group 2008 - dnb · group business report 2008 8 letter from the board of directors in spite of a...

Group Business

Report 2008

Group Business Report 2008

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TABLE OF CONTENTS

Welcome from the CEO 4

Vision, Mission and Values 5

Bank DnB NORD Group and its Owners 6

Letter from the Board of Directors 8

Group Financial Highlights 9

The Year in Review 10

People 12

Cross-Border Banking 14

Economic Research Group 17

Society 18

Brand Building 19

The Hot Air Balloon 20

Baltic Sprint Cup 21

Denmark 22

Estonia 26

Finland 30

Latvia 34

Lithuania 40

Poland 48

Group Risk Management 56

Management’s Statement 58

Significant Accounting Policies 59

Group Income Statement 60

Group Balance Sheet 61

Key Figures 62

Group Figures 63

Independent Auditor’s Report 64

Contact Information 65


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Success at Bank DnB NORD is measured in terms of meeting the needs of our customers. We appreciate and value the continued support that our customers have shown during these challenging times.

The values behind our corporate identity - reliability, team spirit, simplicity and dynamics - are brought to life by our staff everyday through their motivation and commitment. I am proud to stand alongside our team.

At the close of 2008, across its markets in Denmark, Estonia, Fin-land, Latvia, Lithuania and Poland, Bank DnB NORD employed more than 3,600 people, operated 180 offices, had in excess of 870,000 customers and assets totaling EUR 11.8 billion. We are a significant player in the North-East European banking market.

In 2009, the Bank DnB NORD Group will focus on consolidation and increased efficiency to ensure that the Group is positioned to emerge from the financial crisis in better shape than many of our peers and competitors. Through greater group-wide integration, DnB NORD will become a banking group, rather than a group of banks.

Once again, I would like to thank each and every one of our custom-ers and partners for their strong and continuing support. We will earn this commitment to Bank DnB NORD by continuing to help you to realize your ideas and ambitions.

For the Bank DnB NORD Group, 2008 was a challenging year as the Group coped with the severe deterioration of the economic environ-ment. The bank weathered the effects of increased funding costs and higher write-downs on loans during the last two quarters of the year. In particular, significant loan loss provisions stemming from the bank’s commercial property portfolio in Denmark, and to a lesser extent in the loan portfolio in Latvia and Lithuania, had a significant effect on the bank’s overall results.

As a result of the losses in Denmark, the Group recorded a net loss in 2008 of EUR 63.8m. If not for these unsatisfactory losses in Den-mark, the overall results for the Group for the year would have been acceptable.

The bank’s subsidiaries in Latvia and Lithuania remained profitable in 2008 – no small feat given that the Baltic markets have been among the hardest hit by the economic downturn. In Poland, where the economic environment was more stable than in the Baltics, the bank focused on continued integration of the former-BISE Bank, acquired and merged in 2007. In Finland, the bank can boast of a stable loan portfolio with no increase in loan write-downs during the year. In Estonia, after 3 years of operation the bank is the 5th largest bank in terms of lending volume. In Denmark, there was also some positive news, as the bank remains market leader in the area of public private partnerships.

Bank DnB NORD’s parent companies, Norway’s largest bank DnB NOR and Northeastern Germany’s largest bank NORD/LB, have been unwavering in their support and commitment. We benefit from their financial expertise and their ability to secure our funding at any time.

WELCOME FROM THE CEO

Dear Ladies and Gentlemen,

With best regards

Thomas BuerkleBank DnB NORD Group CEO


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VISION, MISSION AND VALUES

Vision:

Our goal is to be the most reliable and dynamic bank in North East Europe. Using team spirit and simplicity as our instruments, we create dynamics

Mission:

We take challenges as opportunities. We enjoy working hard and making things happen. We want to be your bank now and in the future.

We believe that everything is possible if you follow your ideas. Where others try, we do it!

We want to help our customers realise their dreams, by being an important part of their business and daily life. Because together we can create a better world.

Values:

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


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DnB NOR51%

NORD/LB49%

DnB NORDCopenhagen

Denmark Finland Estonia Branch Branch Branch

Share capital: € 882,095k

Profit for the year:€ -63,843k

DnB NORDIT

(100%)Share capital:

€ 81kProfit for the year:

€ 731k

DnB NORD Liising, Estonia

(100%)Share capital:

€ 889kProfit for the year:

€ -2,142k

DnB NORDPoland(99.98%)


Profit for the year:€ -2,015k

DnB NORDLithuania

(93.68%)Share capital: € 171,178k

Profit for the year:€ 19,242k

DnB NORDLatvia(99.93%)


Profit for the year:€ 7,070k

Bank DnB NORD GROUP AND ITS OWNERS

Bank DnB NORD A/S provides a broad range of financial products and services to both the retail and corporate markets. The bank’s head office is located in Copenhagen, while the bank has operations in Denmark, Finland, Estonia, Latvia, Lithuania and Poland.

Bank DnB NORD Group had more than 3,600 employees, 870,000 customers, 180 branches and a consolidated balance sheet of approx. EUR 11.8 billion at year-end 2008. Bank DnB NORD A/S is a joint venture owned 51% by DnB NOR of Norway and 49% by NORD/LB Norddeutsche Landesbank Girozentrale of Germany, giving the Bank a unique strength and position in North Eastern Europe, not least because of Bank DnB NORD’s ability to secure its funding requirements.


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DnB NOR is Norway’s largest financial services group with total combined assets of EUR 219 billion, consisting of strong brands including DnB NOR, Vital, Nordlandsbanken, Cresco, Postbanken, Bank DnB NORD and Carlson, and employs approximately 14,000 people on a full-time basis.

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

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

With total assets over EUR 240 billion, NORD/LB is the leading universal bank in North Germany. NORD/LB functions as the Landesbank for the federal states Low-er Saxony and Saxony Anhalt. It also acts as the central bank for 69 savings banks in Lower Saxony, Saxony-Anhalt and Mecklen-burg-Western Pomerania as well as for the federal state of Bremen (through its almost wholly owned subsidiary, Bremer Landesbank). The NORD/LB Group dates back to 1765 with the founding of Braunschweigische Staatsbank. In 1970, four large North-German banks merged to form the NORD/LB Norddeutsche Landesbank Girozentrale whose headquarters are in Hanover. The NORD/LB Group ranks among the top ten banks in Germany. NORD/LB offers a wide range of financial services to its private, corporate and institutional clients and to the public sector. As an international commercial bank, NORD/LB maintains a presence in all the major financial and trading centres, including London, Singapore and New York. It has branches and representative of-fices worldwide and a network of more than 1,500 correspondent banks.


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LETTER FROM THE BOARD OF DIRECTORS

In spite of a challenging 2008, Bank DnB NORD continued to demonstrate that the rationale behind the decision to form the joint venture between DnB NOR and NORD/LB in mid-2005 based on “together we can be stronger” is still valid.

The severe international economic deterioration that was felt during 2008 had negative impacts for Bank DnB NORD during the year. The bank experienced higher write-downs on loans during the last two quarters of the year, to a large extent stemming from the real estate portfolio in Denmark, and to a lesser extent from the loan portfolios in Latvia and Lithuania. The implication for the group was unfortunately a negative result for 2008. While the Board is unsatisfied with the results in Denmark, the fact that the bank remained profitable in Latvia and Lithuania is commendable. The result of the Polish unit was affected by one-off costs for the integration of the former BISE Bank into Bank DnB NORD Polska in 2008.

In reconsidering our strategy to reflect the current economic environment, we will focus on consolidation and increased efficiency during 2009. This will ensure that we maximize the extensive investments in all business areas, in human capital and in the know-how and expertise that we have built since the outset of the joint venture. This solid platform should enable Bank DnB NORD Group to weather the financial crisis in the best possible way and emerge from the economic downturn as a strong financial institution

During 2008, customers in all of Bank DnB NORD’s geographical locations, not the least in the Baltic region, demonstrated their support towards Bank DnB NORD, implicitly acknowledging the solidity of our financial group supported by two strong and committed parent companies.

It is now evident that the depth of the economic contraction is and will be deeper than most anticipated, and we appreciate the strong commitment of Bank DnB NORD’s staff during these challenging times. On behalf of the parent companies and the Board of Directors of Bank DnB NORD, we would like to extend our sup-port to all staff of the Bank DnB NORD Group as we move into yet another very challenging year.

Leif Teksum Dr. Johannes-Jörg Riegler


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2,000

4,000

6,000

10,000

12,000

14,000

8,000

31. Dec 2007 31 Mar 2008 30. Jun 2008 30 Sept 2008 31. Dec 2008

2,564

2,735

1,075

1,210

2,422

3,017

1,115

1,690

2,588

3,253

1,233

2,439

2,690

3,452

1,287

2,707

2,710

3,487

1,179

2,675

Latvia

Lithuania

Poland

Other

Development in net lending to customers

0%

10%

20%

30%

50%

60%

70%

40%

62.45%64.76% 64.82%

Proforma 2005 2006 2007

50.0

100.0

150.0

200.0

250.0

300.0

350.0CostPre-tax profit before write-downs

Cost/income ratio

Group Financial Highlights(EURO million)

80% 400.0

90% 450.0

100% 460.0

2008

66.85%

2008 2007 2006 2005Pro forma*

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

Market value adjustments 32,205 26,212 11,120 8,018

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

Impairment of loans, advances and receivables 160,904 19,866 10,640 7,450

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

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

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

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

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

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

Key Figures

Capital adequacy ratio 9.9 8.7 12.1

Core capital ratio 7.2 6.9 9.8

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

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

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

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

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

Development in net lending to customers (EUR million)

Group Financial Highlights (EUR million)


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THE YEAR IN REVIEW

ResultsBank DnB NORD A/S recorded a net loss of EUR 63.8m in 2008 compared to a net profit of EUR 60.0m in 2007. The result is lower than anticipated, and management does not consider the result satisfactory, particularly in relation to the loan loss provisions in the Danish property portfolio.

Net interest and fee income was EUR 259.7m compared with EUR 208.9m in 2007 – up 24%. Staff costs and administrative expenses was EUR 171.4m compared to EUR 142.7m in 2007 – up 20%, mainly due to higher wage costs owing to higher staff levels and increased IT costs.

Average growth in lending remained strong, resulting in an increase in net interest income from 2007 despite higher funding costs. Lending rose steeply during the first two quarters of 2008. However, during the second half of the year, underlying growth in lending declined significantly in all countries where Bank DnB NORD is represented, a trend expected to continue into 2009. The market for customer deposits was characterized by fierce competition and narrow spreads, which resulted in relatively weak deposit growth.

At 31 December 2008 equity amounted to EUR 1,014.3m against EUR 844.7m at 1 January 2008. The share capital was increased by EUR 250.0m in 2008.

Bank DnB NORD A/S is in the midst of a major IT project to unify its core banking system across all countries throughout the Group, intended to give higher earnings potential, increased economies of scale, and result in an increased range of products.

Impairment of goodwillBank DnB NORD A/S has significant investments in its major subsidiaries in Latvia, Lithuania and Poland. Im-pairment calculations carried out on each individual en-tity concluded that for Latvia and Poland no impairment is needed, however, an impairment of EUR 15m was re-corded on Lithuanian goodwill.

Bond valuations - subsidiariesDue to the current market conditions, management is of the view that the market in respect of certain bonds is in-active, resulting in the actual market prices being an unre-liable measure. For 2008 it was decided to use a mark-to-model valuation instead of a mark-to-market valuation for inactively traded bonds.

The model is applied in all entities in the group and used for straight bonds, which are the only type of bonds in the Bank DnB NORD A/S bond portfolio. The bonds revalua-tion has had a positive income statement effect of EUR 22m, equivalent to an increase in fair value of the total group bond portfolio of 3.3%.

The investments and goodwill by Bank DnB NORD A/S in the subsidiaries in their local currencies are being effec-tively covered in the bank to minimize the exchange risk.

Impairment of loansBank DnB NORD A/S’ financial performance was marked by a steep increase in write-downs on loans in the second half of 2008, particularly in the Danish property loan port-folio and in Latvia and Lithuania. Net write-downs on loans represented 1.85 percent of average lending for the year, up from 0.24 percent in 2007. The increase was a result of the general economic downturn, and write-downs are ex-pected to remain at a relatively high level for some time.

Write-downs in Denmark, primarily related to property loans, accounted for EUR 95.8m of total write-downs, whereas write-downs in Latvia and Lithuania came to EUR 25.6m and EUR 27.9m, respectively.

2008 – in brief

· Profit in the subsidiaries in Latvia and Lithuania, in spite of challenging economic conditions· Increased write-downs due to the financial crisis, particularly in the property loan portfolio in Denmark, and to a lesser extent in the loan portfolios of Latvia and Lithuania· No notable increase in write-downs in Finland· Impairment of goodwill in the subsidiaries of EUR 15m· Integration costs related to the 2007 acquisition and merger of the former BISE Bank in Poland


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OperationsBank DnB NORD’s head office is located in Copenhagen. Through a significant presence in the Baltic Sea region, with branches and sub-sidiaries in 6 countries: Denmark, Finland, Estonia, Latvia, Lithuania and Poland, the bank provides a broad range of products to both the retail and corporate markets. At year-end 2008, the bank employed over 3,600 staff, operated 180 branches, and had a combined bal-ance sheet of approx. EUR 11.8 billion. The bank had 870,000 cus-tomers at year-end, an increase of 100,000 during the year. During 2008, Bank DnB NORD opened a total of nine new branches in the Baltic States and Poland.

2009 - outlookBank DnB NORD A/S expects high write-downs on loans also in 2009, and will concentrate on consolidating its operations and im-proving cost-effectiveness.

The strong growth rate that the Baltic region has experienced over the past several years has come to an abrupt halt. Bank DnB NORD A/S expects growth conditions to return to the region in the long term, however, in 2009 Bank DnB NORD A/S anticipates difficult economic situation in the region, resulting in a higher level of loan write-downs. In Poland, conditions exist for modest growth in some areas; however, the bank remains cautious in its approach and is closely monitoring the situation. The continuing integration of the former BISE Bank will remain a priority during 2009, resulting in new product development within Bank DnB NORD’s Polish SME and retail network. In Denmark, the highest level of attention will be placed on managing the high level of loan provisions and write-downs in the bank’s property loan portfolio. In Finland, Bank DnB NORD A/S will continue to carefully manage its strong portfolio of loans, while focusing on offering Trade and Export Finance and Cash Management solutions for large and medium-sized clients.

Subsidiaries and branchesIn 2008, Bank DnB NORD was the 3rd largest bank in Lithuania and fourth largest in Latvia, measured by total assets. In Estonia, the bank was number five in terms of total lending. In a challeng-ing market situation and faced with fierce competition for deposits, Bank DnB NORD succeeded in increasing deposit volumes in the Baltic States in 2008. In Poland the bank completed its acquisition and merger of the former BISE Bank in 2007. The bank now has a solid foothold within both the Polish retail and corporate banking markets. After moving into its new Poland headquarters in 2008, all of the banks management functions in Poland, including those of the former BISE Bank, were under the same roof for the first time. In Denmark and Finland, Bank DnB NORD A/S’ branches offer a range of corporate banking products and services.

What follows…The following sections of the report will shine a light on the people of Bank DnB NORD, the wider contributions to society, publications from the Economic Research Group, the emphasis on cross-border banking and international cash management products, various branding and promotional activities undertaken during 2008, while providing a detailed overview of Bank DnB NORD’s activities across the bank’s 6 countries of operation.

Group COO Jan Kühnel, Group CEO Thomas Buerkle, Group CFO Jan Ovesen, and Group CRO Torstein Hagen


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PEOPLE

There is no doubt about Bank DnB NORD’s greatest asset: our people. The group of employees Bank DnB NORD has assembled are dedicated, talented, educated and ambitious. They also represent a diverse mixture of cultures, a consequence of having operations spread across six countries.

During 2008, cross-border projects spanning the bank’s countries of operation provided numerous opportunities for employees to gain ex-perience working across countries and cultures. Furthermore, our people participate in regular international seminars, workshops, training programmes and symposiums, designed to bring those with common professional interests closer together.

Latvia staff during the bank’s summer staff event

Pictured below (from left): Lithuanian staff during the bank’s ‘Seller’s Guru Day’ event, Estonian staff prepare to begin the annual ‘Rat Race’ through the streets of Tallinn, the Bank DnB NORD-sponsored sailboat Vakare departs from Lithuania for the Baltic Sprint Cup start line


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Taking to the water: Baltic Sprint CupThe Bank DnB NORD-sponsored Baltic Sprint Cup 2008 was the biggest ever. This year’s race included 61 yachts and over 600 sailors racing around the Baltic Sea from mid-July to early August last year, stopping in Denmark, Germany, Poland, Lithuania, and Sweden. Amongst these were some 70 employees from across Bank DnB NORD’s 6 countries, who joined as crew onboard the 5 Bank DnB NORD-affiliated yachts partici-pating in the race. This included two racing yachts chartered by the bank exclusively for employees. For many of the employees this was a once-in-a-lifetime experience, not to mention a second-to-none teambuilding op-portunity. And most Bank DnB NORD crew had little to no sailing experience prior to the race, adding an extra element of chal-lenge!

Taking to the air: The Red BalloonDuring 2008, the red Bank DnB NORD hot air balloon took to the sky across several of our countries of operation, regularly lifting custom-ers and employees into the air for a rare op-portunity to float peacefully above the ground. Launching and landing a balloon is more than just a memorable experience - it’s also a joyful challenge requiring coordination and teamwork from start to finish.

Red Line Magazine: The staff speak outFor the second year, Bank DnB NORD published 4 issues of its popular in-house staff magazine. The magazine offers a shift of focus away from the day-to-day business issues of the bank, instead zooming in on the talents and viewpoints of the diverse team of employees. With over 3,600 people spread across 6 countries, representing over 20 nationalities, there is a treasure chest of entertaining and insightful stories, passions and opinions that are further revealed by each issue.

Red Balloon: A group-wide Intranet siteTo kick off 2008, the bank launched its Group Intranet site. The site has quickly become the portal of first-stop for per-sonnel from across the bank, the place all employees – from top management to those working at Bank DnB NORD branches in provincial towns across the Baltics and Poland – can get a quick snapshot of the most important strate-gic developments, product launches, events, and other management deci-sions and happening across the group.

In 2008, Bank DnB NORD initiated its first formal educational programme for employees. The Bank DnB NORD Academy opened it’s doors in September, as employees began signing up for the first round of courses running during the fall 2008. Following this popular and successful round of courses covering a wide range of common issues across the bank, more courses were planned for 2009 to continue bringing employees from across Bank DnB NORD’s operations together to gain insight and develop new knowledge.

Some of the issues courses have focused on include: project management, negotiation skills, working in an intercultural environment, credit risk analysis, legal issues, and public private partnerships, among others.

Bank DnB NORD Academy: Gaining new insight, developing knowledge


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CROSS-BORDER BANKING UPDATE

Bank DnB NORD offers simple and attractive cross-border products and services for existing and prospective customers with operations spanning multiple countries. Furthermore, new products and product enhancements are already in the pipeline for 2009.

For many companies the ability to execute safe and secure cross-border business and cash management in a seamless manner is of vital strategic importance. Bank DnB NORD offers an ideal banking platform and cross-border network for companies located in North-Eastern Europe developing the international operations of their busi-ness.

Bank DnB NORD’s dedicated Cross-Border Banking network pro-vides corporate customers direct access to a full range of bank-ing products and services in Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Norway, Poland and Sweden.

During 2008 Bank DnB NORD ramped-up its cross-border business focus and customer support, with initiatives to enhance and simplify the legal, product and procedural aspects of conducting cross-bor-

der business. International cash management, trade finance and Intranet banking are the continued focus of intense product devel-opment continuing through 2009.

A single point of conduct for customersIn each Bank DnB NORD country, and at parent banks DnB NOR and NORD/LB, a local Cross-Border Banking Representative serves as an initial point of contact for customers, facilitating access the full range of banking products and services offered by the Bank DnB NORD international network, and able to assist cross-border customers in obtaining necessary local information regarding le-gal matters, tax information and consultation, embassies and local chambers of commerce.

In the fall of 2008, Bank DnB NORD invited a number of German Bank DnB NORD clients from Latvia and Lithuania to a ‘Baltic Evening’ at NORD/LB’s headquarters in Hanover, giving them a chance to meet a few of their fellow German investors to the Baltics.

Pictured: Dr. Evaldas Ignatavicius Ambassador of Lithuania to Ger-

many; Dr Johannes-Jörg Riegler, Vice Chairman of Bank DnB NORD

Board of Directors; Werner Schilli, CEO of Bank DnB NORD in Lithuania;

Ilgvars Klava,

Ambassador of

Latvia to Germa-

ny; and Jürgen

Machalett, Head of

Corporate Bank-

ing at NORD/LB.

A ‘Baltic Evening’ for Bank DnB NORD’s German clients in the Baltics, hosted by NORD/LB


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Remote current account opening in a second countryEarly in the 2008 saw the signing of a new agreement between Bank DnB NORD, DnB NOR and NORD/LB that enables cross-border cus-tomers of any of these banks located in Norway, Sweden, Germany, Luxembourg, Switzerland or any of Bank DnB NORD’s six countries of operation, to remotely open accounts in a second country, in any of these eleven countries.

Private Banking in Luxembourg and Switzerland Bank DnB NORD’s cross-border banking products and services now include Luxembourg and Switzerland, through NORD/LB subsidiaries NORD/LB Luxembourg and Skandifinanz/Bank Zurich, both of whom signed on to Bank DnB NORD’s existing multi-country cross-border agreement. In addition, NORD/LB Luxembourg’s Private Banking products have now been added to Bank DnB NORD’s product port-folio, meaning the bank’s customers now have access to a full range of high-value products. Bank DnB NORD also offers its own Private Banking services in Latvia and Lithuania, with plans to expand these services to cover clients in Poland and Estonia.

Cross-border Cooperation Agreement between East-German Savings Banks Assocation, German-Polish Cooperation Office and Bank DnB NORD in PolandIn November 2008, a new cross-border cooperation agreement was signed, enhancing the ability of clients of East-German Savings Banks to conduct cross-border business in Poland. The agreement was fo-cused on providing clear customer benefits including free-of-charge usage of ATM services in Poland and Germany, easy-to-open current accounts, pre-approved credit at Bank DnB NORD in Poland based on existing guarantees clients have with their East German Savings Bank, and organized trade delegations of potential investors to Poland from East-Germany.

Representatives from Bank DnB NORD, NORD/LB and the East German Savings Banks Association signing the cross-border cooperation agreement


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International cash management Bank DnB NORD will offer customers the possibility of central manage-ment of interest, liquidity and payments. This will increase customers’ strategic decision-making possibilities, enable centralisation of book-keeping functions, and achieve administrative savings. In broad terms, the system will offer customers enhanced possibilities to better manage their financial strategy, while offering a high level of security in relation to their international cash management.

The new solution covers all the countries in which Bank DnB NORD is represented, but can naturally handle payments and other transactions across the world. Bank DnB NORD will be “throwing open the door” to a range of new cash management opportunities for customers during 2009.

Pictured: Representatives of Bank DnB NORD’s cross-country cash management council strike a creative pose a quick photo-shoot while meeting in 2008.

Recognizing an extraordinarily unique transaction: Bank DnB NORD’s syndicated deal with Suzlon Energy receives Global Trade Review Magazine’s ‘Continent Award 2008’

For a glimpse at the type of extraordinary transactions driving the re-newables sector into global prominence, look no further than Bank DnB NORD’s syndicated transaction with the India-based wind turbine producer Suzlon. The deal received one of only four global continent awards as one of Global Trade Review’s (GTR) Best Deals of 2008 (out of approximately 450 worldwide submissions for consideration).

The deal enabled Suzlon, whose sales headquarters are located in Den-mark, to supply and install 19 wind turbines at a Nicaraguan wind farm. In a single stroke the deal confirmed Bank DnB NORD as a major player in the Northern and Baltic rim for large cross-border transactions, re-affirmed Suzlon’s ranking amongst the world’s leading wind turbine producers, and focused attention on the potential of the Latin America energy sector.

A unique club deal The unique club deal consisted of 2 parent banks (DnB NOR and NORD/LB) of the joint ven-ture Bank DnB NORD, a leading banking group in North-Eastern Europe, along with the joint venture itself – who acted as lead arranger and co-confirmer. Comprehending risk was taken on by CABEI (Central American Bank for Economic Integration), located in Honduras. CABEI is a ‘Supranational’, which is owned and backed by a number of states in the Latin American Rim, including Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.

The Best Deals of 2008 were published in the March-April issue of Global Trade Review (www.gtreview.com).

Pictures (from left): Peter Gubbins, Marketing Director & Co-founder GTR, Henrik Juhl of Suzlon, Flemming Lippert, Head of Trade Finance at DnB NORD, Karen Kosberg of DnB NOR’s Project and Trade Finance Team, Rupert Sayer, Editorial Director & Co-founder GTR

CROSS-BORDER BANKING UPDATE


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PublicationsBaltic Rim Economies: Growth and Constraints, is the cornerstone publication of the Economic Research Group. Published annually, it pro-vides comparative analysis of the six economies where Bank DnB NORD Group operates. The publication reviews the key macroeconomic devel-opments, and compares the economic structure across economies, and emphasises comparative advantages and disadvantages. Covering the latest annual data and estimates and the short-to medium term outlook of each country, it is available both in hard copy and electronic format.

Baltic Rim Economies: By Country complements Baltic Rim Econo-mies: Growth and Constraints, by providing a short macro and busi-ness focus on the six countries, including a regional overview and statisti-cal annexes.

Baltic Rim Economies Weekly is a weekly periodical with a rapidly grow-ing distribution list, containing a statistical overview of the key trends across the EU countries, with emphasis on the Baltics, Nordic countries, and Poland, along with the most important news relating to macroeco-nomics, finance and banking, across Denmark, Estonia, Finland, Latvia, Lithuania, and Poland. During 2008, Baltic Rim Economies Weekly was significantly expanded to include all Bank DnB NORD countries, from a previously focus primarily on the Baltics.

Lithuanian Economic Outlook and Lithuania Regional Outlook, specific to the Lithuanian market, published annually includes a thorough eco-nomic sectoral analysis, and an in-depth examination of the Lithuanian Economy.

Download Economic Research Group publications at dnbnord.com.

ECONOMIC RESEARCH GROUP

The shifting winds of the financial sector and the general economy throughout the year put North-Eastern Europe – and the Baltic countries in particular – under the microscope, drawing the region into sharper focus than ever before. This ensured a busy and productive year for Bank DnB NORD’s highly respected Economic Research Group, who provide detailed intelligence and insights into the macroeconomic, financial and banking sector across the region.

An in-depth understanding of the regional economic environ-ment is a key driver of business success. The economic weight of the six Baltic Rim countries (Denmark, Finland, Estonia, Latvia, Lithuania, and Poland) within the EU, currently repre-sent approximately 11% of the EU population and 6% of the total value added created in the Union.

Decisive analysis, forecasting & commentaryIn 2008, members of the Economic Research Group staged and participated in numerous economic debates and confer-ences around Europe to support the Group’s research and publications, while appearing frequently in broadcast media and online and offline publications across the region.

The Group is also involved in Bank DnB NORD’s strategy plan-ning each year and provides information on interest rates and forecasts to management on a weekly basis.

Pictured (from left): Chief Analyst Prof. Rimantas Rudzkis, Senior Analyst Indre Genyte, Senior Analyst Jekaterina Rojaka, Chief Economist Vadimas Titarenko


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SOCIETY

The Bank DnB NORD Group has made significant contributions to ADRA, a leading nongovernmental relief organisation. Bank DnB NORD also supports various local-level charitable, cultural and educational projects across the bank’s countries of operation - which are detailed in each of the country sections later in the report.

The ADRA projectsBank DnB NORD has provided significant financial support to two ADRA development projects in Burundi since 2006.

The most recent project was a 6-room school in Burundi with edu-cational facilities for over 600 students at a time - meaning 1200 students per day, with the planned two shifts of teaching. The school opened its doors in September 2008.

‘Turning lives around in Burundi’ADRA’s housing project has enabled numerous Burundi families to become self-sufficient, providing them with proper housing and a small supply of seeds to get them started. It has succeeded.

In May 2008, Bank DnB NORD’s Dennis Møller joined a delegation from ADRA Denmark traveling to Burundi, giving him with a brief taste of everyday life in the beauti-ful Makamba province, and allowed him to see how the lives of local families were already being transformed by the housing project. He also met many thankful locals and participated in an energetic celebration to inaugu-rate the completion of local school that Bank DnB NORD sponsored.

Leopold’s storyThe story of Leopold and his family was illustrative. “One of the recipients, Leopold, explained how his family was able to become self-sustaining as a result of the donation. He was now able to put aside a small amount of money each month, enough to put his family on an upward cycle of economic improvement. With an income from crops of $1-3 US per day, Leopold saved enough to buy a bike for $100 US, which he uses to transport his crops further afield wherehe can sell them for a higher price”, says Dennis Møller.

A worthwhile experience“It was highly satisfying to see the difference Bank DnB NORD’s donation made to the people in the region, and to see that the contributed money was spent responsibly. It’s a great sponsorship project experience to share”, concludes Dennis Møller.

Celebrating the official opening of the Bank DnB NORD-sponsored school in Burundi

One of the Burundi houses constructed by ADRA and supported by Bank DnB NORD

The earlier project was a housing development project, involving the construction of 1100 homes for returnee families to Burundi fol-lowing the country’s 12-year civil war. To help the families become self-sustaining, each family also received 30 trees, seed grain and a mattock (a tool for gardening). Bank DnB NORD’s purchase of 25 homes was the largest corporate contribution. The project was com-pleted in July 2007, and all of these houses are now occupied.

Visit www.adra.org and www.adra.dk for more information.


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BRAND BUILDING

Recognition of the Bank DnB NORD brand name grew significantly during the past year across all of Bank DnB NORD countries, as the bank focused its involvement on activities conveying the company’s brand values of reliability, team spirit, simplicity and dynamics. These included organizing economic forums for economic discussion and debate, both for customers and the wider public, and staging, sponsoring and participating in various sporting and cultural events and festivals.

In doing so, we gained the opportunity to better get to know our cus-tomers, while giving them a chance to better know the people of Bank DnB NORD. The next pages, and later in each of the country sections, will highlight a number of these events and activities that took place across the group during 2008.

Prominent advertising on the area of Old Town in Riga, Latvia


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THE HOT AIR BALLOON

Into the sky...Throughout 2008 the Bank DnB NORD hot air balloon gracefully lifted into the sky with numerous customers and staff onboard for an unforgettable experience. Watching a hot air balloon as it gently drifts across the horizon is a captivating endeavour that rarely fails to elicit a reaction. Thoughts wander and dreams are evoked. In those moments, everything that should be possible becomes possible. The Bank DnB NORD balloon is regularly seen floating through the sky of each country of operation. Keep an eye out for it.

No ordinary balloon...The envelope of the balloon is 21,1 metres high and 20,7 meters in diameter, with a volume of 4,500 cubic metres – the equivalent area of 400-person sports hall. Over 1,400 square metres of a special polyester material was used in making the balloon – enough to make a 1-kilometer long carpet. With a lifting power is 1,5 tonnes, the balloon could lift a medium sized car. Under standard weather conditions the balloon can fly a pilot along with 7 – 8 passengers.


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BALTIC SPRINT CUP

Bank DnB NORD was primary event sponsor for the Baltic Sprint Cup from 2006-2008, a major sailing race in the Baltic region for racing yachts/cruisers. The two week race covers the countries of Bank DnB NORD and parent companies DnB NOR and NORD/LB. The 2008 edition of the event was the most successful ever with a record-breaking fleet of 61 starters and over 630 sailors participating.

In 2008, the port stops included Denmark, Germany, Lithuania, Poland, and Sweden. Since 2005, the race has visited 17 ports in 9 countries, with yachts representing 13 different countries having taken part.

The Baltic Sprint Cup has established itself as a significant annual international offshore sailing event in the Baltic region, garnering media attention at every port stop. In Lithuania, the event receives hours of live national TV coverage each year owing to its close cooperation with the Klai-peda Sea Festival – attended by over 700,000 people annually.

As a sport, sailing is an activity closely aligned with Bank DnB NORD’s values of simplicity, dynamics, teamwork and reliability. Sailing unites the Baltic and Northern European countries, and has no borders. It is characterised by close cooperation, excellent team spirit and plenty of inter-team camaraderie. For all of these reasons, Bank DnB NORD was pleased to support the Baltic Sprint Cup in 2008.

Pictured (above): The Baltic Sprint Cup yachts moored in Klaipeda, Lithuania

Pictured: (above centre) Departing from Klaipeda; (above right) Denmark’sTV2 News Bornholm conducting a live interview at the final port stop in Rønne


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DENMARK


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Business activitiesBank DnB NORD continued to establish itself as a market player in Denmark after only three years of operations. A challeng-ing property market in Denmark did cast a significant shadow over the year’s accom-plishments, resulting in heavy loan loss provisions for DnB NORD in Denmark. While management is unsatisfied with the results in Denmark in 2008, specifically with regards commercial property loans, it is important to note that management is satisfied with the remainder of the Danish portfolio.

StrategyIn Denmark, Bank DnB NORD acts as a full-service bank for large and medium-sized companies.

The branch focuses on specific customer niches where Bank DnB NORD and par-ent companies DnB NOR and NORD/LB have strong competencies, which in-cludes public private partnerships (PPP) and cross border banking, along with key target sectors including energy, technolo-gy, media telecommunication (TMT), food & beverage, and manufacturing.

Customers and marketDuring the second half of 2008, the bank worked closely with existing customers to ensure their continuing financial stability in the face of increasingly challenging economic conditions. Bank DnB NORD offers products including: cross-border cash management, cash pooling solutions, overdraft facilities, and advice in trading in currencies and interest products.

Bank DnB NORD maintained its position as market leader in the area of PPPs in Denmark, winning the most recent PPP contract – a school in Rudkøbing. PPP’s will remain a strong area of focus during 2009.

For Danish companies working across borders, Bank DnB NORD offers an a unique opportu-nity, with a significant presence in the Baltics and Poland, and strong connections to Norway and Germany through parent companies DnB NOR and NORD/LB. Bank DnB NORD is devel-oping many products well suited to the needs of cross-border customers.

On the previous page: In 2008, Bank DnB NORD signed an agreement to become the main sponsor of the Copenhagen Marathon 2009, the first major public sporting event the bank has sponsored in Denmark. The marathon will take place on May 24, 2009, with over 10,000 participants expected to join the 42 km run through the streets of Copenhagen. Over 200 customers and staff of Bank DnB NORD will join the marathon, invited from across the bank’s countries of operation.

Staff of the Denmark Branch

Branding and promotionIn 2008, the bank’s proactive branding strategy continued, aimed at increasing the level of Bank DnB NORD’s brand awareness in Denmark and enabling existing customers come into closer contact with the bank’s staff.

The branch in Denmark staged a number of customer events and seminars to enhance ex-isting relationships, including networking events and flights in the bank’s hot air balloon, a customer golf tournament in partnership with sister company Autolease.

Bank DnB NORD hosts meetings of various professional associations and stages seminars, which in 2008 included the Danish-German Chamber of Commerce at DnB NORD’s Copen-hagen headquarters, an investment seminar regarding opportunities in Estonia, Latvia and Lithuania, and a conference dedicated to issues surrounding public private partnerships.

The bank sends out a regular newsletter and offered Baltic Rim Economies Weekly - a weekly economic update covering each of DnB NORD’s countries of operations, produced by Bank DnB NORD’s Economic Research Group, which covers the most important news pertaining to the macroeconomic and financial trends across the Baltics, Po-land, Denmark and Finland.


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SocietyIn 2008, sponsorship and support activities included the annual cel-ebrations of the restoration of Lithuania’s statehood, by the Lithuania embassy in Copenhagen, and the 90th anniversary of the Republic of Latvia, which was celebrated with a classical music performance at the Black Diamond in Copenhagen, sponsored by Bank DnB NORD in cooperation with the Latvian embassy in Denmark.

Bank DnB NORD also sponsors Finance Lab at the Copenhagen Business School. Finance Lab is an access point for students of Copenhagen Business School to acquire information, technical and fundamental data, and analysis regarding strategic security trad-ing on the international capital markets through Reuters and SIX, financed exclusively by scholarships and sponsors.

StaffDuring 2008, the bank increased its staff through the hiring of a number of well-qualified individuals to increase its capacity in the areas of customer relationship management, credit analysis, IT and systems, and customer support.

The banks staff in Denmark work closely together to attract new customers and support existing ones, and are actively engaged with colleagues from across Bank DnB NORD’s six countries of opera-tion and the two parent banks, DnB NOR and NORD/LB, regarding continued product development, increased cross-border business, continual evaluation and discussion of credit procedures and risk analysis, the ongoing development of IT systems and the improve-ment of marketing and communication activities.

Staff are also involved in performance-linked incentive schemes and participate in regular training and development initiatives.

DENMARK

Outlook 20092009 will be another highly challenging year for the branch in Denmark, as the bank continues to face a depressed commercial property market. Consequently significant loan loss provisions are anticipated to continue during 2009. The bank will maintain a sharp focus on mid-sized businesses operating in strategically important sectors. The bank is involved in a number of PPP tenders in 2009.

The bank will close its Aarhus and Odense regional offices during 2009, consolidating its entire activity-base in Denmark our of its headquarters in Copenhagen, where Bank DnB NORD will continue to serve its entire portfolio of Danish customers.

Intense product development, coupled with tight cooperation across the bank’s operations across all countries will result in new products launched during 2009. In the area of international cash manage-ment, Bank DnB NORD is developing a simple-to-use system in-tended to be one of the most advanced on the market. The develop-ment of Cash Management products for large and medium-sized businesses will result in enhanced online customer services in the area of Internet banking and cash pooling during 2009.

Bank DnB NORD is establishing a Trading Desk to provide customer advisory services and dealing in products for hedging financial risk. The new Trading Desk will enable Bank DnB NORD to enter into a constructive dialogue with customers concerning the specific risk management issues they are facing inside their businesses. Working with the bank’s customer relationship managers and sales support staff, trading desk staff will become dialogue partners for customers in Denmark, both on a strategic and a tactical/operational levels. With the joint competencies across Bank DnB NORD’s operations, trading desk advisory services will enable customers in Denmark, and across all countries, to better hedge financial risks.

Strength in the area of Public Private PartnershipsBank DnB NORD maintained its position as PPP market leader in Denmark, winning a third PPP project – for the construction, financing, operation, and maintenance of a school in Rudkøbing - OPP Ørstedskolden A/S. Bank DnB NORD has now won 3 of the 4 PPP contracts tendered in Denmark. The high level of support Bank DnB NORD receives from its parent banks, coupled with the strong relationships Bank DnB NORD has cultivated with top-class construction firms and facility managers, has enabled the bank to de-velop the capacity to handle very large and complex PPP projects.

PPPs remain a relatively new model in Denmark, one that has be-come an attractive alternative for financing public projects over the past years. Bank DnB NORD has actively investigated or been involved in every PPP project in Denmark to date. Prior to 2008, the bank has been involved as part owners and debt providers in a courthouse build-ing and a new school, both in the western part of Denmark. 2009 is anticipated to be an important year in terms of PPP’s, with Bank DnB NORD involved in a number of tenders. The bank aims to secure its position as market leader within this area in Denmark during 2009. The future Ørsted school in Rudkøbing, Denmark


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Macroeconomic trends and outlook The Danish economy is facing one of the heaviest contractions since the 1970s. Denmark’s real gross domestic products shrank by 1.3% in 2008, driven down by a decline in private consumption and severe slump in external demand. With a heavy reliance upon exports, the outlook for Danish economy remains bleak, given the challenging external environment.

The global recession strongly hit retail sales, which plunged by 7.8% year-on-year in November, followed by a 6.6% drop in December. All the sectors recorded the lowest confidence indicators over the last two decades. The downturn had a strong adverse spillover effect on a broad range of economic activities. The number of bankruptcies had soared by 2.5 times by year-end 2008, compared to one year ago, with significant spikes in real estate, agriculture, retail trade and transport sectors bankruptcies.

EmploymentA tight labour market began easing towards year-end, with harmonised unemployment rate rising to 4% in December, then 4.3% in January 2009, a level that remains below its natural level. Wage increases are expected to come in below 2.5% in 2009.

CreditDespite worsening business and household expectations, reduced credit availability and an ongoing corrections in the housing market, private sector loan portfolio growth in Denmark expanded at double-digit rates throughout 2008, only dropping below 10% in December. As the Danish Nationalbank generally follows the reductions in interest rates made by the European Central Bank, a further gradual lending rate decline is anticipated in 2009. Lower interest rates, tax cuts and falling housing prices are set to encourage domestic consumption and rekindle loan portfolio growth in 2010.

InflationInflation rate decelerated markedly in 2008: by year-end the annual consumer price index had dropped twofold, compared to a 4.8% up-swing in August. Inflation is set to slow over 2009, a consequence of lower energy and food prices.

Public sectorDenmark entered the downturn with a strong budgetary surplus, estimated to be well above 3% of GDP in 2008. However, declining tax receipts and rising public spending are likely to push the budget into deficit over 2009-2010. Nevertheless, the expansionary fiscal and monetary policies are not expected to erode the country’s competitiveness or have any other significant negative impact on the economy. Rather, the automatic stabilisers will provide a sufficient response to the financial crisis.

Denmark: Key macroeconomic indicators 2008 2007 2006

Real GDP, annual change, % -1.1 1.6 3.3

HICP inflation, end of period, % 2.4 2.4 1.7

Labour costs, annual change, end of period, % 2.8 3.4 2.2

Harmonised unemployment rate, end of period, % 4.1 3.3 3.8

Current account balance, ratio to GDP, % 2.0 1.1 2.9

General government budget balance, ratio to GDP, % 3.6 4.4 5.0


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ESTONIA


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Branding and promotionBank DnB NORD Estonia carried out a number of targeted campaigns during 2008.

In spring 2008, Bank DnB NORD Estonia’s successful housing loan campaign in Spring 2008 offered at-tractive housing loan interest rates. To enhance housing loan sales, the bank continued a strategy first initi-ated in 2007 of running co-branded campaigns, advertising, and special offers and incentives for clients of many of the largest real estate agen-cies in Estonia.

Image and awareness research dur-ing the year demonstrated increas-ing awareness of Bank DnB NORD in Tallinn and North Estonia, which the bank aims to increase further through 2009.

During the second half of the year, focus shifted to increasing retail banking term deposits. A short, low-budget Internet deposit campaign offering the best 3-month interest rate in Estonia was a great success, resulting in deposit volume growth of 67% compared to the previ-ous month, and a doubling of the number of people making deposits.

Business activitiesBank DnB NORD’s third year of operation in Estonia can be characterized as one of significant change and development. Operationally, important steps included the implementation of a new core banking system and new Internet bank. Both will provide improved customer service and more sophisticated financial so-lutions, especially for large multinational customers.

In January 2008, Bank DnB NORD in Estonia be-came a branch of the Danish organisation (previ-ously branch of Bank DnB NORD in Latvia). While the move had no significant effect on the existing clients, it provided enhanced financing opportunities and management support to the Estonian operations, and ultimately a basis for increased corporate loan volumes.

The Estonian branch offers a diverse range of finan-cial products, having gained market position and increased recognition in Estonia over the past three years. Although small relative to the larger and more established Estonian banks, Bank DnB NORD in Es-tonia nonetheless holds the 5th largest market share in the country in terms of lending volumes.

The Estonian branch also operates a leasing arm, Bank DnB NORD Liising (hereafter Bank DnB NORD

Customers and marketBank DnB NORD offers corporate clients in Estonia a variety of financing, payment and deposit services, especially for man-ufacturing and export-oriented corporate clients.

In terms of retail banking, the bank posi-tions itself as an attractive alternative to those banks with a larger retail presence in Estonia. A key aspect of this strategy has been providing housing loans, saving products and payments.

During 2008, the bank opened new branch in Tartu, offering banking services and leasing products

Leasing), offering leasing solutions to both private and commercial clients, differen-tiating itself through fast credit processes and a highly personal business approach and aiming for 10% market share on the Estonian leasing market by 2011. In No-vember 2008, Bank DnB NORD Leasing moved into its new head office in Tallinn Ülemiste City.

and services of Bank DnB NORD Leasing.

2008 saw the implementation of a new core banking system and new Internet banking platform. Estonia is considered as a European leader in terms of Internet banking usage, with over 60% of the population us-ing Internet banks daily in Estonia, making the continuing development Bank DnB NORD’s iNORD Internet banking platform a top priority to ensure Bank DnB NORD’s iNORD Internet Banking solution remains a highly attractive solution for retail customers.

On the previous page: For each of the past three years, Bank DnB NORD Estonia has sponsored a chil-dren’s charity relay, held in May, helping to raise money for the Haapsalu Neuro-logical Rehabilitation Centre, where children with moving disabilities caused by accident are treated. From 2008, the money raised from the charity run is being used for the construction of the largest wheelchair park for disabled children in the Baltics, of which Bank DnB NORD Estonia is the official patron.

Hans Pajoma, General Manager Bank DnB NORD Estonia


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ESTONIA

Customer eventsIn 2008, the bank held a number of customer events. In July, invited a number of top corporate customers to Valgeranna Golf Club in Pärnu for a day of golf. The bank also invited corporate customers and partner to the concert of Bergen Philharmonic Orchestra, sponsored by Bank DnB NORD parent company DnB NOR, in the Estonian National Opera Hall.

StaffDuring 2008 the staff of the Estonian Branch, which stood at 96 at year-end including Bank DnB NORD Leasing, in-creased 25% through organic growth and development.

A dedicated management team was cre-ated at the beginning of the year, with Jaan Liitmäe, Vice President of Business Op-erations and Kaarel Loigu Vice President of Risk Management joined Hans Pajoma, the General Manager of Bank DnB NORD Pank on the management board, as the bank’s activities and customer base con-tinued to expand.

The staff of the Estonian branch partici-pated in numerous cross-country man-agement and working groups, alongside employees from across Bank DnB NORD’s countries of operations, and have partici-pated in courses of the Bank DnB NORD Academy, the bank’s multi-disciplinary in-ternal training programme. Internally, the bank places a strong emphasis on open communication, scheduling regular staff information days where important issues and upcoming plans are presented and discussed.

Outlook 2009 Future growth will be driven by continuing product development, targeted marketing and ef-fective public relations, enabling the bank to communicate, deliver and support the simple and effective solutions demanded by clients. Being a branch within an international banking group supported by two strong parent companies is a significant asset when landing custom-ers and continuing the development of the Estonian branch.

2009 will be extremely difficult for Estonian economy, including the Estonian banking sector, with a dramatically reduced economic outlook in the formerly red-hot Baltic economies. Nev-ertheless, Bank DnB NORD Bank in Estonia will continue active banking activities, offering a range of payment, savings and financing services to existing and target customers, including a broadening of its activities through the development and launch various new products. For example, the launch of factoring products, under development during 2008, is planned in 2009.

The bank will continue to support the Haapsalu Neurological Rehabilitation Centre through its charity run sponsorships, and intends to seek out additional strategic sponsorship opportuni-ties throughout the coming year.

SocietyBesides the high profile and enormously successful Children’s Charity run in sup-port of the Haapsalu Neurological Re-habilitation Centre, in December, for the second year running, the bank helped organise a year-end run and a marathon, with proceeds going to the same cause. The bank also sponsored a special Christ-mas charity concert in various churches to raise money for children with heart dis-abilities.

German Saving Banks visit Bank DnB NORD in Estonia In August, Bank DnB NORD in Estonia hosted the German Savings Banks from Meck-lenburg-Western Pomerania in Tallinn. The group held their quarterly meeting in Esto-nia, hearing about Bank DnB NORD’s Estonian operations and the Estonian economy. As the German Savings Banks are shareholders of parent company NORD/LB, Bank DnB NORD is a natural network partner.

From right: Kurt Gliwitzky (NORD/LB – responsible for relationships with Ger-man Savings Banks), Viktoria Legenkova (Secretary, Bank DnB NORD Esto-nia) and Hans Pajoma (General Manager Bank DnB NORD Estonia) welcome German Savings Banks representatives to Tallinn


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Macroeconomic trends and outlook After years of exceptionally rapid economic growth, Estonia faced an abrupt and deep recession in 2008. Real GDP declined by 3.6% over the year, with a harsh 9.7% drop in the 4th quarter alone, compared to the same period in 2007. A weak external environment and contract-ing domestic demand will lead to a sizeable 7% contraction in Estonia’s GDP in 2009.

Domestic demand, on the back of worsened credit conditions, contracted by 7.4% compared to 2007. Household consumption expendi-tures shrank drastically. The four largest economic activities, accounting for nearly half of the combined total value added, dropped sharply last year. Manufacturing declined by 4%, construction by 6%, wholesale and retail trade by 8% and transport, storage and communications by 5.7% year-on-year.

The latest monthly indicators suggest that the economic meltdown will deepen further in 2009. The volume of retail sales, a good proxy for consumer spending, decreased by 11% at constant prices year-on-year in January 2009. Moderate industrial production growth at the beginning of 2008 turned strongly negative early in the year, then worsened further, falling 21% year-on-year in December 2008, then 27% in January 2009, lead by a profound decline in the production of building materials - not surprising given a stagnating domestic construc-tion market.

The retrenchment of credit policy and weakening consumption led to a considerable improvement of Estonia’s external imbalances. The current account deficit, after swelling to 18% in 2007, eased to about 10% in 2008. While the Estonian financial system remained sound throughout 2008, uncertainty regarding the availability and cost of funding remains. Loan portfolio growth fell by almost 4 times – from 33% at the end of 2007 down to 8.5% last December, with the sharpest reduction coming from the consumer credit segment.

InflationThe recession has sharply reduced price pressures in Estonia. Inflation, which reached double-digits in mid-2008, decelerated to 7.5% year-on-year by the year-end, and further down to 3.4% in February 2009. Prices are expected to show a sharp drop, with deflation by year-end being a high probability. Nevertheless, real earnings will turn negative and purchasing power will remain depressed.

UnemploymentLabour market conditions eased significantly, with wage growth slowing from nearly 20% at the start of the year, to 7% by 4th quarter 2008. According to Eurostat, the harmonised unemployment rate soared to 7.7% in December 2008, from 4.1% a year earlier, and may well move firmly into double digits during 2009.

Public sectorIn 2008, the budgetary position worsened substantially, with further deterioration close to 3% reference value expected in 2009-2010, despite a considerable tightening of fiscal expenditures.

Estonia: Key macroeconomic indicators 2008 2007 2006





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

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


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FINLAND


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On the previous page: The crew of the Bank DnB NORD hot air balloon ventured up to Finland in 2008 for the Open Finnish Balloon Championship 2008, which took place in March in Pieksamaki, with between 50-100 cm of snow on the ground at the time. Unfor-tunately, poor weather conditions prevented the crew from flying additional flights over Helsinki with Bank DnB NORD customers, as was planned, but there will be more opportunities in the future.

Finland Management Board (from left): General Manager Timo Reinikainen, Head of Operations Stefan Forström, Head of Corporate Clients Seppo Rinkineva, Head of Credit Hannu Saksala

Business activitiesBank DnB NORD is a full-service bank for large and medium-sized corporate custom-ers in Finland. Bank DnB NORD’s Helsinki Branch was established in 2006, taking over the operations of Nord/LB in Helsinki, which began operations in 2001. Bank DnB NORD’s parent companies have been in-volved with Finnish corporate clients for over 20 years, giving Bank DnB NORD a wealth of experience and expertise to draw upon and enabling Bank DnB NORD in Finland, in spite of it’s modest size, to offer a com-prehensive range of high quality financial products and services. Additionally, through Bank DnB NORD’s Helsinki Branch, cli-ents in Finland have access to Bank DnB NORD’s extensive financial services network around the Baltic Rim area.

In 2008, the bank’s third year of operation, the bank achieved solid results in spite of a highly challenging financial and economic environment.

The bank maintained a tight risk policy and worked closely with existing customers to ensure their continuing financial viability. Consequently, in Finland there was no in-crease in loan loss provisions in the bank’s loan portfolio. The bank’s clear focus on risk management throughout 2008 has left the bank in a relatively strong position in the face of the stormy global financial markets and a challenging financial environment.

Having laid a solid foundation during the first three years of operations, including an experienced team of relationship managers in Finland, the bank has been able to main-tain and strengthen its customer relation-ships in the face of the unexpectedly deep global financial crisis and general economic downturn.

StrategyDuring 2008, the branch in Finland main-tained focus on executing its planned strate-gy to expand its customer base from serving primarily large corporate customers towards medium-sized enterprises. In tandem with this move, the bank’s range of local products was extended. Facilitated by the new core banking system, which was implemented in Finland in late-2007, focus areas included the expansion of its trade and export finance business and new cash management prod-ucts. New products in both of these areas will be rolled out during 2009.

The continued strategic utilization of the product and service platform, coupled with expertise of parent banks DnB NOR and NORD/LB, gave customers of the Finland branch a strong platform of products and services from which to benefit.

The Finland Branch continued to focus on the development of products and services for cross-border customers expanding

into Finland, or outward from Finland into other countries - in particular the Baltics, Denmark, Norway, Germany and Sweden. A dedicated cross-border relationship man-ager in Finland worked with Bank DnB NORD’s multi-country cross-border team, providing cross-border customers in Finland a solid platform for outwards expansion from Finland to the Baltics, Poland, Germany, Norway and Denmark.

Customers and marketFinancial performance of Finnish companies remained strong in 2008, however visibility of the future became blurred thus creating uncertainty.

The effects of the global economic slowdown became apparent for the export industry in terms of reduction of new orders and to some degree cancellation of existing orders.

Activity in the domestic commercial paper and bond market in general slowed down, with the effect that com-panies borrowed more from banks.

Banks tend to concentrate and focus on existing customers, rather than looking for new ones.


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FINLAND

Branding and promotionIn 2008, the branch began offering highly qualified economic research and analysis in collaboration with Bank DnB NORD’s Economic Research Group through the expansion of the Baltic Rim Economies Weekly – Bank DnB NORD’s weekly economic newsletter, distributed by email and covering mac-roeconomic, finance and banking updates pertain-ing to Finland.

Bank DnB NORD’s branding activities in Finland during 2008 were highly focused and targeted. The branch arranges an annual local golf-tournament and participates annually in the Bank DnB NORD-sponsored Autolease Open in Denmark, inviting a number of Finnish customers to attend the event.

The branch produced two customer newsletters during 2008, aimed at communicating the bank’s strengths..Bank DnB NORD participated in the Treasury and Cash Management Forum 2008 in Helsinki, in which all of the largest companies in Finland attended.

Bank DnB NORD’s hot air balloon also flew in Fin-land for the first time in 2008.

StaffAs Bank DnB NORD continued to develop its activities in Finland, a number of ex-perienced and skilled individuals were hired during the year, increasing the number of staff to 13, from 10 at the start of the year.

The staff in Finland are closely engaged with the rest of Bank DnB NORD’s opera-tions in all other countries, participating in cross-border meetings in order to con-tinually strengthen cross border business cooperation across Bank DnB NORD’s operations, develop and implement the new international cash management sys-tem and related products, discuss of credit evaluation and overall strategy, remain closely involved in the ongoing development of IT systems and improve marketing and communication strategy and related activities.

Close and constructive cooperation continued with DnB NOR employees, in particu-lar those located in Finland, Sweden and Norway.

Outlook 2009The launch of the new cash management system in Finland is anticipated in early 2009, which will facilitate further development of unique products and solutions covering Finland and the Baltic Rim area. Development in the area of Trade and Export Finance during 2009, particularly in terms of online facilities, will benefit customers in Finland when launched towards the end of the year.

Throughout 2009, the Finnish branch will continue its marketing and communica-tion activities with existing and prospective clients through a regular branch news-letter.

Customers in Finland are also able to subscribe to Baltic Rim Economies Weekly, Bank DnB NORD’s weekly newsletter providing economic updates in the Baltics, Poland, Denmark and Finland.

SocietySocially oriented activities supported by Bank DnB NORD in Finland during the year included the sponsorship of junior football and ice hockey teams, providing funding for the renovation of the sail boats of a Sea Scout Unit in Helsinki, and a donation to the Finnish Diabetes Association.

Senior Relationship Manager Heikki Toivonen tees off dur-ing the Autolease Open 2008. The Finland Branch brought 2 mixed teams of customers and employees to participate in the Bank DnB NORD-sponsored tournament, just north of Copenhagen.

Female staff from Bank DnB NORD and DnB NOR in Finland teamed up to join the Unelma Cup Football Tournament (‘Dream Cup’) in September 2008


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Macroeconomic trends and outlook A drop in gross domestic product of 1.3% in real terms during the fourth quarter of 2008, following a 0.3% drop in the previous quarter, put Finland in a recession phase at year-end. Real output growth stood just below 1% in 2008, after strong growth in 2006-2007. Overall, the economic downturn reached Finland comparatively late among EU members. The Finnish economy is expected to recover alongside the global markets starting 2010.

Economic performance deteriorated sharply towards year-end, in spite of growth in most sectors over much of 2008. In the 4th quarter, construction output diminished 3%, retail trade and transport recorded steep value-added declines, while in December industrial produc-tion output plunged by 15.6% year-on-year.

According to Statistics Finland, non-financial corporations’ operating surplus fell 2% year-on-year, while profit before taxes and dividends shrunk 15%. Private sector loan growth dropped to below 8% by year-end, compared to 11% in 2007. Real estate transactions dropped roughly 40% year-on-year, and are forecast to contract further in 2008, before picking up slightly in 2010.

Inflation is expected to ease further, but will remain above the Eurozone average, owing to somewhat stronger earnings growth.

Trade and investmentTightening credit conditions and deteriorating outlook put a brake on consumption and investment growth in the fourth quarter of 2008: private consumption slumped by 1.2% and investments by 2.1% year-on-year. According to Eurostat, consumer confidence plummeted in November, along with the outlook of industrialists and service providers. As global trade lost momentum, Finnish exports volume decreased by 1.1%, while lacklustre domestic demand resulted in a drop in imports of 1.3% in 2008. Both exports and imports will be adversely impacted during 2009.

UnemploymentLabour market situation in Finland remains solid after years of employment growth. In 2008 the unemployment rate rose marginally to 6.5%, and will likely increase to 8% in 2009-2010, in spite of government job protection programmemes. Wage development will be higher in Finland than other EU countries owing to the strong role of collective agreements. Increased pension contributions from both employees and employers in 2011-2014 will reduce some pressure on pension financing, while helping to temporarily offset increased unemploy-ment.

Public sectorNotwithstanding markedly weaker revenue and elevated spending in 2008, the government’s fiscal surplus declined only 1% to 4.2% of GDP. This will likely turn to a deficit in 2009-2010, owing to extensive fiscal stimulus measures and further deterioration in tax receipts.

Finland: Key macroeconomic indicators 2008 2007 2006

Real GDP, annual change, % 0.9 4.2 4.9




Current account balance, ratio to GDP, % 2.3 4.1 4.6

General government budget balance, ratio to GDP, % 4.2 5.2 4.0


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LATVIA


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veloped. Operationally, the bank began an extensive re-development of its account servicing.

The number of customers of the bank increased significantly in 2008. In accordance with the bank’s strategy to expand operations in the corporate and SME segments, the number of corporate customers increased by 21% during 2008. Private customers increased by 13,900 or 8% in 2008, as a steadily increasing number of private customers chose DnB NORD Banka as their bank for opening a deposit, taking out a loan, making investment in funds, making transfers or for receiving other financial services.

DnB NORD Banka was ranked as 14th on the list of Latvia’s most valu-able companies in 2008, drawn up by the magazine Kapitals, invest-ment banking company IBS Pruden-tia and the Riga Stock Exchange.

Business activitiesDnB NORD Banka, the 4th largest bank in Latvia by total as-sets, continued its stable development, in spite of the highly challenging economic situation in Latvia, and the turmoil in the global financial markets.

In 2008 assets grew by 5% from the beginning of the year, standing at EUR 3,101m at year-end, while the loan portfolio of the bank increased by 6% during 2008 to EUR 2,710m.

The growth of deposits attracted by DnB NORD Banka was the second highest in the banking sector in Latvia in 2008, with the deposit portfolio reaching EUR 618m at year-end, indicating a high level of trust in DnB NORD Banka from the customers.

DnB NORD Banka earned a net profit before tax of EUR 10.3m in 2008. The main reason for the reduced profit com-pared to 2007 is the increased level of write-down on loans in 2008, mostly related to real estate. The strong downturn in the Latvian economic cycle is very much affected by the severe global financial crises.

In the face of the unstable situation in the local and global markets, the bank maintained a tight lending policy based on conservative risk principles. The risk position of the bank remained stable throughout the year, and compares favora-bly with the average in the banking sector of Latvia. The bank continues to closely monitor its loan portfolio to mitigate any potential risk increase.

DnB NORD Banka expanded its operations in 2008. SME servicing centres were opened across Latvia, a private bank-ing centre was opened in Riga, and new products were de-

On the previous page: Top: Hard hats and gloves for DnB NORD Banka’s Management Board to lay the first stone of the bank’s new headquaters in Riga to be completed in 2010, and (below left) architect’s drawing of the new headquaters.Bottom right: The popular Latvian acapella group ‘Cosmos’, supported by DnB NORD Banka, performing at a customer party of DnB NORD Banka

Latvia: Business activities(EUR ‘000)

2008 2007 Index

Net interest income 64,397 51,361 125

Net fee income 10,556 11,510 92

Net trading income 489 9,601 5

Other income 10,526 10,571 100

Total income 85,968 83,043 104

Operating expenses 50,027 45,741 109

Profit before credit loss expenses 35,941 37,302 96

Credit loss expenses 25,608 5,355 478

Profit before tax 10,333 31,947 32

Loans, end of year 2,709,849 2,564,242 106

Deposits, end of year 618,411 500,898 123

Risk-weighted items (avg.) 2,183,382 2,327,915 94

Cost/income ratio, % 58.2% 55.1% 106

DnB NORD Banka CEO Andris Ozoliņš


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LATVIA

CustomersThe number of customers of the bank increased significantly in 2008. DnB NORD Banka is a trusted business partner and a professional adviser to many Latvian and international customers and companies, as well as governmental institutions and municipalities, offering high quality service and customer- friendly solutions, flexibility and creativeness, a positive attitude and a high level of professional-ism.

During the year, Corporate and SME customers increased by 21%, supported by the opening of eight new Corporate Service Centres in Riga and the major towns of Latvia (including Ventspils, Liepāja, Valmiera, and Daugavpils). The Corporate Service Centres also provide information about guarantees regarding loans and leasing offered by the Latvian Guarantee Agency and governmental support pro-grammes (implemented by government department ALTUM) to promising busi-ness projects.

The number of retail customers increased by 13,900 or 8% during 2008, as a steadily increasing number of retail customers chose DnB NORD Banka as their bank for opening a deposit account, transferring funds, taking out a loan, making investments and other financial services.

To meet the growing demand for private banking and top level service for VIP customers in Latvia, DnB NORD Banka opened a Private Banking Centre in Riga, where customers receive top-level service, including tailor-made packages of product solutions to match their individual needs.

SubsidiariesDnB NORD Banka operates two subsidiaries, DnB NORD Fondi and DnB NORD Lizings.

DnB NORD FondiThe performance of pension plans managed by Bank DnB NORD’s investment management company in Latvia, Bank DnB NORD Fondi, has been one of the best in the sector, reflecting a well-balanced invest-ment strategy and prudent market assumptions. Bank DnB NORD Fondi asset value stood at EUR 43 million at year-end 2008, with over 54,000 individuals having chosen the fund as their second pillar pension.

Towards the end of 2008, DnB NORD Banka acquired the remaining 25% of the outstanding shares of IPAS Bank DnB NORD Fondi.

During 2009 investment diversification will occur across various currencies and regions. Particular em-phasis will be put on economic development trends and notional risks on the financial market, to en-sure pension funds continue to provide stable profits through investments in reliable, high quality financial instruments. DnB NORD LīzingsDnB NORD Banka’s leasing subsidiary, DnB NORD Līzings, continues to serve private individuals and companies. Portfolio growth will be limited during 2009 as both private individuals and businesses in Latvia endure the effects of the economic downturn.

Euromoney takes noticeThe international financial magazine “Euromoney” awarded DnB NORD Banka as the best bank in Latvia in 2008, acknowledging the banks strong market posi-tion, new products and product innovations, staff pro-fessionalism, balance sheet, changes of capital and reserves, and significant transactions over the year.

Pictured: Bank DnB NORD Latvia CEO Andris Ozoliņš and Bank DnB NORD Lithuania CEO Werner Schilli receiving the Euromoney award.

Branding and promotionThe marketing activities of DnB NORD Banka in 2008 reflected ongoing efforts to reinforce the bank’s position as one of the leading universal banks in Latvia, and to communicate DnB NORD Banka as a dynamic, customer-friendly bank offer-ing high quality service to private and corporate customers, along with the bank’s investment banking services and developing the image of the bank as a socially responsible team of experts.


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During 2008 the bank organized and sponsored several business conferences, including:

Themed economic conferences in cooperation with Latvia’s largest business newspaper, Dienas Bizness

“Business Forecasts 2009” gathering industry experts and government representatives to strategically look at the year ahead

“Transportation Industry Development in Latvia” brought managers from logistics and warehouse companies, brokers and leading specialists, experts and businessmen, to discuss logistics and export issues

Popular business seminars organized across the biggest cities of Latvia. Selected topics included: attracting EU funding for implementing business projects; business development planning, etc.

The bank hosted and sponsored various musical, cultural and sporting events and festivals throughout Latvia, including:

Concerts of international musicians, including Björk, Sigur Rós,Jean Michel Jarre, and Cesaria Evora

Cooperation with the leading vocal group in Latvia “Cosmos”. Concerts were staged at the Latvian National Opera, and for customers and employees bank

The hugely successful DnB NORD Banka Regatta on the Daugava River in Riga, staged in support of the Riga city celebrations in cooperation with the Riga Municipality for the second year running, attracted 79 participating teams and 10,000 spectators

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DnB NORD Banka’s Monthly Latvia Barometer – A sociological poll investigating the hottest social and economic issues facing Latvians

“Latvian Barometer”, DnB NORD Banka’s monthly so-ciological poll focuses on the hottest social and economic issues in Latvia, by measuring public sentiment and mood shifts regarding a number of is-

sues. The survey generates a great deal of media attention every month in Latvia.

A unique and practical “Export Management” university course in Latvia supported by DnB NORD Banka

Do you know that the orange juice produced in Latvia now can be bought in African state of Gambia? Or that the world famous singer Madonna makes her studio records using microphones invented and produced in Latvia? Both are examples of Latvian exports - and DnB NORD Banka is providing financial support to a new, unique and practical education university course entitled “Export Management”.

The course, organized by Ventspils University College in cooper-ation with Latvian Chamber of Commerce and Industry, educates qualified export specialists, providing theoretical knowledge and the chance to work with a Latvian company to work out an export plan. Over 100 students applied for the course, which was first offered in September 2008.

“Latvians can do it!”: Shining a light on inter-national success stories from Latvia

Every second Friday during 2008, DnB NORD Banka, in cooperation with the biggest Latvian business newsletter Dienas Bizness, published

inspiring success stories about Latvian people all over the world having noteworthy international careers and successes.

The feature was so successful that a TV programmeme in under the same name was created, again sponsored by DnB NORD Banka, bringing these international Latvian success stories to the small screen.


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SocietyA selection of societal and charitable events and activities in which DnB NORD Banka took part during 2008, included:

Financial support for the establishment of children’s playgrounds, in cooperation with municipalities across Latvia

Internships and ‘Job shadow’ Days, in cooperation with various educational institutions around Latvia to offer 76 students internship possibilities over the year. The bank also opens its doors to young students during ‘Job Shadow Days’ to give them a first hand look at possible careers paths

Participation in various summer city festivals, in cooperation with municipalities across Latvia, by acting as a value-adding partner supporting events making a direct economic, cultural and social impact

“Green from A to Z”, in cooperation with Diena, Latvia’s primary daily newspaper, to promote environmentally conscious thinking, a special November magazine supplement covering important “environmentally friendly lifestyle” issues

Employee charity campaigns made an impact during 2008. In December, for the second year running, employees donated an overwhelming number of gifts for children of a Latvian orphanage in Jaunaglona, and the bank subsequently spent a day with the children. During another campaign promoting “green” thinking and efficiency collected old newspapers to be delivered to an animal shelter

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StaffDnB NORD Banka promotes a culture of teamwork, goal setting and continually increasing skills and knowledge, and aims to be regarded as one of the best employers in Latvia.

The bank maintained its staff levels during the year. At year-end, DnB NORD Banka employed at the bank to 820 people, including the bank’s subsidiaries, a marginal increase in staff from year-end 2007.

DnB NORD Banka encourages a “learning culture” by facilitating knowledge and experience sharing, and by providing employees with opportunities to enhance their knowledge and professional development. A number of employees participated in the banks internal Bank DnB NORD Academy courses. Additionally, signifi-cant educational achievements included employees receiving inter-nationally recognized certificates such as the Chartered Financial Analyst® designation, and ACI Dealing Certificate (in fact, the first in Latvia to receive this designation).

DnB NORD Banka regularly organizes internal charity campaigns involving all employees of the bank to emphasise the image of the bank as socially responsible employer internally.

LATVIA

Outside the officeThe bank supports and sponsors various employee initiatives outside working hours. In 2008, employees participated in the Riga Rat Race 2008, (pictured below) where the DnB NORD Banka team raced along the route through the city, surpris-ing all the spectators with their great imagination and cheerful smiles.

A DnB NORD Banka team (pictured below) participated in S2, a 24-hour strategic competition for Latvian enterprises, organ-ized by the biggest Latvian newspaper “Diena”.

Staff of DnB NORD Banka gather to watch the DnB NORD Banka-sponsored vocal group ‘Cosmos’ perform


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Macroeconomic trends and outlook Latvian economy rapidly slipped into recession during 2008, with the country’s gross domestic product contracting 4.6% in real terms. The fourth quarter saw a particularly steep GDP reduction of 10.3%. The economic outlook for Latvia remains negative for 2009. Falling nominal wages and mounting unemployment will erode household purchasing power, and a hefty drop in private consumption is forecast. The first signs of economic rebound are not expected until 2010-2011.

In 2008, output fell in all major sectors, except for transport, storage and communications. A pronounced downturn was recorded in do-mestic-demand orientated sectors: wholesale and retail trade shrank by 8.3%, hotels and restaurants by 10.7%, financial intermediation by 6.6%, construction sector by 2.6%. A further deepening of the downturn throughout 2009 is anticipated.

Private consumption at constant prices fell by 11% last year, while gross capital formation contracted by 14% (compared to an increase of 14.8% and 11.6%, respectively, in 2007). A deteriorating external environment led to a 1.3% decrease in exports, while reduced domestic demand pulled imports down by 13.6%. The current account deficit is expected to adjust to a level of 6-7% of GDP over coming years. Tighter financing conditions and worsening economic outlook is restraining business from new investments and households from long-term purchases. Credit portfolio growth deteriorated considerably, while credit to private sector grew only 10% year-on-year, compared to 37.8% as of 2007-end. This credit portfolio is expected to shrink slightly during 2009.

UnemploymentThe labour market deteriorated sharply, with harmonised unemployment rate soaring almost twice to 10.6% by December 2008, compared with the 2007 year-end. Unemployment was disproportionately driven by the severe downturn in real estate market and reduced construc-tion activities, but will become more broad-based in 2009. The deteriorating business outlook and steep unemployment increase will drag down wage growth, with earnings are forecast to drop by 15% through 2009, and a further 5% in 2010.

InflationOne of the few bright spots is clear downward trend in inflation. In the second half of 2008 inflation fell dramatically from 17.7% in May to 10.4% in December, and fell further in January, in spite of a marked increase in value added taxes.

IMF, EU and Nordic bailout packagesFollowing the nationalisation of Parex Banka, the second-largest bank in Latvia, the Government signed a 3-year agreement with IMF totally EUR 1.7 bn and ensured additional finance, mainly from the European Union and Nordic countries for about EUR 5.8 bn. The bailout pack-age rests on strict requirements for fiscal consolidation, tight fiscal policies stabilization of the banking sector and structural reforms. The programmeme centres on maintaining the current exchange rate peg and endorses a clear exit strategy, including a quickened introduction of the Euro.

Latvia: Key macroeconomic indicators 2008 2007 2006






General government budget balance, ratio to GDP, % -4.0 0.1 -0.2


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LITHUANIA


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Business activitiesIn the challenging economic environment of 2008, AB DnB NORD Bankas, hereafter DnB NORD Bankas, consolidated its position among the country‘s top three financial institutions, and outper-formed the market both in retail and corporate sector.

The DnB NORD Bankas group’s profit before taxes amounted to EUR 23.1m in 2008. Due to higher impairment and other provision expenses, mostly in real estate development and the transport sec-tor in the fourth quarter of 2008, the full year result before income tax was lower in comparison to 2007, when the group’s profit before taxes amounted to EUR 36.1m.

In 2008 DnB NORD Bankas group’s asset growth outpaced the mar-ket, rising by EUR 0.7 billion or 22.2% year-on-year to EUR 4,043 billion. According to the Association of Lithuanian Banks’ data, DnB NORD Bankas held 14.63% of the market in terms of assets as at the end of December 2008 increasing it by 1.48 percentage points over the year. This was mostly attributable to growth of the bank‘s loan portfolio.

Pursuing conservative risk management policy, the group strength-ened its position both in retail and corporate, continued to lead the country’s structured investment products’ market and enjoyed a top creditworthiness rating in the local banking industry despite adverse situation in global financial markets and sharp downturn of Lithua-nia’s economic growth seen in the second half of the year.

After several years of high credit demand, low lending rates and positive economic sentiment among individual and business cus-tomers following the country’s European Union entry, credit growth cooled down in the second half of 2008, a process encouraged by the country’s central bank. Though asset quality remained sound throughout the year, DnB NORD Bankas adjusted its credit policies to respond to the changing economic cycle. The ratio of impair-ment losses to the DnB NORD Bankas portfolio at the end of 2008 was 1.0% compared to 0.62% the year before, reflecting the impact of adverse economic developments to local companies operating largely in real estate development and transport sectors.

Customers’ savings and investments at DnB NORD Bankas group totalled EUR 1.456 billion as at the end of December 2008, 5.8% less compared with the same period a year ago (EUR 1.546 billion) due to decline in state-run institutions’ and corporate deposit ac-counts.

In 2008 Bank DnB NORD Bank group earned EUR 109.2m in net interest, fees and commission and net trading income, which was

18.5% higher than in 2007. The 27.3% annual rise of net interest income reflected growing margins and loan portfolio. An increasing number of transactions resulted in a 10% annual rise of fees and commission income. Net trading income was affected by lower sales volume of equity-linked bonds in 2008.

DnB NORD Bankas faced increasing funding costs as a result of the global financial turmoil, and subsequently increased it’s focus on risk management and maintaining the credit portfolio quality, adopting a more conservative lending business to individuals and corporate customers, while carefully managing costs and making operating efficiency improvements.

Retail bankingIn 2008, the bank increased its market share both on the lend-ing and deposit side of the retail business. DnB NORD Bankas has a solid customer base, a wide range of competitive products, an extensive customer service branch network and user-friendly elec-tronic banking solutions.

DnB NORD Bankas, already with Lithuania’s third largest branch network, opened five new banking outlets in 2008. The newly in-stalled functionality to place deposits via the bank‘s Internet banking system resulted in a massive increase in popularity of the service, with the number of customers using AB DnB NORD Bankas vir-tual banking services increasing 27% year-on- year to 290,000, and more than 40% of all individual deposits transactions done through the bank‘s Internet service.

Corporate bankingDnB NORD Bankas corporate loan portfolio increased 31% year-on-year to EUR 1.77 billion, on the back of careful industry selection

and reinforced credit policies. The bank’s aims to be a long-term finan-cial partner for its corporate cus-tomers, and offers a broad range of financial products and advisory serv-ices. The bank developed a number of packages targeted to small and

On the previous page: Top photo: The staff of the Panorama Shopping Centre outlet opened in 2008Bottom left: Staff of the Gedimino Avenue Bank DnB NORD outlet in Vilnius, also opened during 2008 Bottom right: customers at the Vilnius Business Centre

DnB NORD Bankas Management Board (from left): Gundars Andžans, Sigitas Žutautas, Dr. Jekaterina Titarenko, Fredrik J. Borch, Werner Schilli, Dr. Vygintas Bubnys


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medium size businesses (SME) start-ups, including new banking agricultural banking products. The bank pioneered the granting of short-term collateral free loans to farmers in Lithuania, and signed an exclusive cooperation agreement with the Germany’s Vereinigte Hagelversicherung VvaG, the sole crop insurer in Lithuania, which enabled the bank to of-fer better credit terms to Lithuania’s farmers and agricultural companies, along with professional consulting on volunteer crop insurance in a majority of AB DnB NORD Bankas’ out-lets across Lithuania.

Investment BankingIn 2008 DnB NORD Bankas investment banking included trading in securities, liquidity management, funding arrange-ment for the bank and its subsidiaries, full service brokerage services, operations with securities finance, financial solu-tions development for private and corporate customers in-cluding derivative and structured products, as well as corpo-rate finance services, particularly mergers and acquisitions, fundraising and other services. The bank maintained the lead in the structured investment product market. NASDAQ OMX Vilnius Exchange placed DnB NORD Bankas in top spot for its active business activity in the market of debt securities, awarding the bank its ‘Initiative of the Year Award’. On the mergers and acquisitions market, notable highlights included DnB NORD Bankas investment bankers acting as advisors to bring Andreae-Noris Zahn AG (ANZAG) – one of the largest pharmaceutical wholesalers in Germany and Europe - to the Lithuanian market. The acquisition of a 92% stake in JSC Armila was the largest German foreign direct investment in Lithuania in 2008.

In the challenging operating environment, DnB NORD Bankas aimed to ensure sufficient return on equity through a conservative risk man-agement policy, with risk related activities of the bank and the Group strictly controlled by a system of limits, set and monitored centrally by Bank DnB NORD Group management. DnB NORD Bankas has a traditional risk structure, involving credit risk, along with liquidity, market and operational risk. The bank’s risk management policy met all prudential requirements of the Bank of Lithuania over the reporting year.

Lithuania: Business activities(EUR ‘000)

2008 2007 Index


Net fee income 16,384 14,899 110

Net trading income 3,466 7,063 49

Other income 1,964 1,731 113

Total income 111,212 93,904 118




Profit before tax 23,086 36,094 64

Loans, end of year 3,486,952 2,735,298 127

Deposits, end of year 1,100,080 1,218,982 90

Risk-weighted items (avg.) 3,208,542 2,306,013 139


LITHUANIA

An astonishing turnout of several hundred business representatives in Kaunas, Vilnius and Šiauliai, flocked to the Bank DnB NORD-organised economic conferences entitled, “Times of change: Challenges and opportunities” that was presented during 2008.

For example, in Kaunas, Lithuania’s second largest city, the conference staged in cooperation with the influential Kaunas Chamber of Commerce, Industry and Crafts, was the region’s largest business forum attracting over 500 people to hear prominent economists and market experts, including Bank DnB NORD’s renowned Economic Research Team, speak about local and international economic developments and trends.

Besides bringing local business people together, the confer-ence further boosted Bank DnB NORD’s image as a custom-er-oriented financial powerhouse and economic think-tank.

Pictured: The Kaunaus conference, in which 500 con-ference participants heard Prof. Rimantas Rudzkis, Chief Analyst of DnB NORD Bankas, and guest speak-ers including Dr. Raimondas Kuodis, Director or the Department of Economics at the Bank of Lithuania sharing their viewpoints.v

“Times of Change” economic conferences in Kaunas, Vilnius and Šiauliai attract quite a crowd


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SubsidiariesBank DnB NORD Banks operates wholly owned subsidiaries involved in leasing, asset management and real estate.

LeasingThe bank’s leasing arm, UAB Bank DnB NORD Lizingas, which pro-vides vehicle, equipment and real estate leasing, saw steady growth of its leasing portfolio in 2008, with an increase of 23.1% before provisions year-on year to EUR 270 million. The companies mar-ket share of 8.3% at year-end 2008, up from 7.2% the year earlier, placed the company third among Lithuania’s leasing companies. In terms of new cars, the company’s market share increased to 8.8%, from 6.5% in 2007. It was ranked among the top leasing service pro-viders by business magazines Veidas and Bild Lietuva.

Asset managementThe bank’s asset management subsidiary UAB Bank DnB NORD In-vesticiju Valdymas, ranked third in the country’s asset management market, holding 68.4 thousand outstanding contracts and managing three second pillar pension funds, two third pillar pension funds and three investment funds at the end of the reporting year. Total assets under management increased EUR 7.36 million, or 15.2% year-on- year, to EUR 55.9 million, despite adverse investment environment across the international financial markets that negatively affected the

value of equity funds. Bank DnB NORD Investiciju Valdymas held 8.7% of local market share in terms of second-pillar pension funds at year-end. The company also held 24.7% market share in third pillar pension funds segment (excluding life insurance products).

Real estateIn 2008 UAB Bank DnB NORD Bustas, the bank’s real estate bro-kerage subsidiary, entered into real estate deals worth over EUR 14.5 million, a 63% growth rate from 2007. During 2008 the com-pany made over 1,600 referrals to DnB NORD Bankas. The com-pany faced significant local real estate market challenges, as sales of residential real estate in Lithuania, after showing the first signs of slowdown in late 2007, subsequently dropped 40% in 2008, with an adverse impact on the entire Lithuanian brokerage industry. The company focused on increased efficiency and cost control in 2008, retaining its position among the top 4 real estate brokerage compa-nies in terms of total listing in Lithuania.

In 2008 the subsidiary started offering UAB Bank DnB NORD Bustas franchise to independent real estate brokers. At the end of the report-ing year 5 franchisees, individual brokers, were delivering services under the name of UAB Bank DnB NORD bastes.

A new strategic initiative in Lithuania: Becoming a financial guide to customersAfter extensive market research and preparations during 2008, DnB NORD Bankas launched a new strategic initiative in January 2009 to be-come a financial guide to customers. A recent poll for Bank DnB NORD showed only 25% of respondents felt they understand financial options available well enough to make proper decisions on their own.

By taking the time to better understand customer needs, including dis-cussing the advantages and disadvantages of product and service op-tions available, the bank intends to fill this customer demand. Preparation behind the scenes to launch the initiative included extensive staff re-training across the bank’s entire network focussed around the ‘financial guidance’ concept.

”This is a long-term business initiative based not only on the quality of our products and services, but also the strong confidence we have in our staff’s ability to provide the meaningful financial guidance that our cus-tomers as asking for,” said DnB NORD Bankas CEO Werner Schilli.

Surveys prior to the initiative demonstrated an already high level of serv-ice satisfaction in 2008 of over 95%, with some 80% likely to recommend the bank to friends and family.

Pictured: ‘Your financial guide’ ad in support of the new strategic initiative


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StaffAs at the end of 2008, DnB NORD Bankas employed 1,312 employees, an increase of 89 staff over the year.

DnB NORD Bankas focuses on compe-tence development, including training pro-grammes and self-learning and e-learning tools, case-based learning and sharing success stories. An employees’ attestation and certification system was implemented during 2008, to train new employees and regularly testing employee knowledge of the bank’s sales network.

Based on internal management surveys in 2007/2008, core leadership principles for managers were developed across the bank, used in development programmes and management appraisals. Multiple management conferences were organised during 2008 to support continued mana-gerial development.

In October 2008 the bank held its annual seller’s Guru day, bringing together 200 sales managers to share success stories and developed approaches to better serv-ing customers.

The bank’s performance appraisal system, updated in 2008, is performance oriented and linked to a Balanced Score Card ap-proach, with emphasis on leadership com-petencies evaluation.

The bank also cooperates with Lithuanian high schools and colleges, including train-eeship programmes for students.

Brand and promotion DnB NORD Bankas‘ marketing and sponsorship strategy is focused on promoting the bank’s values: reliability, team spirit, simplicity and dynamics, while delivering incremental revenue by increasing the group‘s brand relevance and awareness to targeted consumer and busi-ness segments beyond the walls of traditional retail outlets, and generating new opportunities for customers to experience and interact with the Bank DnB NORD brand. The bank ran numerous product campaigns during the year, highlighted by the Basketball Deposit™ (discussed in detail on the next page), in connection with DnB NORD Bankas foundational sponsorship of Lithuania‘s National Men‘s Basketball team, which could be judged as the bank’s most successful marketing campaign during the year.

Selected campaigns and products launched during 2008 included:

‘Profit Certificates’, guaranteed-yield debt securities offering their holders a minimum guaranteed return upon maturity, along with the possibility to benefit receive higher returns from changes in USA, Japan, China and Europe equity prices.

Banking Service Subscription™, to assist small and medium enterprises to budget their banking expenses more efficiently by offering a fixed monthly fee to cover their most frequently used banking services.

Business Start-Up Vitamins™, offered to newly established enterprises, upon becoming DnB NORD Bankas customers, enabling them to execute payment orders within the Bank and to other banks of Lithuania free of charge, and receive business credit cards free of charge with no service fees for 12 months, along with incentives of their employees to Bank DnB NORD customers.

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LITHUANIA

The international banking and finance magazine Euromoney ranked Bank DnB NORD as the Best Bank in Lithua-nia for the second year running. The entire Bank DnB NORD Lithuania staff were invited to participate in a 1-day conference in Vilnius


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The Basketball Deposit™ Campaign 2008: Beating to the drum of Olympic Basketball victories

Question: How do you make a basketball crazy country respond to your Marketing campaign during the Beijing 2008 Olympics?Answer: Link interest rates to victories of the national basketball team, and use the country‘s biggest basketball fan in your advertising.

In Lithuania basketball is often compared to a second religion, which is why Bank DnB NORD is thrilled to be sponsor of Lithuania’s National Basketball Team. And anybody who has been to a basketball game of the Lithuania’s National Basketball team knows Sekla, Lithuania’s No. 1 basketball fan, well known throughout the country for his passion and love for the game. With his orange beard, draped in the Lithuanian flag while beating a drum, he’s hard to miss.

Now imagine 16 Sekla’s - only these Sekla’s are all Chinese, and they are singing a catchy song praising Lithuania’s top basketball star Jasikevičius, a player who will help the team get the victories needed to lift the interest rates (and win gold at the Beijing Olympics). This was the concept behind the attention-grabbing Basketball Deposit™ campaign Bank DnB NORD created to compliment its national team sponsorship, as the team headed to the

Beijing Olympics in 2008. Here’s how it worked. During the Beijing Olympics, in August 2008, for each victory of the Men’s Lithuanian National team, the Basketball Deposit rate increased by 0.1 percentage point. The more victories, the higher the ‘victory premium’ interest rate paid to Basketball Deposit™ customers.

The result: EUR 17M in customer deposits netted by The Basketball Deposit™ campaign, and five Olympic victories later (unfortunately no gold medal this time), depositors were rewarded with a 0.5 percent increase in their Basketball De-posit™ interest rate. Not bad at all!

To film the wildly successful ad, 16 Chinese cooks from around Vilnius were invited to participate in the ad, and to accommodate their working schedule, the filming took place at 3AM in the morning!


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Outlook 2009In Lithuania, the bank will continue developing its customer-centric approach designed to ensure long-term mutually beneficial customer relationships, while monitoring the challenging global financial environment and local economic growth conditions.

DnB NORD Bankas will continue to focus on development of efficient universal retail banking, focusing on existing strengths of the bank, including: fast decision making, a customer-oriented, country-wide sales network, economies of scale allowing for product development, and efficient back-office and risk management operations.

In retail DnB NORD Bankas aims at growth through further efficiency improvements. A new “sales promise“ to customers will be launched in 2009, alongside significantly strengthened financial guidance provided to customers by the bank’s front line employees.

The development of the bank’s “Electronic Decision Support System“ (EDSS) will continue, while implementation of multi-channel strategy principles, product development and product packaging, and further IT investments will occur, particularly in the area of CRM system development, Internet and mobile banking service improvements, and to support the bank’s Contact Centre. Investments in the branch network will focus on outlet optimisation emphasizing the country’s top five cities.

Planned growth in the area of treasury and investment banking will focus on innovation, higher margin products, applying an open-platform solution and moving most standard products to Internet channels.

In 2009, a strong focus will be placed on the continued implementation of the bank’s new core banking platform, which remains on schedule and will ultimately unify all banking systems across the Bank DnB NORD Group, providing the basis for efficient growth, product development, common processes and increased economies of scale. The bank will continue to seek new sponsorship opportunities that will support the bank’s brand image, benefit customers, and contribute profitably to the bank‘s shareholders.

SocietyDnB NORD Bankas participates in a number of culture and arts oriented sponsorships that support Lithuanian cultural activities and selected local and national organizations.

DnB NORD Bankas serves approximately half of Lithuania’s municipalities, reflected in the bank’s regional sponsorship strategy. This year, the bank’s sponsorship of Kaunas Musical theatre and donation to Kaunas Zoo received recognition from local business community when the Kaunas Chamber of Industry, Trade and Crafts nominated DnB NORD Bankas as the most socially responsible company in Kaunas in 2008.

To promote DnB NORD Bankas strong Scandinavian connection, DnB NORD Bankas sponsored the popular Scanorama film festival, which brings some of the best Nordic films to Lithuania.

The bank also hosted the DnB NOR-sponsored National Philharmonic Orchestra per-formance in Vilnius, offering networking opportunities for the bank’s largest business customers in the Vilnius region.

Additional initiatives included acting as award sponsor (for the second year running) for the best humanitarian and social science master’s thesis, an award presented by the country’s president Valdas Adamkus, along with a donation to the Almos Adamkienės Charity Fund, supporting Lithuanian shools in rural areas, Children’s Homes, and educa-tional and special programmes for children.

The bank continued its cooperation with ISM University of Business and Economics, began in 2007, to share knowledge, create research opportunities, and promote a pro-fessional and socially responsible business community. The partnership model involves a mutual exchange of theoretical and practical skills, including case research of actual business situations, including lectures by DnB NORD Bankas experts, who also partici-pate in evaluating Master’s and PhD Students in management and economics.

DnB NORD Bankas is always on the lookout for attractive opportunities that further de-velop the bank’s brand name, benefit customers, and contribute profitably to the bank‘s shareholders.

LITHUANIA

The winning photo (above) and winning artist (right) in the children’s drawing contest in Vilnius, in connection with Bank DnB NORD’s sponsorship of the Vilnius skating rink


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Macroeconomic trends and outlook After resisting the global downturn in the first half of 2008, Lithuania joined the other two Baltic states, Estonia and Latvia, in recession by the year-end. In 2008, the annual change of Lithuanian gross domestic product (at constant prices) decelerated to 2.9% year-on-year in the third quarter, and contracted by 2.2% in the fourth quarter. As a result, the economy growth stood at 3.0% in 2008, almost three times slower than a year earlier.

Key economic sector performanceKey economic sectors performance deteriorated sharply. Industrial production, excluding mineral products, shrank by 5% in 2008. Retail trade sales, on the back of decelerating consumption, grew marginally in 2008 (4.1%, compared to 17.2% in 2007). Turnover dropped sharply by 8.8% year on year in December, then contracted a further 27.2% in January. Construction sectors performance worsened mark-edly, with annual growth in construction projects dropping to 1% in 2008, from 22% in 2007. Building construction, accounting for 60% of total construction works, dropped by 4% in 2008, however civil engineering works increased. Increased borrowing costs, financial and macroeconomic uncertainty had an adverse effect on residential real estate market developments. Housing transactions slumped 35% in 2008, compared to 2007. In 2009, a further contraction of 20% is anticipated. The transport sector, following exceptional development in 2007, fell into stasis last year, reflecting sluggish external and domestic demand. The annual profitability ratio of non-financial corporations slipped from 8.8% in 2007 to 3.9% in 2008.

Employment, wages and creditUnsurprisingly, given the decrease in economic activity, labour market indicators also deteriorated, with the harmonised unemployment rate close to 10% in December – markedly above the Eurozone average. Unemployment is expected to remain in the double-digits throughout 2009. The rapid rise in unemployment has ended buoyant earnings growth. Real wages increased 6% in the fourth quarter of 2008, but will decelerate in 2009-2010. Private sector credit growth decreased significantly in 2008. The annual growth rate of the household loan portfolio and non-financial corporations plummeted from 45% at year-end 2007 to less than 18% at 2008 year-end. Loan portfolio growth will continue to decelerate through 2009, reflecting tighter credit conditions and a generally poor economic environment.

InflationInflationary pressure eased, with the annual change in harmonised consumer price index at 8.5% in December, compared to 12.7% in June 2008. Over the first months of 2009 prices rose slowly, reflecting the increase in excise duties and higher value-added tax, not least the removal of most VAT exemptions. However inflation is expected to decline to 3% by year-end 2009, and to the 2% level in 2010.

Public sectorThe budget performance outlook remains poor, looking into 2009, with revenue collection likely to suffer. Moreover, rising unemployment has an adverse effect on public finances. According to preliminary estimates, the government budget deficit has already overshot the Maas-tricht limit of 3% of GDP, which is expected to continue in 2009-2010.

The rapidly deteriorating outlook has prompted a stiff reduction in government spending and lifting of taxes, to bring fiscal deficit under control, and the implementation of an economic stimulus package of approximately 5% of GDP, mainly comprised of European Invest-ment bank funding, EU structural support and borrowing from commercial banks. The package is targeted at improving energy efficiency of the building stock, activating the credit market, promoting export and foreign direct investment, and accelerating the assimilation of EU funds.

Lithuania: Key macroeconomic indicators 2008 2007 2006






General government budget balance, ratio to GDP, % -3.2 -1.2 -0.4


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POLAND


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Business activitiesDespite difficult macroeconomic conditions in the second half of the year, the Bank expanded the scale of its activity and showed improved financial results through the targeting of key market seg-ments.

For 2008 Bank DnB NORD Polska recorded a loss before tax of EUR 4.6m. The bank had total assets of EUR 1,755m.

In 2008 the bank maintained a double-digit growth of total income, despite a negative valuation of the treasury bonds portfolio of EUR 5.8m and depreciation of the Polish Zloty (PLN). The EUR/PLN ex-change rates fluctuations influenced the comparability of results, as the majority of P&L position is denominated in PLN.

The risk-weighted items increase was mainly due to the change of methodology of the risk weighted assets calculation (a result of the implementation of Basel 2), as well as an increase in the Bank’s assets and changes in the structure of the portfolio. The bank in-creased the share of lending to customers and substantially lowered lending to financial institutions (mainly banks).

Credit loss expenses increased by 125%, which was in line with the credit portfolio growth in the last years (growth of net lending in 2008 equalled 27% - if calculated in PLN). Taking a conservative ap-proach to risk, the bank created additional individual loss provisions, predominantly in the segment of large corporates.

Other Income increased by 86% year-on-year, owing to certain ex-traordinary events, including the sale of TISE shares and the release of loss provisions.

The bank’s balance sheet increased by 11% compared to the end of 2007, while the value of credits and loans granted to customers

increased 26%, highlighted by an increase in receivables from large enterprise customers of over 34%.

The quality of the bank’s portfolio has not suffered from the begin-ning of the financial crisis. The reserve level has increased slightly and the quality of the credit portfolio is stable. The impact of the financial crisis can be seen in terms of net interest income and exchange transaction income.

Owing to rising money costs in capital markets and a general loss of confidence in the financial sector, the cost of gaining funds to finance new loans has risen significantly since September 2008. Simultaneously, fluctuation of the Polish Zloty exchange rate along with its depreciation has resulted in a limit utilization and volume stagnation in the treasury segment. This rising cost of money, com-bined with the aggressive competition for customer deposits by banks in Poland, meant an increase in prices by 250 basis points beyond the referential rate, which ultimately resulted in a decrease in net interest income. On the other hand, investment bond income rose, owing to increased ownership of investment bonds by the Bank.

An increase in net interest income was partially offset by an increase in interest expenses resulting from the higher price of money in the interbank market, and an increase in deposit interest offered to the Bank’s customers in the second half of 2008.

Strategy During 2008 Bank DnB NORD continued building upon its portfolio of corporate, SME and retail banking products and services, while consolidating the operations of the former-BISE Bank, acquired and subsequently merged with Bank DnB NORD in 2007.

During 2008, the bank completed its integration of customers of the former BISE Bank, facilitating increased sales, improved cross-selling and higher income.

In the area of retail banking, deposit volume increased by 36% compared to 2007, while credit volume increased by 17%. New products introduced included several new mortgage products (both in Polish zlotys and foreign currencies), and attractive deposit products. The distribution network was expanded, establishing co-operation with many external brokers.

In spite of the difficult market situation in 2008, especially impact-ing the fourth quarter of the year, 2008 was a successful year for the bank.

Bank DnB NORD Polska S.A. is a leader in the issuance of debt se-curities for small and medium-sized enterprises (SME) and local gov-ernment units, including the issu-ance of open municipal bonds. The comprehensively updated product

On the previous page: Top: Bold advertising on the streets of WarsawBottom right: Bank DnB NORD Polska sponsored “Vinson Expedition 2008” by the well-known Polish journalist and traveller, Martyna Wojciechowska, to the highest peak of Antarctica - Vinson Massif

Jarosław Dąbrowski, DnB NORD Polska CEO


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Subsidiaries MonetiaMonetia Sp. z o.o. is focused on providing individual customer ac-count payment services through its 271 Monetia agency branches. Monetia saw a significant expansion of its activity in 2008, servicing 7.15m transactions, a 40% increase from 2007, amounting to EUR 250m, a 57% increase over 2007. In 2008, Monetia promoted Bank DnB NORD deposits via the Monetia network, and commenced negotiations to distribute their products via its network, including money orders and insurance products. To conclude 2008, Monetia prepared to launch a cash withdrawal pilot project via POS terminals in 15 agencies commenc-ing in January 2009.

In 2009, important new activities for Monetia will include:

the addition of new financial products from external partners using the Monetia branch network

further development of transactional activity (payments, withdrawals, charges) in Monetia branches

intensive development of the branch network and new, alternative distribution channels (Internet, phone)

Bank DnB NORD LeasingBank DnB NORD Leasing Sp. z o.o. provides a variety of operational and financial leasing services, including financing of machinery and installations, real estate, and vehicles, targeting entrepreneurs, local governments, municipal companies and cooperatives.

In 2008, Bank DnB NORD Leasing concluded 695 agreements amounting to EUR 21.7m, a 27% increase compared to 2007.

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Notable, in 2008 the leasing market in Poland grew approximately 1%.

The company intends to expand its range of leasing services offered to customers of Bank DnB NORD in the area of individual low-value transactions, specialized production line contracts, and real estate leasing. To non-Bank DnB NORD customers, the bank will offer fi-nancing for specific fixed assets, industries and professional groups by establishing strong relations with asset providers and offering highest-quality services.

offer, aimed at niche segments such as tenant management organizations, local government units and non-governmental organizations, helped further consolidate the bank’s leading position. In the segment of tenant management organizations, the Bank became a market leader for thermal modernization loans. Credit volume in this segment grew by 68%, while de-posit volume grew by 21%.

The focus on continued development of relationship with ex-isting corporate banking customers, resulted in a substantial increase of demand for non-credit products, especially fac-toring products, and higher Transactional Banking income. The cooperation with other entities of the group continued to develop, especially in the area of comprehensive services pro-vided to the customers from the German market.

2008 was also successful for Bank DnB NORD Brokerage Of-fice, acting as an issuer in an IPO for numerous companies. In December, the Brokerage Office of Bank DnB NORD Polska S.A. was announced a leader on the NewConnect market.

Poland: Business activities(EUR ‘000)

2008 2007 Index


Net fee income 13,172 11,939 110

Net trading income 6,443 9,986 65

Other income 4,928 2,644 186

Total income 66,277 57,011 116




Profit before tax -4,576 3,847 -119

Loans, end of year 1,179,489 1,075,266 110

Deposits, end of year 651,657 773,202 84

Risk-weighted items (avg.) 1,232,226 851,047 257


POLAND

uniLOKATA

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Jak zarobić więcej na swoich oszczędnościach?Mamy dla Ciebie idealne rozwiązanie – uniLOKATA DnB NORD.

uniLOKATA_plakat.indd 1 3/12/08 3:17:51 PM

uniLOKATA: combining a high-interest deposit with an investment sub-fund


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Branding and promotionIn Poland, Bank DnB NORD ran numerous product campaigns over the year, including cash loan and mortgage loan campaigns, along with numerous special events and targeted conferences around Poland. Selected product campaigns included:

the innovative “double” deposit, a personal banking offer composed of a 3-month deposit with fixed interest rate 10% per annum, and 1-year deposit with fixed 8% interest rate, with each client opening a 1-year deposit account able to place double this amount in an open a 3-month deposit account with a high 10% p.a. interest rate.

uniLOKATA (investment fund + bank deposit) NORDic (package dedicated to Poles working in Norway) NORDeko (a structured, guaranteed bond issued by Barclays Bank, with an additional “hook product” in the form of a high interest

rate bank deposit (15% and 10%) only for subscribers of NORDeko bonds high interest rate term deposits (3-month, 8% and 10% p.a.) Cash loan for microfirms including an attractive package including a bank account, internet banking, Visa cardCondominiums products (“DOMUS” package, thermo loan) “No Business Limitations” image campaign targeting SME customers mortgage and cash loan campaigns

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OBLIGACJE NORDeko

100% ochrony kapitału!Wykorzystaj naturalne źródła zysku.

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Economic debate in Warsaw

Pictured (from left): Witold Szymański (Managing Director at Lincoln Inter-national AG), Vadimas Titarenko (DnB NORD Chief Economist), Piotr Kardach (CEO at Sygnity SA, Krzysztof Rybinski (Partner at Ernst&Young), Ludwik Sobolewski (CEO of Warsaw Stock Exchange), Roman Młodkowski (Director of TVN CNBC Business), Jarosław Dąbrowski (DnB NORD Polska CEO)

A high profile economic debate in WarsawBank DnB NORD staged in June a high-profile economic debate in Warsaw entitled “The Polish economy against global trends: Boom, stagnation and recession”. The top-notch event featured excellent discussion across a wide range of topics, with patronage from TVN CNBC Business and Forbes magazine ensuring solid media coverage.

(Above) A spring loan campaign ad, and (below) a structured investment product ad empha-sising safe, secure investing


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Staff There were 1,079 staff employed at Bank DnB NORD Polska at the end of 2008, an increase of 131 employees over the course of the year. Employee turnover at Bank DnB NORD Polska was 24% in 2008, significantly lower than the 35% average in the highly competitive Polish banking sector.

Hiring was heavily focused in the areas of SME products sales, wholesale banking products and retail, with some 60% dedicated to re-gional product sales. Employees working in sales represented 40% of staff at the end of 2008, up from 22% in 2007. A new bonus system for all employees was implemented in 2008, based on meeting Key Performance Indicators.

In general, 2008 was a challenging year in terms of recruitment in the Polish banking sector, with the establishment of two new banks and the majority of market players developing their branch network. Salaries increased at the highest rate in a decade, while employee turnover was high.

DnB NORD Polska aims to offer attractive employment conditions and regular staff training. Benefitis include free medical care and group life insurance to all employees, and unlimited access to some 800 fitness clubs and swimming pools all over the country. Training initiatives in 2008 were focused on customer service, products sales and the implementation of a uniform customer service standard, along with the development of managerial and specialist competences. The bank co-financed English training courses for Head Office employees using English as part of their job.

Approximately 100 employees joined the bank’s 3 employee clubs – a sailing club, basketball club, and dancing club. The bank’s staff picnic organised in September in Warsaw attracted 570 employees from across Poland for a day of fun competitions and live music. A number of employees from Poland also participated as crewmembers during the Bank DnB NORD-sponsored Baltic Sprint Cup sailing regatta, in which Bank DnB NORD employees crewed 2 boats during the 2 week, 5-leg race.

Success through partnership to reach SME customers across PolandSix prestigious conferences for SME owners and managers in Szczecin, Kraków, Wrocław, Gdańsk, Poznań, Łódź, brought together approximately 500 participants across Poland.

The conferences were co-branded with KPMG and Bank DnB NORD Leasing, and featured the first CEO of the Warsaw Stock Ex-change, Mr Wiesław Rozłucki, as celebrity speaker. Topics including credit products, factoring, bond issues and obtaining capital, the leasing sector in Poland, along with a discussion lead by representatives from the KPMG Poland about financing processes from European Union Structural Funds, and important changes in tax law for the SME market in Poland.

The bank offered promotions on numerous products including loans, treasury, hedge instruments, factoring, leasing, IPO, corporate bonds.


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Outlook 2009Due to the situation on the financial mar-kets and predicted economic growth slowdown, for 2009 the Bank assumes sustainable development in the area of retail banking and SME’s, with limited expansion within the corporate customer market. The bank’s objective is stable and balanced growth, paying special attention to credit risk.

In the area of retail banking, the strategy for 2009 will include the development of the bank’s distribution network, “hook products” and selective targeting. The bank intends to serve clients in three major segments: Private Banking, Mass Retail and Consumer Finance. Mortgage loans, asset gathering related products, cards, cash loan and product packages will be key product drivers, along with im-proved customer service and the develop-ment of electronic channels for improved customer acquisition and retention. Devel-opment of the bank’s mobile network and cooperation with intermediaries as chan-nels for new mortgages loans customers. Marketing efforts will target new custom-ers for deposits, investment products, and mortgages. Personal Banking and Private Banking services will be better tailored to meet individual customer needs.

In 2009, SME customers will be one of the primary source of growth for the bank, with a focus on sales force efficiency and attracting new leasing, factoring mortgage loans customers, and companies seeking bridging loans using EU funds. Develop-mental activities are aimed at consolidat-ing the bank’s position in niche segments, including tenant management organiza-tions and local government units.

In the corporate banking segment, focus will be on managing risk exposure, exist-ing customers relations and increasing profitability through the development and sale of non-credit products and targeted financing. Emphasis will include new and improved transactional banking and de-posit products. Cash management and treasury products will also be important drivers of revenues growth.

SocietySupport for initiatives aimed at development of local society was an important component of Bank DnB NORD’s activities in Poland in 2008. This included:

The INTEGRACJA credit card (Mastercard), from which “The First Step” Foundation – which helps people with spinal injuries - receives 50% of the commissions (intercharge) from shops and service outlets.

The Professor Witold Kula Award, in cooperation with the Economic Sciences Faculty at the University of Warsaw, awarded to MA and PhD theses devoted to social and economic initiatives. Prof. Witold Kula’s work was guided by the belief that humanitarian values should be placed alongside economic considerations

Support for student training project: “Initiative and Knowledge – Way to Success” – in the cooperation with European Federation of Youth in Toruń, Poland

Sponsorship of the National Holiday of Norway celebration activities (working with the Consulate of Norway in Gdynia, Poland)

Cooperation with the Helsinki Foundation for Human Rights, including patronage over the International Film Festival “WATCH DOCS. Human Rights in Film”

Co-organization of the competition “Cooperation Directions” – jointly with the Foundation in Support for Local Democracy – The Małopolski Institute of Local Government and Administration

A number of local activities, supporting the Bank’s local presence, including; - Eurofolk – International Folk Festival in Zamość - National Festival of Art Song, Rybnik 2008 - 20th Poland Triathlon Championship – The Pomerania Region

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Officially opening the new Bank DnB NORD Headquarters Bank DnB NORD Polska officially opened its new headquarters in Warsaw in Septem-ber, with an exceptional event attracting some 150 customers, clients and partners. The event was hosted by the well-known Polish journalist and alpinist Martyna Wo-jciechowska, who Bank DnB NORD subsequently sponsored during her climb to the highest peak in Antarctica.

Pictured: The evening included visual attractions, live music, lottery prizes, a fantastic ‘Grand World Menu’, along with a special performance in the rear-ranged atrium entrance hall with flying cube acrobatics and a dance show.


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Macroeconomic trends and outlook Poland’s economy slowed in last quarter of 2008, as external and domestic demand decelerated, after maintaining a robust growth rate during the first half of the year. Preliminary estimates show an annual increase of Polish GDP (at constant prices) of 4.8% last year, about 2 percentage points less than the decade highs gains of 2007, with real output growth set to slow further in 2009.

Domestic demand, EU funds, trade and investmentDomestic demand growth almost halved from 8.6% in 2007 to 4.8% last year. Domestic trade turnover showed a markedly slower growth rate from a year early, while the industry sector, contributing almost one fourth of overall gross value added in Poland, last year reached 3.7%, which was 6.2% less than in 2007.

Nevertheless, there was sustained investment growth in 2008: gross fixed capital formation increased by 7.9% year-on-year, financed by a combination of strong corporate profits, injections of EU funds and foreign direct investments. According to the preliminary balance of pay-ments data, last year Poland attracted more than EUR 11 bn foreign direct investments, roughly 3% of GDP, less than in 2007 when direct investment reached a record-breaking EUR 16.7bn.

The current-account deficit widened further in 2008, however the steep slowdown in domestic demand will lessen external imbalances in the near future. Polish exports remain sufficiently competitive on the back of weakening Poland’s national currency. Since the summer of 2008, the Polish zloty exchange rate vis-à-vis the euro plunged by nearly one third.

The looser monetary policy had an adverse effect on credit burden: about 64% of overall credit portfolio is issued in national currency. Moreover, persistent liquidity problems and shrinking foreign reserves in the last months of 2008 raise concerns that availability of external funds may be curtailed in 2009, limiting economic growth.

EmploymentWeaker performance of key economic sectors suggests the unemployment rate will jump to 8-9% in 2009, from the record low level of 6.8% at early autumn last year.

Tighter credit conditions and weakened domestic demand through the year drove credit expansion in private sector downwards from 51% year-on-year in July 2008 to below 20% in December. In January 2009, loan portfolio growth was 12.5%, and the country’s loan portfolio to GDP ratio in 2009 is expected to remain among the lowest in the EU.

Inflation and government spendingThe annual rate of inflation spiked at the beginning of 2008, a result of elevated energy and food prices, and then decreased in the second half of the year to stand at 3.3% in December 2008. Although the import prices are set to rise due to the weakening zloty, an easing of labour market conditions will allow inflation to remain below 3% over 2009-2010.

In the absence of any additional government spending restraints, the general government deficit is projected to fluctuate just below 3% of GDP margin, reflecting weaker economic activity, a personal income tax reduction and higher social allowances.

POLAND

Poland: Key macroeconomic indicators 2008 2007 2006






General government budget balance, ratio to GDP, % -3.9 -2.0 -3.8


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Bank DnB NORD’s hot air balloon flying over Lithuania


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

Customer ratingsBank DnB NORD divides its exposure on performing clients into dif-ferent risk categories, ranked from 1-10, constituting the basis for calculation of expected loss and required capital.

Risk distribution performing customers (year-end 2008)

Figures as per Q407 are adjusted for technical changes in the rating. (Unrat-

ed clients now placed into grade 7, while they were placed in grade 5 in Q4)

Industry distribution (year-end 2008)

Market riskMarket risk, related to trading or banking activities, includes risk in-curred by the Bank as a consequence of fluctuating exchange rates (foreign exchange risk, hereafter FX risk), interest rates (interest rate risk) and equity prices (equity price risk).

GROUP RISK MANAGEMENT

Risk management is the process of measuring, or assessing risk and developing strategies to manage it. Relevant risk types of Bank DnB NORD Group include credit risk, market risk, liquidity risk, op-erational risk and strategic risk.

Credit riskBank DnB NORD Group defines credit risk as the risk of losses due to failure on the part of the bank’s counterparties to meet their pay-ment obligations (either principal or interest or both). The bank’s credit risk occurs mainly from various forms of lending to corporate, - retail customers and municipalities including issued guarantees and documentary credits. Credit risk also comprises transfer risk and settlement risk.

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

The approval of credit limits for customers and counterparties, and the management and review of existing exposures, must fit within the credit strategies of all units and the credit policy of Bank DnB NORD Group. The relevant credit decision authorities on different levels within the Bank DnB NORD Group make the decision re-garding credit limits of customers and customer groups. The credit manuals of the different entities of Bank DnB NORD Group regulate the handling of credit exposure.

The responsibility for credit risk lies with the customer responsible unit. The overall credit risk evaluation the Bank DnB NORD Group is done centrally at Headquarters in Copenhagen, with monitoring of concentration risks and portfolio analysis done in separate units within the different legal entities.

A watch list routine has been implemented to evaluate the Bank DnB NORD Group’s situation as early as possible to facilitate rel-evant preventative actions against losses, which includes closer monitoring and an action plan prepared by the Bank DnB NORD relationship manager and evaluated as a credit proposal at the rel-evant decision making level, comprised of specific follow-up dates and goals.

Settlement risk, defined as the risk of losing the principal of a fi-nancial instrument if a counterpart defaults during the settlement process, is usually related to trading activities. As Bank DnB NORD Group is considered as a bank with limited trading activities, settle-ment risk is comparatively small.

Country risk is defined as changes in the economic and political situation of a country where a borrower is domiciled affecting the transfer of money. Country risk limits are approved by the Board of Directors (hereafter BoD) and monitored centrally at Headquarters in Copenhagen.

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1-4 5-6 7-10

Cost

Pre-tax profit before write-downsCost/income ratio

2008Q4

2007Q4

50% 24% 25%

54% 27% 18%


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Bank DnB NORD Group allows interest rate and FX risk according to limits set by the BoD for each currency and for the total. Gapping limits are used to further monitor interest rate risk, meaning instru-ments with an equivalent term are used to fund credits with long term fixed rate agreement. Interest rate risk, FX risk and equity risk based on proprietary trading is limited. In comparison to income generated through client relationships, trading has no strategic rel-evance for Bank DnB NORD Group. The Bank DnB NORD Group limits, monitors and performs stress testing for interest rate risk and FX risk according to guidelines approved by the BoD.

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

Liquidity risk, liquidity margin risk and liquidity management Liquidity is needed to accommodate maturing liabilities, fund asset growth and business operations, and meet contractual obligations through unconstrained access to funding from domestic sources at market rates, and from Bank DnB NORD’s shareholding banks at rates agreed.

Liquidity risk, the risk that Bank DnB NORD Group will have in-sufficient liquidity to meet its payment obligations, is considered to be highly unlikely to occur at Group level, as although parts of the funding are obtained by depositors of the bank, parent companies DnB NOR and NORD/LB, through the joint venture agreement and agreed funding policy, are committed to the funding of Bank DnB NORD Group.

Liquidity margin risk is the risk of losses resulting from long term fixed margin agreements on assets funded by short term fixed mar-gin agreements on liabilities. Maturity mismatches are monitored as part of the liquidity risk management and the resulting liquidity margin risk is stress tested on a regular bases. The management of liquidity risk also involves developing and maintaining of contin-gency funding plans, evaluating the liquidity position under various operating circumstances and ensuring that the Group, as well as the individual banking operations, are able to operate through a period of stress, i.e. in times when access to traditional funding sources is constrained. Prime source of funding are Bank DnB NORD Group’s parent companies.

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

Bank DnB NORD Group limits, monitors and performs stress testing for liquidity risk according to guidelines approved by the BoD. The BoD has also established an asset and liability committee to provide advise and recommendations on the treasury and trading opera-tions, and to monitor liquidity risk on an ongoing basis.

Due to significantly increased funding risk as a result of the finan-cial market crisis, Bank DnB NORD Group has, as a consequence, began to tie up additional capital according to internal risk calcula-tions.

Operational riskOperational risk is defined as all shortcomings or errors inherent in processes, work routines and system solutions, which may result in a loss. Moreover, operational risk includes loss caused by the bank’s employees (violation of policies, faults, fraud, etc.) or external events (theft, fire damage, vandalism, etc).

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

Bank DnB NORD Group ties up capital for operational risk accord-ing to the Basel II basic indicator approach.

Strategic riskStrategic risk, defined as the risk of a negative financial impact on planned revenues or the capital basis due to external factors, in-cluding adverse economic development, government regulation, business competition or high growth in new market segments in which the bank possesses limited experience, is evaluated by the group in each legal entity. The basis for the capital amount tied-up on group level is given by yearly risk assessments, where the most relevant external factors are identified for each entity and evaluated by estimating the likelihood of appearance and the consequence. Risk assessments incorporate the targets of the business strategy.

Basel II projectA Group Basel II project was established at Group Headquarters shortly after Bank DnB NORD began operations in January 2006.

A primary project target of constantly improving Group rating mod-els (i.e. models for the assessment of customer or credit facility risk) by systematically tracking and analysing default behaviour of cli-ents, and incorporating the experience in the models. The target is to gradually achieve fulfilment of the extensive Basel II minimum requirements for internal rating models.

The second primary target is to improve and further harmonise group risk management according to Basel II Advanced Approach Standards. This includes harmonising key data, data structures, business logic and also IT systems across all countries to create the possibility of data pooling and subsequently joint modelling activi-ties, an important step towards harnessing data from past default experiences required for building predictive models.


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The Executive Management have today considered and accepted the Bank DnB NORD Group Business Report for 2008.

The Group Business Report for the financial year 2008 as set out on pages 60-63 has been prepared in accordance with the recognition and measurement criteria in International Financial Reporting Standards as adopted by EU. The accounting policies are described on page 59.

We consider the accounting policies applied appropriate and the estimates made reasonable. Therefore, in our opinion, the Group Business Report as set out on pages 60-63, presents fairly in all material respects the financial position at 31 December 2008 of the Group and the results of the Group operations for the financial year 1 January 2008 – 31 December 2008 in accordance with the recognition and measure-ment criteria in International Financial Reporting Standards as adopted by the EU and the accounting policies described on page 59.

Copenhagen, 11 May 2009

Executive Management

Thomas Bürkle Torstein Hagen Jan Kühnel Jan OvesenCEO CRO COO CFO

MANAGEMENT’S STATEMENT ON THE GROUP BUSINESS REPORT


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The Bank DnB NORD Group Business Report 2008 has been prepared in accordance with the recognition and measurement criteria in International Financial Reporting Standards as adopted by EU and in accordance with the accounting policies as applied in the latest ap-proved Annual Report of Bank DnB NORD A/S for 2008 with addition of the accounting policies mentioned below due to the fact that the Annual Report of Bank DnB NORD A/S does not contain consolidated figures for the Bank DnB NORD Group but only Parent Company financial statements for Bank DnB NORD A/S.

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

On consolidation, items of a uniform nature are combined. Elimination is made of intercompany income and expenses, shareholdings, dividends and accounts as well as of realised and unrealised profits and losses on transactions between the consolidated enterprises.

The Parent Company’s investments in the consolidated subsidiaries are set off against the Parent Company’s share of the net asset value of subsidiaries stated at the time of consolidation.

On acquisition of subsidiaries, the difference between cost and net asset value of the enterprise acquired is determined at the date of ac-quisition after the individual assets and liabilities having been adjusted to fair value (the purchase method). This includes allowing for any restructuring provisions determined in relation to the enterprise acquired. Any remaining positive differences are recognised in intangible assets in the balance sheet as goodwill. Any remaining negative differences are recognised directly in the income statement.

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

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

ACCOUNTING POLICIES


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Bank DnB NORD A/S(EUR ‘000)

2008 2007 2006 2005*

Pro forma

Interest income 669,104 421,495 214,499 110,500

Interest expense 451,510 251,494 115,579 51,132

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

Fee and commission income 56,739 52,057 25,588 19,613

Fee and commission expense 14,668 13,115 9,056 6,918

Net income from interest, fee and commission 259,665 208,943 115,452 72,063

Market value adjustments 32,205 26,212 11,120 8,018

Other operating income 17,542 13,858 12,349 9,826

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

Depreciation and impairment of fixed and intangible assets 36,442 19,866 10,640 7,450

Impairment of loans, advances and receivables 160,904 15,047 9,212 5,318

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

Profit before tax -57,869 73,180 40,144 27,070

Tax 5,974 13,214 7,349 1,300

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

Portion attributable to:

Shareholders -65,044 57,954 31,695 25,802

Minority interests 1,201 2,012 1,100 -32

-63,843 59,966 32,795 25,770

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

GROUP INCOME STATEMENT 2008


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2008 2007 2006 2005

ASSETS

Cash balances and deposits with central banks 309,674 369,860 220,691 140,979

Receivables from credit institutions and central banks 269,721 490,697 331,891 179,613

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

Commercial paper and bonds at fair value 676,729 349,261 282,801 247,485

Shares at fair value 615 764 1,617 42

Financial derivatives 103,578 63,831 13,668 3,429

Investment in associated companies 206 93 0 0

Intangible assets 214,347 208,957 101,563 96,856

Deferred tax assets 22,847 13,675 1,915 3,880

Fixed assets 90,964 91,090 71,885 50,130

Other assets 91,382 81,403 21,582 11,945

Prepaid expenses and accrued income 14,757 17,693 10,894 5,324

Total assets 11,845,805 9,272,432 5,631,959 3,170,839

LIABILITIES AND EQUITY

LIABILITIES

Loans and deposit from credit institutions 7,556,407 5,252,869 3,096,275 1,337,873

Deposits from customers 2,393,814 2,526,115 1,543,159 1,230,927

Financial derivatives 113,703 33,321 3,865 3,058

Securities issued 357,285 335,725 189,554 160,097

Accrued taxes 6,457 9,166 2,142 2,324

Deferred taxes 15,474 8,728 1,382 696

Other liabilities 39,453 62,434 28,062 16,049

Accrued expenses and prepaid income 32,977 34,403 15,933 10,314

Provisions for commitments and expenses 6,608 4,022 2,342 7,535

Total liabilities 10,522,178 8,266,783 4,882,714 2,768,873

Subordinated loan capital 309,372 160,948 124,029 71,555

EQUITY

Minority interests 17,472 15,180 9,661 6,869

Share capital 882,095 632,095 482,095 317,095

Other reserves and retained earnings 114,688 197,426 133,460 6,447

Total equity 1,014,255 844,701 625,216 330,411

Total liabilities and equity 11,845,805 9,272,432 5,631,959 3,170,839

GROUP BALANCE SHEET AT 31. DECEMBER 2008


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KEY FIGURES

Key financial ratios Definitions

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

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

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

Cost/income ratio Operating expenses as a percentage of operating income, includingvalue adjustments for changes in current prices.

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

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

Exchange rates

31 December 2008EUR

2008 averageEUR

31 December 2007EUR

DKK 0.134196 0.134096 0.134075

LTL 0.289641 0.289740 0.289935

LVL 1.412977 1.425351 1.435014

PLN 0.239996 0.285279 0.278563

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

2008 2007 2006

Capital adequacy ratio 9.9 8.7 12.1

Core capital ratio 7.2 6.9 9.8

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

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

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

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


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Holding * Latvia Lithuania Poland Group

Net interest income 20,485 64,397 89,398 41,734 217,594

Net fee income 885 10,556 16,384 13,172 42,071

Net trading income 23,019 489 3,466 6,443 32,205

Other income 16,438 10,526 1,964 4,928 18,980

Total income 60,827 85,968 111,212 66,277 310,850

Operating expenses 46,260 50,027 60,190 64,372 207,815

Profit before credit loss expenses 14,567 35,941 51,022 1,905 103,035

Credit loss expenses 98,647 25,608 27,936 6,481 160,904

Profit before tax -84,080 10,333 23,086 -4,576 -57,869

Loans, end of year 2,620,299 2,709,849 3,486,952 1,179,489 10,050,985

Deposits, end of year 26,725 618,411 1,100,080 651,657 2,393,814

Risk-weighted items (avg.) 3,765,152 2,183,382 3,208,522 1,232,226 10,084,135

Cost/income ratio, % 76.1% 58.2% 54.1% 97.1% 66.9%

*Holding includes Denmark, Finland and Estonia branches.

GROUP FIGURES 2008



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To the reader of the Bank DnB NORD Group Business Report for 2008

We have examined that the Bank DnB NORD Group Business Report for the financial year 2008 set out in pages 60-63 is based on a con-solidation of the separate Financial Reports for the Bank DnB NORD Group Companies for 2008. The Bank DnB NORD Group Business Report for 2008 is prepared in accordance with the recognition and measurement criteria in International Financial Reporting Standards as adopted by EU and the accounting policies described on page 59.

Management is responsible for the preparation of the consolidation and the fair presentation of the Bank DnB NORD Group Business Re-port for 2008 in accordance with the recognition and measurement criteria in International Financial Reporting Standards as adopted by EU and the accounting policies described on page 59.

Our responsibility is based on our work to express an opinion on whether the Bank DnB NORD Group Business Report for 2008 is based on a consolidation of the separate Financial Reports for the Bank DnB NORD Group Companies for 2008.

We have not performed an audit or a review.

Work performedWe have performed our work in accordance with International Standards on Auditing with the purpose to obtain reasonable assurance that the Bank DnB NORD Group Business Report for 2008 is based on a consolidation of the separate Financial Reports for the Bank DnB NORD Group Companies for 2008. As a part of our work we have examined that the Bank DnB NORD Group Business Report for 2008 can be reconciled to the prepared consolidation and that the consolidation is based on the separate Financial Reports for the Bank DnB NORD Group Companies for 2008.

We can confirm that the Bank DnB NORD Group Business Report for the financial year 2008 as set out in pages 58-63 is based on a con-solidation of the separate Financial Reports for the Bank DnB NORD Group Companies for 2008.

Copenhagen, 11 May 2009

Ernst & YoungStatsautoriseret Revisionsaktieselskab

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

INDEPENDENT AUDITOR’S REPORT REGARDING Bank DnB NORD GROUP BUSINESS REPORT 2008


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

DenmarkBank DnB NORD A/SAmerikakajDampfærgevej 28DK-2100 CopenhagenTelephone: +45 76 700 500Telefax: +45 76 700 505E-mail: [email protected]

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

FinlandBank DnB NORDUrho Kekkosen Katu 7 BFI-00100 HelsinkiTelephone: +358 10 548 2000Telefax: +358 10 548 2020E-mail: [email protected]

LatviaAS DnB NORD BankaSmilshu 6Riga - 50, LV-1803Telephone: +371 67171880 Telefax: +371 7323449E-mail: [email protected]

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

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

CONTACT INFORMATION

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

For additional information please email: [email protected]


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

Editor: Timothy AndersonDesign and layout: Dennis MøllerSection editors: Finn Glismand (Finance), Maris Heinaru (Estonia), Teika Lapsa (Lavtvia), Andrius Vilkancas (Lithuania), Lukasz Piasta (Poland), Jekaterina Rojaka (Economic Analysis), Indre Genyte (Economic Analysis)Additional comments and copy editing: Karlis Caunitis, Annette Teilmann, Henrik Anker Jørgensen, Timo Reinikainen, Dr. Vadimas TitarenkoCover photo: Vaiva Jokužiené

Paper: Dalum - CyclusPrint (100% recycled fibres) 250 grams/115 gramsPrint: S.Jokužio Publishing-Printing House www.spaustuve.lt


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