Following Circular no. 263 of 27 December 2006 – “New prudential supervisory provisions for banks” as amended, prudential regulation includes a system of rules and incentives, allowing for a more accurate measurement of potential risks connected to banking and financial activities, as well as to maintain internal capital levels more proportioned to the effective level of risk exposure of each intermediary. The second pillar of the provisions includes the ICAAP process (Internal Capital Adequacy Assessment Process), which states that banks shall autonomously assess their own current and expected capital adequacy in relation to both so-called first-pillar risks (credit risk, counterparty risk, market risk and operational risk) and other risks (liquidity risk, banking book interest rate risk, concentration risk etc). This process accompanied the drafting and transmission to the Supervisory Body of the Annual ICAAP Report as at 31 December 2010. In May 2011, again in reference to 31 December 2010, in compliance with the obligations envisaged by the relevant law, Banca IFIS published its Public Disclosure Document on capital adequacy, risk exposure and the general features of the systems in place to identify, measure and manage such risks. This document has been published on Banca IFIS’s website www.bancaifis.it in the ‘Investor Relations’ section.

With reference to the above and as per Circular no. 229 of 21 April 1999 - Supervisory Instructions for banks, the Banca IFIS Group has set up an Internal Audit System that aims to guarantee a reliable and sustainable generation of value in a context of controlled and knowingly assumed risk, so as to protect the Group’s financial solidity. Banca IFIS’s Internal Audit System consists of rules, procedures and organisational structures aiming to ensure observance of corporate strategies and achievement of the following goals:

  • effectiveness and efficiency of corporate processes (administration, production, distribution, etc.);

  • safeguarding of assets’ value and protection from losses;

  • reliability and integrity of accounting and operating information;

  • compliance of operations with legislation, supervisory regulations and internal policies, plans, regulations and procedures, as well as Codes (Code of Ethics, Corporate Governance Code, etc.) adopted by the Group.

Controls involve all personnel to varying degrees and constitute an integral part of daily operations. They can be classified according to the relevant organisational structures. Some types of controls are highlighted below:

  • Line controls, which aim to ensure that operations are carried out correctly. These controls are implemented by the operational structures themselves or are embedded in procedures or back office activities;

  • Risk management controls, which aim to define methods for measuring risks, verify compliance with the limits set for the various operational functions and check if operations within all operational areas are consistent with set risk/reward objectives. These controls are entrusted to structures separate from operational ones;

  • Internal auditing activities, which aim to identify anomalous trends and violations of procedures and regulations, as well as to appraise the overall efficiency and effectiveness of the Internal Audit System. These activities are carried out on a continual basis, both periodically and by exception, by various different structures that are independent from operational ones, also via on-the-spot audits.

The role of the different players involved in the Internal Audit System (the Board of Directors, the Internal Audit Committee, the Executive Director responsible for the Internal Audit System, the Supervisory Body as per Legislative Decree no. 231/2001, the Internal Audit Department, the Corporate Accounting Reporting Officer, the Risk Management Department and the Compliance Department) are described in detail in the ‘Report on Corporate Governance and Shareholding Structure’, prepared as required by the third paragraph of article 123 bis of Legislative Decree no. 58 of 24 February 1998 (CFA), approved by the Board of Directors on 22 March 2012 and published on the Bank’s Internet website in the “Investor Relations” section.

During the first half of the year the voluntary takeover bid for the entire share capital of Toscana Finanza S.p.A. was completed. Following completion of the operation on 17 May 2011, the risks arising from activities undertaken by the companies that belonged to the former Toscana Finanza Group are included in the scope of the Banca IFIS Group. Based of the information available at the date of preparing the Annual ICAAP Report, which was submitted to the Supervisory Body in April 2011, the outlook as of 31 December 2011 includes an assessment of the potential risks connected to the business of the new subsidiaries. The merger into Banca IFIS S.p.A. of Toscana Finanza S.p.A. took place on 28 December 2011 with statutory, accounting and tax effect as from 31 December 2011 and did not change the scope of the Group’s at-risk activities.

1.1 Credit risk

Qualitative information

General aspects.

The banking Group currently operates in the following sectors:

  • Acquisition and management of trade receivables in Italy and abroad; business abroad is undertaken through both the internal structures of the Parent Company (International Area) and the subsidiary IFIS Finance; the offer of financial and credit management support is mainly aimed at the segment of Small- and Medium-sized Enterprises;

  • acquisition and management of non-performing loans;

  • acquisition and management of tax receivables.

Complementing these activities are those related to the company’s treasury, which, although being particularly significant at times, do not change the Group’s mission, which continues to be to provide financial and credit management support to Small- and Medium-sized Enterprises.

The factoring activity is characterised by the direct assumption of risks related to granting advances and loans, as well as guarantees, if any, on trade receivables of mainly small- and medium-sized enterprises, according to expansion strategies defined and pursued by the Group. With the inclusion in the Banca IFIS Group’s scope of the former Toscana Finanza Group, the traditional factoring business has been complemented with the business of the new subsidiaries operating in the sector of acquiring non-performing financial, trade and tax receivables with different risk profiles. Actually, the impact of this addition is relatively minor. The sellers are typically banks, financial institutes, insolvency proceedings and businesses.

The companies of the former Toscana Finanza Group do not grant financial guarantees or take on commitments other than those connected to the acquisition of the aforementioned receivables.

Given the particular business of the Group’s companies, credit risk is the most important element to consider as far as the general risks assumed by the Group are concerned. The maintenance of effective credit risk management is a strategic objective for the Banca IFIS Group, pursued through the adoption of integrated tools and processes that ensure correct credit risk management in all its phases (preparation, lending, monitoring and management, intervening on troubled loans).

Vis-à-vis surplus liquidity, if any, the Banca IFIS Group carries out operations involving very short-term deposits with highly creditworthy banking counterparts. Given the counterparts, the short time frames and the modest amounts involved, the credit risk connected to this activity is particularly low.

During 2011 the Group continued to purchase bonds classified under both available for sale financial assets and loans and receivables due from banks. These financial assets, which due to their classification are included in the banking book’s scope even though they are not involved in the Bank's traditional lending activity, give rise to credit risk. The risk lies in the issuer’s inability to repay in part or in full its obligations on maturity. However, bonds held by the Banca IFIS Group consist almost entirely of Italian Government bonds and eligible investment-grade bank bonds. The bond portfolio average maturity is approximately fourteen months and the maximum maturity per individual asset is lower than six years.

The further growth in bond purchases does not represent a change in the Group’s strategic direction. The nature of the securities portfolio, originally held to hedge the liquidity risk arising from the potential volatility of online funding introduced with the rendimax account and the potential instability seen on the traditional interbank market in recent years, has gradually changed over time. This was the result of both the size and composition of online funding, which has grown remarkably in size and rests on a growing fixed-term element, and the greater funding possibilities arising from the extraordinary interventions decided by the monetary authorities in recent years which, without subtracting financial resources from the main area of business lending, offer interesting profit opportunities. The establishment of a cash-equivalents portfolio also meets the need to act ahead of the increasingly strict prudential regulation in regard to the governance and management of liquidity risk (Basel 3).

The Banca IFIS Group does not carry out any activity involving credit derivatives.

Credit risk management policies. Organisational aspects

Credit risks in the factoring activity directly arise from financing the business customers and guaranteeing them, when requested, against the account debtor’s default. Credit risk management takes place during two specific phases of the credit process: the initial credit assessment phase and, in case of positive outcome, during the entire relationship with the seller/debtor counterparties. In order to increase the quality of its credit portfolio, Banca IFIS deemed it appropriate to concentrate the main phases related to risk assumption and control within the factoring activity in the Bank's Head Office, allowing for a high degree of homogeneity in lending and to strictly monitor individual positions through the specialisation of resources and separation of functions at all decision-making levels. This is also true for the subsidiary IFIS Finance, whose decisions are taken within the operational and organisational limits defined by the Parent Company, Banca IFIS.

In the first phase of the risk management process, the organisational structure responsible for such activities shall asses the creditworthiness of the seller and debtor counterparties, the nature of the commercial relationship between them and the quality of the receivables factored. A multi-level system of delegations and decision-making powers allows the most senior analysts to assume increasingly growing, but still modest, risks. Greater risks can be taken on by service and area managers. As for higher amounts, powers are attributed solely to the General Manager, the Chief Executive Officer, the Credit Committee, and the Board of Directors.

The Bank’s branches do not have decision-making powers as for the assumption of credit risk. Rather, they have the responsibility of doing business in the local area and managing relationships with customers. Therefore, within the limits and formalities established by the Head Office’s competent bodies, branches manage ordinary operations with customers under the constant monitoring of the Head Office.

Qualified and specialised staff follow all stages of a relationship: from sale of the receivables to the granting of advances, from the administrative management of the receivables to their collection, from the identification of anomalies, if any, to the verification and definition of the most appropriate initiatives to recover the debt, also with support from the Legal Department, if necessary.

The integration of the former Toscana Finanza Group led the Banca IFIS Group to operate also in the acquisition of non-performing loans in the following business areas:

  • tax receivables usually acquired from insolvency proceedings and due from tax authorities;

  • financial receivables acquired from consumer credit companies, banks and leasing companies;

  • trade receivables acquired from insolvency proceedings and companies.

Acquiring the different types of receivables is a fundamental aspect of the credit process and is carried out in various ways, designed and implemented based on the experience gained over the years. In this stage, the Group sets the terms and conditions for the acquisition of the receivables portfolio and how to manage it (analytical or aggregate method), assessing the relevant impact on operating structures.

In order to collect non-performing loans relating to the scope of the former Toscana Finanza Group, the Banca Ifis Group can draw on not only an in-house legal office, but also a widespread and proven network of credit collection companies operating throughout Italy. This structure, together with numerous lawyers located near the courts, ensures the utmost flexibility and effective and timely action to recover all types of debt.

With the acquisition of the former Toscana Finanza Group, also the subsidiary TF SeC S.r.l. joined the Banca IFIS Group. TF SeC S.r.l. carried out ancillary activities of corporate consultancy and professional assessment of non-performing loans. The procedure to liquidate TF SeC S.r.l is about to start.

The Banca IFIS Group is particularly concerned to concentrate credit risk for all the Group’s companies both at an individual and consolidated level. Banca IFIS’s Board of Directors has delegated the Top Management to take action to contain large risks. In line with the Board of Directors’ instructions, all positions at risk which significantly expose the Group, even if amounting to less than 10% of regulatory capital, are systematically monitored.

Management, measurement and control systems

The operational procedure governing Banca IFIS Group’s credit process within the traditional factoring activity is audited during the year and expressly requires a thorough and analytical assessment of all the counterparties (both the seller and the account debtor) involved in the factoring relationship.

These operations do not include statistics-based assumption of credit risks.

Within the factoring activity, credit risk is constantly monitored by means of procedures and instruments allowing to rapidly detect particularly anomalous positions.

Banca IFIS Group’s main instrument of assessment and control is the Internal Rating System (IRS). During the assessment stage, the IRS allows the analysts to:

  • define the credit standing and counterparty rating of the seller and the debtor

  • immediately identify the risk in each individual cash advance or financing operation;

  • define adequate pricing for each class of risk right from the initial feasibility study.

Following a positive assessment, the IRS which constantly draws on selected databases, allows to monitor the credit risk connected to the acquired counterparties.

Protests, prejudicial events or signs of non-performing loans automatically lead to suspension of operations. The ensuing analysis aims to assess the seriousness of the anomalies and whether the problems are permanent or temporary, so as to decide whether to maintain the relationship or reduce the exposures.

At present, due to the type of databases used (Central Credit Register, protests and prejudicial events, etc.), the IRS is fully operational in both the assessment and monitoring phases for domestic counterparties or those with Italian offices. Other counterparties are assessed only by using the financial statement analysis form and, should they maintain relationships with other Italian banks, the Central Credit Register form.

As for the activities undertaken by Banca IFIS following the merger of Toscana Finanza S.p.A. or by the subsidiary Fast Finance S.p.A., in order to ensure increasingly efficient control over the operations undertaken, investments have been made in information systems, adopting solutions and procedures to manage the various business areas. To manage its credit risk Banca IFIS has implemented a system to monitor the cash flows generated by the collection of receivables and to analyse the profitability of the receivables portfolio. This work is followed by a periodic review of the technical foundations underpinning the projections of expected cash flows.

As for the credit risk connected to the bond portfolio, reminding that it is made up mainly of Italian government bonds and investment-grade short-term bank bonds, the Banca IFIS Group constantly monitors the credit quality of the bond issuers. The Risk Management Department periodically reports to the bank's Board of Directors and Top Management on the composition of the bond portfolio.

As for Basel 2 principles for calculating capital requirements against first-pillar credit risks, the Bank chose to adopt the Standardised Approach.

Credit risk mitigation techniques

Within the factoring activity, when the type and/or quality of factored receivables do not fully satisfy requirements or, more generally, the invoice seller is not sufficiently creditworthy, the bank’s established practice is to hedge the credit risk assumed by the Group by obtaining additional surety bonds from the shareholders or directors of the invoice seller.

As for the account debtors in factoring relationships, wherever the Bank believes that the elements available to assess the account debtor do not allow to properly measure/assume the related credit risk, or the proposed amount of risk exceeds the limits identified during the debtor’s assessment, the Bank shall properly hedge the risk of default of the account debtor. Guarantees issued by correspondent factors and/or insurance policies underwritten with specialised operators are the main hedge against non-domestic account debtors in non-recourse operations.

As for the former Toscana Finanza Group’s non-performing loans business and the relevant business model, generally no action is taken to hedge credit risks.

Impaired assets

With reference to factoring activities, relationships with customers are constantly monitored by the competent Head Office’s department, based both on detected trends and monitoring instruments implemented for counterparties at risk (Central Credit Register, protests and prejudicial events, etc.). Should anomalous trends and/or prejudicial elements arise on the part of the counterparty, the situation is placed under watch and the Head Office’s Credit Management Area directly supervises the branch’s management of the relationship until the anomalies have been overcome.

Should the situation deteriorate or become critical, the Head Office’s Credit Management Area takes over the management of the relationship, if necessary with the support of the Legal Department. Following appropriate evaluation, it decides whether to maintain the position until the problems have been overcome or reduce the exposure. Based on available information, it also considers whether or not to classify the counterparty under non-performing loans or subjective substandard loans. With reference also to changes in regulatory provisions, during the year the criteria for classifying and managing anomalous items were revised and updated.

Managing impaired positions, either substandard or non-performing loans, normally falls under the responsibility of the Legal Department, which takes the most appropriate actions to hedge and recover debts, periodically reporting to the Top Management and the Board of Directors on the issue. If it is believed that the problems encountered by the seller and/or the debtor could be successfully overcome with the Bank adequately hedging the credit risk, the position may be restructured and placed, once again, under the management and monitoring of the Credit Management Area.

Impairment losses, upon proposal by the Legal Department, are assessed by the Top Management and subject to resolution by the Board of Directors.

A similar process is formally in place also for IFIS Finance Sp. Z o.o. Nonetheless, it should be noted that the subsidiary is only marginally exposed to impaired assets.

The activities undertaken by Banca IFIS following the merger of Toscana Finanza S.p.A or by the subsidiary Fast Finance S.p.A. concern the acquisition, management and collection of non-performing loans. Excluding tax receivables due from the Public Administration, a significant proportion of the remaining receivables are classified under impaired assets. The purchase of receivables at amounts well below their nominal value and cash flows generally higher than the price paid minimise the risk of losses.

Quantitative information

A. Quality of credit

A.1 Impaired and performing loans: amounts, impairment losses/reversals of impairment losses, trend, economic and geographical distribution

A.1.1 Distribution of financial assets by portfolio and credit quality (carrying amounts)

Portfolio/quality

Banking group

Other companies

Total

Non performing loans

Substandard loans

Rescheduled loans

Overdue loans

Other

Impaired

Other

1. Financial assets held for trading

-

-

-

-

188

-

-

188

2. Available for sale financial assets

-

-

-

-

1.670.895

-

-

1.670.895

3. Financial assets held to maturity

-

-

-

-

 

-

-

-

4. Due from banks

 

 

 

 

315.897

-

-

315.897

5. Due from customers

74.021

158.097

3.897

41.685

1.444.781

-

-

1.722.481

6. Financial assets measured at fair value

-

-

-

-

-

-

-

-

7. Financial assets under disposal

-

-

-

-

-

-

-

-

8. Hedging derivatives

-

-

-

-

-

-

-

-

Totale 31.12.2011

74.021

158.097

3.897

41.685

3.431.761

-

-

3.709.461

Totale 31.12.2010

38.421

76.810

7.251

98.446

2.384.009

 -

2.604.937

Equity securities and UCITS units are not included in the above table.

A.1.2 Distribution of exposures by portfolio and credit quality (gross and net amounts)

Portfolio/quality

Impaired loans

Performing

Total (net exposure)

Gross exposure

Specific impairment losses

Net exposure

Gross exposure

Specific impairment losses

Net exposure

A. Banking group

 

 

 

 

 

 

 

1. Financial assets held for trading

-

-

-

X

X

188

188

2. Available for sale financial assets

-

-

-

1.670.895

-

1.670.895

1.670.895

3. Financial assets held to maturity

-

-

-

-

-

-

-

4. Due from banks

-

-

-

315.897

-

315.897

315.897

5. Due from customers

376.190

98.490

277.700

1.450.395

5.614

1.444.781

1.722.481

6. Financial assets measured at fair value

-

-

-

X

X

-

-

7. Financial assets under disposal

-

-

-

-

-

-

-

8. Hedging derivatives

-

-

-

X

X

-

-

Total A

376.190

98.490

277.700

3.437.187

5.614

3.431.761

3.709.461

B. Other companies included in the consolidation scope

 

 

 

 

 

 

 

1. Financial assets held for trading

-

-

-

X

X

-

-

2. Available for sale financial assets

-

-

-

-

-

-

-

3. Financial assets held to maturity

-

-

-

-

-

-

-

4. Due from banks

-

-

-

-

-

-

-

5. Due from customers

-

-

-

-

-

-

-

6. Financial assets measured at fair value

-

-

-

X

X

-

-

7. Financial assets under disposal

-

-

-

-

-

-

-

8. Hedging derivatives

-

-

-

X

X

-

-

Total B

-

-

-

-

-

-

-

Total 31.12.2011

376.190

98.490

277.700

3.437.187

5.614

3.431.761

3.709.461

Total 31.12.2010

291.292

70.365

220.928

2.388.829

5.113

2.384.009

2.604.937

Equity securities and UCITS units are not included in the above table.

In compliance with paragraph 37, letter a) of IFRS 7 “Financial Instruments: Disclosures”, here below is the maturity analysis for past due amounts relating to performing loans – Other loans.

(in thousand of Euros)

Amount

Overdue up to 3 months

170.142

Overdue > 3 months < 6 months

129.982

Overdue > 6 months < 1 year

150.383

Overdue > 1 year

161.398

Total

611.905

A.1.3 Banking group - Cash and off-balance-sheet exposure with banks: gross and net amounts

Types of loans/values

Gross exposure

Specific net impairment losses

Portfolio impairment losses

Net exposure

A. CASH EXPOSURE

 

 

 

 

a) Non-performing loans

-

-

X

-

b) Substandard loans

-

-

X

-

c) Rescheduled loans

-

-

X

-

d) Overdue loans

-

-

X

-

f) Other

448.422

X

-

448.422

Total A

448.422

-

-

448.422

B. OFF-BALANCE-SHEET EXPOSURES

 

 

 

 

a) Impaired

-

-

X

-

b) Other

4.714

X

-

4.714

Total B

4.714

-

-

4.714

TOTAL A+B

453.136

-

-

453.136

Cash exposures include all cash financial assets due from banks, regardless of their portfolio category (held for trading, available for sale, held to maturity, loans and receivables etc.).

The Banca IFIS Group does not hold impaired loans due from banks: therefore, tables A.1.4 and A.1.5 are not included.

A.1.6 Banking group – Cash and off-balance-sheet exposures with customers: gross and net amounts

Types of loans/values

Gross exposure

Specific net impairment losses

Portfolio impairment losses

Net exposure

A. CASH EXPOSURE

 

 

 

 

A.1 Banking group

 

 

 

 

a) Non-performing loans

169.497

95.476

X

74.021

b) Substandard loans

160.508

2.411

X

158.097

c) Rescheduled loans

4.423

526

X

3.897

d) Overdue loans

41.762

77

X

41.685

f) Other

2.988.986

X

5.614

2.983.372

TOTAL A

3.365.176

98.490

5.614

3.261.072

B. OFF-BALANCE-SHEET EXPOSURES

 

 

 

 

a) Impaired

332 

332 

b) Other

77.960

X

-

77.960

TOTAL B

78.292

-

-

78.292

Cash exposures include all cash financial assets due from customers, regardless of their portfolio category (held for trading, available for sale, held to maturity, loans and receivables).

A.1.7 Banking group – Cash exposures with customers: trends in gross impaired loans

Type/Categories

Non-performing loans

Substandard loans

Rescheduled loans

Overdue loans

A. Opening gross exposure

105.481

79.270

7.818

98.724

- of which: transferred and not derecognised

-

-

-

-

B. Increases

75.653

324.920

722

258.427

B.1 inflows from performing loans

6.374

16.953

-

152.519

B.2 transfers from other impaired loan categories

55.479

94.007

-

4.034

B.3 other increases

13.800

213.960

722

101.874

C. Reductions

11.637

243.682

4.117

315.389

C.1 outflows to performing loans

-

28.065

-

110.608

C.2 derecognitions

3.912

78

-

8

C.3 collections

6.467

32.750

-

72.175

C.4 collections from transfers

-

-

-

-

C.5 transfers to other impaired loan categories

-

58.391

4.117

91.012

C.6 other reductions

1.258

124.398

-

41.586

D. Closing gross exposure

169.497

160.508

4.423

41.762

- of which: transferred and not derecognised

-

-

-

-

The increase in non-performing loans is a direct consequence of adverse economic trends. Thanks to the adoption of a business model ideal for transferring risk from customers to more structured debtors, the Bank is able to mitigate its exposure to customers’ default. Nevertheless, the negative economic trends have also led to widespread impairment losses even with the more creditworthy debtor counterparties, hence increasing the Bank’s exposure, although this was partially expected.

Substandard loans include also the so-called ‘objective substandard loans with recourse’, following new provisions introduced by the Bank of Italy in 2010. However, these loans, due to Banca IFIS’s specific business, are not likely to represent necessarily problematic positions. Specifically, “objective substandard loans with recourse” relate to loans to invoice sellers whose account debtors show strong delays in payments. The Bank believes these positions are not objectively problematic, as payment delays by the account debtor do not necessarily constitute a default risk on its part, nor an objective financial difficulty on the part of the invoice seller. If the Bank finds out that the seller is also facing difficulties in servicing its commitments, the position is automatically recognised under substandard loans.

Net past due loans refer to receivables due from the Public Administration (36,911 thousand Euro) purchased outright within the factoring activity; given the credit and debt counterparty quality, these positions are not subject to impairment. Also past due loans are concerned by the implementation of the new Bank of Italy’s regulation, and were reclassified in reference to 31 December 2009.

The trend in impaired positions at 31 December 2011 is still affected by the changes in the relevant law which . . . . . .

A.1.8 Banking group – Cash exposures with customers: trends in total impairment losses/reversals of impairment losses

Type/Categories

Non-performing loans

Substandard loans

Rescheduled loans

Overdue loans

A. Opening balance of total impairment losses/ reversals of impairment losses

67.060

2.460

567

278

- of which: transferred and not derecognised

-

-

-

-

B. Increases

37.576

3.206

-

-

B.1 Impairment losses

34.905

3.206

-

-

B.2 Transfers from other impaired loan categories

2.671

-

-

-

B.3 Other increases

-

-

-

-

C. Reductions

9.160

3.255

41

201

C.1 Impairment reversals from measurement

3.770

310

29

-

C.2 Impairment reversals from collection

2.090

274

-

-

C.3 Derecognitions

3.288

-

-

-

C.4 Transfers to other impaired loan categories

-

2.671

-

-

C.5 Other reductions

12

-

12

201

D. Closing balance of total impairment losses/ reversals of impairment losses

95.476

2.411

526

77

- of which: transferred and not derecognised

-

-

-

-

A.3 Distribution of guaranteed exposure by guarantee type

A.3.2 Banking group – Guaranteed cash exposures with customers

 

Net exposure

Collateral guarantees (1)

 

Personal guarantees (2)

Total (1)+(2)

Credit derivatives

Endorsement credits

Property

CLN

Other derivatives

Securities

Other collateral guarantees

Governments and central banks

Other public entities

Banks

Other subjects

Governments and central banks

Other public entities

Banks

Other entities

2. Guaranteed

cash exposure:

371.911

14.336

-

-

-

-

-

-

-

-

-

3.581

334.758

352.675

2.1 totally

guaranteed

301.862

10.303

-

-

-

-

-

-

-

-

-

3.581

287.978

301.862

- of which impaired

46.594

6.797

-

-

-

-

-

-

-

-

-

-

39.797

46.594

2.2 partially

guaranteed

70.049

4.033

-

-

-

-

-

-

-

-

-

-

46.780

50.813

- of which impaired

9.423

4.033

-

-

-

-

-

-

-

-

-

-

4.204

8.237

2. Guaranteed off-

balance-sheet

exposure:

-

-

-

-

-

-

-

-

-

-

-

-

-

-

2.1 totally

guaranteed

-

-

-

-

-

-

-

-

-

-

-

-

-

-

- of which impaired

-

-

-

-

-

-

-

-

-

-

-

-

-

-

2.2 partially

guaranteed

-

-

-

-

-

-

-

-

-

-

-

-

-

-

- of which impaired

-

-

-

-

-

-

-

-

-

-

-

-

-

-

B. Concentration and distribution of loans and receivables

B.1. Banking group - Distribution of cash and off-balance-sheet exposures with customers by category (carrying amounts)

Exposures/

counterparties

Governments and Central Banks

Other public entities

Financial institutions

Insurance companies

Non-financial companies

Other entities

Net exposure

Specific impairment losses/reversal

Portfolio impairment losses/reversal

Net exposure

Specific impairment losses/reversal

Portfolio impairment losses/reversal

Net exposure

Specific impairment losses/reversal

Portfolio impairment losses/reversal

Net exposure

Specific impairment losses/reversal

Portfolio impairment losses/reversal

Net exposure

Specific impairment losses/reversal

Portfolio impairment losses/reversal

Net exposure

Specific impairment losses/reversal

Portfolio impairment losses/reversal

A. Cash exposure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A.1 Non-performing loans

-

-

X

8.197

2.329

X

-

-

X

-

-

X

51.955

88.414

X

13.869

4.733

X

A.2 Substandard loans

-

-

X

4.783

-

X

3.346

18

X

-

-

X

77.511

2.351

X

72.458

42

X

A.3 Rescheduled loans

-

-

X

-

-

X

-

-

X

-

-

X

3.897

526

X

-

-

X

A.4 Overdue loans

3.806

-

X

23.311

-

X

-

-

X

-

-

X

14.517

77

X

51

-

X

A.5 Other

1.569.021

X

-

356.258

X

-

45.753

X

130

-

X

-

984.854

X

5.338

27.485

X

146

Total A

1.572.827

-

-

392.549

2.329

-

49.099

18

130

-

-

-

1.132.734

91.368

5.338

113.863

4.775

146

B. Off-balance-sheet exposures"

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B.1 Non-performing loans

-

-

X

-

-

X

-

-

X

-

-

X

-

-

X

-

-

X

B.2 Substandard loans

-

-

X

-

-

X

-

-

X

-

-

X

173

-

X

-

-

X

B.3 Other impaired loans

-

-

X

-

-

X

-

-

X

-

-

X

159

-

X

-

-

X

B.4 Other

-

X

-

-

X

-

7.828

X

-

-

X

-

71.375

X

-

146

X

-

Total B

-

-

-

-

-

-

7.828

-

-

-

-

-

71.707

-

-

146

-

-

Total (A+B) 31.12.2011

1.572.827

-

-

392.549

2.329

-

56.927

18

130

-

-

-

1.204.441

91.368

5.338

114.009

4.775

146

Total (A+B) 31.12.2010

533.983

-

-

284.261

2.329

-

118.220

126

544

-

-

-

1.289.713

70.108

4.418

53.588

131

151

B.2 Banking group - Geographical distribution of cash and off-balance-sheet exposures with customers (carrying amounts)

Exposures/Geographic areas

Italy

Other European countries

America

Asia

Rest of the World

Net exposure

Overall impairment losses/

reversals

Net exposure

Overall impairment losses/

reversals

Net exposure

Overall impairment losses/

reversals

Net exposure

Overall impairment losses/

reversals

Net exposure

Overall impairment losses/

reversals

A. Cash exposure

 

 

 

 

 

 

 

 

 

 

A.1 Non-performing loans

73.561

92.953

460

2.523

-

-

-

-

-

-

A.2 Substandard loans

155.747

2.402

1.377

9

27

-

934

-

12

-

A.3 Rescheduled loans

3.897

526

-

-

-

-

-

-

-

-

A.4 Overdue loans

41.626

77

-

-

59

-

-

-

-

-

A.5 Other

2.945.965

5.529

36.800

82

558

3

48

-

1

-

Total

3.220.796

101.487

38.637

2.614

644

3

982

-

13

-

B. Off-balance-sheet

exposure"

 

 

 

 

 

 

 

 

 

 

B.1 Non-performing loans

-

-

-

-

-

-

-

-

-

-

B.2 Substandard loans

173

-

-

-

-

-

-

-

-

-

B.3 Other impaired loans

159

-

-

-

-

-

-

-

-

-

B.4 Other

62.045

-

13.481

-

-

-

2.379

-

55

-

Total

62.377

-

13.481

-

-

-

2.379

-

55

-

Total at 31.12.2011

3.283.173

101.487

52.118

2.614

644

3

3.361

-

68

-

Total at 31.12.2010

2.120.455

72.295

131.945

3.161

16.001

10

9.287

12

2.077

-

B.3 Banking group – Geographical distribution of cash and off-balance-sheet exposures with banks (carrying amounts)

Exposures/Geographic areas

Italy

Other European countries

America

Asia

Rest of the World

Net exposure

Impairment losses/reversal

Net exposure

Impairment losses/reversal

Net exposure

Impairment losses/reversal

Net exposure

Impairment losses/reversal

Net exposure

Impairment losses/reversal

A. Cash exposure

 

 

 

 

 

 

 

 

 

 

A.1 Non-performing loans

-

-

-

-

-

-

-

-

-

-

A.2 Substandard loans

-

-

-

-

-

-

-

-

-

-

A.3 Rescheduled loans

-

-

-

-

-

-

-

-

-

-

A.4 Overdue loans

-

-

-

-

-

-

-

-

-

-

A.5 Other

394.082

-

54.321

-

19

-

-

-

-

-

Total

394.082

-

54.321

-

19

-

-

-

-

-

B. Off-balance-sheet

exposure"

 

 

 

 

 

 

 

 

 

 

B.1 Non-performing loans

-

-

-

-

-

-

-

-

-

-

B.2 Substandard loans

-

-

-

-

-

-

-

-

-

-

B.3 Other impaired loans

-

-

-

-

-

-

-

-

-

-

B.4 Other loans

4.714

-

-

-

-

-

-

-

-

-

Total

4.714

-

-

-

-

-

-

-

-

-

Total at 31.12.2011

398.796

-

54.321

-

19

-

-

-

-

-

Total at 31.12.2010

389.412

-

81.332

-

5.047

-

-

-

-

-

B.4 Major risks

The overall carrying amount of major risks at 31 December 2011 stood at 1,962,820 thousand Euro, and consisted of 86,458 thousand Euro in receivables due from customers, 114,772 thousand Euro in receivables due from banks, 1,712,393 thousand Euro in securities and 49,197 thousand Euro in securities used in repurchase agreements.

 

 

31.12.2011

31.12.2010

a)

Carrying amount

1.962.820

676.588

b)

Weighted value

258.374

151.059

c)

Number

12

5

Disclosure regarding sovereign debt

On 5 August 2011 CONSOB (drawing on ESMA document no. 2011/266 of 28 July 2011) issued Communication no. DEM/11070007 on disclosure in financial reports of positions held by listed companies in sovereign bonds and market performance, the management of sovereign debt positions and the income and equity effects also subsequent to 31 December 2011.

In compliance with the provisions of the aforementioned Communication, it should be noted that at 31 December 2011 the carrying amount of the sovereign debt (1) positions represented by debt securities was 1,526.7 million Euro, and consisted entirely of Italian government bonds; these securities, with a nominal value of 1,593 million Euro, are classified under Available for sale financial assets and included in the banking book; the weighted residual average life of these securities is approximately fifteen months.

The fair values used to measure the sovereign bond exposures at 31 December 2011 are considered level 1, and the exposures set out above were not impaired at that date. For further details on the valuation method applied and the classification, please refer to the sections on Accounting policies and Information on the consolidated statement of financial position.

In compliance with the CONSOB Communication, besides the exposure to sovereign bonds, it is also necessary to consider loans due from the Italian State, which at 31 December 2011 totalled 438.6 million Euro, divided into 46.1 million Euro due from the “central Government” (of which 29.2 million Euro relating to tax receivables of the subsidiary Fast Finance S.p.A.) and 392.5 million Euro due from “other public bodies”.

Operations undertaken after 31 December 2011 increased the Group’s exposure to sovereign risk. The nominal value of the portfolio of Italian government bonds went from 1,593 million Euro at 31 December 2011 to around 4,073 million Euro at 22 March 2012.

As from June 2011 financial markets have been increasingly volatile, with a general increase in spreads on government bonds of the so-called “peripheral countries” of the European Union, and especially on Italian and Spanish government bonds. The change in the fair value of government bonds classified under available for sale financial assets, although it has no effect in terms of the income statement, caused an increase in the negative value of the valuation reserve and a consequent reduction in the Group’s equity. The negative valuation reserve, gross of the tax effect due to the overall position in Italian government bonds, went from 46.1 million Euro to a value of approximately 10.2 million Euro at 22 March 2012.

(1) As indicated in the ESMA document, ‘sovereign debt positions’ means bonds issued by central and local governments and by government bodies, as well as loans provided to them.

C. Securitisation and asset transfer operations

C.2 Transfer operations

C.2.1 Financial assets transferred and not cancelled

Banking products/portfolio

Financial assets held for trading

Financial assets measured at fair value

Available for sale financial assets

Financial assets held to maturity

Due from banks

Due from customers

Total

A

B

C

A

B

C

A

B

C

A

B

C

A

B

C

A

B

C

31.12.2011

31.12.2010

A. Cash assets

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

646.152

1. Debt securities

-

-

-

-

-

-

49.197

-

-

-

-

-

-

-

-

-

-

-

49.197

646.152

2. Equity securities

-

-

-

-

-

-

-

-

-

X

X

X

X

X

X

X

X

X

-

-

3. O.E.I.C.

-

-

-

-

-

-

-

-

-

X

X

X

X

X

X

X

X

X

-

-

4. Loans

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

B. Derivative instruments

-

-

-

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

-

-

Total at 31.12.2011

-

-

-

-

-

-

49.197

-

-

-

-

-

-

-

-

-

-

-

49.197

-

of which impaired

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Total at 31.12.2010

-

-

-

-

-

-

646.152

-

-

-

-

-

-

-

-

-

-

-

 

646.152

of which impaired

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Available for sale financial assets that have been transferred and not cancelled refer to the carrying amount of securities underlying repurchase agreements.

1.2 Banking group – market risks

Generally, as the Banca IFIS Group does not usually trade financial instruments, its financial risk profile refers mainly to the banking portfolio. Bond purchases during 2011, given that these bonds are classified under available for sale assets and loans and receivables, are included in the banking book and do not therefore give rise to new market risks.

At the end of 2011 the Group recognised an interest rate swap, which was included under the Group’s financial liabilities due to the acquisition of Toscana Finanza S.p.A., with a mark-to-market value of around 600 thousand Euro. In addition, an exchange rate derivative with a mark-to-market value of around 399 thousand euro is also recognised under the Group’s financial liabilities held for trading. The classification of the derivatives under financial liabilities held for trading does not reflect the aim of the transactions, which is to mitigate the impact of potential fluctuations in the reference interest rates and currencies.

1.2.1 Interest rate risk and price risk – regulatory trading book

Qualitative information

The Banca IFIS Group does not usually trade financial instruments. At 31 December 2011, the only position included in the regulatory trading book was a convertible bond of negligible amount.

Quantitative information

1. Regulatory trading book: distribution by residual maturity (by re-pricing date) of cash financial assets and liabilities and financial derivatives .

Type/Residual duration

on demand

up to 3 months

over 3 months up to 6 months

over 6 months up to 1 year

over 1 year up to 5 years

over 5 years up to 10 years

over 10 years

indefinite duration

1. Cash assets

-

-

-

-

188

-

-

-

1.1 Debt securities

-

-

-

-

188

-

-

-

- with early redemption option

-

-

-

-

-

-

-

-

- other

-

-

-

-

188

-

-

-

1.2 Other assets

-

-

-

-

-

-

-

-

2. Cash liabilities

-

-

-

-

-

-

-

-

2.1 Repurchase agreements

-

-

-

-

-

-

-

-

2.2 Other liabilities

-

-

-

-

-

-

-

-

3. Financial derivatives

-

-

-

-

-

-

-

-

3.1 With underlying security

-

-

-

-

-

-

-

-

- Options

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

-

-

- Other

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

-

-

3.2 Without underlying security

-

-

-

-

-

-

-

-

- Options

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

-

-

- Other

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

10.000

-

-

-

+ short positions

-

5.984

-

-

-

-

-

-

1.2.2 Interest rate risk and price risk – banking portfolio

Qualitative information

A. General aspects, management procedures and measurement methods of the interest rate risk and the price risk

In general, the Banca IFIS Group does not assume significant interest rate risks, as it obtains funds mainly from interbank deposits (either collateralised or not) and from retail customers through the rendimax current account. Interbank funding operations are generally at a fixed rate and very short-term. Customer deposits on the rendimax current account are at a fixed rate for the fixed-term part, while demand and call deposits are at a non-indexed floating rate the Bank can unilaterally revise without prejudice to the law and contracts. Loans to customers are usually revocable and at floating rate. Interest rates applied to traditional customers for factoring relationships are normally indexed (mainly at the 3-month Euribor rate) with automatic adjustment to monetary trends. In some cases the interest rates are not indexed, but they can be unilaterally changed by the Bank without prejudice to the law and contracts in this case too.

As part of the non-performing loans business undertaken by Banca IFIS following the incorporation of Toscana Finanza S.p.A., or by the subsidiary Fast Finance S.p.A., with a business model focused on the acquisition of receivables below par value, we acknowledge a potential interest rate risk connected to the uncertainty about collection times. The variability in the loan’s term, which to all intents and purposes can be considered at a fixed rate, is particularly important in reference to tax receivables, which are characterised by a high likelihood of collection of the overall nominal value, although in the medium/long term. In this situation and in order to effectively mitigate interest rate risk, it is particularly important to correctly assess the operation during the initial acquisition stage. Taking into account the impact of the purchase of non-performing loans, the contribution in terms of interest rate risk to Banca IFIS Group’s overall position, though it exists, cannot be considered significant.

Thirty percent of the bond portfolio is made up of bonds with yields indexed to market rates. The remainder consists of fixed-rate short-term bonds. The average maturity of the overall portfolio is just under six months.

The interest rate risk connected to the funding activities carried out by the Parent Company’s Treasury Department is assumed according to the limits and policies set by the Board of Directors, with precise delegations of power limiting the autonomy of those authorised to operate within the Bank’s Treasury Department.

The business departments responsible for guaranteeing the correct management of interest rate risks are: the Treasury Department, which directly manages funding; the Risk Management Department, responsible for selecting the most appropriate risk indicators and monitoring asset and liability trends with reference to preset limits; and, lastly, the Top Management, which every year shall make proposals to the Board regarding policies on lending, funding and the management of the interest rate risk, as well as suggest appropriate interventions during the year in order to ensure that operations are conducted consistently with the risk policies approved by the Bank.

As part of continuing operations and based on funding indications from the Treasury Department, on interest rate forecasts and on evaluations of lending trends, the Top Management provides the Treasury Department with guidelines on the use of available credit lines, with a view to taking advantage of changes in interest rates on very short-term maturities and monitoring interest rate-risk trends in terms of physiological mismatching between assets and liabilities.

In order to monitor interest rate risk, the Top Management receives a daily summary on the overall cash position. Furthermore, the Risk Management Department periodically reports to the Bank’s Board of Directors on the interest rate risk position by means of a quarterly Dashboard prepared for the Bank’s management. The Integrated Treasury and Risk Management System (SIT) provides further tools for assessing and monitoring the main interest rate-sensitive assets and liabilities.

With reference to the 2010 ICAAP Report, sent to the Supervisory Body in April 2011, the interest rate risk falls under the category of second-pillar risks. In the final document sent to the Supervisory Body, as per the applicable regulations (Circular no. 263 of 27 December 2006, Title III, Chapter 1, Annex C), the Interest Rate Risk has been specifically measured in terms of capital absorption. In the face of a warning threshold of 20% of regulatory capital, the resulting risk indicator for the Group was 6.4% as at 31 December 2010.

Considering the extent of the risk assumed, the Banca IFIS Group does not usually hedge interest rate risk. However, following the acquisition of the companies of the former Toscana Finanza Group, at the end of 2011 it recognised two interest rate swap positions: they were acquired to offset possible fluctuations in the reference interest rates.

As for the price risk, the Group does not generally assume risks connected with price fluctuations on financial instruments, as its business focuses on financing SMEs’ working capital.

In relation to bonds held, most of them are classified under available for sale assets, giving rise to the risk that the Group’s capital reserves could fluctuate as a consequence of the change in the bonds’ fair value. This risk is, nonetheless, relatively limited, given the high credit standing of the issuers and the short average maturity of the overall portfolio.

Monitoring the price risk that the Group takes on in carrying out its activities is the responsibility of the Risk Management Department. The Integrated Treasury and Risk Management System (SIT), the main tool for assessing and monitoring the Group’s treasury activities, provides appropriate tools for assessing price risks. Specifically, the SIT also allows to:

  • manage the traditional treasury activities (securities, exchange rates, money market and derivatives);

  • measure and control exposure to each type of market risk;

  • establish and constantly monitor limits set for the various operational functions.

Fair value hedging

The Bank does not hedge fair value.

Cash flow hedging

At the end of 2011 there were two interest rate swaps to hedge unexpected increases in interest expense connected to the funding operations undertaken by Toscana Finanza S.p.A. prior to its acquisition and merger into Banca IFIS S.p.A. Among the hedging instruments held by the Group, there is also a derivative hedging against fluctuations in the Euro/Dollar exchange rate.

Quantitative information

1. Banking book: distribution by residual maturity (by re-pricing date) of financial assets and liabilities

Currency: Euro

Type/residual duration

on demand

up to 3 months

over 3 months up to 6 months

over 6 months up to 1 year

over 1 year up to 5 years

over 5 years up to 10 years

over 10 years

indefinite duration

1. Cash assets

888.788

1.312.388

653.147

554.233

256.839

42.920

897

60

1.1 Debt securities

5.020

555.458

617.026

502.308

101.102

-

770

-

- with early redemption option

-

-

-

-

-

-

-

-

- other

5.020

555.458

617.026

502.308

101.102

-

770

-

1.2 Loans to banks

147.178

57.929

-

-

-

-

-

-

1.3 Loans to customers

736.590

699.001

36.121

51.925

155.737

42.920

127

60

- current accounts

62.000

9.668

19.170

16

2.741

959

-

-

- other loans

-

-

-

-

-

-

-

-

- with early redemption option

6.036

19.582

-

-

-

-

-

-

- other

668.554

669.751

16.951

51.909

152.996

41.961

127

60

2. Cash liabilities

524.229

2.489.640

146.469

376.539

110.399

-

-

-

2.1 Due to customers

516.272

507.004

146.469

376.539

107.823

-

-

-

- current accounts

513.264

442.578

146.430

368.844

107.823

-

-

-

- other payables

-

-

-

-

-

-

-

-

- with early redemption option

-

-

-

-

-

-

-

-

- other

3.008

64.426

39

7.695

-

-

-

-

2.2 Due to banks

7.957

1.982.636

-

-

2.576

-

-

-

- current accounts

7.957

-

-

-

-

-

-

-

- other payables

-

1.982.636

-

-

2.576

-

-

-

2.3 Debt securities

-

-

-

-

-

-

-

-

- with early redemption option

-

-

-

-

-

-

-

-

- other

-

-

-

-

-

-

-

-

2.4 Other liabilities

-

-

-

-

-

-

-

-

- with early redemption option

-

-

-

-

-

-

-

-

- other

-

-

-

-

-

-

-

-

3. Financial derivatives

-

-

-

-

-

-

-

-

3.1 With underlying security

-

-

-

-

-

-

-

-

- Options

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

-

-

- Other

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

-

-

3.2 Without underlying security

-

-

-

-

-

-

-

-

- Options

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

-

-

- Other derivatives

-

-

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

-

-

1.2.3 Currency risk

Qualitative information

A. General aspects, management procedures and measurement methods of the currency risk

Assumption of the currency risk, intended as a management tool that is potentially suitable for improving treasury performance, represents a speculative instrument: in principle, therefore, it is not part of the Group’s policies. The Bank’s currency operations basically involve transactions in the name or on behalf of customers and are normally associated with the traditional factoring activity. In this sense, the currency advances granted to the customers are generally hedged with deposits and/or loans from other banks in the same currency, thus eliminating for the most part the risk of losses connected to exchange rate fluctuations. In some cases, synthetic instruments are used as hedging tools.

A residual currency risk arises as a physiological consequence of the mismatch between the customer’s use and the Treasury Department’s currency procurement. Such mismatches are mainly a result of the difficulty in correctly anticipating financial trends connected with the factoring activity, with particular reference to cash flows from account debtors vis-à-vis the maturity of loans granted to customers, as well as the effect of interest on them.

However, the Treasury Department is committed to minimising such differences every day, continuously realigning the size and timing of currency positions.

Currency risk related to the Bank’s business is assumed and managed according to the risk policies and limits set by the Parent Company’s Board of Directors, with precise delegations of power limiting the autonomy of those authorised to operate, as well as especially strict limits on the daily net currency position.

The business functions responsible for guaranteeing that the currency risk is correctly managed are: the Treasury Department, that directly manages funding and the bank’s currency position; the Risk Management Department, responsible for selecting the most appropriate risk indicators and monitoring their trend with reference to preset limits; and the Top Management, which every year shall make proposals to the Bank's Board of Directors regarding policies on funding and the management of the currency risk, as well as suggest appropriate interventions during the year in order to ensure that operations are conducted consistently with the risk policies approved by the Group.

In order to monitor the currency risk, the Top Management receives a daily summary on the treasury’s general position, showing, among other things, the Group’s currency position broken down by currency. The Integrated Treasury System (SIT) provides control departments with the appropriate tools for monitoring and managing the currency risk. Furthermore, the Risk Management Department periodically reports to the Bank’s Board of Directors on the currency risk position by means of a quarterly Dashboard prepared for the Bank’s management.

Expansion into the Polish market through the subsidiary IFIS Finance does not change the above: assets denominated in zloty are financed through funding in the same currency.

With the acquisition of this Polish subsidiary, Banca IFIS has assumed the currency risk represented by the initial investment in IFIS Finance’s share capital for an amount of 21.2 million Zloty and the subsequent share capital increase for an amount of 66 million Zloty.

During 2010, Banca IFIS bought a 10% equity interest in the share capital of the company India Factoring and Finance Solutions Private Limited, for a total of 100 million Indian rupees and a value of 1,591 thousand Euro at the historic exchange rate. In addition, in December 2011 Banca IFIS underwrote and paid up for that company’s share capital increase for a total of 50 million rupees, approximately 715 thousand euro. Considering the size of this investment, it was not deemed necessary to hedge the ensuing currency risk.

Within the activities undertaken by Banca IFIS following the incorporation of Toscana Finanza S.p.A. or by the subsidiary Fast Finance S.p.A., there were no foreign currency positions.

Quantitative information

1. Distribution of assets, liabilities and derivatives by currency

Items

Currency

US DOLLAR

POUND STERLING

JAPANESE YEN

CANADIAN DOLLAR

SWISS FRANC

OTHER CURRENCIES

A. Financial assets

6.712

204

-

-

-

27.343

A.1 Debts securities

-

-

-

-

-

-

A.2 Equity instruments

-

-

-

-

-

-

A.3 Loans to banks

139

160

-

-

-

16.933

A.4 Loans to customers

6.573

44

-

-

-

10.410

A.5 Other financial assets

-

-

-

-

-

-

B. Other assets

3

 

 

 

 

36

C. Financial liabilities

319

-

22

-

155

157

C.1 Due to banks

292

-

22

-

155

2

C.2 Due to customers

27

-

-

-

-

11

C.3 Equity securities

-

-

-

-

-

-

C.4 Other financial liabilities

-

-

-

-

-

144

D. Other liabilities

214

8

1

 

4

324

E. Financial derivatives

6.183

-

-

-

-

-

- Options

-

-

-

-

-

-

+ long positions

-

-

-

-

-

-

+ short positions

-

-

-

-

-

-

- Other

6.183

-

-

-

-

-

+ long positions

-

-

-

-

-

-

+ short positions

6.183

-

-

-

-

-

Total assets

6.715

204

-

-

-

27.379

Total liabilities

6.716

8

23

-

159

481

Unbalance (+/-)

1

196

23

-

159

26.898

1.2.4 Derivative financial instruments

A. Financial derivatives

The Banca IFIS Group does not trade financial derivative products on behalf of third parties and limits proprietary trading to hedging instruments against market risk.

Sometimes Banca IFIS uses financial derivatives to hedge currency exposure. At the end of 2011 there was one derivative hedging against Euro/Dollar exchange-rate fluctuations.

Among the activities relating to Toscana Finanza S.p.A., which was merged at the end of the period into Banca IFIS S.p.A., there were two interest rate swaps, held to mitigate the interest rate risk.

As for the current operations, it should be noted that the Group never undertakes speculative transactions.

1.3 Banking group - liquidity risk

Qualitative information

A. General aspects, management procedures and measurement methods of the liquidity risk

The liquidity risk refers to the possibility that the Group is not able to service its debt obligations due to a lack of funds or inability to sell enough assets on the market to meet its financing needs. The liquidity risk also refers to the inability to obtain new adequate financial resources, in terms of amount and cost, to face its operational needs and opportunities, hence forcing the Group to slow down or freeze its business, or sustain very steep funding costs in order to service its obligations, significantly affecting returns.

Financial resources are represented by equity and funding from customers (in particular the online rendimax account) and carried out on the domestic and international interbank market, as well as on the Eurosystem. Considering the Group’s asset composition, the type of its business, and the strategies the Board of Directors defined in order to limit factoring operations on trade receivables to short or very short terms (as a rule not exceeding 6 months, with the exception of receivables due from the Public Administration, with average collection time usually up to 12 months), the liquidity risk for the Banca IFIS Group, in normal financial market conditions, is not critical.

In reference to the activities undertaken by Banca IFIS following the incorporation of Toscana Finanza S.p.A. or by the subsidiary Fast Finance S.p.A., the characteristics of the business model ensure a high level of variability in reference to both the amount and the effective receipt date. Therefore, the timely and careful management of cash flows is particularly important. Due to the limited amount of non-performing loans compared to the total assets of the Banca IFIS Group, the overall impact on the balancing of maturities of consolidated assets and liabilities can be deemed marginal. In order to ensure expected cash flows are correctly assessed, also with a view to correctly pricing the operations undertaken, the trend in receipts compared to expected flows is carefully monitored.

The Group has always secured adequate financial resources to fully meet its needs, albeit at marginally increasing costs, thanks to Banca IFIS’s wide and diverse interbank relationships with national and foreign counterparties; its securitisation programme, which led to the generation of securities eligible with the Eurosystem and transferable on the collateralised interbank market (MIC); the extremely positive response to the online funding through the rendimax savings account; the setting up of a bond portfolio eligible with the ECB, transferable on the MIC or suitable for financing repurchase agreements; and, lastly, the type and quality of Banca IFIS Group’s assets. During the year, the Bank pursued particularly prudent financial policies aimed at favouring funding stability, securing financial resources sometimes exceeding immediate operational needs: as a result, it firmly established itself as a lender on the interbank markets, albeit only for very short-term maturities. This policy, which sacrifices economic efficiency in treasury management, in terms of the rate spread between interbank funding and lending, in favour of certain and stable liquidity, is adequately supported by the revenue the Group obtains from its business.

Also during 2011, which saw continuing tensions on the financial markets, the Group continued to operate without significantly negative impacts. At the moment, the available financial resources are adequate for current and future business volumes. The Group is, nonetheless, constantly engaged in the balanced development of its own financial resources, in terms of both size and cost.

The Parent Company’s business departments responsible for ensuring that liquidity policies are properly implemented are: the Treasury Department, which directly manages liquidity; the Risk Management Department, responsible for selecting the most appropriate risk indicators and monitoring their trend with reference to preset limits; and the Top Management, which every year shall make proposals to the Bank's Board of Directors regarding policies on funding and the management of liquidity risk, as well as suggest appropriate interventions during the year in order to ensure that operations are conducted consistently with the risk policies approved by the Group

More specifically, as part of continuing operations and based on indications from the Treasury Department, as well as evaluations of lending trends, the Top Management establishes policies for financing operations with maturities higher than 3 months, in order to support ordinary short-/very short-term treasury activities, as well as manage and monitor liquidity risk trends.

As for its own direct operations, the Bank adopted a model for analysing and monitoring present and future liquidity positions as an additional instrument systematically supporting the Top Management’s and the Board of Directors’ decisions on liquidity. The periodic results are reported directly to the Supervisory Body, both with normal financial market conditions and in particularly stressed situations. In compliance with supervisory provisions, the Bank also has a Contingency Funding Plan aimed at protecting the banking Group from losses or threats arising from a potential liquidity crisis and guaranteeing business continuity even in the midst of a serious emergency arising from its own internal organisation and/or the market situation.

Furthermore, the Risk Management Department periodically reports to the Bank’s Board of Directors on the liquidity risk position by means of a quarterly Dashboard prepared for the Bank’s management.

With reference to subsidiaries, the treasury activity is co-ordinated by Banca IFIS’s Treasury Department, in accordance with the Group’s policies. Of course, the Bank may intervene directly in the subsidiaries’ favour if necessary.

As part of the continuous process of updating internal procedures, and taking into account the change in the Group’s scope, in January 2012 the Board of Directors approved the Group’s new liquidity risk governance and management system.

Quantitative information

1. Distribution by residual maturity of financial assets and liabilities Currency: Euro

Items/Duration

on demand

over 1 day up to 7 days

over 7 days up to 15 days

over 15 days up 1 month

over 1 month up to 3 months

over 3 months up to 6 months

over 6 months up to 1 year

over 1 year up to 5 years

over 5 years

Indefinite

duration

Cash assets

886.812

26.887

92.004

128.909

747.544

505.216

622.207

569.298

126.799

13.187

A.1 Government securities

-

-

-

-

316.127

381.685

497.422

272.860

58.562

-

A.2 Other debt securities

-

-

-

9.988

56.876

47.001

18.204

122.378

769

-

A.3 O.E.I.C. units

-

-

-

-

-

-

-

-

-

-

A.4 Loans to

886.812

26.887

92.004

118.921

374.541

76.530

106.581

174.060

67.468

13.187

- banks

147.177

7.000

35.000

-

2.802

-

-

-

-

13.127

- customers

739.635

19.887

57.004

118.921

371.739

76.530

106.581

174.060

67.468

60

Cash liabilities

537.180

134.752

62.602

1.664.644

616.696

146.469

373.152

123.462

-

-

B.1 Deposits and current accounts

532.793

85.625

62.602

102.979

316.696

146.469

373.152

120.886

-

-

- banks

16.522

47.237

-

10.213

63.521

-

-

-

-

-

- customers

516.271

38.388

62.602

92.766

253.175

146.469

373.152

120.886

-

-

B.2 Debt securities

-

-

-

-

-

-

-

-

-

-

B.3 Other liabilities

4.387

49.127

-

1.561.665

300.000

-

-

2.576

-

-

Off-balance-sheet transactions

-

-

-

-

5.984

-

227

12.576

-

-

C.1 Financial derivatives with exchange of

underlying assets

-

-

-

-

5.984

-

-

-

-

-

- long positions

-

-

-

-

-

-

-

12.576

-

-

- short positions

-

-

-

-

5.984

-

-

-

-

-

C.2 Financial derivatives with exchange of

underlying assets

-

-

-

-

-

-

-

-

-

-

- long positions

-

-

-

-

-

-

-

-

-

-

- short positions

-

-

-

-

-

-

-

-

-

-

C.2 Deposits and loans to be received

-

-

-

-

-

-

-

-

-

-

- long positions

-

-

-

-

-

-

-

-

-

-

- short positions

-

-

-

-

-

-

-

-

-

-

C.3 Irrevocable commitment to grant funds

-

-

-

-

-

-

-

-

-

-

- long positions

-

-

-

-

-

-

-

-

-

-

- short positions

-

-

-

-

-

-

-

-

-

-

C.5 Financial guarantees granted

-

-

-

-

-

-

227

-

-

-

Self-securitisation operation IFIS Collection Service

On 13 October 2008, Banca IFIS, together with Securitisation Services S.p.A. as the Arranger, BNP Paribas S.p.A. as the Co-arranger and IFIS Collection Services S.r.l., a special purpose vehicle, initiated a revolving securitisation programme involving Banca IFIS transferring, without recourse and as per Law 130/99, a portfolio of performing trade receivables due from account debtors the Bank previously acquired from its customers as part of its factoring operations.

The programme lasts five years and involves the transfer of a trade receivables portfolio due from account debtors, identifiable in block according to contractually defined eligibility criteria that are particularly strict and rigorous, in order to guarantee the positive performance of the factored portfolio.

The sale price of the receivables portfolio is equal to its par value minus a 0.80% discount. Payment by the vehicle to Banca IFIS is made partly on the transfer date (spot price) and partly deferred (deferred price). The deferred price is paid by the special purpose vehicle once funds from the collection of receivables are effectively available and is dynamically updated on each disposal date, on the basis of the criteria envisaged by the securitisation programme.

Vis-à-vis the securitisation programme, the special purpose vehicle IFIS Collection Services S.r.l. issued limited-recourse asset-backed securities for an initial amount of 280 million Euro. Considering the further significant growth in the securitised receivables portfolio, in May 2009 a further tranche of Class A2 securities was issued for 48 million Euro, increasing the overall nominal value of the securities to 328 million Euro. Banca IFIS underwrote also this tranche in full.

The securities may be freely used for refinancing operations with the European Central Bank, also in light of regulatory changes introduced by Guideline no. 1 of the European Central Bank of 4 March 2010.

In compliance with IASs/IFRSs, currently the securitisation process does not involve the substantial transfer of all risks and benefits, as it does not meet the derecognition requirements set by IAS 39.

Self-securitisation operation Il Giglio

On 25 January 2011 Toscana Finanza’s Board of Directors resolved to put in place a securitisation programme for non-performing loans pursuant to Law no. 130 of 30 April 1999 in order to optimise the operational and economic management of a part of its financial receivables portfolio.

The operation concerned non-performing banking loans identifiable in block and largely backed by mortgages for an overall book value of around 33.7 million Euro.

The special purpose vehicle, Giglio Srl, issued floating-rate asset-backed securities that were wholly underwritten by the merged company Toscana Finanza S.p.A., which was given a specific sub-servicing mandate for the collection and management of the receivables.

It should be noted that, by virtue of the terms and conditions underlying the operation, there is no substantial transfer of all the risks and benefits relating to the transferred assets (receivables). Therefore, and on the basis of international accounting standards (IAS/IFRS – Derecognition), the operation undertaken does not have any significant impact on the financial statements.

Exposure to high risk instruments - disclosure

Considering the goals it pursues and the technical aspects of the revolving securitisation of trade receivables described above, the Banca IFIS Group faces no exposure or risks arising from the trading or holding of structured credit products, whether carried out directly or through unconsolidated special purpose vehicles or entities. In particular, it is important to stress that the securitisation operations have not removed any risk from the Group’s total assets, since the derecognition requirements set by IAS 39 were not met. Meanwhile, the underwriting of the securities arising from the securitisation has not added any risk nor changed the presentation of the financial statements compared to that prior to said securitisation. In reference to the Recommendation set out in the Report of the Financial Stability Forum of 7 April 2008, Appendix B, we can state that there are no positions held in instruments deemed highly risky by the market or implying a risk greater than previously expected.

1.4 Banking group - Operational risks

Qualitative information

A. General aspects, management procedures and measurement methods of the operational risk

Operational risk it the risk of losses arising from inadequate or dysfunctional procedures, human resources, internal systems or external events. Losses from fraud, human error, business interruption, unavailability of systems, breach of contract and natural disasters all fall under this category. Managing operational risks requires the ability to identify the risks entailed by all significant products, activities, processes and systems that could compromise the Group’s goals. Operational risks include the risks of judicial or administrative sanctions, of significant financial losses or of reputational damage following violations of mandatory legal provisions (laws and regulations, such as the laws on banking transparency, anti-money laundering, privacy and administrative liability of legal entities) or corporate governance provisions (for example, the Corporate Governance Code for listed companies).

Correct management of operational risks is strictly connected to the presence of adequate organisational structures, operational procedures and IT support. Also the proper training of resources is extremely important. Indeed, Banca IFIS Group is constantly committed to the professional training and growth of its human resources.

During the year, Banca IFIS arranged to strengthen controls over operational risks by dedicating more resources to control departments and updating internal processes aimed at monitoring and identifying potential anomalous situations.

The management of operational risks for subsidiaries is, at present, guaranteed by the strong involvement of the Parent Company, which makes decisions on the subsidiary’s strategies also as far as risk management is concerned. Specifically, the subsidiaries’ most relevant organisational structures and operational processes are defined and approved by the Parent Company, while the Parent Company's Internal Audit Department, which extended its scope to the former Toscana Finanza Group as from 1 July 2011, is responsible for assessing levels of control over risks. It operates both directly and with the support of specialised local structures.

As far as business continuity is concerned, as from December 2006 Banca IFIS Group has adopted a Business Continuity Plan, that is a set of initiatives and counter-measures designed to keep business interruptions within the limits set in business continuity strategies. The Business Continuity Plan also includes the Disaster Recovery plan, designed to deal with events which could disrupt the corporate IT systems.

As for Basel 2 principles for calculating capital requirements against first-pillar credit risks, the Bank chose to adopt the Basic Indicator Approach.