ANNUAL REPORT 2006 - DG Hyp

Notes to the Financial Statements
Notes to the Financial Statements
General Notes
(1) General information on the preparation of
financial statements
The financial statements of DG HYP for the financial
year 2006 have been prepared in accordance with the provisions
of the German Commercial Code (Handelsgesetzbuch
– “HGB”) and the German Accounting Directive for
Banks (Verordnung über die Rechnungslegung der Kreditinstitute
– “RechKredV”). They also comply with the
requirements set out in the German Public Limited Companies
Act (Aktiengesetz – “AktG”), and the German Pfandbrief
Act (Pfandbriefgesetz – “PfandBG”).
Given the non-materiality of all subsidiaries, in accordance
with section 296 (2) of the HGB, the company has not
prepared consolidated financial statements.
All amounts have been quoted in euros, in accordance
with section 244 of the HGB.
(2) Accounting policies
Loans and advances to banks/to customers
Loans and advances to banks and customers are recognised
at nominal value, in accordance with section 340e (2)
of the HGB. Where their stated value of the loans differs
from the amount disbursed, or cost, the amount of the difference
is reported under deferred items and amortised in
interest income over the term of the transaction.
Loans and advances which are fully classified as current
assets are valued strictly at the lower of cost or market. All
existing individual lending risks are covered by specific loan
loss provisions. Existing risks of default in the retail lending
business are covered by recognising specific provisions at a
flat rate. We have formed a tax-deductible general loan loss
provision to cover expected loan losses which have been
incurred but not identified as such at the balance sheet
date. Special risks arising from banking operations are
accounted for by the fund for general banking risks pursuant
to section 340f of the HGB.
Following the revocation of Statement 3/1977 issued by
the Institute of Public Auditors in Germany (Institut der
Wirtschaftsprüfer – “IdW”), we have adapted the procedure
for recognising interest income on non-performing
loans and advances during the year under review. Whilst in
previous periods, our policy was to recognise interest claims
until collateral had been realised in full, we now no longer
recognise interest income where it becomes obvious during
execution proceedings that the realisable proceeds will fall
short of the carrying amount. The change in policy will
result in a € 9.4 million shortfall in net interest income,
with a corresponding reduction in loan loss provisions.
Early repayment penalties charged for loan repayments
or extensions during the fixed-interest term of a loan are
fully recognised in interest income.
Bonds and other fixed-income securities
Securities issued by public-sector entities, or by banks
under public-law, acquired within the scope of the bank’s
public finance business, as well as Mortgage Backed Securities
(MBS) held for investment, were accounted for as
fixed assets. Premiums and discounts are amortised in
interest income over the term of the securities. Other debt
securities and other fixed-income securities are allocated to
liquidity reserves, and valued strictly at the lower of cost or
market, pursuant to section 253 (3) of the HGB.
Securities transferred under repurchase agreements are
accounted for, and valued (including accrued economic
benefits) in line with their original classification, simultaneously
recognising a liability equivalent to the agreed repurchase
amount. The difference between the repurchase
amount and the amount received is reported under
deferred items and amortised in interest income over the
term of the transaction.
Participations and interests in affiliated companies
Participations and interests in affiliated companies are
carried at amortised cost.
Intangible and tangible fixed assets
Fixed assets are carried at cost less regular straight-line
depreciation, where applicable. Movable fixed assets are
predominantly depreciated on a straight-line basis, using
the maximum rates permissible under tax laws, or
degressively with a subsequent transfer to straight-line
depreciation. Low-value assets are written off in full during
their year of purchase. Standard software is reported
under intangible assets, as prescribed by accounting standard
HFA 11 issued the Main Committee of the IdW
(IDW RS HFA 11).
Goodwill capitalised upon the merger with Schleswig-
Holsteinische Landschaft Hypothekenbank Aktiengesellschaft
Kiel (“SHL HYP”) is amortised over the expected
useful life (15 years), pursuant to section 255 (4) sentence 3
of the HGB, and in line with applicable tax rules.
Deutsche Genossenschafts-Hypothekenbank AG | Annual Report 2006
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