.9     271.7          216.6
Fee and commission expense                                       -1,068.2            -794.3     -68.3          -50.8
Fees and commissions, net                                7        3,182.2           2,594.6     203.4          165.8

Net financial gains and losses                           8       1,396.6            1,047.4       89.3          67.0
Net income from insurance activities                     10        356.9              166.4       22.8          10.6
Other operating income                                   11        381.4              305.8       24.4          19.5
Total income                                                    15,686.7           11,160.7    1,002.6         713.3

Personnel expenses                                       12       3,633.5           2,687.9     232.2          171.8
Data network expenses                                    13         515.9            390.6       33.0           25.0
Administrative expenses                                  14       1,175.5            888.9       75.1           56.8
Other expenses                                           16         706.1             887.8      45.2           56.7
Depreciation, amortisation and impairment losses         17         322.9             281.1      20.6           18.0
Total operating expenses                                          6,353.9           5,136.3     406.1          328.3

Operating profit before provisions                                9,332.8           6,024.4     596.5          385.0

Losses on loans and guarantees                                   -1,048.3           -659.8      -67.0          -42.2
Recovered loans                                                      86.1             152.2       5.5            9.7
Share of profit of associates                                        11.2              10.5       0.7            0.7
Profit before income tax                                          8,381.8           5,527.3     535.7          353.2

Income tax                                               18        -816.6           -465.4      -52.2           -29.7
Profit for the year                                               7,565.2           5,061.9     483.5          323.5

Basic earnings per share                                 19        23.86             16.00       1.52           1.02
Diluted earnings per share                               19        23.86             16.00       1.52           1.02

Consolidated Balance Sheet
                                                                               EEK                   EUR
in millions, end of period                                   Notes    31.12.2007 31.12.2006 31.12.2007 31.12.2006

Cash                                                                     4,394.0      3,695.2      280.8       236.2
Due from Central Bank                                                  19,883.5     20,413.2     1,270.8     1,304.6
Due from other financial institutions                          21       34,991.1    23,292.1     2,236.3     1,488.6
Financial assets held for trading                             22         3,319.6      2,982.9      212.2       190.7
Financial assets designated at fair value through P/L         23        17,871.1    12,788.1     1,142.2        817.3
Available-for-sale securities                                 24             2.4          2.4        0.1          0.1
Held-to-maturity securities                                   25         2,080.3      1,908.6      133.0       122.0
Investments in associates                                     55            58.0         46.9        3.7          3.0
Prepayments and accrued interest                              27         4,421.0      3,751.7      282.5       239.8
Loans                                                         28      315,582.7    232,982.7    20,169.4    14,890.3
  - Allowance for loan losses                                28, 29     -2,445.2     -1,689.9     -156.3      -108.0
Net loans                                                              313,137.5   231,292.8    20,013.1    14,782.3
Other assets                                                  30         1,372.0        995.9       87.7         63.7
Tangible assets                                                31        2,100.4      1,798.5      134.2       114.9
Intangible assets                                             32           462.6        448.2       29.6         28.6
Total assets                                                  20      404,093.5    303,416.5    25,826.2    19,391.8

Due to Central Bank and Government                                         38.0         81.5         2.4         5.2
Due to other financial institutions                           34      172,532.1    105,548.6    11,026.8     6,745.8
Deposits                                                      35      170,755.9    145,986.4    10,913.3    9,330.2
  Demand deposits                                                     111,047.3    105,404.6     7,097.2    6,736.6
  Time deposits                                                        59,708.6     40,581.8     3,816.1    2,593.6
Other financial liabilities                                   37       13,643.5     16,022.1       872.0     1,024.0
Accrued liabilities                                           38        6,651.8      4,972.3       425.1       317.8
Other liabilities                                             39        4,500.7      4,091.6       287.7       261.5
Provisions                                                    40        6,459.9      4,601.8       412.9       294.1
Deferred tax liability                                         41          42.9         38.9         2.7         2.5
Total liabilities                                             20      374,624.8    281,343.2    23,942.9    17,981.1

Share capital                                                           3,173.7      3,173.7       202.8       202.8
Share premium                                                             504.1        504.1         32.2        32.2
Reserves                                                                  872.2        879.0         55.7        56.1
Revaluation differences                                                  -345.7       -254.2        -22.1       -16.1
Retained earnings                                                      25,264.4     17,770.7     1,614.7     1,135.7
Total equity                                                           29,468.7     22,073.3     1,883.3     1,410.7
Total liabilities and equity                                          404,093.5    303,416.5    25,826.2    19,391.8

Consolidated Statement of Cash Flows
                                                                                                 EEK                          EUR
in millions, for the year                                                  Notes      2007             2006         2007            2006

Profit before income tax                                                             8,381.8           5 527.3      535.7           353.2

Adjustments to profit before income tax
Loan losses                                                                             811.0          443.7         51.8             28.4
Interest income                                                             6       -21,173.1      -12,239.7     -1,353.2           -782.3
Interest expense                                                            6       10,803.5         5,193.2        690.5            331.9
Depreciation and amortisation                                               17          322.9          281.1         20.6             18.0
Profit from sales of tangible and intangible assets                                      -19.1          -8.7          -1.2            -0.6
Book value of tangible assets written-off                                   31               –           8.4             –             0.5
Total adjustments to operating profit                                                -9,254.8       -6,322.0       -591.5           -404.1

Changes in operating assets and liabilities
Net change in compulsory reserve to Central Bank                                      -1,019.5        -1,417.9       -65.2          -90.6
Net change in deposits placed with other financial institutions                       -7,454.1        1,476.8      -476.4             94.4
Net change in loans to other financial institutions                                  -1,362.1        -1,697.2         -87.0        -108.5
Net change in financial assets held for trading                                      -2,215.6        -2,172.9       -141.6         -138.9
Net change in prepayments                                                               -243.7         -506.5         -15.6          -32.4
Net change in loans                                                                -82,600.0       -86,355.2     -5,279.1        -5,519.1
Net change in accrued liabilities                                                        334.3        1,357.7          21.4           86.8
Net change in other assets                                                              -376.0         -105.3        -24.0            -6.8
Net change in short-term liabilities due to other financial institutions              9,556.8         8,163.0        610.8          521.8
Net change in demand deposits                                                         5,643.7       25,675.6        360.7         1,641.0
Net change in time deposits                                                          19,125.6          7,017.1    1,222.3           448.4
Net change in other liabilities                                                       2,225.8         2,778.1        142.3          177.7
Total adjustments to operating assets and liabilities                              -58,384.8       -45,786.7     -3,731.4       -2,926.2
Interest received                                                                   20,747.5         11,951.8     1,326.0           763.9
Interest paid                                                                        -9,839.8       -4,710.7       -628.9          -301.1
Income tax paid                                                                         -605.0         -165.8        -38.7           -10.6
Net cash used in operating activities                                              -48,955.1       -39,506.1     -3,128.8       -2,524.9

Cash from investing activities
Net change in strategic investments                                                   -182.8            -115.2       -11.7             -7.5
Acquisition of tangible assets                                              31        -709.5           -463.3       -45.3            -29.5
Proceed from sale of tangible assets                                                    117.9            102.7         7.5              6.7
Acquisition of intangible assets                                            32          -37.6            -22.9        -2.4             -1.5
Proceed from sale of intangible assets                                                      –              0.8           –                –
Net cash used in investing activities                                                 -812.0            -497.9      -51.9            -31.8

Cash from financing activities
Credit lines of Central Bank and Government paid                                       -43.5           -449.3        -2.8           -28.7
Long-term loans received from other financial institutions                          77,382.3       102,354.8      4,945.6        6,541.6
Long-term loans paid back to other financial institutions                          -23,405.1        -47,714.4    -1,495.9       -3,049.5
Issuance of debt securities                                                         -2,392.8         -5,529.3      -152.9         -353.4
Net change in subordinated liabilities                                               3,449.5          4,694.0       220.5          300.0
Dividends paid                                                                          -78.3               –        -4.9               –
Net cash provided by financing activities                                           54,912.1        53,355.8      3,509.6        3,410.0
Effect of the change in exchange rate from foreign subsidiaries                          91.5           -84.5         5.7            -5.4
Net increase in cash and cash equivalents                                            5,236.5         13,267.3       334.6          847.9
Cash and cash equivalents at the beginning of the year                              38,676.4        25,409.1      2,471.9        1,624.0
Cash and cash equivalents at the end of the year                                    43,912.9        38,676.4     2,806.5         2,471.9

Analysis of cash and cash equivalents
                                           EEK                            EUR
December 31, in millions       2007       2006       Change      2007     2006      Change

Cash                           4,394.0    3,695.2       698.8     280.8    236.2      44.6
Balances with Central Bank    13,067.9    14,617.3   -1,549.4     835.2    934.2     -99.0
Placements with other banks   13,238.9   10,356.0     2,882.9     846.1     661.8    184.3
Liquidity securities          13,212.1   10,007.9     3,204.2     844.4     639.7    204.7
Total                         43,912.9   38,676.4     5,236.5   2,806.5   2,471.9    334.6

Consolidated statements of changes in equity
                                                                    EEK                        EUR
in millions                                               2007             2006       2007           2006

Share capital
Balance at the beginning of the year                     3,173.7           3,173.7    202.8           202.8
Balance at the end of the period                         3,173.7           3,173.7    202.8           202.8

Share premium
Balance at the beginning of the year                      504.1             504.1      32.2            32.2
Balance at the end of the period                          504.1             504.1      32.2            32.2

Reserves-general banking reserve
Balance at the beginning of the year                       341.7             341.7      21.8           21.8
Balance at the end of the period                           341.7             341.7      21.8           21.8

Reserves-statutory reserve
Balance at the beginning of the year                      436.8             391.5      27.9            25.0
Appropriations to statutory reserve                        93.2              45.3       6.0             2.9
Balance at the end of the period                          530.0             436.8      33.9            27.9

Other reserves - stock dividends of subsidiaries
Balance at the beginning of the year                       100.5            100.5        6.4            6.4
Change in other reserves                                  -100.0                –       -6.4              –
Balance at the end of the period                             0.5            100.5          –            6.4

Currency translation reserve
Balance at the beginning of the year                      -254.2            -169.8     -16.1           -10.8
Net change in currency translation reserve                   16.4            -84.4       0.9            -5.3
Balance at the end of the period                           -237.8           -254.2     -15.2           -16.1

Cash-flow hedge (effective portion)
Balance at the beginning of the year                           –                –          –              –
Net change in cash-flow hedge reserve                     -107.9                –       -6.9              –
Balance at the end of the period                          -107.9                –       -6.9              –

Retained earnings
Balance at the beginning of the year                    17,770.7          12,754.1   1,135.7           815.1
Profit for the year                                      7,565.2           5,061.9    483.5           323.5
Dividends paid                                             -78.3                 –      -4.9               –
Appropriations to statutory reserves                       -93.2             -45.3      -6.0            -2.9
Appropriations from other reserves                         100.0                 –       6.4               –
Balance at the end of the period                        25,264.4          17,770.7   1,614.7         1,135.7

Total equity                                            29,468.7          22,073.3   1,883.3         1,410.7

Minority interests
Balance at the beginning of the year                           –               6.2         –             0.4
Acquisition of subsidiaries                                    –              -6.2         –            -0.4
Balance at the end of the period                               –                 –         –               –

Note 1. Corporate Information
AS Hansapank (hereinafter referred to as “the Bank) is a financial institution in the form of a public liability company
(AS) domiciled in Estonia.

The consolidated financial statements of AS Hansapank for the year ended 31 December 2007 comprise AS Hansapank
and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates.

Swedbank AB owns 100% of AS Hansapank shares as of 31 December 2007. AS Hansapank consolidated financial state-
ments are therefore consolidated into Swedbank AB annual financial statements.

The consolidated financial statements of AS Hansapank and its subsidiaries are approved by the Supervisory Council
and the Management Board and are presented for final approval to the annual general shareholders’ meeting of AS
Hansapank. The Bank is subject to the regulatory requirements of Eesti Pank (the Central Bank of Estonia). These regu-
lations include those pertaining to minimum capital adequacy requirements, classification of loans and off-balance sheet
commitments, credit risk connected with clients of the Bank, liquidity, interest rate risk and foreign currency position. Simi-
larly, the Group entities are subject to regulatory requirements, specifically in relation to insurance and collective invest-

Note 2. Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (the EU) and their interpretations. The standards are issued by the Interna-
tional Accounting Standards Board (IASB) and their interpretations by the International Financial Reporting Interpreta-
tions Committee (IFRIC).


Standards and Interpretations effective in the current period
In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which are effective for annual re-
porting periods beginning on or after 1 January 2007. The impact of the adoption of IFRS 7 has been to expand the dis-
closures provided in these financial statements regarding the Group’s financial instruments.

The consequential amendments to IAS 1 Presentation of Financial Statements and four Interpretations issued by the In-
ternational Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 7 Apply-
ing the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS
2; IFRIC 9 Reassessment of Embedded Derivatives; and IFRIC 10 Interim Financial Reporting and Impairment. The Group
adopted amendments to IAS 1 and the four above-mentioned interpretations already in previous years.

Standards and Interpretations in issue not yet adopted
At the date of authorisation of these financial statements the following Standards and Interpretations were in issue but
not yet effective:

• IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009) (not yet
  endorsed by the EU);
• IFRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009), (not yet en-
  dorsed by the EU);
• IFRIC 11 IFRS 2: Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March
• IFRIC 12 Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008)
  (not yet endorsed by the EU);
• IFRIC 13 Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July 2008) (not yet
  endorsed by the EU);
• IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective
  for accounting periods beginning on or after 1 January 2008) (not yet endorsed by the EU);
• IFRS 3 (Revised) Business Combinations (effective for accounting periods beginning on or after 1 July 2009) (not yet
  endorsed by the EU);
• IFRS 2 (Revised) share-based Payment (effective for accounting periods beginning on or after 1 July 2008) (not yet
  endorsed by the EU);

• IAS 1 (Revised) Presentation of Financial Statemants (effective for accounting periods beginning on or after 1 January
  2009) (not yet endorsed by the EU);
• IAS 27 (Revised) Consolidated and Separate Financial Statemants (effective for accounting periods beginning on or
  after 1 January 2009) (not yet endorsed by the EU).

The Group anticipates that all of the adoption of the above Standards and Interpretations will have no material impact
on the financial statements of the Group in the period of initial application.

Note 3. Significant Accounting Judgements and Estimates
Presentation of consolidated financial statements in conformity with IFRS requires the entity to make judgements and
estimates that affect the recognised amounts for assets, liabilities and disclosures of contingent assets and liabilities as
of the balance sheet date as well as recognised income and expenses for the reporting period. Actual results may deviate
from estimates.


Entities in the Group have established investment funds for their customers’ savings needs. The Group manages the assets
of these funds on behalf of customers in accordance with predetermined provisions approved by the Financial Supervision
Authority of Estonia. The return generated by these assets accrues to customers. Within the framework of the approved
fund provisions, the Group receives management fees as well as application and withdrawal fees for the management
duties it performs. Because decisions regarding the management of an investment fund are governed by the fund’s pro-
visions, the Group is not considered to have the opportunity to control or dominate decision-making in the investment
funds in order to obtain economic benefits. The Group’s compensation and risk is limited to the fee charges. In certain
cases, group entities also invest in investment funds to fulfill their obligations to customers. Shares in the investment
funds do not represent any influence, regardless of whether the holding exceeds 50 per cent or not. Taken together, the
above-mentioned conditions are the basis for not consolidating the investment funds.


The Group makes various estimates to determine the value of certain assets and liabilities. When the value of loans as
well as other financial assets, for which loss events have occurred, is tested for impairment, an estimate is made of when
in the future and in which amount relevant cash inflow will occur. The measurement of financial instruments is described
in Note 4 Summary of Significant Accounting Policies.

Annual impairment tests for intangible assets with indefinite useful life estimate when the assets’ future cash flows will
occur and what their amounts are. A suitable discount rate is determined to reflect both time value of money and the
risk with which the asset is associated.

Note 4. Summary of Significant Accounting Policies

The consolidated financial statements are presented in millions of euros, unless indicated otherwise. AS Hansapank
measurement currency is the Estonian kroon. As the Estonian kroon is pegged to the euro with an exchange rate of
15.6466 kroons per euro, the consolidated financial statements are presented in euros as the reporting currency of the

The Group entities perform their accounting and prepare their financial statements for regulatory purposes in accor-
dance with accounting principles generally accepted in Estonia or those of other jurisdictions in which the Group oper-
ates. The accompanying financial statements are based on the accounting records, together with appropriate adjust-
ments and reclassifications necessary for fair presentation in accordance with IFRS.

The consolidated financial statements have been prepared under the historical cost convention as modified by the
remeasurement of available-for-sale securities, financial assets and financial liabilities held at fair value through profit
or loss and all financial derivatives, to fair value.

The accounting policies have been consistently applied by all Group entities. The principal accounting policies adopted
are set out below.


The consolidated financial statements include all subsidiaries that are controlled by the parent company. When an entity
began or ceased to be controlled during the year, the results are included only from the date control commenced or up
to the date control ceased. Control is presumed to exist where more than one half of a subsidiary’s voting power is con-
trolled by the parent company, or the parent company is able to govern the financial and operational policies of a subsidiary,
or control the removal or appointment of a majority of subsidiary’s board of directors.

Associates are those enterprises in which the Group has significant influence, but not control, over the financial and op-
erating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of
associates on an equity accounting basis, from the date that significant influence effectively commences until the date
that significant influence effectively ceases.

Subsidiaries and associates which are intended to be disposed of and whose carrying amount will be recovered princi-
pally through a sale transaction, are accounted for at lower of carrying amount and fair value less costs to sell and in-
cluded among securities available-for-sale. Investments in subsidiaries and associates in parent’s single financial state-
ments are presented at cost. At least once per year an impairment test is performed.

Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains and losses arising from intra-group transactions, are
eliminated in full in preparing the consolidated financial statements. Unrealised gains arising from transactions with
associates are eliminated to the extent of the Group’s interest in the enterprise. Unrealised losses are eliminated in the
same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.

Minority interests
Minority interests in the equity and the results of the subsidiaries that are controlled by the Group are shown as a separate
item in the consolidated financial statements.


Foreign currency transactions
Transactions in foreign currencies are translated into functional currency, Estonian kroon, at the foreign exchange rate
effective at the date of the transaction. At the balance sheet date, foreign currency monetary assets and liabilities are
retranslated to the Estonian kroon at the foreign exchange rate in effect at that date. Non-monetary items that are mea-
sured on historical cost basis are translated to the Estonian kroon at the foreign exchange rate effective at the date of
transaction. Foreign exchange differences arising on translation of foreign currency transactions are recognised in the
income statement for the year.

Financial statements of foreign operations
Assets and liabilities of foreign operations are translated to Estonian kroon at foreign exchange rates effective at the
balance sheet date. The income statements of foreign operations are translated to Estonian kroon using the average
foreign exchange rates of the financial year. Foreign exchange differences arising from translation of foreign operations
are recognised directly in equity. On disposal of a foreign operation such foreign exchange differences are recognised in
the income statement.


The Group uses derivative financial instruments, interest rate swaps and forward exchange contracts, to manage its ex-
posure to foreign exchange, and interest rate risks arising from operational, financing and investment activities. Foreign
exchange options and stock options are offered to clients to service their needs.

In accordance with requirements of IAS 39 all derivative contracts are carried on balance sheet accounts at their fair
value: all contracts with positive value in assets and all contracts with negative value in liabilities. Fair value of derivative
financial instruments is reported in the balance sheet as “Financial assets held for trading” and “Other financial liabili-
ties”. In order to determine the fair value of currency and interest related derivative contracts the Bank has performed
discounted cash flow calculations.

The basis of fair value of equity-related and other derivative instruments is market price (option pricing models or dis-
counted cash flow models as appropriate, is used for determination of market value) of the respective derivative instru-

ment. All gains and losses resulting from a change in fair value of derivative financial instruments are recognised in the
income statement line “Net financial gains/losses”.


The Group uses 2 types of hedges (1) fair value hedge to hedge the exposure to changes in the fair value and (2) cash
flow hedge to hedge the exposure to variability in cash flows of a recognised asset or liability that is attributable to a
particular risk and which will affect the reported net income. The Group’s criteria for classifying a derivative instrument
as a hedge include (1) the hedge transaction is expected to be highly effective in achieving offsetting changes in fair val-
ue attributable to the hedged risk, (2) the effectiveness of the hedge can be reliably measured, and (3) there is adequate
documentation of the hedging relationships at the inception of the hedge.

Derivatives classified as fair value hedges are carried at fair value with the corresponding change in the fair value recog-
nised in the income statement. The carrying amount of the hedged asset or liability is also adjusted for changes in fair
value attributable to the hedged risk and the gain or loss associated with that re-measurement is also recognised in the
income statement on the same line (“Net financial gains/losses”) with the hedging derivative’s changes.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that prove to be highly
effective in relation to hedged risk are recognised in the “Hedging reserve” in shareholders’ equity. Amounts deferred in
equity are transferred to the income statement and classified as gain or loss in the periods during which the hedged assets
and liabilities affect the income statement. The ineffective portion of the hedge is charged directly to the income state-
ment line “Net financial gains/losses”.


The Group offsets a financial asset and a financial liability and reports the net amount in the balance sheet when the Group:
a) Has a legally enforceable right to set off the recognised amounts and;
b) Intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.


Interest income and expenses are recognised in the income statement on an accrual basis using the effective interest
rate. Interest income includes coupons earned on fixed income investments and trading securities and accrued discount
and premium on treasury bills and other discounted investments. Fees and commissions and other income are credited
to income when related transactions are completed. Non-interest expenses are recognised at the time the transaction
occurs. Net financial gains/losses comprise income and expenses from the trading portfolio, including from revaluation
of securities held for trading and other financial instruments.

Dividend income is recognised when the shareholder’s right to receive payment is established. Dividend liability is recog-
nised on the date fixed by the annual shareholders’ meeting.


A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another entity,
a contractual right to exchange financial instruments with another entity under conditions that are potentially favourable,
an equity instrument of another entity or a derivative or non-derivative contract that will or may be settled in the Group’s
own equity instruments.
Regular way purchases or sales of financial assets are recognised using trade date accounting, except for loans and ad-

Financial assets are impaired if there is any objective evidence of impairment as a result of the occurrence of a loss
event that has an impact on the estimated future cash flows of those financial assets. The amount of the impairment
loss for assets carried at amortised cost is calculated as the difference between the assets’ carrying amount and the
present value of the expected future cash flows discounted at the financial asset’s original effective interest rate.

Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the
attention of the Group about the following loss events:
1) Significant financial difficulty of the issuer or obligor;
2) A breach of contract, such as a default or delinquency in interest or principal payments;
3) The Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty,
   a concession that the lender would not otherwise consider;

4) It becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
5) The disappearance of an active market for that financial asset because of financial difficulties; or
6) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of
   financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the
   individual financial assets in the group, including:
• Adverse changes in the payment status of borrowers in the Group; or
• National or local economic conditions that correlate with defaults on the assets in the Group.

If impairment of financial assets is identified, the Group recognises relevant losses through use of an allowance account
in the income statement.


Cash and cash equivalents comprise cash, balances with the Central Bank (excluding the minimum reserve), correspondent
accounts and overnight deposits in other banks and liquidity securities.

Cash flows from operating activities are reported under the indirect method. Cash flows from investing and financing
activities are reported based on gross receipts and disbursements made during the accounting period.


Securities held by the Group are categorised into portfolios in accordance with the Group’s intent on the acquisition of
the securities and pursuant to the Group’s security investment strategy. The Group developed a security investment
strategy and, reflecting the intent of the acquisition, allocated securities to “Securities and other assets held for trading”
and investment securities to the “Securities available for sale” and the “Securities and other assets held to maturity”.
The principal difference among the portfolios relates to the approach to the measurement of securities and the recognition
of their fair values in the financial statements.

All securities held by the Group are recognised using trade date accounting and initially recorded at their cost including
transaction costs (acquisition cost) for all financial assets not carried at fair value through profit or loss.


A financial asset measured at fair value through profit or loss is an asset that is either held for trading purposes or des-
ignated at fair value upon initial recognition.

Trading debt and certain equity securities are held by the Group with the intention of selling in order to generate profits
on price fluctuations in the short term. Derivatives are also categorised as held for trading unless they are designated
and effective hedges, or derivative financial guarantee contracts. Financial assets designated at fair value through profit or
loss consist of certain shares in investment funds and unit-linked bonds.

Upon initial recognition, the aforementioned financial assets are measured at their fair value. Financial assets designated
at fair value comprise instruments that are measured and their performance is evaluated on a fair value basis because it
eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from mea-
suring assets or liabilities or recognising the gains and losses on them on different bases. Subsequent changes in their
fair values are recognised in the income statement as “Net financial gains/losses”. For debt and equity securities traded
on stock exchanges, fair values are derived from quoted market prices. Fair values of those securities not traded, are es-
timated by the management of the Group as the best estimation of the cash flow projection reflecting the set of economic
conditions that will exist over the remaining useful life of those securities.

Those held-for-trading financial assets that do not have a quoted market price and whose fair value cannot be reliably
measured by other models are measured at cost, less allowance for permanent diminution in value, when appropriate.


Securities available for sale are non-derivative securities held by the Group for an indefinite period of time that are
available for sale as liquidity requirements arise or market conditions change.

The Group holds only such available-for-sale financial assets (strategic investments) that do not have a quoted market
price and whose fair value cannot be reliably measured by other models. Those investments are measured at cost, less
allowance for permanent diminution in value, when appropriate.


Securities held to maturity are non-derivative financial assets with fixed maturity and determinable payments that the
Group has the positive intent and ability to hold to maturity.

Securities held to maturity are initially measured at their fair values plus any directly attributable transaction costs. Se-
curities held to maturity are subsequently measured at amortised cost using the effective interest rate method, less any
accumulated impairment losses. The amortisation of premiums and discounts is reported as “Interest income”.

Fair values of those securities are estimated by the management of the Group as the best estimation of the cash flow
projection reflecting the set of economic conditions that will exist over the remaining useful life of those securities.


Securities purchased under resale agreements and securities sold under repurchase agreements are treated as collater-
alised lending and borrowing transactions. They are carried at the amounts at which the securities were acquired or sold
and divided according to the counterpart between balance sheet lines “Due from other financial institutions” and “Loans”
plus the accrued interest. The interest income/expense from resale/purchase agreements is recorded under interest income
or expense respectively using the effective interest rate method.


Loans and advances, and placements with other banks are stated at the amortised cost, net of allowance for possible
loan, advance or placements losses, respectively. Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Interest is accrued and credited to income based on the
principal amount outstanding using the effective interest rate method. All loans and advances are recognised when cash
is advanced to borrowers.

When a borrower is unable to meet payments as they become due or, in the opinion of the management, there is an indi-
cation that a borrower may be unable to meet payments as they become due, allowance is recognised. The amount of
allowance is the difference between the carrying amount and the recoverable amount, being the present value of the
expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective
interest rate. The amount necessary to adjust the allowances to their assessed levels, after write-offs, is charged to income
statement line “Losses on loans and guarantees”.

The Group first assesses, individually or collectively, whether there is objective evidence that financial assets that are indi-
vidually significant and financial assets that are not individually significant, are impaired. When the Group determines that
no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes
the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised,
are not included in the collective assessment of impairment. If there is an objective evidence that an impairment loss on
loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the
loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of
the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the
discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows
that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk
characteristics (i.e., on the basis of the Group’s grading process that considers asset type, industry, geographical loca-
tion, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of
future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to
the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis
of the contractual cash flows of the assets in the Group and historical loss experience for assets with credit risk charac-
teristics similar to those in the Group. Historical loss experience is adjusted on the basis of current observable data to

reflect the effects of current conditions that did not affect the period on which the historical loss experience is based
and to remove the effects of conditions in the historical period that do not exist currently.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes
in related observable data from period to period (for example, changes in unemployment rates, property prices, payment
status, or other factors indicative of changes in the probability of losses in the group and their magnitude). The methodolo-
gy and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences
between loss estimates and actual loss experience.

Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and the pos-
sibility of further recovery is considered to be remote. The loan is written off against the related account “Losses on
loans and guarantees” in the profit and loss account. If the reason for the recognised allowance is no longer deemed
appropriate, the redundant allowance charge is released into income. The relevant amount and recoveries of loans and
advances previously written off are reflected in the profit and loss account through “Recovered loans”.


Group as a lessor
The Group provides mostly finance leases. A finance lease is a long-term lease transaction under which all material rights
and obligations related to the use of the leased asset transfer to the lessee. Finance lease receivables are recognised as
loans to customers. Lease payments less the reduction of the outstanding liability are recorded as interest income as cal-
culated under an effective interest method to provide a constant rate of return on the net investment in the leases.

Group as a lessee
The Group has operating leases mainly for the leasing of premises. Total payments made under operating leases are
charged to the income statement on a straight-line basis over the period of the lease.


Tangible assets are recorded at acquisition cost, which consists of the purchase price and other directly associated
expenses. Assets classified as tangible assets are land, buildings and other assets with long-term useful lives. Land and
art are not depreciated. Depreciation on other tangible assets is calculated on a straight-line basis at annual rates of
4-8 per cent on buildings and of 20 or 33 per cent on other tangible assets.

The Group periodically tests its tangible and intangible assets for impairment. Where the carrying amount of an asset is
greater than its estimated recoverable amount, it is written down to this recoverable amount. Write down is recorded in
income statement line “Depreciation, amortisation and impairment losses”. Repairs and renewals are charged to the in-
come statement when the expenditure is incurred.


For business combinations that took place prior to March 31, 2004, goodwill recognised represents the excess of the ac-
quisition cost over the fair value of the Group’s share of the net assets of the acquired subsidiary/associated undertaking
at the date of acquisition. Goodwill is reported in the balance sheet as an intangible asset and is amortised using the
straight line method over the estimated useful life. On January 1, 2005, the related accumulated amortisation was elimi-
nated with a corresponding decrease in its cost value and amortisation of such goodwill was discontinued. Subsequently,
such goodwill is measured at the carrying value determined on 1 January 2005 less any accumulated impairment losses.

For business combinations taking place on or after March 31, 2004, goodwill is recognised and subsequently measured
in accordance with IFRS 3 Business Combinations. Goodwill is initially measured at its cost, being the excess of the cost
of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contin-
gent liabilities recognised. The excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities recognised over the cost of the business combination, the excess is immediately recognised in prof-
it and loss. After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulat-
ed impairment losses. When an impairment of assets is identified, the Group recognises the impairment through the
profit and loss account line “Depreciation, amortisation and impairment losses”.

Cash generating units for goodwill are considered to be assets and liabilities obtained through the acquisition of banks
and leasing companies. Calculation of value in use is based on the following assumptions:

• 2008-2011 cash flow projections are based on a business plan, where the average annual growth rate of profit is 24%.
• When finding the 2012-2016 cash flows, the profit growth rate of 7% is used. The lower growth rates (5%) for the
  years starting from 2017 are based on the assumption that the volume increase in financing activities will slow down
  in the market.
• Cash flow discount rate 10 % is used.
• Key assumptions are based on past experience.

According to the impairment test the recoverable value exceeds substantially the carrying value of goodwill; therefore
no impairment has been identified.

Intangible assets with finite useful lives

Licences are stated at the lower of historical cost and recoverable amount and are amortised using the straight-line
method over their estimated useful lives. Development costs are charged as an expense in the income statement in the
period in which they are incurred.


A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another entity,
a contractual obligation to exchange financial instruments with another entity under conditions that are potentially un-
favourable, or a derivative or non-derivative contract that will or may be settled in the Group’s own equity instruments.

A financial liability measured at fair value through profit or loss is an instrument that is either held for trading purposes
or is designated at fair value upon initial recognition. Derivatives are categorised as held for trading unless they are desig-
nated and effective hedges, or derivative financial guarantee contracts. Other financial liabilities are initially recognised on
the trade date at cost and subsequently measured at amortised cost. Amortised cost is calculated by discounting the
remaining future payments by the effective interest rate. Interest expense includes interest payments, on the accrual
basis of accounting, and relevant amortisation cost.

Fair values of those liabilities, are estimated by the management of the Group as the best estimation of the cash flow
projection reflecting the set of economic conditions that will exist over the remaining useful life of those liabilities.


Structured bonds consist of a deposit and calculated index option. The option portion of the bond is measured at fair
value based on market prices. Interest paid on the deposit part is reported under “Interest expense” and change in fair
value of the option part is recorded in “Net financial gains/losses”.


In accordance with IFRS 4, the contracts written as life insurance are classified into insurance contracts and investment
contracts, depending on the amount of insurance risk ceded. Some types of insurance contracts are in turn unbundled
into an insurance component and a deposit component. Liabilities arising from investment contracts and deposit com-
ponents of insurance contracts are measured according to IAS 39.

Other liabilities from insurance contracts – technical provisions – consist of life insurance provision, provision for unearned
premiums and provision for outstanding claims. Technical provisions are recorded in the balance sheet line “Provisions”.
The life insurance provision consists of the present value of future payments to the insured client, less the present value
of all future insurance premiums received from the client. The provision for unearned premiums represents an allocation
of the collected insurance premiums on accrual basis of premiums received to the period that it relates to. The provision
for outstanding claims’ consists of the sum of claims that have been assessed and handled, but not yet paid out and the
sum of indemnities of claims that have been registered, but not yet handled. Changes in technical provisions are recorded
under “Net income from insurance activities” in the income statement.


The income tax regime effective in Estonia from 1 January 2000 abolished the corporate income tax on retained earnings
for resident corporate identities. Companies pay income tax on profit distribution (dividends) and on transactions that
may be considered as indirect distribution of profits (benefits, gifts, etc). Due to the changed concept of taxation the
term taxation base of assets and liabilities loses its economic meaning and deferred tax liabilities and assets as defined
in IAS 12 – Income Tax, are not applicable.

Income tax on dividends in Estonia is recognised as expense at the moment dividends are declared and recorded under
“Income tax” in the income statement.

In subsidiaries located in jurisdictions other than Estonia deferred income taxes are provided using the balance sheet
liability method of accounting for income taxes, under which deferred tax consequences are recognised for tax losses
carried forward, being differences between the tax bases of assets and liabilities and their carrying amount for financial
reporting purposes. The amount of deferred income taxes on these differences is determined using the tax rates that
are expected to apply to the period when the asset is realised or the liability is settled, as applicable, based on taxes
(and tax laws) that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for all taxable temporary differences except to the extent that the timing of the
reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse
in the foreseeable future.


In the normal course of business, the Group enters into credit related commitments which are recorded in off-balance
sheet accounts and primarily include financial guarantees, loan commitments and undisbursed loan facilities. Provisions
are made for estimated losses on these commitments when the Group has a present legal or constructive obligation as a
result of past events and it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate of the amount of the obligation can be made.


The amount of a contingent loss is recognised as an expense and a liability if it is probable that future events will confirm
that after taking into account any related probable recovery, an asset has been impaired or liability incurred at the balance
sheet date and a reasonable estimate of an amount of the resulting loss can be made. Contingent gains are not recognised
as income or as an asset in the financial statements.


General banking reserve is a reserve established for losses that may result from general risks related to credit institutions’
core activity.

Statutory reserve comprises the capital reserve required by the Estonian Commercial Code. Subject to a decision by
the annual shareholders’ meeting, the statutory reserve can be used for covering losses if the latter cannot be covered
with unrestricted equity, or by increasing share capital. The statutory reserve is formed from annual net profit transfers
and cannot be distributed to the shareholder.

Other reserves comprises subsidiaries’ retained earnings in the amount that the Bank has used to increase its subsidiaries’
share capital without making additional monetary contributions.


Segment results include revenue and expenses directly attributable to a segment and the relevant portion of revenue
and expenses that can be allocated to a segment, whether from external transactions or from transactions with other
segments of the Group. Inter-segment transfer pricing is based on cost plus an appropriate margin, as specified by
Group policy. Unallocated items mainly comprise administrative expenses. Segment results are determined before any
adjustments for minority interest.

Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or
can be allocated to the segment on a reasonable basis. Segment assets are determined after deducting related adjustments
that are reported as direct offsets in the Group’s balance sheet. Segment assets and liabilities do not include income tax items.

Note 5. Risk policy and Management
Taking risks in a considered manner in order to generate income is fundamental to banking operations. Risk must, how-
ever, always be weighed against expected returns. The risk policy of Hansabank originates from Swedbank group risk
and capital policy. It is based on the underlying principle that the organization’s success depends on adequate assess-
ment, continuous monitoring and effective handling of risks as well as on sound risk culture and good corporate gover-
nance. As part of Swedbank Group, Hansabank maintains a low risk profile characterized by a well-diversified credit
portfolio, limited financial risks and a low level of operational risk. During 2007, focus was put on further alignment of
risk policy implementation across all Swedbank Group business units according to group standard.

The year 2007 was characterized by a peak in the Baltic economies with high levels of credit supply and high asset prices.
The second half of the year brought a noticeable slowdown in the credit markets, especially in Estonia and Latvia, a lower
level of activity in the residential real estate market and turbulence in the international financial markets.

Risk management activities in 2007 focused on ensuring proactive assessment of macroeconomic risks and their impact
on the bank’s credit origination standards and portfolio quality. Credit issuance principles were continuously monitored
and assessed against the underlying counterparty and market risks. Portfolio level monitoring of risk concentrations in
certain economic sectors and customer segments was given a high priority. In the financial risk area, while maintaining a
limited exposure to market risk, a proactive limit review process and ensuring solid liquidity management were given high
During the year, deeper integration of internal-ratings-based (IRB) risk and capital measurement in the bank strategy
and business process continued. A new generation of credit risk models was developed to better evaluate the risks of
both new credit applicants as well as the existing portfolio. Relying on robust risk modelling allows a deeper under-
standing of underlying risks in new credit selections and portfolio monitoring to avoid excessive risk taking and more
accurately reflect risk aspect when setting credit standards and defining capital requirement for risk-weighted assets.

Regular stress testing of the credit portfolio and financial risks has been conducted as part of the capital budgeting process
in order to secure sufficient capitalization. This includes forecasting future earnings and risk exposures, market trends and
other relevant conditions and also follows regulatory standards set for the internal capital adequacy assessment process

In 2007 a high priority was given to ensuring compliance with the new regulatory requirements in anti-money laundering
(AML), investment services and other areas. In the AML area, special emphasis was put on developing well-functioning
know-your-customer processes and ensuring compliance with reporting requirements on suspicious transactions in the
Group’s Russian unit. After temporary regulatory limitations on banking operations in Russia, the operations resumed
quickly and with a higher level of confidence in meeting compliance requirements.

As a market leader in electronic channels, proactive assessment, monitoring and professional handling of IT risks are
core priority areas for the bank. Against a background of rapid evolution in technology, our goal is to minimize technology
related risks for the customer as well as for the bank. In 2007, we demonstrated our ability to proactively handle adverse
external risk developments in the IT risk area.

As the cornerstone for the organisation’s long-term success is sound risk culture, putting emphasis on increasing risk
awareness and expanding risk knowledge continued throughout last year’s risk management activities. Developing
effective risk governance and communicating the roles and responsibilities of organisational units to ensure an efficient
risk management process is the key to maintaining competitive advantage.


The general risk management principles of Hansabank Group have remained unchanged with the main objectives of pre-
venting significant losses that would adversely affect the Bank’s equity and minimizing deviation from set business targets.
These principles include the following:

• Every business unit bears full responsibility for risks generated in its operations.
• The bank’s business operations are founded on long-term relations with its clients. Every employee must know his/
  her counterpart and fully understand each individual transaction.
• All material risks are identified, quantified, analyzed and reported.
• Proper valuation of assets is key to secure against consequences of risks. High quality risk measurement methodology
  is key to sound risk control.

• Being proactive – identification and elimination of causes of risks. Undesirable or too high risks are prevented or mitigated.
• The principle of duality (four eyes) is the basic principle of managing risks.
• Separation of functions – risk management and control functions are organisationally separated from business manage-

The Hansabank Board holds overall responsibility for identifying and regularly assessing all risks involved in the bank’s
activities and ensuring the monitoring and control of the extent of such risks as well as the organisation of the bank’s
risk management system. The Board has delegated the responsibility for managing different types of risks to respective
units of the bank as well as to risk committees. Together with group risk management division, the Board establishes
risk appetite, risk management standards and maximum risk tolerance limits for the Group.

The Chief risk officer (CRO) is responsible for management of the bank’s performance through:
• Defining and communicating risk appetite of the bank;
• Developing and maintaining systematic risk management framework;
• Promoting sound risk culture, accountability and effective governance.

The CRO manages the overall risk management function in the Group. Throughout the CRO organization all risk func-
tions have independent managers who are separate from business units. Risks taken in the various sub-divisions are
decided by local risk committees in accordance with authorized limits. These committees consist of members of the local
units’ senior management and representatives of the risk management team. In the case of insignificant risks, individual
decision making competencies are applied.

The main responsibilities of the Group Risk Management function include:
• Developing of risk policies, classification and measurement standards;
• Monitoring and reporting of risk tolerance and risk profile of the bank to the Board, Council and throughout the
• Providing risk mitigation measures to protect capital and reputation of the bank;
• Monitoring of risk and control environment, training and risk awareness communication;
• Ensuring efficient risk decision making process.

Detailed information about credit, financial and operational risks is provided in Notes 46 to 48 to these financial state-

Note 6. Interest Income, net
In millions of euros, for the year                                        2007     2006

Interest income
For financial assets that are at fair value through P/L:
   Securities portfolio                                                    26.4      17.5
   Derivatives                                                             54.4      13.4
For financial assets that are not at fair value through P/L:
   Loans                                                                   948.8   523.0
   Bank deposits and loans                                                  26.0    22.7
   Correspondent accounts                                                   57.5    38.7
   Leasing                                                                 205.1   139.9
   Factoring                                                                29.4    20.7
   Securities portfolio                                                      5.6     6.4
Total interest income                                                    1,353.2   782.3

Interest expenses
For financial liabilities that are at fair value through P/L:
   Derivatives                                                             45.6      10.6
For financial liabilities that are not at fair value through P/L:
   Deposits                                                               224.7     141.7
      - Demand deposits                                                    81.6      54.5
      - Time deposits                                                     107.4      62.7
      - Guarantee Fund                                                     35.7      24.5
   Bank deposits and loans                                               382.8      146.3
   Securities issued                                                       37.4      33.3
Total interest expense                                                   690.5      331.9
Interest income, net                                                     662.7      450.4
Net interest margin %                                                    2.97%     2.89%

Interest on impaired loans                                                   5.6      2.9

Note 7. Fees and Commissions, net
In millions of euros, for the year                                        2007    2006

Fee and commission income
From financial assets that are at fair value through P/L:
   Cash services                                                           14.2    13.0
   Transfers                                                               45.5    40.4
   Brokerage                                                               21.8    14.5
From financial assets that are not at fair value through P/L:
   Loan management and guarantees                                          22.9    17.1
   Leasing                                                                  0.8     0.9
   Factoring                                                                8.0     7.1
   Bank cards                                                              91.8    71.5
   Other e-channels                                                         7.9     6.5
   Custody                                                                  9.2     6.4
   Asset management                                                        24.0    13.3
   Insurance brokerage                                                      6.6     8.1
   Other                                                                   19.0    17.8
Total fee and commission income                                           271.7   216.6

Fee and commission expense
From financial liabilities that are at fair value through P/L:
   Encashment and cash services                                             9.7     7.7
   Securities transaction fees                                              9.3     6.1
From financial liabilities that are not at fair value through P/L:
   Settlements                                                             7.1      6.5
   Loan management and guarantees                                          2.5      2.0
   Card services                                                          30.6     21.7
   Other                                                                   9.1      6.8
Total fee and commission expense                                          68.3     50.8

Fees and commissions, net                                                 203.4   165.8

Note 8. Net Financial Gains and Losses
In millions of euros, for the year                                        2007    2006

FX and debt securities                                                    73.9     54.7
Equities, options, futures                                                 9.6      7.7
Dividends                                                                  5.8      4.6
Total net trading income                                                  89.3     67.0

Trading and derivatives
Shares                                                                     9.4     20.9
   of which, change in value                                               3.6     16.3
   of which, dividend                                                      5.8       4.6
Interest bearing instruments                                               6.0      -1.1
Other financial instruments                                                6.1     -8.8
Total trading and derivatives                                             21.5     11.0

Hedge accounting at fair value
Hedging instruments                                                        0.5        –
Hedged item                                                               -0.5        –
Total                                                                        –        –

Change in exchange rates                                                  67.8     56.0
Total financial gains and losses                                          89.3     67.0

 Note 9. Interest Productivity of the Balance Sheet
 In millions of euros, December 31                                               2007                                          2006
                                                             Average            Interest           Effective     Average       Interest        Effective
                                                             balance          and dividends      interest rate   balance     and dividends   interest rate

 Cash                                                         229.3                  –                 –            189.7           –              –
 Due from Central Bank                                      1,342.3               28.4             2.12%            938.7        14.4          1.53%
 Due from other financial institutions                      1,276.0               55.1             4.32%          1,308.2        46.9          3.59%
 Securities                                                 1,329.1               60.2             4.53%            905.4        28.5          3.15%
 Loans                                                     17,590.8            1,169.7             6.65%         11,791.6       686.4          5.82%
    Loans and overdraft*                                   14,384.7              935.2             6.50%          9,547.2       525.8          5.51%
    Leasing & factoring                                     3,335.3             234.5              7.03%          2,336.6       160.6          6.87%
      - Allowance for credit losses                          -129.2                  –                 –            -92.2           –              –
 Other assets                                                 511.2                  –                 –            443.7           –              –
 Total assets                                              22,278.7            1,313.4             5.90%         15,577.3       776.2          4.98%

 Due to other financial institutions                        8,809.8              382.8             4.35%          4,461.5       146.2          3.28%
 Deposits**                                                  9,907.1             224.7             2.27%          8,094.6       141.7          1.75%
    Demand deposits                                         6,898.9              106.4             1.54%          5,788.2        71.3          1.23%
    Time deposits                                           3,008.2              118.3             3.93%          2,306.4        70.4          3.05%
 Debt securities issued to the public                         880.0               37.4             4.25%           1,087.1       33.3          3.06%
 Other liabilities and shareholders’ equity                 2,681.8                  –                 –          1,934.1           –              –
 Total liabilities and shareholders’ equity                22,278.7              644.9             2.89%         15,577.3       321.2          2.06%

 Net interest income and earned dividends                                        668.5                                          455.0

*Interest income from loans and overdraft includes net interest income from derivative hedging portfolio
**The Guarantee Fund expense has been proportionally allocated to demand and time deposits

 Note 10. Net Income from Insurance Activities
 In millions of euros, for the year                                                                                           2007            2006

 Premiums written                                                                                                             134.6             93.2
 Indemnities                                                                                                                   -27.2            -17.1
 Change in provisions for insurance                                                                                           -84.6            -65.5
 Total net income from insurance                                                                                                22.8            10.6

 Note 11. Other Operating Income
 In millions of euros, for the year                                                                                           2007            2006

 Sale of property                                                                                                              1.2              0.6
 Sale of equity investments                                                                                                    2.0              2.9
 Rental income                                                                                                                 2.2              1.6
 Late penalty charges                                                                                                         11.2              7.4
 Other                                                                                                                         7.8              7.0
 Total other operating income                                                                                                 24.4             19.5

Note 12. Personnel Expenses
In millions of euros, for the year                                      2007     2006

Salaries and compensations                                               127.1    96.4
Performance pay reserve                                                   63.5    44.8
Social insurance charges                                                  34.0    26.2
Training                                                                   7.6     4.4
Total personnel expenses                                                232.2    171.8

Salaries (incl. taxes) of the Board of AS Hansapank                       1.7      1.7
Annual performance accrual (incl. taxes) of the Board of AS Hansapank     3.3      3.2

Number of employees, end of period**                                    9,574    8,449
Number of employees, average of the period**                            9,214    7,921
** full-time equivalent

Note 13. Data Network Expenses
In millions of euros, for the year                                      2007     2006

Development                                                              7.1      3.4
Maintenance                                                             16.5     14.4
Software                                                                 1.2      0.5
Hardware                                                                 8.2      6.7
Total data network expenses                                             33.0     25.0

Note 14. Administrative Expenses
In millions of euros, for the year                                      2007     2006

Office expenses                                                         34.0     24.5
Transportation, car lease                                                2.8      2.5
Supplies                                                                 7.6      6.0
Communications                                                           7.4      6.8
Professional services                                                   16.7     11.5
Insurance                                                                1.6      1.4
Security                                                                 4.7      3.7
Other                                                                    0.3      0.4
Total administrative expenses                                           75.1     56.8

Note 15. Operating Lease Arrangements
In millions of euros, for the year                                      2007     2006

Non-cancellable operating leases:
   within 1 year                                                         1.9      4.9
   1 to 5 years                                                          3.7      4.2
   over 5 years                                                          4.4      1.2
Total operating lease arrangements                                      10.0     10.3

Note 16. Other Expenses
In millions of euros, for the year                                      2007     2006

Business trips                                                           3.9      3.6
Marketing                                                               17.3     14.3
Promotion                                                                7.1      5.6
Other                                                                   16.9     33.2
Total other expenses                                                    45.2     56.7

Note 17. Depreciation, Amortisation and Impairment Losses
In millions of euros, for the year                                                                                                 2007                   2006

Property                                                                                                                            4.2                    3.8
Equipment, furniture and fittings                                                                                                  15.0                   13.1
Intangible assets                                                                                                                   1.4                    1.1
Total depreciation, amortisation and impairment losses                                                                             20.6                   18.0

Note 18. Income Tax Expense
In millions of euros, for the year                                                                  2007                                                    2006
                                                         Estonia       Latvia       Tax %    Lithuania     Tax %       Russia       Tax %        Total       Total

Profit before tax                                        207.4         167.8            –     144.5            –         16.0          –         535.7      353.3
Effect of tax rates in foreign jurisdictions                 –          25.2       15.0%        26.0      18.0%           3.8       24%            55.0      30.6
Non-deductible expenses                                      –           3.7         2.2%       13.6        9.4%          0.5         3%           17.8       16.9
Non-taxable income and tax incentives                        –          -5.2        -3.1%      -14.6      -10.1%            –         0%          -19.8      -14.1
Effect of tax losses utilised                                –             -         0.0%          –        0.0%            –         0%              –        -2.7
Exchange differences                                         –          -0.1        -0.1%          –        0.0%            –         0%           -0.1           –
Total tax expense charge to income statement                 –          23.6       14.1%        25.0       17.3%          4.3      26.9%           52.9       30.7

Current tax expense                                           –         23.6           –        25.0            –         4.3           –         52.9        30.7
Deferred tax expense relating to the origination
and reversal of temporary differences (note 41)
                                                              –           0.2          –           –            –        -0.9           –         -0.7           -1.0
Total tax expense charge to income statement                  –         23.8           –        25.0            –         3.4           –         52.2           29.7

Note 19. Earnings per Share
December 31                                                                                                                        2007                   2006

Net profit attributable to shareholders (EUR in millions)                                                                           483.5                 323.5
Weighted average number of shares (in millions)                                                                                      317.1                 317.1
Basic earnings per share (EUR)                                                                                                        1.52                  1.02

Net profit attributable to shareholders (EUR in millions)                                                                           483.5                 323.5
Weighted average number of shares (in millions)                                                                                      317.1                 317.1
Weighted average number of shares for diluted earnings per share (in millions)                                                       317.1                 317.1
Diluted earnings per share (EUR)                                                                                                      1.52                  1.02

Note 20. Analysis of Financial Assets and Financial Liabilities by Measurement Basis
In millions of euros, December 31                                                                        2007
                                           Held for trading                          Held to maturity    Available for sale     Amortised cost      Total book value
                                                                   at fair value

Cash                                               –                  280.8                 –                     –                     –               280.8
Due from financial institutions                    –                1,270.8                 –                     –               2,236.3             3,507.1
Loans                                              –                      –                 –                     –              20,013.1            20,013.1
Debt securities                                 40.8                  859.1             133.0                     –                     –             1,032.9
Equity securities                               70.0                    2.1                 –                   0.1                   3.7                75.9
Fund participations                             24.3                  280.9                 –                     –                     –               305.2
Derivatives                                     77.0                      –                 –                     –                     –                77.0
Total financial assets                         212.1                2,693.7             133.0                   0.1              22,253.1            25,292.0
Total non-financial assets                         –                      –                 –                     –                     –               534.2
Total assets                                   212.1                2,693.7             133.0                   0.1              22,253.1            25,826.2

Analysis of Financial Assets and Financial Liabilities by Measurement Basis
In millions of euros, December 31                                                             2007
                                        Held for trading                   Held to maturity   Available for sale   Amortised cost   Total book value
                                                           at fair value

Deposits                                         –               –                 –                   –            12,076.2         12,076.2
Correspondent accounts                           –               –                 –                   –               114.4            114.4
Loans                                            –               –                 –                   –             9,749.5          9,749.5
Debt securities                                  –               –                 –                   –               842.7            842.7
Derivatives                                   28.9               –                 –                   –                   –             28.9
Other financial liabilities                    0.4               –                 –                   –                   –              0.4
Total financial liabilities                   29.3               –                 –                   –            22,782.8         22,812.1
Total non-financial liabilities                  -               –                 –                   –                   –          3,014.1
Total liabilities                             29.3               –                 –                   –            22,782.8         25,826.2

Note 21. Due from Other Financial Institutions
In millions of euros, December 31                                                                                     2007              2006

Correspondence accounts                                                                                               846.1              661.8
Loans                                                                                                                 101.7               84.7
Deposits                                                                                                              703.5              227.1
Securities purchased under resale agreements                                                                          585.0              515.0
Total due from other financial institutions                                                                         2,236.3            1,488.6

Note 22. Financial Assets Held for Trading
In millions of euros, December 31                                                                                     2007              2006

Government bonds                                                                                                        27.1              29.9
Debt securities                                                                                                         13.7              19.8
Fund participations                                                                                                     24.3              13.3
Equity securities                                                                                                       70.0              99.8
Derivatives                                                                                                             77.1              27.9
Total trading securities                                                                                               212.2             190.7

Note 23. Financial Assets Designated at Fair Value through Profit/Loss
In millions of euros, December 31                                                                                     2007              2006

Government bonds                                                                                                        49.8             409.6
Debt securities                                                                                                       809.3              269.5
Fund participations                                                                                                    281.0             137.7
Equity securities                                                                                                        2.1               0.5
Total financial assets designated at fair value                                                                      1,142.2             817.3

Note 24. Available for Sale Securities
In millions of euros, December 31                                                                                     2007              2006

Strategic investments                                                                                                   0.1               0.1
Total available-for-sale financial assets                                                                               0.1               0.1

Note 25. Held-to-maturity Securities
In millions of euros, December 31                                                                               2007                2006

Government bonds                                                                                                125.7               115.4
Debt securities                                                                                                   7.3                 6.6
Total held-to-maturity investments                                                                              133.0               122.0

Note 26. Shares and Participations of Hansabank
December 31                                                                                     2007
                                                              Bank’s voting                                   Original Acquisition value, EUR mil
                                                   Country                    No. of shares   Nominal value
                                                               power (%)                                      currency   2007          2006
A/S Hansabanka                                     Latvia         100         406,043,114              1       LVL       593.8          280.6
AB bankas Hansabankas                             Lithuania       100          56,971,200             10       LTL       188.6          188.6
OAO Swedbank                                       Russia         100         28,000,000             100       RUB        84.6           84.6
AS Hansa Capital                                  Estonia         100             200,001            100       EEK         3.8            1.3
AS Hansa Elukindlustus                            Estonia         100           4,693,980             10       EEK         3.1            3.1
AS Hansa Investeerimisfondid                      Estonia         100              46,950          1,000       EEK         3.0            3.0
OÜ Crebit                                         Estonia         100                   1        450,000       EEK         3.7            3.7
AS Hansa Varakindlustus                           Estonia         100             469,400            100       EEK         5.2            3.2

Associated companies
Pankade Kaardikeskuse AS                          Estonia         47.9                7,900        1,000        EEK         0.2             0.2
AS Sertifitseerimiskeskus                         Estonia          25                    64      100,000        EEK         1.0             1.0
OÜ TiedoEnator Support                            Estonia          20                   100       10,000        EEK           –               –

Strategic investments*
S.W.I.F.T.                                        Belgium         n/a                   79           125       EUR          0.1             0.1
AS Tallinna Börs                                  Estonia         13.2                 360        10,000       EEK            –               –
DP Hansa Leasing Ukraine (under liquidation)      Ukraine         100                    1        92,500       UAH            –               –
OÜ X-Marketing (under liquidation)                Estonia         100                    1        40,000       EEK            –              –-
* - investments over EEK 0.5 million

Subsidiaries of AS Hansa Capital
AS Hansa Liising Eesti                            Estonia         100             762,500            100       EEK          4.8           4.8
AS Hansa Leasing Russia                           Estonia         100          37,550,000             10       EEK         24.0          24.0
Balti Autoliisingu AS                             Estonia         100              14,000            100       EEK          0.1           0.1
Balti Kindlustusmaakleri OÜ (under liquidation)   Estonia         100                   1      1,100,000       EEK          0.1           0.1
Hansa Leasing Ltd                                  Russia         100         550,000,000              1       RUB         15.1          15.1
Hansa Leasing Kaliningrad Ltd                      Russia         100          60,000,000              1       RUB          1.7           1.7

Subsidiaries of A/S Hansabanka
SIA Hansa Lizings                                  Latvia         100                   1      1,857,895        LVL        10.0          10.0
SIA Hansabankas Centrala eka                       Latvia         100                  64          1,000        LVL         0.1           0.1
SIA Baltijas Autolizings                           Latvia         100              25,500             10        LVL         0.1           0.1
SIA Hansa Apdrošinašanas Brokeris                  Latvia         100                 600            100        LVL           –             –
AS IPS Hansa Fondi                                 Latvia         100               4,350            100        LVL         0.5           0.5
AS Hansa atklatais pensiju fonds                   Latvia         100             200,000              1        LVL         0.3           0.3

Subsidiaries of AB bankas Hansabankas
UAB Hansa Lizingas                                Lithuania       100             155,539             100       LTL         5.6           5.6
UAB Hansa gyvybes draudimas                       Lithuania       100             100,000             100       LTL        18.4          18.4
UAB Hansa Investiciju, valdymas                   Lithuania       100               3,800           1,000       LTL         1.6           1.6
UAB Baltijos Autolizingas                         Lithuania       100               1,000              10       LTL         1.5           1.5
UADBB Hansa Draudimo Brokeris (sold in 2007)      Lithuania       100                 200           1,000       LTL           –           0.6
UAB Hansa Valda                                   Lithuania       100               2,000             100       LTL         0.6           0.6
UADBB”HDB”                                        Lithuania       100                 520             100       LTL           –             –

Note 27. Prepayments and Accrued Interest
In millions of euros, December 31                                   2007      2006

Prepayments to state budget                                          16.3       31.4
Accrued interest receivable                                          74.7       47.5
Prepayments to companies                                            151.9      132.3
Receivables                                                          33.2       24.4
Other                                                                 6.4        4.2
Total prepayments and accrued interest                              282.5      239.8

Note 28. Loans
Distribution of Loans by Product
In millions of euros, December 31                                   2007      2006

Loans                                                              15,553.2   11,523.9
Finance leases                                                      3,237.7    2,506.1
Overdraft                                                             713.7      486.3
Factoring                                                             444.2      358.0
Repos                                                                 220.6       16.0
Gross lending to customers                                         20,169.4   14,890.3
   Specified loan-loss allowance                                     -156.3     -108.0
Net lending to customers                                           20,013.1   14,782.3

Geographic Distribution of Loans
In millions of euros, December 31                                   2007      2006

Estonia                                                             7,533.9    6,023.7
Latvia                                                              6,032.9    4,486.8
Lithuania                                                           5,377.1    3,687.0
OECD                                                                  227.8       21.0
Other                                                                 997.7      671.8
Gross lending to customers                                         20,169.4   14,890.3
   Specified loan-loss allowance                                     -156.3     -108.0
Net lending to customers                                           20,013.1   14,782.3

Loan Portfolio by Sectors
In millions of euros                            2007        %       2006         %

Individuals                                    8,140.2     40.4%    5,794.8    38.9%
Student Loans                                    180.4      0.9%      171.2     1.1%
Wholesale and retailing                        1,841.8      9.1%    1,508.6    10.1%
Industry                                       1,847.4      9.2%    1,434.4     9.6%
Real estate management                         3,249.9     16.1%    2,408.6    16.2%
Transport and communications                   1,177.6      5.8%      957.8     6.4%
Energy                                           186.7      0.9%      169.6     1.1%
Municipalities and government                     111.1     0.6%       60.3     0.4%
Agriculture and forestry                         435.4      2.2%      335.1     2.3%
Construction                                     609.3      3.0%      530.7     3.6%
Hotels and restaurants                           329.0      1.6%      306.4     2.1%
Finance and insurance                            235.6      1.2%       51.1     0.3%
Other business services                        1,557.1      7.7%      981.8     6.6%
Other                                            267.9      1.3%      179.9     1.2%
Total                                         20,169.4    100.0%   14,890.3   100.0%

Finance Lease Distribution by Maturity
In millions of euros, December 31                                                             2007       2006

Leasing portfolio distribution by maturity
Up to 1 year                                                                                   859.3       933.2
1 to 5 years                                                                                 2,172.2     1,467.5
Over 5 years                                                                                  206.2        105.4
Total finance leasing portfolio                                                              3,237.7     2,506.1

Future periods’ interest income distribution by maturity
Up to 1 year                                                                                   216.1      145.5
1 to 5 years                                                                                   290.8      187.8
Over 5 years                                                                                    32.0       26.1
Total finance leasing portfolio                                                                538.9      359.4

Gross investment distribution by maturity
Up to 1 year                                                                                 1,075.4     1,078.7
1 to 5 years                                                                                 2,463.0     1,655.3
Over 5 years                                                                                   238.2       131.5
Total gross investments                                                                      3,776.6     2,865.5

Note 29. Allowance for Credit Losses

Allowance for Credit Losses by Class of Financial Asset
In millions of euros                                        Group         Estonia   Latvia   Lithuania   Russia

Balance, as of 31.12.06                                     109.1          37.6      26.1      36.9         8.5
Loan losses                                                  48.2          20.3      16.7       7.1         4.1
Allowance for doubtful receivables                            0.2             –         –       0.2           –
Balance, as of 31.12.07                                     157.5          57.9      42.8      44.2        12.6

Loans Overdue
In millions of euros                                        Group         Estonia   Latvia   Lithuania   Russia

Up to 30 days                                                798.1        230.7     235.3     332.1           –
31 to 60 days                                                 37.9          18.8     13.5       5.6           –
Over 60 days                                                  41.6          13.1     13.7      14.8           –
Total loans overdue, 31.12.06                                877.6         187.1    115.6     328.7           –
Up to 30 days                                              1,099.6        264.4     352.8     482.4           –
31 to 60 days                                                 60.7          18.5     24.4      17.8           –
Over 60 days                                                  48.7          18.4     14.1      16.2           –
Total loans overdue, 31.03.07                                663.7        171.2     142.6     349.9           –
Up to 30 days                                              1,324.9         317.6    415.3     586.9         5.1
31 to 60 days                                                 95.9          52.3     25.7      17.9           –
Over 60 days                                                  63.0          23.0     22.4      17.6           –
Total loans overdue, 30.06.07                              1,483.8        392.9     463.4     622.4         5.1
Up to 30 days                                              1,418.1        300.2     303.9     814.0           –
31 to 60 days                                                 75.6          29.4     28.3      17.9           –
Over 60 days                                                  74.8          25.8     27.5      20.2         1.3
Total loans overdue, 30.09.07                              1,568.5        355.4     359.7     852.1         1.3
Up to 30 days                                              1,445.9        333.2     481.7     630.8         0.2
31 to 60 days                                                102.9          49.8     40.1      11.4         1.6
Over 60 days                                                 101.1          34.9     38.7      27.2         0.3
Total loans overdue, 31.12.07                              1,649.8         417.9    560.5     669.4         2.0

Allowance for Loan Losses
In millions of euros                             Group         Estonia   Latvia   Lithuania   Russia

Balance, as of 31.12.06                          108.0          37.6        26      35.9        8.5
Write-offs                                         -1.8         -0.6      -0.7      -0.5          –
Loan losses                                       13.2            3.5       6.8      1.9        1.0
Effect of exchange rate changes                   -0.2              –     -0.2         –          –
Balance, as of 31.03.07                          119.2          40.5      31.9      37.3        9.5
Write-offs                                         -2.4         -0.8       -1.0     -0.6          –
Loan losses                                       10.4            2.2       4.9      2.2        1.1
Effect of exchange rate changes                     0.1             –       0.1        –          –
Balance, as of 30.06.07                          127.3          41.9      35.9      38.9       10.6
Write-offs                                         -2.7          -1.2     -0.9      -0.6          –
Loan losses                                       15.1            6.9       4.7      3.8       -0.3
Effect of exchange rate changes                   -0.4              –     -0.2         –       -0.2
Losses transferred from / to other instruments    -0.1              –         –     -0.1          –
Balance, as of 30.09.07                          139.2          47.6      39.5      42.0       10.1
Write-offs                                        -8.6           -1.5     -6.4      -0.7          –
Loan losses                                       25.3          11.8        9.2      1.8        2.5
Effect of exchange rate changes                     0.5             –       0.5        –          –
Losses transferred from / to other instruments    -0.1              –         –     -0.1          –
Balance, as of 31.12.07                          156.3          57.9      42.8      43.0       12.6

Write-off by Industries
In millions of euros                                                               2007       2006

Industry                                                                            1.1        4.6
Construction                                                                        0.1          –
Private individuals                                                                 5.6        2.6
Retail and wholesale                                                                4.4        0.3
Service                                                                             0.8        0.2
Agriculture, forestry                                                               0.3        0.1
Other                                                                               3.2        1.5
Total                                                                              15.5        9.3

Note 30. Other Assets
In millions of euros, December 31                                                  2007       2006

Amounts under clarification                                                         0.3        2.3
Amounts in transit                                                                 75.7       53.8
Due from insurance activities                                                       3.9        1.5
Deferred income tax                                                                 2.0        1.1
Other                                                                               5.8        5.0
Total other assets                                                                 87.7       63.7

Note 31. Tangible Assets
In millions of euros, December 31         Land        Buildings   and other*   Construction    Total

Balance at the beginning of the year       4.4          91.3       109.2            2.3       207.2
Additions                                    –           7.5        33.8            4.0         45.3
Reclassification                             –           5.2        -4.6           -0.6            –
Disposals                                    –          -2.7        -9.9              –        -12.6
Write-offs                                   –          -0.2        -3.4           -0.1         -3.7
Effect of movements in foreign exchange      –             –        -0.1              –         -0.1
Balance at the end of the year             4.4         101.1       125.0            5.6       236.1

Balance at the beginning of the year         –          22.7        69.6              –        92.3
Depreciation charge for the year             –           4.2        15.0              –        19.2
Reclassification                             –           0.8        -0.8              –           –
Disposals                                    –          -0.6        -5.8              –        -6.4
Write-offs                                   –          -0.2        -3.0              –        -3.2
Balance at the end of the year               –          26.9        75.0              –       101.9

Net book value
Balance at the beginning of the year       4.4         68.6         39.6            2.3       114.9
Balance at the end of the year             4.4         74.2         50.0            5.6       134.2

Balance at the beginning of the year       0.6          89.7        99.4            0.8       190.5
Additions                                  0.1           2.8        24.4            2.2         29.5
Reclassification                           3.7            0.1       -3.7           -0.1            –
Disposals                                    –           -1.1       -8.9           -0.6        -10.6
Write-offs                                   –          -0.2         -2.0             –         -2.2
Balance at the end of the year             4.4          91.3       109.2            2.3       207.2

Balance at the beginning of the year         –          19.5         62.2             –        81.7
Depreciation charge for the year             –           3.8         13.1             –        16.9
Disposals                                    –          -0.3         -4.2             –        -4.5
Write-offs                                   –          -0.1          -1.6            –         -1.7
Effect of movements in foreign exchange      –          -0.2           0.1            –        -0.1
Balance at the end of the year               –          22.7         69.6             –        92.3

Net book value
Balance at the beginning of the year       0.6          70.2         37.2           0.8       108.8
Balance at the end of the year             4.4          68.6         39.6           2.3       114.9

Note 32. Intangible Assets
In millions of euros, December 31             Goodwill   Licences   Total

Balance at the beginning of the year            26.7       18.5     45.2
Additions                                          –        2.4      2.4
Disposals                                          –       -0.4     -0.4
Balance at the end of the year                  26.7       20.5     47.2

Balance at the beginning of the year               –       16.6     16.6
Amortisation charge for the year                   –        1.4      1.4
Disposals                                          –       -0.4     -0.4
Balance at the end of the year                     –       17.6     17.6

Net book value
Balance at the beginning of the year            26.7        1.9     28.6
Balance at the end of the year                  26.7        2.9     29.6

Balance at the beginning of the year            26.0       17.2     43.2
Additions                                          –        1.5      1.5
Disposals                                          –       -0.2     -0.2
Addition through minority acquisition            0.7          –      0.7
Balance at the end of the year                  26.7       18.5     45.2

Balance at the beginning of the year               –       15.6     15.6
Amortisation charge for the year                   –        1.1      1.1
Disposals                                          –       -0.1     -0.1
Balance at the end of the year                     –       16.6     16.6

Net book value
Balance at the beginning of the year            26.0        1.6     27.6
Balance at the end of the year                  26.7        1.9     28.6

Note 33. Pledged Financial Assets
In millions of euros, December 31                        2007       2006

Compulsory reserve in the Central Bank                   435.6      370.4
Trade finance                                                –        0.1
Repos                                                        –        0.5
Total pledged assets                                     435.6      371.0

Note 34. Due to Other Financial Institutions
In millions of euros, December 31                                                                                                       2007               2006

Correspondent accounts                                                                                                                114.4               112.9
Deposits                                                                                                                            1,162.9               553.7
Loans                                                                                                                               9,229.0             5,779.2
Subordinated loans                                                                                                                    520.5               300.0
Total due to other financial institutions                                                                                          11,026.8             6,745.8

Note 35. Geographical Distribution of Deposits
In millions of euros, December 31             Estonia                    Latvia                 Lithuania                     Russia                   Group

                                        2007         2006            2007       2006       2007         2006       2007            2006          2007       2006

Demand deposits
Public sector                            16.2          14.1         15.5           19.6     320.5         357.8        –                  –        352.2         391.5
Corporate customers                     756.8         741.8       522.7          583.8     406.6          403.4     33.9               25.1      1,720.0       1,754.1
Private individuals                   1,073.0       1,072.0       646.9           707.9   1,391.9       1,175.2      7.2                2.5      3,119.0       2,957.6
Total demand deposits                 1,846.0       1,827.9      1,185.1        1,311.3   2,119.0       1,936.4     41.1               27.6      5,191.2       5,103.2

Overnight deposits*
Public sector                            43.7           57.7           3.4          0.6     41.5          29.0            –              –         88.6         87.3
Corporate customers                   1,074.5       1,040.6          380.6        269.8    212.5         107.9            –              –      1,667.6      1,418.3
Private individuals                      73.9          68.8           75.1         59.0      0.8             –            –              –        149.8        127.8
Total overnight deposits              1,192.1        1,167.1         459.1        329.4    254.8         136.9            –              –      1,906.0      1,633.4

Time deposits
Public sector                           156.4          63.2         5.8            0.3       34.8           3.0        –                  –        197.0       66.5
Corporate customers                     717.7         447.6       140.2           88.9       78.4          45.6      2.4                5.5        938.7      587.6
Private individuals                     878.5        640.6        654.4          480.0    1,146.0         818.5      1.5                0.4      2,680.4    1,939.5
Total time deposits                   1,752.6       1,151.4       800.4          569.2    1,259.2         867.1      3.9                5.9      3,816.1    2,593.6
Total deposits                        4,790.7       4,146.4     2,444.6        2,209.9    3,633.0       2,940.4     45.0               33.5     10,913.3    9,330.2
*In the balance sheet overnight deposits are recorded as part of demand deposits.

Note 36. Other Financial Liabilities
In millions of euros, December 31                                                                                                       2007               2006

Debt securities issued                                                                                                                  842.7             995.6
Derivatives                                                                                                                              28.9              27.2
Other securities liabilities                                                                                                              0.4               1.2
Total financial liabilities                                                                                                             872.0           1 024.0

Note 37. Debt Securities Issued
December 31                                          Year of issue           Maturity        Currency               Amount in EUR mil                  Interest rate

Debt security                                                                                                     2007                  2006

MTN                                                   5.10.2004          19.10.2009              EUR              750.0                 750.0           EURLB3M
MTN                                                   12.5.2004           18.5.2007              EUR                  –                  47.0           EURLB3M
MTN                                                   23.2.2004           27.2.2007               SEK                 –                  33.1             SES3M
MTN                                                    19.1.2005          19.1.2007              EUR                  –                  50.0           EURLB3M
MTN                                                    21.1.2005          21.1.2009              EUR               50.0                  49.9                 3,0
MTN                                                      various             various          various              10.0                  10.0                   –
Other                                                    various             various          various              32.7                  55.6            variable
Debt securities issued by Hansabank                                                                               842.7                 995.6
*MTN – Euro Medium-term Notes

Note 38. Accrued Liabilities
In millions of euros, December 31                                                                                2007             2006

Prepayments received                                                                                              99.9             88.6
Unpaid interest                                                                                                  132.6             71.0
Short-term debt                                                                                                  166.4            112.0
Payables                                                                                                          26.2             46.2
Total accrued liabilities                                                                                        425.1            317.8

Note 39. Other Liabilities
In millions of euros, December 31                                                                                2007             2006

Outgoing payment orders                                                                                          170.2            199.6
Incoming payment orders                                                                                           28.3              9.0
Clearing accounts                                                                                                 25.2              8.4
Liabilities from insurance activities                                                                              3.0              1.5
Other                                                                                                             61.0             43.0
Total other liabilities                                                                                          287.7            261.5

Note 40. Provisions
In millions of euros, December 31                                                                                2007             2006

Technical provisions in insurance                                                                                394.6            272.5
Incl. unearned premiums                                                                                          183.5            163.9
    claims outstanding                                                                                            10.1              4.9
    unit-linked provisions                                                                                       201.0            103.7
Provision for operational risk                                                                                     9.4*            16.3
Provision for guarantees                                                                                           8.9              5.3
Total reserves                                                                                                   412.9            294.1
* Change due to reversal of Russian VAT provision

Note 41. Deferred Tax Balances
Deferred tax assets (liabilites) arise from the following (closing balances)

In millions of euros, December 31                                                                2007                              2006
                                                                               Latvia   Lithuania       Russia            Total     Total

Deferred tax assets
Provisions for vacations                                                        0.3        0.1             –               0.4       0.2
Taxable losses carried forward                                                    –       12.0           2.0              14.0      15.2
Other provisions                                                                0.1        2.0             –               2.1       1.1
Total deferred tax assets                                                       0.4       14.1           2.0              16.5      16.5

Deferred tax liabilities
Difference in depreciation rates                                                -1.3      -0.6             –              -1.9       -2.7
Total deferred tax liabilities                                                  -1.3      -0.6             –              -1.9       -2.7
Unrecognised deferred tax asset                                                    –     -14.1             –             -14.1      -15.2
Total deferred tax asset (liability), net                                       -0.9      -0.6           2.0               0.5        -1.4

Deferred tax balances
At the beginning of the year                                                    -1.9      -0.6           1.1              -1.4       -2.4
Change in deferred tax (note 18)                                               -0.2          –           0.9               0.7       -0.1
Total deferred tax liabilities                                                  -2.1      -0.6             –              -2.7       -2.5
Total deferred tax assets                                                          –         –           2.0               2.0        1.1

 Note 42. Capital

 Share Capital
 December 31                                                                                                2007                        2006
                                                                                                   Number          EUR mil    Number           EUR mil

  Ordinary shares, each of 10 EEK                                                                317,368,436       202.8     317,368,436       202.8
 Issued and fully paid for
  Ordinary shares, each of 10 EEK                                                                317,368,436       202.8     317,368,436       202.8

 Reserves of the Group
 In millions of euros, December 31                                                                                            2007             2006

 General banking reserve                                                                                                       21.8              21.8
 Statutory reserve                                                                                                             33.9              27.9
 Other reserves                                                                                                                   –               6.4
 Total reserves                                                                                                                55.7              56.1

 Capital Structure of the Group
 In millions of euros, December 31                                                                                            2007             2006

 Primary capital (Tier 1)
 Share capital                                                                                                                 202.8             202.8
 Share premium                                                                                                                   32.2              32.2
 Reserves                                                                                                                        55.7              56.1
 Retained earnings from previous periods                                                                                     1,131.2             812.2
 Retained earnings from current period                                                                                         483.5             323.5
 Revaluation differences                                                                                                        -22.1             -16.1
 Less: Intangible assets (note 32)                                                                                              -29.6            -28.6
 Total Tier 1                                                                                                                1,853.7           1,382.1
 Supplementary capital (Tier 2)                                                                                                500.0            300.0
 Own funds, total                                                                                                            2,353.7           1,682.1
 Own funds, net                                                                                                              2,353.7           1,682.1

 Capital Ratios of the Group
 Per cent, December 31                                                                                                        2007             2006

 Tier 1 capital ratio*                                                                                                         8.60             8.66
 Tier 2 capital ratio*                                                                                                         2.32             1.88
 Total capital ratio                                                                                                          10.92            10.54
 Tier 1 leverage ratio **                                                                                                      7.18              7.13
 Common stock to total assets                                                                                                  0.79             1.05
 Common equity to total assets                                                                                                 7.29             7.27
* Tier 1 / Tier 2 capital divided by total risk-weighted on- and off-balance sheet items.
** Tier 1 capital divided by total assets.

 Asset Structure of the Group
 In millions of euros, December 31                                                                             2007                                  2006
                                                                                                     Nominal       Risk-weighted          Nominal           Risk-weighted

 Cash                                                                                              280.8                      –             236.2                    –
 Due from Central Bank                                                                           1,270.8                      –           1,304.6                    –
 Due from other financial institutions                                                           2,236.3                 345.9            1,488.6                232.9
 Securities                                                                                      1,491.2                 133.7             1,133.1                83.1
 Net loans                                                                                      20,013.1              18,353.2           14,782.3             13,790.8
 Other assets                                                                                      370.2                 164.9              303.5                141.0
 Tangible assets                                                                                   134.2                 134.2               114.9               114.9
 Intangible assets                                                                                  29.6                      –               28.6                   –
 Total assets                                                                                   25,826.2               19,131.9          19,391.8             14,362.7

 Distribution of assets by risk categories
 I category                                                                                      4,103.6                     –            3,472.5                    –
 II category                                                                                     1,769.6                 353.9              929.7                185.9
 III category                                                                                    2,350.0               1,175.0            1,625.6                812.8
 IV category                                                                                    17,603.0              17,603.0           13,364.0             13,364.0
 Total assets                                                                                   25,826.2              19,131.9           19,391.8             14,362.7

 Off-balance sheet items                                                                             8,291.4           1,349.0             9,355.6                1,017.0
 Capital requirement for covering the risks of the trading book                                        995.9              38.4               823.9                   22.1
 Open net currency position                                                                            589.3              58.9              308.2                    30.8

 Note 43. Derivative Financial Instruments
 In millions of euros, December 31                                           2007                                                         2006
                                                     Contractual/                                                 Contractual/
                                                                                       Fair values                                                  Fair values
                                                    notional amount                                              notional amount
                                                         Total**              Assets             Liabilities           Total**             Assets             Liabilities

 Foreign exchange derivatives
 Forward exchange contracts                             145.3                   0.2                    -1.6             195.4                0.8                   -0.5
 Currency swaps                                       1,943.1                   5.7                    -9.7           4,627.0                5.0                   -3.1
 OTC* options bought and sold                           239.9                   0.6                    -0.5             312.6                0.9                   -0.8
 Other                                                  100.9                   0.3                    -0.1             143.4                0.2                   -0.1
 Total FX derivatives                                 2,429.2                   6.8                   -11.9           5,278.4                6.9                   -4.5

 Interest rate derivatives
 Swaps                                                1,078.1                 13.2                    -0.9             149.6                 0.9                   -1.2
    incl.hedges                                       1,008.2                 12.5                       –              73.5                 0.8                      –
 OTC* options bought and sold                              1.9                   –                       –              16.6                 0.1                   -0.1
 Other                                                    33.3                   –                       –             320.2                 0.1                   -0.1
 Total interest rate derivatives                       1,113.3                13.2                    -0.9             486.4                 1.1                   -1.4

 Equity and other derivatives
 Futures                                                175.5                   3.1                   -2.8             338.2                 6.6                   -6.0
 OTC* options bought and sold                           847.7                  53.9                  -13.3             249.0                13.3                  -15.4
 Total equity and other derivatives                   1,023.2                  57.0                  -16.1             587.2                19.9                  -21.4

 Total derivatives                                    4,565.7                  77.0                  -28.9            6,352.0               27.9                  -27.3
* over the counter
** Includes the sum of long and short notional amounts
The bank has designed a fair value hedge to eliminate the interest risk from fixed rate leasing and loan contracts which are funded from short-term deposits.
The hedging instruments are interest rate swaps (IRS) that transform fixed rate assets to variable rate assets which are naturally hedged with short-term deposits.
The hedging period is intended to match the maturity of the last hedging instrument.

Note 44. Financial Commitments and Guarantees
In millions of euros, December 31                         2007                                                  2006
                                                                          Risk weighted                                         Risk weighted
                                          Nominal     Credit equivalent                         Nominal     Credit equivalent
                                                                             amount                                                amount

Guarantees                                 502.1          384.3              360.7               385.2            297.2              262.6
Undisbursed facilities                   2,391.3           930.9             920.7              1,911.5           675.6              662.2
Letters of credit                           49.1            24.5              24.3                 81.5            40.7               40.1
Other                                      783.2               –                 –               625.4                –                  –
Total                                    3,725.7         1,339.7           1,305.7             3,003.6          1,013.5              964.9

Note 45. Fair Value of Financial Assets and Financial Liabilities
In millions of euros, December 31                                                       2007                                2006
                                                                           Fair value          Book value      Fair value          Book value

Investment securities                                                        129.7            133.0              123.1             122.0
Loan portfolio                                                            20,259.4         20,169.4           14,952.9          14,890.3
Debt securities issued                                                       852.4            842.7            1,006.9             995.6
Time deposits                                                              3,393.7          3,816.1            2,374.7           2,593.6

Note 46. Credit Risk
Credit risk refers to the risk that a counterpart is incapable of meeting its obligations and pledged assets do not cover the
claims. Credit risk includes concentration risk that includes large individual exposures as well as significant exposures to
groups of counterparts whose likelihood of default is driven by common underlying factors, such as the economy, sector,
geography, instrument type or other. Credit risk forms the largest part of the total outstanding risk for the Group and is
inherent in almost all regular credit products such as loans, leasing, credit cards, guarantees and derivatives.

Credit risk management is based on the Swedbank Group credit policy that sets common standards of credit activities
for all Group companies. The policy sets out the following principles:
• Credit must generally be serviced by cash flows from core activities;
• Risk and return from each client relationship must be balanced;
• In the case of significant credit the decision makers must have a deep understanding of the client’s credit-worthiness
  and the purpose of the credit;
• Good credit history of the client is required.

The basis for credit risk management is the adequate assessment of a counterpart’s creditworthiness. As a principle,
counterparties involved in any considered transaction receive a risk rating before any relevant credit decision is made.
The risk rating is assigned by using a risk measurement system appropriate for the size and complexity of the counter-
party or transaction. The assessment of the counterparty is an important input in client relationship management – the
higher the client risk, the more attention is paid to their creditworthiness. After issuing a loan, the client’s credit solvency
and value of the collateral is continuously monitored. Risk ratings of existing exposures have to be updated with an
appropriate frequency, but at least once a year.

Due to the importance of ensuring that internal risk evaluations are consistent and accurately reflect the quality of indi-
vidual credit, the responsibility for overseeing evaluations below the significance level and setting individual ratings for
exposures above the significance level rest with an independent credit risk department.

In order to obtain an overview of the risks at portfolio level, risk management monitors and reports on portfolio devel-
opments as well as performing regular stress testing that focuses on the impact of various possible but low-probability
events on the capital adequacy of the bank. Such events include, among others, a possible increase in default rates due
to the changing conditions of the macroeconomic environment, industry-specific changes and possible defaults of the
largest exposures.


For the purposes of credit risk assessment, Hansabank portfolio is divided into five major exposure classes:
• Banking institutions are identified according to the counterpart type being a bank or a financial institution holding a
  credit license awarded by the appropriate authority;
• Corporate clients - consolidated exposure in Hansabank exceeding 0.8m euros;
• Corporate SME clients - consolidated exposure in Hansabank between 0.2 – 0.8m euros;
• Retail SME (SSE) clients - size of exposure in Hansabank up to 0.2m euros;
• Private person exposures - owner of the credit contract is a private person.

Private person exposures are further classified according to product groups such as mortgages, revolving, leasing and
other exposures. For municipalities and sovereign exposures Hansabank uses a simplified approach whereby risks are
measured either through external credit agency risk assessments or on a portfolio basis.

Exposures in these asset classes receive an estimate of probability of default (PD) within a 12-month period. The PD estimate
refers to the probability of the counterparty being unable to repay the debt or payments being overdue on any significant
credit for more than 90 days. With the exception of banking institutions, exposures receive a Loss Given Default (LGD) esti-
mate that indicates the size of a loss assuming that default has taken place. Exposures are also assigned a Credit Conversion
Factor (CCF) estimate that indicates the share of unused credit amount that will be utilised at the moment of default. PD,
LGD and CCF estimates are key inputs to measure expected and unexpected losses in the Hansabank portfolio. These inputs
are used in several areas, including decision-making, client selection, pricing considerations, provisioning, determining
problem credits and regular monitoring.


The internal risk classification system of Hansabank is developed on the basis of group standard of Swedbank Group and
is subjected to regular validation. For SME, SSE and private person segments, both Application Scoring and Portfolio
Scoring is used.
The portfolio segments rated internally as part of the RCS are shown in Table 1.

Table 1. Risk rating systems in Hansabank Group across credit portfolios
Portfolio segment            Definition           Exposure class                          PD dimension                          LGD dimension       CF dimension
                                                                           Application                       Portfolio
                                                                            Risk Classification System for Countries,
Credit institutions              All               Institutions                                                                        –                  –
                                                                                    Bank Systems and Banks

 Large corporates       Exposure> € 0.8 mio        Corporates                      Corporate Rating System                             –                  –

 Corporate SMEs                                                         SME Application
                      Exposure> € 0.2 € 0.8 mio    Corporates                                                                          –                  –
     (SMEs)                                                             Scoring System                   SME/SSE Portfolio
                                                                        SSE Application                   Scoring System
Retail SMEs (SSEs)      Exposure> € 0.2 mio           Retail                                                                   Retail LGD Models   Retail CF Models
                                                                        Scoring System

                                                                   Application Scoring System       Portfolio Scoring System
Private Individuals              All                  Retail                                                                   Retail LGD Models   Retail CF Models
                                                                      for Private Persons             for Private Persons

Risk Classification System for Countries, Bank Systems and Banks

The Risk Classification System for Countries, Bank Systems and Banks is used for all exposures to credit institutions con-
cerning their default risk. It has been implemented since August 2006. The rating process is based on expert models
and resulting rating classes reflect through-the-cycle (TTC) PD estimates of the counterparties.

Risk rating system for large corporates

The Corporate Rating System has been implemented since 2001 in Estonia and 2002 in Latvia and Lithuania. The rating
process is based on expert models (combining assessments of quantitative and qualitative factors), whereas different models
have been developed for rating industrial and real estate companies. Assigned ratings comply with the TTC concept.

Application scoring system for medium-sized companies

SME Application scoring is performed when a SME customer applies for new credit. The system has been implemented
since 2003 in Estonia and 2004 in Latvia and Lithuania. In 2007 it was upgraded from expert model to hybrid models.
The outcomes of the models are Point-In-Time (PIT) PDs, which, if the through-the-cycle estimates are needed, are ad-
justed to produce TTC PD estimates.

Application scoring system for small-sized companies

The SSE Application Scoring System is used for assessing default risk of small-sized companies when they apply for new
credit. It has been integrated into the credit decision-making process since January 1, 2007 and during 2007 the system
was updated. SSE scoring is based on statistical models estimating PIT PDs, which, if the through-the-cycle estimates
are needed, are adjusted to produce TTC PD estimates.

Portfolio scoring system for small- and medium-sized companies

The SME/SSE Portfolio Scoring System is used for measuring the default risk of exposures to all SME and SSE counter-
parties already present in the credit portfolio and providing those inputs for capital requirement calculations, manage-
ment reporting and other purposes. The scoring is performed at client level on a monthly basis as an automated process
in Enterprise Data Warehouse. The system was deployed in 2006 and updated in 2007. SME/SSE portfolio scoring is
based on statistical models estimating PIT PDs, which, if the through-the-cycle estimates are needed, are adjusted to
produce TTC PD estimates.

Application Scoring System for Private Persons

The Application Scoring System for Private Persons is used for measurement of the default risk of credit applications
received from private individuals. The risk is estimated on a credit application level and is valid during the first 3 months
from the contract open date. The main part of the system was implemented in early 2007 and updated in 2007. The
outcomes of the models are PIT PDs, which, if the through-the-cycle estimates are needed, are adjusted to produce TTC
PD estimates.

Portfolio Scoring System for Private Persons

The Portfolio Scoring System for Private Persons is used for evaluation of the default risk of existing exposures to private
individuals on contract level, and providing those inputs for capital requirement calculations, management reporting etc.
The scoring is performed on a monthly basis as an automated process in Enterprise Data Warehouse. The system was de-
ployed in 2006 and updated in 2007. The outcomes of the models are PIT PDs, which, if the through-the-cycle estimates
are needed, are adjusted to produce TTC PD estimates.

Retail LGD Models

Retail LGD models are used to produce LGD estimates for all exposures to private individuals and SSE clients at contract
level. The scoring is performed on a monthly basis as an automated process in Enterprise Data Warehouse. The system
was deployed in 2006 and updated during 2007. The outcomes of the models are adjusted to produce downturn estimates
of LGDs.

Retail CF Models

Retail CF models are used to produce CF estimates for all contracts in retail portfolio (incl. exposures to private individuals
and SSE clients) that are allowed to have undrawn amounts. The scoring is performed on a monthly basis as an automated
process in Enterprise Data Warehouse. In 2007, an updated version of CF estimates was implemented.

Group’s Maximum Credit Risk Exposure
In millions of euros, December 31                                                      2007
                                                         Group          Estonia         Latvia       Lithuania        Russia

Securities                                             1,122.3            22.6          215.4          884.3             0.0
Loans                                                 20,169.4         7,748.8        6,051.2        5,374.4          995.0
Derivatives                                                77.0           53.8            6.3           16.9             0.0
Financial guarantees                                      551.2          264.2          148.3          131.3             7.4
Undisbursed facilities                                  3,174.6          965.0          945.0        1,153.8           110.8
Total                                                 25,094.5         9,054.4        7,366.2        7,560.7         1,113.2
% of total                                             100.0%           36.1%          29.4%          30.1%            4.4%

Risk Concentration of Securities
In millions of euros, December 31                                                       2007
                                                         Risk position     Deduction            Open risk     % of own funds

Bayerische Landesbank                                       682.9            682.9                  –             0.0%
Swedbank                                                    388.1            387.9                0.2            13.4%
Citigroup                                                   297.9            252.4               45.5             1.2%
Maxima                                                      293.4                –              293.4             0.0%
Total                                                     1,662.3          1,323.2              339.1            14.6%

Collaterals Held as Security and Other Credit Enhancements
In millions of euros                                       2007               %                 2006                %

Mortgage                                                 12,708.0           63.0%               9,391.0           63.1%
Registered pledge                                         1,539.4            7.6%                 982.7            6.6%
Other movable pledge                                      2,249.7           11.2%                1,619.4          10.9%
Building, movable                                           258.7            1.3%                  697.2           4.7%
State guarantee                                             194.8            1.0%                  191.0           1.3%
Guarantee                                                   706.2            3.5%                 268.7            1.8%
Deposit                                                     128.2            0.6%                 103.0            0.7%
Securities                                                  500.2            2.5%                  153.4           1.0%
Other                                                       715.9            3.5%                  674.3           4.5%
No collateral                                             1,168.3            5.8%                 809.6            5.4%
Total                                                    20,169.4          100.0%              14,890.3          100.0%

Credit Risk Exposure on Loans by Geographic Areas
In millions of euros, December 31                                           2007
                                    Book value before                      Collective     Book value after     Book value of
                                                      Specific allowance
                                       allowance                           allowance        allowance        impaired fin.assets

Estonia                                7,748.8                15.1            42.8          7,690.9                 53.1
Latvia                                 6,051.2                12.0            30.8          6,008.4                 58.1
Lithuania                              5,374.4                10.9            32.1          5,331.4                 17.8
Other                                    995.0                   –            12.6            982.4                    –
Total                                 20,169.4                38.0           118.3         20,013.1                129.0
% of total                             100.0%                0.2%            0.6%            99.2%                 0.6%

Credit Risk Exposure on Loans by Industry
In millions of euros, December 31                                           2007
                                    Book value before                      Collective     Book value after     Book value of
                                                      Specific allowance
                                       allowance                           allowance        allowance        impaired fin.assets

Individuals                            8,320.6                11.1            32.8          8,276.7                 33.5
Wholesale and retailing                1,841.8                 0.8            14.0          1,827.0                  3.1
Industry                               1,847.4                10.6            15.3          1,821.5                 17.4
Real estate management                 3,249.9                 9.6            14.3          3,226.0                 49.8
Transport and communications            1,177.6                0.6            10.5          1,166.5                    6
Energy                                   186.7                 0.3             1.0            185.4                  0.4
Municipalities and government             111.1                  –             0.2            110.9                    –
Agriculture and Forestry                 435.4                 2.0             3.0            430.4                  6.9
Construction                             609.3                 0.6             5.9            602.8                  2.3
Hotels and restaurants                   329.0                 0.2             1.5            327.3                  1.4
Finance and insurance                    235.6                   –             0.2            235.4                    –
Other business services                 1,557.1                1.9            16.1          1,539.1                  6.2
Other                                     267.9                0.3             3.5            264.1                    2
Total                                 20,169.4                38.0           118.3         20,013.1                129.0
% of total                             100.0%                0.2%            0.6%            99.2%                 0.6%

Note 47. Financial Risks
Financial Risks arise when the Bank’s on- or off-balance sheet positions are exposed to changes in market risk factors
such as interest rates, currency exchange rates, securities or commodities prices. Liquidity risk is considered as a financial
risk when the Bank is unable to fulfil its short-term obligations without incurring significant additional cost.

Financial risk management is based on common risk taking and managing principles that are enforced by the Board and
Council in the form of well-communicated policies and principles that are uniform across all Group entities.

Financial risk portfolios have a low risk profile, all positions are limited and transparent and all financial risk components
are regulated, measured and related instruments covered with complete management instructions. Financial risks un-
dertaken are always weighed against expected returns.

Financial Risks are controlled by a separate organisational function that is fully independent of units that make decisions to
engage in Financial Risk taking.


The Group Asset-Liability Management Committee (ALMCO) is responsible for defining the risk profile and asset-liability
structure for the Group within risk limits allocated by Swedbank Group Finance Committee. The asset-liability management
is centralized, but subsidiary banks have certain independence within limits set by Group ALMCO. The committee sets
overall limits to value-at-risk (VaR), liquidity, asset-liability structure, capitalization, FX, Equity, interest rate and deriva-
tives positions.

Group Treasury executes everyday asset-liability management through liquidity, interest rate, maturity mismatch, capi-
talization and trading positions management. The Group’s Market Risk department independently monitors the Group’s
asset-liability risks and taken positions. The Financial Committee is responsible for setting limits on financial institutions,
absolute and VaR limits to the Group’s trading portfolios within ALMCO limits and approving market risk methodologies
and regulations. The committee also sets individual limits on products with inherent market risk.


Hansabank’s liquidity strategy incorporates support to subsidiaries in liquidity and capital management. The Group’s
liquidity is affected by the following factors:
• The need to fulfil clients’ short-term demands on cash and marketable securities.
• Access to capital markets.
• Ability to liquidate positions.

The ALMCO ensures that the Group’s liquid assets form at least 20% of its clients’ funds and the loan portfolio share in
total assets remains below 77%. Liquid assets include cash, funds in the Central Bank and highly liquid OECD government
bonds (realizable in 3 banking days). The following criteria are used to measure liquidity position:
• Assets and liabilities by maturities.
• Funding proportions.
• Marketability of assets.
• Unutilized credit-lines.

In addition to customer deposits, sources of funding include various money and capital market instruments. Short-term
instruments include overdraft and credit lines, inter-bank loans which range from overnight to three months, repo-agree-
ments, the possibility of liquidating short-term positions in treasury securities and clients’ deposits that have historically
been a stable funding source. Medium-term instruments include mainly bank loans with maturity of less than 5 years.
Long-term funding consists of bank loans with maturity of over 5 years, bonds and shareholders’ equity.


Currency risk arises from unfavourable movements in foreign exchange rates against the Estonian kroon (EEK). Group
Treasury manages currency risk based on the following limits:
• Open EUR position must be long at least 200 million euros.
• Open positions in EEK, LTL and LVL are unlimited due to pegging or basket-pegging (in Latvia) to EUR.
• Open position in OECD member currencies and currencies of countries that have signed a General Agreement to Borrow
  with the IMF may not exceed 22 million euros or 15% of net own funds.
• Open position in any other currency (except EUR, LVL and LTL) may not exceed 16 million euros or 4% of net own funds.


Group Treasury manages interest rate risk based on the following limit:
• Interest sensitivity limit: in case of a +100bp parallel shift in all interest curves the decrease in the value of the Group’s
  assets may not exceed 37 million euros (includes 10 million euro sub-limit for mark-to-market assets).

In addition, the interest income sensitivity analysis is used for interest rate risk management.


Exposure to Market Risks arises from positions that are affected by changes in market risk factors: interest/exchange
rates, prices of financial instruments and underlying securities. Responsibility for engagement in positions is undertaken
in units who have the mandate for market risk taking. All positions taken must have authorisation in the form of the risk
limits. All risk limits and exposures are measured and reported by organisationally independent Market Risk Management
department both at the Group and local business unit levels.

Market risk management guidelines are the following:
• Management of market risks is based on a Group-wide policy and Principles;
• All risk evaluation models are developed and updated centrally;
• Allocation of market risk limits is co-ordinated following the top-down principle and Group-wide risk concentration limits.

Technical management of market risks is centralized, i.e. all business units use a common IT platform for taking risk po-
sitions enabling real-time top-to-bottom risk monitoring.

Year 2007 was characterised by turbulence in the money markets, illiquidity and volatile equity markets. In this environment,
an active review of risk taking strategies and limit management was inducted to mitigate the impact of adverse market


VaR method is used in the evaluation of potential losses, which shows the maximum potential loss during one trading
day from a certain portfolio based on a 99% probability. The analysis is based on the risk factors’ historical one-year
non-weighted volatility. The option portfolios are limited by total portfolio open-delta limit and individual issuers limits.
Non-linear risk is also limited and measured on a daily basis by stress-testing.

Hansabank uses integrated Swedbank Group VaR calculation methodology. All instruments bearing interest rate or foreign
exchange risk are included in the VaR model and risk estimates are calculated on a daily basis and delivered to risk-taking
units across the Group. Equity related trading risks are evaluated by conservative internal risk estimation model by his-
torical volatilities of underlying instruments, without correlation of different positions.

Risk measurement and evaluation models are regularly benchmarked by back-testing by comparing daily revaluation of
profit/loss from positions with respective potential risk. The market risk department regularly reviews the evaluation
models used by the Group.

Sensitivity analysis
In millions of euros, December 31                                                      Change         2007           2006

Net interest income, 12 months
Increased interest rates                                                              +1%p.p.           34.4           29.3
Decreased interest rates                                                               -1%p.p.         -52.7          -44.6

Change in value
Market interest rate                                                                  +1%p.p.           -1.0           -2.5
                                                                                       -1%p.p.           1.0             2.6
Stock prices                                                                             +10%          -0.2              0.4
                                                                                          -10%          -1.7            -1.0
Exchange rates                                                                             +5%         -124            14.3
                                                                                           -5%          124           -14.3

Note 48. Operational Risk
In accordance with operational risk policy, the Group seeks to maintain the lowest possible risk level, at the same time
aiming at not exceeding a reasonable cost level. The Group does not take any unmanageable or unlimited risks even if
these could result in improved earnings.

In carrying out transactions, specific limits and qualifications are set out in writing in the employee’s job description or
in a separate instruction. In order to reduce risks arising from human error and fraud, the Group applies the duality prin-
ciple, whereby transactions or operations have to be accepted by at least two independent employees.

Increasing every employee’s risk awareness is the basis of effective management of operational risks. Keeping the
responsibility for risk management in business units, increasing every employee’s risk awareness, and establishing a
strong control environment, have been the main means of preventing operational losses.

Since the end of 1999 Hansabank has used the internationally accepted method of the Control Self Assessment (CSA)
system to map and manage operational risk. According to CSA, identification, assessment and monitoring of risks is the
responsibility of business units, while risk management units have an advisory, consolidating and reporting role. In addi-
tion to self-assessment, credit control and branch network control functions operate to prevent risks. An IT-based control
and reporting system has been implemented in the branch network to improve the effectiveness of control activities.

The Group has implemented a business continuity management system that helps to mitigate losses from events that
have a low probability of occurrence but a strong negative impact. For incidents related to IT as well as physical security,
continuity scenarios and specific action-plans were outlined. A special function for co-ordination of business continuity
process has been established and a new framework set up including clear governance with different level managerial
bodies as well as new methodologies for Business Impact Analysis and Risk Analysis. Testing of contingency scenarios
is conducted regularly in all Baltic business units.

For defining capital requirement to cover unexpected losses from operational risk, the Group has decided to implement
the Standardised Approach under Basel 2 capital adequacy rules. The Group has implemented the required methods,
such as loss database, risk self-assessment and business contingency planning. Capital allocation for operational risk is
included in overall capital adequacy ratio. In the case of residual risk, which if realised could cause a large loss, but is
impossible or economically inefficient to diversify internally, the Group uses risk insurance. Loss levels from operational
risk events remained low and within set tolerance in 2007.

Note 49. Geographic Distribution by Counterparties
In millions of euros,                                                                         Derivative fin. instruments, fin.
                                   Assets               Liabilities and shareholders equity                                       Profit before income tax
December 31                                                                                   commitments and guarantees

                          2007               2006           2007              2006              2007               2006           2007             2006

Estonia                  8,630.8             7,039.9      6,263.5             5,421.4          1,710.2             1,626.6        203.9             173.2
Latvia                      6615              5,111.3     2,696.2             2,405.4          1,421.7               970.0        167.2             104.9
Lithuania                6,043.9             4,230.3      4,288.5             3,390.1          1,527.3             1,143.0        144.5              78.5
CIS                      1,192.5               841.6        369.0               366.6            142.2               108.6         20.1               -3.4
OECD                     3,258.8             2,130.9     11,774.6             7,457.3          3,479.6             5,462.6            –                  –
Other                       85.2                 37.8       434.4               351.0             10.4                44.8            –                  –
Total                   25,826.2            19,391.8     25,826.2            19,391.8          8,291.4             9,355.6        535.7             353.2

Note 50. Maturity Structure
                                                                                                                           Other        Non-
                                                        Under      1…3        3…12         1…2       2…5       Over 5
In millions of euros, December 31                                                                                         (without    financial    Total
                                                       1 month    months     months       years     years      years
                                                                                                                          maturity)    assets

Cash and due from Central Bank                        1,551.6            –         –            –         –           –         –           – 1,551.6
Due from other financial institutions                 2,203.6          2.7      30.0            –         –           –         –           – 2,236.3
Securities                                              200.3       208.7      204.2       188.1      296.8      106.4      286.7           – 1,491.2
Loans                                                   930.0     1,581.3    3,217.2     2,208.5    3,928.0    8,304.4          –           – 20,169.4
  - Allowance for credit losses                          -25.7       -16.4     -32.2        -25.5     -28.5       -28.0         –           –   -156.3
Tangible and intangible assets                               –           –         –            –         –           –         –       163.8    163.8
Other assets                                            225.9         25.2      49.7         11.0      11.7        24.6         –        22.1    370.2
Total assets                                          5,085.7     1,801.5    3,468.9     2,382.1    4,208.0    8,407.4      286.7       185.9 25,826.2

Liabilities and equity
Due to Central Bank and Government                           –        0.3        0.6         0.8      0.6          0.1          –        –      2.4
Due to other financial institutions                      265.0      411.6    2,088.8     1,773.0 5,805.9         682.5          –        – 11,026.8
Deposits                                               8,645.4      837.0    1,158.7       248.6     22.0          1.6          –        – 10,913.3
Debt securities issued to the public                       2.3        2.1       18.8       813.8      5.7            -          –        –    842.7
Other liabilities                                        461.2      115.1      122.5        61.0     94.7        236.9          –     66.3 1,157.7
Total equity                                                 –          –          –           –        –            –          – 1,883.3 1,883.3
Total liabilities and equity                           9,373.9    1,366.1    3,389.4     2,897.2 5,928.9         921.1          – 1,949.6 25,826.2
Balance sheet maturity gap                            -4,288.2      435.4       79.5      -515.1 -1,720.9      7,486.3      286.7 -1,763.7        –

Off balance sheet items
Guarantees, letters of credit and undisbursed loans     -593.5    -413.6 -1,218.1    -792.7   -407.7            -300.1          –        –        -3,725.7
Derivatives, assets                                      709.1     775.5     301.9 1,044.6      32.6               31.4         –        –         2,895.1
Derivatives, liabilities                                -634.1    -804.4    -365.0 -1,096.8    -34.4              -31.4         –        –        -2,966.1
Off balance sheet maturity gap                          -518.5    -442.5 -1,281.2 -844.9 -409.5                 -300.1          –        –        -3,796.7
Net maturity gap                                      -4,806.7       -7.1 -1,201.7 -1,360.0 -2,130.4           7,186.2      286.7 -1,763.7        -3,796.7

Cash and due from Central Bank                         1,540.8          –           –           –         –          –           –           – 1,540.8
Due from other financial institutions                  1,038.6      447.5         2.5           –         –          –           –           – 1,488.6
Securities                                               172.1      134.7      274.9         65.5     215.4      124.5       146.0           –   1,133.1
Loans                                                    563.7      887.2    2,448.7     1,789.8    3,131.0    6,069.9           –           – 14,890.3
  - Allowance for credit losses                           -14.9      -9.4       -21.5       -16.6     -25.0      -20.6           –           –   -108.0
Tangible and intangible assets                                –         –           –           –         –          –           –       143.5    143.5
Other assets                                             165.1       49.3        36.2         4.4       4.0        9.7           –        34.8    303.5
Total assets                                           3,465.4    1,509.3    2,740.8     1,843.1    3,325.4    6,183.5       146.0       178.3 19,391.8

Liabilities and equity
Due to Central Bank and Government                         0.7         0.4       1.6         1.2         1.1       0.2           –           –         5.2
Due to other financial institutions                      201.6      474.7    1,020.7     1,204.3    3,210.2      634.3           –           –     6,745.8
Deposits                                               7,781.0      498.5      920.6       107.8        21.3       1.0           –           –     9,330.2
Debt securities issued to the public                      49.6        38.5      68.5        14.0      822.4        2.6           –           –       995.6
Other liabilities                                        425.8      109.6       71.5        34.7        56.7     175.0           –        31.0       904.3
Total equity                                                 –           –         –           –           –         –           –     1,410.7     1,410.7
Total liabilities and equity                           8,458.7     1,121.7   2,082.9     1,362.0     4,111.7     813.1           –     1,441.7    19,391.8
Balance sheet maturity gap                            -4,993.3      387.6      657.9       481.1     -786.3    5,370.4       146.0    -1,263.4           –

Off balance sheet items
Guarantees, letters of credit and undisbursed loans     -357.2      -377.6   -1,104.3     -601.8      -270.9    -291.8           –           – -3,003.6
Derivatives, assets                                      731.3      546.4        159.0       53.1       30.3       1.4           –           – 1,521.5
Derivatives, liabilities                              -4,063.3     -533.6       -179.8      -44.1       -9.7         –           –           – -4,830.5
Off balance sheet maturity gap                        -3,689.2     -364.8     -1,125.1    -592.8      -250.3    -290.4           –           – -6,312.6
Net maturity gap                                      -8,682.5        22.8     -467.2      -111.7   -1,036.6   5,080.0       146.0    -1,263.4 -6,312.6

Note 51. Interest Repricing Periods
                                                                                                                Non-       Non-
                                              Under       1…3        3…12       1…2       2…5       Over 5
In millions of euros, December 31                                                                             interest   financial    Total
                                             1 month     months     months     years     years      years
                                                                                                              bearing     assets

Cash and due from Central Bank               1,551.6           –          –         –           –        –          –          – 1,551.6
Due from other financial institutions        1,887.7       341.3        7.3         –           –        –          –          – 2,236.3
Securities                                     341.1      364.5       126.1      59.0      207.6     106.2      286.7          – 1,491.2
Loans                                        4,397.1     6,865.1    6,109.2     566.0    1,956.6     275.4          –          – 20,169.4
   - Allowance for credit losses                -41.9      -45.0      -44.0      -8.9       -11.9     -4.6          –          –   -156.3
Tangible and intangible assets                      –          –          –         –           –        –          –      163.8    163.8
Other assets                                   224.7        25.4       50.6      11.1        11.7     24.6          –       22.1    370.2
Total assets                                 8,360.3     7,551.3    6,249.2     627.2    2,164.0     401.6      286.7      185.9 25,826.2

Liabilities and equity
Due to Central Bank and Government                0.1        0.3         0.8       0.7       0.4       0.1           –         –      2.4
Due to other financial institutions           1,314.1    3,903.4     3,187.7     795.2   1,765.1      61.3           –         – 11,026.8
Deposits                                      8,684.1      792.7     1,167.1     245.9      21.9       1.6           –         – 10,913.3
Debt securities issued to the public            752.3       12.1        10.2      62.4       5.7         –           –         –    842.7
Other liabilities                               471.2      114.6       124.7      61.8      97.6     221.5           –      66.3 1,157.7
Total equity                                        –          –           –         –         –         –           –   1,883.3 1,883.3
Total liabilities and equity                 11,221.8    4,823.1    4,490.5    1,166.0   1,890.7     284.5           –   1,949.6 25,826.2

Balance sheet interest sensitivity gap       -2,861.5    2,728.2    1,758.7    -538.8     273.3       117.1     286.7 -1,763.7             –
Off balance sheet interest sensitivity gap        -1.6      -0.4       -21.0     -25.9      -2.9          –         –        –         -51.8

Cash and due from Central Bank                1,540.8           –          –        –          –          –         –           – 1,540.8
Due from other financial institutions           857.6      629.7         1.3        –          –          –         –           – 1,488.6
Securities                                      173.8      178.7      260.2      47.7      199.7     127.0      146.0           –   1,133.1
Loans                                         3,133.9    5,025.8    5,267.4     414.5      651.8     396.9          –           – 14,890.3
   - Allowance for credit losses                 -23.5      -31.7      -33.1     -8.0       -9.0       -2.7         –           –   -108.0
Tangible and intangible assets                       –          –          –        –          –          –         –       143.6    143.6
Other assets                                    165.1        49.3       36.2      4.4        4.0        9.7         –        34.7    303.4
Total assets                                  5,847.7    5,851.8    5,532.0     458.6      846.5     530.9      146.0       178.3 19,391.8

Liabilities and equity
Due to Central Bank and Government                0.7        0.4        1.6       1.2        1.1       0.2           –          –         5.2
Due to other financial institutions             706.8    3,351.9    1,570.1     343.1      696.5      77.4           –          –     6,745.8
Deposits                                      7,807.0      469.2      925.4     106.4       21.2       1.0           –          –     9,330.2
Debt securities issued to the public            800.1       99.1       24.4       7.3       64.7         –           –          –       995.6
Other liabilities                               425.8      109.7       71.4      34.7       56.7     175.0           –       31.0       904.3
Total equity                                        –          –          –         –          –         –           –    1,410.7     1,410.7
Total liabilities and equity                  9,740.4    4,030.3    2,592.9     492.7      840.2     253.6           –    1,441.7    19,391.8

Balance sheet interest sensitivity gap       -3,892.7    1,821.5     2,939.1     -34.1        6.3     277.3     146.0    -1,263.4           –
Off balance sheet interest sensitivity gap          –          –        -0.1         –       -2.8         –         –           –        -2.9

Note 52. Open Currency Positions
In millions of euros, December 31           EEK        LVL          LTL        EURO       USD      Others       Total

Cash and due from Central Bank              583.2      491.0        370.8        38.8      11.6     56.2      1,551.6
Due from other financial institutions         36.9      93.3          5.5     1,375.5     565.0    160.1      2,236.3
Securities                                  106.0        19.9        99.7     1,129.6     123.4     12.6      1,491.2
Loans                                     1,106.8      715.2      1 729.4    15,481.2     963.9    172.9     20,169.4
   - Allowance for credit losses             -13.8      -11.6       -18.3      -100.1      -9.2     -3.3       -156.3
Tangible and intangible assets                50.9      50.3         58.3         0.4         –      3.9        163.8
Other assets                                  80.0       17.3        36.0       190.3      14.1     32.5        370.2
Total assets                              1,950.0    1,375.4      2,281.4    18,115.7   1,668.8    434.9     25 826.2

Due to Central Bank and Government             1.4         –          1.0           –         –        –           2.4
Due to other financial institutions           29.3      72.6         31.9    10,135.4     671.1     86.5     11,026.8
Deposits                                   2,933.0   1,118.8      2,904.1     2,859.4     956.7    141.3     10,913.3
Debt securities issued to the public           0.5         –            –       839.5       2.7        –        842.7
Other liabilities                            226.4     111.8        275.5       380.1      98.9     65.0       1,157.7
Total liabilities                          3,190.6   1,303.2      3,212.5    14,214.4   1,729.4    292.8     23,942.9
Total equity                              1,883.3          –            –           –         –        –      1,883.3
Net balance sheet position                -3,123.9      72.2       -931.1     3,901.3     -60.6    142.1           0.0

Off balance sheet net notional position     456.2     284.7        186.3      -963.6       73.3     -26.1        10.8

Cash and due from Central Bank               713.3     513.2        249.9        28.0       12.5     23.9     1,540.8
Due from other financial institutions         25.6       50.5         21.1      882.9     350.1     158.4     1,488.6
Securities                                   123.3       11.0         97.4      736.3     124.8      40.3      1,133.1
Loans                                        796.6     918.7      1,362.6    10,935.6     821.8      55.0    14,890.3
   - Allowance for credit losses              -9.2      -10.8        -14.5      -64.5       -6.9      -2.1     -108.0
Tangible and intangible assets                44.6       44.4         52.7          –          –       1.8      143.5
Other assets                                  66.6       21.6         29.6      142.9        9.0     33.8       303.5
Total assets                               1,760.8   1,548.6      1,798.8    12,661.2    1,311.3    311.1    19,391.8

Due to Central Bank and Government             3.0       0.4          1.7         0.1         –        –           5.2
Due to other financial institutions           13.8      22.1         48.1     6,154.1     476.3     31.4       6,745.8
Deposits                                   2,943.9   1,152.9      2,417.6     1,773.1     898.5    144.2      9,330.2
Debt securities issued to the public          19.3       2.3          2.3       938.0       0.5     33.2        995.6
Other liabilities                            190.1      85.7        183.9      294.0       95.5     55.1        904.3
Total liabilities                          3,170.1   1,263.4      2,653.6     9,159.3   1,470.8    263.9      17,981.1
Total equity                               1,410.7         –            –           –         –        –       1,410.7
Net balance sheet position                -2,820.0     285.2       -854.8     3,501.9    -159.5     47.2             –

Off balance sheet net notional position   2,549.2      -217.0       767.5    -3,284.7     145.2      38.0         -1.8

 Note 53. Geographic Region Analysis
 In millions of euros                     Estonia              Latvia              Lithuania                Russia             Other         Eliminations & GT         Group

                                      2007      2006       2007      2006        2007     2006         2007        2006 2007 2006 2007                  2006      2007      2006

 Total income from
 external customers
                                        385.1    304.4 293.9            198.5 270.9        173.8          63.6       42.8      –    -0.1 -10.9           -6.1    1 002,6         713,3

 Total income from
 internal customers
                                         12.2       28.0      3.9       -11.4      -6.0         -2.8     -10.1       -13.8     –        –       –            –       –             –

 Total income                           397.3    332.4 297.8            187.1 264.9         171.0         53.5       29.0      –    -0.1 -10.9           -6.1    1 002,6         713,3
 Profit from associated
                                          0.7        0.7        –           –        –            –          –           –     –        –       –            –       0,7           0,7

 Profit before tax                     225.3        175.9 157.6         101.9     137.0      75.2        23.5          3.4 0.2         0.3    -7.9       -3.5     535,7        353,2
 Income tax                                –            – -23.8          -13.1    -25.0     -13.5        -3.4         -3.1   –           –       –          –     -52,2         -29,7
 Net profit                            225.3        175.9 133.8          88.8     112.0      61.7        20.1          0.3 0.2         0.3    -7.9       -3.5     483,5        323,5

 Segment assets                       10,336.9 8,104.0 7,261.1 5,511.0 7,278.1 5,087.1 1,260.9                       884.6    0.1      0.2 -311.1       -195.1   25 826,0 19 391,8
 Segment liabilities                   9,669.4 7,563.3 6,785.5 5,169.1 6,871.0 4,809.1 1,168.1                        817.7     –      0.1 -553.9      -380.7    23 940,1 17 978,6
 Unallocated liabilities                     –       –     2.1     1.9     0.6     0.6       –                            –     –        –      –            –        2,7      2,5
 Total liabilities                     9,669.4 7,563.3 6,787.6 5,171.0 6,871.6 4,809.7 1,168.1                        817.7     –      0.1 -553.9      -380.7    23 942,8 17 981,1

 Capital expenditure
 (incl. intangible, excl. goodwill)
                                         19.4       12.8     13.6         7.6     13.3           7.9       1.4         1.2     –        –       –            –      47,7          29,5

 Depreciation                             7.7        6.2      6.1         5.2      4.8          5.1        0.6         0.4     –        –       –            –      19,2         16,9
 Amortisation                             1.2        0.9      0.1         0.1      0.1          0.1          –           –     –        –       –            –       1,4          1,1
 Provisions                              25.2       13.9     26.4        12.4     10.0         12.2        5.4         3.7     –        –       –            –      67,0         42,2
 Unrealised (profit)/loss                 2.8        4.1      5.9         3.4     -2.4          0.5        1.6        -0.1     –        –       –            –       7,9          7,9
 Vacation reserve                         0.6        0.4      0.5         0.6      3.9          3.0          –           –     –        –       –            –       5,0          4,0

 No of employees,
                                       3,246     2,940 2,577            2,247 3,380        3,027          371         233      –        2       –            –     9 574      8 449
 end of period**

Note 54. Segment Reporting
In millions of euros, for the year                           2007                  share                  2006                  share                2005                share

Revenues by Business Segments
Banking                                                      874.3               87.2%                    610.9               85.6%                  422.0           80.4%
Leasing                                                      135.5               13.5%                    112.1               15.7%                  104.4           19.9%
Insurance                                                     24.4                2.4%                     12.7                1.8%                    9.2            1.8%
Other                                                         13.1                1.3%                      9.6                1.3%                    9.2            1.8%
Eliminations                                                 -44.7               -4.5%                    -32.0               -4.5%                  -20.2           -3.9%
Total income                                               1,002.6               100%                     713.3               100%                   524.6           100%

Net Profit by Business Segments
Banking                                                     390.0                80.7%                   269.3                83.2%                  177.4           73.4%
Leasing                                                      77.8                16.1%                    47.5                14.7%                   59.3           24.5%
Insurance                                                    16.1                  3.3%                    7.2                 2.2%                    5.5            2.3%
Other                                                        -0.4                 -0.1%                   -0.5                -0.2%                   -0.4           -0.2%
Total net profit                                            483.5                100%                    323.5                100%                   241.8           100%

Assets by Business Segments
Banking                                                22,628.1                  87.6%                 17,236.5               88.9%             12,152.8              95.4%
Leasing                                                  4,278.0                 16.6%                  3,304.3               17.0%               2,628.1             20.6%
Insurance                                                  454.2                   1.8%                    311.1                1.6%                218.8              1.7%
Other                                                       53.1                   0.2%                     42.7               0.2%                  38.3              0.3%
Eliminations                                            -1,587.2                  -6.1%                -1,502.8                -7.7%             -2,297.6            -18.0%
Total assets                                           25,826.2                  100%                  19,391.8               100%              12,740.4              100%

Note 55. Related Parties

Information about Associates
In millions of euros                         AS Pankade Kaardikeskus     AS Sertifitseerimiskeskus         Tietenator Support OÜ

Proportion of interest / voting power held           48%                           25%                            20%
Country of incorporation                            Estonia                      Estonia                         Estonia
Principal activity                              card payments                  sertification                         IT

Carrying value 1 January 2006                         1.7                            –                              –
Acquisitions (at cost)                                  –                          0.5                              –
Share of profit, net of dividends received            0.8                            –                              –
Carrying value 31 December 2006                       2.5                          0.5                              –
Acquisitions (at cost)                                  –                            –                              –
Share of profit, net of dividends received            0.8                         -0.1                              –
Carrying value 31 December 2007                       3.3                          0.4                              –

Financial position of associates:
   Total assets                                       7.0                         1.9                              0.4
   Total liabilities                                  0.2                         0.3                              0.4
   Net assets                                         6.8                         1.6                                –
   Group’s share of associates’ net assets            3.3                         0.4                                –

Deposits of the Related Parties
In millions of euros, December 31                                     2007                                   2006
                                                            Balance      Interest range         Balance            Interest range

Members of the Council and the Board                         1.2              0-3%                   0.7                 0-3%
Associated companies                                         1.6                0                    1.3                   –

Loans to Related Parties
In millions of euros, December 31                                     2007                                   2006
                                                            Balance      Interest range         Balance            Interest range

Members of the Council and the Board                         1.0             variable                0.4             variable

In millions of euros, for the year                                                              2007                     2006

Salaries to the Board                                                                                1.7                  1.7

Transactions between Swedbank AB (publ) and Hansabank Group
In millions of euros, for the year                                                              2007                     2006

Deposits and loans to Swedbank AB                                                                371.4                 129.0
Deposits and loans from Swedbank AB                                                           10,161.0               6,110.0
Accrued interest                                                                                  82.2                  40.1
Interest income from Swedbank AB                                                                  48.8                  11.0
Interest expense to Swedbank AB                                                                 402.9                 138.7

Independent Auditors’ Report
                                                                                                         AS Deloitte Audit Eesti
                                                                                                         Roosikrantsi 2
                                                                                                         10119 Tallinn, Estonia

                                                                                                         Phone: +372 640 6500
                                                                                                         Fax: +372 640 6503

INDEPENDENT AUDITOR’S REPORT                                                                             Reg. code 10687819

To the Shareholder of AS Hansapank:

We have audited the accompanying consolidated annual accounts (page 44 to 87) of AS Hansapank and subsidiaries,
which comprise the balance sheet as at 31 December 2007, and the income statement, statement of changes in equity
and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory

Management Board’s Responsibility for the Consolidated Annual Accounts

Management Board of AS Hansapank is responsible for the preparation and fair presentation of these consolidated an-
nual accounts in accordance with International Financial Reporting Standards as adopted by the European Union. This
responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair
presentation of consolidated annual accounts that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated annual accounts based on our audit. We conducted our
audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical re-
quirements and plan and perform the audit to obtain reasonable assurance whether the consolidated annual accounts
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
annual accounts. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated annual accounts, whether due to fraud or error. In making those risk assess-
ments, the auditor considers internal control relevant to the group’s preparation and fair presentation of the consolidated
annual accounts 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 group’s internal control. An audit also includes evaluating the appro-
priateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated annual accounts.

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


In our opinion, the consolidated annual accounts present fairly, in all material respects, the financial position of AS Hansa-
pank and subsidiaries as of 31 December 2007, and its financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards as adopted by the European Union

           Veiko Hintsov                                                        AS Deloitte Audit Eesti
              Certified auditor
             28 February 2008

Audit . Tax . Consulting . Financial Advisory .
                                                                                                           Member of
                                                                                                           Deloitte Touche Tohmatsu

Recommendation of the Board for Distribution of Profit
AS Hansapank’s Board confirmed the 296,8 million euros net profit of AS Hansapank and the 483.5 million euros net
profit of Hansabank Group. In accordance with the audited financial results, the Board recommends to the annual share-
holders’ meeting that Hansapank Group’s 2007 net profit of 483,503,079 euros and retained earnings from previous
financial periods of 1,131,187,236 euros, all totalling to 1,614,690,315 euros, be distributed as shown below.

In euros

Hansapank Group’s net profit for the financial year of 2007                                               483,503,079
Retained earnings from previous periods                                                                   1,131,187,236
Total retained earnings                                                                                 1,614,690,315

To be paid as dividends                                                                                              –

Balance of undistributed profit                                                                         1,614,690,315

                                                      Erkki Raasuke
                                                      Chairman of the Board

     Declaration of Management Board
The Management Board has prepared the management report and the annual accounts
of AS Hansapank for the financial year ended on 31 December 2007.

The report has been prepared in accordance with the International Financial Reporting
Standards and presents a true and fair view of AS Hansapank’s financial position, the
results of its operations and cash flows. The Managment Board considers AS Hansa-
pank as operating on a going concern basis. The information presented in the report
is truthful and complete.

                                  Erkki Raasuke
                                  Chairman of the Board

                                 Aivo Adamson
                                   Member of the Board

                                  Maris Avotinš
                                   Member of the Board

                                 Antanas Danys
                                   Member of the Board

                            Giedrius Dusevicius
                                   Member of the Board

                              Maris Mancinskis
                                   Member of the Board

                                 Kristina Siimar
                                   Member of the Board

                                   Andres Trink
                                   Member of the Board

                                    Priit Põldoja
                               Vice Chairman of the Board
                           resigned from Board as of 14 February 2008

Declaration of the Supervisory Council
The Management Board has prepared the management report and the annual accounts
of AS Hansapank for the financial year ended 31 December 2007.

The Supervisory Council of AS Hansapank has reviewed the annual report, prepared by
the Management Board, consisting of the management report, the annual accounts, the
Management Board’s proposal for profit distribution and the independent auditors’ re-
port, and has approved the annual report for presentation at the annual shareholders’
meeting. All the members of the Supervisory Council have signed the annual report.

                                      Jan Lidén
                                 Chairman of the Council

                                      Anders Ek
                              Vice Chairman of the Council

                              Lennart Lundberg
                                  Member of the Council
                           resigned from Council as of 1 February 2008

                                 Lars Lundquist
                                  Member of the Council

                              Annika Wijkström
                                  Member of the Council

AS Hansapank Supervisory Council

                                   Jan Lidén
                                   Chairman of the Council of
                                   Hansabank since 12.04.05.
                                   President and CEO of
                                   Swedbank since 2004.

                                   Born 1949.
                                   Other directorships:
                                   Chairman of Swedbank Finans
                                   AB Swedbank Hypotek AB, Visa
                                   EU and of the Swedish Bankers
                                   Association. Board Member of
                                   Visa International, and of
                                   Swedbank Gemensamma
                                   Pensionsstiftelse I and II
                                   (Swedbank Pension Foundations
                                   I and II).

Anders Ek                         Lennart Lundberg                      Lars Lundquist                  Annika Wijkström
Vice Chairman of the Council of   Member of the Council of              Member of Hansabank Council     Member of Hansabank Council
Hansabank since 12.04.05,         Hansabank since 26.04.01.             since 11.11.05.                 since 11.11.05.
Member of the Council since       Senior Vice President of              Chief Credit Officer of Swed-   Executive Vice President and
19.04.04.                         Strategic and International           bank.                           Head of Swedbank Markets.
Executive Vice President and      Banking of Swedbank.
Head of Strategic and Inter-                                            Born 1953.                      Born 1951.
national Banking of Swedbank.     Born 1947.                            Other directorships:            Other directorships:
                                  Other directorships:                  Member of the Council of        Deputy Board Member of
Born 1948.                        Member of the Council of              Hansabank OAO Swedbank.         Swedish Bankers’ Association,
Other directorships:              Hansabankas, Member of the                                            Chairman of the Board of First
Member of the Council of OAO      Audit Committee of the Council                                        Securities, Member of the
Swedbank, Member of the           of Hansabankas, Member of                                             Board of Swedbank Företags-
Board of Swedbank Robur AB        the Council of Hansabanka,                                            förmedling AB and Swedbank
and Entercard Holding AB.         Member of the Council of                                              Gemensamma Pensionsstif-
Chair of Swedbank (Luxem-         OAO Swedbank, Member of the                                           telse I och II (Swedbank Pen-
bourg) S.A, Swedbank Helsinki,    Board of Swedbank                                                     sion Foundation I and II).
Swedbank Oslo and Swedbank        (Luxembourg) S.A.

      AS Hansapank Management Board

Erkki Raasuke                 Priit Põldoja                  Aivo Adamson                   Maris Avotinš                Antanas Danys
Chairman of the Board,        Vice Chairman of the Board,    Member of the Board,           Member of the Board,         Member of the Board, Head
Group CEO.                    Managing Director, Estonia.    Chief Information Officer.     Managing Director, Latvia.   of Retail Banking, Lithuania.

Born 1971.                    Born 1969.                     Born 1965.                     Born 1974.                   Born 1975.
Degree in Economics, Tal-     Bachelor of Business and       Degree in Accounting and       Master of Economics          MBA from Vilnius Uni-
linn Technical University.    Finance of Mount Saint         Financial Analysis from Tal-   from the University of       versity. Working in Hansa-
Working in Hansabank          Mary’s College, Emmits-        linn Technical University      LatviaWorking in Hansa-      bank since 1998. Earlier:
since 1994. Earlier: Manag-   burg, MD, U.S.A.               and Auditor examination        bank since 2000. Earlier:    Chief Financial Officer,
ing Director, Estonia.        Working in Hansabank           accomplished by Minister       Chief Risk Officer.          Lithuania.
                              since 1998. Earlier: Head of   of Finance in the Council of
                              Retail Banking, Estonia.       Auditory Actions. Working
                                                             in Hansabank since 1992.
                                                             Earlier: Chief Risk Officer.

Giedrius Dusevicius              Maris Mancinskis                  Kristina Siimar                     Andres Trink
Member of the Board,             Member of the Board,              Member of the Board,                Member of the Board
Managing Director, Lithuania.    Managing Director, Russia.        Chief Financial Officer.            Chief Risk Officer,

Born 1971.                       Born 1974.                        Born 1971.                          Born 1967
Degree in Economics and          Finance MBA of Hofstra            Master of Economics                 Degree in Systems Engineering
Degree in the Institute of       University and Bachelor of        degree from Tallinn                 from Tallinn Technical University.
International Relations and      Science in Economics of           Technical University.               Working in Hansabank since
Political Sciences in Vilnius    University of Latvia.             Working in Hansabank since          2006.
University. Working in Hansa-    Working in Hansabank since        1994. Earlier: Chief Financial      Earlier: Director of Administra-
bank since 1996. Earlier:        1999. Earlier: Head of            Officer of Leasing and Factoring,   tion Division, Estonia
Head of Leasing and Factoring,   Corporate Banking, Latvia.        Baltics.

Hansabank Group in

          Liivalaia 8,
        15040 Tallinn
     Phone: +372 631 0310
      Fax: +372 631 0410


       Balasta dambis 1a,
         LV-1048, Riga
     Phone: +371 702 4555
      Fax: +371 702 4400
      SWIFT: HABA LV22


          Savanoriu 19,
       LT-03502 Vilnius
   Phone: +370 (5) 268 4444
     Fax: +370 (5) 213 2431
      SWIFT: HABA LT22


   Sadovaya-Spasskaja Str, 24,
        107078 Moscow
    Phone: +7 (495) 777 6377
     Fax: +7 (495)777 6378

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