FINANCIAL STATEMENTS 2018 · Luminor Bank AB (the “Bank” or “Luminor Lithuania”) is a credit institution holding a license for and is engaged in acceptance of deposits and

FINANCIAL STATEMENTS 2018

LUMINOR BANK AB GROUP CONSOLIDATED ANNUAL REPORT, SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

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CONTENTS

PAGE

INDEPENDENT AUDITOR’S REPORT 3

CEO STATEMENT 10

LUMINOR BANK AB GROUP CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2018 13

THE GROUP AND BANK INCOME STATEMENT 38

THE GROUP AND BANK STATEMENT OF COMPREHENSIVE INCOME 39

THE GROUP AND BANK STATEMENT OF FINANCIAL POSITION 40

THE GROUP STATEMENT OF CHANGES IN EQUITY 41

THE BANK STATEMENT OF CHANGES IN EQUITY 42

THE GROUP AND BANK STATEMENT OF CASH FLOWS 43

NOTES TO FINANCIAL STATEMENTS 45

ACCOUNTING POLICIES 47

RISK MANAGEMENT 69

OTHER NOTES TO THE FINANCIAL STATEMENTS 118

Luminor Bank AB GROUP CONSOLIDATED ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018

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CEO STATEMENT

Building a modern, accessible and truly Baltic banking partner to our customers I started as CEO of Luminor in October 2017, when the company was created through the merger of DNB’s and

Nordea’s Baltic operations. It was clear then that the transformation of merging and harmonizing these operations into one, modern, pan-Baltic operation would require a lot of effort, but was a necessity to create the nimble, efficient and customer-oriented bank we want to be. In 2018 we took the first steps on this journey by merging six legal entities into one pan-Baltic organization, by beginning the task of setting up one harmonized and independent IT infrastructure and by launching a number of operating initiatives to improve the viability, profitability and agility of the bank. Through the hard work of all our employees, we have so far had only minor disruptions to our customer service, which will remain our key priority throughout this transformation. It is clear that the on-going digitalization of our industry, enabling easy access to products and services and increasing the time available for value-added advice, is dramatically changing customers’ perceptions and

demands of their banks. So far, financial “disruptors” have primarily operated in the product part of our value chain, but with time they will target banking distribution too, through open architecture aggregator platforms. I believe in a coherent, trustworthy and complete bank offering, utilizing our core competences of assessing credit risk, helping customers with payments and cash handling, and offering competitive and relevant savings advice, in the best interest of our customers. Banking should be easy, affordable and accessible, and that requires a deep customer understanding, efficiency and scale, to be competitive in the long-term. The transformation we have embarked on is crucial for us to achieve the independence and efficiency required to deliver this vision to our customers, as well as for being an attractive partner for innovative ‘FinTech’ companies. Our financial results improved quite substantially in 2018 reaching net profit of EUR 125 m, not least considering we had extraordinary expenses for the transformation work of around EUR 26 million. However, profitability is far from satisfactory with a ROE of 7.1%. To ensure we have the means to invest in relevant solutions and strong service to our customers, we have to improve the bank’s profitability. Our earnings are also our first line of defense against any set-backs in the economic or credit environment. Our activities to improve profitability will be focused around four priority areas, all of which were initiated during the year:

1. Improve our efficiency. One of the rationales behind the merger in 2017 was to create better economies of scale, and to extract synergies. We will harmonize overhead and group functions, remove duplicative and wasteful activities, consolidate our branch network and create more automated processes. We will also ensure that all activities in the bank are relevant to our customers.

2. Improve Luminor’s funding position. As the third largest player in the market, we should not have a

materially different loan-to-deposit ratio from our large competitors. As a response, we have increased our focus on deposits, which will soon be aided by an improved technology offering. We are also well underway with our wholesale funding strategy, having raised our EUR 350m inaugural senior secured bond in October 2018 under our new EMTN program, and are already evaluating further issuances. We are also preparing to issue covered bonds, should the Estonian covered bond legislation will come into


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effect in October 2019. We acknowledge that we are a new issuer in the global capital markets, but are working hard to educate investors about our story and build trust in the funding markets through transparency and by delivering on our promises.

3. Improve capital efficiency. Luminor is the only large Baltic bank still working under the standardized capital approach under the Basel framework. Even if the differences to the Internal Rating Based approach will decline with Basel 4, we need to ensure we steer and price risk in an adequate way to build an efficient balance sheet, as well as working with our understanding, stress testing, and modelling of our credit risks, to close the gap to our competitors, regarding capital consumption. This work will take time, and it will probably involve regulatory approvals for new risk models, but it will be prioritized.

4. Ensure fair, rational, pricing of risk. Even when adjusting for our relative cost and capital disadvantage versus our competitors, over half of our loan portfolio fails to reach a profitability level above cost of capital. We will strive to price our business fairly and transparently, and to win business on relevance to our customers in our offering and service. We are convinced that we can improve our profitability and remain competitive.

We will also ensure that our capital and risk levels are calibrated in a way which allows Luminor to withstand a severe downturn without having to ask for additional capital from its owners. We believe that the stability and independence of a bank from a capital planning perspective is paramount to gaining trust from all stakeholders - customers, the funding market, employees, owners, and the broader society. This topic will remain a key priority for us as a bank. Our proficiency in monitoring and detecting cases of attempted, or suspicious, money laundering, is continuously improving. However, we can never fully protect ourselves from attempts to abuse our bank for these rogue purposes, but we must tirelessly continue to improve and refine the customer scrutiny before and after on-boarding, improve our transaction monitoring, and report what we find to the authorities. The hard work and investments will continue. We are continuing the hard work and large investments that we have made over the past years into improving our systems and processes for compliance and prevention of money laundering. The latter topic has received significant, but needed, scrutiny during the year, and will remain a key focus of authorities, regulators, media and the wider society, both in the region and abroad. The Baltic economic environment is benign currently, with healthy growth rates in GDP, almost full employment and balanced current accounts. Savings rates are also on healthy levels. The Baltic region is also benefitting from low indebtedness compared to many other European countries, with average government debt/GDP of 31.8% and average household debt/GDP of 26.3%. While this gives room for a sound improvement of living standards relative to our European neighbors in the years to come, we also need to be mindful that times can change, and that as one of the leading bank in the region we play an important role in these respects being large employers and credit providers. I would also like to highlight another significant event during the year, namely that a consortium led by private equity funds managed by Blackstone - one of the world’s largest private equity firms - in September 2018 agreed with Nordea and DNB to acquire 60% of Luminor, with an option to acquire Nordea’s remaining 20% over the

coming years. With Blackstone, we get an owner-partner, fully supportive of investing in making Luminor the preferred banking partner for consumers and companies in the region. We now have both the operational and financial muscle to accelerate our change agenda, for the benefit of all our stakeholders. The transaction is still subject to regulatory approval, but is expected to close in the middle of 2019. In September, Luminor received its first independent credit rating, when Moody’s assigned the bank a Baa1/P2.

Subsequently we issued our first senior unsecured bond - a EUR 350m three-year benchmark transaction - as an important first step to securing our long-term funding needs as an independent company.


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LUMINOR BANK AB GROUP CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2018

1. REPORTING PERIOD COVERED BY THIS REPORT Luminor Bank AB Group annual consolidated report covers the period from 1 January 2018 till 31 December 2018. 2. CONTACT DETAILS

Name of the Bank Luminor Bank AB

Legal status Limited liability company

Date and place of registration Registered with the Bank of Lithuania on 13 September 1993, registration No. 10

Company code 112029270

Office address Konstitucijos av. 21A, 03601 Vilnius, Republic of Lithuania

Telephone number (8 5) 239 34 44

E-mail [email protected]

Website www.luminor.lt 3. MAIN ACTIVITIES Luminor Bank AB (the “Bank” or “Luminor Lithuania”) is a credit institution holding a license for and is engaged

in acceptance of deposits and other repayable funds from unprofessional market players and lending, as well as provision of other financial services, and assumes the risks and liabilities related thereto.

Bank offers a wide range of products and services to its customers in all channels, digital and physical with headquarters in Vilnius and 29 customer service centers across the country. 10 centers are working as cashless service centers, and 19 providing cash operation. Bank has 368 ATMs throughout Lithuania.

At the end of 2018, the Bank employed ca 1.300 full-time employees and Luminor Bank AB group served ca 600,000 clients in the private and business segments.

“Luminor” (the Bank together with Luminor Bank AS in Latvia and Luminor Bank AS in Estonia) is the third-largest financial services provider in the Baltics, with its 1 million clients, 3000 employees, 16% market share in deposits and 22% market share in lending. Total shareholder equity of Luminor amounts 1.8 billion EUR and is capitalised at CET1 18%. Luminor’s vision is to become the best financial ecosystem for our customers.

The Bank provides the following financial services: taking of deposits and other repayable funds; lending (including mortgage loans); money transfers; issuing of payment cards and other payment vehicles and/or execution of transactions with them; financial lease (leasing); issuing of financial indemnities and guarantees; trading, on its own account or on account of customers, in money market instruments (cheques, bills,

certificates of deposits, etc.), foreign exchange, financial futures and options, foreign exchange and interest rate instruments, public trading securities, precious metals;

investment services; financial brokerage (agent activities); cash handling; informing and consulting on credits and payments; rent of safe deposit lockers; currency exchange (cash); safekeeping and administration of monetary funds; advice to undertakings on the capital structure, manufacturing strategy and the issues related thereto as

well as advice and services related to the reorganization, restructuring and acquisition of undertakings; provision of services related to issuance of securities; issuance and maintenance of electronic money; settlements between credit institutions (clearing); administration of investment funds or investment companies with a variable capital.

mailto:[email protected]

http://www.luminor.lt/


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Retail banking Bank’s brand value lies in its deep relationship with its customers and services. During 2018 main focus was placed on improving the service quality and customer satisfaction. Bank introduced chatboxs as new digital mean for customer service, offered online onboarding tool as simple way of becoming bank’s customer via digital channels, offered new simple one-touch button saving features in mobile app.

Retail banking team constantly evaluates the needs and requests of customers and estimates that the demand for digital banking services was growing during 2018 - cash operations in physical customer centers has decreased in 20%. Number of digital operations increased by 20% during the year. Bank faces increasing demand for high quality financial counselling of customers replacing the need for support for daily banking operation.

Bank’s customer service centers’ network across the country was revised in line with main tendencies – two customer service centers in Vilniaus and Kaunas changed the location and were reopened with bigger focus on customer counselling, 16 centers were closed due to annual revision of customer services centers. Currently 10 client service centers have cashless operations.

The main marketing activities during the year were focused on increasing card usage and promoting travel insurance sales, increasing awareness of savings feature on Bank’s mobile app, foster savings and pension fund investments for private customers as the economy creates favorable conditions for future savings.

Corporate banking During 2018 Bank remained committed to its goal to become the main bank for the largest Lithuanian companies and increase the scope of cooperation with small and medium enterprises. The main target of the period was balancing lending and deposit portfolios, thus attracting additional corporate and business funds. These efforts have resulted in increased corporate and business deposits 18,8% in 2018. New lending was mostly concentrated in wholesale and retail trade, manufacturing, real estate and agriculture sectors, indicating growing business share with core customers, as well as overall good economic outlook. The agriculture and food processing sectors remained among key strategic business lines for the Bank over the reporting period. The Bank provided finance services to farmers and agricultural companies financing working capital and investments. The cooperation with the state agricultural credit fund UAB Žemės ūkio paskolų garantijos fondas continued, so extended credits were backed by the guarantees of this institution. Additionally, Bank entered into agreement with this institution on portfolio guarantee, thus extending service capacities to agriculture companies. As for the marketing activities, the Bank implemented several marketing campaigns in SME and farmers segments. During 2018 the Bank was putting efforts on unifying inherited differences in business customer proposal, services and terms. Unified terms and conditions were introduced in the second half of 2018. Active corporate and business customer base remained stable with slight increase due to marketing campaigns and active sale activities. 4. GROUP ORGANIZATIONAL STRUCTURE On 1 October 2017 Nordea Bank AB (Swedish company registration No. 516406-0120) and DNB Bank ASA (Org. No. 984 851 006) after all regulatory approvals and competition clearance were received, have combined their Baltic business into a jointly owned bank, Luminor. By business transfer Nordea Bank AB Lithuania branch, Nordea Bank AB Latvia branch and Nordea Bank AB Estonia branch assets and liabilities, including shares of leasing, pension and distressed assets companies in Baltics were transferred to Luminor Bank AB (prev. AB DNB bankas), Luminor Bank AS in Latvia (prev. DNB banka AS) and Luminor Bank AS in Estonia (prev. Aktsiaselts DNB Pank).


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In 2018-2019 an internal corporate restructuring of Luminor will take place with an aim to concentrate the entire Baltic businesses of Luminor in Luminor Bank AS, a credit institution in Estonia; where Luminor Bank AS in Estonia will remain as the surviving entity while Luminor Lithuania and Luminor Bank AS in Latvia will be merged into Luminor Bank AS in Estonia and cease to exist. A cross border merger would be pursued under Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law as implemented in Lithuania, Latvia and Estonia respectively. All assets and liabilities of the respective subsidiaries would, in accordance with the relevant laws, be transferred into the Luminor Bank AS in Estonia as a matter of universal succession, and each subsidiary would cease to exist as a legal entity upon registration of the cross-border merger. Following the merger, Luminor Bank AS in Estonia would pursue the banking businesses in Lithuania and Latvia through its branches. At the end of the reporting period, Luminor Bank AB group (the “Group”) in Lithuania was composed of Luminor

Bank AB, its subsidiaries: Luminor Lizingas UAB, Luminor Investicijų Valdymas UAB, Luminor Būstas UAB, RECURSO UAB, PROMANO LIT UAB, Industrius UAB, Intractus UAB and its subsidiary Gėlužės Projektai UAB. The information about the Group’s subsidiaries and their business is provided in Section 6 “Subsidiaries” of this consolidated annual report. 5. IMPORTANT EVENTS IN THE FINANCIAL YEAR In the beginning of 2018 Luminor banks in Lithuania, Latvia and Estonia continued with the next phases of the legal merger, which foresaw full integration of the banks, continuing operations in all Baltic countries through Luminor Bank AS in Estonia and its registered branches in Latvia and Lithuania. On 19 February 2018 Luminor banks took the first steps to fill in prerequisites of the legal reorganization process by submitting a draft Merger Agreement to State Enterprise Register of Latvia and notifications to the Estonian Financial Supervisory Authority for branches opening in Latvia and Lithuania. On 28 June 2018 the ECB gave the official approval to carry out the cross-border merger in the Baltics. Throughout the year Luminor banks continued with finalizing the legal aspects of their merger and in November 2018 proceeded with notifying all counterparties and customers in Latvia and Lithuania about the upcoming change.

Luminor Bank AB Luminor Investicijų Valdymas UAB

Luminor Būstas UAB

100 %

100 %

100 % 100 %

Luminor Group AB (Kingdom of Sweden)

Intractus UAB

100 %

Gėlužės Projektai UAB

Industrius UAB

0.08 % 99,92 %

Luminor Lizingas UAB

100 %

RECURSO UAB

100 %

PROMANO LIT UAB

100 %


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On 13 September 2018 an agreement was signed between DNB Bank ASA and Nordea Bank AB with Braavos Bidco Limited (the ultimate shareholders of which belong to a consortium led by a US-based private equity firm Blackstone (“Blackstone”) to sell the majority stake in Luminor Bank AS (Estonia). As a part of the transaction,

Blackstone will acquire a 60% majority stake in the bank. Nordea and DNB will retain an equal 20% equity stake in Luminor Bank AS in Estonia and will continue to support Luminor with long term funding, expertise and ongoing representation in the governing bodies of Luminor. Additionally, Blackstone has entered into an agreement with Nordea to purchase their remaining 20% stake over the coming years. The closing of the transaction is subject to European Central Bank’s and local supervisory authorities’ approvals and is anticipated to occur in the first half of 2019. The Bank does not have an individual rating. In September 2018 Moody’s Investors Service assigned to Luminor Bank AS (Estonia) first time foreign and local currency long- and short-term deposit ratings of Baa1/Prime-2, as well as a long-term Baa2 senior MTN credit rating. The ratings assigned to Luminor Bank AS (Estonia) reflect the forward-looking assessment of the group’s operations as a whole, taking into account the future ownership change and merger effects, which will legally consolidate after the merger. 6. INFORMATION ON PERFORMANCE RESULTS The merger of the Baltic businesses of DNB and Nordea in October 2017 has had a significant impact both on the financial result and operational focus. The consolidated financial information prior to the merger represents consolidated results of DNB’s respective entities, whereas starting from 1 October 2017, such financial information also reflects the effects of the acquisition of assets and liabilities of Nordea. As a result, comparability of consolidated financial information between 2017 and 2018 is limited in light of the effects of the merger. Luminor Lithuania has managed to maintain its business momentum while integrating the operations to achieve a solid financial result in 2018. Net interest, fee and commission income reached EUR 152.3 million of which net interest income is EUR 109.1 million and net fee and commision income is EUR 43.2 million. Operating expences, which include personnel, depreciation, amortization and other administrative, reached EUR 102.5 million. Net profit for the year amounted to EUR 52.3 million. The historical return on equity (ROE) and its cost/income ratio (CIR) development is presented below.

Year 2016 2017 2018

Group Bank Group Bank Group Bank

Return on equity (%) 4.9 4.9 -1.9 -2.3 7.0 5.9

Cost/income (%) 58.9 56.7 64.5 64.9 61.9 64.5

LOANS As at the end of 2018 Luminor Lithuania loan portfolio amounted to EUR 5,1 billion, being at the same level as at the end of 2017. Loans to non-financial corporate customers comprised 42% and loans to households 53% of the credit portfolio. The market share of Luminor ‘s loans in Lithuania was approximately 23%. DEPOSITS Deposits from customers (excluding deposits from credit institutions) totalled 4,5 billion EUR at the end of 2018, increasing 17.6% from the end of 2017. Deposits from non-financial corporate clients comprised 40% and deposits from households 44% of the customer deposit portfolio of Luminor Lithuania. The majority of deposits are from Lithuanian residents and less than 1% of all deposits are from non-EU residents. The market share of Luminor’s deposits in Lithuania was approximately 21%. The loan-to-deposit ratio decreased in 2018 to 112% from 132% in 2017. CREDIT QUALITY


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The focus on the quality of credit portfolio remains strong aiming for a diversified lending structure. Luminor Lithuania pays special attention to determining proper and acceptable risk criteria that are applicable in credit decision making as well as in monitoring process seeking to sustain optimal credit risk level. In 2018, total lending portfolio had been slightly decreased, while the focus on sound credit quality was sustained. Continuous efforts were put forward to right-size and reprice the portfolio, in order to ensure adequate risk adjusted profitability of each individual exposure. Positive portfolio quality trend is supported by lower level of non-performing loans, despite the broader default definition according to IFRS9. Impaired loans were at 4.9% for the end of 2018 (5.0% in 2017), while total on-balance sheet allowances amounted to EUR 64,1 million, adding up to 25.5% provisioning ratio. Reduction of repossessed assets portfolio was one of the priorities in 2018. Favourable developments in the real estate market, continued commercial and private interest and supportive economic environment contributed to the reduction of repossessed assets portfolio which amounted to EUR 8,5 million as at end of 2018 (2017: EUR 18,2 million). Further reduction in portfolio will be also one of the key priorities in 2019. FUNDING One of the main objectives for Luminor is to create a self-sustainable combined banking group. In order to achieve this, one key prerequisites is to gradually replace parent funding with other forms of funding – deposits and wholesale funding from 3rd parties. Luminor has achieved tangible results in getting closer to a self-funded banking group. By 31 December 2018 Luminor Lithuania was able to grow the deposit base to 4,533 million EUR (31 December 2017: 3,856 million EUR). Among other sources of funding Bank is also using TLTRO II (Targeted Long-Term Refinancing Operations II) and parent funding. Parent funding is provided by two parent banks in the form of a syndicated loan, where each parent bank provides 50%. In addition to the current outstanding utilized funding, there is also an unutilized committed credit line of 637 million EUR in place as at 31 December 2018 (31 December 2017: 305 million EUR). As at 31 December 2018 outstanding TLTRO funding was 173 million EUR (31 December 2017: 300 million EUR). Funding of Luminor Lithuania is optimized between short and long-term funding to have the Net Stable Funding Ratio (NSFR) above 100%. As at 31 December 2018 NSFR was 120.2% (31 December 2017: 132.9%). For NSFR mortgages that would qualify for 35% or lower risk weight are calculated with 85% Required Stable Funding factor. LIQUIDITY Luminor Lithuania structural liquidity risk is conservative and well-balanced and appropriately adopted to the current economic and regulatory environment. The short-term liquidity risk is measured using the Liquidity Coverage Ratio (LCR), calculated according to the EBA Delegated Act. LCR was 179% as at 31 December 2018 (31 December 2017: 157%). The liquidity buffer, consisting of highly liquid assets in accordance with the Delegated Act, amounted to 1,444 million EUR as at 31 December 2018 (31 December 2017: 1,331 million EUR). Due to low interest rate levels, which do not support holding Bank liquidity buffer in debt securities, only 83 million EUR was invested in debt securities and 1,314 million EUR was held in Lithuanian Central Bank as at 31 December 2018. CAPITAL Capitalization of Luminor Lithuania is sufficient to ensure the financial stability of the Bank and satisfy the capital needed to deliver the business strategy. Total Capital Ratio of Luminor Lithuania is 17.9% as at 31 December 2018 (31 December 2017: 17.1%), which it comfortably above the internal target of 17.0% and the applicable regulatory requirements. The Total Capital Ratio is fully covered by Common Equity Tier 1 (CET1) capital. Own funds of Luminor Lithuania have reached 737 million EUR as at 31 December 2018 (31 December 2017: 713 million EUR). For calculating Credit, Market and Operational risk Luminor Lithuania is using the Standardized method in the Capital Adequacy calculations. As at 31 December 2018 the Leverage Ratio, calculated according to Basel Committee on Banking Supervision requirements, was 10.3% (31 December 2017: 9.8%). Leverage ratio is calculated as bank’s total Tier 1 own


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funds divided by its total risk exposure measure (including risk position on assets and off the balance sheet liabilities). 7. SUBSIDIARIES On 31 December 2018 Luminor Bank AB owned the following subsidiaries: Luminor investicijų valdymas UAB, Luminor būstas UAB, Luminor lizingas UAB, Industrius UAB, RECURSO UAB, PROMANO LIT UAB and Intractus UAB with its subsidiary Gėlužės Projektai UAB. Luminor investicijų valdymas UAB

Name Luminor investicijų valdymas UAB Legal status Limited company Date and place of registration Registered with the State nterprise Centre of Registers on 19

August 2003 Company code 226299280 Registered and actual office address Konstitucijos av. 21A, 03601 Vilnius, Republic of Lithuania Telephone numbers 1806 E-mail [email protected] Website www.luminor.lt Number of the permission to be engaged in the activities of a management company VĮK –003

Luminor Bank AB 100 per cent owned subsidiary Luminor investicijų valdymas UAB is engaged in management of pension funds. As of the end of 2018 Luminor investicijų valdymas UAB managed 4 second-pillar pension funds and 5 third-pillar pension funds. At the end of 2018, assets under management of Luminor investicijų valdymas UAB made EUR 384,30 million (360,96 million in 2017). The company provided its services to 173,3 thousand customers. Results of funds under management as at the end of 2018:

Title of the fund Basics of investment strategy Unit value

change YTD

Benchmark

change YTD

Second pillar pension funds

Luminor pensija 1 Government debt securities, equity 0% -0.54% 0.09%

Luminor pensija 2 Equity up to 25% -1.96% -1.01%

Luminor pensija 3 Equity up to 50% -3.32% -2.15%

Luminor pensija 4* Equity up to 100% -8.38% -5.84%

Third pillar pension funds

Luminor pensija 1 plius Government debt securities, equity 0% -0.64% 0.09%

Luminor pensija 2 plius Equity up to 50% -3.68% -2.15%

Luminor pensija 3 plius Equity up to 100% -8.72% -5.84%

Luminor pensija darbuotojui 1 plius Equity up to 25% -2.57% -1.01%

Luminor pensija darbuotojui 2 plius Equity up to 50% -4.24% -2.15%




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Luminor būstas UAB

Name Luminor būstas UAB


Date and place of registration Registered with the State Enterprise Centre of Registers on 10 January 2007


Registered and actual office address Konstitucijos av. 21A, 03601 Vilnius, Republic of Lithuania

Telephone number +370 698 21703


Website www.luminorbustas.lt Luminor būstas UAB is a subsidiary of Luminor Bank AB that provides real estate brokerage services in the country’s real estate market. On 31 December 2018, Luminor Bank AB owned 100 % of Luminor būstas UAB registered authorized capital of EUR 399,096.36. In 2018, Luminor būstas UAB carried out its activities in Vilnius, Kaunas, Klaipėda and the surrounding regions. At the end of the reporting period one real estate brokerage company and 38 individual brokers were providing real estate brokerage services under franchise agreements with Luminor būstas UAB. During the reporting period Luminor būstas UAB retained its position and was among the largest real estate brokerage companies in terms of sales and number of listings. In 2018, Luminor būstas UAB earned a EUR 72 thousand net profit. Luminor būstas UAB brokers intermediated in real estate assets sales worth EUR 51 million during the reporting period. The company generated 851 mortgage referrals to the Bank in 2018. Luminor lizingas UAB

Name Luminor lizingas UAB


Date and place of registration Registered with the State Enterprise Centre of Registers on 22 April 1999


Registered and actual office address Lvovo str. 25, 09320 Vilnius, Republic of Lithuania

Telephone number +370 5 2361380


Website www.luminor.lt

Luminor lizingas UAB is a subsidiary of Luminor Bank AB which holds 100 % of shares of Luminor lizingas UAB. The company provides financing for property purchase, finance lease, operating lease, hire purchase ( “leasing”) and factoring services. Overview of the company’s performance The company’s portfolio of financial services increased compared to the previous financial year and amounted to EUR 702 million at the end of 2018 (excluding other amounts receivable). Factoring services represented a 18 % share in the company’s total portfolio of financial services, motor vehicle leasing accounted for 28 %, car leasing – 34 %, industrial equipment and machinery leasing – 18 % and leasing for other categories of assets – 2 %. At the end of 2018, finance lease and operating lease comprised 91 % and 9 %, respectively, of the company’s leasing portfolio. In 2018 the reversal of special provisions from the previous periods was equal to EUR 96 thousand. Decisions on the granting of financing were made in accordance with the Luminor’s credit policy and instructions. The company’s financial result before tax for 2018 was a profit of EUR 10,048,591.




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As at 31 December 2018, the authorized share capital amounted to EUR 1,352,407 and assets totaled EUR 692,503,427. Financing Luminor Bank AB granted financing necessary for the provision of leasing and factoring services by Luminor lizingas UAB. Personnel At the end of 2018, the company had 55 full-time employees compared to the end of 2017 company had 37 full-time employess. Shares of other entities held by the company In 2006, the company acquired 51 shares of ALD Automotive UAB. The nominal value of the shares is equal to EUR 1,477 representing 25 % of the latter company’s authorised share capital. The company neither acquired nor disposed of own shares during the reporting period. Intractus UAB

Name Intractus UAB


Date and place of registration Registered with the State Enterprise Centre of Registers on 6 August 2009




The Bank’s subsidiary Intractus UAB is a limited liability company set up for efficient management of foreclosed real estate assets. The company is entitled to effect operations related to the efficient management of real estate, such as buying, selling, and renting of real estate. On 31 December 2018, Luminor Bank AB was the sole shareholder of Intractus UAB with a registered authorized share capital of EUR 42,703,257.60. The real estate assets on Intractus UAB consolidated statement of the financial position were EUR 7,153,160.62 as of 31 December 2018, including land plots, buildings and premises. Intractus UAB fully owned a limited liability company Gėlužės Projektai UAB (company code 301135524) with an authorized capital of EUR 7,946,000 as at the end of the reporting period. Gėlužės Projektai UAB developed one project and at the reporting date all real estate assets were sold. On 31 December 2018, Intractus UAB owned 0.08 % of Industrius UAB (company code 302593805) registered shares.



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Industrius UAB

Name Industrius UAB


Date and place of registration Registered with the State Enterprise Centre of Registers on 15 February 2011



The Bank’s subsidiary Industrius UAB is a limited liability company set up for efficient management of foreclosed real estate assets. On 31 December 2018, Industrius UAB authorized capital was EUR 13,782,237.76 Luminor Bank AB owned 99.92 % of Industrius UAB ordinary registered shares and 0.08 % of the company’s shares were owned by the Bank’s subsidiary Intractus UAB. At the reporting date Industrius UAB real estate assets on the balance sheet were EUR 496,348.86, including real estate like land plots, buildings and premises. RECURSO UAB

Name RECURSO UAB


Date and place of registration Registered with the State Enterprise Centre of Registers on 18 May 2012



The Bank’s subsidiary RECURSO UAB is a limited liability company set up for efficient management of foreclosed real estate assets. On 31 December 2018, Luminor Bank AB was the sole shareholder of RECURSO UAB with a registered authorized share capital of EUR 4,344,300. At the reporting date RECURSO UAB real estate assets on the balance sheet were EUR 280,598.34, including real estate like land plots. PROMANO LIT UAB

Name PROMANO LIT UAB


Date and place of registration Registered with the State Enterprise Centre of Registers on 31 July 2009



The Bank’s subsidiary PROMANO LIT UAB is a limited liability company set up for efficient management of foreclosed real estate assets. On 31 December 2018, Luminor Bank AB was the sole shareholder of PROMANO LIT UAB with a registered authorized share capital of EUR 9,999,999.36. At the reporting date PROMANO LIT UAB real estate assets on the balance sheet were EUR 540,000, including real estate like buildings and premises.


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8. RISK MANAGEMENT AND INTERNAL CONTROL The permanently functioning risk management framework and internal control system are implemented in the Group. The risk management function of the Group is organized in such a way that ensures efficient risk management and fulfilment of the principles stipulated in the Risk Policy and Strategy. The Group identifies, evaluates, accepts and manages the risks or combinations of risks it is exposed to. In uncertain cases the Group follows the principles of precaution, conservatism and prudence. The aim of risk management activity in the Group is to maintain a risk profile that delivers predictable income and loss volatility. While implementing a sound risk management policy the Group focuses not only on minimizing potential risk but also on improving pricing and achieving efficient capital allocation. The risk-related activity of the Bank and the Group is guided by Credit Strategy and Risk Appetite Framework. The Bank assesses and manages credit, liquidity, market, operational and other (business, reputational) risks it is exposed to in its activities. The credit risk is the dominant in the Bank’s risk structure. The detailed information about financial risk assessment and management is provided in the Section “Risk Management” of this report. The strict risk management principles were kept during the reporting period. The risk management processes are continuously being improved taking into account the best practice applied by the whole financial system. The risk management is organized in such a way that any possible conflicts of interest would be avoided. The function of all-type risk control is segregated from risk taking, i.e. from the front-office units. The internal control – as a system of organizational measures, actions and internal procedures – ensures the effective and efficient operations and prudent conduct of business, the compliance with laws and regulations, the adequate assessment and control of risks, as well as the reliability of financial and non-financial information and submission thereof in a timely manner. The duly established and regulated control function is operating in the Group. The control activities in the Bank are performed by the second line of defence that consists of Risk control functions (Risk Analysis, Operational Risk, Market Risk, Credit Control departments) and Compliance functions (Compliance Department), and the third line of defence, represented by the Internal audit function (Internal Audit Department). Each control function periodically submits reports to the management of the Bank. The Risk Committee in the Bank advises the Management Board and the Supervisory Council on a common present and future risk appetite of the institution and assists the Supervisory Council in overseeing how the risk strategy is implemented (see Section “Information on the activities of the committees”). Luminor Bank AB – as one of the largest 3 banks in the country and the systemically important institution – is directly supervised by the European Central Bank, which closely cooperates with the local Central Bank. As a result of pursuing the appropriate risk management policy and following the laws and regulations the Bank and the Group were compliant with all prudential requirements set by the Supervisory Institutions. Information about the compliance with the prudential requirements as of 31 December 2018 (%):

Ratio Bank Group

Liquidity (LCR ratio) 175.0 179.3

Capital adequacy 17.8 17.9

Largest exposure to one borrower 12.6 12.9


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9. STRATEGY AND PLANS Luminor´s core business is to serve entrepreneurial people in the Baltics, with primary focus on local companies as well as financially active people with an entrepreneurial mind-set. After Luminor was established, it was natural that new strategic goals were set by the Luminor management. One of the biggest goals of Luminor banks has been to complete the activities associated with the merger and build a single well-functioning organisation. The Bank is focused on a customer experience excellence on the basis of data and knowledge, strong local presence with large-scale advantages, operational excellence and strong, performance driven culture that is rooted in our core values – curiosity, collaboration and focus. Luminor will measure its performance through return on equity, underlying cost to income ratio, CET1 ratio and annual credit risk cost. This starting point impacts many of our strategic choices and short to medium-term activities, but we are determined to execute on our key strategic priorities:

Excel in customer experience, including new product offerings and improved customer service Launch of new digital channels. Today Luminor is a traditional bank with digital products, services

and channels. Luminor aims to be a fully digital bank with modern technological platforms Ensure robust compliance / AML activities Consolidating information technology systems and operational independence (carve out from

parent banks and customer migration into one platform per country) Quality of talent and leadership Improve capital efficiency and balance sheet risk management

10. BANK’S ORGANIZATIONAL STRUCTURE


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11. MANAGEMENT

The Bylaws provide that the bodies of the Bank are the following: General Meeting of Shareholders, Supervisory Council, Management Board and Head of Administration (Chief Executive Officer). The management bodies of the Bank are the following: Management Board and Head of Administration (Chief Executive Officer). The competence of the General Meeting of Shareholders of the Bank is described in the Bylaws of Luminor Bank AB and the laws of the Republic of Lithuania.

The Supervisory Council of the Bank is a collegial supervisory body supervising the operation of the Bank. The General Meeting elects 5 Members of the Supervisory Council. The Supervisory Council is elected for the period of 4 years.

The Supervisory Council supervises the activity of the Management Board and the Chief Executive Officer, ensures the existence of the effective internal control system in the Bank and takes other rights and obligations, described in the Bylaws of Luminor Bank AB and the laws of the Republic of Lithuania.

The Management Board of the Bank is a collegial management body consisting of 5 Members. The Management Board is elected by the Supervisory Council for 4 years. The Management Board manages the Bank and its affairs, represents it and bears the liability for the performance of financial services according to the law. The Management Board appoints and dismisses the Chief Executive Officer and the deputy to the Chief Executive Officer and takes other rights and obligations, described in the Bylaws of Luminor Bank AB and the laws of the Republic of Lithuania. The Chief Executive Officer is a single person management body of the Bank. The Chief Executive Officer organizes the daily operation of the Bank and takes other rights and obligations, described in the Bylaws of Luminor Bank AB and the laws of the Republic of Lithuania. 12. SUPERVISORY COUNCIL According to the Bylaws the Supervisory Council of Luminor Bank AB consists of five members. On 31 December 2018 there were all 5 members, namely Erkki Raasuke (chairman), Karl Christian Wallentin, Mari Mois, Marilin Pikaro and Hannu Kalevi Saksala. Seventeen meetings of the Supervisory Council of Luminor Bank AB were held during the reporting period. None of the members of the Supervisory Council missed more than half of the Supervisory Council meetings. Information about position, office term, education, professional qualification and management competence of the members of the Supervisory Council:

Name Position

Information on start and end of holding the office Education

Information about management competence and experience

Information on other managerial positions during 2018

Start End

Erkki Raasuke

Chairman of the Supervisory Council

01 10 2017 01 10 2021

Tallinn Technical University, Degree in Economics

Hansabank AS Head of Interest Rate Products (1994-1998), Hansabank AS Member of the Management Board, Chief Financial Officer (1998-2001), Hansabank AS Vice Chairman of the Management Board, Managing Director of Corporate Banking in Estonia (2001-2003), Hansabank Estonia Managing Director (2003-2005), Hansabank AS CEO and Chairman of the Management Board, Swedbank AB Member of the Group Executive Management (2005-2009),

Chairman of the Supervisory Council in Luminor Bank AS, legal entity code 11315936, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia; Chairman of the Supervisory Council in Luminor Bank AS, legal entity code 40003024725, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; Managing Director in Luminor Group AB, legal entity code 559072-8316, registered office at c/o Wistrand Advokatbyrå, Box 7543,


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Swedbank AB Chief Financial Officer (2009-2011), Counsellor to the Minister of Economic Affairs and Communications Estonia (2012-2013). LHV Group, Managing Director (2013-2017)

109 93 Stockholm, Sweden.

Karl Christian Wallentin

Member of the Supervisory Council

01 10 2017 01 10 2021

Stockholm School of Economics, Master of Science in Economics and Business Administration

Goldman Sachs International, Investment Banking Associate (2004-2006), Permira Advisers KB Investment Professional (2006-2010), Nordea bank AB Head of Group Corporate Development (2010-2017)

Member of the Supervisory Council in Luminor Bank AS, legal entity code 11315936, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia; Member of the Supervisory Council in Luminor Bank AS, legal entity code 40003024725, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; till 2018-11-30 Member of the Supervisory Council in Luminor Pensions Estonia AS, legal entity code 11469303, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia; Member of the Supervisory Council in Luminor Asset Management IPAS, legal entity code 40003699053, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; Member of the Supervisory Council in Luminor Latvijas atklatais pensiju fonds AS, legal entity code 40103331798, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; till 2018-11-11 Member of the Supervisory Council in Luminor investicijų valdymas UAB, legal entity code 226299280, registered office at Konstitucijos av. 21 a, Vilnius, Lithuania; Chairman of the Management Board in Luminor MiCom AB, legal entity code 559072-8217, registered office at c/o Nordea Bank AB, Smålandsgatan 17, 105 71 Stockholm, Sweden.

Mari Mois


01 10 2017 01 10 2021 University of Tartu, Master in Law

AS SEB Pank, Lawyer (2001-2003), SEB Leasing and Factoring, Senior Legal counsel (2003-2007), Law office Sorainen, Senior Associate (2007-2008), Estonian Business

Member of the Supervisory Council in Luminor Bank AS, legal entity code 11315936, registered office at Harju maakond, Tallinn, Kesklinna linnaosa,


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School, Lecturer of Banking Law (2007-2009), AS SEB Pank, Senior Legal Counsel, Deputy Head of Legal Department (2008-2011), Tallinn Technical University, Lecturer (2009-2014), AS DNB Pank Head of Legal Department (2011-2014), AS DNB Pank Member of the Management Board (2014-2017)

Liivalaia tn 45, 10145, Estonia; Member of the Supervisory Council in Luminor Bank AS, legal entity code 40003024725, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; Member of the Supervisory Council in Luminor Liising AS, legal entity code 10237140, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia; Member of the Supervisory Council in Luminor Lizings SIA, legal entity code 40003348054, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; Member of the Supervisory Council in Luminor Lizingas UAB, legal entity code 111667277, registered office at Konstitucijos av. 21a, Vilnius, Lithuania.

Marilin Pikaro


01 10 2017 01 10 2021

Tallinn University, Master in Social Sciences, University of Konstanz, Germany, Master level studies in Politics and Public Law

Central Criminal Police, Police and Border Guard Board, Investigator, Senior Investigator (2001-2007), Ernst&Young Baltic, Senior Consultant (2007-2013), Member of the Executive Team (2013-2017)

Member of the Supervisory Council in Luminor Bank AS, legal entity code 11315936, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia; Member of the Supervisory Council in Luminor Bank AS, legal entity code 40003024725, registered office at Riga, Skanstes iela 12, LV-1013, Latvia.

Hannu Kalevi Saksala


01 10 2017 01 10 2021

University of Helsinki Master of Science (Law)

Kansallis Bank (Nordea). Legal in House Counsel (1985-1986), Branch Manager (1986-1987), Senior Relationship Manager (1988-1990), Branch Manager (1990-1995), Svenska Handelsbanken, Senior Relationship Manager, Branch Banager (1995-1999), Head of Credit in Finland (2000-2002), Branch Manager (2002-2004), Helsinki OP Bank Senior Relationship Manager (2005-2006), Bank DnB NORD Head of Credit in Finland (2007-2009), DnB NOR Bank, Group Chief Credit Officer in Baltic/Poland (2009-2011), DNB Bank ASA Credit Officer, vice-chairman of the Advisory Credit Committee for

Member of the Supervisory Council in Luminor Bank AS, legal entity code 11315936, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia; Member of the Supervisory Council in Luminor Bank AS, legal entity code 40003024725, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; Member of the Supervisory Council in Luminor Pensions Estonia AS, legal entity code 11469303, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia; Member of the Supervisory Council in Luminor Asset


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Baltics/Poland (2011-2012), DNB Bank AS Chief Risk Officer in DNB Bank Estonia (2012-2017), Chief Risk Officer in Latvia (2016-2017)

Management IPAS, legal entity code 40003699053, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; Member of the Supervisory Council in Luminor Latvijas atklatais pensiju fonds AS, legal entity code 40103331798, registered office at Riga, Skanstes iela 12, LV-1013, Latvia; Member of the Supervisory Council in Luminor investicijų valdymas UAB, legal entity code 226299280, registered office at Konstitucijos av. 21 a, Vilnius, Lithuania.

13. MANAGEMENT BOARD According to the Bylaws the Management Board of Luminor Bank AB consists of five members. On 31 December 2018 there were all 5 members, namely Andrius Načajus (chairman), Jonas Urbonas, Rita Božičkienė, Jurgita Šaučiūnienė and Viktorija Kavaliauskaitė. Ramūnas Abazorius, who has been elected as member of Management Board on 1 October 2017, under his request, was recalled from the Management Board as of 31 May 2018. In replace to Ramūnas Abazorius and subject to European Central Bank permission Jurgita Šaučiūnienė started her office as a new Management Board member as of 23 August 2018. Information about position, office term, education, professional qualification and management competence of the members of the Management Board:

Name Position

Information on start and end of holding the office Education

Information about management competence and experience

Information on other managerial positions during 2018 Beginning End

Andrius Načajus

Chairman of the Management Board, Chief Executive Officer

01 10 2017 01 10 2021

Stockholm School of Economics, Riga, Latvia, B.Sc. in Economics and Business Administration; Stockholm School of Economics, Sweden, M. Sc. International Business and Economics, with specialization in Finance

Trigon Capital, Tallinn, Senior Associate (1999-2002); AB Lietuvos Žemės Ūkio Bankas, Advisor to the Member of the Management Board (2002); AB Lietuvos Žemės Ūkio Bankas/AB NORD/LB Bankas, Head of Investment Banking (Markets since 25 08 2010) (2002-2010); AB DNB Bankas, Head of Markets for Baltics (2010- 2014), Member of the Management Board (since 2014.)

As of 2018-11-12 member of the Management Board in Luminor Bank AS, legal entity code 11315936, registered office at Harju maakond, Tallinn, Kesklinna linnaosa, Liivalaia tn 45, 10145, Estonia.

Jurgita Šaučiūnienė

Member of the Management Board, Chief Accountant, Head of Group Finance Development and

23 08 2018 01 10 2021

Vilnius University, Master in Business administration and Management

Auditor‘s Assistant, Accountant, audit company TŪB „J. Kabašinskas ir partneriai“ (1997 - 1998); member of KŪB, J. Kabašinsko KŪB „JKP konsultacijos“


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Accounting Policy

(1998 - 1999); Account in NORD/LB bank representative office in Vilnius (1999-2001); Chief Accountant in NORD/LB bank Vilnius Branch (1999 - 2003); Manager of the Accounting Policy Unit in AB Bankas NORD/LB Lietuva (2003 - 2004); Manager of the Accounting Department/ Chief Accountant in AB DNB Bankas (2004-2017); Member of the Management Board in UAB Intractus (2009-2012); Head of Group Finance Development and Accounting Policy / Chief Accountant in Luminor Bank AB (2017-2018), Member of the Management Board, Chief Financial Officer, Head of Group Finance Development and Accounting Policy, Chief Accountant in Luminor Bank AB (since 2018).

Jonas Urbonas

Member of the Management Board, Deputy Chief Executive Officer

01 10 2017 01 10 2021

Vilnius University, Master in Finance

VB Lizingas, Project Manager (1998-2001); SEB lizingas, Head of Transport Leasing Division (2001-2004), Head of Sales, Member of the Board (2004-2009); SEB bankas, Retail Branch Manager/ Head of Corporates (2009-2010); Nordea Bank AB Lithuanian branch, Head of Large Corporate Customer Desk (2010-2013), Deputy Head of Banking Lithuania, Head of Corporate Banking Department (since 2013)

Rita Božičkienė


01 10 2017 01 10 2021

Vilnius University, Diploma in Economics

Agricultural Bank of Lithuania, Economist, Credit Officer, Expert of Corporate Loans (1989-2000); Nordea Bank AB Lithuanian branch, Deputy General Manager, Head of Credit Department (since 2000-2018)


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Viktorija Kavaliauskaitė


01 10 2017 01 10 2021

Vilnius Gediminas Technical University, Master in Business Administration and Management

UAB Blue Bridge, CRM Solutions Consultant, Project Management Solutions Consultant, IT Service Management Consultant (2007-2009), Barclays Technology Centre, Project Manager (2009-2011), AB DNB Bankas, Project Manager, Head of Department (since 2012)

The members of the Supervisory Council and the Management Board have no shares of the Bank. The members of the Supervisory Council, the Management Board and the administrative bodies are not connected by any family relationship between any of them. The members of the Supervisory council, the Management Board and the administrative bodies of the Bank have not been convicted for any crimes of forgery. They have not been publicly officially incriminated or imposed any sanctions by any regulatory authority over the period of past five years. They have not been disqualified by a court from holding office as the member of the bank‘s administrative, management or supervisory body acting in the management or conduct of the affairs of any Bank. The members of the Supervisory Council, the Management Board and the administrative bodies of the Bank have no interests of conflict between any duties to the Bank and their private interests and/or other duties. The Bank has not entered into any deal with the above mentioned persons outside his/her principal activities. Additional information about the Chairman of the Management Board and the CEO and Chief Financial Officer: Andrius Načajus (Chairman of the Management Board and the CEO of the Bank): holds Master Degree in Business and Economics from Stockholm School of Economics. Work record: Trigon Capital, Tallinn, Senior Associate; AB Lietuvos Žemės Ūkio Bankas (later AB NORD/LB bankas, DnB NORD, AB DNB Bankas), advisor to the Member of the Management Board, Head of Investment Banking (Markets since 25 08 2010), Head of Markets for Baltics, Member of the Management Board (since 2014). Andrius Načajus has no shares of the Bank. Jurgita Šaučiūnienė (Chief Financial Officer, Head of Group Finance Development and Accounting Policy, Chief Accountant): Master’s Degree in Business administration and Management from Vilnius University. Start of holding the office as Manager of the Accounting Department at the Bank in 2004. Previous work record: Auditor‘s Assistant, Accountant, audit company TŪB „J. Kabašinskas ir partneriai“ (1997 - 1998); member of KŪB, J. Kabašinsko KŪB „JKP konsultacijos“ (1998 - 1999); Account in NORD/LB bank representative office in Vilnius (1999-2001); Chief Accountant in NORD/LB bank Vilnius Branch (1999 - 2003); Manager of the Accounting Policy Unit in AB Bankas NORD/LB Lietuva (2003 - 2004). Jurgita Šaučiūnienė has no shares of the Bank. 14. INFORMATION ON THE ACTIVITIES OF THE COMMITTEES Audit and Compliance Committee Audit and Compliance Committee is a non-structural unit of the Bank. The Audit and Compliance Committee is established and controlled by the Supervisory Council of the Bank. Its main functions are as follows:

Monitoring and support effective functioning of risk management and internal control systems in the Bank, including monitoring the preparation process and the integrity of the consolidated financial reporting of the Bank;

Monitoring and support effective external audit process, including monitoring the independence and objectivity of the external auditor and facilitating the external auditor’s selection process in the Bank;

Monitoring and support effective internal audit process;


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Monitoring and support effective Compliance, AML/CTF and Anti-Financial Crime monitoring processes.

The Audit and Compliance Committee consists of three members: Chairman Marilin Pikaro, Group Chief Compliance Officer

Members

Mari Mois, Head of Group Legal Division Hannu Kalevi Saksala, Group Chief Risk Officer

The Members of the Audit and Compliance Committee have no shareholdings in Luminor Bank AB. During 2018 nine meetings of the Audit and Compliance Committee were held. Risk Committee The Risk Committee is a non-structural unit of the Bank. The Risk Committee is established and controlled by the Supervisory Council. The Risk Committee is responsible for ensuring the effective formation of optimal capital structure, risk management and control, optimization of the Bank’s asset and liability structure with regard to acceptable risk and return. The Risk Committee’s functions:

Advise the Supervisory Council on overall current and future risk appetite and strategy, Assist the Supervisory Council in overseeing the implementation of the risk strategy, Analyze asset and liability structure and related issues, Make proposals to the Supervisory Council on the optimal capital structure.

The Risk Committee consists of four members:

Chairman Hannu Kalevi Saksala, Group Chief Risk Officer

Members

Mari Mois, Head of Group Legal Division Marilin Pikaro, Group Chief Compliance Officer Erkki Raasuke, Group Chief Executive Officer

The Risk Committee held nine meetings in 2018. The Members of the Risk Committee have no shareholdings in Luminor Bank AB. Remuneration Committee Remuneration Committee is a non-structural unit of the Bank. The Remuneration Committee is established and controlled by the Supervisory Council. The Remuneration Committee:

Evaluates the policy and practices of the variable remuneration and ensures that the system of remuneration would take into account all types of risks, capital, liquidity and is compatible with sound and effective risk management and strategy, goals and long-term interests;

Directly oversees the variable remuneration of employees heading the functions responsible for the risk management and compliance;

Prepares the decisions to be taken by the Management Board regarding variable remuneration, including those decisions which have implications for the risks assumed and the risk management, taking into consideration the long-term interests of shareholders, investors and other stakeholders in the institution and the public interest.


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In 2018 three meetings of Remuneration Committee were held. The Bank's Remuneration Committee consists of these members: Chairman Erkki Raasuke

Members Karl Christian Wallentin Mari Mõis

Nomination Committee Nomination Committee is a non-structural unit of the Bank. The Nomination Committee is established and controlled by the Supervisory Council. In 2018 one meeting of Remuneration Committee was held. The Nomination Committee:

Recommends, for the approval of the management bodies or for approval of the shareholder, candidates to fill the vacancies in the management bodies, evaluates the balance of knowledge, skills and experience of the management bodies and prepares a description of the roles and capabilities for a particular appointment, and assess the time commitment expected, as well as evaluates the candidates proposed by the shareholder;

At least annually, assesses the structure, size, composition and performance of the management bodies and makes recommendations to the management bodies with regard to necessary changes;

At least annually, assesses the knowledge, skills and experience of individual members of the management bodies and of the management bodies collectively, and reports to the management bodies accordingly;

Makes recommendations to the management bodies in order to ensure that the management body's decision making is not dominated by any one individual or small group of individuals in a manner that is detrimental to the interests of the Bank as a whole;

Decides on a target for the representation of the underrepresented gender in the management bodies and prepares proposals (policy) on how to increase the number of the underrepresented gender in the management bodies in order to meet that target;

Periodically reviews the policy for selection and appointment of the senior management and makes recommendations to the management bodies.

The Nomination Committee consists of these members appointed from the members of the Supervisory Council: Chairman Erkki Raasuke

Members Karl Christian Wallentin Mari Mõis

Credit Committee The regulations of Credit Committee are approved by the Management Board of the Bank. The regulations describe the organization of local credit committees, responsibilities of members and credit decision-making principles. The Credit Committees operate in accordance with the strategic plans and the credit policy of Luminor group. The Credit Committee is the decision making body regarding individual credit and work-out cases, administrative credit issues, also contributes to developing a sound and uniform credit culture in the Bank. The composition of the Credit Committee depends on a decision-making level. The Credit Committees are comprised of representatives from Credit Risk Management (pre-control function) & Business (decision-making function).


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II level

Management Board Credit Committee

Chairman: Chief Credit Officer

CEO

Authorized persons from Credit Risk Management and Business units

III level

Corporate Credit Committee

Chairman: Corporate Credit Officer

Authorized persons from Business units and Leasing

III level

Business Credit Committee

Chairman: Local Business Credit Officer


III level

Household Credit Committee

Chairman: Household Credit Officer


All Credit Committee decisions must be taken in quorum. Approvals must be unanimous. Credit Committee meetings are held once or twice a week, depending on a decision making-level. The Members of the Credit Committees have no shareholdings in Luminor Bank AB. 15. EMPLOYEES As of 31 December 2018 the number of employees in the Group was 1,303 employees, 1,234 of them were the employees of Luminor Bank AB. In the reporting year, the number of the Group’s employees averaged 1,274. Changes in the number of employees and salaries

31 12 2015 31 12 2016 31 12 2017 31 12 2018 Number of staff in the Bank

1,040 1,059 1,245 1234

Number of staff in the Group

1,056 1,072 1,294 1303

Average monthly salary in the Group in EUR

1,372 1,390 1,551 1,728

As at 31 December 2018, the average monthly salary by main staff groups was as follows: EUR 4,133 to the administration (excluding members of the top management); EUR 1,473 to the specialists. The Group’s staff by groups of positions as of 31 December 2018

Number of employees

Staff structure by education

Higher Specialized secondary (high) Secondary

Administration 123 117 3 3

Specialists 1,180 964 68 148

Total 1,303 1,081 71 151

16. REMUNERATION POLICY In August 2018 the Total Reward Policy of the Bank was updated to reflect Luminor strategy and objectives for the total reward. The Total Reward Policy has been drawn up in accordance with the European Banking Authority Guidelines on sound remuneration policies under Article 74(3) and Article 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013, Resolution No. 03-82 of the Board of the Bank of Lithuania of 8 May 2015 on Approval of the Description of Minimum Remuneration Policy Requirements for Employees of Credit Institutions and Financial Brokerage Companies, as well as other legal acts. The Total Reward Policy is reviewed annually.


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The Total Reward Policy applies to all Bank’s employees in ensuring equal opportunities without gender discrimination or on any other grounds. The Total Reward Policy applies to the Bank's subsidiaries insofar as it does not conflict with the legal acts applicable to them. By establishing and applying the Total Reward Policy the Bank aims to align the total reward with prevailing strategies and values and contribute to the attainment of the goals, inspire conduct to build the desired corporate culture with respect to reputation, performance and long term shareholder value, contribute towards social responsibility and image as an attractive employer, support its ability to attract, develop and retain highly motivated, competent and performance oriented employees and hence the People Strategy, empower excellent leadership and challenging tasks as driving forces for creating high commitment and cooperation among the employees, ensuring equal opportunities without gender discrimination or on any other grounds and promote and incite sound risk management and control, help avoid conflicts of interest as well as ensure that the total remuneration schemes are predictable and transparent.

Main elements of remuneration structure consist fixed remuneration, variable remuneration and benefits. Fixed remuneration is set in a way that it reflects professional experience and organizational responsibility taking into account the level of education, the degree of seniority, the level of expertise and skills, and job experience, the relevant business activity and remuneration level of the geographical location. Variable remuneration is designed to differentiate the Bank from other sector players adopting culture focused on performance and long term company value. Where the variable remuneration is awarded, such awards take into account also the risks taken and support Luminor in achieving and maintaining a sound capital base in line with applicable regulatory enactments. Variable remuneration is determined by financial and non-financial targets set to the employee and an overall assessment based on the employee’s compatibility with Luminor values, leadership principles and the Code of Conduct, as well as the employee’s overall contribution to a sustainable performance of the Bank. Therefore, the variable remuneration awards are conditional, discretionary and contingent upon a sustainable and risk-adjusted performance, in excess of that required to fulfil the employee’s job description as part of the terms of employment under the employment contract. Following variable remuneration schemes are in use: short term incentive (“STI”) schemes applicable in respect of all employees and the Executive Management; and long term incentive (“LTI”) schemes applicable in respect of the Executive Management. The amount of the employee’s variable remuneration cannot exceed 100% of the annual fixed remuneration of the employee per annum. Benefits are designed in a way that that the Bank could be socially responsible, take care of the employees' health and life quality and to have cost-efficient benefit schemes according to the local market practice in this area. Benefits are equally applied, meaning that these are provided to the employees regardless of their performance or performance risk assessment. The severance payments are paid to the employees in accordance with applicable regulatory enactments andcollective agreement, when applicable. Principles of variable remuneration to risk takers The job positions and/or employees whose activities performed and/or decisions made are likely to have a significant impact on Bank's risk profile are identified once per year. The list of such job positions and/or employees is compiled in view of the quantitative and qualitative criteria defined in Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014. The persons performing the functions of risk management, compliance, business support (legal, personnel, etc.) within the Bank are involved in this process by their competence. The list of job positions and/or employees whose activities and/or decisions are likely to have a material impact on the Bank’s risk profile and the criteria under which it was made is approved by the Remuneration Committee. With regard to the potential risk related to the evaluated performance of the risk taker, payment of at least 50% of the variable remuneration shall be deferred and paid in the financial instruments. Deferred incentive amounts shall be subject to three to five years deferral period. One-third of the allotted Instruments will be placed at the recipient's disposal one year from the allotment date, another one-third two years from the allotment date and the final one-third three years from the allotment date. The right of ownership to the Instruments will thus be transferred to the recipient once they are placed at his or her disposal. Before the right of ownership is transferred, the recipient has only conditional rights. Before transfer of the financial instruments to the risk takers a follow-up risk assessment shall be performed in order to analyse whether the initial risk assessment was correct. If the assessment shows that the initial risk assessment was not correct, the right to claim the allocated financial instruments may be revoked, in full or in part.


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Overall quantitative information on remuneration divided by employee groups (total remuneration amount, total variable remuneration amount, number of employees) Information for 2018 is based on the data available on 31 December 2018. All amounts indicated are before taxes. Group Fixed remuneration

(TEUR) Variable remuneration (TEUR)

Number of employees who received VR

Bank administration and risk takers*

3,266 457 46

Employees 23,672 1,099 920 Total: 26,938 1,556 966 Group Fixed remuneration

(TEUR) Variable remuneration (TEUR)

Number of employees received VR

Management Board* 615 96 5 Retail* 557 84 7 Front office* 499 68 8 Back office* 1,595 212 26 Employees 23,672 1,099 920 Total: 26,938 1,556 966 *As of 31 December 2018 no payments for performance results of 2018 were made to the Bank employees. Variable remuneration was paid in 2018 for performance results of 2017. Front office – Corporate and Markets employees. Amounts and form of the variable remuneration portion divided into cash, shares, equity-linked financial instruments and other portions, amounts of non-paid deferred remuneration amounts Group Variable

remuneration paid in cash (TEUR)

Allocated deferred variable remuneration in shares (TEUR)

Non-allocated deferred variable remuneration in shares (TEUR)

Bank administration and risk takers

271 62 124

Employees 23,672 - - Total: 23,943 62 124 Group Variable

remuneration paid in cash (TEUR)

Allocated deferred variable remuneration in shares (TEUR)

Non-allocated deferred variable remuneration in shares (TEUR)

Management Board 45 16 31 Retail 50 11 23 Front office 42 9 18 Back office 134 26 52 Employees 23,672 - - Total: 23,943 62 124 Amount of deferred variable remuneration allocated in the financial year, paid out and adjusted in respect of the performance results In 2018 no such adjustments were made. Amount of guaranteed variable remuneration provided under new agreements and severance payments in the financial year and the number of recipients of such payments No guaranteed variable remuneration was provided to the recipients.


Page 35 of 160

Amounts of severance pays allocated in the financial year, number of recipients of such pays and the largest allocated amount per person: Group Number of

recipients Severance payments amount (TEUR)

Largest amount per person (TEUR)

143 1,153 900

The Bank has no special commitments for employees regarding severance payment. The additional retirement benefit or early retirement scheme does not apply to the executive officers of the Bank. Information on amounts allocated within the reporting period to the Bank’s Management Board members holding other positions at the Bank and to the Chief Financial Officer In 2018, no assets were gratuitously transferred or guarantees granted to these employees on behalf of the Bank. The information below shows the amounts allocated to these persons in total and the average amounts allocated to the Bank's executives, Chief Executive Officer, and Chief Financial Officer. Information on amounts paid individually to each person is not submitted following the requirements relating to the Bank's secret and personal data protection. Allocated amounts (TEUR) Overall amount to the Bank's all Executives and to the Chief Financial Officer

1,164

Under employment agreement 889 Employer's social insurance contributions 275 Other payments including the employer's social insurance contributions*

340

Average per Executive and Chief Financial Officer of the Bank 145 Under employment agreement 111 Employer's social insurance contributions 34 *Expenses related with car rent, accommodation and settling, payment to the pension fund . 17. SOCIAL RESPONSIBILITY We are creating a new-generation financial services provider because we are determined to build a better tomorrow – for families and businesses and for the communities and countries in which we live and operate. We believe in contributing to the development of the local communities in which we operate. We are committed to considering corporate governance, social conditions and environment in all of our activities, including product and service development, advisory services and sales, investment and credit decisions, and other operations. We do not contribute to the infringement of human or labour rights, corruption, serious environmental harm or other actions that could be regarded as unethical. The Bank has a responsibility to undertake efforts to ensure that the banking industry delivers ethical products and services, and we take responsibility for to whom and how the products and services will be offered. Luminor’s corporate social responsibility is based on internationally recognised guidelines, including:

the OECD's guidelines for multinational companies; the IFC’s guidelines for environmental and social standards; the UNEP FI principles; the UN Principles for Responsible Investments; the UN Global Compact; the UN guiding principles on business and human rights.

Luminor business ethics and impact in different areas is defined and regulated by several politics and codes.

Impact on environmental area is regulated by Code of Responsible Business Conduct for Third parties. This code is derived from Code of Conduct and comprise principles Luminor applies to business with the third parties and partners. Luminor partners are asked to confirm their compliance to requirements of the Code by signing The Third Party‘s Confirmation next to agreement.

Human rights, social and employment spheres in organization are defined and regulated by Corporate Social Responsible Policy and Code of Conduct. Code of Conduct outlines the general principles for Luminor does business and what general principles are applied to daily conduct. Corporate social


Page 36 of 160

responsibility policy concise main socially responsible principles organization apply to its activities internally and externally. Luminor define CSR as a good business practice that demonstrates values and main principles of organization and shows that Luminor voluntarily include social, environmental and human rights values in our everyday business activities and in relationships with our stakeholders – shareholders, employees, customers. CSR also includes contributions to the development of local community. Luminor considers the interests of all stakeholders when making both short-term and long-term decisions.

Anti-bribery and anticorruption principles in Luminor are defined in Anti-bribery and Anti-Corruption Policy, which describes the requirements for anti-bribery and anti-corruption practices and is intended to support organization and its employees in their efforts to prevent bribery and corruption. Raise Your Concern procedure is the part of the policy. Luminor encourages employees to prevent and proactively detect any breaches of laws, other external regulatory enactments and internal requirements and bring them to attention of appropriate functions within Luminor through anonymous channel. Organization ensures that all reported breaches are treated seriously and where relevant, identified risks are managed appropriately. Among others, this procedure covers whistle-blowing principles and describes internal alert framework employees can use for purposes mentioned above.

Policies and codes set the guidelines for ethical behavior of employees, as well as control mechanism of such behaviors and responsibilities. While implementing policies mentioned above, Luminor provides trainings for employees and raises awareness through internal and external communication. The Bank distinguishes and describes its CSR principles in four main areas in its internal regulations, policies and codes:

1. Corporate governance 2. Employees 3. Customers, products and services 4. Environment and local society

Corporate governance The Bank is committed to comply with corporate governance principles that include having:

High ethical standards and sound corporate governance; Clear and open communication to all target groups; Zero tolerance for corruption and defence against corruption based on transparency and verifiability; Regular dialogues with all stakeholders: employees, customers, shareholders, public authorities and

other public bodies, suppliers and vendors regarding environmental, social and governance related matters.

Employees The Bank follows social responsibility that includes:

Full respect towards internationally recognised human rights; Reviewing value chain in order to reveal the risk for actual and potential infringements of human rights

which are instrumental and directly connected to company’s capacity as employer, investor, lender or buyer;

Working to achieve dialogue with involved parties and other stakeholders, as well as ensuring or cooperating to ensure the right to effective complaints handling for involved parties through prudent processes;

Promoting diversity among the employees and ensuring that discrimination against ethnic origin, religion, sexual orientation, functional ability, age or gender shall not occur;

Neither investing in nor extending loans to companies that manufacture weapons whose normal use violates basic humanitarian principles;

Supporting socially useful objectives and securing important social values in those areas and industry sectors where Luminor operates.

Customers, products and services We follow best practices, ensuring ethical cooperation towards customers, socially responsible product and services development, including:

In depth analysis in customer needs and good faith when offering Luminor products and services; Ethical investments and asset management that follows centrally approved and openly communicated

ethical investment guidelines; Prudent credit policies and in-depth risk analysis; Pragmatic business advisory and sales, ensuring fair, open and risk aware communication with

customers.

Luminor Bank AB SEPARATE AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

(all amounts are in EUR thousand, if not otherwise stated)

The accounting policies and notes on pages 47 to 160 are an integral part of these financial statements.

Page 43 of 160

THE GROUP AND BANK STATEMENT OF CASH FLOWS

Group Bank

2018 2017 2018 2017

Operating activities

Net profit (loss) 52,345 (10,652) 43,423 (13,099) Adjustments to reconcile net profit or

loss to net cash provided by operating activities:

21,308

64,691

16,753

64,411 Current and deferred tax expenses,

recognised in income statement

7,949

5,351

6,350

5,269 Unrealised foreign currency (gains)

and losses

582

13,422

581

13,422 Depreciation / amortisation 3,624 4,169 3,582 3,683 Dividend income (385) (124) (3,505) (1,287) Impairment of loans and receivables 4,642 2,142 3,316 1,152 Impairment of investment in

subsidiaries - - 2,850 7,640

Impairment of property, plant and equipment

8 - 8 -

Impairment of other intaglibe assets 1,239 - 1,239 - Changes in fair value of investment

properties 1,129 6,621 - -

Impairment of other 178 616 185 609 Provisions, net 905 43,511 927 43,511 Accrued interest income and

expenses, net derivative loss (gain)

1,437

(11,017)

1,220

(9,588) Net cash flows from operating activities before changes in operating assets and liabilities

73,653

54,039

60,176

51,312

(Increase) decrease in operating assets:

(Increase) decrease in loans to credit and financial institutions

181,510 533,587 181,510 533,587

(Increase) decrease in loans granted, except loans to credit and financial institutions

(35,321) (89,664) (27,513) (82,645)

(Increase) decrease in trading securities

1,110 14,801 1,110 14,801

(Increase) decrease in other assets 496 14,562 1,023 1,690 Change in operating assets 147,795 473,286 156,130 467,433 Increase (decrease) in liabilities: Increase (decrease) in liabilities to central banks

(127,000) - (127,000) -

Increase (decrease) in liabilities to credit and financial institutions

(675,419) 260,945 (675,436) 261,445

Increase in deposits 681,540 183,895 688,238 193,072 Increase (decrease) in other liabilities 7,737 2,496 2,995 (1,236) Change in operating liabilities (113,142) 447,336 (111,203) 453,281 Income tax paid (5,792) (454) (5,755) (387) Net cash flows from operating activities

102,514 974,207 99,348 971,639



Page 45 of 160

NOTES TO FINANCIAL STATEMENTS

GENERAL BACKGROUND

The Bank as a joint stock company was registered on 13 September 1993. The Bank possesses License No. 10 issued by the Bank of Lithuania, which entitles the Bank to provide financial services established in the Law on Banks of the Republic of Lithuania and the Law on Financial Institutions of the Republic of Lithuania. The head office is located in Vilnius, Konstitucijos av. 21A. The Bank accepts deposits, issues loans, makes money transfers and documentary settlements, exchanges currencies for its customers, issues and processes debit and credit cards, provides financial lease services, is engaged in trade finance and is investing and trading in securities as well as provides other financial services established in the Law of the Republic of Lithuania on Banks and on Financial Institutions. As at 31 December 2018, the Bank owned the following subsidiaries: Luminor Investicijų Valdymas UAB (investment asset management activities), Luminor Būstas UAB (real estate brokerage), Luminor Lizingas UAB (financing, leasing, factoring activities), Intractus UAB (real estate management, development and sale). Intractus UAB owned (0.08% of shares)

company Industrius UAB (the Company was registered in the Register of Legal Entities, State Enterprise Centre of Registers, on 15 February 2011) and subsidiary UAB Gelužės Projektai (acquired from the Bank on 19 October 2011),

Industrius UAB (real estate management, development and sale); the Company’s capital increase was registered in the Register of Legal Entities, State Enterprise Centre of Registers, on 21 December 2012,

RECURSO UAB (real estate management), PROMANO LIT, UAB (real estate management). The head offices of the Bank and its subsidiaries Luminor Būstas UAB, Luminor Investicijų Valdymas UAB, Intractus UAB, Industrius UAB, Gelužės Projektai UAB are located in Vilnius, Konstitucijos av. 21A. The head offices of RECURSO UAB and PROMANO LIT UAB are located in Vilnius, Šeimyniškių str. 21B, Luminor Lizingas UAB is located in Vilnius, Lvovo str. 25. At the end of the reporting period the Bank had 29 customer service outlets (2017: 45 customer service outlets). As at 31 December 2018, the Bank had 1,234 employees (2017: 1,245 employees). As at 31 December 2018, the Group had 1,303 employees (2017: 1,294 employees). As at 31 December 2018, the authorized capital of the Bank is EUR 190 204 563.54 (2017: 190 204 563.54), which is divided into 5 710 134 (2017: 5 710 134) ordinary registered shares with EUR 33.31 par value each. Luminor Group AB is a 100% shareholder of each of the Baltic Luminor banks: Luminor Bank AB (Lithuania), Luminor Bank AS (Latvia) and Luminor Bank AS (Estonia). Nordea Bank AB and DNB Bank ASA are ultimate owners of holding company Luminor Group AB (or “Luminor Group”), which is registered in Sweden, registration No 559072-8316. Nordea Bank AB and DNB Bank ASA have equal voting rights in Luminor Group. Nordea Bank AB owns 56,2% and DNB Bank ASA owns 43,6% of proprietary rights, which reflects the proportional contribution of each bank made at the closure of the Luminor Group deal on 1 October 2017. In the beginning of 2018 Luminor banks in Lithuania, Latvia and Estonia continued with the next phases of the legal merger, which foresaw full integration of the banks, continuing operations in all Baltic countries through Luminor Bank AS in Estonia and its registered branches in Latvia and Lithuania. On 19 February 2018 Luminor banks took the first steps to fill in prerequisites of the legal reorganization process by submitting a draft Merger Agreement to State Enterprise Register of Latvia and notifications to the Estonian Financial Supervisory Authority for branches opening in Latvia and Lithuania. On 28 June 2018 the ECB gave the official approval to carry out the cross-border merger in the Baltics. Throughout the year Luminor banks continued with the finalization the legal aspects of its merger and in November 2018 proceeded with notifying all counterparties and customers in Latvia and Lithuania about the upcoming change. For more details re completion of cross-border merger refer to Note 39.



Page 46 of 160

GENERAL BACKROUND (continued) On 13 September 2018 an agreement was signed between DNB Bank ASA and Nordea Bank AB with Braavos Bidco Limited (the ultimate shareholders of which belong to a consortium led by a US-based private equity firm Blackstone (“Blackstone”)) to sell the majority stake in Luminor Bank AS (Estonia). As a part of the transaction, Blackstone will acquire a 60% majority stake in the bank. Nordea and DNB will retain an equal 20% equity stake in Luminor and will continue to support Luminor group with long term funding, expertise and ongoing representation in the governing bodies of Luminor. Additionally, Blackstone has entered into an agreement with Nordea to purchase their remaining 20% stake over the coming years. The closing of the transaction is subject to European Central Bank’s and local supervisory authorities’ approvals and is anticipated to occur in the first half of 2019. These consolidated and separate financial statements have been signeded by the management of the Bank on 11 March 2019. Neither the Bank’s shareholders nor others have the power to amend the financial statements after issue.



Page 47 of 160

ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. Basis of preparation of financial statements

The financial statements of the Group and the Bank are prepared in accordance with the International Financial Reporting Standards (IFRS) effective as of 31 December 2018 that have been adopted for use in the European Union. The financial statements are prepared on a historical cost basis, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of investment properties and financial instruments categorized at fair value through profit or loss (“FVTPL”) and at fair value through other comprehensive income (“FVOCI”). These financial statements combine the consolidated financial statements for the Group and separate financial statements of the parent Bank. In addition, the financial information of the Financial Group is presented in Note 37 in accordance with the requirements of the Bank of Lithuania. The amounts shown in these financial statements are presented in the local currency, Euro (EUR). Adoption of new and/or changed IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations

The accounting policies adopted are consistent with those of the previous financial year except for the following amended IFRSs which have been adopted by the Group as of 1 January 2018:

IFRS 9: Financial Instruments

Key features of the new standard are: ● Financial assets are required to be classified into three measurement categories: those to be measured

subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).

● Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.

● Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.·

● Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

● IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables.Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging The Group has adopted IFRS 9 as issued by the IASB in July 2014 with a date of adoption of 1 January 2018, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. The Group did not early-adopt IFRS 9 in previous periods. As permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative figures. Any adjustment to the carrying amounts of financial assets and liabilities at the date of transition were recognised in the opening retained earnings of the current period. The adoption of IFRS 9 has resulted in the changes in accounting policies for recognition, classification and measurement of financial assets and financial liabilities and impairment of financial assets.



Page 48 of 160

ACCOUNTING POLICIES (continued) Impact of the adoption of IFRS 9 Set out below are disclosures relating to the impact of the adoption of IFRS 9 on the Group.

Classification and measurement of financial instruments The measurement category and the carrying amount of financial assets and liabilities in accordance with IAS 39 and IFRS 9 at January 2018 are compared as follows:

Group

Financial assets Original measurement category under IAS 39

New measurement category under IFRS 9

IAS 39 carrying amount 31

December 2017

New carrying amount under

IFRS9 1 January 2018

Cash and balances with central banks Loans and receivables Amortised cost 1,362,543 1,362,543

Due from banks and other credit institutions

Loans and receivables Amortised cost 251,142 251,142

Financial assets held for trading

Fair value through profit or loss

Fair value through profit or loss 2,325 2,325

Financial assets designated at fair value through profit or loss

Financial assets at FVTPL (under fair value option)


85,586 84,153

Derivative financial instruments



Available for sale equity securities

Available for sale Fair value through other comprehensive income

3,265 3,283

Available for sale fdebt securities Available for sale Fair value through other

comprehensive income - 1,415

Loans and advances to customers Loans and receivables Amortised cost 4,445,709 4,437,240

Finance lease receivables Not in scope of IFRS 9 classification - 639,778 636,632

Debt securitied held for liquidity purposes were designated to FVTPL (under fair value option) because of accounting mismatch. The Group and Bank buy derivatives (interest rate swaps) to economicaly hedge the risk of debt decurities fair value. Derivatives are in trading portfolio with the fair value changes through profit or loss, so to avoid or significantly reduce accounting mismatch, debt securities are designated at fair value using the fair value option (FVO). There were no changes for classification and measurement of financial liabilities.

Bank

Financial assets Original measurement category under IAS 39

New measurement category under IFRS 9

IAS 39 carrying amount 31

December 2017

New carrying amount under

IFRS9 1 January 2018

Cash and balances with central banks Loans and receivables Amortised cost 1,362,543 1,362,543


Loans and receivables Amortised cost 251,142 251,142

Financial assets held for trading






84,171 84,153

Derivative financial instruments



Available for sale equity securities Available for sale

Fair value through other comprehensive income 3,265 3,283

Loans and advances to customers

Loans and receivables Amortised cost 4,858,475 4,850,844

Finance lease receivable Not in scope of IFRS 9 classification - 178,475 178,388

There were no changes for classification and measurement of financial liabilities.



Page 49 of 160

ACCOUNTING POLICIES (continued) Reconciliation of statement of financial position balances from IAS 39 to IFSR 9 The following table reconcile the carrying amounts of financial assets, from their previous measurement category in accordance with IAS 39 to their new measurement categories upon transition to IFRS 9 on 1 January 2018: Group

Financial assets IAS 39 carrying

amount 31 December 2017

Reclassifi-cations

Remeasure-ments

IFRS 9 carrying amount 1 January

2018

Amortised cost

Cash and balances with central banks Opening balance under IAS 39 and closing balance under IFRS 9 1,362,543 - - 1,362,543


Opening balance under IAS 39 251,142 - - - Remeasurement (ECL allowances) - - - - Closing balance under IFRS 9 - - - 251,142

Loans and advances to customers Opening balance under IAS 39 4,445,709 - - - Remeasurement (ECL allowances) - - (8,469) - Closing balance under IFRS 9 - - - 4,437,240

Finance lease receivables Opening balance under IAS 39 639,778 - - - Remeasurement (ECL allowances) - - (3,146) - Closing balance under IFRS 9 - - - 636,632

Financial assets measured at amortised cost - total 6,699,172 - (11,615) 6,687,557

Fair value through profit or loss Financial assets held for trading Opening balance under IAS 39 and closing balance under IFRS 9

2,325 - - 2,325


Opening balance under IAS 39 and closing balance under IFRS 9 85,586 (1,433) - 84,153

Derivative financial instruments Opening balance under IAS 39 and closing balance under IFRS 9

6,369 - - 6,369

Financial assets at fair value through profit or loss - total 94,280 (1,433) - 92,847

Fair value through other comprehensive income

Equity instruments Opening balance under IAS 39 and closing balance under IFRS 9

3,265 18 - 3,283

Debt instruments Opening balance under IAS 39 and closing balance under IFRS 9 1,415 - 1,415

Assets at fair value through other comprehensive income - total 3,265 1,433 - 4,698



Page 50 of 160

ACCOUNTING POLICIES (continued) Bank

Financial assets IAS 39 carrying

amount 31 December 2017

Reclassifi-cations

Remeasure-ments

31 December 2017

IFRS 9 carrying amount 1

January 2018

Amortised cost

Cash and balances with central banks Opening balance under IAS 39 and closing balance under IFRS 9 1,362,543 - - 1,362,543


Opening balance under IAS 39 251,142 - - - Remeasurement (ECL allowances) - - - - Closing balance under IFRS 9 - - - 251,142


Opening balance under IAS 39 4,858,475 - - -

Remeasurement (ECL allowances) - - (7,631) - Closing balance under IFRS 9 - - - 4,850,844

Finance lease receivables Opening balance under IAS 39 178,472 - - - Remeasurement (ECL allowances) - - (84) - Closing balance under IFRS 9 - - - 178,388

Financial assets measured at amortised cost - total 6,650,632 - (7,715) 6,642,917

Fair value through profit or loss Financial assets held for trading Opening balance under IAS 39 and closing balance under IFRS 9 2,325 - - 2,325


Opening balance under IAS 39 and closing balance under IFRS 9 84,171 (18) - 84,153

Derivative financial instruments Opening balance under IAS 39 and closing balance under IFRS 9 6,369 - - 6,369

Financial assets at fair value through profit or loss - total 92,865 (18) - 92,842

Fair value through other comprehensive income

Equity instruments Opening balance under IAS 39 and closing balance under IFRS 9

3,265 18 - 3,283

Debt instruments Opening balance under IAS 39 and closing balance under IFRS 9 - - - -

Assets at fair value through other comprehensive income - total 3,265 18 - 3,283



Page 51 of 160

ACCOUNTING POLICIES (continued) Reconciliation of impairment allowance balance from IAS 39 to IFRS 9

The following table reconsiles the prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new impairment allowance measured in accordance with the IFSR 9 expected loss model at 1 January 2018 and: Group

Financial assets

Loss allowance under IAS

39/Provision under IAS 37

Reclassifi-cations

Remeasure-ments

Credit loss allowance under

IFRS 9

Amortised cost

Cash and balances with central banks - - - - Due from banks and other credit institutions

- - - -

Loans and advances to customers (102,763) - 14,645 (88,118) Finance lease receivables (5,069) - (2,507) (7,576) Total (107,832) - 12,138 (95,694) Provisions (107) - (1,266) (1,373) Bank

Financial assets

Loss allowance under IAS

39/Provision under IAS 37

Reclassifi-cations

Remeasure-ments

Credit loss allowance under

IFRS 9

Amortised cost

Cash and balances with central banks - - - - Due from banks and other credit institutions

- - - -

Loans and advances to customers (102,517) - 15,451 (87,066) Finance lease receivables (2,612) - 481 (2,131) Total (105,129) - 15,932 (89,197)

Provisions (107) - (1,242) (1,349) Reconciliation of changes on initial application of IFRS 9

The following table includes summary information on changes on initial application of IFRS 9 reported in statement of changes in equity: Group

Remeasurements to loans and finance lease receivables,, of which: (11,615)

Credit loss allowances 12,138

Reported under loan gross amount for originated credit impaired balances (23,753)

Provisions (Note 27) (1,266)

Total impact to equity (12,881) Bank

Remeasurements to loans and finance lease receivables, of which: (7,715)

Credit loss allowances 15,932

Reported under loan gross amount for originated credit impaired balances (23,647)

Provisions (Note 27) (1,242)

Total impact to equity (8,957)



Page 52 of 160

ACCOUNTING POLICIES (continued) IFRS 15 Revenue from Contracts with Customers The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. Management has assessed that the application of the standard had no material effect on the Bank and the Group financial statements.

IFRS 15: Revenue from Contracts with Customers (Clarifications) The amendments do not change the underlying principles of the standard but clarify how those principles should be applied. The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; how to determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and how to determine whether the revenue from granting a licence should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new standard. Management has assessed that the application of the standard had no effect on the Bank and the Group financial statements

Classification and Measurement of Share-based Payment Transactions -Amendments to IFRS 2 (effective for annual periods beginning on or after 1 January 2018). The amendments mean that non-market performance vesting conditions will impact measurement of cash-settled share-based payment transactions in the same manner as equity-settled awards. The amendments also clarify classification of a transaction with a net settlement feature in which the entity withholds a specified portion of the equity instruments, that would otherwise be issued to the counterparty upon exercise (or vesting), in return for settling the counterparty's tax obligation that is associated with the share-based payment. Such arrangements will be classified as equity-settled in their entirety. Finally, the amendments also clarify accounting for cash-settled share based payments that are modified to become equity-settled, as follows (a) the share-based payment is measured by reference to the modification-date fair value of the equity instruments granted as a result of the modification; (b) the liability is derecognised upon the modification, (c) the equity-settled share-based payment is recognised to the extent that the services have been rendered up to the modification date, and (d) the difference between the carrying amount of the liability as at the modification date and the amount recognised in equity at the same date is recorded in profit or loss immediately. Management has assessed that this standard has no impact on the Bank and the Group financial statements.



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ACCOUNTING POLICIES (continued) Annual Improvements to IFRSs 2014–2016 Cycle (effective for annual periods beginning on or after 1 January 2018 (changes to IFRS 1 and IAS 28). IFRS 1 was amended to delete some of the short-term exemptions from IFRSs after those short-term exemptions have served their intended purpose. The amendments to IAS 28 clarify that venture capital organisations or similar entities have an investment-by- investment choice for measuring investees at fair value. Additionally, the amendment clarifies that if an investor that is not an investment entity has an associate or joint venture that is an investment entity, the investor can choose on an investment-by-investment basis to retain or reverse the fair value measurements used by that investment entity associate or joint venture when applying the equity method. Management has assessed that this standard has no impact on the Bank and the Group financial statements. Transfers of Investment Property - Amendments to IAS 40 (effective for annual periods beginning on or after 1 January 2018). The amendment clarified that to transfer to, or from, investment properties there must be a change in use. This change must be supported by evidence; a change in intention, in isolation, is not enough to support a transfer. Management has assessed that this standard has no impact on the Bank and the Group financial statements. IFRIC 22, Foreign Currency Transactions and Advance Consideration (effective for annual periods beginning on or after 1 January 2018). The interpretation applies where an entity either pays or receives consideration in advance for foreign currency-denominated contracts. The interpretation clarifies that the date of transaction, i.e. the date when the exchange rate is determined, is the date on which the entity initially recognises the non-monetary asset or liability from advance consideration. However, the entity needs to apply judgement in determining whether the prepayment is monetary or non-monetary asset or liability based on guidance in IAS 21, IAS 32 and the Conceptual Framework. Management has assessed that this standard has no impact on the Bank and the Group financial statements. There are no other new or revised standards or interpretations that are effective for the first time for the financial year beginning on or after 1 January 2018 that would be expected to have a material impact to the Group. Standards issued but not yet effective Certain new or revised standards and interpretations have been issued that are mandatory for the Group’s annual periods beginning on or after 1 January 2019 and which the Group has not early adopted. IFRS 16 “Leases” (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group decided that it will apply the standard using the modified retrospective method. The Bank and the Group recognised a right of use asset of 24,3 million Euro against a corresponding lease liability of 26,5 million on 1 January 2019, the impact to the equity as of 1st of January 2019 amounts to 2,2 million Euro. Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (effective date to be determined by the IASB; not yet adopted by the EU). These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are held by a subsidiary and the shares of the subsidiary are transferred during the transaction. Management has not yet evaluated the impact of this standard.



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ACCOUNTING POLICIES (continued)

IFRIC 23, Uncertainty over Income Tax Treatments (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or estimates required by the interpretation as a change in accounting estimate. Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or estimate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation authority's right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates required by the Interpretation. Management has not yet evaluated the impact of this standard. Prepayment Features with Negative Compensation - Amendments to IFRS 9 (effective for annual periods beginning on or after 1 January 2019). The amendments enable measurement at amortised cost of certain loans and debt securities that can be prepaid at an amount below amortised cost, for example at fair value or at an amount that includes a reasonable compensation payable to the borrower equal to present value of an effect of increase in market interest rate over the remaining life of the instrument. In addition, the text added to the standard's basis for conclusion reconfirms existing guidance in IFRS 9 that modifications or exchanges of certain financial liabilities measured at amortised cost that do not result in the derecognition will result in an gain or loss in profit or loss. Reporting entities will thus in most cases not be able to revise effective interest rate for the remaining life of the loan in order to avoid an impact on profit or loss upon a loan modification. Management has not yet evaluated the impact of this standard.

Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28 (effective for annual periods beginning on or after 1 January 2019; not yet adopted by the EU). The amendments clarify that reporting entities should apply IFRS 9 to long-term loans, preference shares and similar instruments that form part of a net investment in an equity method investee before they can reduce such carrying value by a share of loss of the investee that exceeds the amount of investor's interest in the investee. Management has not yet evaluated the impact of this standard.

Annual Improvements to IFRSs 2015-2017 cycle (effective for annual periods beginning on or after 1 January 2019; not yet adopted by the EU). The narrow scope amendments impact four standards. IFRS 3 was clarified that an acquirer should remeasure its previously held interest in a joint operation when it obtains control of the business. Conversely, IFRS 11 now explicitly explains that the investor should not remeasure its previously held interest when it obtains joint control of a joint operation, similarly to the existing requirements when an associate becomes a joint venture and vice versa. The amended IAS 12 explains that an entity recognises all income tax consequences of dividends where it has recognised the transactions or events that generated the related distributable profits, eg in profit or loss or in other comprehensive income. It is now clear that this requirement applies in all circumstances as long as payments on financial instruments classified as equity are distributions of profits, and not only in cases when the tax consequences are a result of different tax rates for distributed and undistributed profits. The revised IAS 23 now includes explicit guidance that the borrowings obtained specifically for funding a specified asset are excluded from the pool of general borrowings costs eligible for capitalisation only until the specific asset is substantially complete. Management has not yet evaluated the impact of those improvements.



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ACCOUNTING POLICIES (continued) Plan Amendment, Curtailment or Settlement – Amendments to IAS 19 (effective for annual periods beginning on or after 1 January 2019; not yet adopted by the EU). The amendments specify how to determine pension expenses when changes to a defined benefit pension plan occur. When a change to a plan—an amendment, curtailment or settlement—takes place, IAS 19 requires to remeasure net defined benefit liability or asset. The amendments require to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. Before the amendments, IAS 19 did not specify how to determine these expenses for the period after the change to the plan. By requiring the use of updated assumptions, the amendments are expected to provide useful information to users of financial statements. Management has not yet evaluated the impact of this standard.

Amendments to the Conceptual Framework for Financial Reporting (effective for annual periods beginning on or after 1 January 2020; not yet adopted by the EU). The revised Conceptual Framework includes a new chapter on measurement; guidance on reporting financial performance; improved definitions and guidance - in particular the definition of a liability; and clarifications in important areas, such as the roles of stewardship, prudence and measurement uncertainty in financial reporting. Management has not yet evaluated the impact of this standard. Definition of a business – Amendments to IFRS 3 (effective for annual periods beginning on or after 1 January 2020; not yet adopted by the EU). The amendments revise definition of a business. A business must have inputs and a substantive process that together significantly contribute to the ability to create outputs. The new guidance provides a framework to evaluate when an input and a substantive process are present, including for early stage companies that have not generated outputs. An organised workforce should be present as a condition for classification as a business if are no outputs. The definition of the term ‘outputs’ is narrowed to focus on goods and services provided to customers, generating investment income and other income, and it excludes returns in the form of lower costs and other economic benefits. It is also no longer necessary to assess whether market participants are capable of replacing missing elements or integrating the acquired activities and assets. An entity can apply a ‘concentration test’. The assets acquired would not represent a business if substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets). Management has not yet evaluated the impact of this standard. Definition of materiality – Amendments to IAS 1 and IAS 8 (effective for annual periods beginning on or after 1 January 2020; not yet adopted by the EU). The amendments clarify the definition of material and how it should be applied by including in the definition guidance that until now has featured elsewhere in IFRS. In addition, the explanations accompanying the definition have been improved. Finally, the amendments ensure that the definition of material is consistent across all IFRS Standards. Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. Management has not yet evaluated the impact of these standards. Use of judgements and estimates in the preparation of financial statements The preparation of financial statements in conformity with the International Financial Reporting Standards require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.

Going concern The Bank’s and Group’s management is fully convinced of stable and balanced performance going forward and based on that prepared these financial statements on the going concern basis. Please refer to management report which provides an additional information on the Bank's and the Group's activities in the future that do not change management's assessment of going concern since the bank will continue to operate in Lithuanian market via banking branch and the mentioned restructuring is merely a change in legal status. Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. For fair value of financial assets and liabilities refer to Notes 12-15.



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Fair value of investment properties Investment properties are stated at fair value, which for the major part of properties has been determined according to valuations performed by accredited independent valuers and/or internal valuation specialists of the Group. The valuation model for the Group’s investment properties was formed based on market comparable and income approaches. For fair value of investment properties refer to Note 21. Deferred tax asset

Deferred tax asset is recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax asset that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. For carrying amounts see Note 9. Investment in subsidiaries At each reporting date the Bank assesses whether there is an objective evidence that the investment into subsidiaries is impaired. If there is such an evidence the bank calculates the amount of impairment as the difference between the recoverable amount of a subsidiary and its carrying value. The recoverable amount is calculated based on the estimated expected future cash flows, business growth and risk costs of subsidiaries and is measured at fair value less costs to sell. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgments as there is any observable data indicating that there is a measurable changes in the estimated future cash flows, business growth and risk cost of subsidiaries. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effect of any changes in estimates will be recorded in the financial statements, when determinable. For impairment loss for subsidiaries refer to Note 18. Significant accounting judgments Accounting for merger with Nordea During the Merger with Nordea (Note 38) an assessment was done on the accounting principle to be used for the transaction. Control according to IFRS 10 An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. (IFRS 10.6). Thus, an investor controls an investee if and only if the investor has all the following:

a) power over the investee; b) exposure, or rights, to variable returns from its involvement with the investee; and c) the ability to use its power over the investee to affect the amount of the investor’s returns. (IFRS 10.7)

Joint control according to IFRS 11 The formation of Luminor was a cooperation between DNB and Nordea with the intention for joint decisions and control of the Luminor operations. Shareholders have equal voting rights each and all decisions of relevant activities are taken by the Board of Directors where shareholders appoint two members each and jointly appoint an independent chairman. There are no other factors that indicate that one of the investors has the power to exercise control over the investee as defined in IFRS 10. To account for transaction as a joint venture, management of the Bank had assessed that the agreed decision rules and processes meet the criteria of IFRS 11 as a joint arrangement: a) The parties are bound by a contractual arrangement. b) The contractual arrangement gives two or more of those parties joint control of the arrangement. (IFRS 11.5) Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. (IFRS 11.7) It was concluded that both parties (DNB and Nordea) control the arrangement collectively. Also the conclusion was made that joint control exists because the decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement.



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ACCOUNTING POLICIES (continued) In the formation of a joint arrangement, when no acquirer can be identified the guidance in IFRS 3 Business Combinations cannot be used as IFRS 3.2(a) specifically scopes out “the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself” from this standard. Therefore the Bank selected in its accounting policy for how to account for this transaction by using the general guidance in IAS 8.10-12 - it was decided to use the carrying values. For more information on the accounting policy please refer to section Combination of entities under common control and usage of the pooling of interest method below. Alignment of Accounting Policies between DNB and Nordea The accounting policies of the two businesses merged were reviewed and no major differences were identified in the accounting principles applied. Intangible assets licensing agreements The management of the Group has concluded that intangible asset licensing agreements where the Group and/or the Bank is a licensee and the rights received under the licensing agreement are non-exclusive are out of scope of IAS 17 Leases. In addition, the management considers that non-exclusive rights received under such licensing agreements do not give a control of underlying intangible assets. Therefore, no intangible assets should be recognized in the Group’s and/or the Bank’s financial statements in accordance with IAS 38 Intangible Assets. Finally, the management considers that such licensing agreements should not be recognized as an intangible asset as it represents an executory contract as defined in IAS 37 Provisions, Contingent Liabilities and Contingent Assets that are not recognized, unless are onerous. Fees paid according such licensing agreements are recognized as expenses when incurred. Onerous contract The bank has a long term agreement re IT services provided by DNB Invest Denmark AS. According to this agreement the Bank compensates to the service provider for the development and usage of IT systems. As a consequence of the merger, the Management of the Bank has assessed that those systems will be ceased to use in 4 years time and will be replaced by new systems then. Based on that, the assessment of the IT contract becoming onerous (the Bank has an obligation to pay for the amounts relating to year 5 and onwards, although no benefit will be realised from this payment) was done and the provision of EUR 43 million was recognised in Bank’s financial statements. The provision was assessed based on the amounts that are related to year 5th and onwards. In addition to that the payment schedule of the IT agreement was changed by agreeing to pre-pay the amount payable for year 5 and onwards (according to the original schedule) in 2017. After the payment was done the respective prepayment was netted with the liabilities accounted for the onerous contract as no services are to be received in the future for the prepayment made. Impairment of financial assets IFRS 9 fundamentally changed the credit loss recognition methodology. The standard replaced IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. The Group and the Bank are required to recognize an allowance for expected losses for all loans and other debt financial assets not held at FVPL, together with loan commitments and financial guarantee contracts. The allowance is based on the expected credit losses associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination, in which case, the allowance is based on the probability of default over the life of the asset. Loss allowances based on lifetime expected credit losses are calculated also for purchased or originated credit-impaired assets (POCI) regardless of the changes in credit risk during the lifetime of an instrument. The Bank has established a policy to perform an assessment at the end of each reporting period of whether credit risk has increased significantly since initial recognition by considering the change in the risk of default occurring over the remaining life of the financial instrument. The Bank’s ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgements and estimates include:

The Bank’s internal credit grading model, which assigns PDs to the individual grades The Bank’s criteria for assessing if there has been a significant increase in credit risk and so allowances

for financial assets should be measured on a LTECL basis and the qualitative assessment The segmentation of financial assets when their ECL is assessed on a collective basis Development of ECL models, including the various formulas and the choice of inputs Determination of associations between macroeconomic scenarios and, economic inputs, such as

unemployment levels and collateral values, and the effect on PDs, EADs and LGDs



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Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models.

The assets to test for impairment are divided into three groups depending on the stage of credit deterioration. Stage 1 includes assets where there has been no significant increase in credit risk or which are classified as low risk (rating categorised as “Investment grade” or higher), stage 2 includes assets where there has been a significant increase in credit risk and stage 3 includes defaulted assets. Significant assets in stage 3 are tested for impairment on an individual basis, while for insignificant assets a collective assessment is performed. In stage 1, the allowances equal the 12 month expected credit loss. In stage 2 and 3, the allowances equal the lifetime expected credit losses. One important driver for size of allowances under IFRS 9 is the trigger for transferring an asset from Stage 1 to Stage 2. Luminor uses a mix of absolute and relative changes (0.6 p.p. and 2.5 times) in 12 month point-in-time Probability of Default (PD) to determine whether there has been a significant increase in credit risk. In addition, customers with forbearance measures, included in watch list and contracts with payments more than thirty days past due are also transferred to Stage 2. Investment funds and pension funds management The Group assesed that it does not control the investment and pension funds it manages. This is because the Group has a narrow scope of decision making powers (within local laws and regulations the funds manager has a discrection about the assets in which to invest), remuneration is commensurate with the services provided, and there is no obligation to fund losses. For information on managed investment and pension funds refer to Note 32. Significant accounting policies Consolidation The subsidiaries are all investees over which the Bank has:

Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);

Exposure, or rights, to variable returns from its involvement with the investee; The ability to use its power over the investee to affect its returns.

The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Bank controls another entity. The subsidiaries are fully consolidated from the date on which control is transferred to the Bank. They are de-consolidated from the date that control ceases. For more details on investments into subsidiaries refer to Note 18. Inter-company transactions, balances and unrealised gains and losses on transactions between group companies are eliminated. Combination of entities under common control and usage of the pooling of interest method A combination of entities under common control is a transaction when the controlling parties before and after a business combination are the same and the control is not transitory. IFRS 3, ‘Business combinations’ is not applied to business combinations between entities under common control, therefore such business combinations are accounted for using the pooling of interest method of accounting. According to the pooling of interest method the assets and liabilities of the combining entities are reflected at their carrying amounts. No adjustments are made to reflect fair values, or recognize any new assets or liabilities, at the date of the combination that would otherwise be done under the acquisition method. No 'new' goodwill is recognized as a result of the combination. The only goodwill that is recognized is any existing goodwill relating to either of the combining entities. Any difference between the consideration paid/transferred or investment cost and the equity 'acquired' is reflected within equity.



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ACCOUNTING POLICIES (continued) Investment in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control over those policies. The Group’s investment into associate is accounted for using the equity method and initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the asssociate since the acquisition date. The statement of profit or loss reflects the Group’s share of the results of operations of the associate. The financial statements of the associate are prepared for the same reporting period as the Group. Once a year the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and then recognises the loss as share of profit of an associate in the statement of profit or loss. Investments into associates in the Bank’s separate financial statements are carried at cost less impairment (if any). For more details on investments in an associate refer to Note 20. Foreign currency translation

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in EUR, which is the Bank's and subsidiaries’ functional and presentation currency. All monetary assets and liabilities denominated in foreign currencies are translated into EUR at the official rate of the Bank of Lithuania prevailing at the reporting period end. Gains and losses arising from this translation are included in the income statement for the period. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined. Transactions denominated in foreign currency are recorded at the rate ruling on the date of the transaction. Exchange differences arising from the settlement of transactions denominated in foreign currency are charged to the income statement at the time of settlement using the exchange rate ruling at that date. Recognition of income and expenses

Interest income and expense Interest income and expense recognition. Interest income and expense are recorded for all debt instruments on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents. Commitment fees received by the Group to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at FVTPL. For financial assets that are originated or purchased credit-impaired, the effective interest rate is the rate that discounts the expected cash flows (including the initial expected credit losses) to the fair value on initial recognition (normally represented by the purchase price). As a result, the effective interest is credit adjusted. Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for (i) financial assets that have become credit impaired (Stage 3), for which interest revenue is calculated by applying the effective interest rate to their amortised cost, net of the ECL provision, and (ii) financial assets that are purchased or originated credit impaired, for which the original credit adjusted effective interest rate is applied to the amortised cost.



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ACCOUNTING POLICIES (continued) Fee and commission income and expense Fees and commissions are recognised over time on a straight line basis as the services are rendered, when the customer simultaneously receives and consumes the benefits provided by the Group’s performance. Such income includes fees for account maintenance, account servicing fees, account subscription fees, portfolio and other asset management advisory and service fees, wealth management and financial planning services, or fees for servicing loans on behalf of third parties. Variable fees are recognised only to the extent that management determines that it is highly probable that a significant reversal will not occur. Other fee and commission income Other fee and commission is recognised at a point in time when the Group satisfies its performance obligation, usually upon execution of the underlying transaction. The amount of fee or commission received or receivable represents the transaction price for the services identified as distinct performance obligations. Such income includes fees for arranging a sale or purchase of foreign currencies on behalf of a customer, fees for processing payment transactions, fees for cash settlements, collection or cash disbursements, as well as, commissions. Dividend income

Dividends are recognised in the income statement when the entity’s right to receive payments is established. Taxation

Income tax

In accordance with the Lithuanian Law on Corporate Income Tax, the current income tax rate is 15 % on taxable income. Expenses related with taxation charges and included in these financial statements are based on calculations made by the management in accordance with the Lithuanian tax legislation. Deferred income tax is provided using the balance sheet liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for the financial reporting purposes. Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that a taxable profit will be available against which the losses can be utilised. Judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Tax losses can be carried forward for indefinite period. The losses from disposal of securities can only be used to offset the profit earned from sale of securities. The losses from disposal of securities can be carried forward for 5 consecutive years. Starting with 1 January 2014 tax losses carried forward can be used to reduce the taxable income. Deferred tax related to fair value re-measurement of financial assets classified as at fair value through other comprehensive income which are charged or credited to other comprehensive income, is also credited or charged to other comprehensive income and subsequently recognised in the income statement together with the deferred gain or loss. Other taxes

Other taxes are included in other expenses in the income statement.



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ACCOUNTING POLICIES (continued) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise the cash, other valuables, correspondent bank account balances, correspondent account and overnight deposits with the Bank of Lithuania.Required reserves in national currency in Central Bank are also treated as cash as readily available. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Financial assets and liabilities

Classification and measurement At initial recognition, the Group measures trade receivables that do not have a significant financing component (determined in accordance with IFRS 15) at their transaction price. Other financial assets and financial liabilities are measured at initial recognition at their fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

Subsequent measurement of financial assets depends on the classification performed by the Group at initial recognition. At initial recognition, financial assets can be classified into one of the following categories:

Financial assets measured at fair value through profit or loss, Financial assets measured at fair value through other comprehensive income (OCI), Financial assets measured at amortised cost.

Classification is performed based on both the Group’s business model for managing financial assets and the characteristics of contractual cash flows of the financial assets. However, financial assets that meet the amortised cost or fair value through other comprehensive income measurement criteria, may be designated on initial recognition by the Group to fair value through profit or loss measurement option, provided that particular qualifying criteria are met. Additionally, the Group may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income. On initial recognition, financial liabilities are classified into one of the following categories:

Financial liabilities measured at amortised cost, Financial liabilities measured at fair value through profit or loss.

Financial liability is classified as measured at fair value through profit or loss if:

It meets the definition of held for trading and It is designated upon initial recognition to fair value through profit or loss measurement option

All other financial liabilities are classified as measured at amortised cost. The Group and Bank reclassifies debt securities when and only when its business model for managing those assets changes. Financial assets and liabilities measured at fair value through profit or loss Trading securities

Trading securities are securities which were acquired either for generating a profit from short-term fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists. Trading securities are initially recognised at fair value, which is based on quoted bid prices. All related realised and unrealised gains and losses are included in net trading income or expenses. Dividends received are included in dividend income. All purchases and sales of trading securities that require delivery within the time frame established by regulation or market convention (‘regular way’ purchases and sales) are recognised at settlement date, which is the date that an asset is delivered to or by the Group.



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ACCOUNTING POLICIES (continued) Derivative financial instruments

Derivative financial instruments including foreign exchange forwards, swaps, options (both written and purchased) and other derivative financial instruments are initially recognised in the statement of financial position at their fair value. Fair values are determined according to the model, based on market observable inputs. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivatives held for trading are included in net trading income. Fair values of the derivative financial instruments are disclosed in Note 14. Securities for liquidity management

Securities which were acquired for liquidity management purposes and are within held to collect and sell business model are initially recognised at fair value, which is based on quoted bid prices. All related realised and unrealised gains and losses are included in net gain (loss) on transactions with securities. Dividends received are included in dividend income FVTPL option was ellected for those securities because it leads to significant reduction or elimination of accounting mismatch. Financial assets measured at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include financial assets that are invested in equity shares and debt securities. Those assets are intended to be held for an indefinite period of time and are initially recognised at fair value based on quoted bid prices or amounts derived from discounted cash flow models. Unrealised gains and losses arising from changes in the fair value of those financial assets are recognised in other comprehensive income (OCI). When the financial asset is derecognised the cumulative gain or loss previously recognised in OCI is not reclasified to profit or loss. Dividends receivable are included separately in dividend income when the right of the payment has been established. All regular way purchases and sales of securities are recognised at settlement date, which is the date that an asset is delivered to or by the Group. All other purchases and sales are recognised as derivative forward transactions until settlement. Repurchase and reverse repurchase agreements The securities sold under agreements to repurchase at a specified future date are not derecognised from the statement of financial position as the Bank retains substantially all the risks and rewards of ownership. The corresponding cash received is recognised in the consolidated statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability, reflecting the transaction’s economic substance as a loan to the Bank. The securities purchased under agreements to resell at a specified future date are not recognised in the statement of financial position. Reverse repurchase agreements are classified as loans and receivables to other banks or customers, and are accounted for using the amortised cost method. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Financial assets and liabilities measured at amortised cost Loans

Loans and advances are financial assets held for collection of contractual cash flows and those cash flows represent SPPI. Loans are carried at amortised cost using the effective interest method. Loans and advances are recognised at their settlement date, when cash is advanced to borrowers. From the date of signing a contractual agreement till the settlement date they are accounted for as off-balance sheet items.



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ACCOUNTING POLICIES (continued) Due to banks and customers Amounts due to banks and customers are non derivative liabilities to individuals, state and corporate customers, banks and are recorded when money or other assets are advanced to the Bank and the Group. Those liabilities are recognised initially at fair value and in the case of loans and borrowings, net of directly attributable transaction costs. After the initial recognition the interest-bearing loans, deposits recognised at amortised cost using the EIR method and included as net interest income in the statement of profit and loss. Impairment losses on loans, finance lease receivables and other financial assets

Losses on loans, finance lease receivables and other financial assets are assesed on a forward looking basis,. The Group measures ECL and recognises credit loss allowance at each reporting date. Impairment allowances are determined based on the forward-looking ECL models. When a loan is uncollectible, it is written off against the related allowances for loan impairment. Such loans are written off after all necessary procedures have been completed and the amount of the loss has been determined. Renegotiated loans

The Group sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Group assesses whether the modification of contractual cash flows is substantial considering, among other, the following factors: significant change in interest rate, change in the currency denomination, new collateral or credit enhancement that significantly affects the credit risk associated with the asset or a significant extension of a loan when the borrower is not in financial difficulties. If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Group derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes. The Group also assesses whether the new loan or debt instrument meets the SPPI criterion. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners. In a situation where the renegotiation was driven by financial difficulties of the counterparty and inability to make the originally agreed payments, the Group compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are substantially different as a result of the contractual modification. If the risks and rewards do not change, the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in profit or loss. Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where:

The rights to receive cash flows from the asset have expired; or The Bank and the Group has transferred its rights to receive cash flows from the asset, or retained the right to

receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; and

The Bank and the Group either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.



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ACCOUNTING POLICIES (continued) Where the Bank and the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Bank and the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank and the Group could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Bank’s and the Group’s continuing involvement is the amount of the transferred asset that the Bank and the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Bank’s and the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as substantial modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability. Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate, with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying values is attributed to a capital transaction with owners. Intangible assets

An intangible asset is recognised only when its cost can be measured reliably, it is controlled by the Group as a result of past events and it is probable that the expected future economic benefits that are attributable to it will flow to the Bank. The Group controls an asset if the Group has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses (if any). The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised using the straight–line method over the useful economic life. The amortisation period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end in order to reflect the pattern of consumption of such asset. Investment properties

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day to day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the period in which they arise.



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ACCOUNTING POLICIES (continued) Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the income statement in the period of derecognition. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. Property, plant and equipment

Property, plant and equipment are held at historical cost less accumulated depreciation and any impairment in value. Depreciation is provided on a straight-line basis to write off proportionally the cost of each asset over its estimated useful life. Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amount and are charged to the income statement. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. Asset maintenance costs are charged to the income statement when they are incurred. Significant renewals of assets are capitalised and depreciated over the remaining useful life period of the improved asset. Non-current assets held for sale

Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition, management has committed to the sale and the sale is expected to be completed within one year from the date of classification. Non-current assets classified as held for sale are not depreciated or amortised. Fair values of the non-current assets held for sale are disclosed in Note 24. Leases

The determination of whether an arrangement is a lease or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Group is the lessee

Leases of assets under which the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. The total payments made under operating leases are charged to the income statement on a straight-line basis over the period of lease and included into other administrative expenses. Group is the lessor Operating leases

Assets leased out under operating leases are included in property, plant and equipment in the statement of financial position. They are depreciated over their expected useful lives on a basis consistent with similar owned assets. Rental income is recognised on a straight-line basis over the lease term.



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ACCOUNTING POLICIES (continued) Finance leases

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. Initial direct costs are included in the initial measurement of the lease receivables. Assets / funds under management and related liabilities

Assets and income arising thereon together with related undertakings to return such assets to customers are excluded from these financial statements where the Group acts in a fiduciary capacity such as nominee, trustee or agent. The Bank’s assets under management include loans that are managed by the Bank in the name of the Lithuanian Ministry of Finance and the Lithuanian Ministry of Agriculture. The Group’s assets under management also include funds under management and are accounted for off-balance sheet. Employee benefits

Social security contributions

The Group pays social security contributions to the state Social Security Fund (the Fund) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Group pays fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior period. The social security contributions are recognised as an expense on an accrual basis and are included within staff costs. Social security contributions each year are allocated by the Fund for pension, health, sickness, maternity and unemployment payments. Termination benefits

Termination benefits are payable when an employee’s employment is terminated on initiative of employer or the employment is terminated by mutual employee’s and employer’s agreement. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after statement of financial position date are discounted to present value. Termination benefits are included within staff costs in the income statement and within other liabilities in the statement of financial position. Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. The expense relating to any provision is recognised in the income statement. If the effect of the time value of money is material, provisions are discounted using current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. Onerous contracts provision

Onerous contracts provision is recognised when the Group has a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.



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ACCOUNTING POLICIES (continued) Financial guarantees and credit-related commitments

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. The fair value of the financial guarantee on the initial recognition does not include the gross receivable for future premiums not yet due. Subsequent to initial recognition, the bank’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation calculated to recognise in the income statement the fee income earned on a straight line basis over the life of the guarantee or the best estimate of the expenditure required to settle any financial obligation arising at the statement of financial position date. These estimates are determined based on forward looking ECL basis. Any increase in the liability relating to guarantees is taken to the income statement under other operating expenses.

Documentary and commercial letters of credit represent written undertakings by the Bank and the Group on behalf of a customer authorising a third party to draw drafts on the Bank and the Group up to a stipulated amount under specific terms and conditions. Fair value of assets and liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of the principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The fair value of interest-bearing financial instruments is estimated based on discounted cash flows using the interest rates for items with similar terms and risk characteristics. In the case of inactive markets the establishment of valuation techniques for measuring the fair value is provided. Offsetting financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.



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ACCOUNTING POLICIES (continued) Off-balance sheet items Off-balance sheet derivative transactions are marked to market at the reporting date and any arising profit or loss is recognised in the income statement for the period and treated as an asset or liability in the statement of financial position respectively. All liabilities that might give rise to statement of financial position exposures are accounted for as off-balance sheet liabilities. This allows the Bank and the Group to assess capital requirement and to allocate funds required to cover those obligations. Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable. Subsequent events

Post-year-end events that provide additional information about the Bank’s position at the statement of financial position date (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.



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RISK MANAGEMENT

The aim of risk management activity at the Group is to maintain a risk profile that delivers predictable income and loss volatility. While implementing a sound risk management policy the Group focuses not only on minimising the potential risk but also on improving pricing and achieving efficient capital allocation. The risk management function of the Group is organised in such a way that ensures efficient risk management and fulfilment of the principles stipulated in the Risk Policy and Strategy. The risk management principles are the following: Risk Accountability: every area in the Bank is accountable for the risks arising from their activities. Risk Governance: risk needs to be considered as part of the governance around any and every business

decision. Risk Identification, Assessment, Management and Reporting: all material exposures must be identified,

assessed, managed and reported in a timely and accurate manner. Internal Control system: a comprehensive internal control system must be in place to ensure that risk

management and controls are executed in accordance with the guiding principles, minimum standards, risk appetite, limits and mandates.

The Group maintains the Recovery Plan following the Bank Recovery and Resolution Directive adopted by the European Parliament. The plan serves as one of the risk management prevention tools and should ensure restoration of the Group’s solvency following situations of severe stress without any involvement by or support from the authorities or tax payers. The Group analyses, evaluates, accepts and manages the risks or combinations of risks it is exposed to. The most important types of risk the Group is exposed to are credit risk, market risk, liquidity risk, operational risk and other risk (business risk, reputational risk). Concentration risk is assessed as part of credit risk, other types of concentration were assessed to be less material for the Group. Compliance risk is treated as part of operational risk. Market risk includes foreign exchange risk and interest rate risk. The risk management in the Group is organized in such a way that any possible conflicts of interest would be avoided. The function of all-type risk control is segregated from risk taking, i.e. from the front-office units. Risk division organisational structure:

The control function for the major material risk – credit risk – is under the responsibility of the Credit Risk Department, Credit Control Department and Risk Analysis Department. The control over operational risk management within the Group and information security lies under the responsibility of Operational Risk Department. The functions of Market Risk Department embrace market risk and liquidity risk control. All organizational units within Risk division represent the second line of defense and report directly to the Group Chief Risk Officer (CRO). The Chief Credit Officer for Lithuania from the Credit Risk Department acts as local CRO, who is as well the member of the Management Board. Risk management processes and effectiveness of internal control are assessed by the Internal Audit Department (third line of defense).

Group Chief Risk Officer

Risk Analysis Department

Credit Control Department

Market Risk Department

Operational Risk Department

Credit Risk Department



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RISK MANAGEMENT (continued) The internal control – as a system of organizational measures, actions and internal procedures – ensures the effective and efficient operations and prudent conduct of business, the compliance with laws and regulations, the adequate assessment and control of risk, as well as the reliability of financial and non-financial information and submission thereof in a timely manner. The Management Board is responsible for creation and maintenance of effective internal control system in the Group. The Management Board approves the procedures having significant impact on risk management and risk mitigation measures associated with the risk management. In certain cases when it is not prohibited by legal or regulatory requirements responsibility for approval is delegated to the Chief Risk Officer. Non-structural unit of the Bank – Risk Committee – advises the Management Board and the Supervisory Council on the overall actual and future risk appetite and strategy, on the optimal capital structure. Also it aims to optimize the Bank’s asset and liability structure with regard to acceptable risk and return. The Risk Committee considers and makes proposals on the main risk-related processes. Risk reports covering analysis of all the risks are presented to the Risk Committee on a regular basis. The Credit Committee is a decision making body regarding individual credit cases and contributes to development of a sound and uniform credit culture in the Group. The Credit Committee provides recommendations regarding important credit regulations and setting goals for the desired portfolio quality. 1. Credit risk

Credit risk means the risk for the Group to incur losses due to the customers’ failure to fulfil their financial obligations towards the Group. Credit exposures arise principally in lending activities and it is the most significant risk in the Group’s business. The credit risk arises also from investment activities (e.g. debt securities) as well as from the off-balance sheet financial instruments, such as loan commitments, guarantees and letters of credit. The key elements of credit risk management are the Group Credit Policy, Credit Strategy for business customers and Credit Strategy for private individuals. Practical aspects of the application of the principles set out in these documents’ and decision-making processes are regulated by the Credit Manual for business customers and Credit Manual for private individuals. The Group’s principal objective for lending is that the loan portfolio should have a quality and a composition which ensure profitability in the short and long term. The target is that the loan portfolio should maintain the credit risk profile varying from low to moderate. The assessment of creditworthiness should be based on customer’s ability to perform on its financial obligations. Cash flows from customers’ activities dedicated for loan payments should be clearly understandable and sustainable. Credit decisions are made by Credit Committees and by authorised individuals according to defined powers to act which are risk adjusted. The decision of the Credit Committee to grant a loan shall be unanimous. Powers to act for individuals are personal and based on the competence level. Four-eyes principle is followed. Final approval of credits above a certain level is done together with the independent credit officers. In cases of small credit card limits/consumer credits one pair of eyes may be replaced by rating. The regular reports are designed to be provided to the Group’s management bodies to follow the level and developments of the assumed credit risk. 1.1. Credit risk measurement

(a) Loans and advances, including finance lease receivables

The credit risk is managed by carrying out a thorough analysis of the customer before issuing credits and by monitoring thereof after credit disbursement. Risk models are essential elements of the credit process and tools for management of the Group’s credit risk. The Group measures credit risk by means of rating models yielding probability of default (PD) and risk grade as well as by loss given default (LGD) and exposure at default (EAD) parameters. These risk models are constantly improved based on the results of analysing the historical credit-risk-related data and tested for reliability (validated).



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RISK MANAGEMENT (continued) Rating models, which yield probability of default (PD) and risk grade, are used to estimate default risk of counterparty, to determine compliance of customers and exposures with the Credit Strategy, to determine correct decision-making level and to set requirements for the frequency of follow up within the regular monitoring process. The assessment is made by using the customer / product segment specific rating models, which are used for homogeneous groups of customers: large corporates, corporates, small and medium-sized enterprises (SMEs), microbusiness (e.g., small single ownership companies), real estate projects of legal entities, individual customers.

All credits granted to customers are classified by risk using these rating models every time a commitment is renewed or, unless otherwise decided, at least once a year. Loans to private individuals are assessed based on application scorings when decision is made. After the loans are granted, they are monitored by periodical evaluation of the customer’s status using the behavioural scorings. In addition to credit decision making, the outputs of internal risk models are applied in credit pricing, loan portfolio quality monitoring and risk reporting as well as economic capital (risk-adjusted capital, hereinafter referred to as RAC) calculation. RAC is used for decision making with respect to strategic capital allocation, i.e. for determining the strategic segments in lending activity, as well as capital planning for the Group. Whenever large business customers are provided with loans, in addition a risk-adjusted profitability for the Group is assessed at both an individual loan and customer level, i.e. a risk-adjusted return on risk-adjusted capital (RAROC) is measured. The same principles of RAC-based pricing as well as RAROC-based profitability assessment are also extended to the other segments of the loan portfolio through the standardized pricing tools or rules. The risk-based credit pricing tools for all customer / product segments are monitored regularly and updated, if needed. In 2018 the considerable amount of efforts were continued to be aimed towards implementation of a uniform landscape of rating models and risk parameters (which is mainly based on the rating models and risk parameters developed internally by former DNB subsidiaries in the Baltics) in the Group after combination of operations of DNB and Nordea in the Baltics by 1st October 2017. As well, the Group focused on further improvement of its impairment quantification approach under IFRS 9, which heavily relies on outputs from internal risk models adjusted to fit IFRS 9 purposes. In 2018 the Group reviewed and updated its internal approach towards allocation of RAC for individual loans and customers taking into account its regulatory capital requirements and internally targeted capitalisation levels. As a result, principles and tools for RAC-based pricing decisions were reviewed and amended too. The Group considers building of competence of its employees as a prerequisite for creating a sound credit culture within the organization. Therefore it puts a special emphasis on internal training of its employees involved in credit activities on credit analysis, usage of rating models, understanding of risk parameters, which make an integral part of decision making, and risk-based pricing principles. In 2018, high attention was dedicated to training of employees involved in credit activities on rating models and risk parameters, risk-based pricing principles, RAROC-based profitability measurement and relationship between them, risk data quality assurance issues as well as to ensure the common understanding of these issues through the whole Group. This was supported by review of the Group’s internal documentation regulating credit risk management area (including as well newly prepared Rating Guidelines) with aim to provide more detailed guidance, what facilitates alignment of understanding of the employees from the different parts of organization in this transitional period following the combination of operations of DNB and Nordea in the Baltics.



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RISK MANAGEMENT (continued) The Group’s internal rating scale for performing customers and mapping of external ratings are provided below:

Rating grade PD range Standard & Poor’s / Fitch Moody's Investment /

speculative grade Risk level

1.a 0.01 – 0.02 % AAA – A+ Aaa – Aa1

Investment grade Low risk

1.b 0.02 – 0.04 % AA – AA- Aa2 – Aa3

1.c 0.04 – 0.06 % A+ A1

1.d 0.06 – 0.08 % A A2

1.e 0.08 – 0.10 % A- A3

2.a 0.10 – 0.18 % BBB+ Baa1

2.b 0.18 – 0.25 % BBB Baa2

3 0.25 – 0.50 % BBB- Baa3

4 0.50 – 0.75 % BB+ Ba1

Speculative grade

5 0.75 – 1.25 % BB Ba2

Moderate risk 6 1.25 – 2.00 %

7 2.00 – 3.00 % BB- Ba3

8 3.00 – 5.00 % B+ B1

High risk

9 5.00 – 8.00 % B B2

10.a

8.00 – 40.00 %

B- B3

10.b CCC+ Caa1

10.c CCC and lower Caa2 and lower

10.d

(b) Due from banks and other credit institutions

The counterparty risk of banks and financial institutions is managed by selecting high quality counterparties before establishing the limits and by monitoring thereof after. The Group’s portfolio shall be dominated by investment risk grade counterparties or counterparties with high importance in countries with a speculative risk grade. Counterparties not rated by any of the major rating agencies are handled as exceptions. In the Bank a separate dedicated Financial Institutions unit acts as a single core competence center and ensures holistic overview of the Group’s exposure on counterparties and countries. The unit among other things is centrally responsible for: analysing the counterparties and countries, preparing the limit proposals and rating recommendations;

maintaining high quality counterparty portfolio including review of bank and country limits on an annual basis;

following-up and monitoring of the portfolio including any early warning indicators.

The risk grade and probability of default (PD) of banks and countries is based on the available risk classifications from rating agencies Moody’s, Standard & Poor’s and Fitch (see 1.1.a) paragraph). All counterparties and countries with valid limits are risk classified. In case the external rating for a counterparty is not available a conservative expert judgment is a basis for the Group internal rating, which reflects the counterparty’s credit strength, derived from the macroeconomic factors and counterparty’s own solvency and liquidity factors, together with its qualitative non-financial adjustments. All limits of counterparties and countries are reviewed at least once a year with the purpose to assess the counterparty’s creditworthiness, review the risk grade as well as the available limits. Externally non-rated counterparties always have an individual assessment.



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RISK MANAGEMENT (continued) All externally rated counterparties and countries are monitored on a quarterly basis with the focus on the rating actions taken by external credit rating agencies. Externally non-rated banks are monitored with the emphasis on an evaluation of the ownership changes, financial standings and any other relevant information and signals that may affect the bank’s credit standing. Early warning signal monitoring that could potentially indicate a material change in the credit risk of counterparties is an important part of a regular monitoring of the counterparties. (c) Debt securities

Debt securities exposure of the Group at the end of year 2018 is 85.5 million euro. The credit risk arising from them is considered as being low. Close to 100 per cent of all debt securities are issued by the governments of Lithuania and Latvia. The remaining minority consists of Lithuanian and Estonian corporate bonds. Average weighted duration of the portfolio is about 1.5 years. Debt securities investments are performed in accordance with the limits set by the Luminor Lithuania Management Board and Supervisory Council. Limit utilization is monitored on daily basis. 1.2. Risk limit control and mitigation policies

(a) Concentration risk

The Group manages, limits and controls concentration of credit risk – in particular, to individual counterparties and groups of the associated counterparties as well as to economic sectors. The Group’s portfolio of the products bearing credit risk derived from lending to the groups of the connected borrowers and a single borrower is well diversified. Concentration risk of lending to the economic sectors is regarded as being material and is closely monitored and controlled. Complimentary to the regulatory requirements to limit the large exposures to a single borrower or the group of related borrowers, the Group implements limits to economic sectors, i.e. a possible concentration in certain economic sectors at the Group level is restricted by the internal percentage lending limits. At the end of the year 2018, the loan portfolio of the Group was well diversified by economic sectors and none of the set limits was breached. The geographical concentration risk is not considered as being material in the Group’s business since the principle of focusing on domestic customers is followed. The Group’s activity regarding risk concentrations is defined in the Credit Strategy. Some other specific risk control and mitigation measures are outlined further on. (b) Collateral The Group prefers the customer’s ability to repay the loan in the lending process, giving less importance to the pledged collateral measure. The Group mitigates credit risk through taking of collaterals for funds advanced. Types of collateral considered by the Group as the most acceptable for securing loans and advances are the following: Property rights over financial instruments (debt securities, equities, cash); Guarantees; Real estate mortgage (mainly residential properties, commercial real estate); Business assets (equipment, inventory, transport vehicles).

When deciding on the type of collateral the maturity of the loans is taken into account. Long-term loans preferably should be covered by long-term property, mainly residential properties. More information on collaterals, value assessments of collaterals, periodical review of collateral values is provided in 1.5.b).



Page 74 of 160

RISK MANAGEMENT (continued) Long-term financing and lending to business customers are generally secured. Revolving facilities and consumer loans to private individuals are usually unsecured. Debt securities, treasury and other eligible bills are generally unsecured. In order to minimise the credit loss the Group may seek for additional collateral from the counterparty as the impairment indicators for certain individual loans and advances are noticed. For finance lease receivables the lessor remains the owner of the leased object. Therefore, in case of customer default the lessor is able to gain control on the risk mitigation measures and realise them in a rather short period. (c) Derivative financial instruments

Derivative financial instruments including foreign exchange contracts, interest rate swaps and options, commodity swaps are initially recognized and subsequently carried at their fair value are revalued at least monthly. Fair values are obtained from quoted market prices and discounted cash flows as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Margining agreements are established with the clients. Credit lines are usually granted to manage credit risk of these financial instruments. Cash or securities are less frequent option to be used as a collateral. Derivatives are used to hedge market risk positions arising from ordinary banking operations and from derivative transactions with clients. The Group’s counterparty credit risk represents the potential cost to replace derivative contracts if counterparties fail to perform their obligation. The Group assess counterparties in order to control the level of credit risk taken. The counterparty credit risk is managed primarily through limitation of exposures to each counterparty, regular valuation of exposures and collateralization of exposures. (d) Credit-related commitments

Other credit-related commitments assumed by the Group include guarantees, letters of documentary credit, commitments to grant a credit which expose the Group to the same credit risk as the loans do. The key aim of these instruments is to ensure that funds are available to a customer as required. The aforementioned commitments are collateralised either by the funds in the Bank’s account, by material assets (real estate being the preference) or other collaterals such as third party guarantees. With respect to credit risk arising from commitments to extend credit, the Group is exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customer’s ability to repay the loans already granted. 1.3. Impairment policies

Starting from 1st January 2018 the Group implemented and followed the requirements of IFRS 9 for loss allowance assessment for expected credit losses. (a) General ECL assessment principles

With the adoption of IFRS 9 three stages model was introduced: Stage 1 – part of the portfolio for which no significant deterioration in credit quality has occurred since initial recognition (or the exposure is of low credit risk) and the financial instrument is not considered credit-impaired; Stage 2 – part of the portfolio for which significant deterioration in credit quality has occurred since initial recognition, evidenced by the SICR – significant increase in credit risk - indicator, and the financial instrument is not considered credit-impaired; Stage 3 – credit-impaired part of the portfolio. The Group equates default and credit-impairment definitions so that all defaulted exposures are treated as credit-impaired and all credit-impaired exposures are treated as defaulted. This approach is based on the fact that the default definition used by the Group covers all events indicated by IFRS 9 as possible evidence that financial instrument is credit-impaired and all of these events are considered by the Group as having a detrimental impact on the estimated future cash flows from the instrument. Additional category is POCI financial assets - financial assets that were purchased or originated as credit-impaired. POCI assets are subject to unchanging classification, i.e. financial asset once classified as POCI remains in this group until derecognized. The POCI classification is determined at financial instrument level. The Group applies low credit risk exemption to the following classes of exposures: central governments, central bank, regional governments, local authorities and institutions.



Page 75 of 160

RISK MANAGEMENT (continued) The counterparty must fulfil the condition of having credit rating indicating investment grade. With the shift from IAS 39 to IFRS 9 approach incurred loss model was replaced by expected credit loss (ECL) model. For Stage 1 financial assets loss allowances equal to 12-month ECL while for Stage 2 and Stage 3 financial instruments lifetime ECL is calculated. For Purchased or Originated Credit Impaired (POCI) financial assets ECL is estimated in the lifetime horizon till the maturity. The loss expected at initial recognition is referred to as Initial impairment. At subsequent periods only the cumulative changes in the lifetime expected credit losses, since initial recognition, are recognised in profit or loss. (b) Default definition

The Group identifies default when either or both of the following default indicators have taken place: 1. The customer is past due more than 90 days on any material obligation to the Group; 2. The customer is considered unlikely to pay its credit obligations to the Group. For exposure to banks the default is recognized when payments are due more than 7 days. For the purpose of unlikeliness to pay identification, elements taken as indications of unlikeliness to pay include the following: Distressed restructuring of credit obligation (forbearance triggering non-performing status in accordance with

FINREP instruction requirements); Major financial problems of the customer (present or expected), i.e. significant financial difficulties; Recognition of specific credit risk adjustment resulting from a significant decline in credit quality of the

exposure; Bankruptcy of the customer or similar protection; Disappearance of an active market for a financial asset because of financial difficulties of the customer; Sell of credit obligation at material credit-related economic loss; Purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses; Credit fraud; External rating indicating default.

The default is recognised on customer level. Return to a non-defaulted status is possible not earlier than after 3 months when all default triggers cease to be met. During those 3 months of the probation period the timely payments by a customer should be ensured. The exemption from the general rule of probation is the distressed restructuring where at least 1 year needs to pass since the moment of extending restructuring measures and the moment when a customer is deemed to have an ability to comply with the post-restructuring conditions. This approach is consistent with FINREP instruction requirements for cure of forborne non-performing exposures. (c) Significant increase in credit risk

Generally the financial asset is treated as facing significant increase in credit risk if at least one of the following SICR indicators is identified after initial recognition of the financial instrument and was not present as of its origination: Significant increase of 12-month PD – significant increase of point-in-time (PIT) forward-looking 12-month

PD since initial recognition until reporting date (2.5 times and 0.6 p.p. jointly), Risk grade 9 or 10 – risk grade 9 or 10 as of reporting date, 30 days past due – more than 30 days past due as of reporting date, Forborne performing – forborne performing status as of reporting date (forbearance not triggering non-

performing status) in accordance with FINREP instruction reporting requirements, Watch list – watch list status as of reporting date.

All of the SICR indicators are recognized at financial instrument level in order to track changes in credit risk since initial recognition date for particular financial instrument, even though some of them refer to the customer’s characteristics. The Group does not apply probation period for backward stage transfer of Stage 2 assets.



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RISK MANAGEMENT (continued) (d) 12-month and lifetime expected credit losses

Collective assessment of impairment is performed for all financial instruments that are not defaulted as of the reporting date, i.e. are classified to either Stage 1 or Stage 2 or are non-defaulted POCI asset. The expected loss is calculated as probability weighted average of losses expected in different macroeconomic scenarios. Expected loss in concrete macroeconomic scenario is calculated as the multiple of point-in-time probability of default (PIT PD), point-in-time loss given default (PIT LGD), exposure at default (EAD) and cumulative prepayment rate and is discounted using a discount rate: Macroeconomic scenario based PIT PD is probability that the performing exposure defaults during particular

time period provided that it has survived until the beginning of this period. PIT PD approach is applicable for all financial instruments for which the internal rating models are available.

Macroeconomic scenario based PIT LGD is the expected percentage share of an exposure that would be irretrievably lost if the default event occurs. For the evaluation of PIT LGD curves PD-dependent model is used, in which the LGD estimates are dependent on projected point-in-time PDs.

EAD is the exposure at default parameter which represents total exposure under a specific facility upon default. For instalment products (i.e. products with contractual repayment schedules), the EAD term structure is shaped by contractual amortization. For revolving products (e.g. credit lines, credit cards or overdrafts), limit utilization approach is used for the purpose of EAD term structure estimation. For standard off-balance exposures (guarantees and letters of credit) the credit conversion factors are determined to account for expected off-balance exposure withdrawals applicable for the default date.

Cumulative prepayment rate describes the cumulative likelihood that the exposure would be fully prepaid (i.e. closed before its contractual maturity) in the periods up to the end of analyzed period. The application of cumulative prepayment rate is limited in scope to these portfolios for which the prepayments are not captured by the PD model. The rules for discount rate assignment depends on the type of financial instrument and availability of the contractual repayment schedule. For facilities for which contractual repayment schedules are available, the effective interest rate (EIR) or its approximation (i.e. nominal rate) is applied as a discount rate. In case of exposures without the contractual repayment schedules, which contain both the financial asset and off-balance sheet item (e.g. credit lines, credit cards), best possible proxy of the EIR is applied. In case of exposures without the contractual repayment schedules, representing the off-balance products (guarantees, letters of credit), contractual rate associated with the exposure is applied or, if it is not available, the relevant market rate.

PIT PD curves, PIT LGD curves and EAD curves are estimated for all months until the maturity date of the facility. If the facility is classified to Stage 1, expected losses are estimated over the period of up to 12 months. If the facility is classified to Stage 2 then the expected loss is estimated over the period up to maturity date of the facility.

Estimation of PD and LGD curves take into account forward looking macroeconomic information. Methodology of estimation of these risk parameters includes modelling of the relationship between risk parameters and macroeconomic variables. Forecasts of macroeconomic variables under different scenarios for 3 upcoming years together with scenario probabilities are prepared by Luminor Lithuania macroeconomists. Three macroeconomic scenarios are considered: baseline/realistic, positive, and pessimistic scenario (with the highest probability weight for the baseline/realistic scenario). Macroeconomic scenarios that are prepared for the estimation of expected losses are consistent with scenarios which are used in credit risk stress testing process.

Three macroeconomic variables - annual change in real GDP, unemployment rate and annual change of residential real estate price - are included in the modelling for the Private individuals segment and two of them – annual change in real GDP together with unemployment rate – are used for modelling in the case of the Legal entities segment. The following table shows the parameters that were used for macroeconomic modelling on the 31 December 2018. Starting from the fourth year it is assumed that risk parameters (PD and LGD) converge to their long term average levels.



Page 77 of 160

RISK MANAGEMENT (continued)

Macroeconomic variables Optimistic scenario Baseline scenario

(realistic) Pessimistic

scenario

2019 2020 2021 2019 2020 2021 2019 2020 2021

Probability for scenario, % 20% 70% 10%

Annual change in real GDP, %

4.5 4.0 4.0 3.0 2.5 2.5 -1.0 -0.5 1.5

Unemployment rate, % 5.8 5.4 5.0 6.2 5.9 5.9 8.5 9.5 9.0

Annual change of residential real estate price, % 7.0 6.0 5.0 4.0 3.0 2.0 -8.0 0.0 2.0

Regular follow up is ensured for all material exposures. Regularity and deepness of the assessment is based on the risk level and size of the exposure. The aim of the follow up is 1) to identify worsening of the situation and start early actions to improve Bank’s position and 2) identify occurrence of Unlikely to Pay criteria. Credit-impaired large exposures that are above materiality thresholds and with loss event are reviewed every quarter or more frequently when individual circumstances require. Valuation is updated when there are significant changes in cash flows otherwise it is performed at least once a year. For Stage 3 exposures (or defaulted POCI assets), which are classified as material, the Group evaluates the impairment amount on individual basis (individual assessment) under discounted cash flows (DCF) method, where both future cash flows from borrower’s operations and cash flows from collateral are taken into account. Two scenarios – base case and risk case – with certain probability weights are used. For exceptional cases usage of one scenario can be sufficient. The circumstances when only one scenario might be acceptable could be the deep workout case or the case when total exposure of defaulted borrower falls below the materiality threshold. For Stage 3 exposures (or defaulted POCI assets), which are classified as immaterial, the Group evaluates the impairment amount on collective basis (collective assessment). Impairment is calculated applying the pool rate for unsecured part. Different pool rates are applied for three homogeneous pools distinguished by the Group: mortgage loans and private credits to private individuals, consumer loans and other loans to private individuals (including leasing), SMEs (all financial instruments to legal entities).

(e) Sensitivity analysis The following table shows the impact on the 31 December 2018 ECL allowance of changing the PD thresholds for SICR. Increases in ECL (positive amounts) represent higher impairment allowances that would be recognized. Group ECL impact of (TEUR) Actual absolute

threshold applied

Actual relative threshold applied

Change in absolute threshold

Change in relative

threshold

Lower thresholds

Higher thresholds

2.5 0.006 -/+ 20% -/+ 12bps 797 -349

The following table shows the impact on the 31 December 2018 ECL allowance of changing the pessimistic and optimistic scenario probabilities. Increases in ECL (positive amounts) represent higher impairment allowances that would be recognized.



Page 78 of 160

RISK MANAGEMENT (continued) Group ECL impact of (TEUR)

Pessimistic scenario

probability applied

Optimistic scenario

probability applied

Change in pessimistic

scenario probability

Change in optimistic scenario

probability

Lower pessimistic


Higher pessimistic


0.1 0.2 -/+ 200bps +/- 200bps -10 7

The following table shows the impact on the 31 December 2018 ECL allowance of changing the pool rate for Stage 3 immaterial exposures. Increases in ECL (positive amounts) represent higher impairment allowances that would be recognized. recognized. Group ECL impact of (TEUR)

Pool Actual pool rate applied

Change in pool rate, %

Change in pool rate, p.p., rounded

Lower pool rate Higher pool rate

Mortgage 85 -/+ 10% -/+ 8p.p. -782 782

Consumer 30.5 -/+ 10% -/+ 3p.p. -26 26

SME 54 -/+ 10% -/+ 5p.p. -349 349

(f) Risk assessment on modified financial assets

As a rule, each time the modification of a financial instrument takes place due to financial problems of the debtor the new rating/scoring should be obtained and new PD assigned, the loan should be marked as forborne if the FINREP instruction reporting definition is met. Therefore, as a result of modification the loan would be classified as Stage 2 if forborne performing status is assigned (or Stage 3 if forborne non-performing status is assigned) and/or the loan would be classified as Stage 2 if the change in PD is considered significant. In case of substantial modification resulting in derecognition of the asset and the origination of the new one, the newly recognized asset is classified as either POCI asset (if credit-impaired) or Stage 1 (if not credit-impaired). (g) Write-off policy

The Group writes off financial assets, in whole or in part, which are considered as being non collectible. Generally the indication that financial assets are non collectible is the situation when all collaterals (except guarantees of private individuals) are sold. However the write-off fact does not limit the Group’s recovery measures towards particular customer. The outstanding contractual amount on financial assets that were written off during the year ended 31 December 2018 and are still subject to enforcement activity was EUR 21,045 thousand.



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RISK MANAGEMENT (continued) 1.4. Maximum exposure to credit risk before collateral held or other credit enhancements

Group Bank 2018 2017 2018 2017

Credit risk exposures relating to on-balance sheet assets subject to impairment are as follows:

Cash and balances with central banks

1,384,026 1,362,543 1,384,026 1,362,543


38,353 251,172 38,319 251,142

Loans and advances to customers, including finance lease receivables:

5,085,089 5,085,457 5,027,872 5,036,947

Loans and advances to financial institutions

132,704 16,093 760,260 651,484

Loans to individuals (retail): 2,678,671 2,663,767 2,563,359 2,579,984 - Mortgage loans 2,282,594 2,288,348 2,282,594 2,288,348 - Consumer and card loans 72,129 74,807

72,129 74,807

- Other (reverse repurchase agreements, other loans backed by securities, other)

169,250 159,714 169,250

159,656

- Leasing 154,698 140,898

39,386

57,173

Loans to business customers:

2,273,714 2,405,597 1,704,253 1,805,479

- Loans 1,597,322 1.688,219 1,564,275

1,652,372

- Factoring 141,248 218,989 35,243

32,184

- Leasing 535,144 498,389

104,735

120,923

Credit risk exposures relating to off –balance sheet items subject to impairment are as follows:

823,867 986,390 884,923 1,036,388

- Financial guarantees 85,601 80,537 85,601 80,537 - Loan commitments and other credit related liabilities

738,266 905,853 799,322 955,851

7,331,335 7,685,562 7,335,140 7,870,020 Credit risk exposures relating to on-balance sheet assets not subject to impairment are as follows

Financial assets held for trading: 1,006 2,325 1,006 2,325 - Debt securities 1,006 2,325 1,006 2,325 Securities designated at fair value through profit or loss

83,192 85,568 83,192 84,153

- Debt securities 83,192 85,568 83,192 84,153 Derivative financial instruments 8,309 6,369 8,309 6,369 Securities at fair value OCI/ Securities available for sale

1,265

- Debt securities 1,265 - - - 7,425,107 7,779,824 7,427,647 7,779,867

The table above represents credit risk exposure at 31 December 2018 and 2017, without taking into account any credit risk mitigation techniques. On-balance sheet assets are reported above based on the net carrying amount as they appear in the statement of financial position. Loans and advances to banks and customers account for 69 % of the total maximum exposure of the Group (2017: 69 %) and for 68 % of the total maximum exposure of the Bank (2017: 68 %).



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RISK MANAGEMENT (continued) 1.5. Loans and advances

Gross amount and credit loss allowance amount for loans and advances, including finance lease receivables at 31 December 2018 and 31 December 2017 are disclosed in the tables below.

Group 31 December 2018 31 December 2017

Gross Of which initial

impairment of POCI

Allowance for

impairment

Net Gross Allowance for

impairment

Net


38,353 - - 38,353 251,142 - 251,142

Financial institutions 133,515 - (811) 132,704 16,107 (14) 16,093

Business customers 2,303,792 (17,989) (30,078) 2,273,714 2,475,337 (69,740) 2,405,597

-Loans 1,621,069 (17,506) (23,747) 1,597,322 1,752,916 (64,697) 1,688,219

-Factoring 141,635 - (387) 141,248 219,245 (256) 218,989

-Leasing 541,088 (483) (5,944) 535,144 503,176 (4,787) 498,389

Individual customers 2,711,905 (2,799) (33,234) 2,678,671 2,701,845 (38,078) 2,663,767

-Mortgage loans 2,309,531 (2,520) (26,937) 2,282,594 2,317,324 (28,976) 2,288,348

-Consumer and card loans

73,334 (24) (1,205) 72,129 75,360 (553) 74,807

-Other loans 173,490 (211) (4,240) 169,250 167,981 (8,267) 159,714

-Leasing 155,550 (44) (852) 154,698 141,180 (282) 140,898

Total 5,187,565 (20,788) (64,123) 5,123,442 5,444,431 (107,832) 5,336,599

Bank 31 December 2018 31 December 2017

Gross Of which initial

impairment of POCI

Allowance for

impairment

Net Gross Allowance for

impairment

Net


38,319 - - 38,319 251,142 - 251,142

Financial institutions

761,233 - (973) 760,260 651,498 (14) 651,484

Business customers

1,728,469 (17,926) (24,216) 1,704,253 1,872,638 (67,159) 1,805,479

-Loans 1,587,643 (17,483) (23,368) 1,564,275 1,716,823 (64,452) 1,652,371

-Factoring 35,455 - (212) 35,243 32,441 (256) 32,185

-Leasing 105,371 (443) (636) 104,735 123,374 (2,451) 120,923

Individual customers

2,595,973 (2,799) (32,615) 2,563,358 2,617,940 (37,956) 2,579,984

-Mortgage loans 2,309,531 (2,520) (26,937) 2,282,594 2,317,324 (28,976) 2,288,348

-Consumer and card loans

73,334 (24) (1,205) 72,129 75,360 (553) 74,807

-Other loans 173,490 (211) (4,240) 169,250 167,923 (8,267) 159,656

-Leasing 39,618 (44) (232) 39,386 57,333 (160) 57,173

Total 5,123,994 (20,725) (57,803) 5,066,191 5,393,218 (105,129) 5,288,089



Page 81 of 160

RISK MANAGEMENT (continued) The credit quality of loans and advances at 31 December 2018 is disclosed in the tables below according to the risk scale as set in the Credit Manual (see 1.1.a) paragraph): probability of default for low risk rating grades (1 to 4) is in the range from 0.00 % to 0.75 %, for moderate risk rating grades (5 to 7) it is from 0.75 % to 3.00 %, for high risk rating grades (from 8 to 10) it is from 3.00 % to 40.00 %. Group Due from banks and other credit institutions Stage 1

(12-months ECL)

Stage 2 (lifetime ECL for SICR)

Stage 3 (lifetime ECL

for credit-impaired)

POCI Total

Low risk 36,170 - - - 36,170 Moderate risk 2,173 - - - 2,173 High risk - - - - - Default - - 10 - 10

Gross 38,343 - 10 - 38,353 Of which initial impairment of POCI - - - - -

Less: allowance for impairment - - - - -

Net 38,343 - 10 - 38,353 Loans and advances to financial institutions Stage 1

(12-months ECL)




POCI Total

Low risk 109 22 - - 131 Moderate risk 133,147 228 - - 133,375 High risk - 9 - - 9 Default - - - - -

Gross 133,256 259 - - 133,515 Of which initial impairment of POCI - - - - -

Less: allowance for impairment (810) (1) - - (811)

Net 132,446 258 - - 132,704



Page 82 of 160

RISK MANAGEMENT (continued) Loans to business customers Loans Stage 1

(12-months ECL)




POCI Total

Low risk 669,446 71,180 - 1 740,627 Moderate risk 524,394 151,514 - 1,289 677,197 High risk 11,156 69,564 - 2,237 82,957 Default - - 89,152 31,136 120,288

Gross 1,204,996 292,258 89,152 34,663 1,621,069 Of which initial impairment of POCI - - - (17,506) (17,506)

Less: allowance for impairment (1,687) (2,156) (27,198) 7,294 (23,747)

Net 1,203,309 290,102 61,954 41,957 1,597,322 Factoring Stage 1

(12-months ECL)




POCI Total

Low risk 54,621 - - - 54,621 Moderate risk 68,298 4,764 - - 73,062 High risk 6,659 6,034 - - 12,693 Default - - 1,259 - 1,259

Gross 129,578 10,798 1,259 - 141,635 Of which initial impairment of POCI - - - - -

Less: allowance for impairment (146) (64) (177) - (387)

Net 129,432 10,734 1,082 - 141,248



Page 83 of 160

RISK MANAGEMENT (continued) Leasing Stage 1

(12-months ECL)




POCI Total

Low risk 96,269 36,651 - 43 132,963 Moderate risk 206,170 100,928 - 84 307,182 High risk 10,666 68,566 - 351 79,583 Default - - 20,188 1,172 21,360

Gross 313,105 206,145 20,188 1,650 541,088 Of which initial impairment of POCI - - - (483) (483)

Less: allowance for impairment (641) (2,668) (2,776) 141 (5,944)

Net 312,464 203,477 17,412 1,791 535,144 Loans to individual customers Mortgage loans Stage 1

(12-months ECL)




POCI Total

Low risk 1,937,532 17,432 - 1,722 1,956,686 Moderate risk 131,506 57,976 - 704 190,186 High risk 2,910 67,023 - 1,020 70,953 Default - - 83,469 8,237 91,706


Less: allowance for impairment (985) (7,008) (18,282) (662) (26,937)

Net 2,070,963 135,423 65,187 11,021 2,282,594 Consumer and card loans

Stage 1 (12-months

ECL)




POCI Total

Low risk 34,027 1,259 - 9 35,295 Moderate risk 28,599 5,581 - 1 34,181 High risk 310 2,286 - 1 2,597 Default - - 1,249 12 1,261

Gross 62,936 9,126 1,249 23 73,334 Of which initial impairment of POCI

- - - (24) (24)

Less: allowance for impairment (193) (165) (863) 16 (1,205)

Net 62,743 8,961 386 39 72,129



Page 84 of 160

RISK MANAGEMENT (continued) Other loans Stage 1

(12-months ECL)




POCI Total

Low risk 35,908 1,152 - - 37,060 Moderate risk 84,808 25,143 - 5 109,956 High risk 6,907 5,897 - 33 12,837 Default - - 12,483 1,154 13,637


Less: allowance for impairment (307) (277) (3,287) (369) (4,240)

Net 127,316 31,915 9,196 823 169,250 Leasing Stage 1

(12-months ECL)




POCI Total

Low risk 14,370 598 - - 14,968 Moderate risk 131,328 5,846 - 10 137,183 High risk 176 1,306 - - 1,482 Default - - 1,905 11 1,916

Gross 145,874 7,750 1,905 21 155,550 Of which initial impairment of POCI - - - (44) (44)

Less: allowance for impairment (585) (91) (179) 3 (852)

Net 145,289 7,659 1,726 24 154,698 Bank Due from banks and other credit institutions Stage 1

(12-months ECL)




POCI Total

Low risk 36,175 - - - 36,175 Moderate risk 2,144 - - - 2,144 High risk - - - - - Default - - - - -

Gross 38,319 - - - 38,319 Of which initial impairment of POCI - - - - -

Less: allowance for impairment - - - - -

Net 38,319 - - - 38,319



Page 85 of 160

RISK MANAGEMENT (continued) Loans and advances to financial institutions Stage 1

(12-months ECL)




POCI Total

Low risk 75 22 - - 97 Moderate risk 760,737 391 - - 761,128 High risk - 8 - - 8 Default - - - - -

Gross 760,812 421 - - 761,233 Of which initial impairment of POCI - - - - -

Less: allowance for impairment (972) (1) - - (973)

Net 759,840 420 - - 760,260 Loans to business customers Loans Stage 1

(12-months ECL)




POCI Total

Low risk 658,490 70,131 - - 728,621 Moderate risk 516,260 142,204 - 1,289 659,753 High risk 11,060 68,151 - 2,174 81,385 Default - - 86,774 31,110 117,884


Less: allowance for impairment (1,658) (2,050) (26,942) 7,282 (23,368)

Net 1,184,152 278,436 59,832 41,855 1,564,275 Factoring Stage 1

(12-months ECL)




POCI Total

Low risk 5,151 - - - 5,151 Moderate risk 25,047 436 - - 25,483 High risk 4,403 211 - - 4,614 Default - - 207 - 207

Gross 34,601 647 207 - 35,455 Of which initial impairment of POCI

- - - - -

Less: allowance for impairment (34) (1) (177) - (212)

Net 34,567 646 30 - 35,243



Page 86 of 160


(12-months ECL)




POCI Total

Low risk 4,796 33,347 - 43 38,186 Moderate risk 36,865 13,863 - - 50,728 High risk 1,402 8,738 - 274 10,414 Default - - 5,291 752 6,043



Net 42,971 55,297 5,189 1,278 104,735 Loans to individual customers Mortgage loans Stage 1

(12-months ECL)




POCI Total

Low risk 1,937,532 17,432 - 1,722 1,956,686 Moderate risk 131,506 57,976 - 704 190,186 High risk 2,910 67,023 - 1,020 70,953 Default - - 83,469 8,237 91,706


Less: allowance for impairment (985) (7,008) (18,282) (662) (26,937)

Net 2,070,963 135,423 65,187 11,021 2,282,594 Consumer and card loans

Stage 1 (12-months

ECL)




POCI Total

Low risk 34,027 1,259 - 9 35,295 Moderate risk 28,599 5,581 - 1 34,181 High risk 310 2,286 - 1 2,597 Default - - 1,249 12 1,261


Less: allowance for impairment (193) (165) (863) 16 (1,205)

Net 62,743 8,961 386 39 72,129



Page 87 of 160


(12-months ECL)




POCI Total

Low risk 35,908 1,152 - - 37,060 Moderate risk 84,808 25,143 - 5 109,956 High risk 6,907 5,897 - 33 12,837 Default - - 12,483 1,154 13,637


Less: allowance for impairment (307) (277) (3,287) (369) (4,240)

Net 127,316 31,915 9,196 823 169,250 Leasing Stage 1

(12-months ECL)




POCI Total

Low risk 14,370 598 - - 14,968 Moderate risk 16,695 5,445 - 10 22,150 High risk 176 1,306 - - 1,482 Default - - 1,007 11 1,018



Net 31,175 7,263 924 24 39,386



Page 88 of 160

RISK MANAGEMENT (continued) Loans and advances at 31 December 2017 are summarized as follows:

Group



Finance lease receivables

Neither past due nor impaired 4,115,050 251,142 615,358

Past due but not impaired 207,421 - 19,531

Impaired 226,001 - 9,957

Gross 4,548,472 251,142 644,846

Less: allowance for impairment (102,763) - (5,068)

Net 4,445,709 251,142 639,778

Bank Loans and advances to customers


Finance lease receivables

Neither past due nor impaired 4,534,080 251,142 172,342

Past due but not impaired 201,650 - 4,540

Impaired 225,263 - 4,201

Gross 4,960,993 251,142 181,083 Less: allowance for impairment (102,518) - (2,611)

Net 4,858,475 251,142 178,472 Past due but not impaired loans and advances mean loans and advances that are past due but have no allowances for impairment and default status at the same time. Impaired loans and advances mean defaulted loans and advances that have non-zero impairment. In 2017, the Group’s total impairment allowance for loans and advances was EUR 102,763 thousand and it accounted for 2.3 % of the Group’s respective portfolio. The Group’s impaired loans and advances to customers made 5.0 % of the respective portfolio.



Page 89 of 160

RISK MANAGEMENT (continued) Loans and advances to customers neither past due nor impaired 31 December 2017

Group loans to customers

Business customers Individual customers Total

Low risk 803,860 1,907,342 2,711,202

Moderate risk 880,322 382,887 1,263,209

High risk 74,407 66,232 140,639

Total 1,758,589 2,356,461 4,115,050 31 December 2017

Bank loans to customers


Low risk 681,700 1,907,284 2,588,984

Moderate risk 1,433,692 382,887 1,816,579

High risk 62,284 66,232 128,516

Total 2,177,676 2,356,403 4,534,079 Loans and advances to customers past due but not impaired 31 December 2017

Group loans to customers


Past due up to 3 days 35,728 19,918 55,646 Past due 4 -30 days 27,771 53,316 81,087 Past due 31-60 days 4,341 26,205 30,546 Past due 61-90 days 1,127 13,298 14,425 Past due more than 90 days 6,236 19,481 25,717

Total 75,203 132,218

207,421

Value of risk mitigation measures 43,225 126,907 170,132 31 December 2017

Bank loans to customers


Past due up to 3 days 33,337 19,918 53,255 Past due 4 -30 days 25,013 53,316 78,329 Past due 31-60 days 3,880 26,205 30,085 Past due 61-90 days 1,121 13,298 14,419 Past due more than 90 days 6,081 19,481 25,562

Total 69,432 132,218

201,650

Value of risk mitigation measures 41,548 126,907 168,455



Page 90 of 160

RISK MANAGEMENT (continued) Impaired loans and advances to customers

Group loans Business

customers Individual customers Total

31 December 2017

Individually assessed impaired loans 154,015 71,986 226,001

Fair value of collateral 98,930 45,386 144,316

Bank loans Business

customers Individual customers Total

31 December 2017

Individually assessed impaired loans 153,277 71,986 225,263

Fair value of collateral 98,421 45,386 143,807 a) Information about credit loss allowances

The following tables disclose the changes in the credit loss allowance for loans and advances between the beginning and the end of the reporting period. Changes due to change in credit risk are disclosed in such a way: transfer to lifetime shows the allowances inflow into Stage 2, transfer to credit-impaired shows the allowances inflow into Stage 3, transfer to 12-months ECL shows the allowances inflow into Stage 1. Remaining credit risk changes contain the outflows due to the previously mentioned transfers and the allowances fluctuations within the same stage (mostly ECL decreases resulting from shrunk EADs). Group Due from banks and other credit institutions Stage 1

(12-months ECL) Stage 2

(lifetime ECL for SICR)



POCI Total

Opening balance at 1 January 2018 (2) - - - (2) Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) - - - - - -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - - - - -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) - - - - - -remaining credit risk changes 2 - (6) - (4)

New originated or purchased (2) - - - (2) Derecognised 2 - - - 2 Write-offs - - 6 - 6 Other movements - - - - - Closing balance at 31 December 2018 - - - - -



Page 91 of 160

RISK MANAGEMENT (continued) Loans and advances to financial institutions Stage 1





POCI Total


-transfer to lifetime (from Stage 1 to Stage 2) - (1) - - (1) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - - - - -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) - - - - - -remaining credit risk changes (98) - - - (98)

New originated or purchased (696) - - - (696) Derecognised 19 - - - 19 Write-offs - - - - - Other movements (1) - - - (1) Closing balance at 31 December 2018 (810) (1) - - (811) Loans to business customers Loans Stage 1





POCI Total

Opening balance at 1 January 2018 (1,278)

(2,060) (37,561) (4,552) (45,451)

Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) -

(1,489) - - (1,489)

-transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (4,666) (7) (4,673) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (64) - - - (64) -remaining credit risk changes 420 1,600 3,409 (451) 4,978

New originated or purchased (894) (475) (671) 3 (2,037) Derecognised 129 265 2,121 (252) 2,263 Write-offs - - 10,196 12,802 22,998 Other movements - 3 (26) (249) (272) Closing balance at 31 December 2018 (1,687)

(2,156) (27,199) 7,294 (23,747)



Page 92 of 160

RISK MANAGEMENT (continued) Factoring

Stage 1 (12-months ECL)


for SICR)



POCI Total

Opening balance at 1 January 2018 (56)

(2) (205) - (263)



(52) - - (52)

-transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (45) - (45) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (9) - - - (9) -remaining credit risk changes (80)

(13) (120) - (213)

New originated or purchased (225)

(7) (90) - (322)

Derecognised 224 10 283 - 517 Write-offs - - - - - Other movements - - - - - Closing balance at 31 December 2018 (146)

(64) (177) - (387)

Leasing Stage 1





POCI Total

Opening balance at 1 January 2018 (791)

(2,575) (3,798) 194 (6,970)



(1,090) - -

(1,090)

-transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (2,963) (98) (3,061) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (23) - - - (23) -remaining credit risk changes 588 1,223 2,809 15 4,635

New originated or purchased (484)

(475) (927) (75) (1,961)

Derecognised 69 249 829 9 1,156 Write-offs

- -

1,274 96

1,370 Other movements - - - - - Closing balance at 31 December 2018 (641)

(2,668) (2,776) 141 (5,944)



Page 93 of 160

RISK MANAGEMENT (continued) Loans to individual customers Mortgage loans Stage 1





POCI Total

Opening balance at 1 January 2018 (1,348)

(8,206) (22,662) (788) (33,004)


-transfer to lifetime (from Stage 1 to Stage 2) - (2,548) - (1) (2,549) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - -

(553) 29

(524)

-transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (107) - - - (107) -remaining credit risk changes 592 3,398 (1,971) (513) 1,506

New originated or purchased (182) (100) (314) - (596) Derecognised 60 457 454 (103) 868 Write-offs - - 6,876 714 7,590 Other movements

-

(9) (112) - (121) Closing balance at 31 December 2018 (985)

(7,008) (18,282) (662) (26,937)

Consumer and card loans Stage 1





POCI Total

Opening balance at 1 January 2018 (182) (179) (761) 33 (1,089) Changes due to change in credit risk:


(127) - (1)

(128)

-transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (205) 1 (204) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (12) - - - (12) -remaining credit risk changes 144 143 (172) (21) 94

New originated or purchased (160) (12) (61) - (233) Derecognised 17 10 50 (4) 73 Write-offs - - 286 8 294 Other movements - - - - - Closing balance at 31 December 2018 (193) (165) (863) 16 (1,205)



Page 94 of 160






POCI Total

Opening balance at 1 January 2018 (166) (299) (7,365) (487) (8,317) Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) - (197) - - (197) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (479) - (479) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (76) - - - (76) -remaining credit risk changes 68 214 (66) 34 250

New originated or purchased (170) (3) (134) (21) (328) Derecognised 37 8 152 (20) 177 Write-offs - - 4,605 125 4,730 Other movements - - - - - Closing balance at 31 December 2018 (307) (277) (3,287) (369) (4,240) Leasing Stage 1





POCI Total

Opening balance at 1 January 2018 (452) (70) (92) 12 (602) Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) - (29) - - (29) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (263) - (263) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (12) - - - (12) -remaining credit risk changes 96 42 214 (9) 343

New originated or purchased (255) (42) (55) - (352) Derecognised 38 8 17 - 63 Write-offs - - - - - Other movements - - - - - Closing balance at 31 December 2018 (585) (91) (179) 3 (852)



Page 95 of 160

RISK MANAGEMENT (continued) Bank Due from banks and other credit institutions Stage 1





POCI Total

Opening balance at 1 January 2018

(1) - - - (1)


-transfer to lifetime (from Stage 1 to Stage 2)

- - - - -

-transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3)

- - - - -

-transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

- - - - -

-remaining credit risk changes

2 - - - 2

New originated or purchased

(2) - - - (2)

Derecognised 1 - - - 1

Write-offs - - - - -

Other movements - - - - -

Closing balance at 31 December 2018

- - - - -

Loans and advances to financial institutions Stage 1





POCI Total


-transfer to lifetime (from Stage 1 to Stage 2) - (1) - - (1) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - - - - -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) - - - - - -remaining credit risk changes (91) - - - (91)

New originated or purchased (868) - - - (868) Derecognised 19 - - - 19 Write-offs - - - - - Other movements 2 - - - 2 Closing balance at 31 December 2018 (972) (1) - - (973)



Page 96 of 160

RISK MANAGEMENT (continued) Loans to business customers Loans Stage 1





POCI Total

Opening balance at 1 January 2018 (1,246) (1,948) (36,611) (4,555) (44,360) Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) - (1,429) - - (1,429) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (3,772) - (3,772) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (61) - - - (61) -remaining credit risk changes 409 1,537 1,859 (470) 3,335

New originated or purchased (879) (472) (616) 3 (1,964) Derecognised 120 257 2,030 (252) 2,155 Write-offs - - 10,196 12,802 22,998 Other movements (1) 5 (28) (246) (270) Closing balance at 31 December 2018 (1,658) (2,050) (26,942) 7,282 (23,368) Factoring Stage 1





POCI Total


(55) (1) (205) - (261)



- (3) - - (3)


- - (45) - (45)


(1) - - - (1)


17 2 (130) - (111)


(216) (7) (80) - (303)

Derecognised 221 8 283 - 512

Write-offs - - - - -



(34) (1) (177) - (212)



Page 97 of 160






POCI Total


(199) (90) (1,870) 183 (1,976)



- (283) - - (283)


- - (37) - (37)


(4) - - - (4)


101 160 822 (70) 1,013


(3) (454) (16) - (473)

Derecognised 13 16 137 9 175

Write-offs - - 862 87 949



(92) (651) (102) 209 (636)

Loans to individual customers

Mortgage loans Stage 1 (12-months ECL)


for SICR)



POCI Total

Opening balance at 1 January 2018 (1,348) (8,206) (22,662) (788) (33,004) Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) - (2,548) - (1) (2,549) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (553) 29 (524) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (107) - - - (107) -remaining credit risk changes 593 3,398 (1,971) (513) 1,507

New originated or purchased (182) (100) (314) - (596) Derecognised 60 457 454 (103) 868 Write-offs - - 6,876 714 7,590 Other movements (1) (9) (112) - (122) Closing balance at 31 December 2018 (985) (7,008) (18,282) (662) (26,937)



Page 98 of 160

RISK MANAGEMENT (continued) Consumer and card loans Stage 1





POCI Total

Opening balance at 1 January 2018 (182) (179) (761) 33 (1,089) Changes due to change in credit risk:


(127) - (1) (128)

-transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (205) 1 (204) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (12) - - - (12) -remaining credit risk changes 144 143 (172) (21) 94

New originated or purchased (160) (12) (61) - (233) Derecognised 17 10 50 (4) 73 Write-offs - - 286 8 294 Other movements - - - - - Closing balance at 31 December 2018 (193) (165) (863) 16 (1,205) Other loans Stage 1





POCI Total

Opening balance at 1 January 2018 (166) (299) (7,365) (487) (8,317) Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) - (197) - - (197) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (479) - (479) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (76) - - - (76) -remaining credit risk changes 68 214 (66) 34 250

New originated or purchased (170) (3) (134) (21) (328) Derecognised 37 8 152 (20) 177 Write-offs - - 4,605 125 4,730 Other movements - - - - - Closing balance at 31 December 2018 (307) (277) (3,287) (369) (4,240)



Page 99 of 160






POCI Total

Opening balance at 1 January 2018 (98) (37) (31) 12 (154) Changes due to change in credit risk:

-transfer to lifetime (from Stage 1 to Stage 2) - (62) - - (62) -transfer to credit-impaired (from Stage 1 and Stage 2 to Stage 3) - - (177) - (177) -transfer to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) (2) - - - (2) -remaining credit risk changes 33 12 120 (9) 156

New originated or purchased (4) (2) (3) - (9) Derecognised 5 3 8 - 16 Write-offs - - - - - Other movements - - - - - Closing balance at 31 December 2018 (66) (86) (83) 3 (232) The most significant changes in the loss allowances and the changes in the gross carrying amount by the same amount were due to the write-offs, the most impacted financial instruments were business customers loans (Group and Bank decrease by 22,998 tEUR) and individual customers mortgage loans (Group and Bank decrease by 7,590 tEUR) and other loans (Group and Bank decrease by 4,730 tEUR). Newly originated financial assets consequently came with the increase in the loss allowances with the biggest impact on business customers loans (Group change in allowances - 2,037 tEUR, gross amount 406,922 tEUR at 31 December 2018, Bank change in allowances - 1,963 tEUR, gross amount 401,081 tEUR at 31 December 2018) and individual customers mortgage loans (Group and Bank change in allowances - 595 tEUR, gross amount 221,346 tEUR at 31 December 2018). b) Information about collaterals of loans

Upon initial recognition of loans and advances, the fair value of collateral is based on the valuation techniques commonly used for the corresponding types of collateral. Market values (or purchase price, whichever is lower) are used for real estate and movable assets serving as collateral. The value of collateral should be reconsidered periodically. The frequency and conditions mostly depend on performing/non-performing status and exposure size. The value of residential real estate is recalculated periodically by applying the indices. The Bank takes into account guarantees issued by the State, other parties issuing guarantees which are equivalent to the State guarantees (e.g. guarantees of Investicijų ir Verslo Garantijos UAB, Žemės Ūkio Paskolų Garantijų Fondas UAB), municipalities, banks as well as credit insurance provided by the company owned by the Ministry of Finance Būsto Paskolų Draudimas UAB in disclosing information on guarantees serving as collateral. Guarantees and warranties issued by other parties (private individuals, legal entities), although they mitigate the risk, are considered to be immaterial and are not disclosed here. If exposure is secured by several different types of collateral, priority in recognition of a collateral is based on its liquidity. Securities, cash and guarantees are treated as the types of collateral with highest liquidity followed by residential real estate and then other real estate. Movable assets like transport vehicles, equipment and other assets are treated as having lowest liquidity. The most commonly used type of collateral is residential real estate comprising 49 % of the secured part of the Group’s loan portfolio (2017: 48 %).



Page 100 of 160

RISK MANAGEMENT (continued) 31 December 2018

Group loans and advances to customers

Business

customers % Individual customers % Total %

Unsecured loans 718,242 29% 132,530 5% 850,772 16% Loans collateralized by: 1,719,065 71% 2,579,375 95% 4,298,440 84%

- residential real estate 36,836 2% 2,054,342 76% 2,091,178 41%

- other real estate 907,801 37% 148,680 5% 1,056,481 20% - securities 1,219 0% 115 0% 1,334 0% - guarantees 24,667 1% 208,174 8% 232,841 5% - other assets 748,542 31% 168,064 6% 916,606 18% Total 2,437,307 100% 2,711,905 100% 5,149,212 100%

31 December 2017

Group loans and advances to customers

Business


Unsecured loans 742,775 31% 123,092 5% 865,867 16% Loans collateralized by: 1,748,669 69% 2,578,753 95% 4,327,422 84%


- other real estate 827,035 33% 153,025 6% 980,060 19% - securities 1,360 0% 115 0% 1,475 0% - guarantees 58,355 2% 228,683 8% 287,038 6% - other assets 826,422 33% 175,330 6% 1,001,752 19% Total 2,491,444 100% 2,701,845 100% 5,193,288 100%

31 December 2018

Bank loans and advances to customers

Business


Unsecured loans 1,147,977 47% 120,364 5% 1,268,341 24% Loans collateralized by: 1,341,725 53% 2,475,609 95% 3,817,334 76%

- residential real estate

36,836 1% 2,054,342

79% 2,091,178

41%

- other real estate 907,801

36% 148,680

6% 1,056,481 21%

- securities 1,219

0% 115

0% 1,334

0%

- guarantees 24,667

1% 208,174

8% 232,841

5%

- other assets 371,202

15% 64,298 2% 435,500 9%

Total 2,489,702 100% 2,595,973 100% 5,085,675 100%



Page 101 of 160

RISK MANAGEMENT (continued) 31 December 2017

Bank loans and advances to customers

Business


Unsecured loans 1,209,865 48% 133,853 5% 1,343,718 26% Loans collateralized by: 1,314,271 52% 2,484,087 95% 3,798,358 74%


- other real estate 827,034 33% 153,025 6% 980,059 19% - securities 1,360 0% 115 0% 1,475 0% - guarantees 58,355 2% 228,683 9% 287,038 6% - other assets 392,025 16% 80,664 3% 472,689 9% Total 2,524,136 100% 2,617,940 100% 5,142,076 100%

The amount of credit-impaired loans is reported together with the value of related collateral held as security in the tables below. Credit-impaired loans are most often secured by real estate and movable assets. Value for such collateral is equal to its market value (not liquidation value), which is updated shortly after identification of default. Group 31 December 2018

Credit-impaired loans Gross Of which initial

impairment of POCI

Allowance for

impairment

Net Fair value of collateral

Business customers 142,907

(17,806) (22,854) 120,053

130,115

Individual customers 108,521

(2,092) (24,190) 84,330

90,940

Total 251,428

(19,898) (47,044)

204,383

221,055 Bank 31 December 2018

Credit-impaired loans Gross Of which initial

impairment of POCI

Allowance for

impairment

Net Fair value of collateral

Business customers 124,135

(17,756) (19,857) 104,278

115,292

Individual customers 107,623

(2,092) (24,094) 83,528

90,131

Total 231,758

(19,848) (43,951)

187,806

205,423



Page 102 of 160

RISK MANAGEMENT (continued) 1.6. Credit quality of debt securities Table below presents analysis of debt securities of the Group by rating agency designation at 31 December 2018 based on Fitch’s ratings or their equivalent. 31 December 2018

Rating Trading securities

Securities designated at fair

value through profit or loss

Securities designated at

FVTOCI

Total

Aaa

-

-

-

-

From Aa3 to Aa1

- - - -

From A3 to A1

103 83 192 1 265 84 560

From Baa1 to Ba3

903

-

-

903

From B1 to B3

-

-

-

-

No rating

-

-

- -

Total

1 006 83 192 1 265 85 463 31 December 2017

Rating Trading securities Securities designated at fair value through profit

or loss Total

Aaa - - - From Aa3 to Aa1 - - - From A3 to A1 2,189 85,568 87,757 From Baa1 to Ba3 136 - 136 From B1 to B3 - - - No rating - - - Total 2,325 85,568 87,893



Page 103 of 160

RISK MANAGEMENT (continued) 1.7. Repossessed assets

The Group obtained assets by taking possession of collateral held as security, as follows: Gross amount Group Bank Nature of assets at gross values 2018 2017 2018 2017 Repossessed assets (investment properties, Note 21) 5,867 17,147 - 812 Repossessed assets (non-current assets held for sale, Note 24) 2,633 1,310 29 29 Retrieved assets under cancelled lease contracts (Note 23) 356 320 356 320

Total 8,856 18,777 385 1,161

Other repossessed assets and retrieved assets under cancelled lease contracts (mainly vehicles and equipment) are accounted at the lower of cost and net realisable value and are classified in the statement of financial position within other assets. 1.8. Concentration of risks of financial assets with credit risk exposure

Economic sectors The following tables break down the loans and advances to customers at their carrying amounts, as categorized by the economic sectors of our counterparties. Group

2018 2017

Amount % Amount %

Financial intermediation 124,574 2.4% 3,460 0.1%

Agriculture, hunting, forestry, fishing

320,607 6.3% 323,684 6.4%

Manufacturing 373,390 7.3% 436,917 8.6%

Electricity, gas, water supply 55,471 1.1% 86,064 1.7%

Construction 81,858 1.6% 83,759 1.6%

Wholesale and retail trade 532,063 10.5% 569,586 11.2%

Transport, storage, communication 214,128 4.2% 216,470 4.3%

Real estate activities* 429,307 8.4% 426,509 8.4%

Public sector 122,083 2.4% 196,305 3.9%

Other industries 329,467 6.5% 248,412 4.9%

Private individuals 2,502,141 49.2% 2,494,321 49.0%

Total 5,085,089 100.0% 5,085,487 100.0%



Page 104 of 160

RISK MANAGEMENT (continued) Bank

2018 2017

Amount % Amount %

Financial intermediation 750,738

14.9% 637,917 12.7%

Agriculture, hunting, forestry, fishing

215,642 4.3% 221,219 4.4%

Manufacturing 297,775

5.9% 293,307 5.8%

Electricity, gas, water supply 49,609 1.0% 81,793 1.6%

Construction 58,543

1.2% 62,639 1.2%

Wholesale and retail trade 444,407 8.8% 479,747 9.5%

Transport, storage, communication 86,769

1.7% 60,886 1.2%

Real estate activities* 422,512 8.4% 421,020 8.4%

Public sector 121,741 2.4% 196,055 3.9%

Other industries 189,294 3.8% 171,825 3.4%

Private individuals 2,390,842 47.6% 2,410,539 47.9%

Total 5,027,872 100.0% 5,036,947 100.0%

*Real estate activities include one counterparty (2018: 12,765 TEUR, 2017: 13,568 TEUR) reported under loans and advances to financial institutions in Risk management part 1.4 which main operating area is Renting and operating of own or leased real estate. 2. Market risk The Group takes on low exposure to market risk, which can be treated as the risk of losses in on- and off-balance sheet positions arising from adverse movements in market parameters such as currency exchange rates (currency risk), interest rates (interest rate risk), equity prices (equity risk) or commodity prices (commodity risk). The most significant part of market risk for the Group is interest rate risk while significance of other risks is lower. Interest rate risk is assessed using the basis point value (BPV) method, which measures the impact on the value of net cash flows given a one basis point (0.01%) parallel shift in market interest rates. An exchange rate risk is evaluated by calculation of open foreign exchange positions. The BPV calculations are performed on a regular basis and submitted to the Group’s Management, as well as Group’s Markets and Treasury & ALM departments. Interest rate and foreign exchange risks are restricted by the limits determined by the Luminor Lithuania Management Board and Supervisory Council, and monitored on regular basis by the Market Risk department. 2.1 Market risk measurement approaches The Group is mainly focused on foreign exchange and interest rate risk management. Interest rate risk is assessed as an impact of yield curve’s parallel shift on a present value of the gap between total liabilities and total assets. In general assets have longer maturities than liabilities, which creates risk due to open interest rate position. Therefore, interbank funding is attracted to decrease the discrepancy between long and short terms. In addition to this, interest rate swaps are used to achieve and maintain an acceptable level of interest rate risk. Foreign exchange (hereinafter referred to as FX) risk is assessed as an open position between assets and liabilities in a respective currency. Open positions for all currencies in the Group are restricted by the limits set by the Luminor Lithuania Management Board and Supervisory Council, and monitored on a daily basis.



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RISK MANAGEMENT (continued) 2.2. FX risk The Group’s main exposure is towards euro currency (EUR), while positions of other currencies are not significant. Conservative approach to FX risk is followed within the Group. It is measured as the nominal value of the open FX positions converted to EUR using European Central Bank (ECB) rates. The Group is responsible for staying within the given limits – both intraday and overnight. Some technical deviations from limits are allowed only for short term when servicing customers. The Group has approved limits for USD, Sum of other currencies, Max of other currencies and Total currencies. The Group’s exposure to FX risk expressed in thousands EUR: Currency 31 December 2018 31 December 2017

USD 10 (154) Max of other currencies 103 28 Sum of other currencies 262 126 Total 207 189

Sensitivity of FX risk FX risk is limited by amounts of open FX positions. For sensitivity calculation of FX risk, all exposures shall be converted into possible loss amounts, i.e. open FX position is multiplied by possible FX rate change. This parameter for the Group is 5.4% for all currencies and is developed using VaR approach based on 99 per cent confidence level and 10 days holding period. Horizon of data analysed includes the latest financial crisis in 2008-2009 and is at least 5 years of historical developments of FX rates. Calculation of sensitivity of FX risk shows immaterial impact for the Group in 2018. 2.3. Interest rate risk The main source of interest rate risk in the Group is repricing risk – risk related to the timing mismatch in the maturity and repricing of assets and liabilities of on- and off-balance sheet positions. Pursuant to Luminor Market Risk policy interest rate risk is limited in terms of BPV, i.e. the change in net cash flows (gaps) given a one basis point (0.01%) parallel shift in market interest rates. Separate limits for Banking and Trading activities are approved by the Luminor Management Board and Supervisory Council, as well as limits for different currencies: EUR, USD, NOK and all other currencies. When calculating the total exposure the sums of BPV in each currency are aggregated irrespective if the total exposure in each individual currency is a short or long position, i.e. netting of positions between currencies is not allowed. The main part of the interest rate risk arises from the positions that are denominated in euro currency. Changes in interest rates do not have to be the same for all time buckets. To limit risk exposure resulting from different time buckets, so-called gapping limits are determined for each of them. Limit established for each time bucket is defined as a percentage of the total BPV limit allocated to the relevant currency. All time buckets till one year period are limited to 100% of total BPV, 1-2 years gap is limited to 120% of total BPV, and all time buckets above 2 years has the limit of 150% of total BPV. The Group’s BPV exposure by currencies for both trading and banking activities in EUR:

Currency 31 December 2018 31 December 2017

EUR (9,602) (16,783) USD 1,335 333 NOK 237 (44) Other currencies 120 43



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RISK MANAGEMENT (continued) Sensitivity of interest rate risk Interest rate risk exposure cannot exceed BPV limits approved by the Luminor Lithuania Management Board and Supervisory Council. Assuming a 200 basis points parallel shift of the yield curve, sensitivity of interest rate risk shall be calculated multiplying total BPV exposure by interest rate change. The above mentioned shift of the yield curve is evaluated in terms of Economic Value of Equity (EVE), meaning that all interest rate sensitive instruments are included in the calculations. In addition, the same shift is applied in terms of Net Income from the positions which are regularly revaluated and have direct impact on profit and loss, including debt securities and derivative instruments. The impact of these two factors to the Group in thousands EUR is the following:

31 December 2018 31 December 2017

Economic Value of Equity 1,582 2,190 Net income 17,218 3,507

2.4 Equity and commodity risk The Group does not have any open positions in commodity or equity instruments and is not exposed to changes in commodity or equity prices. The Group does not engage in proprietary stock trading. The shares of SWIFT and VISA are not considered to be investments in equities due to the fact that these shares are recognized as participation in these settlement systems rather than any kind of investment in shares. 3. Liquidity risk Liquidity risk means the risk that the Group is unable to meet its financial obligations in time, the risk to incur losses due to the sudden decrease in financial resources (e.g. a financial crisis situation may result in a delay of incoming payments) or an increase in price of the new resources designed for refinancing. The consequence of liquidity risk occurrence may be the failure to meet obligations to repay depositors and fulfil loan commitments. The Group uses a range of liquidity metrics for measuring, monitoring and controlling liquidity risk including Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), internal liquidity limits. Liquidity risk is managed in a manner to ensure a constant ability to settle contractual obligations. The Group has developed a set of early warning indicators for a timely identification of liquidity crises, and business and funding contingency funding plans to manage the Group’s liquidity during the market disruption. Liquidity risk management strategy is reviewed at least annually or after any significant change in the internal or external environment the Group operates in. 3.1 Liquidity risk management process Liquidity risk is managed across three Lines of Defence:

The First Line of Defence comprises the Group’s Treasury & ALM (TALM) and the Business Areas. TALM is responsible for the daily liquidity management and Funds Transfer Pricing (FTP). To ensure funding in situations where Luminor is in urgent need of cash and the normal funding sources do not suffice, Luminor holds a liquidity buffer that consists of central bank cash and high quality securities that can be readily sold or used as collateral in funding operations.

Market Risk department acts as the Second Line of Defence and is responsible for providing independent oversight of liquidity risk.

The Third Line of Defence includes the Group’s Internal Audit, which is responsible for providing independent oversight of the First and Second Lines of Defence.

Liquidity risk management is divided into long-term (1 year), short-term (1 week to 3 months) risk management and intraday liquidity management. The aim of short-term liquidity management is to meet the daily need for funds to ensure the compliance with the reserve and liquidity requirements set by the ECB, as well as the compliance with internal liquidity limits. Short-term liquidity is maintained through daily monitoring of the liquidity status, day-to-day funding and trading the appropriate financial instruments for liquidity purposes. Long-term liquidity risk management is supported by analysing the estimated future cash flows taking into account the deposit and loan portfolio growth as well as possible refinancing sources. For the purpose of liquidity risk assessment the liquidity gap is analysed taking into account the maturity of cash flows. The liquidity risk is restricted by imposing the internal limits on liquidity gap. Utilization of this limit is subject to regular monitoring and reporting to various management bodies in the Group.



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RISK MANAGEMENT (continued) Liquidity gap is calculated by analysing the Group’s net refinancing situation within one week, one month and three months applying a "business as usual" approach. Liquid assets and short term liabilities are included in liquidity gap calculation for respective terms (1 week to 3 months). Liquidity Coverage Ratio is calculated as the ratio of a credit institution’s liquidity buffer to its net liquidity outflows over a 30 calendar day stress period and shall be expressed as a percentage. Since Lithuania, Latvia and Estonia are all members of the EU, LCR is applicable to the Group as a Europe wide requirement. Minimum limit of LCR is set at 100%, however the Group has substantial buffer and maintains a higher ratio. LCR is intended to promote short-term resilience of the Group’s liquidity risk profile and requires to hold risk-free assets that may be easily liquidated on markets in order to meet required payments for outflows net of inflows during a thirty-day crisis period without the support from the central bank. At the end of 2018, the LCR ratio of the Group was 179%. The analysis of the Group’s and Bank’s main balance sheet items by remaining maturity is summarized in Note 34. The Net Stable Funding Ratio (NSFR) is defined as the amount of available stable funding relative to the amount of required stable funding over the one year time horizon. Minimum requirement for NSFR is 100%, however the Group has a substantial buffer and maintains a higher ratio. Liquidity metrics of the Group: Liquidity metric 31 December 2018 31 December 2017

1W liquidity gapping EUR 1 409 million EUR 1 382 million 1M liquidity gapping EUR 1 350 million EUR 1 325 million 3M liquidity gapping EUR 982 million EUR 1 303 million LCR 179% 158% NSFR 134% 133% Loan to deposit ratio 112% 135%

3.2. Liquidity buffer and collateral management The Group has a contractual agreement for funding in place with shareholders DNB Bank ASA and Nordea Bank Abp. This strongly mitigates the likelihood of funding liquidity risk which may be caused by deposit run off, wholesale funding risk (roll over and new issuance), unexpected outflows from off-balance sheet obligations and legal risks (e.g. not being able to do issuance due to legal restrictions). As the Group is going towards more reliance on self-funding rather than on support from shareholders, other funding sources are being established or are already in place for diversifying the funding base. For example, the Group is taking part in the ECB’s Eurosystem open market operations. In particular, the Group is a user of the ECB Targeted Long Term Refinancing Operations (TLTRO). The main liquidity buffer is the Group’s Target subaccount with the central bank, where the Group held EUR 1.36 billion at the end of year 2018. This buffer can be utilized at any time when the need arises. The Group has established a liquidity portfolio with intention to accumulate high quality liquid debt securities. The portfolio is accounted at fair value. Currently the size of the portfolio is set at the level of EUR 95 million with relatively short portfolio average duration and maximum duration of the debt securities is set at 5 years. The portfolio is targeting to ensure the continuity of the Group’s operations and provides the stabilisation effect for all liquidity risk metrics including LCR. The securities held in the portfolio are by definition unencumbered and available for instant raise of funds in unexpected or stressed situations. At the end of year 2018 all the portfolio has been pledged as a collateral in order to get TLTRO low cost funding through Eurosystem’s open market operations. Pledged debt securities are accounted separately from the liquidity portfolio and are not included into liquid assets, for instance in LCR calculations. Part of loans issued to entities with the government rating (municipalities and government institutions) are pledged as a collateral as well.



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RISK MANAGEMENT (continued) 3.3. Non-derivative cash flows

Undiscounted cash flows below describe liability side outflows which are represented by nominal contract amounts together with accrued interest till the end of the contract. Possible early repayments foreseen in the loan agreements are included into cash flows calculations.

Group 31 December 2018 Up to 1

month 1-3

months 3-12

months 1-5

years Over 5 years Total Liabilities

Due to banks and other credit institutions 18,234 96 1,000,260 406,078 - 1,424,668 Due to customers 3,688,998 368,883 427,549 48,279 1,542 4,535,251 Other financial liabilities 13,921 171 14 80 10 14,196 Total liabilities (contractual maturity dates) 3,721,153 369,150 1,427,823 454,437 1,552 5,974,115

Bank 31 December 2018 Up to 1

month 1-3

months 3-12

months 1-5


Due to banks and other credit institutions 18,234 96 1,000,260 406,078 - 1,424,668 Due to customers 3,727,749 368,883 427,549 48,279 1,542 4,574,002 Other financial liabilities 10,763 0 8 80 10 10,861 Total liabilities (contractual maturity dates) 3,756,746 368,979 1,427,817 454,437 1,552 6,009,531 Group 31 December 2017 Up to 1

month 1-3

months 3-12

months 1-5


Due to banks and other credit institutions 59,052 35 1,281,961 899,803 - 2,240,851 Due to customers 3,435,781 101,846 305,240 11,667 1,544 3,856,078 Other financial liabilities 34,944 1,262 2,670 554 61 39,491 Total liabilities (contractual maturity dates) 3,529,777 103,143 1,589,871 912,024 1,605 6,136,420

Bank 31 December 2017 Up to 1

month 1-3

months 3-12

months 1-5


Due to banks and other credit institutions 59,052 35 1,281,961 899,803 - 2,240,851 Due to customers 3,467,850 101,846 305,240 11,667 1,544 3,888,147 Other financial liabilities 27,955 1,164 2,568 554 61 32,302 Total liabilities (contractual maturity dates) 3,554,858 103,045 1,589,769 912,024 1,605 6,161,300



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3.4. Derivative cash flows

Tables below analyse cash flows from derivative instruments. Commonly the Group has exposure to foreign exchange derivatives i.e. forwards, swaps; interest rate derivatives i.e. swaps and options on interest rates, and equity derivatives i.e. options on equity indices. a) Derivatives settled on a net basis

31 December 2018 Up to 1 month

1 to 3 months

3 to 12 months

1 to 5 years

Over 5 years Total

Derivatives held for trading - Interest rate derivatives 12 (213) (409) (1,640) (973) (3,223)

- Commodity derivatives 11 4 96 - - 111

Total 23 (209) (313) (1,640) (973) (3,112)


1 to 3 months

3 to 12 months

1 to 5 years

Over 5 years Total

Derivatives held for trading - Interest rate derivatives 13 (10) (413) (994) (492) (1,896)

- Commodity derivatives 12 4 70 31 - 117

Total 25 (6) (343) (963) (492) (1,779)

b) Derivatives settled on a gross basis


1 to 3 months

3 to 12 months

1 to 5 years Total Derivatives held for trading

Foreign exchange derivatives Outflow 67,822 68,107 91,545 - 227,474 Inflow 67,695 68,501 91,813 - 228,009

Total outflow 67,822 68,107 91,545 - 227,474 Total inflow 67,695 68,501 91,813 - 228,009


1 to 3 months

3 to 12 months

1 to 5 years Total Derivatives held for trading

Foreign exchange derivatives Outflow 128,244 90,224 45,711 155 264,334 Inflow 127,601 89,613 45,492 154 262,860 Total outflow 128,244 90,224 45,711 155 264,334 Total inflow 127,601 89,613 45,492 154 262,860



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RISK MANAGEMENT (continued) 3.5. Off - balance sheet items

The analysis of nominal off-balance sheet items by remaining maturity is as follows: Group

Up to one year From 1

to 5 years Over 5 years Total

At 31 December 2018 Financial guarantees 57,333 28,000 268 85,601 Letters of credit 61,733 250 - 61,983 Commitments to grant loans and finance leases 412,150 144,889 2,991 560,030 Operating lease commitments 2,423 9,720 18,920 31,063 Capital commitments and other commitments to acquire assets 434 - - 434 Other commitments 52,301 39,032 3,563 94,896

Total 586,374 212,891 25,742 834,007




Total 681,123 288,579 22,604 992,306 Bank




Total 525,359 343,962 25,742 895,063 Bank



At 31 December 2017 Financial guarantees 58,172 22,301 64 80,537 Letters of credit 49,125 250 - 49,375 Commitments to grant loans and finance leases 568,274 226,789 11,000 806,063 Operating lease commitments 2,295 9,713 7,778 19,786 Capital commitments and other commitments to acquire assets 691 - - 691

Other commitments 50,361 31,729 3,762 85,852

Total 728,918 290,782 22,604 1,042,304



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4. Fair value of financial assets and liabilities

The table below summarizes the carrying amounts and fair values of financial assets and liabilities not presented on the Group and Bank statement of financial position at their fair value. Fair values disclosed in the table below are categorised as level 3, except balances due on demand which are categorised as level 2. The estimated fair value represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at the current market interest rates (EURIBOR, LIBOR) plus or minus current margin for similar products to determine the fair value. As at 31 December 2018 Group Bank

Carrying

value Fair value Carrying

value Fair value Assets Due from banks and other credit institutions 38,353 38,353 38,319 38,319 Loans and advances to customers, including finance lease receivables: 5,085,089 5,024,817 5,027,872 4,971,115

- Loans and advances to financial institutions 132,704 131,131 760,260 751,678 - Loans to individuals (retail) 2,678,671 2,646,922 2,563,359 2,534,423 - Loans to business customers 2,273,714 2,246,764 1,704,253 1,685,015

Liabilities Due to banks 1,424,970 1,418,479 1,424,970 1,418,479 Due to customers 4,533,765 4,534,795 4,572,026 4,573,546

As at 31 December 2017 Group Bank

Carrying

value Fair value Carrying

value Fair value Assets Due from banks and other credit institutions 251,172 251,175 251,142 251,175 Loans and advances to customers, including finance lease receivables:

5,085,457 5,040,506

5,036,947 4,991,040

- Loans and advances to financial institutions 16,093 15,951 651,484 645,546 - Loans to individuals (retail) 2,663,767 2,640,222 2,579,984 2,556,470 - Loans to business customers 2,405,597 2,384,334 1,805,479 1,789,024

Liabilities Due to banks 2,229,590 2,240,729 2,229,590 2,240,729 Due to customers 3,856,118 3,855,558 3,888,188 3,887,631

Fair values of balances with central banks, other financial assets and liabilities approximates their carrying amounts. Next tables below summarize the fair value measurement hierarchy of the Bank financial assets and liabilities accounted for at fair value. Financial instruments are distributed by 3 levels of the fair value: Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. The fair value of all Bank contracted derivatives is defined as level 2. These are mainly interest rate swaps, commodity swaps and FX derivatives which are valued using the discounted cashflow or present value calculation method and revaluation of options is based on the Black and Scholes model. In all cases pricing is based on market observable inputs. Debt securities priced in accordance with the market quotes are defined as level 1. There were no movements of financial instruments between the levels during 2018 and 2017. For additional disclosures on Level 3 financial assets see Note 15. Valuation of all financial assets and liabilities measured at fair value was performed as at 31 December 2018.



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RISK MANAGEMENT (continued) Group

As at 31 December 2018 Level 1 Level 2 Level 3 Total

Assets measured at fair value

Derivative financial assets (Note 14): FX forwards, swaps, put, call options - 1,568 - 1,568 Interest rate swaps, collars - 4,580 - 4,580 Commodity swaps - 2,161 - 2,161

- 8,309 - 8,309 Financial assets held for trading (Note 12):

Debt securities 1,006 - - 1,006

1,006 - - 1,006

Financial assets designated at fair value through profit or loss (Note 13):

Debt securities 83,192 - - 83,192 Equity securities - - - -

83,192 - - 83,192 Financial assets at fair value through other comprehensive income (Note 15):


Equity securities - - 3,946 3,946

1,265 - 3,946 5,211

85,463 8,309 3,946 97,718

Liabilities measured at fair value

Derivative financial liabilities (Note 14): FX forwards, swaps, put, call options - 1,820 - 1,820 Interest rate swaps, collars - 4,648 - 4,648 Commodity swaps - 2,106 - 2,106

- 8,574 - 8,574



Page 113 of 160



Assets measured at fair value Derivative financial assets (Note 14): FX forwards, swaps, put, call options - 1,568 - 1,568 Interest rate swaps, collars - 4,580 - 4,580 Commodity swaps - 2,161 - 2,161

- 8,309 - 8,309 Financial assets held-for-trading (Note 12):


1,006 - - 1,006


Debt securities 83,192 - - 83,192 Equity securities - - - - 83,192 - - 83,192

Financial assets at fair value through other comprehensive income (Note 15):

Debt securities - - - -


- - 3,946 3,946

84,198 8 309 3,946 96,453 Liabilities measured at fair value:


- 8,574 - 8,574



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RISK MANAGEMENT (continued) Group


Assets measured at fair value

Derivative financial assets (Note 14): FX forwards, swaps, put, call options - 771 - 771 Interest rate swaps, collars - 3,744 - 3,744 Commodity swaps - 1,854 - 1,854

- 6,369 - 6,369 Financial assets held for trading (Note 12):


2,325 - - 2,325


Debt securities 85,568 - - 85,568 Equity securities - - 18 18

85,568 - 18 85,586 Financial assets at fair value through other comprehensive income (available for sale) (Note 15):


- - 3,265 3,265

87,893 6,369 3,283 97,545 Liabilities measured at fair value


- 7,744 - 7,744



Page 115 of 160



Assets measured at fair value Derivative financial assets (Note 14): FX forwards, swaps, put, call options - 771 - 771 Interest rate swaps, collars - 3,744 - 3,744 Commodity swaps - 1,854 - 1,854

- 6,369 - 6,369 Financial assets held-for-trading (Note 12):


2,325 - - 2,325


Debt securities 84,153 - - 84,153 Equity securities - - 18 18 84,153 - 18 84,171

Financial assets at fair value through other comprehensive income (available for sale) (Note 15):


- - 3,265 3,265

86,478 6,369 3,283 96,130 Liabilities measured at fair value:


- 7,744 - 7,744 5. Operational risk Within one year following the merge Luminor continued to pursue strategic initiatives and goals by changing ownership, governance structure and corporate mindset. Responding to increased focus in the area of money-laundering prevention and compliance within Baltic banking industry in 2018, the top priority for Luminor was building strong internal controls and sound risk culture. Operational Risk is an independent internal control function within second line of defense and covers operational risk management, information security, physical security and personal data protection. Operational risk management in Luminor is governed by Operational Risk Policy and underlying tools, the main principle of which is that operational risk should be low and risk management should ensure that risk of unexpected losses is reduced. Each manager and process owner is responsible for management of risks inherent to the activities and processes of their area and to foster sound risk management culture in their respective reporting lines. Operational risk incidents in Luminor are reported, registered in operational risk incident database and continuously followed. Operational risk incident database represents valuable information source for Management Reporting, Business Impact Assessment, annual Risk Control Self-Assessment and internal Stress Testing, which are important elements in operational risk management framework in Luminor.



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RISK MANAGEMENT (continued) Information Security is an integral part of risk management as Luminor is striving to provide the best digital offering in the market and be the first to launch innovative solutions. This requires wide usage of Information and Communication Technology (ICT) systems to empower and automate business processes. Information Security processes in Luminor are designed to protect information against accidental or malicious disclosure, modification, or destruction and to meet regulatory, legislative and contractual requirements concerning information security. To comply with General Data Protection Regulation (GDPR) Luminor has established Data Protection Officers function and renewed required internal regulations, technical and organizational measures. All employees at all levels are constantly trained in information security and data protection areas to maintain awareness of the associated risks and necessary measures. Luminor management is kept updated on the status of operational risk through the periodic and on-demand risk reports, results of annual Risk Control Self-Assessment and Stress Testing exercises. Management reports include presentation of key group-wide operational risks, relevant improvement measures and detailed qualitative assessment. Annual operational risk stress test analysis helps management to understand the nature and extent of vulnerabilities to which Luminor is exposed in order to consider them in the strategic planning. Luminor insurance coverage is an additional element in operational risk management. Insurance contracts limit the financial consequences of undesirable incidents, which occur in spite of established security routines and risk-mitigating measures. The insurance program additionally covers legal liabilities related to Luminor operations. 6. Stress tests

Besides the regular assessment of the risks and the capital requirement calculation, the Group also performs stress tests for the credit, liquidity, market (interest rate and foreign exchange), operational risks and the stress testing of the financial plan (business risk). The purpose of the stress-testing is to evaluate whether the Group’s capital is sufficient to cover those extraordinary losses that might occur in the case where the testing scenario is realised as well as to prepare the contingency plan for the Group. In order to evaluate the losses caused by the aforesaid risks the realisations of the baseline, adverse, severe adverse and fail or likely to fail (FOLTF) scenarios are assumed. Liquidity risk is tested under the following scenarios: an Idiosyncratic scenario, a market wide scenario and a combination of the two ( i.e. combined). 7. Capital management

The capital is calculated and allocated for the risk coverage following the regulations in the CRD IV and CRR of the European Union and the local Regulators legal acts. The Group’s objectives in capital management are as follows: consistency with Luminor Group’s long-term strategy (including meeting the risk appetite of the Group) and

the Dividend policy;

the ability to pursue the business objectives; fulfillment of both internal and external capitalization targets (capital adequacy);

sufficient and proper composition of capital that would withstand stressful events.

Capital adequacy assessment is performed on a quarterly basis in accordance with the Information guidelines in respect of risk management and capital adequacy disclosure (Pillar 3) report. The Group’s regulatory capital is divided into two tiers: 1) Tier 1/Common Equity Tier 1 (CET 1) capital consists of the ordinary shares, share premium, retained earnings of the previous financial year, accumulated other comprehensive income, other reserves, value adjustments due to requirements for prudent valuation and less the intangible assets, deferred tax assets and other deductions. 2) Tier 2 capital consists of transitional adjustments related to the accumulated other comprehensive income. The risk-weighted assets are measured by means of risk weights classified according to the nature of each assets and counterparty, taking into account collaterals and guarantees eligible for risk mitigation. A similar treatment with some adjustments is adopted for the off-balance sheet exposures.



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RISK MANAGEMENT (continued) Luminor Lithuania must adhere to the following regulatory capital adequacy requirements:

Total capital

CET1

Minimum Pillar 1 requirement 8.0 % 4.5 % Pillar 2 requirement 1.5 % 1.5 % O-SII (other systemically important institution) buffer

2.0 % 2.0 %

Capital conservation buffer 2.5 % 2.5 % Countercyclical buffer 0.5 % 0.5 % Total regulatory requirement 14.5 % 11.0 %

The table below summarizes the composition of regulatory capital and the ratios of the Bank and the Group for the years ended 31 December:

Group Bank 2018 2017 s 2018 2017 Tier 1/Common Equity Tier 1 (CET 1) capital 737,719 713,029 728,934 712,601 Tier 2 capital - 229 - 229

Total own funds 737,719 713,258 728,934 712,830

Total risk exposure amount 4,116,267 4,164,493 4,097,182 4,197,603 Tier1/Common Equity Tier 1 (CET 1) capital ratio,

% 17.92 17.12 17.79 16.98 Capital ratio, % 17.92 17.13 17.79 16.98

Capital requirements

The standardized approach is used for the regulatory capital requirements calculation of the credit, market and operational risks, risk exposure amount for credit valuation adjustment both at the Bank and on the Group level. For the credit risk capital requirement calculation purposes, the Bank uses Fitch Ratings for counterparty risk assessment. The Group assesses the material risks it is exposed to and calculates the internal capital for the risks not covered or not fully covered by the Pillar 1 capital as part of the Internal Capital Adequacy Assessment Process (ICAAP). The overall ICAAP approach in the Group is to comprehensively assess whether the current, projected and stressed levels of capital are adequate considering both the regulatory requirements and targets set by Supervisory Council. The Group uses a combination of quantitative and qualitative assessment regarding decision if each particular risk or group of risks are subject to Pillar 2 capital add-on calculation. Credit risk is fully covered by Pillar 1 capital which is calculated using Standardised approach. The concentration risk is assessed for the asset classes exposed to credit risk. Besides the imposed limits on lending, the Group calculates the internal capital requirement for name concentration risk and economic sectors concentration risk. As the regulatory capital requirement is calculated for the interest rate risk arising from the trading book, the Bank additionally assesses and calculates the internal capital requirement for the interest rate risk arising from the banking book. In order to assess internal capital requirement for operational risk Bank has applied qualitative and quantitative approaches. Money laundering and terrorism financing and sanction risk, cyber risk, compliance risk and model risk are included under operational risk and are assessed as a one group. The Bank set aside additional capital for business risk. The Group calculates the total internal capital requirement as Pillar 1 capital according to regulatory requirements adjusted by the amounts evaluated for the risks identified during self-assessment and ICAAP. A detailed overview of the ICAAP process is included in Pillar 3 annual disclosure.



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OTHER NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 NET INTEREST INCOME

NOTE 1 NET INTEREST INCOME Group Bank 2018 2017 2018 2017

Interest income: Interest income calculated using the effective interest method:

loans and advances to customers at amortized cost 106,181 78,232 103,847 77,669 deposits at amortized costs 1,113 1,551 1,113 1,551

Total interest income calculated using effective interest method

107,294 79,783

104,960 79,220

Other similar income

debt securities at fair value through profit or loss 411 644 406 625 financial assets held for trading 71 156 71 156 finance leases 14,025 6,951 4,790 4,888

Total other similar income 14,507 7,751 5,267 5,669

Total interest and similar income 121,801 87,534 110,227 84,889 Interest and similar expense:

on deposits and other repayable funds 8,142 5,962 8,142 5,962

- of wich on assets 1,702 3,835 1,702 3,835 fees for compulsory insurance of deposits and for resolution fund 4,603 5,859 4,602 5,858

Total interest and similar expense 12,745 11,821 12,744 11,820

Net interest income 109,056 75,713 97,483 73,069

NOTE 2 NET FEE AND COMMISSION INCOME

Group Bank

2018 2017 2018 2017 Fee and commission income:

money transfer operations 33,743 32,260 33,743 32,260 payment services 4,151 1,126 4,151 1,126 guarantee commissions 2,133 1,496 2,133 1,496 brokerage services from insurance companies 1,437 1,185 1,437 1,185 consulting services for related parties 1,685 253 1,685 253 securities operations 872 973 872 914 loan commitment given 802 214 802 214 trust and other fiduciary activities 4,063 3,562 279 186 other 6,877 5,182 5,903 4,496

Total fee and commission income 55,763 46,251 51,005 42,130 Fee and commission expense:

money transfer operations 9,982 7,876 9,982 7,876 guarantee commissions 54 55 54 55 trust and other fiduciary activities 198 162 198 162 other 2,325 2,141 1,727 1,798

Total fee and commission expense 12,559 10,234 11,961 9,891

Net fee and commission income 43,204 36,017 39,044 32,239 All fee and commission income is attributed to the same geographical region – Lithuania



Page 119 of 160

NOTE 3 NET GAIN (LOSS) ON OPERATIONS WITH SECURITIES AND DERIVATIVE FINANCIAL INSTRUMENTS AND NET FOREIGN EXCHANGE RESULT

Group Bank 2018 2017 2018 2017

Debt securities* (Note 12) 393 9,315 393 9,315 Derivative financial instruments 5,030 (9,760) 5,030 (9,760) Gains or (-) losses on financial assets and liabilities held for trading, net 5,423 (445) 5,423 (445) Debt securities (370) (408) (370) (391) Gains or (-) losses of financial assets and liabilities designated at fair value through profit or loss, net (370) (408) (370) (391) Net foreign exchange result 4,073 18,061 4,074 18,061 Received dividends 49 40 3,505 1,287 Total 9,175 17,248 12,632 18,512

*Major part of net gain during 2017 on operations with securities comprise of sale of one investment for which unrealised loss was reported for 2016.

NOTE 4 IMPAIRMENT, CHANGE IN FAIR VALUE OF INVESTMENT PROPERTY AND PROVISIONS

Group Bank 2018 2017 2018 2017 Impairment losses on loans and advances to customers, finance lease receivables:

Increase (decrease) of impairment losses, net 10,390 9,936 8,918 8,946 Recovered previously written off loans and advances to customers, finance lease receivables (5,748) (7,794)

(5,602) (7,794)

Impairment losses on loans 4,642 2,142 3,316 1,152 Derecognition on loans (4,769) - (3,605) -

Net impairment losses on loans and finance lease (127) 2,142

(289) 1,152

Impairment losses for other assets

1,425

145

1,432

138

Changes in fair value of investment property (Note 21) 1,129 7,092

- 471

Impairment losses for investments in subsidiaries (Note 18) - -

2,850 7,640

Derecognition on commitments and guaranties (581) - (581) - Other provisions* 905 43,511 927 43,511 Total impairment on other assets, change in fair value of investment property and provisions 2,878 50,748

4,628 51,760

*Major part of other provisions in 2017 comprise of provisions for onerous contracts related to IT systems.



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NOTE 5 OTHER INCOME

Group Bank 2018 2017 2018 2017

Net gain (loss) on sale of property 52 495 (202) 589 On rent of property and equipment 318 771 207 511 Other* 3,423 3,594 3,221 3,589 Total 3,793 4,860 3,226 4,689 * Major part of other income comprises of Pan-Baltic management and support services income. NOTE 6 PERSONNEL EXPENSES Group Bank 2018 2017 2018 2017 Salaries 27,399 21,558 25,515 20,787 Social insurance 9,584 7,488 8,983 7,218 Other 3,548 3,973 3,486 3,959 Total 40,531 33,019 37,984 31,964

NOTE 7 DEPRECIATION AND AMORTISATION

Group Bank 2018 2017 2018 2017

Amortisation of intangible assets 1,448 1,938 1,430 1,459 Depreciation of property, plant and equipment 2,176 2,231 2,152 2,224 Total 3,624 4,169 3,582 3,683

NOTE 8 OTHER ADMINISTRATIVE EXPENSES

Group Bank 2018 2017 2018 2017 Office equipment and maintenance expenses 25,550 14,406 25,455 14,271 Taxes other than income tax 8,318 14,575 8,229 13,959 Cash collection, consultancy and other services expenses 6,882 4,202 6,820 3,729 Rent of premises* 3,559 3,290 3,538 3,233 Maintenance expenses 1,536 1,340 1,533 1,336 Transportation, post and communications expenses 2,343 2,220 2,252 2,080 Purchase expenses on credit cards (incl. PIN, TAN) 1,014 895 1,014 895 Legal service expenses 980 1,110 980 1,110 Advertising and marketing expenses 471 1,363 413 1,349 Training and business trip expenses 653 338 653 332 Foreclosed assets expenses 196 166 196 166 Other expenses 6,863 5,240 5,625 5,320 Total 58,364 49,145 56,707 47,780 *Expenses of the lessee’s significant lease arrangement of central office is amounted to EUR 2,306 thousand in year 2017 and EUR 2,299 thousand in year 2018. Expenses of the Bank and the Group related to non-audit services provided by the audit firm comprise of EUR 11 thousand in year 2017 and EUR 3 thousand in year 2018.



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NOTE 9 INCOME TAX

Group Bank 2018 2017 2018 2017 Current tax for the year 5,943 3,165 5,128 3,083 Adjustments in respect of current income tax of previous years 1,479 (1,714) 1,020 (1,714) Change of deferred tax asset (see below) 527 3,900 202 3,900 Total 7,949 5,351 6,350 5,269 The tax on the Bank’s and the Group profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows: Group Bank 2018 2017 2018 2017 Profit (loss) before income tax 60,294 (5,301) 49,773 (7,830) Tax calculated at a tax rate of 15% 9,044 (795) 7,466 (1,175)

Income not subject to tax (431) (211) (227) (402) Adjustments in respect of current income tax of previous years 1,479 (1,714) 1,020 (1,714) Expenses not deductible for tax purposes - 8,071 - 8,560 Additional expenses deductible for tax purpose (800) - (566) - IFRS 9 impact (1,343) - (1,343) - Income tax charge 7,949 5,351 6,350 5,269



Page 122 of 160

NOTE 9 INCOME TAX (continued) Movement in deferred tax asset

At the beginning of the year 1,350 4,807 907 4,807 Change due to the merger with Nordea branch - 443 - - Other comprehensive income credit (charge) 85 - 85 - Income statement credit (charge) (527) (3,900) (202) (3,900) At the end of the year 908 1,350 790 907 15% tax rate was used to calculate deferred income taxes in 2018 and 2017. The movement in deferred tax assets and liabilities of the Group and of the Bank during the period is as follows: Group – deferred tax liabilities

Investment property

revaluation

VAT on long term

assets

Valuation of

securities Total As at 1 January 2017 - 330 180 510 Charged/ (credited) in income statement - (69) (3) (72) Change due to the merger with Nordea branch 23 - - 23 As at 1 January 2018 23 261 177 461 Charged/ (credited) to other comprehensive income

- (85) (85) Charged/(credited) in income statement (23) (41) (64) (128) As at 31 December 2018 - 220 28 248 Group – deferred income tax asset

Valuation of

securities Tax

losses

Accrued expenses/ deferred income Total

As at 1 January 2017 1,773 3,544 - 5,317 (Charged)/ credited in income statement (1,635) (3,544) 1,207 (3,972) Change due to the merger with Nordea branch - 5 461 466 As at 1 January 2018 138 5 1,668 1,811 (Charged)/ credited in income statement (126) (5) (524) (655) As at 31 December 2018 12 - 1,144 1,156



Page 123 of 160

NOTE 9 INCOME TAX (continued) Bank – deferred tax liabilities

VAT on long term

assets

Valuation of

securities Total As at 1 January 2017 330 180 510 Charged/ (credited) in income statement (69) (3) (72) As at 1 January 2018 261 177 438 Charged/(credited) in income statement (41) (64) (105) Charged/(credited) to other comprehensive income

- (85) (85) As at 31 December 2018 220 28 248 Bank – deferred tax asset

Valuation of

securities Tax

losses

Accrued expenses/ deferred income Total

As at 1 January 2017 1,773 3,544 - 5,317 (Charged)/ credited in income statement (1,635) (3,544) 1,207 (3,972) As at 1 January 2018 138 - 1,207 1,345 (Charged)/ credited in income statement (126) - (181) (307) As at 31 December 2018 12 - 1,026 1,038 Deferred income tax assets are recognized for tax loss carried forward to the extent that realization of the related tax benefit through future taxable profits is probable. The deferred tax assets recognised at 31 December 2017 in respect of tax losses have been based on the profitability assumptions over a three year horizon. The expected future taxable profits are based on the business plan assumptions in view of the uncertainties arising from the current economic environment. If the business plan earnings and assumptions in the following quarters substantially deviate from the current assumptions, the amount of the existing deferred tax assets may need to be adjusted. As at 31 December 2018, the Bank has 3.4 million unused tax losses to carry forward (EUR 6.5 million as at 31 December 2017) with no expiry date. As at 31 December 2018, the Group has EUR 29.1 million of unused tax losses which have no expiry date (unused tax losses with no expiry date as at 31 December 2017 were equal to EUR 34 million). Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities. The Bank’s and Group’s deferred tax assets and liabilities as shown in the statement of financial position are Group Bank 2018 2017 2018 2017 Deferred income tax assets 1,156 1,811 1,038 1,345 Deferred income tax liabilities (248) (461) (248) (438) As presented in statement of financial position 908 1,350 790 907



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NOTE 10 CASH AND BALANCES WITH CENTRAL BANKS

Group Bank 2018 2017 2018 2017

Cash and other valuables 128,700 134,105 128,700 134,105 Placements with Central Bank:

Compulsory reserves in national currency 50,859 45,414 50,859 45,414 Term deposit 18,997 - 18,997 - Correspondent account with central bank 1,314,170 1,183,024 1,314,170 1,183,024

Total 1,512,726 1,362,543 1,512,726 1,362,543 Required reserves held with the Bank of Lithuania are calculated according to reserve maintenance calendar announced by ECB. 1% required reserves rate is applied for the Bank's total liabilities subject to the required reserves. All required reserves are held only in EUR. The Bank of Lithuania does not pay interest for the required reserves. As at 31 December 2018 term deposit of 18,997 thousand EUR was pledged for TLTRO (targeted longer-term refinancing operations) programme loan with Central Bank.

NOTE 11 DUE FROM BANKS AND OTHER CREDIT INSTITUTIONS

Group Bank 2018 2017 2018 2017

Due from banks and other credit institutions Demand deposits 38,319 69,654 38,319 69,654

of which funds to secure the derivatives deals 6,056 6,262 6,056 6,262 Term deposits - 80,002 - 80,002 Short term loans - 101,486 - 101,486

Total 38,319 251,142 38,319 251,142 There were no allowances for impairment due from banks neither at the Bank nor on the Group level as of the end of 2018 and 2017. Respectively, there were no changes in allowances for loan impairment and write-offs for such due and allowances in 2018 and 2017. As at 31 December 2017, the short term loans of EUR 101,486 thousand include reverse repurchase agreements collaterised by securities with the fair value of EUR 100,587 thousand and corresponds to the fair value level 1.

NOTE 12 FINANCIAL ASSETS HELD FOR TRADING

Group and Bank

2018 2017 Debt securities Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Government bonds and treasury bills of the Republic of Lithuania 88 - - 2,112 - - Government bonds of foreign issuers 15 - - 77 - - Debt securities of local entities 747 - - 104 - - Debt securities of foreign entities 156 - - 32 - -

Total 1,006 - - 2,325 - -



Page 125 of 160

NOTE 13 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

GROUP

2018 2017 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Debt securities Government bonds and treasury bills of the Republic of Lithuania 83,192 - - 85,568 - -

Equity securities Other - - - - - 18

Total 83,192 - - 85,568 - 18

BANK


Debt securities Government bonds and treasury bills of the Republic of Lithuania 83,192 - - 84,153 - -

Equity securities Other - - - - - 18 Total 83,192 - - 84,153 - 18 No additional disclosures are made on Level 3 financial assets since the amount of such assets is immaterial to the total balance. Weighted yields and duration till maturity of debt securities are as follows:

Group 2018 2017

% Maturity (in years)


Government bonds of the Republic of Lithuania 0.07 1.43

0.08 1.88

Bank 2018

2017



Government bonds of the Republic of Lithuania 0.07 1.43

0.08 1.87

NOTE 14 DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are financial instruments predominantly used for hedging against risks under the Group’s risk management positions. The Group and the Bank enter into transactions involving the following derivative instruments:

Forward, future, swap, interest rates, indexes, stocks, bonds and commodities and/or any combinations of those.

The notional amounts of certain types of financial instruments provide a basis for comparison with instruments recognised on the statement of financial position but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates, foreign exchange rates, commodity or equity prices relative to their terms. Aggregate amounts of derivative contracts can fluctuate within the risk ratio limits set by the Group. Fair values of derivative financial assets and liabilities may fluctuate significantly subject to the market development.



Page 126 of 160

NOTE 14 DERIVATIVE FINANCIAL INSTRUMENTS (continued) The fair values of derivative financial instruments are set out in the following table.

Group and Bank

Notional amounts Fair values Assets Liabilities As at 31 December 2018 FX forwards, swaps, put, call options 227,960 1,569 1,820 Interest rate swaps, collars 1,630,772 4,579 4,648 Commodity related agreements 17,174 2,161 2,106

Total 1,875,906 8,309 8,574 As at 31 December 2017 FX forwards, swaps, put, call options 262,860 771 2,577 Interest rate swaps, collars 1,004,939 3,744 3,373 Commodity related agreements 26,867 1,854 1,794

Total 1,294,666 6,369 7,744

NOTE 15 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Group


Debt securities 1,265 - - - - -

Equity securities - - 3,946 - - 3,265

Total 1,265 - 3,946 - - 3,265 Bank 2018 2017 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Debt securities - - - - - -

Equity securities - - 3,946 - - 3,265

Total - - 3,946 - - 3,265

There were no movement of securities between the levels during 2018 and 2017. The carrying amount of shares consists of Visa Inc. and Swift shares with fair value changes recognised in other comprehensive income.



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NOTE 15 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (continued) The significant unobservable inputs used in the fair value measurement of shares on level 3 are as follows: conversion rate, trading price, liquidity discount.. The management believes that reasonably possible changes to other unobservable inputs would not result in a significant change in the estimated fair value. The table below shows the changes in the fair value of securities from a 10% increase or decrease respectively in the liquidity discount, all other inputs being constant.

Impact of change of liquidity discount

increase

+10%

decrease

-10%

Increase / (decrease) in fair value as at December 31, 2018

497 (497)

The movement of financial assets at fair value through OCI (2017 - available for sale securities) (level 3) during 2018 and 2017: As at 31 December 2018 Group Bank

Beginning balance 3,265 3,265 Reclasification 18 18 Additions 15 15 Disposals - - Unrealised gains/losses for assets held at the end of the reporting period 647

647

Closing balance 3,946 3,946

As at 31 December 2017 Group Bank

Beginning balance 2,624 2,624 Reclasification - - Additions - - Disposals - - Unrealised gains/losses for assets held at the end of the reporting period 641

641

Closing balance 3,265 3,265



Page 128 of 160

NOTE 16 LOANS AND ADVANCES TO CUSTOMERS, FINANCE LEASE RECEIVABLES

Group Bank

2018 2017 2018 2017 Loans and advances to financial institutions 133,515 16,107 761,233 651,498 Total loans to business customers, including finance lease receivables 2,303,792 2,475,337 1,728,469 1,872,638 Total loans to individuals (retail), including finance lease receivables 2,711,905 2,560,665 2,595,973 2,617,940 Total gross loans granted, including finance lease receivables 5,149,212 5,193,289 5,085,675 5,142,076

Of which initial impairment of POCI (20,788) - (20,725) - to financial institutions - - - - to business customers (17,989) - (17,926) - to individuals (2,799) - (2,799) - Total allowance for impairment (64,123) (107,832) (57,803) (105,129) to financial institutions (811) (14) (973) (14) to business customers (30,078) (69,740) (24,216) (67,159) to individuals (33,234) (38,078) (32,614) (37,956) Total net loans and advances to customers, including finance lease receivables 5,085,089 5,085,457 5,027,872 5,036,947 Other loans include reverse repurchase agreements, other loans backed by securities and other. Allowance for impairment Reconciliation of allowance account for losses on loans and advances, including finance lease receivables by class is as follows:

Bank loans to individuals (retail), including finance lease receivables

Stage 1 Stage 2 Stage 3 IAS 39 Total

As at 1 January 2018

37,956 37,956

IFRS 9 impact 1,803 7,963 34,828 (37,956) 6,638

Change for originated credit impaired balances - - (3,118) - (3,118)

Change in allowance for loan impairment (252) (1,002) 4,979 - 3,725 Loans written off during the period as uncollectible - - (12,614) - (12,614)

Other adjustments - 8 19 - 27

As at 31 December 2018 1,551 6,969 24,094 - 32,614

Individual impairment

12,592 12,592 Collective impairment 1,551 6,969 11,502 20,022

Gross amount of loans, individually determined to be impaired, before deducting the individually assessed impairment allowance 107,623



Page 129 of 160

NOTE 16 LOANS AND ADVANCES TO CUSTOMERS, FINANCE LEASE RECEIVABLES (continued) Bank loans to business customers and financial institutions, including finance lease receivables



67,173 67,173

IFRS 9 impact 1,598 1,977 64,675 (67,173) 1,077


Change in allowance for loan impairment 1,155 605 (561) - 1,199 Loans written off during the period as uncollectible - - (24,002) - (24,002)

Other adjustments 4 (7) 274 - 271

As at 31 December 2018 2,757 2,575 19,857 - 25,189


18,608 18,608

Collective impairment 2,757 2,575 1,249 6,581


Group loans to individuals (retail), including finance lease receivables

Stage 1 Stage 2 Stage 3 IAS 39 Total As at 1 January 2018

38,078 38,078

IFRS 9 impact 1,986 7,955 35,224 (38,078) 7,087


Change in allowance for loan impairment 85 (989) 4,858 - 3954

Loans written off during the period as uncollectible - - (12,622) - (12,622)

Other adjustments - 8 19 - 27

As at 31 December 2018 2,071 6,974 24,189 - 33,234


12,692

12,692 Collective impairment 2,071 6,974 11,497

20,542




Page 130 of 160

NOTE 16 LOANS AND ADVANCES TO CUSTOMERS, FINANCE LEASE RECEIVABLES (continued) Group loans to business customers and financial institutions, including finance lease receivables



69,754 69,754

IFRS 9 impact 2,420 4,596 67,266 (69,754) 4,528


Change in allowance for loan impairment 865 158 294) - 1317

Loans written off during the period as uncollectible - - (24,428) - (24,428)

Other adjustments 4 (7) 184 - 181

As at 31 December 2018 3,289 4,747 22,853 - 30,889


21,605

21,605

Collective impairment 3,289 4,747 1,248

9,284

Gross amount of loans, individually determined to be impaired, before deducting the individually assessed impairment allowance 142,905 31 December 2017

Group loans to individuals (retail)

Group loans to business customers

and financial institutions

Balance as at 1 January 2017 36,529

64,762

Change in allowance for loan impairment 15,712 13,828 Loans written off during the year as uncollectible (14,163) (8,836)

As at 31 December 2017 38,078 69,754

Individual impairment 36,871 65,192 Collective impairment 1,207 4,562 38,078

69,754

Gross amount of loans, individually determined to be impaired, before deducting the individually assessed impairment allowance 71,578 164,080



Page 131 of 160

NOTE 16 LOANS AND ADVANCES TO CUSTOMERS, FINANCE LEASE RECEIVABLES (continued) 31 December 2017

NOTE 17 FINANCE LEASE RECEIVABLES Group

Up to one

year From 1

to 5 years Over 5 years

Total

Gross investments in leasing

Balance as at 31 December 2017 48,778 594,258 30,712 673,748 Change during 2018 162,343 -118,884 14,501 57,960 Balance as at 31 December 2018 211,121 475,374 45,213 731,708

Unearned finance income on finance leases

Balance as at 31 December 2017 5,172 23,240 244 28,656 Change during 2018 8,543 -4,257 1,145 5,431 Balance as at 31 December 2018 13,715 18,983 1,389 34,087

Net investments in finance leases before impairment

31 December 2017 43,606 571,018 30,468 645,092 31 December 2018 197,406 456,391 43,824 697,621

Impairment

Balance as at 31 December 2017 2,501 2,617 196 5,314 Change in impairment -341 2,138 130 1,927 Balance as at 31 December 2018 2,160 4,755 326 7,241

Net investments in finance leases after impairment


Bank loans to individuals (retail)

Bank loans to business

customers and financial

institutions

Balance as at 1 January 2017 36,529 64,762 Change in allowance for loan impairment 15,590 11,247

Loans written off during the year as uncollectible (14,163) (8,836)

As at 31 December 2017 37,956 67,173

Individual impairment 36,788 63,295

Collective impairment 1,168 3,878 37,956 67,173

Gross amount of loans, individually determined to be impaired, before deducting the individually assessed impairment allowance 71,177 158,287



Page 132 of 160

NOTE 17 FINANCE LEASE RECEIVABLES (continued)

BANK

Up to one year

From 1 to 5 years

Over 5 years

Total

Gross investments in leasing

Balance as at 31 December 2017 23,344 159,936 7,362 190,642 Change during 2018 -5,029 -58,306 28,508 -34,827 Balance as at 31 December 2018 18,315 101,630 35,870 155,815

Unearned finance income on finance leases

Balance as at 31 December 2017 4,160 5,210 188 9,558 Change during 2018 -482 508 960 986 Balance as at 31 December 2018 3,678 5,718 1,148 10,544

Net investments in finance leases before impairment


Impairment

Balance as at 31 December 2017 522 1,894 196 2,612 Change in impairment -470 -1,297 25 -1,742 Balance as at 31 December 2018 52 597 221 870

Net investments in finance leases after impairment




Page 133 of 160

NOTE 18 INVESTMENT IN SUBSIDIARIES

2018 2017 Share Nominal

value Accumulated impairment

losses

Carrying value

Accumulated impairment

losses

Carrying value

Investments in consolidated subsidiaries

Luminor Investicijų Valdymas, UAB (DNB Investicijų Valdymas, UAB) 100% 1,158 - 1,158 - 1,158 Luminor Būstas, UAB (DNB Būstas, UAB) 100% 1,260 (748) 512 (368) 892 Intractus UAB 100% 44,569 (25,601) 18,968 (23,240) 21,329 Industrius UAB 99,92% 13,771 (3,328) 10,443 (3,259) 10,512

Recurso UAB 100% 4,631 (110) 4,521 (110) 4,521 Promano LIT UAB 100% 9,912 (170) 9,742 (130) 9,782 Luminor Lizingas UAB

(Nordea Finance, UAB) 100% 44,728 - 44,728 - 44,728 Total 90,072 92,922

As a result of merger with Nordea branch in October 2017, the Bank acquired 100% of the shares of Luminor Lizingas, UAB, Promano Lit UAB, and Recurso UAB. During the reported period the Bank did not sell its own shares or the shares of its subsidiaries to third parties. In 2018, based on the estimated expected future cash flows, business growth and risk costs of subsidiaries, the Bank recorded impairment losses amounting to EUR 2,36 million to investment in Intractus UAB, EUR 70 thousand milion to Industrius UAB, EUR 40 thousand to PROMANO LIT UAB, and EUR 380 thousand to Luminor Būstas UAB. Due to the reason that those subsidiaries mainly hold investment properties the impairment was mostly driven by the revaluation of the underlying assets.The recoverable amount was measured at fair value less costs to sell which is categorised within Level 3.

NOTE 19 INVESTMENT IN ASSOCIATE

2018 2017

Share

Nominal value in

EUR

Received Dividends

Share of result Carrying

value Carrying value

Investments in an associate

UAB ALD Automotive 25.00% 1,477 260 336 1,734 1,658

Total 1,477 260 336 1,734 1,658 As a result of the acquisition of the shares of Luminor Lizingas, UAB in October 2017, the Group also acquired 25% of the shares of UAB ALD Automotive which provides full service leasing and fleet management solutions in Lithuania. As at 31 December 2018 UAB ALD Automotive assets amounted to 34,678 thousand EUR (2017: 29,394 thousand ), liabilites amounted to (28,351) thousand EUR (2017 (23,356) thousand ) and equity amounted to 6,327 thousand EUR (2017: 6,038 thousand EUR).



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NOTE 20 PROPERTY, PLANT AND EQUIPMENT

Group Buildings and

premises Equipment and other

fixed assets Total Cost: At 1 January 2017 15,657 20,916 36,573 Acquisitions 13 854 867 Disposals and write-offs (2,586) (1,515) (4,101) Reclassification to Investment property (Note 21) (1,284) - (1,284) Acquisition related to merger with Nordea branch - 2,276 2,276 At 31 December 2017 11 800 22 531 34 331 Acquisitions - 1,522 1,522 Disposals and write-offs (4) (3,222) (3,226) At 31 December 2018 11,796 20,831 32,627 Depreciation and impairment: At 1 January 2017 7,583 13,346 20,929 Disposals and write-offs (1,419) (1,464) (2,883) Depreciation charge for year 178 2,053 2,231 Changes related to merger with Nordea branch - 1,746 1,746 At 31 December 2017 6,342 15,681 22,023 Disposals and write-offs - (3,012) (3,012) Depreciation charge for year 171 2,005 2,176 Impairment charge 8 8 At 31 December 2018 6,521 14,674 21,195 Net book value: At 1 January 2017 8,074 7,570 15,644 At 31 December 2017 5,458 6,850 12,308 At 31 December 2018 5,275 6,157 11,432

Economic life (in years) 50 3-10 - The cost of fully depreciated property, plant and equipment that is still in use: Group Buildings

and premises

Equipment and other fixed assets

31 December 2017 1,588 9,569 31 December 2018 1,762 8,357



Page 135 of 160

NOTE 20 PROPERTY, PLANT AND EQUIPMENT (continued)

Bank

Buildings and

premises

Equipment and other

fixed assets Total

Cost: At 1 January 2017 15,657 20,899 36,556 Acquisitions 13 850 863 Acquisition related to merger with Nordea branch - 1,678 1,678 Reclassification to Investment property (1,284) - (1,284) Disposals and write-offs (2,586) (1,507) (4,093) At 31 December 2017 11,800 21,920 33,720 Acquisitions - 1,495 1,495 Disposals and write-offs (4) (3,101) (3,105) At 31 December 2018 11,796 20,314 32,110 Depreciation and impairment: At 1 January 2017 7,583 13,333 20,916 Disposals and write-offs (1,419) (1,458) (2,877) Depreciation charge for year 178 2,046 2,224 Changes related to merger with Nordea branch - 1,539 1,539 At 31 December 2017 6,342 15,460 21,802 Disposals and write-offs - (3,008) (3,008) Depreciation charge for year 171 1,981 2,152 Impairment charge 8 - 8 At 31 December 2018 6,521 14,433 20,954 Net book value: At 1 January 2017 8,074 7,566 15,640 At 31 December 2017 5,458 6,460 11,918 At 31 December 2018 5,275 5,881 11,156 Economic life (in years) 50 3-10 - No assets were pledged to a third party as at 31 December 2018 and 31 December 2017. The Bank (Group) had ownership title to all of the property and equipment as at 31 December 2018 and 31 December 2017. The cost of fully depreciated property, plant and equipment that is still in use: Bank

Buildings and premises

Equipment and other

fixed assets




Page 136 of 160

NOTE 21 INVESTMENT PROPERTY

As at 31 December 2018 Group

Land plots

Buildings

Other Level 2

Other

Level 3

Commer- cial Level 2

Residen- tial

Level 2


Residen-

tial Level 3

Other

Level 2

Other Level

3 Total 2018

Book value as at 1 January 596 8,100 - 2,415 2,123 3,874 - 39 17,147 Changes related to merger with Nordea branch (note 41) - - - - - - -

- Acquisitions - - - - - 58 - - 58 Additions, capitalised investments - 7 - - - 5 -

12 Reclassifications from property plant and equipment - - - - - - -

- Reclassifications from/to other Level 1,037 (1,037) 176 678 (176) (678) 79 (79) -

Disposals (sale) (206) (2,277) - (1,574) (839) (1,365) - - (6,261) Classified as held for sale (23) (3,168) - (222) (168) (429) - 50 (3,960) Net gains (loss) resulting from adjustment to fair value (86) (673) - (80) (72) (208) - (10) (1,129) Book value as at 31 December 1,318 952 176 1,217 868 1,257 79 - 5,867 The movement of income/expenses related to the investment properties were as follows:

Level 1

Level 2

Level 3 Total 2018

Rental income from investment properties - 7 111 118 Direct expenses (including repairs and maintenance) related to investment properties generating rental income

- 4 11 15

Direct expenses (including repairs and maintenance) related to investment properties not generating rental income

- 68 79 147



Page 137 of 160

NOTE 21 INVESTMENT PROPERTY (continued) Bank

Land

(other) Buildings

(residential) Total Level 3 Level 2 2018 Book value as at 1 January 619 193 812 Reclassifications from property plant and equipment - - -

Disposals (sale) (619) (193) (812) Net gains (loss) resulting from adjustment to fair value - - -

Book value as at 31 December - - - As at 31 December 2017 Group

Land plots

Buildings

Other Level 2

Other

Level 3


Residen- tial

Level 2


Residen- tial

Level 3

Other

Level 3

Total 2017

Book value as at 1 January - 17,654 - - 4,388 7,833 140 30,015 Changes related to merger with Nordea branch (Note 38) 466 - - 1,650 - - - 2,116 Acquisitions - - - - - - - - Additions, capitalised investments - 4 - - - - - 4 Reclassifications from property plant and equipment - 1,008 - - 276 - - 1,284 Reclassifications from/to other Level 173 (173) - 915 - (915) - -

Disposals (sale) - (5,025) - (68) (630) (2,416) - (8,139) Classified as held for sale - (391) - - (560) (40) (50) (1,041) Net gains (loss) resulting from adjustment to fair value (43) (4,977) - (82) (1,351) (588) (51) (7,092) Book value as at 31 December 596 8,100 - 2,415 2,123 3,874 39 17,147



Page 138 of 160

NOTE 21 INVESTMENT PROPERTY (continued) Bank

Land

(other) Buildings

(residential) Total Level 3 Level 2 2017 Book value as at 1 January - - - Reclassifications from property plant and equipment 1,008 275 1,283 Net gains (loss) resulting from adjustment to fair value (389) (82) (471)

Book value as at 31 December 619 193 812 As at 31 December 2018 and 2017, there was no temporary restriction of disposal rights applied to the property owned by the Group. The investment properties are stated at fair value. The Group’s management determines the policies and procedures for fair value measurement. External valuators are involved for significant valuations. Involvement of external valuers is decided upon annually. The management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed in line with the Group’s accounting policies at least once a year. For this analysis, the management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. The management, in conjunction with the Group’s internal and external valuators, also compares each of the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The valuation model for the Group’s investment properties was formed based on the market comparable. . Valuations of investment property were performed as at 31 December 2018. There were reclassifications of investment property made between levels during 2018 and no reclassifications during 2017. All investment property that was revalued based on the comparable approach method with no significant adjustments to observable prices is clasified as Level 2, the rest of the investment property that was revalued using the comparable approach method with significant adjustments to observable prices and income approach is clasified as Level 3. Under the market comparable approach, the fair value of property is estimated based on comparable transactions. The market comparable approach is based upon the principle of substitution under which a potential buyer will not pay more for the property than it will cost to buy a comparable substitute property. The unit of comparison applied by the Group is the price per square metre (sqm).

The average prices of land plots and buildings used in determining the fair value according to their purpose were as follows:

Land plots Average prices per are in 2018,

in EUR thousand Average prices per are in

2017, in EUR thousand Residential 0.02 - 7.51 0.02 – 13.89 Other 0.02 - 7.51 0.01 – 2.19

Buildings Average prices per sq.m. in

2018, in EUR thousand Average prices per sq.m. in

2017, in EUR thousand Commercial 0.07 - 0.55 0.01 – 0.72 Residential 0.1 - 2.39 0.02 – 0.72 Other 0.41 0.25 -0.48



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NOTE 22 INTANGIBLE ASSETS

Cost

Group Bank

As at 1 January 2017 12,046 10,452 Acquisitions 558 557 Acquisition related to merger with Nordea branch 1,466 965 Disposals and write-offs (1,002) (1,002) At 31 December 2017 13,068 10,972 Acquisitions 2,230 2,060 Disposals and write-offs (961) (958) At 31 December 2018 14,337 12,074 Amortisation and impairment

At 1 January 2017 7,337 6,223 Disposals (1,003) (1,002) Changes related to merger with Nordea branch 1,446 963 Amortisation 1,938 1,459 At 31 December 2017 9,718 7,643 Disposals (959) (957) Amortisation 1,448 1,430 Impairment charge 1,239 1,239 At 31 December 2018 11,446 9,355 Net book value: At 1 January 2017 4,709 4,229 At 31 December 2017 3,350 3,329 At 31 December 2018 2,891 2,719 Economic life (in years) 3-5 5

No assets were pledged to a third party as at 31 December 2018 and 31 December 2017. Intangible assets include purchased computer software.

The cost of fully amortised intangible assets that are still in use:

Group Bank


NOTE 23 OTHER ASSETS

Group Bank 2018 2017 2018 2017

Accrued income and deferred expenses 3,899 3,683 3,899 3,673 Assets bought for leasing activities - 974 - 974 Prepayments and receivables 11,729 9,668 7,369 6,012 Taxes - 273 - 273 Transit accounts 729 - 729 - Other assets 619 2,045 - 1,573 Retrieved assets under cancelled lease contracts 356 320 356 320

Total 17,332 16,963 12,353 12,825



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NOTE 24 NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE

Movements on non-current assets and disposal groups held for sale by class were as follows: Group

Land plots Buildings

Other

Level 2

Other

Level 3

Commer- cial

Level 2

Residen- tial

Level 2

Commer-

cial Level 3

Residen- Tial

Level 3

Other Level 3

Total 2018

Total 2017

Book value as at 1 January - 391 - 269 560 40 50 1,310 7,994 Changes related to merger with Nordea branch - - - - - - - - 240 Additions (movement from investment property) 23 3,168 - 127 168 524 - 4,010 1,041 Reclassifications from/to other Level 2,176 (2,176) 72 177 (72) (177) - - -

Disposals (sale) (23) (1,382) - (367) (601) (271) (50) (2,694) (7,958) Net gains (loss) resulting from adjustment to fair value - (1) - - 8 - - 7 (7) Book value as at 31 December 2,176 - 72 206 63 116 - 2,633 1,310 During the year, the Group took possession of real estate with the carrying value of EUR 2,633 thousand at the year-end (in 2017 EUR 1,310 thousand), which the Group is in the process of selling and which is included in non-current assets held for sale. There is no cumulative income or expenses in other comprehensive income relating to assets held for sale. Valuations of non-current assets and disposal groups held for sale were performed as at 31 December 2018. There were reclasifications of assets between levels during 2018 and no reclassifications during 2017. Non-current assets held for sale that were revalued using the comparable approach method with no significant adjustments to observable prices are clasified as Level 2, the rest are clasified as Level 3. For more details on the fair value measurement refer to Note 21. Bank

Buildings (residential) Level 2

Total 2018

Total 2017

Book value as at 1 January 29 29 29

Book value as at 31 December 29 29 29



Page 141 of 160

NOTE 25 DUE TO BANKS AND OTHER CREDIT INSTITUTIONS

Group Bank 2018 2017 2018 2017

Funds of Central bank 172,713 300,000 172,713 300,000 Funds of banks and other credit institutions:

Demand deposits 18,233 59,048 18,233 59,048 Loans 1,234,024 1,870,542 1,234,024 1,870,542

Total 1,424,970 2,229,590 1,424,970 2,229,590 As at 31 December 2018, Funds of Central Bank (EUR 173,000 thousand (in 2017 EUR 300,000 thousand)) contains proceeds from ECB under targeted longer-term refinancing operations (TLTROs). The carrying amount of pledged assets under this agreement amounted to EUR 215,327 thousand (in 2017 250,499 thousand) of which 132,135 thousand EUR (in 2017 149,912 thousand EUR) are loans granted to governmental institutions, and EUR 83,192 thousand are acquired central government bonds (in 2017 100,587 thousand).

NOTE 26 DUE TO CUSTOMERS

Group Bank 2018 2017 2018 2017 Demand deposits

of public authorities 527,570 402,352 527,570 402,352 of financial institutions 18,016 29,109 19,880 30,990 of corporates 1,482,381 1,490,097 1,519,268 1,520,286 of individuals 1,562,699 1,442,841 1,562,699 1,442,841

Total demand deposits 3,590,666 3,364,399 3,629,417 3,396,469 Term deposits

of public authorities 161,905 45,862 161,905 45,862 of financial institutions 14,489 13,532 14,489 13,532 of corportes 319,724 105,808 319,724 105,808 of individuals 446,462 326,416 446,462 326,416

Total term deposits 942,580 491,618 942,580 491,618 Term loan 29 101 29 101 Total 4,533,275 3,856,118 4,572,026 3,888,188 As at 31 December 2018 the Group’s deposits of EUR 11,280 thousand (2017: EUR 12,310 thousand) and Bank’s deposits of EUR 11,280 thousand (2017: EUR 12,310 thousand) held as collateral for irrevocable commitments under import letter of credit, guarantees and loans were included in customer accounts.



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NOTE 27 PROVISIONS

The movement of provisions was as follows:

Group Bank

Loan commitme

nts and guarantees

Pending legal

issues

Restruc-turing

Other Loan commitme

nts and guarantees

Pending legal

issues

Restruc- turing

Other

As at 1 January 2018 107 123 858 5 107 123 858 5 Changes on initial application of IFRS 9 1,266 - - -

1,242 - - -

Increase in provisions 1,218 - 167 10 1,207 - 167 10

Amortised/utilised (883) (30) (1,022) (15) (830) (30) (1,022) (15) As at 31 December 2018 1,708 93 3 -

1,726 93 3 -

Current (less than one year) 1,708 93 3 -

1,726 93 3 -

Non-current (more than one year) - - - -

- - - -

As at 31 December 2018 1,708 93 3 -

1,726 93 3 -

Provisions on off-balance sheet loan commitments and guarantees under IFRS 9 by stages as at the end of the period are as follows:

Group Bank

Stage 1 Stage 2 Total Stage 1 Stage 2 Total As at 1 January 2018 7 100 107

11 96 107

Changes on initial application of IFRS 9 1,266 - 1,266

1,242 - 1,242

Increase in provisions 1,105 113 1,218 1,102 105 1,207 Amortised (1,914) 1,031 (883) (1,900) 1,070 (830) As at 31 December 2018 464 1,244 1,708

455 1,271 1,726



Page 143 of 160

NOTE 27 PROVISIONS (continued) The movement of provisions as at 2017 was as follows:

Group Bank

Loan commitmen

ts and guarantees

Pending legal

issues

Restruc-turing

Other Loan commitments

and guarantees

Pending legal

issues

Restruc- turing

Other

As at 1 January 2017 - 291 - 5 - 291 - 5

Increase in provisions 107 30 858 43,412* 107 30 858 43,412*

Utilised - (198) - (43,412)** - (198) - (43,412)** As at 31 December 2017 107 123 858 5

107 123 858 5

Current (less than one year) 107 - 858 5

107 - 858 5

Non-current (more than one year) - 123 - -

- 123 - -

As at 31 December 2017 107 123 858 5

107 123 858 5

*Amount comprise of provisions for onerous contracts related to IT systems. ** Netted with advance payment made according the updated IT licence agreement. Legal claims. As at 31 December 2018, contingent liabilities that may arise as a result of pending court proceedings in which the Bank would appear as a respondent amounted to EUR 10,207 thousand (2017: EUR 5,545 thousand), of which EUR 1,100 thousand (2017: EUR 1,100 thousand) for legal claims related to group of (ex-Nordea Bank) customers claim (regarding modification of mortgage loan agreements under which loans were issued in Swiss Francs and commitment to calculate negative interest), the Bank does not see the need for provisions for this case as the risk is remote and EUR 1,184 thousand (2017: EUR 1,679 thousand) for legal claims related to index linked bonds and 7,923 thousand (2017: EUR 2,766 thousand) for other legal claims. The Bank established a provision of EUR 93 thousand (2017: EUR 123 thousand) against potential losses in relation to the outcome of legal claims.



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NOTE 28 OTHER LIABILITIES

Group Bank

2018 2017 2018 2017 Accrued expenses and deferred income 13,951 10,481 11,426 9,441 Transit accounts (for payments of loans) 4,469 3,755 4,469 3,755 Transit accounts 5,600 625 5,600 625 Taxes 137 - 137 - Payables 11,774 6,376 3,289 3,498 Advance payment 1,844 4,345 1,203 1,221 Other liabilities 1,003 1,794 734 1,534

Total 38,778 27,376 26,858 20,074

NOTE 29 SHARE CAPITAL

The share premium amounted to EUR 81,942 thousand as at 31 December 2018 (as at 31 December 2017 – EUR 81,942 thousand). The share capital of the Bank consists of ordinary shares only. All issued shares are paid.

Information about the share capital of the Bank is listed in the table below:

2018 2017

Number of

shares

Nominal value, EUR

thousand

%

Number of

shares

Nominal value, EUR

thousand

% Luminor Group AB 5,710,134 190,205 100.00 5,710,134 190,205 100.00 Total 5,710,134 190,205 100.00 5,710,134 190,205 100.00 NOTE 30 RESERVES Group Bank 2018 2017 2018 2017 Mandatory reserve 17,075 13,551 16,784 13,260 Financial assets revaluation reserve (Note 15) 1,774 1,146 1,778 1,146 Other reserves 101 101 101 101 Reserve capital 363,763 363,763 363,763 363,763 Total 382,713 378,561 382,426 378,270 The reserve capital of a bank is formed by additional contributions of the Bank’s shareholders. On 27 September 2017 there was a decision taken of the sole shareholder of AB DNB Bankas to increase the reserve capital of the Bank by EUR 258,263 thousand. According to the Law of the Republic of Lithuania on Banks, allocations to the mandatory reserve shall be compulsory and may not be less than 1/20 of the net profit. The mandatory reserve may, by a decision of the annual or extraordinary general meeting of the shareholders, be used only to cover losses from operations.



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NOTE 31 ASSETS/FUNDS UNDER MANAGEMENT Assets under management and related liabilities are accounted in the off-balance sheet. Assets under management of the Bank totalling to EUR 3,295 thousand as at 31 December 2018 (2017: EUR 3,735 thousand) consist of loans granted to legal entities and individuals, including farmers and house building associations and other companies. These loans were granted from the Lithuanian Agricultural Support Fund, the Farmers’ Support Fund, the Agricultural Support Fund (proceeds from sale of grain received from the USA) and the Common Mortgage Support Fund, the BoL Mortgage Support Fund. The Bank manages these loans on behalf of the Lithuanian Ministry of Finance and the Lithuanian Ministry of Agriculture. The Bank’s credit risk in respect of these loans is limited to the customer’s failure to pay the accrued interest margin. The Bank is not subject to any interest or currency risk on these loans. The subsidiary Luminor Investicijų Valdymas UAB manages the following funds:

2018

Total assets

(Unaudited)

2017 Total

assets (Unaudited)

2nd pillar pension funds: Luminor pensija 1 (DNB pensija 1) 31,691 31,827 Luminor pensija 2 (DNB pensija 2) 117,193 113,040 Luminor pensija 3 (DNB pensija 3) 170,076 161,429 Luminor pensija 4 5,021 561 3rd pillar pension fund: Luminor pensija 2 plius (DNB papildoma pensija) 31,401 28,466 Luminor pensija 3 plius (DNB papildoma pensija 100) 5,307 4,663 Luminor pensija 1 plius (DNB papildoma konservatyvi pensija) 9,940 8,288 Luminor pensija darbuotojui 1 plius (DNB papildoma darbuotojo pensija 25) 763 710 Luminor pensija darbuotojui 2 plius (DNB papildoma darbuotojo pensija 50) 1,561 1,475 Assets under management of institutionals portfolios 11,347 10,505 Total 384,300

360,964

NOTE 32 CONTINGENT LIABILITIES AND COMMITMENTS Guarantees, letters of credit, commitments to grant loans and other commitments

Group Bank 2018 2017

2018 2017

Financial guarantees 85,601 80,537 85,601 80,537 Letters of credit 61,983 49,375 61,983 49,375 Commitments to grant loans and finance leases 560,030 756,065 621,086 806,063 Operating lease commitments 31,063 19,793 31,063 19,793 Capital commitments and other commitments to acquire assets

434 691

434 691

Other commitments 94,896 85,845 94,896 85,845 Total 834,007 992,306 895,063 1,042,304 The management of the Bank considers the level of provisions to be sufficient to cover the potential losses that may arise out of the above items. Additional commitments to related parties are disclosed in Note 35.



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NOTE 33 CASH AND CASH EQUIVALENTS Group Bank 2018 2017 2018 2017 Cash (Note 10) 128,700 134,105 128,700 134,105 Correspondent accounts with other banks 38,319 69,654 38,319 69,654 Required reserves in national currency in Central Bank (Note 10) 50,859 45,414 50,859 45,414 Correspondent account with Central Bank (Note 10) 1,314,170 1,183,024 1,314,170 1,183,024

Total 1,532,048 1,432,197 1,532,048 1,432,197 NOTE 34 LIQUIDITY RISK The strucutre of Group’s assets and liabilities by remaining maturity as at 31 December 2018 were as follows: Current Non-Current Total Assets Cash and balances with central banks 1,493,729 18,997 1,512,726 Financial assets designated at fair value through profit or loss 27,175 58,288 85,463 Derivative financial instruments 4,164 4,145 8,309 Financial assets at fair value through other comprehensive income - 3,946 3,946 Loans and advances to customers, finance lease receivables 1,246,430 3,877,012 5,123,442 Investments in associate - 1,734 1,734 Investment property - 5,867 5,867 Property, plant and equipment - 11,432 11,432 Intangible assets - 2,891 2,891 Deferred tax asset - 908 908 Other assets 17,332 - 17,332 Non-curent assets and disposal groups held for sale 2,633 - 2,633

Total assets 2,791,463 3,985,220 6,776,683

Due to banks and other credit institutions and due to customers 5,785,532 172,713 5,958,245 Derivative financial instruments 4,550 4,024 8,574 Other liabilities 42,082 611 42,693 Total liabilities 5,832,164 177,348 6,009,512



Page 147 of 160

NOTE 34 LIQUIDITY RISK (continued)

The strucutre of Bank’s assets and liabilities by remaining maturity as at 31 December 2018 were as follows: Current Non-Current Total Assets Cash and balances with central banks 1,493,729 18,997 1,512,726 Financial assets designated at fair value through profit or loss 26,771

57,427 84,198

Derivative financial instruments 4,164 4,145 8,309 Financial assets at fair value through other comprehensive income - 3,946 3,946 Loans and advances to customers, finance lease receivables 1,109,880 3,956,311 5,066,191 Investments in associate - 90,072 90,072 Investment property - - - Property, plant and equipment - 11,156 11,156 Intangible assets - 2,719 2,719 Deferred tax asset - 790 790 Other assets 12,353 - 12,353 Non-curent assets and disposal groups held for sale 29 - 29

Total assets 2,646,926 4,145,563 6,792,489




Page 148 of 160


The strucutre of Group’s assets and liabilities by remaining maturity as at 31 December 2017 were as follows: Current Non-Current Total Assets Cash and balances with central banks 1,362,543 - 1,362,543 Financial assets designated at fair value through profit or loss 20,537 67,356 87,893 Derivative financial instruments 1,650 4,719 6,369 Financial assets at fair value through other comprehensive income - 3,283 3,283 Loans and advances to customers, finance lease receivables 2,019,061 3,317,568 5,336,629 Investments in associate - 1,658 1,658 Investment property - 17,147 17,147 Property, plant and equipment - 12,548 12,548 Intangible assets - 3,350 3,350 Deferred tax asset - 1,350 1,350 Other assets 16,963 - 16,963 Non-curent assets and disposal groups held for sale 1,070 - 1,070

Total assets 3,421,824 3,428,979 6,850,803




Page 149 of 160


The strucutre of Bank’s assets and liabilities by remaining maturity as at 31 December 2017 were as follows: Current Non-Current Total Assets Cash and balances with central banks 1,362,543 - 1,362,543 Financial assets designated at fair value through profit or loss 20,389 66,089 86,478 Derivative financial instruments 1,650 4,719 6,369 Financial assets at fair value through other comprehensive income - 3,283 3,283 Loans and advances to customers, finance lease receivables 1,970,164 3,317,925 5,288,089 Investments in associate - 92,922 92,922 Investment property - 812 812 Property, plant and equipment - 11,918 11,918 Intangible assets - 3,329 3,329 Deferred tax asset - 907 907 Other assets 12,825 - 12,825 Non-curent assets and disposal groups held for sale 29 - 29

Total assets 3,367,600 3,501,904 6,869,504




Page 150 of 160

NOTE 35 RELATED PARTY TRANSACTIONS The balances of loans granted by the Group to the management and close family members, deposits accepted as at the end of the period are as follows:

Balances of deposits

Principal of loans outstanding

2018 2017 2018 2017 Management of the Group and close family members of management 1,486 850 1,082 549 In 2018, the total compensations for the Group management approximated EUR 1,151 thousand (in 2017 – EUR 1,207 thousand). In 2018, the total compensations for the Bank’s management approximated EUR 994 thousand (in 2017 – EUR 738 thousand). The remuneration to key management personnel mainly consists of short term employee benefits. The following balances were outstanding with ultimate owners related companies: Assets 2018 2017 Correspondent bank accounts 26,674 58,532 Reverse repurchase agreements - 101,486 Derivative financial instruments 2,561 2,606 Other assets 106 162 Liabilities Correspondent bank accounts 47 695 Term deposits 1,234,370 1,870,542 Derivative financial instruments 7,663 6,250 Other liabilities 775 730

Income 2018 2017

Interest 103 1,832 Fee and commission 503 290 Net gain (loss) on operations with securities and derivative financial instruments and net foreign exchange result 2,167 (4,638) Other (118) 92

Expenses

Interest 2,311 4,254 Fee and commission 279 234 Other provisions - 43,412

Other* 328 7,350 *From the total other expenses amount stated above the expenses related to the IT services and upgrade of the Bank’s core IT systems as at 31 December 2018 amounted to 328 EUR (31 December 2017 6,163 EUR).



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NOTE 35 RELATED PARTY TRANSACTIONS (continued)

The following balances were outstanding with Luminor Group AB companies: Assets 2018 2017

Correspondent bank accounts Term deposits

1,778 -

844 80,000

Loans and advances 119,212 - Other assets - 1,121

Liabilities Correspondent bank accounts 74 931 Payable - - Other liabilities 30 81

Income 2018 2017

Interest 700 - Fee and commission 143 57 Other 1,836 1,367

Expenses

Interest - - Fee and commission 114 240 Other 4,258 2,284

The following balances were outstanding on the Bank statement of financial position with subsidiaries: Assets 2018 2017

Loans 627,942 635,474 Equity securities 90,072 92,922 Other assets - 13

Liabilities Demand deposits 38,751 32,070 Other liabilities 3 13

The main income/expenses of the Bank from transactions with the subsidiaries are as follows: Income 2018 2017

Interest 5,355 1,307 Fee and commission 2,453 725 Dividends 3,456 1,247 Other 265 352

Expenses

Other 175 124 Impairment 3,009 7,640

As at 31 December 2018, the main off-balance sheet commitments (guarantees, commitments to grant loans) with the subsidiaries amounted to EUR 122,071 thousand (2017: EUR 94,164 thousand). As at 31 December 2018 loans and advances with asociate ALD Automotive amounted to 6,830 thousand EUR (2017: 5,371 thousand) and interest income amounted to 12 thousand EUR (2017: 19 thousand EUR). Terms and conditions of transactions with related parties The above mentioned outstanding balances arose from the ordinary course of business.



Page 152 of 160

NOTE 36 CONCENTRATION EXPOSURE According to the regulations approved by the Bank of Lithuania, the Large exposure per borrower may not exceed 25 % of the Bank’s calculated capital or EUR 150 million. In 2018 and 2017, the Bank complied with the maximum exposure to one borrower requirements set by the Bank of Lithuania. As at 31 December 2018, the largest single exposure comprising loans to several related borrowers treated as a single borrower, not secured by the Government guarantees, is 12.61 % of the Bank’s calculated capital (in 2017 - 14.42 % respectively). As of the end of 2017 the Group exceeded Group Large exposure to one borrower requirement. Actual exposure was 28.71 per cent (maximum exposure limit is 25 per cent). Management of the Group took actions to decrease the exposure and the Group meets all prudential requirements at the end of 2018. The Group immediately informed Supervisory authorities about the breach and are in constant contact on the matter. Management of the Group is of the opinion, that the breach will not have significant adverse impact on the operations of the Group as this was one-time event caused by the merger. NOTE 37 ADDITIONAL INFORMATION REQUIRED TO BE DISCLOSED BY LAWS According to the local legislation, the Bank is required to prepare the Financial Group’s consolidated financial information. The Financial Group includes the Bank and its subsidiaries engaged in financial service activities, that is Luminor Investicijų Valdymas UAB, Luminor Lizingas UAB, Industrius UAB, Recurso UAB, Promano LIT UAB, and Intractus UAB with its subsidiary Gėlužės Projektai UAB. The financial statements of the Financial Group using the same accounting principles as are used for the Bank and the Group. The Financial Group’s consolidated income statement, statements of comprehensive income, financial position, changes in shareholder’s equity and cash flows are presented in this note below: FINANCIAL GROUP INCOME STATEMENT

Financial Group 2018 2017 Interest income calculated using the effective interest method 107,294 79,783 Other similar income 14,507 7,751 Interest and similar expense (12,745) (11,821) Net interest income 109,056 75,713 Fee and commission income 55,394 45,735 Fee and commission expense (12,443) (10,012) Net interest, fee and commission income 152,007 111,436 Net gain (loss) on operations with securities and derivative financial instruments and net foreign exchange result 10,131 17,248 Share of profit of an associate 336 84 Impairment losses on loans and finance lease 708 (2,142) Impairment on other assets (3,839) (50,748) Other income 3,724 4,917 Personnel expenses (40,362) (32,849) Depreciation and amortisation (3,617) (4,161) Other administrative expenses (58,305) (49,332) Profit (loss) before income tax 60,783 (5,547)

Income tax (7,934) (5,314) Net profit (loss) for the year 52,849 (10,861)

Profit (loss) attributable to: Equity holders of the parent 52,849 (10,861)



Page 153 of 160

NOTE 37 ADDITIONAL INFORMATION REQUIRED TO BE DISCLOSED BY LAWS (continued) THE FINANCIAL GROUP STATEMENT OF COMPREHENSIVE INCOME

Financial Group 2018

2017

Profit (loss) for the year 52,849 (10,861) Other comprehensive income (expenses) to be reclassified to profit or loss in subsequent periods (net of tax): Net gain on debt securities at fair value through other comprehensive income (2017: available for sale)

(4) 953

Other comprehensive income (expenses) not to be reclassified to profit or loss in subsequent periods: Net gain on equity instruments at fair value through other comprehensive income

632 -

Total other comprehensive income (expenses) 628 953

Total comprehensive income (expenses) for the year, net of tax

53,477 (9,908)

Atributable to: Equity holders of the parent 53,477 (9,908)



Page 154 of 160

NOTE 37 ADDITIONAL INFORMATION REQUIRED TO BE DISCLOSED BY LAWS (continued)

FINANCIAL GROUP STATEMENT OF FINANCIAL POSITION

Financial Group

31 December 2018

31 December 2017

ASSETS Cash and balances with central banks 1,512,726 1,362,543 Due from banks and other credit institutions 38,319 251,142 Financial assets held for trading 1,006 2,325 Financial assets designated at fair value through profit or loss 83,192 85,586

Derivative financial instruments 8,309 6,369 Financial assets at fair value through other comprehensive income 5,211 3,265

Loans and advances to customers 4,394,743 4,445,709 Finance lease receivables 690,380 639,778 Investments in subsidiaries 512 892 Investment in an associate 1,734 1,658 Investment property 5,867 17,147 Property, plant and equipment 11,428 12,304 Intangible assets 2,889 3,344 Deferred income tax asset 908 1,350 Other assets 17,276 16,854 Non-curent assets and disposal groups held for sale 2,633 1,310

Total assets 6,777,133 6,851,576

LIABILITIES AND EQUITY Due to banks and other credit institutions 1,424,970 2,229,590 Derivative financial instruments 8,574 7,744 Due to customers 4,533,765 3,857,540 Provisions 1,804 1,093 Current income tax liabilities 2,142 1,811 Other liabilities 38,706 27,222

Total liabilities 6,009,961 6,125,000

Equity attributable to equity holders of parent

Ordinary shares 190,205 190,205 Share premium 81,942 81,942 Retained earnings 112,352 75,908 Reserves 382,673 378,521

Total equity 767,172 726,576

Total liabilities and equity 6,777,133 6,851,576



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FINANCIAL GROUP STATEMENT OF CHANGES IN EQUITY

Issued shares

Share premium

Reserve capital

Fair value changes of

financial assets at FVTOCI

Manda-tory

reserve

Other reserve

s Retained earnings Total

Balance at 1 January 2017 190,205 81,942

105,500 193 9,094 241 86,141 473,316

Profit for the period - -

- - - - (10,861) (10,861)

Other comprehensive income - -

-

953 - - - 953 Total comprehensive income

(expenses) for the year, net of tax - -

- 953 - - (10,861) (9,908)

Transfer to mandatory reserve - -

- - 4,224 (140) (4,084) - Increase of reserve capital - - 258,263 - - - - 258,263

Changes related to merger with Nordea branch - -

- - 193 - 4,712

4,905

Balance at 31 December 2017 190,205 81,942

363,763 1,146 13,511 101 75,908 726,576 Changes on initial application of IFRS 9 - - - - - - (12,881) (12,881)

Balance at 1 January 2018 190,205 81,942

363,763 1,146 13,511 101 63,027 713,695

Profit for the period - - - - - - 52,849 52,849 Other comprehensive income - - - 628 - - - 628 Total comprehensive income

(expenses) for the year, net of tax - -

- 628 - - 52,849 53,477

Transfer to mandatory reserve - - - - 3,524 - (3,524) -

Balance at 31 December 2018 190,205 81,942

363,763 1,774 17,035 101 112,352 767,172



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FINANCIAL GROUP STATEMENT OF CASH FLOWS

Financial Group 2018 2017

Operating activities Net profit (loss) 52,849 (10,861) Adjustments to reconcile net profit or loss to net cash provided by operating activities: 20,710 39,207 Current and deferred tax expenses, recognised in income statement 7,934 5,314 Unrealised foreign currency (gains) and losses 582 13,422 Depreciation / amortisation 3,617 4,161 Dividend income (1,341) (124) Impairment loans and receivables 4,642 2,142 Impairment of investment in subsidiaries 380 - Impairment of property, plant and equipment 8 - Impairment of other intaglibe assets 1,239 - Changes in fair value of investment properties 1,129 6,621 Impairment of other 178 616 Provisions, net 905 43,511 Accrued interest income and expenses, net derivative loss 1,437 (9,612) Net cash flow from operating activities before changes in operating assets and liabilities 73,559 55,190

((Increase) decrease in operating assets:

((Increase) decrease in loans to credit and financial institutions 181,510 533,587 (Increase) decrease in loans granted (35,321) (89,664) (Increase) decrease in trading securities 1,110 14,801 (Increase) decrease in other assets 443 13,216 Change in operating assets 147,742 471,940 Increase (decrease) in operating liabilities: Increase (decrease) in liabilities to central bank (127,000) - Increase (decrease) in liabilities to credit and financial institutions (675,419) 260,945 Increase in deposits 680,608 184,118 Increase (decrease ) in other liabilities 7,820 2,396

Change in operating liabilities (113,991) 447,459 Income tax paid (5,755) (387) Net cash flows from operating activities 101,555 974,202

Investing activities Acquisition of property, plant , equipment and intangible assets (3,553) (2,844) Disposal of property, plant, equipment and intangible assets 53 659 Purchase of securities (19,390) (3,021) Proceeds from securities 19,555 15,256 Dividends received 1,341 124 Interest received 872 953 Changes related to merger with Nordea branch - 38,360

Net cash flows from investing activities (1,122) 49,487

Financing activities Increase of reserve capital (Note 30) - 258,263

Net cash flows from financing activities - 258,263

Net increase in cash and cash equivalents 100,433 1,281,952 Net foreign exchange difference on cash and cash equivalents (582) (13,422) Cash and cash equivalents at 1 January 1,432,197 163,667 Cash and cash equivalents as at 31 December (Note 33) 1,532,048 1,432,197 Interest income received 122,402 101,521 Interest expense paid (8,987) (11,114)



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NOTE 38 MERGER WITH NORDEA On 1 October 2017 Nordea Bank AB (Swedish company registration No 516406-0120) and DNB Bank ASA (Org. No. 984 851 006) after all regulatory approvals and competition clearance were received, combined their Baltic business into a jointly owned bank, Luminor. By business transfer Nordea Bank AB Lithuania branch, Nordea Bank AB Latvia branch and Nordea Bank AB Estonia branch assets and liabilities, including shares of leasing, pension and distressed assets companies in Baltics were transferred to Luminor Bank AB (prev. AB DNB bankas), Luminor Bank AS in Latvia (prev. DNB banka AS) and Luminor Bank AS in Estonia (prev. Aktsiaselts DNB Pank). The last statement of financial position of Nordea Bank AB Lithuanian branch is presented below:

Nordea bank AB Lithuania branch as at 30 September

2017 ASSETS Cash and balances with central banks 92,062 Financial assets held for trading 659 Loans and advances to customers 2,067,227 Investments in subsidiaries 14,490 Tangible and Intangible assets 142 Deferred income tax asset 371 Other assets 3,260

Total assets 2,178,211 LIABILITIES AND EQUITY Financial liabilities held for trading 650 Financial liabilities measured at amortised cost 2,158,614

Tax liabilities 89 Other liabilities 6,590

Total liabilities 2,165,943

Total equity 12,268

Total liabilities and equity 2,178,211 OFF-BALANCE Financial guarantees 101,496 Loan commitments and other credit related liabilities 412,107

Total Off –balance sheet items

513,603

Total consideration paid for the Nordea Branch amounted to EUR 8,974 thousand. Difference between consideration paid and net assets acquired in amount of EUR 3,294 thousand were accounted for directly into Equity of the Bank as merger effect.



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NOTE 38 MERGER WITH NORDEA (continued) The last statement of financial position of Nordea Finance (Luminor lizingas) UAB is presented below:

Nordea Finance UAB as at

30 September 2017 ASSETS Cash and balances with central banks - Financial assets held for trading - Loans and advances to customers 674,933 Factoring 176,514 Financial lease receivables 498,419 Investments in subsidiaries 1,574 Tangible and Intangible assets 49 Deferred income tax asset 1,270 Other assets 1,785

Total assets 679,611 LIABILITIES AND EQUITY Financial liabilities held for trading - Financial liabilities measured at amortised cost 631,433 Tax liabilities 1,042 Other liabilities 816

Total liabilities 633,291

Total equity 46,320

Total liabilities and equity 679,611 Total consideration paid for Nordea finance UAB amounted to EUR 44,728 thousand. Difference between consideration paid and net assets acquired in amount of EUR 1,592 thousand were accounted for directly into Equity of the Group as merger effect. In addition newly acquired subsidiaries’ Promano Lit UAB, and RECURSO UAB assets amounted to EUR 14,6 million and liabilities to EUR 0,08 million. Approx. EUR 12,0 million of assets comprised of cash at Nordea branch. Reconciliation of the transaction for cash flows statement:

Group Bank

Consideration paid 53,702 8,974

Cash and cash equivalents acquired 92,062 92,062 Consideration paid, less cash and cash equivalents acquired (38,360) (83,088)

NOTE 39 SUBSEQUENT EVENTS On 2 January 2019 Luminor banks in Lithuania, Latvia and Estonia has completed cross-border merger and continues its operations in all Baltic countries through the Estonian registered bank and its branches in Latvia and Lithuania. After the completion of the merger, all assets, rights and liabilities of Luminor Lithuania were transferred to Luminor Bank AS in Estonia. The bank will continue the same activities in Lithuania through its locally established branches. Starting from 2 January 2019, the deposits and financial instruments of the depositors and investment services clients of Luminor Bank AS Lithuanian branch will be guaranteed by the deposit guarantee and investor protection scheme established and operated by the Estonian Guarantee Fund. The new simplified structure and governance model enables the bank faster decision making, provides excellent cross-border collaboration opportunities and improves efficiency.



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NOTE 39 SUBSEQUENT EVENTS (continued) As of 2 January 2019, after completion of the merger, Luminor Bank AS (Estonia) has a new organizational set up, a new governance structure and new members of management bodies. Erkki Raasuke will continue as Luminor ’s CEO and Nils Melngailis will be chairing the supervisory board. The permanent committees which were previously established for each Baltic country separately are going forward and operating as single committees on a group level, comprising Audit Committee, Risk Committee, Nomination Committee and Remuneration Committee. After completing the cross-border merger, the bank has taken steps to re-organize its operative model. On 7 January 2019 Luminor Bank AS (Estonia) has decided to proceed with the next phase of transformation, including changing operating model. The bank aims to transform its operating model by simplifying its structure and decision process, unifying and executing IT consolidation, strengthening its controls, and becoming more efficient, more resilient and more resolvable. During 2019 Luminor will reduce its staff numbers from the current ca 3000 employees, at all levels (including management), comprising around 130 employees in Estonia, 250 employees in Latvia and 420 employees in Lithuania. The bank is customer-driven organization and our operating model is built to support regional scale, business development and efficiency, but also high relevance in customer intimacy. With the adjusted operating model, Luminor expects to significantly reduce the operating expenses and create the capacity to invest for the future. On 1 February 2019 Luminor Bank AS (Estonia) has sold its subsidiary in Lithuania, real estate brokerage company Luminor būstas UAB to Resolution Holding.

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Documents

FINANCIAL STATEMENTS 2018 · Luminor Bank AB (the “Bank” or “Luminor Lithuania”) is a credit institution holding a license for and is engaged in acceptance of deposits and