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Annual R

eport 2012 Nederlandse W

aterschapsbank N.V.

ANNUAL REPORT 2012N E D E R L A N D S E W A T E R S C H A P S B A N K N . V .

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Contents

Headline figures 3

Organisation 4n The Managing Board 4n The Supervisory Board 6n The Management Team 11n Employees 11

Report of the Supervisory Board to the shareholders 12

Report of the Managing Board 20n General 20n NWB Bank in 2012 21n Addition to the reserve; dividend 23n Outlook for 2013 23n Strategy 24n Developments in 2012 24 - Funding 24 - Lending 25n Risk management 28n Employees 29

Corporate governance 30

Corporate social responsibility 36n Independent Assurance Report 48n NWB Fonds 50

Remuneration report 2012 52For

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Financial statements 58n Statement of income 59n Balance sheet 60n Statement of comprehensive income 61n Statement of changes in equity 62n Statement of cash flows 63n Notes to the financial statements 65

Other information 106n Independent auditor’s report 107n Articles of Association provisions governing profit appropriation 109n Proposed profit appropriation 110n List of shareholders at 1 January 2013 111

Overview of compliance with the principles of the Dutch Banking Code 112

Publication details 115

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Headline figures (amounts in millions of euros) 2012 2011 2010 20091) 20081)

Balance sheet

Long-term loans and advances 48,142 45,474 43,172 40,172 35,934

Equity 1,226 1,188 1,135 1,048 1,047

Total assets 76,084 67,696 57,358 52,422 48,396

Risk-weighted assets 933 1,112 904 1,721 1,561

Results

Net interest income 107 75 104 92 128

Results from financial transactions -24 38 30 -22) -1022)

Operating income 83 113 134 90 26

Operating expenses 14 15 11 10 10

Contribution to NWB Fonds 0 0 2 4 4

Income tax expense 17 23 30 19 3

Bank tax 12 - - - -

Net profit 40 75 91 57 9

Dividend

Dividend distribution 0.0 0.0 23.0 40.0 40.0

Dividend per share in euros 0 0 390 678 678

Ratios (%)

BIS Solvency ratio 111.2 90.3 99.9 51.4 53.2

Operating expenses/interest ratio 13.13) 20.0 10.6 10.9 7.8

Dividend pay-out ratio 0.0 0.0 25.3 70.2 100.04)

Capital ratio 1.6 1.8 2.0 2.0 2.1

1) Based on IFRS-EU; other years based on NL GAAP

2) Up to and including 2009: Realised and unrealised

changes in fair value portfolio

3) Excluding bank tax

4) Excluding payment of €31 million charged

to the general reserve

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As at 1 January 2012, NWB Bank’s Managing Board comprises Ron Walkier (Chairman), Lidwin van Velden and Frenk van der Vliet. Ron Walkier’s portfolio includes strategy, communications, HRM, legal affairs and compliance, and Internal Audit. Lidwin van Velden’s portfolio includes finance, risk management, back office, ICT, security management and tax. Frenk van der Vliet focuses mainly on lending, funding, asset & liability management and facility management.

Name Ron A. Walkier (1953)Year of first appointment 1993, Chairman since 2008Term of office ends in 2016Principal position Chairman of the Managing BoardRelevant other positions None

The Managing Board

Organisation

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Name Frenk J. van der Vliet (1967)Year of first appointment 2012Term of office ends in 2016Principal position Member of the Managing BoardRelevant other positions None

Name Lidwin M.T. van Velden (1964)Year of first appointment 2010Term of office ends in 2014Principal position Member of the Managing BoardRelevant other positions Member of the Supervisory Committee of University of Amsterdam

Adviser to the Supervisory Committee of the Amsterdam University of Applied SciencesMember of the Audit Committee of the Dutch Ministry of Education, Culture and Science

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The Supervisory Board

Name Professor Dolf G.C. van den Brink (1948)1)2)

Position ChairmanYear of first appointment 2002Term of office ends in 2014Last position held Chief Economic Adviser to the Managing Board of ABN AMRORelevant other positions Professor of Financial Institutions at the University of Amsterdam

Supervisory Director of Akzo Nobel N.V. Supervisory Director of Legal & General Nederland N.V.

Supervisory Director of KBC Bank, Belgium

Name Professor Age F.P. Bakker (1950)1)

Year of first appointment 2012Term of office ends in 2016Last position held Executive Director of the International Monetary FundRelevant other positions Chairman of the Financial Supervision Authority for Curaçao and Sint Maarten

Chairman of the Financial Supervision Authority for Bonaire, Sint Eustatius and SabaProfessor of Monetary and Banking Issues at VU University AmsterdamMember of the Audit Committee of the Dutch Ministry of Foreign Affairs

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1) Member of the Audit and Risk Committee2) Member of the Remuneration and Appointment Committee

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Name Else F. Bos (1959)1)

Year of first appointment 2008Term of office ends in 2016Principal position Chief Executive Officer of PGGM N.V. (effective 6 March 2013) Relevant other positions Member of the Supervisory Committee of Isala Klinieken

Supervisory Director of Stichting Waarborgfonds Eigen WoningenMember of the Board of Sustainalytics B.V.Member of the Board of United Nations Principles on ResponsibleInvestment (UN-PRI)

Name Peter C.G. Glas (1956)Year of first appointment 2011Term of office ends in 2015Principal position Water Reeve of De Dommel Water BoardRelevant other positions Chair of the Association of Regional Water Authorities

Board member of the Noord-Brabant Association of Water BoardsMember of the Recommendations Committee of the Association for Water Management and Land Use

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1) Member of the Audit and Risk Committee

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Name Victor I. Goedvolk (1944)3)

Year of first appointment 2004Term of office ends in 2015Last position held Board member of Fortis ASR N.V.Relevant other positions Supervisory Director of UCN N.V.

Member of the Board of Urenco Ltd.Supervisory Director of VVA Groep B.V. Chairman of the Supervisory Board of Loyalis N.V. Member of the Supervisory Committee of Waarborgfonds voor de Zorgsector

Name Dr. Sjaak J.M. Jansen (1954)Year of first appointment 2010Term of office ends in 2014Principal position Member of the Advisory Division of the Council of State Relevant other positions Deputy justice in the Tax Division of the Leeuwarden Court of Appeal

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2) Member of the Remuneration and Appointment Committee3) Chairman of the Audit and Risk Committee

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Name Maurice B.G.M. Oostendorp (1956)Year of first appointment 2012 (Extraordinary General Meeting of Shareholders)Term of office ends in 2017Principal position Member of the Executive Board of SNS Reaal (effective 1 February 2013)Relevant other positions Deputy Chairman of the Central Statistics Committee and member of the

Audit Committee of Statistics Netherlands Chairman of the Accountability Council of ABN AMRO Pensioenfonds Member of the Board of Stichting Bedrijfstakpensioenfonds Zorgverzekeraars (SBZ) Supervisory Director of Vektis

Name Albertine van Vliet-Kuiper (1951)Year of first appointment 2012 (Extraordinary General Meeting of Shareholders)Term of office ends in 2017Principal position Dyke Reeve of Velt en Vecht Water BoardRelevant other positions Member of the Aedes Code Committee

Secretary to the Board of Nationaal Restauratie Fonds Chair of the Supervisory Committee of Gooise Scholen Federatie Chair of the Supervisory Committee of Centrum Maliebaan

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Name Berend-Jan M. baron van Voorst tot Voorst (1944)4)

Year of first appointment 2009Term of office ends in 2013Last position held Queen’s Commissioner of the Province of LimburgRelevant other positions Supervisory Director of NIBA Beheer N.V.

Supervisory Director of Huco Handel- en Scheepvaartmaatschappij N.V.

4) Chairman of the Remuneration and Appointment Committee

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The Management Team

Ron Walkier, ChairmanLidwin van VeldenFrenk van der VlietMarian Bauman, Human Resources ManagementPeter Bax, Back OfficeArd van Eijl, Risk ManagementReinout Hoogendoorn, Internal AuditLeon Knoester, Public FinanceMarc-Jan Kroes, Finance & ControlTom Meuwissen, Treasury Heleen van Rooijen, Legal AffairsMichel Vaessen, ICT

Legal AffairsHeleen van Rooijen Jolette KramerKarin Petrici

TreasuryTom MeuwissenErica DelisBouke den Hoed

Public FinanceLeon KnoesterWikash GokoelMichael Sanders

Internal AuditReinout Hoogendoorn René Gode Alex Holten

Risk ManagementArd van EijlOscar BunnikRemon Versteeg

Management SupportJoyce van DamVivien Piket

Human Resources Management Marian BaumanSietske Verduin Back Office Peter Bax Milène van den AkkerMarco BakkerMieke van den BergSander BosmanJan-Willem KievithAngelique van KoertNel KuiperSaskia NederpelSandy RijsLia Verheul

Finance & ControlMarc-Jan KroesDiana BuckBas van EenigeAnia de JongFrancois MontagneBryan van der Zalm ICTMichel VaessenAdri GeersRob HeemskerkMarco van der MeerRoy Storm

Security Management & FacilitiesBart Kuipers Janny MahmoudJoke van OostromDennis Verdoes

Employees

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The Supervisory Board and Managing Board are pleased to present the 2012 Annual Report of NWB Bank. It contains the financial statements of the Bank, signed by the Managing and Supervisory Boards and audited and approved by KPMG Accountants N.V.

The Supervisory and Managing Boards propose that you adopt the 2012 financial statements as submitted. The Supervisory and Managing Boards furthermore propose that you discharge the members of the Managing Board for their conduct of affairs and the members of the Supervisory Board for their oversight exercised in the past financial year.

Chairman’s foreword

Set up after the 1953 North Sea flood, NWB Bank has evolved into a key financier of and for the Dutch public sector. The Bank has developed a culture of prudence and expertise, while keeping an eye on all of its stakeholders and lending top priority to its customers. Over the past few years, the Bank has faced major challenges. While some of those challenges are related to events that occurred prior to the credit crisis, such as treasury banking, many stem from the crisis itself. Moreover, the Bank is now facing measures that, although not specifically addressed at it, may have consequences for its future. A prime example is the leverage ratio, which will force NWB Bank to substantially increase its solvency. This will have far-reaching consequences for the Bank’s business model and for its stakeholders, such as its shareholders. NWB Bank had to decide to refrain from distributing dividends as early as in 2011 in connection with the required increase of the leverage ratio. The Supervisory Board spends a great deal of time on successfully addressing such strategic challenges in tandem with the Managing

Board, besides exercising oversight on the Bank’s operations, which demands close attention in an increasingly complex banking landscape.

Dolf van den Brink

Oversight

Report on the Supervisory Board’s oversight dutiesThe Supervisory Board met on eight occasions in the year under review, seven of which were regular meetings, while one was a “strategy day”. Items on the agenda for the meetings were the developments in the financial markets, developments in the balance sheet and the financial results, lending, the Bank’s funding, the external auditor’s report, strategic policy, risk management, the provisional budget for 2013, the General Meeting of Shareholders, the annual report and the half-year report, corporate governance, social policy and the reports of the Internal Audit Department (IAD), the Audit and Risk Committee, and the Remuneration and Appointment Committee.

Other topics addressed during the Board’s meetings were: Risk management: Modifications to the interest rate risk management instruments, ICAAP 2012, credit risk management policy and stress scenarios.Amendment to the Articles of Association: Proposal to amend the Articles of AssociationAppointments and reappointments of Supervisory Directors: Introduction of the suitability check effective 1 July 2012, Else Bos’s reappointment (2012) and Berend-Jan baron van Voorst tot Voorst’s reappointment (2013), preparations for the Extraordinary General Meeting of Shareholders

Report of the Supervisory Board to the Shareholders

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held to appoint Maurice Oostendorp and Albertine van Vliet-Kuiper as Supervisory DirectorsRemuneration and policy governing remuneration of the members of the Managing and Supervisory Boards: Long-term variable remuneration for 2008 of the Managing Directors, adoption of the variable remuneration for 2011 of the Managing Directors and of the performance contract for 2012, assessing the Bank’s remuneration policy against the Dutch Restrained Remuneration Policy (Financial Supervision Act) Regulation 2011 (Regeling beheerst beloningsbeleid Wft 2011), and remuneration of the Supervisory Directors, including the policy change with respect to VAT imposed on supervisory director remuneration, effective 1 January 2013Compliance: It was established during the meeting that the 2011 Insider Regulation had been complied with by all insiders, i.e. Supervisory Directors, Managing Directors and employees.Funding and lending: The update of the 2012 Debt Issuance Program, the proposal to launch a US Commercial Paper programme and the adoption of an ALCO CharterTreasury/Public Finance: Approval of the authorisation schedules of the Treasury and Public Finance Departments and the granting of a power of attorney to the Head of the Public Finance Department HRM: The pension plan for employees and Managing Directors

The Managing Board provided the Supervisory Board with up-to-date information and, where necessary, consulted the Supervisory Board on the policy to be pursued. The Supervisory Board was able to properly carry out its role as an oversight body in the year under review and has expressed its confidence in the policy pursued.

Achievement of business targetsThe Managing Board’s Policy Memorandum is discussed each year in terms of achievement of NWB Bank’s targets. The policy targets for 2012 were assessed and those for 2013 adopted. Key issues for 2012 were the Bank’s strategy and financial position, ICAAP and ILAAP, commercial

targets, and organisation and governance. Related to the business targets is the annual assessment of the Managing Directors’ performance indicators, including long-term performance elements, as the adoption of the variable remuneration is based on them. It has become clear that the targets for 2012 were achieved to the Board’s satisfaction. For further details of the variable remuneration granted, please refer to the Remuneration Report on page 52.

Strategy and risksThe Managing and Supervisory Directors held a “strategy day” in 2012. The Managing Directors held presentations, in which they expounded their views of NWB Bank’s strategy. Among other topics, product development was addressed, as well as the approach taken to risks and potential measures aimed at further bolstering the Bank’s profitability and capital in the light of the Basel III requirements. The strategy day helped the Supervisory Board gain more insight into and become more closely involved in the Bank’s strategy. The Board intends to hold a strategy day with the Managing Board each year in order to keep the closest possible tab on the Bank’s strategy. The Audit and Risk Committee strictly oversees the Bank’s risks, and its Chairman submits its reports directly to the full Board. The work performed by the Audit and Risk Committee is reported later in this report.

Design and effectiveness of the Bank’s internal risk controlsThe design and effectiveness of the Bank’s internal risk controls were addressed in a meeting of the Audit and Risk Committee. In common with the Managing Board, the Supervisory Board is of the view that the Bank’s internal risk controls were effective. They provide reasonable assurance that NWB Bank’s financial reporting contains no material misstatements.

Financial reportingEach quarter, a financial report is discussed at length, first by the Audit and Risk Committee and subsequently by the full Board. Setting out

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how the Bank fares financially, the report focused specifically on the method for measuring derivative instruments in 2012.

Compliance with laws and regulationsThe Supervisory Board oversees NWB Bank’s compliance with laws and regulations based on the individual members’ expertise and experience and extensive information provided by the Bank’s relevant departments. The Bank has a compliance function in the Legal Affairs Department, which is designed to promote and oversee, or arrange for oversight of, compliance with laws and regulations and with internal procedures and codes of conduct. The IAD performs various compliance audits to establish whether the Bank complies with relevant laws and regulations and with its own rules and standards.

Relationship with shareholdersAt the request of the shareholders, NWB Bank hosted a meeting for shareholders on 18 October 2012. The Chairman of the Managing Board held a presentation on such topics as the half-year figures, the Bank’s strategy and policy, its business model, Basel III and potential avenues available for shoring up equity and strengthening shareholdership. The Managing Board reports to the Supervisory Board about its contacts with shareholders.

The Supervisory Board maintains contacts with the shareholders predominantly during the shareholders’ meetings, which are held in April of each year. In addition, an Extraordinary General Meeting of Shareholders was held in November 2012, in which two new Supervisory Directors were appointed.

Relevant CSR aspectsThe Supervisory Board sees to it that NWB Bank appropriately puts its CSR policy into practice. To NWB Bank, CSR means enriching its objectives as a public-sector bank with a proactive approach, in order to make a positive impact in social, environmental and economic terms. This is what it wishes to be held accountable for and enter

into a dialogue with its stakeholders about. Its CSR aspirations are apparent from the Bank’s core duties, business operations, HRM and commitment to society. Each year, the Bank’s external auditor reviews the CSR chapter of the Annual Report, expressing an opinion in its assurance report, which forms part of the Annual Report.

Reports of the Committees

Audit and Risk CommitteeIn the year under review, the Audit and Risk Committee met seven times with the Managing Board, the internal auditor and the external auditor being present. A separate meeting was held with the internal auditor and one with the external auditor.

Topics that are discussed at least once a year are the trends seen in the money and capital markets, the financial results, the half-year and annual figures, the dividend and reserve policy, funding, transfer pricing, the budget, various stress scenarios, risk management – including interest rate risk policy – and the reports of the external and internal auditors. In 2012, the Committee specifically discussed the completion of the second phase of the accounting change project, euro break-up scenarios, modification of the measurement system for swaps, the data warehouse project, the adjustment and assessment of the interest rate risk management instruments, ICAAP 2012, the Basel III migration plan, the Dutch Central Bank’s investigation into the internal audit function, the proposal to launch a US Commercial Paper programme in 2013 and product development.

The external auditor’s report and management letter for the 2011 financial year were discussed in detail in a meeting of the Audit and Risk Committee. Besides discussing an analysis of the financial headline figures and the financial statements audit, the Committee also considered the findings concerning the financial statements

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preparation process, focusing specifically on interest rate risk, liquidity risk and credit risk. In addition, the external auditor’s findings on the internal control of operational risks and the Bank’s accounting organisation were discussed. Lastly, the Audit and Risk Committee discussed the impact which trends in laws and regulations, notably Basel III, have on the Bank.

Remuneration and Appointment CommitteeIn the year under the review, the Remuneration and Appointment Committee met five times. The topics it discussed included the proposal to change the remuneration of the Supervisory Directors, the long-term variable remuneration for 2008 of the Managing Directors, the variable remuneration for 2011 of the Managing Directors, the draft performance contracts for 2012 and 2013, the reappointment of Else Bos, the introduction of the suitability check for supervisory directors effective 1 July 2012, completion of the procedure required under the Dutch Restrained Remuneration Policy (Financial Supervision Act) Regulation 2011, the supervisory director quality requirement as it stands prior to the amendment of Article 17, paragraph 6, of the Articles of Association, the Dutch Central Bank’s consent procedure for the intended appointments of Maurice Oostendorp and Albertine van Vliet-Kuiper, the rotation schedule with effect from 2013, the reappointment of Berend-Jan baron van Voorst tot Voorst in 2013, lifelong learning in 2012 and the induction programme for new Supervisory Directors, the remuneration report, the Dutch Management and Supervision (Public Companies) Act (Wet bestuur en toezicht), which took effect on 1 July 2012 and, among other provisions, restricts the number of supervisory board memberships an individual may hold, and preparations for the Extraordinary General Meeting of Shareholders of 22 November 2012.

Besides the three regular meetings, two additional meetings were held; one to discuss the report of an external firm on the remuneration of the Supervisory Directors and one about the Bank’s

self-assessment under the Dutch Restrained Remuneration Policy (Financial Supervision Act) Regulation 2011. The Committee discussed the Dutch Central Bank’s findings concerning the self-assessment NWB Bank had completed, following a review of the Bank’s assessment against the Regulation. In addition, the Committee devoted specific attention to the intended appointment of two Supervisory Directors. The introduction of the suitability check for supervisory directors has increased the scope of the Dutch Central Bank’s assessment and has made its consent procedure more time-consuming.

Remuneration policyFor further details, please refer to the Remuneration Report on page 52.

Internal organisation

Composition of the Managing Board and Supervisory Board

Composition of the Managing BoardDetails of the members of the Managing Board can be found on pages 4 and 5. The male/female ratio on the Managing Board is 67/33, thereby meeting the target figure for diversity under the Dutch Management and Supervision (Public Companies) Act.

Composition of the Supervisory Board - detailsDetails of the members of the Supervisory Board can be found on pages 6 and following.

Composition of the Supervisory Board - profiles, competencies and diversityTo ensure the proper composition of the Supervisory Board of NWB Bank at all times, its members are appointed taking account of the nature of the Bank’s operations and the desirable expertise and background of the Supervisory Directors. They must be aware of, and capable of assessing, national and international social, economic, political and other developments that are relevant to NWB Bank.

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In compliance with the Dutch Management and Supervision (Public Companies) Act, NWB Bank seeks to have at least 30% male and at least 30% female Supervisory Board membership. In spite of recruitment efforts specifically aimed at recruiting a female supervisory director, the target figure for 30% female membership was not achieved when Maurice Oostendorp was appointed Supervisory Director. At the same time, Albertine van Vliet-Kuiper was appointed Supervisory Director, which, together with incumbent Supervisory Director Else Bos, brings the female membership percentage to 22%.

An overall profile has been drawn up for the Supervisory Board, which provides guidance on the composition of the Supervisory Board and the appointment of its members. In addition, an individual profile is drawn up for each vacancy that arises on the Supervisory Board, which is in line with the overall profile and which candidates must meet. The Supervisory Board aims for a diverse and balanced composition. The current composition of the Supervisory Board is considered balanced, diverse and representing expertise, while the objective remains unchanged to increase the female membership percentage to 30%.

The Dutch Policy Rule on Expertise 2011 (Beleidsregel Deskundigheid 2011) has applied to supervisory directors since 1 July 2012. This means the Dutch Central Bank checks supervisory directors to be newly appointed or reappointed for their suitability. Aspects considered are the specific role of the supervisory director, the company’s situation and the board on which the supervisory director will fulfil her or his role. Of the Board’s nine members, five – Dolf van den Brink, Age Bakker, Else Bos, Victor Goedvolk and Maurice Oostendorp – possess in-depth financial expertise, a background in banking, knowledge of international money and capital markets and familiarity with risk management. The remaining four – Peter Glas, Sjaak Jansen, Albertine van Vliet-Kuiper and Berend-Jan baron van Voorst tot Voorst – have ample experience in public

administration and government policy and have networks in government circles. The members’ diverse backgrounds also guarantee adequate knowledge of and affinity with corporate social responsibility.

Article 17, paragraph 6, of NWB Bank’s Articles of Association and Article 2.5 of the overall profile for the Supervisory Board provide that at least two of the members of the Board must also be a member of the General Assembly of the Association of Regional Water Authorities at the time of their first appointment. With Peter Glas qualifying as such, this quality requirement was met when Albertine van Vliet-Kuiper was appointed to the Board in late 2012. During the General Meeting of Shareholders to be held on 25 April 2013, it will be proposed to the shareholders that the Bank’s Articles of Association be amended so as to change this number to at least one member of the Board. In view of the foregoing, the composition of the Supervisory Board ensures that it possesses the combined knowledge and experience required.

Composition of the committees

Audit and Risk CommitteeThe members of the Audit and Risk Committee are Victor Goedvolk (Chairman), Age Bakker, Else Bos and Dolf van den Brink. All four members possess in-depth financial expertise, a background in banking, knowledge of international money and capital markets and familiarity with risk management.

Remuneration and Appointment CommitteeThe members of the Remuneration and Appointment Committee are Berend-Jan baron van Voorst tot Voorst (Chairman), Sjaak Jansen and Dolf van den Brink. As the Supervisory Board’s Deputy Chairman, Peter Glas has a standing invitation to attend the Committee meetings. All members have adequate knowledge of and experience with remuneration policy and appointments, gained from their different backgrounds.

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Oversight quality assurance

Self-assessmentIn February 2012, the Supervisory Board assessed its own performance under the guidance of an external consultancy firm. In preparation for the assessment, the consultant held personal interviews with all of the Board’s members, as well as the Managing Directors and the Corporate Secretary. Several questions were addressed, such as: How does the Supervisory Board operate as a group, does it fulfil all of its roles and to what extent does it do so? The culture on the Board and its collaboration with the Managing Board were also considered. The consultancy firm’s remit was to benchmark the Board’s performance against views about governance generally prevailing in the banking sector and society at large. Following the assessment, a report was prepared and discussed. It contains recommendations in such areas as how to organise the meetings, lifelong learning and the Board’s advisory role. The consultancy firm concluded that the Board was highly involved in the organisation and that its members acted professionally in fulfilling their roles. The Board will again evaluate its own performance, both as a board and as individuals, in the first half of 2013.

EducationWithin the context of the lifelong learning programmes of the Managing and Supervisory Directors, external consultants and the Bank’s staff members again held various presentations in 2012. Topics included the new accounting methodology, asset & liability management at banks in general and at NWB Bank specifically, the business model in banking, trends in banking and NWB Bank’s pension plan. Besides group presentations, individual Supervisory Directors attend external courses at their own request, depending on their expertise and experience. The effectiveness of these lifelong learning initiatives is assessed annually.

Following their appointment, new members of the Supervisory Board must follow an in-

house induction programme addressing general financial, social and legal matters, financial reporting, the specific features of NWB Bank and its business operations, and the responsibilities of a supervisory director.

IndependenceThe composition of the Supervisory Board is such that its members are able to operate critically and independently of one another and of the Managing Board. The overall profile for the composition of and appointment to the Supervisory Board sets requirements in this respect. Besides satisfying the criteria set in the overall profile, newly appointed Board members must satisfy specific requirements listed in an individual profile. The Supervisory Board furthers its independent operations by ensuring the diversity of its composition in terms of such factors as age, gender, expertise and social background. All but one members of the Supervisory Board are independent within the meaning of the Dutch Corporate Governance Code. Albertine van Vliet-Kuiper is Dyke Reeve of Velt en Vecht Water Board, which holds 11% of the shares (with 8% carrying a vote) in NWB Bank’s capital. Therefore, she is not formally independent within the meaning of best practice provision III.2.2.e of the Dutch Corporate Governance Code and the overall profile. She is the only Board member who is not independent, which means that the requirements of the Dutch Corporate Governance Code and the overall profile, which permit that one Board member is not independent, are still met.

Conflicts of interestThe Supervisory Directors have informed NWB Bank of all other relevant positions they hold. There were no conflicts of interest in the year under review.

Information from external expertsThe Supervisory Board has the option of making inquiries from external experts if warranted by the fulfilment of its duties. For instance, if and when needed, the Board requests information from NWB Bank’s external auditor. In addition, the

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services of an external consultancy firm were retained to supervise the Board’s self-assessment. In 2013, the Chairman of the Supervisory Board and the Chairman of the Remuneration and Appointment Committee will attend a meeting of the Employee Representative Body, which was established with effect from 2013.

Internal auditorThe Bank’s internal auditor attends all meetings of the Audit and Risk Committee. Once a year, a separate meeting is held with the members of the Audit and Risk Committee only to discuss such items as the mutual relationships, as well as findings and any bottlenecks identified in the past year. The IAD presents its findings for the year under review in quarterly reports, which are discussed during Audit and Risk Committee meetings. The IAD also presents its annual audit plan. The Supervisory Board is informed about the plan by the Audit and Risk Committee and monitors follow-up on the IAD’s recommendations.

External auditorThe Bank’s external auditor also attends all meetings of the Audit and Risk Committee. In March 2012, the members of the Audit and Risk Committee met separately with the external auditor to discuss areas for attention in detail, as well as mutual relationships.

The external auditor is appointed by the General Meeting of Shareholders. The Supervisory Board appointed current external auditor KPMG in 2006, having been authorised by the Meeting to do so.

Internal affairs

Supervisory Director standing down and Managing Director and Supervisory Directors being reappointedEdu baron van Tuyll van Serooskerken stood down at his own request for health reasons during the General Meeting of Shareholders held on 26 April 2012. While respecting his decision, the Board regrets his premature retirement. Edu van Tuyll was a member of the Bank’s Supervisory Board for

11 years. The Board wishes to express its gratitude to Edu van Tuyll for the constructive manner in which he kept the Managing Directors and his fellow Board members alert to various issues at meetings and for the important role he played in the various debates about the Bank.

Else Bos stood down by rotation during the same meeting. The shareholders reappointed her in accordance with the nomination of the Supervisory Board. Likewise, Ron Walkier, Chairman of the Managing Board, was reappointed in accordance with the nomination of the Supervisory Board. Both Else Bos and Ron Walkier were reappointed for a term of four years.

Extraordinary General Meeting of ShareholdersIn 2012, two new Supervisory Directors were appointed in an Extraordinary General Meeting of Shareholders; they are Albertine van Vliet-Kuiper and Maurice Oostendorp. Albertine van Vliet-Kuiper replaces Edu van Tuyll van Serooskerken, who stood down on 26 April 2012. Edu van Tuyll was one of the two Supervisory Directors who were also members of the General Assembly of the Association of Regional Water Authorities at the time of their first appointment, as provided for in the quality requirement laid down in Article 17, paragraph 6, of the Bank’s Articles of Association. This was a factor in the Supervisory Board’s decision to nominate Albertine van Vliet-Kuiper for appointment as a Supervisory Director of NWB Bank for a term of four years. Maurice Oostendorp was appointed Supervisory Director of NWB Bank for a period of four years to further shore up the Board’s financial expertise. Since his appointment, the Board has numbered nine.

Sadly, we were informed in 2012 of the death of a former Supervisory Director. Roel de Wit passed away on 3 June 2012. He was a member of the Bank’s Supervisory Board from 1990 through 1998. We are grateful to him for the experience in public administration, vision and expertise he brought to the Bank during all those years.

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AttendanceThe attendance rate of the Board as a whole was 94%. Compliance with Corporate Governance Principles

The Supervisory Board and the Managing Board bear responsibility for an appropriate corporate governance structure, including compliance with the Dutch Banking Code. The table presented on page 112 illustrates how the Code’s principles have been embedded in the Bank’s operations. The other corporate governance subjects are discussed in the Corporate governance chapter on page 30.

A word of thanksIn 2012, the Bank’s Managing Board and employees once more showed the greatest possible loyalty and a great deal of commitment, for which the Supervisory Board wishes to express its gratitude and appreciation. The Bank’s Managing Board and employees have demonstrated an ability to consistently address the many challenges banks face nowadays in an appropriate manner.

The Hague, the Netherlands7 March 2013

The Supervisory BoardDolf G.C. van den BrinkAge F.P. BakkerElse F. BosPeter C.G. GlasVictor I. GoedvolkSjaak J.M. JansenMaurice B.G.M. OostendorpAlbertine van Vliet-KuiperBerend-Jan M. baron van Voorst tot VoorstF

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General

The first half of 2012 was largely characterised by the European debt crisis and tensions in the financial markets, which flared up high at times. In the second half, calm returned to the markets as confidence in the euro picked up.

The year started with the financial markets in a state of relative calm and optimism, driven by two massive interbank market interventions undertaken by the European Central Bank (“ECB”), known as the Long Term Refinancing Operations (“LTROs”). The three-year operations, worth over a trillion euro and subject to an initial interest rate of 1%, were undertaken in response to wholesale capital flight from the European periphery in November 2011, which increasingly disrupted demand and supply in the European financial markets. As the LTROs proved effective, mainly banks in the periphery invested them in their own countries’ government bonds, causing Italian and Spanish 10-year rates to drop from over 7% to approximately 5.5%.

After the ECB had bought time by intervening in such an unconventional but successful manner, tensions mounted again in April as political leaders demonstrated a lack of commitment and resolve to keep Greece in the eurozone. Again, massive capital flight from the weaker southern countries to the stronger northern AAA-rated countries was seen, fuelled in particular by the fear of contamination among the peripheral countries and exacerbated by rapidly growing distress among Spanish banks. Capital market rates in Spain rose quickly, to land slightly above 7%. Things changed for the better in June, partly because European Council President Herman Van Rompuy presented an all-encompassing recovery plan for the eurozone, a political signal that brought much less confidence to the financial markets, however, than ECB President Mario

Draghi’s “whatever it takes” promise in July. The latter proved sufficient to restore calm and bring down the critically high interest rate spreads between the eurozone countries to some extent.

Despite the poor economic outlook, the sentiment on Europe’s stock markets improved in the second half of 2012, with confidence in the euro returning. The third quarter saw slight economic contraction in many euro countries. In the eurozone as a whole, the gross national product even fell to a limited extent for the whole of 2012. Economic prospects for 2013 are mediocre. Uncertainty remains as many member states find themselves paralysed by excessive debt, unduly low economic growth, vulnerable banks and hosts of businesses holding overstated assets that jeopardise the financial stability and effectiveness of credit markets. In many sectors of the economy, asset write-downs, balance sheet rationalisations and cash flow pressures put a brake on investments and consumer spending, with historically low interest rates consequently failing to provide the usual boost to economic recovery. A pick-up in growth is sorely needed, however, to reduce debt and bolster capital positions. Key challenges are such issues as increasing unemployment rates, deadlock property markets and pressure on disposable incomes.

The economy has been weak on average ever since the credit crisis broke out in 2007, and prospects for the years ahead are far from rosy. In the European arena, politicians and authorities made their positive intentions with respect to the euro clear in 2012. The EU agreement reached in December about the formation of a banking union, a recovery and resolution mechanism and a European deposit guarantee system aims to lend a more robust structure and improved governance to further integration and collaboration in the financial system. This could lead to a stark reduction in the nervous wandering of capital

Report of the Managing Board

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flows and the associated volatility in market prices. Expectations are that policymakers will keep the momentum and commit themselves more explicitly to further European integration. The challenge they will face is how to prevent sensible austerity measures from obstructing the required selective spending incentives that should boost economic growth and confidence, given that excessive government spending cuts carry the danger of conjuring up a scenario of a permanently deflationary economy, possibly dealing further blows to the eurozone’s financial stability.

NWB Bank in 2012In 2012, NWB Bank energetically continued fulfilling its core duty of providing the Dutch public sector with long-term funding. As expected, the demand for loans is subdued in the public sector, and the festering debt crisis is taking its toll. EU member states are forced to take action, confronted with budget and debt restrictions. The Bank’s total lending amounted to €5.7 billion in 2012, edging up from the €5.1 billion achieved in 2011. Lending in 2012 included the provision of long-term loans, which had been converted from derivatives, to several housing corporations to relieve their substantial liquidity requirements. with the drop in investments particularly weighing down the housing corporations’ financing requirements, thereby impacting the Bank’s lending portfolio to a relatively large extent. NWB Bank maintained its large market shares in the public sector.

The Bank’s net profit fell from €75 million in 2011 to €40 million in the year under review. The sharp 47% decline was caused in part by the bank tax introduced in 2012, which, at €12 million, had a relatively large impact on net profit. The greatest impact on profit, however, was caused by the results from financial transactions, which swung into the red to reach a €24 million loss (2011: a €38 million gain), €6 million of which was realised from the sale of loans and associated swaps, while €18 million was unrealised. The results from financial transactions chiefly comprise unrealised changes in the value of the

Bank’s portfolios caused by changes in interest and exchange rates. In addition, methods for determining the fair value of financial instruments were fine-tuned, which has had noticeable effects on the results over the past few years. NWB Bank has applied hedge accounting to a large portion of its financial positions since 2011 in order to eliminate unrealised fair value fluctuations to the extent possible from the profit figures it presents. This gives a more faithful picture of the Bank’s economic position, given that, during the terms of the relevant portfolios, most, if not all, unrealised results from financial transactions are reversed into the Bank’s future profits. The large volume of the portfolios, among other factors, means that fluctuations in the results from financial transactions will also be unavoidable in the future.

The “net interest income” profit component (i.e. the balance of interest income and interest expense) went up to €107 million in 2012 (2011: €75 million). While part of the 43% increase can be explained by the fact that the figure for 2011 was lower than usual, a more significant part was caused by the highly favourable terms on which the Bank has been able to raise funding under its Euro Commercial Paper programme. Investors led their capital to safe havens, including the Bank’s commercial paper, in the first six months in particular, due to turmoil in the euro zone. Its AAA ratings allowed NWB Bank to capitalise on this trend to the fullest possible extent. While interest margins on long-term lending improved, contributing to interest income, loans that had been obtained subject to low credit spreads before Lehman’s collapse had to be refinanced at a higher cost, thereby weighing down interest income. This will continue to put some pressure on profits in 2013.

In terms of funding raised in the international capital markets, NWB Bank experienced a record year in 2012, securing €12 billion in long-term funding at attractive interest rate spreads, against €7.7 billion in 2011. The increase was caused mainly by the refinancing of redemptions and the partial consolidation of short-term debts in the balance sheet. The trust the Bank enjoys among

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international investors enables it to provide funds to the Dutch public sector at the lowest possible cost, a strategy that is at the core of its operations. A testimony to its high creditworthiness and solidity, the Bank has the same AAA ratings as its Dutch public-sector customers. In terms of ratings, the Bank is effectively assessed the same as the Dutch government. Standard & Poor’s (“S&P”), in its analysis, justified this by referring to NWB Bank’s critical role and integral link with the government. It is reassuring to know that the negative outlook added to the Bank’s ratings in February 2012, following that of the State of the Netherlands, did not have any noticeable effect on the Bank’s ability to raise funding in the international money and capital markets, as was evidenced by the large volumes of the loans issued at favourable spreads in 2012. In November 2012, S&P lowered its rating of the Dutch banking sector (Bank Industry Credit Rating Assessment). While NWB Bank’s rating remained unchanged, S&P placed the Bank on “CreditWatch negative”, but cancelled it a month later, based on a reassessment, confirming NWB Bank’s AAA ratings, having revised its opinion on the Bank’s role in relation to the Dutch government from very important to critical.

Operating expenses slid by €1 million to €14 million, with a higher employee benefits expense being outweighed by lower fees paid for external advice with respect to ICT and funds transfer services. Further investments were made in 2012 to set up a data warehouse aimed at making the Bank’s processes more robust, enhance management information quality and embed the hedge accounting system throughout the organisation.

Due principally to plummeting interest rates, total assets showed a sharp increase, of over €8 billion, to more than €76 billion, with only a small portion (€2.6 billion) resulting from an increase in lending. The increase in total assets was predominantly caused by higher swap-related collateral obligations and market value adjustments in the portfolios made in connection with further

drops in interest rates. Total assets will return to lower levels, on balance, if rates rebound. The volatility in total assets makes it difficult to closely monitor balance sheet ratios. The main focus is on the leverage ratio (i.e. equity expressed as a percentage of total assets), given that the Basel requirement of 3% must be met effective 2018. The volatility would warrant an additional capital buffer on top of the required 3% in order to prevent any unintended failure to achieve the target ratio. The Bank’s equity, which almost exclusively comprises Tier-1 capital, went up by €38 million to €1,226 million at 31 December 2012 (31 December 2011: €1,188). Equity presented in the balance sheet represents 1.6% of total assets (31 December 2011: 1.8%). If equity were expressed as a percentage of the Bank’s €48 billion total lending portfolio only, this capital ratio would come to 2.5%. De BIS Solvency ratio went up to 111% in 2012, against 90% in the year before, mainly because the Bank further mitigated the risk run on swap counterparties by entering into collateral support agreements with a number of swap counterparties with which it had not already done so. With 8% being the prescribed minimum for banks, NWB Bank’s high BIS Solvency ratio serves as proof of its creditworthiness. Among other factors, this ratio makes NWB Bank one of the ten safest banks in the world. Far from being an end in itself, the high BIS Solvency ratio results from the Bank’s almost exclusive focus on lending in the Dutch public sector, which is effectively risk-free.

Addition to the reserve; dividendThe Basel III capital requirements made the Bank decide last year that net profit would be added to the reserves each year, with effect from the 2011 financial year. This policy means that no dividends will be distributed as long as the Bank does not meet the 3% leverage ratio requirement. This requirement means that the Bank’s equity must almost be doubled until 2018. Such growth in equity must be achieved in part by retaining profits, as well as by issuing other capital instruments, such as hybrid debt instruments, which will cause a significant long-term increase in its cost of funding. The Bank is still engaged in dialogues

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with the authorities – both the Dutch government and the European Commission – concerning the applicability of the leverage ratio. We have expressed our serious concerns and objections with respect to the ratio on numerous occasions over the past few years. NWB Bank continues to call for an adjusted capital requirement that does justice to its financial position and that of other public-sector banks. Meanwhile, it is gratifying to see that the Bank’s current capitalisation is consistent with its AAA ratings and that it enjoys the trust of its investors. The Managing Board believes that the current size of NWB Bank’s equity is adequate, given the Bank’s low risk profile and the specific nature of its operations.

Against this backdrop, the Managing Board has decided, following the Supervisory Board’s approval, to add the €40 million net profit for 2012 to the general reserves in full. Accordingly, no profits will be at the disposal of the General Meeting of Shareholders to distribute as dividends for the 2012 financial year.

Outlook for 2013Although the financial markets are currently in a state of relative calm and uncertainties on the euro’s continued existence have eased off, the danger of renewed turmoil remains in 2013. In an economy that shows virtually no growth, many fundamental issues must be addressed. On a more general note, macroeconomic and monetary developments remain worrying, in a world that is seeing rapid change in many areas. Access to financial markets and availability of finance are crucial to NWB Bank’s operations. Within that context, major fluctuations in interest and exchange rates may affect the Bank’s lending volumes and profit. In the Netherlands, pressure on investment levels among local authorities is anticipated, even though measures under the Dutch Sustainability of Public Finances Act (Wet houdbaarheid overheidsfinanciën) have seen some relaxation. Likewise, the outlook for 2013 is bleak for housing corporations, given the overall slump in the housing market and the range of government measures affecting the sector.

Given the foregoing, making a reliable forecast with respect to net profits for 2013 is a difficult task. The same holds true for interest income in 2013, although the predominant assumption is that it will fall.

In the 2012 half-year report, the Bank expressed its intention to review its method for measuring the fair value of the outstanding swap portfolio in the second half of 2012, prompted by evolved best practices in the financial markets. It was noted that such revaluation of swaps may result in significant, potentially negative, unrealised changes in market value. Launched in 2012, the project encompasses adjustments in both swap valuations and hedge accounting models. Due to the project’s scope and complexity, the adjustments will take effect in 2013.

StrategyAs a bank of and for the Dutch public sector, NWB Bank has focused on long-term lending to that sector ever since it was incorporated in 1954. Its position as a bank whose shares are owned by Dutch public authorities only, enshrined in its Articles of Association, and the restriction of its lending operations to the public sector safeguard its robust profile as a Dutch public-sector bank. The Bank lends predominantly to water boards, municipal authorities, provincial authorities, and government-backed housing corporations and healthcare institutions. Housing corporations take up the largest share of the lending portfolio, at more than 60%, on account of their large long-term finance requirement. This makes NWB Bank a significant financier in this sector.

The Bank’s strategy is aimed at retaining solid creditworthiness ratings, similar to those of its public-sector shareholders and customers. The Bank’s current AAA ratings are the same as those of the Dutch government, which enables it to raise long-term funds in the international financial markets at low cost, operating from a central platform. On that basis, it seeks to maximise the availability of finance to its customers and offer interest rate benefits on their loans. NWB Bank

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fulfils its role as one of the major financial service providers in the Dutch public sector by leveraging its concept of a small, efficient, focused, expert and professional organisation.

NWB Bank will continue to focus on its role as a robust and efficient caterer to the combined finance needs of public-sector customers going forward. Sustainability and relevance to society are key spearheads in that strategy. Corporate social responsibility, a strong financial position and efficient, transparent business operations are the cornerstones of the Bank’s efforts to keep enhancing its contribution to society. Within this context, in the years to come, it will respond to the increasing need seen among its borrowers for long-term financing in a public-private partnership (PPP) model. Areas in which the government could achieve substantial efficiency gains and cost benefits in a PPP model include renewable energy and land and water-based infrastructure projects.

Developments in 2012

FundingTo fund its operations, NWB Bank uses a Commercial Paper (“CP”) programme and a Medium Term Note (“MTN”) programme to raise short-term and long-term funds, respectively, in the international financial markets. NWB Bank is able to raise funds from a large and diversified group of international investors on favourable terms thanks to the highest possible short-term (P-1/A-1+) and long-term (Aaa/AAA) credit ratings from Moody’s and Standard & Poor’s. Although a Negative Outlook was added to the ratings in 2012 following that of the State of the Netherlands, this had no effect on the rates NWB Bank is charged. The ratings are a factor in investors perceiving NWB Bank as a safe haven in the current unsettled financial markets, which ensures its continued access to funding on favourable terms.

2012 was another eventful year for the capital markets – at times, they no longer seemed to see the danger of a eurozone break-up as unreal. The

spreads charged to southern countries were highly volatile, requiring a number of drastic measures in support of various countries. In the end, in the second half of the year, ECB President Mario Draghi succeeded in restoring market confidence in the ECB’s power, means and intention to keep the euro on its feet and lend support to the countries that need it, after which the negative sentiment took a slightly positive turn. This was reflected in the market, with credit spreads charged on funding narrowing over the year.

NWB Bank raised long-term funding totalling €12.0 billion in 2012 (2011: €7.7 billion). Maturities averaged 8.2 years, up from 5.8 years in 2011. Of the €12.0 billion, 60% was raised in euros, 15% in British pounds and 13% in US dollars, with the remainder raised in Norwegian kroner, Swedish kronor, Japanese yens, Swiss francs, Australian dollars and New Zealand dollars. In 2012, NWB Bank issued four benchmark loans under its MTN programme. Three were in euros, with five, seven and ten-year maturities, and one in US dollars, which matures in five years.

Long-term funding broken downby currency, 2012

EUR 60%

GBP 15%

USD 13%

Other 12%

€U$

£

Remarkably, at 13%, the US dollar’s share in total funding was relatively small in 2012, compared with earlier years. This can be explained by the Bank’s need for longer-maturity funding, whereas US dollar funding typically has shorter maturities. The US dollar’s share is expected to rebound in 2013.

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At 3%, the Swiss franc’s share in total funding was very low for the second consecutive year. This was a consequence of the Swiss Central Bank’s foreign exchange policy, which made issuing debt instruments in Swiss francs and converting them into euros less attractive.

In 2012, €1 billion in loans was raised under what are known as Namensschuldverschreibungen (NSVs), which are registered bonds under German law that do not come under the MTN programme. With maturities typically starting at 20 years, these debt instruments are purchased mainly by German-based insurance companies and pension funds. Their maturities are attractive to NWB Bank and they contribute to further diversification in funding.

To raise money market funding, NWB Bank uses its CP programme, under which it may issue debt instruments with maturities of up to one year. The average amount outstanding in commercial paper was some €8 billion in 2012, with maturities averaging four months. Of this amount, 66% was issued in US dollars, 16% in British pounds, 5% in euros and 13% in other currencies. It is especially in its commercial paper issues that NWB Bank’s status as a safe haven pays off. From May 2012 onwards, the interest rate NWB Bank paid for its foreign currency denominated commercial paper – after conversion into euros – was even negative.

Commercial paper broken downby sector, 2012

USD 66%

GBP 16%

EUR 5%

Other 13%

U$

€£

LendingIn the year under review, NWB Bank further demonstrated its ability to act as a financier of the Dutch public sector. While long-term loans are generally difficult to come by, NWB Bank always stood by to respond to every customer request for long-term loans. At €5.7 billion, the volume of long-term lending was €0.6 billion up on 2011. The bulk of these loans were granted to housing corporations that used guarantees provided by the Social Housing Guarantee Fund (Waarborgfonds Sociale Woningbouw, “WSW”). The Bank expanded its market share in this sector to 44% in 2012, while market shares for water boards, other local authorities and the healthcare sector were similar to those seen in previous years.

Over the past year, NWB Bank demonstrated its readiness to assume its role in society, coming to the aid of customers in the housing sector by providing them with bespoke finance arrangements after problems with derivatives portfolios had arisen. In the past, these customers had entered into swap agreements with other banks, mostly to hedge the interest rate risk on long maturities and, in isolated cases, for speculative reasons. They had also entered into collateral agreements with those banks to mitigate counterparty risks. The interest rates at which such swaps were closed in the past, combined with plummeting long-term rates, meant customers were obliged to deposit specific amounts in cash as collateral. Such obligations may be significant, given that remaining maturities are mostly long. With no WSW-guaranteed finance available for these cash obligations, the need for unguaranteed finance arose. That type of finance is substantially more costly, however, than guaranteed finance. Moreover, availability is limited and banks impose restrictions on the use of the funds they provide, which has resulted in liquidity issues for some customers. The fact that a scenario of capital market rates falling even further must be taken into account from risk management and regulatory perspectives exacerbated the problem. While NWB Bank does not itself provide swaps to customers, it took over swaps from them,

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providing guaranteed finance in exchange. This resulted in cash deposited as collateral returning to the customers and future liquidity risks inherent in the swaps being eliminated.

Transactions like these are part of NWB Bank’s regular lending. The Bank anticipates similar customer requests in 2013, the more so because some customers’ swap contracts contain a clause that enables counterparties to terminate them prematurely. Such premature termination means that a contract’s market value must be settled, which could have a significant liquidity impact on customers. Furthermore, housing corporations will need to eliminate from their existing swap contracts any clauses that may hinder regulatory oversight pursuant to the policy rules on derivatives for housing corporations, which took effect in the fourth quarter of 2012.

Lending broken down by sector, 2012

Housing

Water boards

Healthcare

Other

Municipal authorities and provincialauthorities

73%

9%

5%

1%

12%

To fund its operations, the public sector requires finance with long fixed-rate periods. In the year under review, NWB Bank has seen the demand for such finance grow, fuelled further by the low absolute capital market rates. Although such long fixed-rate periods carry higher credit spreads than shorter periods, as is the case in the international capital markets, customers deliberately choose to have longer terms – of up to 40 years – to mitigate their interest rate risks.

Water boardsTo finance their duties (maintaining dams and dikes, and ensuring proper water management), water boards impose their own taxes, while financing deficits by means of bank loans. Traditionally, NWB Bank has been the largest lender to water boards by far. NWB Bank provided long-term finance totalling €501 million in 2012 (2011: €689 million). A further drop in the yield curve in 2012 enabled the water boards to fix low interest rates for long maturities. In arranging their finance, water boards predominantly use straight-line repayment schedules. NWB Bank’s market share in total lending to this sector stood at 82%.

The Sustainability of Public Finances Act will enter into force on 1 January 2014. It will implement European agreements reached to bring down the Dutch budget deficit and it will affect the scope for investments among water boards and other local authorities and, hence, their future finance requirements.

Municipal and provincial authoritiesMost provincial authorities still enjoy robust liquidity positions. Accordingly, they hardly sought long-term finance in 2012. Many municipal authorities that needed finance used cash loans, in view of the low money market rates. The commercialisation of land remains an area of concern for many municipal authorities as cash inflows from the sale of land have dried up, caused in part by stagnation in the housing and office markets, with market values of land positions held but not yet sold falling. NWB Bank provided long-term loans to municipal authorities totalling €652 million in 2012.

Social housingNWB Bank provided finance to housing corporations totalling €3.9 billion in 2012 (2011: €3.7 billion). The increase in volumes was caused in part by the granting of loans combined with the taking over of derivatives from housing corporations as referred to above.

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Housing corporations face a multitude of trends and developments. First and foremost, the financial crisis has prompted banks to keep a lid on lending. This makes it difficult for housing corporations to sell homes they own, which restricts their cash inflows. In addition, continuing trends in the property market result in falling home values, while some housing corporations face specific regional challenges, such as economic contraction.

On top of these developments, the sector is currently considering how it is impacted by the coalition agreement and the rationalisation measures. The measures that form part of the coalition agreement are aimed, among other aspects, at the housing corporations’ sphere of operations, rental increases, maximum rent levels and the additional tax on housing corporations (verhuurderheffing). Effective 2017, that additional tax will result in a combined annual charge for housing corporations of €1.75 billion. Furthermore, the rationalisation measures will result in an increased maximum rate of the rationalisation tax (saneringsheffing), given the higher financial risks housing corporations run and the support commitments already made for 2012. These developments have prompted the WSW to announce, in November 2012, to freeze its guarantee volumes after 2013 on a borrower-by-borrower basis.

Since 1 October 2012, housing corporations’ treasury functions have been obliged to comply with policy rules on derivatives issued by the Dutch Ministry of the Interior and Kingdom Relations. Among other consequences, these rules result in closer oversight by the Central Fund for Social Housing (Centraal Fonds Volkshuisvesting), a restriction on the number of instruments allowed and limits on financial risks. Each quarter, housing corporations must submit statements of their positions, including market values under various interest rate scenarios. Expectations are that the new derivatives rules will push up demand for traditional fixed-interest loans.

Healthcare sectorNWB Bank provided finance to the healthcare sector totalling €312 million in 2012. While lending volumes fell compared with 2011, the Bank’s market share in guaranteed finance provided to the sector remained level. This can be explained by the lower demand for guaranteed finance from the healthcare sector.

The lower finance requirement is caused by several developments, one of which is the reform of the healthcare system, which incorporates strong cost-cutting incentives for healthcare institutions and healthcare insurers alike. In addition, higher financial risks mean that guarantees provided by the Healthcare Sector Guarantee Fund (Waarborgfonds voor de Zorgsector, “WFZ”) are becoming less self-evident.

Developments in government policy will be the largest factor in healthcare institutions’ future finance requirements. For instance, the increase in the insured’s mandatory uninsured risk and patients’ contributions towards healthcare are expected to weigh down on the demand for healthcare. This is because demand will slow once patients face higher costs. Meanwhile, other consequences, such as changes in exceptional medical expenses funding and financial pressures exercised by insurers, are more difficult to predict and will differ from institution to institution. It is safe to assume, however, that regulators and the WFZ are likely to scrutinise investment plans even more thoroughly for their feasibility in the future.

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Risk managementNWB Bank’s key risk categories are interest rate, liquidity and credit risks. The Bank pursues a prudent policy towards these risks. A description of the systems used to manage the various categories of risk is contained in the “Risk management” section of the financial statements.

In conformity with the Dutch Banking Code, the Bank’s risk appetite was updated under the Managing Board’s responsibility and approved by the Supervisory Board. This process documents the degree and areas of risk NWB Bank is prepared to accept in realising its strategic objectives. The risk appetite is reviewed annually and whenever significant events warrant such a review.

NWB Bank’s borrowers are mainly public authorities and government-backed institutions. In addition, the Bank holds a small securities portfolio comprising mainly bonds issued or guaranteed by the Dutch public authorities. Throughout 2012 and indeed throughout its history, NWB Bank has never suffered a loan loss.

In the year under review, all loan applications were handled in conformity with the Bank’s credit risk management policy, giving consideration to the large exposures in the portfolio of government-guaranteed loans to the housing corporations sector.

Transactions the Bank enters into with financial counterparties, such as interest rate and currency swaps and money market issues, give rise to counterparty risks. These are confined by imposing limits and using a framework of standard requirements, as well as concluding risk-mitigating netting and collateral agreements with counterparties. A start was made in 2012 in preparing the Bank’s internal organisation for settling swap transactions through a central clearing institution. Expectations are that this will become mandatory for interest rate swaps in 2014.

The framework for interest rate risk management was revised at the beginning of the year under review, prompted in part by the transition in 2011 from IFRS-EU (fair value option) to NL GAAP while applying hedge accounting. A new measure was added to the range of risk management instruments used to manage the spread risk relating to refinancing.

An Internal Liquidity Adequacy Assessment Process (ILAAP) was performed in 2012, which focused on managing liquidity risk. As part of the process, a formal Contingency Funding Plan was adopted, which sets out measures the Bank may take in the event one of various liquidity stress scenarios should materialise.

NWB Bank submits periodic migration plans to the Dutch Central Bank in view of conversion to the Basel III regime, which requires banks to maintain stricter solvency, leverage and liquidity standards. The plans set out how and at what pace the Bank intends to comply with the Basel III regulatory requirements, as well as the measures the Bank deems possible and necessary to meet the requirements on time.

The Capital Requirements Directive IV (“CRD IV”) is expected to be first applied as at 1 January 2014. The CRD IV converts the requirements set under the Basel III accord into EU legislation.

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EmployeesNWB Bank is a small, efficient and high-quality organisation in which mutual collaboration, knowledge sharing, a sense of responsibility and risk awareness take pride of place.

At year-end 2012, the workforce numbered 48 employees (44.2 FTEs), including the members of the Managing Board, 28 of whom are male and 20 female. Five new employees were recruited, including a Managing Director, who were critical to achieving the Bank’s objectives. Moreover, the decision was made to split the Back Office & Finance Department into two new departments, Back Office and Finance & Control, to enhance quality and increase professionalism, prompted by an increased regulatory burden.

The increase in staffing prompted the need for a different approach to employee participation, key objectives being closer employee involvement in the creation of schemes and introduction of employee advice in the event of significant decisions. An Employee Representative Body (ERB) was established for this reason with effect from 2013. Representing the interests of the employees and the organisation, the ERB has regular meetings with one or more Managing Directors, as well as at least one annual meeting with the Chairman of the Supervisory Board and/or of the Remuneration and Appointment Committee.

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As a bank of and for the public sector, NWB Bank has a special responsibility towards society. In terms of corporate governance, this means the Bank should foster its robust financial position, while practising transparency in its governance, considering the interests of all stakeholders. NWB Bank’s corporate governance practices include compliance with the Dutch Corporate Governance Code and the Dutch Banking Code.

The Supervisory Board and the Managing Board bear responsibility for NWB Bank’s good corporate governance structure.

Dutch Corporate Governance CodeThe Dutch Corporate Governance Code was prepared by the Tabaksblat Committee in 2003. It applies to Dutch listed companies. NWB Bank is not a listed company, which means it is not obliged to apply the Code. It has elected, however, to apply the Code on a voluntary basis, taking account of its own specific features. These features are that NWB Bank is not a company with statutory two-tier board status (structuurvennootschap), while its shares may only be held by the State of the Netherlands, water boards and other legal entities governed by public law and cannot be traded on a regulated market. The principles and best practice provisions that do not apply to the Bank because of its nature are those that relate to employee stock option and stock ownership plans, a one-tier board structure, the issuance of depositary receipts for shares, and institutional investors. Furthermore, as a bank of and for the public sector, NWB Bank did not formulate a policy on bilateral contacts with shareholders as prescribed by one of the Code’s best practice provisions. As all of NWB Bank’s shares are registered, the Bank knows its shareholders and keeps a shareholders’ register, stating names and address details of the shareholders, as well as the dates on which they

acquired their shares and the amounts they paid up on them. In practice, the Bank maintains direct, informal contacts with its shareholders or their representatives throughout the year, choosing not to formalise its policies in this regard. Likewise, it decided not to formalise its practices in organising the General Meeting of Shareholders and providing information to that Meeting in line with the Code’s best practice provisions.

Finally, a number of principles and best practice provisions deal with transparency and disclosure. Although NWB Bank complies with them, not all of them have been visibly laid down in procedures. The same applies to a number of principles and best practice provisions relating to the external auditor. When the Bank’s procedures and regulations are updated, these aspects will be addressed as far as possible.

Dutch Banking CodeThe financial crisis that unfolded some years ago triggered a public debate on the role of the banking sector, with the need to restore trust being beyond doubt. One of the initiatives launched by the sector itself aimed at doing just that is the Dutch Banking Code. Adopted on 9 September 2009 and effective from 1 January 2010, the Code sets out principles with respect to supervisory and executive boards, risk management, audit and remuneration policy. To monitor compliance with the Code, the Banking Code Monitoring Committee was set up, which issued its second full report on compliance in December 2012. The Committee found that, while compliance is high, the public at large are unaware of it. It called upon banks to drive progress ahead, in terms of both ensuring compliance and rendering account to society. The Committee believes both aspects are indispensable for restoring trust. The past years have seen various amendments to laws and regulations that reflect principles from the Dutch Banking Code. The question arises whether and,

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if so, to what extent the need remains for such a Code as an instrument for self-regulation. This could well be the case for cultural and behavioural standards that supplement legislation. In the near future, various parties, including the Committee and the Dutch Banking Association (Nederlandse Vereniging van Banken), will present their recommendations on the future of the Code.

In response to the Committee’s call for full transparency about compliance with the Code, NWB Bank prepared an overview of the Code’s principles, showing how it complies with them. It is included in this Annual Report as an appendix on page 112 and has been posted on the Bank’s website.

The paragraphs below address a number of aspects dealt with in the Dutch Banking Code and report on compliance with the principles it sets out, also indicating whether further steps were taken in 2012 compared with 2011 and, if so, how.

Comply-or-explain statementNWB Bank fully acknowledges the significance of the Dutch Banking Code and will comply with its provisions almost in full. There is, however, one exception concerning compliance with Principle 6.4.3 of the Code, which addresses the performance criteria for variable employee remuneration. More details are provided in the “Remuneration policy” paragraph on page 32.

Putting the client’s interests firstNWB Bank is a major player in financial service provision to the Dutch public sector. It can fulfil its duties well only if society, and its clients in particular, are confident about the organisation and the integrity of the Bank’s dealings with its business contacts. Accordingly, integrity, reliability and social responsibility are NWB Bank’s core values. Employees are expected to promote these core values in carrying out their duties.

The Bank lent even higher priority to account management aimed at borrowers as well as to

product development. It is central to stepping up account management that the knowledge gap between the public sector and the finance world is bridged. The Bank’s employees aim to achieve this at an individual client level as much as possible, but other options for highlighting the Bank’s financial expertise and sector knowledge are hosting educational and other client sessions and participating in seminars as speakers. Moreover, the Bank is alert to market and other trends and to shifting customer needs, where possible responding to them by providing solutions, potentially including new products.

Risk managementThe Bank’s risk appetite is reviewed annually and whenever significant events warrant such a review. The description of the Bank’s risk appetite concentrates on its strategy, its objectives and the way it can achieve those objectives. Establishing the risk appetite both by category and overall and reporting on those risks enables the Bank to always take its day-to-day decisions within the parameters set. The Managing Board submits the risk appetite to the Supervisory Board for its approval at least once a year, as well as after it has made material changes.

Whenever new products are launched, new markets are entered or new services are offered, the Treasury, Risk Management, Legal Affairs, Back Office, Finance & Control, and ICT Departments are involved in NWB Bank’s product approval process. The IAD each year verifies the process’ design, existence and effectiveness. The Dutch Financial Markets (Amendments) Act 2013 (Wijzigingswet financiële markten 2013, “Amendments Act”), which took effect on 1 January 2013, contains further conduct-of-business rules governing the product development process, aimed in particular at offering products to consumers. While they do not apply to NWB Bank, the Bank will supplement its product approval process with relevant provisions from the Amendments Act where possible.

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NWB Bank performed calculations based on various stress scenarios in 2012 as well, considering stress tests and scenario analyses fundamental tools for assessing extreme circumstances. They enable the Bank to bring into focus the consequences of potential extraordinary circumstances, and allow it to draft a plan on that basis to safeguard its capital. The Supervisory Board discusses the outcome of stress tests performed.

In the first half of 2013, the Bank will complete the project aimed at enhancing the provision of management information, which was started in 2011. Setting up a data warehouse should result in a transition in terms of quality with regard to data gathering and robust management information and reporting.

Remuneration policyThe remuneration policy with respect to the members of the Managing Board satisfies the provisions of the Dutch Banking Code. Likewise, the remuneration policy with respect to the employees is comfortably in line with the Code’s principles. Employees’ variable remuneration comprises a profit-sharing payment of up to 7.5% and a performance-linked payment of up to 7% of their fixed annual salary. Under the performance scheme, a percentage between 0% and 7% is established in reward of special achievements made in the relevant year. In setting the percentage, achievement of individual targets preset annually is considered. The Bank sets great store by non-financial performance. Accordingly, it has chosen to depart in some measure from Principle 6.4.3 of the Code, which stipulates that pre-determined and assessable performance criteria be set, as it wishes to base its assessment also on performance that is not pre-determined but still exceptional.

Lifelong learningNWB Bank considers lifelong learning by Managing and Supervisory Directors of fundamental importance, In 2012, the Bank again organised a lifelong learning programme for its Supervisory and Managing Directors. The

Managing Directors attended various national and international lectures, meetings and seminars in such areas as Basel III/CRD IV, the euro crisis, central clearing, accounting, behavioural finance, sustainable finance and public treasury.

Following Supervisory Board meetings, external parties held presentations for the Supervisory Directors about such subjects as the new accounting methodology, the business model in banking, risk management/asset & liability management and pensions. Besides group presentations, the Bank facilitates external training courses for individual Supervisory Directors, depending on their expertise and experience. The effectiveness of these lifelong learning initiatives are assessed annually, both those for the Managing Directors and those for the Supervisory Directors.

Following their appointment, new members of the Managing Board and Supervisory Board must follow an induction programme addressing, as a minimum, general financial, social and legal matters, financial reporting, the specific features of NWB Bank and its business operations, and the responsibilities of a supervisory or managing director.

Moral and ethical conduct declarationThe members of NWB Bank’s Managing Board signed the following moral and ethical conduct declaration.

“I declare that I will perform my duties as a banker with integrity and care. I will carefully consider all the interests involved in the Bank, i.e. those of the clients, the investors, the shareholders, the employees and the society in which the Bank operates. I will give paramount importance to the client’s interests and inform the client to the best of my ability. I will comply with the laws, regulations and codes of conduct applicable to me as a banker. I will observe secrecy in respect of matters entrusted to me. I will not abuse my banking knowledge. I will act in an open and assessable manner and I know my responsibility

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towards society. I will endeavour to maintain and promote confidence in the banking sector. In this way, I will uphold the reputation of the banking profession.”

The internal Code of Conduct, which applies to all of the Bank’s employees, has been brought into line with the principles of this declaration.

With the Amendments Act having taken effect on 1 January 2013, taking the oath or promise is now mandatory for individuals whose suitability is checked by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten)and the Dutch Central Bank, such as managing and supervisory directors. The oath or promise contains elements from the moral and ethical declaration, and NWB Bank will arrange for its Managing and Supervisory Directors to take it in 2013.

Other corporate governance aspects

Articles of AssociationNWB Bank’s Articles of Association were most recently amended in 2005. Prompted in part by amendments to laws and regulations, an amendment to the Articles will be proposed to the General Meeting of Shareholders of 25 April 2013. In addition, the article setting out the Bank’s object will be amended, chiefly with the aim of facilitating lending within the context of public-private partnerships. The number of Supervisory Directors will be reduced to at least five (previously seven) and at most nine (previously eleven). Lastly, it will be proposed to reduce the number of Supervisory Directors that are required to be delegated by water boards to one (previously two).

ShareholdersShares in NWB Bank may only be held by the State of the Netherlands and other legal entities governed by public law. Water boards currently hold 81% of the voting rights on shares in the Bank’s capital, while the State of the Netherlands holds 17% and provincial authorities hold 2%.

Supervisory board

GeneralThe Supervisory Board has drawn up regulations governing its working methods and composition. The regulations are in line with the Dutch Corporate Governance Code and the Dutch Banking Code and are available on www.nwbbank.com.

ProfileAn overall profile has been drawn up, whose purpose is to provide guidance on the composition of the Supervisory Board and the appointment of its members. The Supervisory Board aims for a diverse composition. The profile is in line with the Dutch Corporate Governance Code and the Dutch Banking Code, and it is available on www.nwbbank.com under About NWB Bank and Corporate governance. In addition, individual profiles are drawn up for each vacancy that arises on the Supervisory Board, which is in line with the overall profile and which candidates must meet.

Managing Board

Appointment and compositionNWB Bank is managed by a Managing Board comprised of three members. The General Meeting of Shareholders appoints the Managing Board members for a term of four years on nominations by the Supervisory Board. The portfolios of operations for which the members of the Managing Board bear responsibility are disclosed on page 4 of this Annual Report.

RegulationsThe working methods of the Managing Board have been laid down in regulations, which are available on www.nwbbank.com. The regulations are in line with the Dutch Corporate Governance Code and the Dutch Banking Code.

Remuneration policyThe remuneration policy governing both Managing Board and staff is in conformity with the principles laid down in the Dutch Corporate Governance Code and the Dutch Banking Code, as well as

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the Restrained Remuneration Policy (Financial Supervision Act) Regulation 2011 issued by the Dutch Central Bank. It has been approved by the Supervisory Board and is subject to biannual review in liaison with the Remuneration and Appointment Committee. The General Meeting of Shareholders adopts the remuneration policy with respect to the Managing Directors. For further information about the remuneration policy, please refer to the Remuneration Report on page 52 of this Annual Report.

AuditThe IAD operates independently within the Bank. It carefully, expertly and objectively audits and tests how the Bank controls risks associated with its business operations and other activities. The Department also issues recommendations on the adequacy of the organisational structure and risk management.

The Head of the IAD reports to the Chairman of the Managing Board as well as to the Chairman of the Audit and Risk Committee. He attends the meetings of the Audit and Risk Committee, as does the external auditor. Twice yearly, tripartite meetings are held between the internal auditor, the external auditor and the authority exercising prudential supervision, i.e. the Dutch Central Bank. During these meetings, views are exchanged about the Bank’s risk profile, its planned operations and the external audit of the financial statements. NWB Bank’s Risk Management Department is represented in one of the meetings.

Compliance and integrityThe compliance role was designed to promote and supervise, or arrange for supervision of, compliance with laws and regulations and with internal procedures and codes of conduct that are relevant to the organisation’s integrity and associated reputation. NWB Bank has assigned the compliance role to its Legal Affairs Department. It oversees the Bank’s primary process, which is providing loans to the public sector. The scope of

its work covers the following five types of risk.

1. Risks relating to the Insider Regulation, such as with respect to private insider trading

2. Other risks relating to individual conduct, such as with respect to corporate insider trading, non-compliance with the Code of Conduct and complaints filed by whistleblowers

3. Risks relating to clients, such as with respect to the Dutch Money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming van witwassen en financieren van terrorisme) and customer due diligence (“know your client”)

4. Risks relating to financial services the Bank provides, such as risks with respect to sales conduct, transparency of product offerings, client interests and protection, complaints handling procedures and data protection/privacy matters

5. Risks relating to the organisation’s conduct, such as risks with respect to cartelisation, approving new products and industry-wide standards or codes of conduct

Accordingly, the compliance function within NWB Bank does not address the areas of tax legislation, insurance, financial reporting rules and standards, and legislation on working conditions and the environment.

As part of its annual audit plan, the IAD carries out compliance audits in order to establish whether the Bank complies with relevant laws and regulations and with its own rules and standards. Furthermore, the IAD performs these audits to test the effectiveness of the documented controls and their correct application throughout the organisation.

In 2012, NWB Bank registered as a participant in the Dutch Securities Institute (“DSI”). As a participant, the Bank seeks to encourage eligible employees to apply for inclusion in the DSI register. Besides listing in the public DSI register, participation represents a clear quality mark that

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should give customers confidence that the Bank acts with integrity. Registration was obtained by the staff members of the Public Finance and Treasury Departments, the Compliance Officer and one Managing Director.

Other developments Developments in the area of corporate governance succeed each other at an ever faster pace. Most of these developments are related to the financial crisis and the desire to prevent its causes from recurring. Far-reaching initiatives were the Dutch bank tax and the introduction internationally of new, stricter capital requirements. Additionally, the package of measures taken both in and outside of Europe aimed at making the OTC derivatives market more transparent and reducing systemic risks – including a mandatory clearing regime and trade reporting – also has a major impact.

In the area of corporate management and oversight, the Dutch Introduction of Suitability Requirement Act (Wet introductie geschiktheidseis) with effect from 1 July 2012 replaced the requirement of expertise with one of suitability. The new requirement also applies to supervisory directors. Another act that took effect on 1 January 2013 is the Act amending Book 2 of the Civil Code in connection with the amendments to rules governing management and oversight in public and private limited companies (Wet tot wijziging van boek 2 van het Burgerlijk Wetboek in verband met de aanpassing van regels over bestuur en toezicht in naamloze en besloten vennootschappen). One aspect of the Act is a restriction on the number of supervisory board memberships, which is relevant when supervisory directors are appointed or reappointed, while another is that large public and private limited companies are obliged to work towards 30% female representation in their executive and supervisory boards.

Naturally, NWB Bank closely monitors national and international developments, testing its policies where needed and ensuring compliance with laws and regulations.In-control statement

The Managing Board is of the view that, in the year under review, the internal risk controls were effective. They provide reasonable assurance that NWB Bank’s financial reporting contains no material misstatements.

Responsibility statement The Managing Board hereby states that, to the best of its knowledge, the financial statements give a true and fair view of the Bank’s assets, liabilities, financial position and profit. It also states that, to the best of its knowledge, the management report includes a fair view of the Bank’s position at the balance sheet date and of its development and performance during the financial year for which the financial information is set out in the financial statements, together with a description of the principal risks the Bank faces.

The Hague, the Netherlands

The Managing Board

Ron A. WalkierLidwin M.T. van VeldenFrenk J. van der Vliet

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Foreword from the Managing Board

Social responsibility, a strong financial position and efficient business operations are the cornerstones of NWB Bank’s policy. NWB Bank seeks to contribute to a stable and robust financial sector that, in turn, contributes to an economy that serves mankind while harming the environment to the least possible extent. NWB Bank puts the customer’s interests first. By providing finance to its customers on the most favourable terms possible, NWB Bank enables the public sector to keep the cost of fulfilling its duties in Dutch society and of the social facilities in that society as low as possible.

NWB Bank is a major player in the provision of financial services to the public sector. It can fulfil its duties well only if society, and its clients in particular, are confident about the Bank’s organisation and the integrity of its dealings. Accordingly, integrity, reliability and social responsibility are NWB Bank’s core values. Employees are expected to promote these core values in carrying out their duties. NWB Bank became a participant in the Dutch Securities Institute (DSI) in 2012, prompted in part by the importance it attaches to serving its customers with integrity, care and professionalism.

Adopted by the Management Team, the Bank’s CSR policy is widely supported throughout the organisation, and a working group, which includes one Managing Director, fulfils a pioneering role in terms of CSR policy. The Supervisory Board and the shareholders also devote attention to the Bank’s corporate social responsibility, voicing constructive criticism and encouraging the organisation to develop in this respect.

Despite the incessant turmoil in the financial markets, the Bank was able to fulfil its role of a sustainable and reliable financier of the public sector in 2012 as well. The year was turbulent, in particular for the housing corporation sector, which faced increasing unrest over derivatives positions. NWB Bank lived up to its role in society by coming to the aid of housing corporations that had run into liquidity problems due to derivatives (see also the “Lending” section in the Report of the Managing Board).

While the Bank’s lending is inherently beneficial to society and sustainable, a great deal of effort has been put, over the past few years, into further detailing the Bank’s aspirations in terms of embedding CSR into its core processes, business operations and commitment to society. At the same time, the Bank acknowledges the importance of increased transparency and rendering account to the outside world in more detail. In 2012, the Bank again participated in the Transparency Benchmark of the Dutch Ministry of Economic Affairs. The Bank was rated 32nd (2011: 80th) among some 500 participants. In the “Banks and insurance companies” category, NWB Bank was rated 9th (2011: 14th). The following section describes the Bank’s aspirations with respect to the Benchmark. Again, NWB Bank reports at application level B+ of the Global Reporting Initiative (GRI) in 2012, seeking to maintain this application level and further optimising the monitoring of and planning for the related performance indicators.

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The following sections set out NWB Bank’s CSR strategy and objectives, with objectives for 2013 being described in terms of the GRI framework’s key performance indicators. Dilemmas that result from a number of objectives are discussed in the next section. This CSR chapter does not discuss any other relevant subjects, such as governance, compliance, remuneration policy, HR policy and risk management. They are addressed elsewhere in this Annual Report.

Aspirations To NWB Bank, CSR means linking its objectives as a public-sector bank to an active approach to making a positive impact in social, environmental and economic terms. This is what it wishes to be held accountable for and enter into a dialogue with its stakeholders about in a permanent process. NWB Bank’s fundamental principle is that it funds institutions and operations that are in line with its CSR policy. The Bank’s CSR aspirations are apparent from its core duties, business operations and commitment to society. Furthermore, NWB Bank has formulated a number of CSR-specific objectives that relate to its business operations and commitment to society. The Management Team plans for achievement of the objectives listed below, and progress is monitored at specific intervals.

The key CSR objectives for the next three to five years can be distinguished according to core processes, business operations and commitment to society.

Objectives relating to core processes: n Ensuring CSR is a permanent and visible

element in the Bank’s core dutiesn Lending more structure to the stakeholder

dialogue and hosting educational events for business contacts

n Securing a permanent place in the top 50 (top 10%) of the Transparency Benchmark

Objectives relating to business operations:n Persisting in the procurement of renewable

energy (gas and electricity) and sustainably produced paper

n Carbon offset for business trips, including company cars

n Consistent use of procurement criteria for government agencies when purchasing facility-related products and services

n Further digitising business operations and reporting

Objectives relating to commitment to society:n Lending more substance to the Bank’s function

in society by partnering with physically or mentally challenged people

n Participating in such CSR projects as “Money. Imagine you had it!” for pupils in lower secondary vocational education and “The Classroom Bank” in primary schools, and reporting consistently on the Bank’s participation in social projects

Management approachNWB Bank seeks to report on its operations in a transparent manner. It bases its CSR reporting on the guidelines issued by the GRI. GRI performance indicators in the area of sustainability were selected based on the fact that the Bank is a relatively small office-based organisation and fulfils its duties as a services provider in the public sector. Most indicators are in the ‘social’ and ‘economic/financial’ categories, which make them relevant to the Bank as a provider of financial services. The CSR working group selected and debated subjects that are material to NWB Bank, also viewed from a stakeholder perspective. The Management Team, which includes the Managing Board, ultimately chooses any supplementary performance indicators and CSR objectives. The table below provides a list of objectives for 2012 and achievements in previous years, broken down according to eleven GRI performance indicators. These performance indicators are explained in more detail in the GRI Table, which can be found on www.nwbbank.com.

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The social indicators (LA) relate to transparency in terms of staffing, and absenteeism and training & development performance, which are specific target areas for our HRM policy. While the targets for absenteeism and those for performance and career development were met in 2012, the target for training was not met in 2012, but a great deal of focus was placed on on-the-job training, in-house training and presentations. In addition, eight new staff members were recruited, who were not immediately given training in their first year. More details can be found in the “Staff policy” section.

Being a small office-based organisation, the Bank has only a small number of relevant environmental indicators (EN) and, accordingly, their impact is relatively limited. NWB Bank believes, however, that it should act as a role model for its stakeholders, which is why it attaches great importance to reporting on environmental factors. More incoming and outgoing paper flows were digitised in 2012, but the Bank’s paper use increased owing to growth in headcount, more projects and a larger number of external consultants. Carbon emissions fell by approximately 18% in 2012, driven primarily by a fall in long-distance air travel and lower car mileage.

In the social responsibility category (SO), NWB Bank wishes to be a more active discussion partner in the public and financial sectors with regard to relevant public policies. More details of this aspect are provided in the “Stakeholder dialogue” section. NWB Fonds is another important mainstay of the Bank’s social policy. The agreements made in 2006 on the Bank’s contributions to NWB Fonds were largely met. The SO3 and SO4 targets relate mainly to integrity and corruption prevention, and progress is monitored on a yearly basis.

The sector-specific indicators are taken from the GRI’s Financial Services Sector Supplement (FSSS). FS5 relates to interaction with stakeholders within a business and social context. NWB Bank intends to host more events aimed at specific target groups in 2013, and it organises regular meetings for customers. The “Commitment to society” section zeroes in on the Bank’s participation in social projects, also in tandem with other banks. Performance relating to the other economic indicators is discussed in the financial statements and the Report of the Managing Board.

GRI Ach

ieve

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12 Description

LA7 2 3 2 3 Regular absenteeism rate

LA10 2,500 2,950 2,188 2,950 Training costs per employee in euros

LA12 all all all all Number of employees subject to performance and career development

EN1 2,350 1,815 2,090 1,800 Estimated paper use (in kgs)

EN16 190 232 191 230 Carbon emission caused by operations (estimate)

SO3 all 1 4 all Number of staff who took anti-corruption/integrity training (3 years)

SO4 none none none none Number of corruption incidents reported

EC3 100 100 100 100 Percentage of staff with pensions covered under NWB Bank pension plan

HR4 none none none none Number of incidents of discrimination reported

FS5 1 0 2 3 Number of events hosted for specific target groups

FS5 2 1 2 2 Number of social projects participated in

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Dilemmas A number of dilemmas presented themselves to NWB Bank in 2012, with a number of sustainability aspects being weighed in that respect. These dilemmas were also debated in the internal CSR working group, and they related both to the Bank’s core duties and to its business operations. Mapping sustainability in its core duties represents a significant challenge to NWB Bank, partly in view of the size of its loans portfolio. In the systematic application of CSR-related exclusion criteria, the generic financing of clients is often an impediment, given that the intended use of the funds lent is often financing cash deficits or unknown at the time of granting, thereby preventing the intended use from being recorded. Accordingly, recording a loan’s intended use and building up a specially earmarked portfolio of “green” loans is no longer a CSR objective. The Bank does, however, discuss the sustainability policies of its ten largest borrowers with them in periodic meetings, based on their annual reports. They are housing corporations that make contributions to society by building homes in the Dutch social housing sector. The subject is also raised in discussions with other customers and at events the Bank hosts for its specific target groups. NWB Bank is considering financing public-private partnership projects in such areas as renewable energy and infrastructure in the upcoming years.

In part for practical reasons, the choice was made to offset carbon emissions in our business operations rather than reducing them directly. With respect to air travel, we choose to offset carbon emissions, while aiming to reduce air travel in the longer term, for instance by encouraging train travel as part of our business travel policy. The Bank offset the fuel consumption of its vehicle fleet for the first time in 2012. At times, putting its travel policy into practice raises practical objections, for instance when the employees’ limited time must be put to the most efficient use. In terms of policy, first and foremost, a choice is made between reducing fuel consumption (carbon emission) and options for offsetting, for business travel both by car and by air.

Lastly, in choosing to digitise the Bank’s entire annual report, a choice was made between reducing paper use and taking account of the preference among part of our readership for a paper-based version. With effect from 2013, the annual and half-year reports will be made available in digital format only.

Embedding sustainability into our core duties NWB Bank notices that its customers also attach ever more importance to sustainability. Almost all of the institutions that NWB Bank funds make an important contribution to the quality of society and the level of healthcare and general welfare by the nature of their work and mission (e.g. the “Safe and Beautiful Commandeurspolder” project). Within the context of its modest role as a financier in the process, the Bank aims to encourage its borrowers in the area of sustainability. It does to by hosting annual events for its target groups, which are not only educational in nature, but also address CSR aspects. In 2012, an event was hosted for water boards, focusing on the cradle-to-cradle principle. The idea behind this philosophy is that, when products have reached the end of their useful lives, the materials they are made up of can be put to use in other products. Furthermore, NWB Bank introduces a CSR Award in 2013, for which borrowers may submit their most prestigious CSR project of the year. The project which NWB Bank rates highest will be awarded a cash prize. The assessment procedure will be announced in the first half of 2013.

The Bank believes it can play a role in providing financial guidance to its borrowers, given the turbulent times some of its customers went through in 2012. In so doing, it can once more demonstrate its strong commitment, as a sector-specific bank, in times of adversity. As a public-sector bank, NWB Bank has built lasting relationships with its customers by responding to their specific needs. 2012 was no exception, when problems arose that had been caused by the accumulation of large derivatives portfolios in the housing corporation sector. While NWB Bank

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does not sell derivatives to housing corporations itself, it lived up to its responsibility as a public-sector bank, coming to the aid of its customers. It responded to the shifting needs of its customers and enabled them to scale down their derivatives portfolios by providing customer-specific solutions, such as taking over their derivatives and providing ample funds.

Supply chain responsibility The increasing relevance which sustainability has for borrowers also impacts NWB Bank’s supply chain responsibility. For example, in a joint effort headed by the Dutch Ministry of Infrastructure and the Environment aimed at boosting the market for sustainable products, governments use sustainable procurement criteria. One of the Bank’s objectives is the consistent use of those procurement criteria for government agencies when purchasing facility-related products and services that also impact the sustainable operations of the suppliers in the chain. NWB Bank maintains an ongoing dialogue with suppliers on the application of procurement criteria and improving sustainability. Another of the Bank’s important areas of attention is its duty of care for its customers, as highlighted in the Dutch Banking Code. Practical examples include the customer information leaflet, which describes the specific attributes of a loan product, and the events the Bank hosts for specific target groups to educate them about financial products and markets.

Institutional investors express an interest in the sustainability aspects of NWB Bank’s own funding. They engage research agencies in the area of sustainability that use questionnaires to assess the Bank’s CSR policy and its transparency. NWB Bank wishes to accommodate these agencies by including supplementary information in its GRI Table. The policies pursued by sustainable investors also help shape NWB Bank’s own funding. For this reason, the Bank wishes to take cognisance of the CRS policies pursued by brokers operating in the international financial markets in which it raises its funding.

Of NWB Bank’s lending portfolio, some 65% are loans to housing corporations, which make contributions to society by building homes in the Dutch social housing sector. The sustainability policies as set out in the annual reports of its largest borrowers in the housing corporation sector are discussed during internal credit meetings.

Embedding sustainability into our business operationsA slight, 1% increase in water use was seen in 2012, compared with 2011 (based on the invoice for the period from October 2011 through September 2012). Adjusted for the higher headcount, however, a reduction in water use of nearly 10% per employee was achieved. Our carbon footprint for 2012, of which the office building and travel

...of (semi) government institutions...

Water boards

Housing corporations

Healthcare institutions

Municipal authorities

Provincial authorities

Bank X

NWB Bank

Bank Y

Does bank funding...

Capital market

...create added value for society?

NatureEnvironment

EnergyEducation

InfrastructureSustainable buildingWater management

IntegrityHealthcare

etc.

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NWB Bank finances the Safe and Beautiful Commandeurspolder (Commandeurspolder Veilig en Mooi) project of the Delfland Water Board

It is the dikes and quays that keep the Delfland polder residents’ feet dry. That is why the Delfland Water Board performs regular maintenance and inspection works. Checks have revealed that parts of the quays of the Commandeurspolder drainage canals no longer meet the safety requirements set, caused in part by land subsidence. For this reason, the Water Board decided a few years ago to start preparations for improving the quays, so that the safety of the region’s residents could be safeguarded under all circumstances. Situated in the Municipality of Midden-Delfland, the Commandeurspolder is an area of significant cultural and historical heritage, which is why the effects quay improvement works have on the landscape must be considered. This requires a tailor-made approach not just to the works themselves, but also to their preparations. The Water Board held in-depth discussions with residents, the municipal authorities and other stakeholders. Surrounding the Commandeurspolder, quays along four different canals will be addressed – Zuidgaag, Oostgaag, Middelwatering and Noordvliet. Potential solutions were designed for each construction area. Working in “design workshops”, engineers and other experts teamed up with residents and representatives of special-interest groups. A landscape architect visualised the various solutions, making their pros and cons immediately visible. The most feasible variants were subsequently included in a quay improvement plan.

Meanwhile, the quay improvement works along the Oostgaag and Noordvliet canals have almost been completed. Along the Noordvliet canal, a nature-friendly bank is under construction, simultaneously with the quay improvement works, which will contribute to better water quality. The Zuidgaag and Middelwatering quays will be improved later in 2013.

The Delfland Water Board imposes taxes to fund its operations, including such projects as the Safe and Beautiful Commandeurspolder project. Given that its tax revenues are often inadequate for funding all of its activities, it borrows funds from NWB Bank.

Source: Delfland Water Board

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are major components, was again established. The Bank’s total carbon emissions in 2012 were 191 tonnes (2011: 232 tonnes). The chart below provides a breakdown by main category. The carbon footprint was calculated on the basis of estimates. Further details are provided in the GRI Table on www.nwbbank.com.

Carbon footprint 2012

Natural gas, office 25%

Air travel 29%

Company cars 46%

Our procurement of electricity was sustainable in 2012, and gas consumption was again down on the year before in 2012, falling 6% to 26,379 m3. The energy supplier provided a carbon offset for gas. For the whole year 2012, carbon emissions caused by overseas air travel were offset.

The Bank’s policy on company cars was reviewed in 2012. Newly purchased cars may only have an A or B energy label. It was decided to offset carbon emissions caused by car travel with effect from 2012, in addition to those caused by gas consumption and air travel.

We used an estimated 2,090 kgs of paper in 2012 (2011: 1,815 kgs), representing a increase in absolute terms of 15% and, adjusted for the higher headcount, just over 3%. The increase was caused in part by a number of projects of crucial importance to the Bank and the external consultants hired to assist the Bank with those projects. In 2013, we continue to seek to reduce paper use per employee by digitising more documents. We have decided to publish our annual report for 2012 in digital format only.

Staff policyAs stated in the Report of the Managing Board, NWB Bank sees itself as a small, efficient and high-quality organisation in which mutual collaboration, knowledge sharing, a sense of responsibility and risk awareness take pride of place.

Workforce – composition and changesThe staff increases in the Treasury, Public Finance, Finance & Control, Back Office and ICT Departments are aimed at achieving NWB Bank’s objectives. Likewise, the Back Office & Finance Department was split into two new departments, Back Office and Finance & Control, to enhance quality. The Bank’s headcount numbered 48 (44.2 FTEs) at year-end 2012, including 3 Managing Directors. Of the 48 employees, 16 work in part-time employment. While 8 employees joined the Bank, including one Managing Director, 3 left the Bank in 2012.

Total Male FTEs Female FTEs48 28 27.79 20 16.40

The Bank’s workforce has a balanced distribution between male and female employees. At year-end 2012, 12 employees (9 men and 3 women) were members of the Management Team, including 3 Managing Directors.

2012 Male FTEs Female FTEsJoined 4 4.0 4 3.89Left 2 2.0 1 0.83

A breakdown by age category of the Bank’s workforce in 2012 is shown below.

Age category Number20 - 29 3

30 - 39 15

40 - 49 22

50 - 59 8

60 - 69 0

Total 48

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Employee developmentMutual collaboration, knowledge transfer and individual professionalism are vital to achieving the Bank’s objectives. Various in-house training sessions were held in 2012, given that it is a prerequisite for employees to develop along with the Bank.

TrainingIn 2012, an amount of €2,188 per employee was spent on training on average, excluding the cost of various in-house training sessions. The average amount spent was somewhat lower than intended, which can be explained in part by the fact that eight new staff members were recruited who were not immediately given training in their first year.

A broad group of employees participated in in-house training sessions and attended presentations again in 2012, which means that the Bank’s training and study facilities were put to good use. For instance, to support its processes, NWB Bank hosted an interactive communication skills session in tandem with an external organisation. Targeting all of the Bank’s staff, as well as its Managing Directors, the session’s aim was to raise awareness amongst participants on the various ways in which communications may take place and their effects on co-workers and others. Expectations are that the increased awareness will contribute to more effective communications and result in the best possible collaboration at NWB Bank. The subjects of other in-house training sessions were the use of the data warehouse, central clearing and ICT-related skills.

Employee development is monitored by managers at an individual level. They play a role, besides in establishing personal goals, in the periodic evaluation and assessment of an employee’s performance and in identifying any development areas. To strengthen employee involvement in the organisation, additional attention was devoted in 2012 to employee input by inviting employees to express their views of their own performance, that of their manager and that of their department,

and their personal aspirations. The input was incorporated into the employees’ personal goals for 2013 to the extent possible.

DSI registerIn 2012, NWB Bank decided to register as a participant in the Dutch Securities Institute (“DSI”), reflecting the importance the Bank attaches to serving its customers with integrity, care and professionalism. As a participant, the Bank is obliged to ensure that employees who are eligible for registration on account of their position apply for inclusion in the public DSI register. Furthermore, all new recruits, irrespective of their positions, must undergo pre-employment screening. Registration was obtained by a total of eight employees, one of whom is a Managing Director, the others working in the Treasury, Public Finance and Legal Affairs Departments. Any unusual matters that arise from the pre-employment screening are followed up in consultation with the Managing Board.

Working conditions

SafetyThe Bank’s emergency response organisation was restructured in 2012, resulting in a revised emergency response plan and a team of seven trained emergency response officers. It was established in 2011 that physical working conditions are good. As in the preceding year, the Security Manager received no reports suggesting unsafe situations in the office building in 2012.

The Bank’s internal and external Compliance Officers and its Confidential Counsellor register any reports relating to the Bank’s internal rules of conduct (i.e. the Code of Conduct, the whistleblowing procedure, the regulation on unwanted behaviour in the workplace and the Insider Regulation). NWB Bank has chosen not to disclose in its Annual Report any further information on reports it receives as the privacy of its employees may be jeopardised, given the small size of the Bank’s organisation. No reports were received in 2012.

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TeleworkA total of 25 employees have remote access to the Bank’s ICT infrastructure, which benefits efficiency of both the organisation and the relevant employees. For the time being, telework is not considered desirable as a permanent feature, which does not cause any problems, given the small distance most employees travel between home and work. Apart from this, NWB Bank is open to individual flexibility in employees’ office hours.

AbsenteeismNWB Bank’s absenteeism rate fell to 1.9% in 2012 (2011: 3.0%), thanks mainly to a decrease to 0.3% in prolonged absenteeism (2011: 1.3%). Medium-length absenteeism, up to 42 days, edged down to 0.4% (2011: 0.5%). Brief absenteeism remained level at 1.2%.

Employee participationThe increase in staffing to 48 prompted the need for a different approach to employee participation, to create closer employee involvement in the creation of schemes and introduce employee advice in the event of significant decisions. A survey held in a staff meeting revealed that there was sufficient interest in establishing an Employee Representative Body (ERB), which commenced in early 2013.

Commitment to society We continue to set great store by the Bank’s commitment to society, which is reflected not only in the activities pursued by NWB Fonds, but also by our project sponsorship in the fields of water, the arts and books. In 2012, our sponsorship contributions totalled €43,900 (2011: €72,200). We plan to integrate trends in society that impact the Bank and its stakeholders into our CSR policy. Stakeholders may suggest these to us by using our email address, [email protected]. Lastly, NWB Bank also takes part in debates on social issues itself (see the “Stakeholder dialogue” section).

NWB Fonds embodies the type of long-term corporate social responsibility NWB Bank has

opted to support. Established in 2006, the fund serves as a source of finance of and for water boards in shaping their international partnerships. It offers them the financial means to contribute to solutions to global water issues, based on their core tasks and core values. A topical explanation of NWB Fonds’s activities by Henk J. Loijenga, its Director, can be found elsewhere in this Annual Report.

In the year under review, NWB Bank again teamed up with organisations dedicated to special groups in society. For instance, customer files were digitised by an employee of AutiTalent, which provides work for people with autism. In addition, the Bank offered traineeships to pupils in higher and intermediate vocational education.

Another aspect concerning our commitment to society is combating corruption. In 2012, no case of corruption was reported internally. NWB Bank has implemented various preventive measures, the most important of which are pre-employment screening, the Insider Regulation and the Code of Conduct.

In compliance with the Dutch Banking Code, the members of the Managing Board each signed a moral and ethical conduct declaration (see the “Corporate governance” section). The Code of Conduct for the Bank’s employees was brought into line with this declaration and posted on the Bank’s website. The Code of Conduct was signed by all employees and forms part of their employment contracts. To safeguard our employees’ privacy, we do not report on the outcome of pre-employment screening, on the Insider Regulation or on the Code of Conduct. Reports made are handled by the compliance officer. No complaints from clients were received in 2012 in this regard.

Product responsibility is one of the subjects addressed in the Dutch Banking Code (see the “Corporate governance” section) and is disclosed in more detail in the GRI Table (see the “CSR reporting policies” section). The internal product

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approval process, which precedes product launches, is a key feature in the Bank’s product responsibility, and all of the Bank’s relevant departments are involved in it.

Based on its views of CSR, NWB Bank participated in two projects aimed at educating pupils in primary and secondary education about finance. NWB Bank being a small organisation, participation in these projects required extra efforts from the employees involved. It was gratifying to see their active approach and enthusiasm. Over 25% of the Bank’s workforce was involved in one or both projects. A total of 14 classroom lessons were given by employees in the two projects highlighted in these pages.

CSR reporting policies NWB Bank’s disclosure policy is geared towards reporting on its operations in a transparent manner. In reporting on our CSR policy, we use the GRI guidelines (which can be found on www.globalreporting.org), specifically, the GRI’s G3

guidelines. We report at GRI application level B+. The section on corporate social responsibility was externally assured by KPMG, which provided limited assurance (see the independent auditor’s assurance report on page 48). For a full overview of relevant content criteria and performance indicators, reference is made to the GRI Table, which can be found on the Bank’s website.

The GRI is currently working on the next generation of the Sustainability Reporting Guidelines, referred to as G4, building on the current version. Key objectives of the fourth generation Guidelines are to enable more organisations to report and enable reports to focus more on material issues, which may differ greatly between sectors. NWB Bank keeps a close tab on this development in order to comply with the new Guidelines on time.

In this Annual Report, we apply the general GRI Guidelines for Sustainability Reporting, as well as the GRI’s Financial Services Sector Supplement, where possible. Our choice for GRI is motivated by

“Money. Just imagine you had it!”

This project was set up by Hague-based NIBC Bank, the City of The Hague and Stichting Safe School in 2010. Its objective is to educate 14 and 15-year-old pupils in lower secondary vocational education in The Hague about how to handle their financial affairs in a sensible way, focusing on their attitude and conduct, in order to enhance their ability to arrange their financial affairs independently at the youngest possible age. Pupils’ parents are actively engaged in the project, which means expectations are that the subject of money will be given more attention and be discussed more within a family setting. NWB Bank participated for the first time in the project in 2011, and five employees participated in 2012. The Bank also made a contribution towards the project costs.

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the fact that we wish to achieve good international comparability with other institutions, such as various other banks and other Dutch state-held enterprises. In reporting on CSR, NWB Bank’s Managing Board identified three core areas of attention in the field of CSR, which are social aspects, environmental aspects and economic aspects. Part of their identification resulted from a dialogue with the Bank’s stakeholders, which represent a significant target group for this Annual Report.

A CSR working group is in place at NWB Bank, in which staff of various departments, one Managing Director and the CSR Coordinator participate. Rendering account to the Managing Board, its members bear operational responsibility for their specific shares in CSR reporting. Risk management

includes CSR aspects and forms an integral part of NWB Bank’s processes. The IAD reviews all key processes at least every other year, in addition to acting in a CSR advisory role and safeguarding the reliability of CSR information provision. The Managing Board bears overall responsibility in the area of CSR.

Stakeholder dialogue NWB Bank contacts its stakeholders on a regular basis. In a CSR context, it qualifies shareholders, customers, investors, staff members, the government and supervisory authorities as its stakeholders. In 2012, CSR issues relevant to those stakeholders were again identified, selecting them for each individual stakeholder based on the policies they pursue with regard to general social and sector-specific subjects. The issues identified

“Money Week 2012” and “The Classroom Bank 2012”

NWB Bank actively supported Money Week 2012 by making a financial contribution to the project and giving classroom lessons. The national Money Week is an initiative of the Dutch Money Wise (Wijzer in geldzaken) platform, whose main sponsors are the Dutch Central Bank, the Dutch Ministry of Finance, the Dutch Banking Association and the Dutch Association of Insurers (Verbond van Verzekeraars). It was held for the third time, from 12 through 16 November 2012, and its aim is to teach primary school pupils in the three highest grades how to deal wisely with money. During the Money Week, a total of 2,000 guest teachers gave 3,412 lessons to over 100,000 pupils in 1,550 primary schools. The “Classroom Bank” guest-teaching curriculum represents one of eighty different activities organised in Money Week. The classroom lessons centre around the Cash Quiz, a game developed by the Dutch Banking Association to make financial education more attractive and more fun. The quiz addresses topics that are about dealing with money. The kick-off to the guest lessons was held at De Brede School (comprised of the As-Soeffah, Bijlmerhorst and De Polsstok primary schools) in Amsterdam on Tuesday 13 November 2012. Executives of 16 banks, including NWB Bank, gave lessons in the school, teaching in pairs.

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are addressed both in this section of the Annual Report and in the Report of the Managing Board. The members of the CSR working group extensively debated the analysis of the Material Issues Plot (Plot Materiële Onderwerpen). Governance, credit ratings, compliance/integrity, Dutch and European political developments and banking oversight are highly relevant issues affecting both NWB Bank and its stakeholders. Their relevance is apparent from such aspects as regulatory policies, discussions with shareholders, the focus on credit ratings in the financial markets and the Bank’s own policies.

Contacts with stakeholders are periodic, but sometimes prompted by specific events. The Public Finance Department hosts events aimed at various specific target groups. The Bank’s customers may submit any complaints they have, pursuant to the General Terms and Conditions, while stakeholders may use the [email protected] email address to provide input, including on CSR-related matters.

Throughout the year, Managing Directors and Treasury Department staff visit investors to explain half-year and annual figures and other trends. Once a year, an Annual General Meeting of Shareholders is convened. During the Meeting, the Managing Board renders account of objectives, corporate

strategy, policy and financial results. Several times during the year, consultative meetings are held with the supervisory authority (the Dutch Central Bank) on such subjects as risk management, compliance and integrity. In addition, we participate in various regular meetings with ministries, with the Dutch Banking Association, and with the European Association of Public Banks. Furthermore, trends in society that impact NWB Bank and its stakeholders may be integrated into its CSR policy, usually following their discussion in the CSR working group. The responses to last year’s Annual Report, mostly voiced during the Annual General Meeting of Shareholders, were considered in preparing this year’s Report. For instance, heightened attention was devoted to the Transparency Benchmark in 2012, immediately resulting in a more prominent rating. NWB Bank aspires to lend more structure to its stakeholder dialogue, based in part on the Material Issues Plot. Discussions with shareholders, supervisory directors and government ministries addressed such topics as the Sustainability of Public Finances Act, treasury banking and the financing of public-private partnerships. The impact these issues have on NWB Bank’s strategy and policies are discussed in further detail in the Report of the Managing Board.

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To the readers of the 2012 Annual Report of the Nederlandse Waterschapsbank N.V.

We were engaged by the Managing Board of the Nederlandse Waterschapsbank N.V. (‘NWB Bank’) to provide assurance on the information in the chapter ‘Corporate Social Responsibility’ (‘the CSR Chapter’) as included in the Annual Report 2012. The Managing Board is responsible for the preparation of the CSR Chapter, including the identification of material issues. Our responsibility is to issue an assurance report on the CSR Chapter.

What was included in the scope of our assurance engagement? Our engagement was designed to provide limited assurance on whether the information in the CSR Chapter is presented, in all material respects, in accordance with the Sustainability Reporting Guidelines (G3) of the Global Reporting Initiative (GRI). Procedures performed to obtain a limited level of assurance are aimed at determining the plausibility of information and are less extensive than those for a reasonable level of assurance. We do not provide any assurance on the achievability of the targets, expectations and ambitions of NWB Bank.

Which reporting criteria did NWB Bank use? NWB Bank applies the Sustainability Reporting Guidelines (G3) of the Global Reporting Initiative (GRI) for the CSR Chapter as detailed in paragraph ‘CSR reporting policies’ of the CSR Chapter. It is important to view the performance data in the context of these criteria.

Which assurance standard did we use? We conducted our engagement in accordance with Standard 3410N ‘Assurance engagements relating to sustainability reports’ of the Netherlands

Institute of Chartered Accountants. This Standard requires, among others, that the assurance team possesses the specific knowledge, skills and professional competencies needed to provide assurance on sustainability information, and that they comply with the requirements of the Code of Ethics for Professional Accountants of the International Federation of Accountants to ensure their independence.

What did we do to reach our conclusions?Our procedures included the following:n A risk analysis, including a media analysis and

internet search, on sustainability issues for NWB Bank in the reporting period, in order to deepen our insight in relevant sustainability issues and questions in the reporting period.

n Interviewing responsible management and members of the CSR working group responsible for providing the information in the CSR Chapter.

n Evaluating the design and implementation of the systems and processes for the collection, processing and control of the information in the CSR Chapter, including the consolidation of the data for the CSR Chapter.

n Evaluating internal and external documentation, based on sampling, to determine whether the information in the CSR Chapter is supported by sufficient evidence.

n Determining whether the information concerning sustainability in the other sections of the Annual Report is consistent with the information in the CSR Chapter.

During the assurance process we discussed necessary changes in the CSR Chapter with NWB Bank and we verified that these necessary changes have been incorporated in the final version of the CSR Chapter.

Independent Assurance Report

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What is our conclusion? Based on the procedures performed, as described above, nothing has come to our attention to indicate that the information in the CSR Chapter is not presented, in all material respects, in accordance with the G3 Guidelines of the Global Reporting Initiative.

Amstelveen, the Netherlands7 March 2013

KPMG Sustainability

part of KPMG Advisory N.V.

W.J. Bartels RA

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“NWB Fonds offers water boards the financial means to enter into international partnerships aimed at promoting sustainable operations, innovation and sound decentralised water management.”

NWB Fonds embodies a special form of corporate social responsibility NWB Bank has opted to support. Established in 2006, the fund serves as a source of finance of and for water boards in shaping their international partnerships. It offers them the financial means to contribute to solutions to global water issues, based on their core tasks and core values.

The fund’s initial capital in 2007 was €4 million, which was increased in 2008, 2009 and 2010 to reach €20 million. Intentions are for the fund to grow to €25 million.

NWB Fonds currently makes €800,000 available each year to finance and support international

expertise activities undertaken by water boards. In their involvement in such activities, the water boards offer advice and practical support to partners abroad in the following areas.

n Promoting sustainable water system and water chain management

n Developing tailored solutions for sanitation and for wastewater decontamination and reuse

n Building decentralised, regional or local water management capacity

During the fund’s first five years, a broad array of expertise activities were undertaken in 17 different countries. In 2011, however, the Association of Regional Water Authorities decided that resources would be pooled wherever possible, while international collaborative activities would be focused on shared themes more specifically.

In line with the central government’s policy in the field of international development cooperation, a

“When operating abroad, water boards gain new experiences, which result in useful new insights.”

Henk J. Loijenga, Director of NWB Fonds

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country focus was introduced. Consideration was also given to activities undertaken and objectives pursued by such other water sector partners as the NGOs, knowledge institutions, waterworks companies and various private-sector companies. Syndicates are formed wherever possible, given that pooling resources enhances the effectiveness and efficiency of international collaborative ventures. NWB Fonds currently finances partnership activities in Egypt, Ethiopia, Indonesia, Kenya, Mozambique, Nicaragua and South Africa.

In these and other countries of focus, virtually all water board activities directly or indirectly contribute to the millennium goals, which should be achieved by 2015. But here, too, the focus is shifting. In practice, the water boards have been anticipating the post-2015 development cooperation agenda for some time. Established in 2000, the millennium goals were primarily aimed at fighting poverty. By contrast, the newly devised global development policy centres on agriculture and food security, climate measures, renewable energy and employment. For this reason, activities are increasingly geared towards sustainable operations, innovation and sound water management. It is in the latter area, in particular, that water boards respond to the growing demand from foreign public-sector water partners for the specific Dutch expertise and experience in organising, financing and implementing decentralised water management. In doing so, they increasingly call upon the knowledge network of the Water Governance Centre, which the

Association of Regional Water Authorities set up in 2010. Based on their core tasks and core values, the water boards, through close collaboration, help create the right administrative conditions that enable the desirable development, in exactly the same way they have been doing at home for centuries.

In their international partnerships, the water boards increasingly serve their own interests, too. When operating abroad, they gain new experiences in completely different physical and social environments, which might expose blind spots in their own operations and result in useful new insights. Furthermore, the water boards use trainees from the partnering country more often, allowing them to serve as smart knowledge links between both countries. At the same time, deploying domestic and foreign trainees and other staff in international partnership projects makes them more attractive employers. This helps them prepare for the future.

NWB Fonds allows the water boards to put their own corporate social responsibility priorities into practice, whether it be knowledge exchange geared towards sustainable operations or innovation, sound water governance, future-proof HR policies or straightforward development aid. While their motives may differ, their shared focus intensifies.

More information (in Dutch) is available on www.nwbfonds.nl.

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NWB Bank seeks to express the role it fulfils in society, as a bank of and for the public sector, in its remuneration policy, one that is moderate and sustainable, and that is in keeping with its strategy, risk profile and risk appetite. In addition, the policy is aimed at recruiting and retaining qualified and knowledgeable staff.

The remuneration policy with respect to both Managing Directors and employees is in conformity with the principles laid down in the Dutch Corporate Governance Code and the Dutch Banking Code. It was assessed in 2012 against the Restrained Remuneration Policy (Financial Supervision Act) Regulation 2011 (“the Regulation”) issued by the Dutch Central Bank. A working group was set up to implement the Regulation and assess the Bank’s remuneration policy, comprising the Head of the HRM Department, the head of the IAD, the Compliance Officer and a staff member of the Risk Management Department. A Dutch-language document entitled “Assessment of NWB Bank’s remuneration policy” (Toetsing beloningsbeleid NWB Bank) is available on the Bank’s website, www.nwbbank.com, providing a section-by-section overview of the Regulation’s implementation. The remuneration policy is subject to the Supervisory Board’s approval and to biannual review by the Remuneration and Appointment Committee.

Remuneration policy with respect to Managing Directors

Fixed remunerationThe remuneration policy with respect to Managing Directors was most recently amended and adopted by the Annual General Meeting of Shareholders with effect from 1 January 2010. The policy – which applies to Managing Directors appointed on or after 1 January 2010 - entails a maximum salary of €283,500 to be paid to the Managing Board’s

Chair and a maximum of 85% of that amount for the other Managing Directors with effect from 1 January 2013. Departures are permitted should labour market conditions put the continuity of the Bank’s high-quality management at risk. These maximum amounts are subject to annual indexation in line with the structural salary adjustments laid down in the collective labour agreement for the banking industry (“the CLA”).

Variable remunerationThe variable remuneration of the Managing Directors equals no more than 15% of their fixed remuneration and is based on the relevant Managing Director’s performance, that of the business units he or she is responsible for and that of the Bank as a whole. Such performance has been quantified as pre-determined and assessable performance criteria. The variable remuneration of the Managing Directors comprises a short-term element and a long-term element. The amounts of both are determined on the basis of pre-agreed short-term targets for the relevant year. The short-term element (equalling no more than 10% of the fixed remuneration) is paid after the relevant performance year. The long-term element (equalling no more than 5% of the fixed remuneration) is paid in the fourth year after the year to which it relates, provided the pre-agreed additional long-term targets have been achieved.

The short-term element of the variable remuneration is determined on the basis of the following categories.

n Profit (in line with the targets set out in the annual budget)

n Risk management (in line with internal and external sets of standards)

n Strategy/policy implementation (in line with the targets set out in the annual policy paper)

n Personal areas for attention

Remuneration report 2012

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The long-term categories are:n Ratings - Standard & Poor’s and Moody’s

ratings for the Bank must equal the sovereign rating for the State of the Netherlands

n Strategy - the Bank’s market position must have been bolstered

Following each year, performance is assessed against the targets. The granting of the variable remuneration component is at the sole discretion of the Supervisory Board. The Supervisory Board is authorised to apply a penalty or a claw-back with respect to the variable remuneration should financial or other data underlying the variable remuneration prove to be incorrect or where it believes that the variable remuneration would otherwise be unfair or unintended. The authority to apply a claw-back applies to the short-term element of the variable remuneration, and it is valid for up to three years following payment.

NWB Bank does not grant any variable remuneration in the form of financial instruments. Given that NWB Bank’s operations are not of a complex nature and are homogenous, the Bank applies the principle of proportionality pursuant to Section 3 of the Regulation. The Bank has a low risk profile and has no financial instruments as an alternative to shares or any type of equity-related variable remuneration. Moreover, the amounts of the Bank’s variable remuneration are relatively modest, equalling no more than 15% of fixed salaries (no more than 10% on a yearly basis and no more than 5% on a long-term/four-yearly basis).

Given the nature of the Bank’s business operations and its position in society, no scenario analyses were performed in setting the amounts and structure of the variable remuneration.

Pensions The pension benefits of the Managing Directors come under a group pension plan, which has been insured with an insurance company on the same terms as those of NWB Bank’s employees, with pension contributions being borne by NWB Bank. Pension contracts for members of the Managing Board provide for average pay plans.

Other terms and conditions of employmentThe Bank makes cars available to the Managing Directors. Otherwise, their terms and conditions of employment are the same as those of the employees.

Remuneration of the Managing Directors in 2012

Fixed remunerationLidwin van Velden was appointed to the Managing Board with effect from 1 January 2010, and Frenk van der Vliet was appointed to the Board with effect from 1 January 2012. This means both Managing Directors are subject to the remuneration policy adopted as at 1 January 2010. Ron Walkier has been a Managing Director since 1993 and Chairman of the Managing Board since 2008. Accordingly, he is subject to the remuneration policy in place before 1 January 2010. The fixed remuneration was subject to annual indexation effective 1 January 2012, in line with the salary adjustment laid down in the CLA.

Variable remunerationIn February 2013, the Remuneration and Appointment Committee assessed NWB Bank’s actual results against the pre-determined targets, concluding that all targets had been achieved. Based on the Managing Board’s performance contract, which is updated each year, the Committee submitted a proposal to the Supervisory Board.

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Performance assessment of the Managing BoardThe table above shows the results of the performance assessment adopted by the Supervisory Board.

The short-term variable remuneration which the Supervisory Board granted was 10% of the fixed remuneration for Ron Walkier, Lidwin van Velden and Frenk van der Vliet. Managing Board Chairman Ron Walkier has waived his variable remuneration for 2012, given the prevailing suspension of dividend distributions. This variable remuneration comprises a short-term element of €27,722 and a long-term element for 2009 of €6,777.

The tables below provide overviews of the remuneration of the Managing Directors for 2012 and 2011.

The fixed remuneration comprises the base salaries for 13 months as well as an 8% holiday allowance. The Managing Directors are granted a partly taxed annual expense allowance of €2,800 each.

Staggered payment of long-term element of variable remunerationFrom 1 January 2008 onwards, long-term elements have been added to the variable component of the remuneration of Managing Directors. This means that part of the variable remuneration is not made payable until the long-term targets are achieved upon expiry of the long-term remuneration period, which is in the fourth year in this case. Of the variable remuneration, one-third is conditionally granted over a period of four years. The Regulation stipulates a minimum conditional grant of 40%, but given the small difference, NWB Bank chooses to leave the policy

Category Target Achievement

Profit In line with the targets set out in the annual budget Achieved

Risk management In line with internal and external sets of standards Achieved

Strategy/policy implementation In line with the targets set out in the annual policy paper Achieved

Personal areas for attention Ron WalkierLidwin van VeldenFrenk van der Vliet

Achieved

(in thousands of euros)

Fixed remuneration

Variable remuneration

Payment of long-term

variable remuneration

for 2009Pension

contributions

2012

Ron Walkier 277 - - 97

Lidwin van Velden 210 21 n/a 58

Frenk van der Vliet 210 21 n/a 50

697 42 205

2011

Ron Walkier 276 28 9 93

Lidwin van Velden 208 21 n/a 56

484 49 9 149

Remuneration of the Managing Directors

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adopted by the shareholders with effect from 1 January 2010 unchanged.

Long-term element of variable remuneration for 2009In 2009, the variable remuneration for Managing Directors was a maximum of 28% of their base salaries, the annual short-term element of which was a maximum of 21% and the deferred long-term element a maximum of 7%. Based on its assessment of the annual variable elements, the Supervisory Board granted short-term variable remuneration for 2009 to the Management Directors. Ron Walkier was granted 16.6% of his base salary (i.e. 79% of the 21% maximum), while Lex van Cleef was granted 13.9% of his base salary (i.e. 66% of the 21% maximum). Lex van Cleef stood down as Managing Director on 1 January 2010 as he would be reaching retirement age. This means that the deferred long-term elements of the variable remuneration were 79% and 66% of the maximum of 7% of the base salaries of Ron Walkier and Lex van Cleef, respectively. The following weighting factors were set with respect to the long-term elements in 2009.

n Maintenance of the AAA ratingn Market sharesn Return on equityn Capital ratio

In February 2013, the Remuneration and Appointment Committee assessed NWB Bank’s actual results against the long-term targets, which showed that the “maintenance of the AAA rating” and “market shares” factors had been achieved, whereas the “return on equity” and “capital ratio” factors had not. The Supervisory Board decided, at the proposal of the Remuneration and Appointment Committee, to make €6,777 payable to Ron Walkier and €5,198 to Lex van Cleef. As stated above, Managing Board Chairman Ron Walkier has waived the long-term element of his variable remuneration for 2009, given the prevailing suspension of dividend distributions.

Long-term variable remuneration conditionally granted for 2010 to 2012 but not paidThe long-term elements of the variable remuneration for 2010, 2011 and 2012 conditionally granted by the Supervisory Board to Ron Walkier amount to €13,690, €13,788 and €13,861, respectively, equalling 5% of his fixed remuneration for 2010, 2011 and 2012. The long-term elements of the variable remuneration for 2010, 2011 and 2012 conditionally granted to Lidwin van Velden amount to €10,348, €10,422 and €10,477, respectively, equalling 5% of her fixed remuneration for 2010, 2011 and 2012. Frenk van der Vliet was conditionally granted the long-term element of the variable remuneration for 2012 of €10,477, equalling 5% of his fixed remuneration.

Remuneration policy with respect to the employees

Fixed remunerationNWB Bank’s remuneration policy is uniform, applying to all employees, irrespective of their positions or job scales, as regards both fixed and variable remuneration. NWB Bank applies the CLA. Fixed remuneration comprises 12 monthly salaries, a holiday allowance and a 13th month’s salary payment, subject to annual indexation in line with the structural salary adjustments laid down in the CLA. Furthermore, a performance assessment supplement of 15%, at a maximum, may be granted in excess of the job-specific salary. This supplement is applied with restraint and in stages, usually only if an employee has performed well and has reached the end of his or her salary scale.

Variable remunerationEmployees’ variable remuneration comprises a bonus payment of up to 7% and a profit-sharing payment of up to 7.5%. To determine the variable payment under the bonus plan, an employee’s performance is carefully assessed, based on the following factors.

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n Achievement of the targets defined for the relevant calendar year

n The manager’s opinionn Any applicable adjustment in connection with

findings, unwarranted risks or compliance issues

n The Managing Board’s opinion

NWB Bank sets great store by non-financial performance, which is why the performance criteria it sets relate to quality and the performance of an employee’s duties. In setting the targets, account is taken of the Bank’s long-term objectives as set out in its policy paper and its core values, which are integrity, reliability and social responsibility. They are also related to acting with due care, in the customer’s best interests. Employees have a say in setting and adjusting their targets. An average variable remuneration under the bonus plan of 4.5% per employee was granted in 2012.

Besides the bonus plan, NWB Bank operates a profit-sharing plan, under which up to 7.5% of the employee’s annual salary is paid if the Bank made a profit, as defined under the plan, in the preceding financial year.

As is the case for its Managing Directors, NWB Bank does not grant any variable remuneration in the form of financial instruments to its employees. Given that NWB Bank’s operations are not of a complex nature and are homogenous, the Bank applies the principle of proportionality pursuant to Section 3 of the Regulation. The Bank has a low risk profile and has no financial instruments as an alternative to shares or any type of equity-related variable remuneration. Moreover, the amounts of the Bank’s variable remuneration are relatively moderate, equalling no more than 14.5% of fixed salaries (no more than 7.5% as a profit-sharing payment and no more than 7% as a performance bonus).

In contrast to the Managing Directors, no remuneration is conditionally granted to the Bank’s employees and, hence, no payments are

deferred. Based on an assessment of employees’ individual performance, variable remuneration between 0% and 7% is paid in the following calendar year, based on the salary paid in January of the financial year ended. If 40% of the 7% maximum variable remuneration were conditionally granted, as prescribed by the Regulation, a maximum of only 3% in conditionally granted variable remuneration would remain. With due observance of the Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking Supervisors, the Bank applies the principle of proportionality, given that NWB Bank’s operations are not of a complex nature, the performance criteria applied to its employees are solely of a qualitative nature, the fact that a single plan applies to all employees and the small conditional grant to its employees of up to 3% that would remain. Furthermore, the variable remuneration of the Bank’s employees is not subject to a claw-back clause. Again, the Bank applies the proportionality principle, given that its operations are not of a complex nature and are homogenous, while the variable remuneration it grants is relatively modest.

PensionsNWB Bank operates a group pension plan for its employees, with pension contributions being borne by the Bank. The Bank has various pension regulations governed by the CLA’s pension protocols. The plan in place until 1999 and that for 1 January 1999 to 1 January 2002 are closed final pay plans. Since 1 January 2002, the Bank has operated an average pay plan with an accrual rate of 1.85% in each year of service.

Other terms and conditions of employmentThe Bank offers its employees various other fringe benefits, such as supplementary incapacity for work insurance, a staff mortgage loan discount plan, reimbursement of study expenses and a bicycle plan.

Cars are made available to employees whose positions necessitate or justify such.

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Remuneration of the Supervisory Directors in 2012The remuneration of the Supervisory Directors is regularly compared with that in similar companies and is set by the General Meeting of Shareholders. In late 2011, a consultancy firm performed a benchmark study against other state-held enterprises and small private banks. Based on the outcome, it was established that the Supervisory Directors’ remuneration levels were relatively low, compared with peers. It was nevertheless decided to refrain from increasing their remuneration for the time being. Accordingly, it has not changed since 2003, nor has it been subject to indexation.

Current remuneration levels are as follows.Chair €18,750 per annumDeputy Chair €14,350 per annumMembers €12,380 per annum

Effective 1 July 2007, the following allowances have applies to committee members.

n An attendance fee of €750 for each meeting, both for members of the Audit and Risk Committee and for members of the Remuneration and Appointment Committee

n A fixed annual allowance of €4,000 for members of the Audit and Risk Committee and €3,000 for members of the Remuneration and Appointment Committee

The Supervisory Directors’ remuneration includes no variable components or options plans.

The remuneration of the Supervisory Directors was as follows in 2012.

(in thousands of euros)Supervisory

BoardAudit and Risk

Committee

Remuneration and Appointment

Committee

Dolf van den Brink1 19 9 7

Peter Glas2 14 1

Age Bakker 12 9

Else Bos 12 9

Victor Goedvolk 12 9

Sjaak Jansen 12 7

Maurice Oostendorp3 1

Edu baron van Tuyll van Serooskerken4 5

Albertine van Vliet-Kuiper5 1

Berend-Jan baron van Voorst tot Voorst 12 7

100 36 22

The above amounts exclude general expense reimbursements, health insurance premiums, travelling expense allowances and VAT, where applicable.

1) Chairman

2) Deputy Chairman

3) Maurice Oostendorp was appointed with effect from 22 November 2012.

4) Edu baron van Tuyll van Serooskerken stood down with effect from 26 April 2012.

5) Albertine van Vliet-Kuiper was appointed with effect from 22 November 2012.

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Jaarverslag 2012 Nederlandse W

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Financial statements

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Statement of income for the year ended 31 December 2012

(in millions of euros) Notes 2012 2011

Interest and similar income 1,864 1,832Interest and similar expense 1,757 1,757

Net interest income 1 107 75Results from financial transactions 2 -24 38Other operating income 0 0

Total operating income 83 113

Employee benefits expense 3 6 5Other administrative expenses 4 6 9Contribution to Stichting NWB Fonds 5 - -

Employee benefits expense and other administrative expenses 12 14Depreciation, amortisation and value adjustments of tangible

and intangible assets 6 2 1Bank tax 7 12 -Other operating expenses - -

Total operating expenses 26 15

Profit from ordinary operations before tax 57 98Tax on profit from ordinary operations 8 17 23

Net profit 40 75

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Balance sheet as at 31 December 2012 before appropriation of profit

(in millions of euros) Notes 2012 2011

AssetsCash and cash equivalents 9 1,649 276

Banks 10 6,726 4,331

Loans and receivables 11 59,197 53,932

Interest-bearing securities 12 1,409 1,471

Intangible assets 13 2 2

Tangible fixed assets 14 6 6

Other assets 15 137 68

Derivative assets 16 6,144 6,801

Prepayments and accrued income 17 814 809

Total assets 76,084 67,696

LiabilitiesBanks 18 2,525 2,036

Funds entrusted 19 1,389 1,518

Debt securities 20 58,302 53,317

Income tax 21 27 22

Deferred tax liabilities 22 2 2

Other liabilities 23 56 61

Derivative liabilities 24 11,824 8,839

Accruals and deferred income 25 730 710

Provisions 26 3 3

74,858 66,508

Paid-up and called-up share capital 27 7 7

Interest-bearing securities revaluation reserve 28 1 3

Other revaluation reserves 28 0 0

Other reserves 29 1,178 1,103

Profit for the year 30 40 75

Equity 1,226 1,188

Total equity and liabilities 76,084 67,696

Irrevocable commitments 31 4,267 5,276

Contingent liabilities 32 91 20

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Statement of comprehensive income for the year ended 31 December 2012

(in millions of euros) 2012 2011

Net changes in the interest-bearing securities revaluation reserve -3 3

Net changes in other revaluation reserves 0 -1

Income tax on income and expense recognised directly in equity 1 -1

Income and expense recognised directly in equity -2 1

Net profit 40 75

Comprehensive income 38 76

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Statement of changes in equity for the year ended 31 December 2012

(in millions of euros) Paid-up share

capital

Interest-bearing

securities revaluation

reserve

Revaluation reserves

Otherreserves

Profit for the year

Total

As at 1 January 2011 7 1 1 1,035 91 1,135

Profit appropriation of previous year 57 -57

Dividends -40 -40

Change in value of interest-bearing securities 2 2

Revaluation of tangible fixed assets -1 -1

Profit for the year 75 75

As at 31 December 2011 7 3 - 1,103 75 1,188

As at 1 January 2012 7 3 1,103 75 1,188

Profit appropriation of previous year 75 -75 -

Dividends - -

Change in value of interest-bearing securities -2 -2

Revaluation of tangible fixed assets - -

Profit for the year 40 40

As at 31 December 2012 7 1 - 1,178 40 1,226

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Statement of cash flows for the year ended 31 December 2012


Profit before income tax 70 98

Adjusted for:

Depreciation, amortisation and value adjustments of tangible and intangible assets 2 1

Change in value of assets and liabilities for fair value hedge accounting 18 154

Bank loans and receivables not available on demand -2,028 -1,542

Public-sector loans and receivables -3,171 -3,470

Funds entrusted -129 -950

Income tax paid -10 40

Bank tax paid -12 -

Other assets and liabilities 707 -70

Net cash flows used in operating/banking activities -4,553 -5,739

Additions to interest-bearing securities - -250

Sales and redemptions of interest-bearing securities 86 1,204

Balance 86 954

Additions to property and equipment -1 -1

Disposals 0 0

Balance -1 -1

Additions to intangible assets -1 -1

Net cash flows from investing activities 85 953

Issued bond loans, notes 12,337 8,092

Repayment of bond loans, notes -7,120 -5,997

Issued CD/CP 26,708 23,104

Repayment of CD/CP -26,084 -20,127

Balance 5,841 5,072

Dividend paid - -23

Net cash flows from financing activities 5,841 5,049

Net cash flow 1,373 263For

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Cash flow 1,373 263

Cash and cash equivalents as at 1 January 276 13

Cash and cash equivalents as at 31 December 1,649 276

Cash and cash equivalents comprise:

Bank balances available on demand 0 0

Banks, cash and receivables 1,649 276

Cash and cash equivalents as at 31 December 1,649 276

The amount disclosed under “Change in value of assets and liabilities for fair value hedge accounting” is made up of changes in value of financial assets and liabilities for fair value hedge accounting, changes in value of derivatives, and penalties paid and exchange differences.

In 2012, interest payments of €1,763 million were made (2011: €1,838 million) and interest income of €1,849 million was received (2011: €1,762 million). These amounts are included under Other assets and liabilities in the statement of cash flows.

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Notes to the financial statements

Corporate information

The 2012 financial statements of Nederlandse Waterschapsbank N.V. (NWB Bank) were prepared by the Managing Board and authorised for issue by the Supervisory Board on 7 March 2013 and will be submitted for approval to the Annual General Meeting of Shareholders (AGM) on 25 April 2013.

NWB Bank is a public limited liability company established in The Hague, whose shares are owned by public authorities. NWB Bank’s services are geared exclusively to the public sector. It finances water boards, municipal authorities and provincial authorities, as well as other public-sector bodies, such as housing corporations, hospitals and educational institutions.

Basis of preparation

Statement of complianceThe financial statements of NWB Bank have been prepared in accordance with the statutory requirements contained in Part 9 of Book 2 of the Dutch Civil Code and accounting principles generally accepted in the Netherlands (NL GAAP).

As of 1 January 2011, NWB Bank prepares its financial statements in accordance with Part 9 of Book 2 of the Dutch Civil Code and NL GAAP. Until 2010, the Bank applied International Financial Reporting Standards as endorsed by the European Union (IFRS-EU). It was possible for NWB Bank to convert to NL GAAP since it does not prepare consolidated financial statements.

Changes in accounting policies

The rules on pension accounting were amended with effect from 1 January 2013. In line with the previous version of IAS 19, actuarial gains and losses – which arise when actual outcomes differ from estimates or if assumptions are adjusted - are not taken directly to the balance sheet and profit or loss, but spread over future years. The revised version no longer allows this approach, known as the corridor method. Actuarial gains and losses must henceforth be taken directly to equity. In addition, IAS 19R requires more detailed disclosure.

As a consequence, the pension provision will amount to €6.8 million, based on the current assumptions, compared with €2.7 million as at 31 December 2012.

Summary of significant accounting policies

GeneralThese financial statements have been prepared in part on a historical cost basis. Certain interest-bearing securities, derivatives and property are stated at fair value. The financial statements are presented in

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millions of euros and all amounts in the Notes are rounded to the nearest thousand (€000), except when otherwise indicated.

RecognitionAn asset is recognised when it is probable that the future economic benefits will flow to the company and the asset can be measured reliably. A liability is recognised when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which settlement will take place can be measured reliably.

A financial asset or financial liability is recognised on its transaction date. Accordingly, a financial asset or financial liability is recognised from the time the company has the right to the benefits from or is bound by the obligations arising from the contract terms of the financial instrument.

Income is recognised in the statement of income when an increase in future economic benefits, related to an increase in an asset or a decrease in a liability has arisen that can be measured reliably. Expenses are recognised in the statement of income when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably.

Derecognition of financial assets and liabilitiesAn asset or liability presented in the balance sheet must be maintained where a transaction does not result in a significant change in the economic reality with respect to such asset or liability. Likewise, such transactions must not result in the reporting of income or expenses.

A financial asset or liability (or, where applicable, part of a financial asset or part of a group of similar financial assets or liabilities) is derecognised where the transaction results in the transfer to a third party of or all or almost all rights to receive economic rewards and all or almost all risks of the asset or liability.

MeasurementUpon initial recognition, financial assets and liabilities are stated at fair value, including transaction costs directly attributable to the asset’s or liability’s acquisition or issue, with the exception of the transactions recorded at fair value through profit or loss. The transactions recorded in those balance sheet items do not include transactions costs.

The fair value is the amount for which an asset could be exchanged or a liability settled in a transaction between knowledgeable, willing and independent parties.

Insofar as a relevant middle rate is available, it is used as the best indication of fair value. For the majority of NWB Bank’s financial instruments, the fair value cannot be established on the basis of a relevant middle rate because there is no listing or active market.

NWB Bank calculates the fair value of these other financial assets and liabilities using modelsthat use various assumptions relating to the discount rate and the timing and the size of the projected future cash flows. When calculating the fair value of options, option pricing models have been used.

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After initial recognition, financial assets are classified as loans and receivables, banks, interest-bearing securities or derivative assets. The loans and receivables, interest-bearing securities held to maturity, unlisted interest-bearing securities as well as banks are stated at amortised cost. Other listed interest-bearing securities and derivative assets are subsequently stated at fair value.

After initial recognition, financial liabilities are classified as banks, derivative liabilities, funds entrusted or debt securities. Banks, funds entrusted and debt securities are subsequently stated at amortised cost. Derivative liabilities are stated at fair value.

Hedge accountingThe bank hedges most interest rate and foreign exchange risks related to financial assets and liabilities by using financial instruments. In terms of market value, value changes due to interest rate and foreign exchange fluctuations are set off. Under hedge accounting, the recognition of a hedging instrument and the accompanying hedged position can be synchronised insofar as the hedging is effective. Hedge accounting is permitted only if adequate documentation has been prepared and the required effectiveness of the hedge is demonstrated. NWB Bank only uses derivative financial instruments as hedging items, and these are stated at fair value in the balance sheet. Together with value changes in the hedged position related to the covered risk, value changes of the derivatives which are part of the fair value hedge are recorded in profit or loss as results from financial transactions.

NWB Bank applies two types of fair value hedge accounting, which are micro hedging and macro hedging. Micro hedging relates to individual transactions which are included in an economic hedge relationship covering interest rate and foreign exchange risks. It involves a one-on-one relationship between the hedged instrument and the hedged item. Macro hedging relates to a group of transactions that is hedged, for interest rate risk purposes, by using a group of derivative financial instruments. There is no one-on-one relationship between the hedged item and the hedging instrument at an individual level. It is demonstrated at a portfolio level that the derivative financial instruments in question set off the fair value changes caused by interest rate fluctuations.

Foreign currencyMonetary assets and liabilities denominated in foreign currencies are translated at the spot middle rates (Amsterdam exchange rates) ruling at the balance sheet date. The use of middle rates is connected to the policy of NWB Bank, which states that all foreign currency positions are hedged individually, and which effectively causes the day-to-day foreign currency-denominated flows of funds to be virtually nil.

Gains or losses arising from transactions in foreign currencies are translated at the rates ruling on the transaction date. All currency translation differences of monetary assets and liabilities are recognised in profit or loss.

Currency swaps are used to hedge foreign exchange exposures on loans receivable and payable. These positions are translated at the fair value of the instrument ruling at the balance sheet date. The results are recorded as results from financial transactions.

Loans and receivables and banksLoans and receivables and banks are stated at amortised cost using the effective interest method. A provision for uncollectibility is formed in the event of expected uncollectibility.

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Interest-bearing securitiesInterest-bearing securities are intended primarily to be held for an indefinite period and may be sold to meet liquidity requirements or in response to changes in interest rates. They are initially stated at fair value. For subsequent measurement, interest-bearing securities can be divided into the following three categories.

Interest-bearing securities held to maturityPurchased loans, receivables and bonds with fixed or determinable payments that NWB Bank has a positive intention and the contractual and economic ability to hold to maturity are stated at amortised cost using the effective interest method.

Other unlisted interest-bearing securitiesOther unlisted interest-bearing securities are stated at amortised cost using the effective interest method.

Other listed interest-bearing securitiesOther listed interest-bearing securities are stated at fair value. As long as the value change of an individual interest-bearing security is positive, it is recorded directly in equity until the time of realisation. Once derecognised, the cumulative unrealised gain or loss on an individual asset recorded directly in equity is taken to profit or loss. Any cumulative decrease in value below cost is immediately taken to profit or loss. Any subsequent unrealised increases in value of the relevant interest-bearing security is taken to profit or loss to the extent that it is below amortised cost. Any increase in value above amortised cost is recorded in equity.

If interest-bearing securities are included in a fair value hedge relationship, the effective part of the hedge is recognised in profit and loss, rather than equity. When financial assets are derecognised the cumulative profit recognised in equity or the cumulative loss is recognised in profit or loss.

Intangible assetsThis item includes the costs and expenditure related to computer software. After initial recognition, the intangible asset is recognised at cost less any accumulated amortisation and impairments. The useful life is considered to be five years and amortisation is straight-line over the useful life. The amortisation period and amortisation method will be reviewed if there is cause to do so.

Tangible fixed assetsTangible fixed assets are property and equipment. They are stated at fair value and cost, respectively, net of straight-line depreciation. The fair value of property is assessed annually and measured regularly based on valuations conducted by independent property valuers. Depreciation of these assets is recognised in profit or loss over the expected useful lives of the assets concerned.F

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Annual depreciation rates are:

n Building 2 ½%

n Fixtures and installations 10%

n Equipment, furniture and fittings, etc.:

- furniture and fittings, etc. 10%

- office equipment 20%

n Computer equipment:

- personal computers 20%

- other equipment 20%

n Cars 20%

Land is not depreciated.

An asset’s residual value, useful life and measurement methods are reviewed and adjusted, if appropriate, on an annual basis.

DerivativesA derivative is a financial instrument with the following three characteristics:n The value changes as a result of changes in market factors, such as a certain interest rate, price of a

financial instrument, exchange rate, creditworthiness or other variable (the underlying value);n No or a minor net initial investment is required in comparison with other types of contracts that

respond in a similar way to changes in the market factors mentioned; andn It is settled at a future date.

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into. Any discrepancies between a financial instrument’s fair value and the value under the Bank’s measurement models are amortised over the instrument’s term. Derivatives are also subsequently remeasured at fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in fair value on derivatives are recognised in profit or loss as results from financial transactions. Generally accepted measurement models are applied, based on the 3-month swap curve. Prompted by the credit crisis, best practices for measuring swaps have evolved. The changes relate to market trends involving the increasing consideration of credit risks and agreements concerning collateral, which require the use of specific yield curves. The Bank intends to introduce these changes in 2013, simultaneously with the changes to the hedge accounting system they require.

Embedded derivatives are measured separately if they meet the following characteristics:n There is no close relationship between the economic characteristics and risks of the embedded

derivative and those of the host contract;n The host contract is not carried at fair value through profit or loss; andn A separate instrument having the same characteristics would be classified as a derivative.

Derivatives meeting these characteristics are included in the balance sheet under the host contracts to which they belong and carried at fair value at the time of the contract’s inception, with changes in value being taking to profit or loss. Contracts are assessed only when the transaction is effected, unless the terms of a contract change such that expected cash flows are significantly impacted.

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Banks, funds entrusted and debt securitiesAll loans under banks, funds entrusted and debt securities are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans are subsequently stated at amortised cost using the effective interest method. Gains and losses are recognised in net interest income when the liabilities are derecognised.

Employee benefits - defined benefit plan obligationsPursuant to Dutch Accounting Standard 271 Employee Benefits, NWB Bank applies the IFRS-EU standard on pensions and other post-retirement benefits (IAS 19) in full.

NWB Bank has agreed a defined benefit pension plan with its employees. The plan is funded by paying premiums to an insurance company based on regular actuarial calculations.

A defined benefit plan is a scheme in which the payment to the retired plan participant is defined, taking account of factors such as age, years of service and salary. The provision for defined benefit plans is the present value of the pension liabilities at the balance sheet date less the fair value of the plan assets. These are adjusted for unrecognised results and costs relating to past years of service.

The defined benefit plan obligations are calculated annually by an independent actuary using the projected unit credit method, based on the expected return on plan assets.

Actuarial gains and losses are recognised as income or expense if the net cumulative unrecognised actuarial gains and losses for each individual plan at the end of the previous financial year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are amortised over the expected average remaining working lives of the employees participating in the plans.

OffsettingA financial asset and a financial liability are offset and reported on a net basis if there is a legally enforceable right to offset the recognised amounts and if there is an intention either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to NWB Bank and the revenue can be reliably measured.

Net interest incomeInterest income and expense are recognised in accordance with the effective interest method. The application of this method includes the amortisation of any discount or premium or other differences (including transaction costs and applicable commissions) between the initial carrying amount of an interest-bearing instrument and the amount at maturity, based on the effective interest method.

Bank taxBank tax is calculated on the basis of prevailing rates and tax legislation and stated on an undiscounted basis.

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Income taxIncome tax is recognised as an expense at the same time as profit. Deferred tax assets and deferred tax liabilities are stated on an undiscounted basis.

Current tax assets and liabilitiesCurrent tax assets and liabilities for the current and prior periods are stated at the amount expected to be recovered from or paid to the tax authorities. The tax payable is calculated on the basis of current tax rates and tax laws.

Deferred tax assets and liabilitiesDeferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on current tax rates and tax laws.

In recognising deferred tax assets, account is taken of the income tax due on the changes in value of the interest-bearing securities included under Available-for-sale financial assets.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to offset them exists.

Basis for preparation of the statement of cash flowsThe statement of cash flows is presented in accordance with the indirect method, distinguishing between the cash flows from operating/banking, as well as investing and financing activities.

Cash and cash equivalents represent those assets which can be converted into cash without restriction, including the cash available as well as balances payable on demand at central banks.

The changes in loans and receivables, funds entrusted and based on the bank deposit operations are stated under cash flow from operating/banking activities given the nature of the operations. Changes in interest-bearing securities not held to maturity are also stated under cash flow from operating/banking activities.

Investing activities include the purchase and sale and settlement of interest-bearing securities held to maturity, as well as the purchase and sale of property and equipment. New long-term loans taken out and repaid (terms > 1 year) are classified as a financing activity.

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Segment informationThe Bank’s organisation not being geared towards operations in different sectors, NWB Bank’s Managing Board does not distinguish between operating segments in its assessment and decision-making about returns and allocation of resources. Accordingly, no segment information is disclosed.

Significant assumptions and estimation uncertaintiesThe preparation of the financial statements in accordance with NL GAAP requires that the Managing Board forms opinions and makes estimates and assumptions that have an impact on the application of accounting policies and the reported value of assets and liabilities and of income and expenditure. The estimates and associated assumptions are based on past experience, market information and various other factors considered to be reasonable given the circumstances. The outcomes form the basis for the opinion on most of the carrying amounts of assets and liabilities which cannot be easily established from other sources. The actual outcomes may differ from these estimates.

The estimates and underlying assumptions are reviewed regularly. Revisions of estimates are recognised in the period in which the estimate was revised if the revision only has consequences for that period, or in the period of revision and future periods if the revision has consequences for both the reporting period and future periods.

Opinions formed by the Managing Board for the application of NL GAAP that could have a significant impact on the financial statements and estimates containing a substantial risk of a material adjustment in a subsequent financial year relate primarily to the measurement of financial assets and liabilities stated at fair value, as well as to the assumptions underlying the hedge accounting models.

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1 Net interest incomeInterest income consists of interest income on loans and receivables, interest-bearing securities and commissions having an interest nature. Premiums and discounts on loans and receivables not stated at fair value are recognised using the effective interest method, together with the relevant interest income.

Interest expense consists of interest expense on liabilities, whether or not embodied in debt securities, and derivatives, as well as commissions having an interest nature, penalty interest on early redemptions, premiums and discounts. Premiums and discounts on debts, whether or not embodied in debt securities, not stated at fair value are recognised using the effective interest method, together with the relevant interest expense.

2012 2011

Interest income on loans and receivables at amortised cost 1,833,859 1,768,754

Interest income on interest-bearing securities 30,313 63,408

Interest income 1,864,172 1,832,162

Interest expense on banks, funds entrusted and debt securities

at amortised cost -952,122 -1,081,760

Derivatives (net interest income/expense) -804,618 -675,558

Interest expense -1,756,740 -1,757,318

Net interest income 107,432 74,844

Interest income on loans and receivables at amortised cost includes a one-off gain of €10.3 million from sales and early redemptions in 2012 (2011: €0.4 million).

The increase in interest is caused primarily by the favourable rates under the Bank’s Euro Commercial Paper programme.

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2 Results from financial transactions

This item can be broken down as follows.2012 2011

Unrealised changes in value:

Revaluation of hedged positions recognised in profit or loss 1,788,767 2,504,767

Revaluation of hedging instruments -1,829,575 -2,486,637

Unrealised revaluation of interest-bearing securities 22,867 9,490

-17,941 27,620

Realised changes in value:

(Loss)/gain on sale -6,381 10,659

Other - -

-6,381 10,659

Total -24,322 38,279

The realised changes in value include premiums and fees received on settlement of derivative contracts, realised (revaluation) results on the sale of interest-bearing securities and commission. On the assets side of the balance sheet, the fair value while applying hedge accounting of the financial instruments is €13,394 million at 31 December 2012 (31 December 2011: €9,657 million). On the liabilities side, the fair value is €13,398 million at 31 December 2012 (31 December 2011: €9,640 million).

Among other items, the unrealised changes in value in 2012 include an addition (- €16 million) to the improvements made in 2011 in determining the fair value of financial instruments, as well as an adjustment (- €10 million) to unrealised fair value results from a number of financial instruments recognised in 2011.

NWB Bank borrows significant amounts in foreign currency. The associated risks are immediately and fully hedged by means of currency swaps. The currency risks run by NWB Bank are minimal.

3 Employee benefits expense

The average number of employees expressed in FTEs, including the Managing Board, was 44.2 (2011: 38.7).

2012 2011

Wages and salaries 3,686 3,319

Pension costs 897 801

Social security costs 444 283

Other 555 610

5,582 5,013

The once-only levy provided for in Section 32bd of the Dutch Payroll Tax Act 1964 (Wet op de loonbelasting), known as the crisis levy, is presented under social security costs.

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The remuneration, including regular pension costs, of the members of the Managing Board amounted to €944,000 in 2012 (2011: €691,000).

Remuneration of members of the Managing Board

Fixedremuneration

Variableremuneration

Pensioncontribution

2012

Lidwin van Velden 210 21 58

Frenk van der Vliet 210 21 50

Ron Walkier 277 - 97

697 42 205

2011

Lidwin van Velden 208 21 56

Ron Walkier 276 37 93

484 58 149

The fixed remuneration comprises the fixed salaries for 13 months as well as an 8% holiday allowance. The members of the Managing Board are granted a taxed annual expense allowance of €2,820 each. In addition, the Bank has made a car available to them. Furthermore, they can use a staff mortgage loan discount plan. In 2012, this taxed benefit amounted to €7,000 for Lidwin van Velden (2011: €7,000) and €5,000 for Frenk van der Vliet.

The Supervisory Board has decided to definitively grant the long-term element of the variable remuneration for 2009. Former Managing Board member Lex Van Cleef will receive an amount of €5,000. Managing Board Chairman Ron Walkier has waived his variable remuneration for 2012, given the prevailing suspension of dividend distributions. His variable remuneration comprises a short-term element of €28,000 and a long-term element for 2009 of €7,000.

Long-term elements of the variable remuneration for 2010, 2011 and 2012 conditionally granted to Ron Walkier amount to €14,000, €14,000 and €14,000, respectively, representing 5% of his fixed remuneration for 2010, 2011 and 2012.

In 2012, €133,000 was also paid to the pension fund within the context of a catch-up operation with respect to indexation of Ron Walkier’s pension entitlements accrued in 2009, 2010 and 2012.

The long-term elements of the variable remuneration for 2010, 2011 and 2012 conditionally granted to Lidwin van Velden amount to €10,000, €10,000 and €10,000, respectively, representing 5% of her fixed remuneration. In 2012, €2,000 was also paid to the pension fund with respect to indexation of Lidwin Van Velden’s pension entitlements accrued in 2012.

The long-term element of the variable remuneration for 2012 conditionally granted to Frenk van der Vliet amounts to €10,000, representing 5% of his fixed remuneration.

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4 Other administrative expensesThese include accommodation, office and general expenses. The remuneration of the nine (2011: seven) Supervisory Board members, which is also included in this item, amounted to €183,000 (2011: €168,000).

Remuneration of members of the Supervisory Board

2012 2011

Age Bakker 24 -

Else Bos 25 25

Dolf van den Brink 39 41

Peter Glas 17 9

Sjaak Jansen 22 18

Victor Goedvolk 23 27

Maurice Oostendorp 2 -

Ad Segers - 8

Edu baron van Tuyll van Serooskerken 6 16

Albertine van Vliet-Kuiper 2

Berend-Jan baron van Voorst tot Voorst 23 24

183 168

The above amounts include membership fees for committees, general expense reimbursements, health insurance premiums and travel expense reimbursements. They exclude VAT where applicable.

Audit feesIn the financial year, the following fees were recognised, within the meaning of Section 382a of Book 2 of the Dutch Civil Code. The amounts include VAT.

2012 2011

Audit of the financial statements 300 400

Other assurance engagements 85 512

Other non-assurance services 31 12

416 924

The higher audit fees in 2011 relate to services provided in connection with the conversion from accounting policies under IFRS-EU to those under NL GAAP and prior-year non-recurring expenses.F

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5 Contribution to Stichting NWB FondsIn 2012 and 2011, no contribution was made to Stichting NWB Fonds. Stichting NWB Fonds is an institution for general public advancement and is involved in encouraging developments in water management in developing countries. The Association of Regional Water Authorities nominates the majority of members of the board of Stichting NWB Fonds.

6 Depreciation and amortisation This item consists of depreciation of the office building, building fixtures, installation costs, furniture and fittings, computer equipment and cars as disclosed in the note to the item Property and equipment. The amortisation of intangible assets is also included in this item.

7 Bank tax With effect from October 2012, NWB Bank has been liable to bank tax. The amount for 2012 was based on the balance sheet at year-end 2011 and charged to profit for 2012.

8 Income tax expense

2012 2011

Winst voor belastingen 57,409 98,422

Income tax at 25.0% 14,347 24,605

Non-deductible expenses relating to bank tax 3,035 n/a

Income tax adjustments for prior financial years -7 -721

Income tax on revaluation of tangible fixed assets - -177

Income tax expense 17,375 23,707

Effective tax burden (%) 25.0% 24.1%

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The income tax burden can be broken down into current tax and deferred tax as follows.

2012 2011

Current tax

For the current financial year 16,318 38,143

Income tax adjustments for prior financial years -7 -721

16,311 37,422

Deferred tax

Release of deferred tax asset arising when the Bank first became liable to tax 6,261 8,080

Release/addition relating to provision for pensions 74 15

Income tax on income and expense recognised directly in equity 619 -678

Results from ‘basisrentelening’ loans deferred for tax purposes -786 -786

Change due to unrealised changes in value and changes in measurement -5,104 -20,346

1,064 -13,715

Income tax expense 17,375 23,707

The current tax charge for the 2012 financial year is lower than that based on the statutory tax rate of 25.0%. This is caused mainly by the release of the difference in measurement of assets and liabilities when the Bank first became liable to tax as at 1 January 2005 and the unrealised changes in value in the current financial year.

The current tax charge for the 2011 financial year is higher than that based on the statutory tax rate of 25.0%. This is caused primarily by the change in measurement of the tax bases of assets and liabilities. In 2011, their tax base was cost, whereas the lower value in use had been used up to and including 2010.

9 Cash and cash equivalents This item consists of legal tender and on-demand balances at De Nederlandsche Bank.

10 Banks This item mainly comprises collateral held under collateral arrangements related to derivative contracts, which is not at the Bank’s disposal.

It can be broken down as follows.

2012 2011

Balances payable on demand 100 94

Receivables under collateral arrangements 6,725,420 4,330,590

Total 6,725,520 4,330,684For

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11 Loans and receivablesThis item consists of loans and receivables, other than interest-bearing securities, from customers other than banks. The receivables, which, apart from several employee loans, are all to public-sector customers, are mostly long-term. Public-sector loans and receivables are understood to include those to or guaranteed by Dutch and foreign public authorities, and to government-controlled public limited liability companies and other businesses or institutions with delegated government duties.

Changes in loans and receivables were as follows.

2012 2011

Balance as at 1 January 53,932,329 46,967,501

Newly granted 18,091,715 14,189,043

Redemptions -14,920,309 -10,718,934

Value adjustment for fair value hedge accounting 2,096,468 3,504,524

Fair value of separated derivatives embedded in loans and receivables -2,881 -9,805

Balance as at 31 December 59,197,322 53,932,329

Breakdown of public-sector loans and receivables by nature of the receivable:

2012 2011

Receivables from or under guarantee from the Dutch government 49,963,561 46,755,740

Receivables from or under guarantee from foreign governments - 25,565

Other loans to and receivables from the public sector and others 354,276 365,125


Fair value of separated derivatives embedded in loans and receivables -20,045 -17,164

59,197,322 53,932,329

Receivables from or under guarantee from the Dutch government can be broken down as follows.

2012 2011

Water boards 5,449,771 5,139,491

Municipal authorities 7,378,968 7,022,671

Housing corporations 32,491,588 29,213,962

Other 4,643,234 5,379,616

49,963,561 46,755,740

Given the risk profile of NWB Bank’s counterparties, a provision for uncollectibility is not necessary as at the balance sheet date.

The separated derivatives embedded in loans and receivables are separated caps and floors included in the interest terms.

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The collateral value of the portion of the loans and receivables portfolio pledged as collateral to De Nederlandsche Bank was €9.5 billion as at 31 December 2012 (€10.6 billion as at 31 December 2011).

Loans and receivables totalling €3.3 billion have a term to maturity of less than twelve months.

2012 2011

Loans to and receivables from former members of the Managing Board outstanding: 460 460

12 Interest-bearing securitiesThis item can be broken down as follows.

2012 2011

Interest-bearing securities held to maturity 796,721 842,106

Other listed interest-bearing securities 560,632 567,994

Other unlisted interest-bearing securities 51,167 61,085

1,408,520 1,471,185

The movement in interest-bearing securities in 2012 and 2011 was as follows.

Public-sectorbodies

Other Total

Balance as at 1 January 2012 513,310 957,875 1,471,185

Purchases - - -

Sales and redemptions -8,868 -78,099 -86,967

Changes in value of Other interest-bearing securities 16,154 8,148 24,302

Balance as at 31 December 2012 520,596 887,924 1,408,520

The collateral value of the portion of the interest-bearing securities portfolio pledged as collateral to De Nederlandsche Bank was €0.4 billion as at 31 December 2012 (€0.4 billion as at 31 December 2011).

Public-sectorbodies

Other Total

Balance as at 1 January 2011 1,093,582 1,377,119 2,470,701

Purchases 250,000 - 250,000

Sales and redemptions -796,845 -406,643 -1,203,488

Changes in value of Other interest-bearing securities -33,427 -12,601 -46,028

Balance as at 31 December 2011 513,310 957,875 1,471,185

Interest-bearing securities totalling €86 million (2011: €42 million) have a term to maturity of less than 12 months.

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13 Intangible assetsThis item comprises costs and expenses related to software. The breakdown of this item in 2012 and 2011 was as follows.

2012 2011

Carrying amount as at 1 January 1,990 1,099

Additions 1,430 1,373

Amortisation -984 -482

Carrying amount as at 31 December 2,436 1,990

At 31 December, the cumulative amounts were:2012 2011

Additions 5,127 3,697

Amortisation -2,691 -1,707

Carrying amount as at 31 December 2,436 1,990

14 Tangible fixed assetsThe breakdown of tangible fixed assets and their changes in 2012 are as follows.

Property in use by the

bank

Otherequipment

Total

Carrying amount as at 31 December 2011 5,565 612 6,177

Additions in 2012 - 528 528

Disposals in 2012 - -14 -14

Depreciation in 2012 -487 -254 -741


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As at 31 December 2012, the cumulative balances were:


bank

Otherequipment

Total

Additions 8,991 6,329 15,320

Depreciation -4,171 -5,457 -9,628

Amortised cost 4,820 872 5,692

Revaluations 258 - 258

5,078 872 5,950

The fair value of the property was determined by an independent property valuer in 2011. Other equipment consists mainly of furniture and fittings, computer equipment and cars.

The breakdown of tangible fixed assets and their changes in 2011 are as follows.


bank

Otherequipment

Total


Additions in 2011 1,023 18 1,041

Disposals in 2011 - -7 -7

Revaluations -709 - -709

Depreciation in 2011 -496 -224 -720


As at 31 December 2011, the cumulative balances were:

Additions 8,991 5,801 14,792

Depreciation -3,684 -5,189 -8,873

Amortised cost 5,307 612 5,919

Revaluations 258 - 258

5,565 612 6,177

15 Other assetsThis item relates principally to amounts receivable and payments in transit on the balance sheet date. F

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16 Derivative assetsThis item consists of interest rate swaps and currency swaps, caps, floors and swaptions. These products are carried at fair value, including accrued interest. Models are used for measurement purposes, using the 3-month swap curve for discounting.

Breakdown by remaining term to maturity of fair values as at 31 December 2012:

<3 3-12 1-5 >5 2012months months years years Total

Interest rate swaps 8,230 65,301 705,732 1,853,561 2,632,824

Currency swaps 28,677 246,278 1,425,789 1,681,327 3,382,071

Caps, floors and swaptions - - 118 129,312 129,430

Total 36,907 311,579 2,131,639 3,664,200 6,144,325

Breakdown by remaining term to maturity of fair values as at 31 December 2011:

<3 3-12 1-5 >5 2012months months years years Total


Currency swaps 490,116 347,690 1,771,348 2,131,390 4,740,544

Caps, floors and swaptions - - - 141,396 141,396

Total 494,305 354,987 2,248,631 3,703,400 6,801,323

17 Prepayments and accrued incomeThis item primarily comprises interest accrued on interest-bearing assets not recognised at fair value through profit or loss. It also comprises prepaid amounts for costs related to the next accounting period or periods and the uninvoiced amounts to be received regarding income recognised in the current or previous accounting period or periods.

18 Banks This item consists of liabilities, other than debt securities, due to domestic and foreign banks. These liabilities result largely from long-term loans. The collateral included in this item concerns collateral held under collateral arrangements related to derivative contracts.

This item can be broken down as follows.2012 2011

Cash loans - -

Loans taken out at banks 1,315,784 426,399

Value adjustment for fair value hedge accounting 240,444 118,013

Liabilities under collateral arrangements 968,880 1,491,320

2,525,108 2,035,732

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19 Funds entrustedThis item consists of liabilities, other than debt securities, due to parties other than banks. This item can be broken down as follows.

2012 2011

Funds entrusted 1,293,389 1,422,256

Value adjustment for fair value hedge accounting 95,463 95,710

1,388,852 1,517,966

20 Debt securitiesThis item, which consists of negotiable interest-bearing debt instruments, can be broken down as follows.

2012 2011

Bond loans 46,222,834 42,271,529

Short-term debt securities 9,511,844 9,461,989


Fair value of separated derivatives embedded in debt securities -405,102 -491,062

58,302,470 53,316,888

Of the total amount in debt securities issued €6,837 million (2011: €4,552 million) carries a variable interest rate. Debt securities totalling €14.7 billion have a term to maturity of less than twelve months.

The separated derivatives embedded in the debt securities are separated structured components included in the interest terms.

21 Income taxWith effect from 1 January 2005, NWB Bank has been liable to income tax. In 2008, the tax authorities approved the fair values applied in the opening balance sheet for tax purposes and the allocation of the fair value difference over future accounting periods.

Income tax payable in 2012 en 2011 can be broken down as follows.

2012 2011

2011 21,308 21,314

2012 5,995 -

27,303 21,314

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The amounts payable for the financial years can be broken down as follows. 2012 2011

Current tax expense 16,318 38,143

Advances paid -10,323 -16,829

5,995 21,314

22 Deferred tax liabilitiesThe changes in deferred tax liabilities were as follows.

2012 2011

Balance as at 1 January 2,032 -259

Release when the Bank first became liable to tax 6,261 8,080

Change as a result of temporary differences in the financial year recognised in profit or loss -5,030 15

Change due to change in measurement of tax bases - -20,346

Results from ‘basisrentelening’ loans deferred for tax purposes -786 14,542

Balance as at 31 December 2,477 2,032

The change in measurement of tax bases means that assets and liabilities were measured at cost, whereas the lower value in use had been used up to and including 2010.

The change resulting from temporary differences in the financial year recognised in profit or loss relates predominantly to the difference between measurement of the financial instruments for tax purposes and that for financial reporting purposes. It also includes the different tax treatment of pension costs.

23 Other liabilities This item consists principally of amounts payable and offsettable in connection with amounts to be amortised, payments in transit on the balance sheet date and VAT payable.

2012 2011

Prepaid interest and redemptions 54,925 21,639

Other liabilities 860 39,431

55,785 61,070

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24 Derivative liabilitiesThis item consists of interest rate swaps and currency swaps, caps, floors and swaptions. These products are carried at fair value. Models are used for measurement purposes, using the swap curve for discounting.

Breakdown by remaining term to maturity of negative fair values as at 31 December 2012:

<3 3-12 1-5 >5 201231 December 2012 months months years years Total

Interest rate swaps 6,283 82,694 1,137,647 9,776,175 11,002,799

Currency swaps 257,197 45,699 114,438 279,306 696,640

Caps, floors and swaptions - - 23 124,108 124,131

Total 263,480 128,393 1,252,108 10,179,589 11,823,570

Breakdown by remaining term to maturity of negative fair values as at 31 December 2011:

<3 3-12 1-5 >5 201231 December 2011 months months years years Total


Currency swaps 3,413 17,085 46,417 369,218 436,133

Caps, floors and swaptions - - 134,898 134,898

Total 6,202 57,356 1,008,107 7,767,109 8,838,774

25 Accruals and deferred incomeThis item primarily comprises interest accrued on interest-bearing liabilities. It also comprises advance receipts for income attributable to the next accounting period or periods and uninvoiced amounts payable in relation to expenses attributable to the past accounting period or periods.

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26 ProvisionsThis item only comprises a provision for employee benefits.

2012 2011

Current service cost 598 537

Interest cost 837 797

Expected return on plan assets -629 -608

Employee benefits expenses 806 726

Defined benefit obligation 26,431 17,830

Fair value of plan assets -19,578 -14,562

6,853 3,268

Net actuarial losses -4,162 -283

Provision for employee benefits 2,691 2,985

Opening defined benefit obligation 17,830 16,525

Interest cost 837 797

Current service cost 598 537

Benefits paid -787 -515

Actuarial losses on obligation 7,953 486

Closing defined benefit obligation 26,431 17,830

Opening fair value of plan assets 14,562 13,326

Expected return 629 607

Employer contributions 1,101 788

Benefits paid -787 -515

Actuarial gains 4,073 356

Fair value of plan assets as at 31 December 19,578 14,562

The projected employer contributions for 2013 to the defined benefit plans as at 31 December 2012 amount to €1.1 million.

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The principal assumptions used in determining the provision for employee benefits are shown below.

2012 2011

Discount rate 3.3% 4.8%

Expected rate of return on plan assets 3.3% 4.8%

Future salary increases (including inflation) 3.25% 3.25%

Future pension increases 2.0% 2.0%

Changes in these assumptions may significantly impact the measurement of defined benefit obligations and plan assets.

The rules on pension accounting were amended with effect from 1 January 2013. Further details and a quantification of the impact on equity and profit can be found under “Basis of preparation”.

27 Paid-up and called-up share capitalThis item consists of:

A sharesThese shares have a nominal value of €115, of which 100% was required to be paid up.Each A share carries one vote at shareholders’ meetings.

B sharesThese shares have a nominal value of €460, of which 25% was required to be paid up.Under the Articles of Association, the Supervisory Board may call for further payments to be made.Each B share carries 4 votes at shareholders’ meetings.

Breakdown at year-end 2012: Issued Paid-up

A sharesBalance as at 31 December 2012 (50,478 shares) 5,805 5,805

B sharesBalance as at 31 December 2012 (8,511 shares) 3,915

Of which unpaid: (74% of 8,510 shares) -2,896

1,019

Total paid up as at 31 December 2012 6,824

Total paid up as at 31 December 2011 6,824For

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28 Revaluation reservesMovements in the revaluation reserves in 2012 and 2011 were as follows.

Interest-bearing securities

revaluation reserve

Otherrevaluation

reserves

Total

Balance as at 1 January 2011 657 976 1,633

Changes in value of interest-bearing securities 2,035 2,035

Revaluation of tangible fixed assets - -709 -709

Balance as at 31 December 2011 2,692 267 2,959

Changes in value of interest-bearing securities -1,856 - -1,856

Balance as at 31 December 2012 836 267 1,103

De NWB Bank states certain assets, notably derivatives, at fair value. It has elected to consider the unrealised changes in their value arising upon the revaluation of such assets and the unrealised changes in the value of liabilities stated at fair value in the aggregate, given that these positions are also assessed in the aggregate as part of the Bank’s risk management. If and to the extent that increases in the value of such assets must be included in a revaluation reserve pursuant to Section 390, subsection 1, of Book 2 of the Dutch Civil Code, the net amount in unrealised changes in fair value at 31 December 2012 did not give the Bank reason to form a revaluation reserve.

29 Other reservesChanges in other reserves were as follows.

As at 1 January 2011 1,035,000

Appropriation of 2010 profit 91,000Distribution for 2010 -23,000

As at 31 December 2011 1,103,000

Appropriation of 2011 profit 75,000

Distribution for 2011 -

As at 31 December 2012 1,178,000

30 Profit for the yearThe balance sheet is presented before profit appropriation. The proposed profit appropriation for 2012 is included under Other information. F

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31 Irrevocable commitments

These commitments relate to:

2012 2011

Loans granted but not yet paid 3,109,653 3,999,712

Collateral commitments 186,320 -

Increases in ‘klimleningen’ owing to accrued interest 1,079 1,101

Unused current account overdraft facilities 441,205 518,482

Unused financing facilities 526,210 753,570

Guarantees issued 2,285 3,106

4,266,752 5,275,971

32 Contingent liabilitiesThis item consists of commitments which could arise on guarantees issued (Standby Letters of Credit) in connection with the cross-border financing of water boards and bank guarantees issued to business contacts amounting to €91 million (2011: €206 million).

33 Fair value of financial instruments

GeneralThe fair value is the amount for which an asset could be exchanged or a liability settled in a transaction between knowledgeable, willing and independent parties.

When determining the fair value of financial instruments, reference is made to market prices to the extent the financial instruments are traded in an active market. Such market prices are unavailable for most financial instruments, however. In those cases, their fair value is determined using measurement models that use various assumptions relating to the discount rate and the timing and the size of the projected future cash flows. When calculating the fair value of options, generally accepted option pricing models are used.

The Bank establishes on a regular basis that the application of the measurement models leads to reliable fair values that fit the risk profile of the assets and liabilities. Ongoing changes in market conditions require the Bank to adjust, on a regular basis, the measurement parameters that serve as inputs for the measurement models.

Loans and receivables, and debt securitiesA measurement model is used to determine the fair value of loans and receivables, and debt securities. The model is also used as a basis for internal risk reports.

The principle underlying the model is a going concern approach pursuant to which the Bank i) generally grants loans that it holds until they mature and ii) funds the relatively long-term loans with shorter-term loans on average.

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The measurement curve is based on the average cost of funding, which is the swap interest rate plus a spread. The spread is effectively a measure of the additional funding charges the Bank pays on account of liquidity and credit risks. Those additional charges are determined based on the funding outstanding as at the reporting date. The spread resulting from this calculation method is used across all relevant maturities (continuous curve). The assumption is that the spreads applying to the Bank are equally representative of the non-market-observable spreads applying to the Bank’s borrowers.

Interest-bearing securities Other listed interest-bearing securities are carried at market prices. Fair values of the other interest-bearing securities are determined using the model that is also used for loans and receivables.

Derivative liabilities NWB Bank uses the swap curve to measure derivatives, which represents the price level at which the Bank closes swaps. Credit risks in the swap market are largely mitigated by exchanging collateral.

Overview of fair values of financial instrumentsThe following table sets out the estimated fair value of the financial assets and liabilities and other financial

instruments not disclosed on the face of the balance sheet. For comparative purposes, accrued interest is

allocated to the carrying amounts. A number of items are not included in the table as they do not meet the

definition of a financial asset or liability. The total of the fair values disclosed below does not represent the

underlying market value of NWB Bank and therefore should not be interpreted as such.

Carrying amount

31-12-2012

Fair value

31-12-2012

Carrying amount

31-12-2011

Fairvalue

31-12-2011

AssetsCash and cash equivalents 1,648,846 1,648,846 275,579 275,579

Banks 6,725,520 6,725,520 4,330,684 4,330,684

Loans and receivables 59,991,225 61,600,270 54,718,463 55,877,671

Interest-bearing securities 1,421,404 1,444,238 1,486,370 1,515,386

Derivative assets 6,144,325 6,144,325 6,801,323 6,801,323

Shares 205 205 205 205

LiabilitiesBanks 2,554,218 2,563,622 2,053,657 2,072,740

Funds entrusted 1,388,852 1,393,965 1,517,966 1,532,071

Debt securities 58,975,351 59,192,483 53,974,831 54,476,359

Derivative liabilities 11,823,570 11,823,570 8,838,774 8,838,774For

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Determining fair values of financial instrumentsThe table below sets out how the fair values of financial instruments carried at fair value in the balance sheet are determined.

31 December 2012 Measurement based on market prices

Measurement based on models using

data available in the market

Measurement based on models using data

unavailable in the market

AssetsOther listed interest-bearing securities 516 - -

Derivative assets - 6,144 -

Separated derivative assets - -20 -

LiabilitiesDerivative liabilities - 11,824 -

Separated derivative liabilities - -405 -

31 December 2011 Measurement based on market prices

Measurement based on models using

data available in the market

Measurement based on models using data

unavailable in the market

AssetsOther listed interest-bearing securities 586 - -

Derivative assets - 6,801 -

Separated derivative assets - -17 -

LiabilitiesDerivative liabilities - 8,827 -

Separated derivative liabilities - -491 -

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Financial derivatives

31-12-2012 31-12-2011

Notional amounts of interest rate swaps

Breakdown according to remaining terms to maturity:

Up to one year 9,210,696 13,040,191

Between one and five years 18,376,846 21,096,125

More than five years 43,474,361 38,546,752

71,061,903 72,683,068

Notional amounts of currency swaps 31-12-2012 31-12-2011

Breakdown according to remaining terms to maturity:

Up to one year 11,820,607 11,557,421

Between one and five years 13,555,027 11,220,090

More than five years 7,567,920 7,095,128

32,943,554 29,872,639

The notional amounts of the caps and floors total €530,909 (2011: €1,096,846) and those of the swaptions amount to €1,005,000 (2011: €990,000). These derivatives are included under the interest rate swaps in the previous table.

34 Risk management

General Risk management occupies a central position in the organisation. Risk awareness is an important

element of the business culture and is embedded in the Bank’s robust long-term strategy. The

organisation is designed to identify risks at an early stage, analyse them, set sensible limits and monitor

those limits. Risk management is characterised by its effective response to changing circumstances and

by providing proper parameters for the Bank’s operations. It helps the Bank keep its strong financial

position and very low cost structure.

Risk governanceThe Bank’s strategy places strict requirements on risk management and on the set-up and maintenance of adequate internal controls. NWB Bank adopts an organisation-wide approach to risk management and its control. As an important element of its supervisory role, the Supervisory Board, and in particular the Audit and Risk Committee of the Board, evaluates the management of the risks associated with the banking operations. The Managing Board sets the risk management parameters. Within these parameters, the Asset and Liability Committee (ALCO) takes decisions on the risks of the Bank. The Managing Board, treasury, public finance, risk management, finance & control, and back office are represented on the ALCO.

In conformity with the Dutch Banking Code, the Bank’s risk appetite was updated under the Managing Board’s responsibility and approved by the Supervisory Board. This documents the degree and areas of

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risk NWB Bank is prepared to accept in realising its strategic objectives. The risk appetite is reviewed annually and whenever significant events warrant such a review.

The rest of this section describes the internal risk management system for each relevant type of risk. The Bank lends virtually exclusively to public authorities and to companies and institutions related to the public sector. The counterparty risk arising from derivatives and money market transactions is limited as much as possible by applying a limit system, minimum creditworthiness requirements and collateral requirements. On balance, the credit risks are low and, consequently, so are the interest margins.

INTEREST RATE RISK: “The possible impact on profit and capital of interest rate fluctuations”

The Bank’s exposure to fluctuations in interest rates arises from differences in interest rate and terms between lending and borrowing. The Bank adopts a prudent policy towards these risks. The policy is to manage the interest rate risk bank-wide by closing interest rate swap transactions for both the asset and the liability side of the balance sheet, in which the Bank agrees to exchange, at specified intervals, the difference between fixed and variable interest rates calculated by reference to an agreed-upon notional amount.

Since the credit crisis, the Bank has been confronted with risks from changes in spreads compared with its benchmark, i.e. the swap interest rates. The higher degree of risk aversion has resulted in the Bank having to raise funding for longer periods at the swap interest rate with a spread, whereas in the past it did so at swap rates. At the same time, the Bank can fund itself for the shorter term (up to twelve months) at rates that are lower than the swap interest rate. These spread developments lead to changes in the fair value of assets and liabilities and also have an impact on net interest income (interest received less interest paid).

Prudent policy, supplemented by a management system tailored to suit that policy, is the basis for the calculation, monitoring and management of the interest rate risks. The ALCO decides on the size of the risks within the parameters set. To manage risks, DV01 limits (see explanation below), a gap analysis according to interest rate period, an Earnings at Risk measure and a scenario analysis are used. Outcomes from positions adopted are analysed using profit forecasts, interest margin analysis and performance analysis. This management information is also important for the decision-making process within the ALCO.

Interest rate sensitivity analysis (DV01)The range of interest rate risk management instruments was revised at the beginning of the financial year, prompted in part by the transition in 2011 from IFRS-EU (fair value option) to NL GAAP while applying hedge accounting.

Until 2012, the Bank used modified duration as a measure for determining and limiting the sensitivity of financial instruments to changes in interest rates. Duration served as a measure for the Bank’s entire portfolio, related to the fair value of equity.

Effective 2012, the dollar value of a basis point (“DV01”) is used as a measure of interest rate risk. An absolute measure derived from duration, it indicates the change in price or fair value, expressed in monetary units, caused by a one basis point (0.01%) change in the yield curve.

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The entire portfolio is subject to a €1.5 million limit, which is related to qualifying capital. The hedge portfolio’s interest rate sensitivity is managed using a range of DV01 limits for different time intervals, with the aim of mitigating the risk of hedge ineffectiveness. At year-end 2012, the entire portfolio’s DV01 stood at €1.2 million.

Short-term interest rate riskIn addition to the DV01 analysis, which provides an insight into the interest rate risk for the total term of the portfolio, NWB Bank applies the Earnings at Risk measure for the short term, with the aim of setting limits to the volatility of interest income during the next 365 days. This is a simulation measure, comparing the expected net interest income or expense for the next twelve months under various interest rate scenarios with the outcome of a baseline scenario. At year-end 2012, the outcomes for those scenarios were within the limits set.

Gap analysisAn example of a gap analysis according to interest rate period is shown below. The table is based on internal reports. The ALCO uses this analysis to review the positions of the Bank on the yield curve.

31 December 2012(in millions of euros)

Total 3 monthsor less

3 months - 1 year

1 year - 5 years

More than 5 years

AssetsLoans and receivables 67,858 15,008 4,536 20,202 28,112

Interest-bearing securities 1,381 763 101 176 341

Fixed-interest derivative assets 28,915 2,504 1,619 6,405 18,387

Variable-interest derivative assets 43,749 38,320 5,420 2 7

Total assets 141,903 56,595 11,676 26,785 46,847

LiabilitiesBanks, funds entrusted and debt securities 27,966 4,554 1,984 10,572 10,856

Fixed-interest derivative liabilities 64,471 10,365 3,771 15,894 34,441

Variable-interest derivative liabilities 47,336 41,726 5,017 321 272

Total liabilities 139,773 56,645 10,772 26,787 45,569

Total assets less liabilities in 2012 2,130 -50 904 -2 1,278

Total assets less liabilities in 2011 2,184 -832 2,281 -19 753

The present value of all instruments is presented on the basis of the swap curve. The derivatives include notional amounts to give a clearer picture of interest rate positions. Accordingly, no direct link can be made to the balance sheet.

Scenario analysisNWB Bank uses scenario analyses to gain an additional insight into the interest rate risk. A common scenario is to calculate the changes in the fair value of equity in the event of a parallel shift in the yield curve of -100 basis points (bp) and +100 bp. The table below illustrates the effects of such

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sudden changes in interest rates as at 31 December 2012 in terms of the resulting fair value changes, distinguishing between immediate and future effects on financial results.

The long-term effect merely indicates an opportunity loss. In other words, if NWB Bank had fully hedged its interest rate position, its future financial results would have been €154 million higher in the event of a 100 bp rise in interest rates.

(in millions of euros) Total changein fair value

Immediate effect on

profit or loss

Long-term effect on

profit or loss

Interest rate shock of +100 bp - 117 37 - 154

Interest rate shock of -100 bp 140 - 25 165

Based on interest rate scenarios, the sensitivity of the Bank to non-parallel changes in the yield curve is assessed and limited where necessary by the ALCO. In addition, scenario analyses are used to assess the sensitivity of the Bank to changes in the spread compared to the swap curve. To further manage this spread risk, a spread DV01 measure and concomitant limit were introduced in 2012. They indicate a maturity mismatch between funding and lending. The spread DV01 is quantified on the basis of the interest rate sensitivity of all long-term lending and funding. At year-end 2012, it was within the limit set.

LIQUIDITY RISK: “The possible impact on profit and capital of not being able to meet current obligations without incurring unacceptable losses”

NWB Bank has a AAA credit rating. With this credit rating, under normal circumstances, NWB Bank should always easily be able to cover its current and future liquidity requirements in the market. In case of market stagnation, NWB Bank has sufficient means, amongst others in the form of liquid assets and collateral pledged with De Nederlandsche Bank to repay loans and finance new loans at all times. NWB Bank currently has an ample collateral position at De Nederlandsche Bank. Virtually the entire loans portfolio of NWB Bank is accepted as collateral at De Nederlandsche Bank. The collateral value of the portion of the portfolio pledged as collateral to De Nederlandsche Bank was €9.9 billion as at 31 December 2012 (€11.0 billion as at 31 December 2011). However, NWB Bank did not call on this position. In terms of short-term funding, NWB Bank chiefly relies on the commercial paper market. As at 31 December 2012, €9.5 billion in commercial paper was outstanding. The ECP programme amounts to €15 billion.

The liquidity position is monitored daily. The aim of liquidity management is to ensure that there are sufficient funds available for the Bank to meet not only foreseen, but also unforeseen financial commitments. The Bank’s management is informed daily by means of a liquidity gap analysis, containing differences between the cash flows receivable and payable. Three different limits are used to limit actual short-term liquidity deficits.

At year-end 2012, NWB Bank met the internally defined targets for the Basel III ratios with respect to liquidity (LCR) and funding (NSFR). The targets have been included in the Basel III migration plan submitted to the Dutch banking regulator, De Nederlandsche Bank.

As noted above under ‘scenario analysis’, the Bank uses a maximum for the absolute liquidity deficit or borrowing requirement at any point in the future. In 2012, in order to be able to meet this standard within the

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transitional period set, the Bank raised €4 billion in long-term funding in excess of its long-term lending.An Internal Liquidity Adequacy Assessment Process (ILAAP) was performed in 2012, which focuses on managing liquidity risk. As part of the process, a formal Contingency Funding Plan was adopted, which sets out measures the Bank may take in the event one of various liquidity stress scenarios should materialise.

The balance sheet categories according to remaining contractual term, including all future interest cash flows and notional amounts of currency derivatives and before proposed profit appropriation, are presented below. The comparative figures also include the notional amounts of interest rate derivatives.

(in millions of euros) Total 3 monthsor less

3 months - 1 year

1 year - 5 years

More than 5 years

AssetsCash and cash equivalents 1,649 1,649 - - -

Banks, loans and receivables 74,545 8,523 4,080 23,171 38,771

Interest-bearing securities 1,412 6 246 689 471

Intangible assets 2 - - - 2

Tangible fixed assets 6 - - - 6

Income tax - - - - -

Derivative assets 18,001 354 314 2,286 15,047

Other assets 138 138 - -

Total as at 31 December 2012 95,753 10,532 4,778 26,146 54,297


LiabilitiesBanks, funds entrusted and debt securities 63,815 12,348 4,472 25,251 21,744

Other liabilities 379 - 379 - -

Derivative liabilities 29,482 453 1,196 5,585 22,248

Provisions 3 - - - 3

Income tax 27 - 27 - -

Deferred tax liabilities 2 - - - 2

Equity 1,226 - - - 1,226


Total as at 31 December 2011 84,472 14,426 5,058 27,173 37,815For

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CREDIT RISK: “The possible impact on profit and capital of counterparties not meeting their obligations”

The Bank’s policy is geared to an extremely high-quality loans portfolio. NWB Bank’s borrowers are mainly public authorities and institutions to which funds are lent under the guarantee of public authorities (including a limited securities portfolio). A relatively small proportion of loans is provided to government-controlled companies without government guarantee (Dutch utility companies). NWB Bank’s Articles of Association prohibit lending to the private sector. To a very small extent, the Bank also lends to governments in other Western European countries, applying the same quality standards as for domestic lending. Finally, the Bank enters into agreements with banks for money market transactions and currency and interest rate swaps, which result in counterparty risk.

The Bank applies no credit limits for Dutch public authorities. All other loans are included in the credit assessment system of the Bank. If a credit limit is set for a counterparty, it is adjusted annually, or as often as necessary, in line with the latest developments. Given the almost risk-free nature of most of its customers, who are, moreover, exempt from solvency requirements, the Bank’s credit risk is limited, which is also expressed in the robust BIS Solvency ratio.

The weighted credit risk (including commitments for loans not yet taken out) to which NWB Bank is subject in accordance with De Nederlandsche Bank standards was as follows on the reporting date:

(in millions of euros) Nominal2012

Weighted2012

Nominal2011

Weighted2011

Central governments 2,056 0 1,471 0

Regional governments 16,077 0 15,060 0

Institutions with delegated government duties 48,419 425 44,598 387

Development banks 66 0 63 0

International organisations 12 0 12 0

Counterparty banks 7,713 324 5,893 556

RMBS (NHG) notes 746 174 792 158

Other 10 10 11 11

Total 75,099 933 67,900 1,112

Most of NWB Bank’s lending comes under the category of 0% weighting, which means that the credit risk is considered to be very limited. The counterparty risks and money market lending come under the 20% and 50% weighting categories. Most of the RMBS (NHG) notes portfolio comes under the 20% weighting category, while a small portion is 100% and 350% weighted. Lastly, loans provided to Dutch utility companies are included in the 100% weighting category. F

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The table below provides an insight into the breakdown of loans granted by the Bank:

Loans portfolio, in nominal amounts(in millions of euros)

2012 2011

Water boards 4,868 4,751

Municipal authorities 6,819 6,838

Other public authorities 384 447

Housing corporations 31,492 28,936

Healthcare institutions 3,509 3,461

Other borrowers under government guarantee 527 499

Joint schemes 224 222

Government-controlled public limited liability companies 257 248

Other 62 72

48,142 45,474

NWB Bank’s borrowers as listed above are mainly public authorities and entities to which funds are

lent under the guarantee of public authorities. The Bank has never suffered a loan loss. Owing to the

adequate guarantees obtained and the very limited credit risk, no losses on loans granted are expected.

There is therefore no provision for uncollectibility. Both during the year and at the balance sheet date,

arrears were very low in monetary terms and of very short duration.

To manage the interest rate and currency risks, NWB Bank uses derivatives. To limit the credit risks

associated with these derivatives as much as possible, in principle, NWB Bank only enters into

transactions with counterparties with a single A rating at a minimum and limits are set to minimise the

total exposure from derivatives. The fair values of these derivatives can, depending on the agreements

reached with counterparties, be hedged by collateral agreements (also known as CSAs). The Bank’s

policy is to conclude CSAs with all counterparties and to ensure that netting agreements apply. A number

of the ISDA agreements concluded with counterparties have been amended. Portfolio management,

monitoring and collateral management were stepped up in the past few years with respect to individual

derivatives portfolios for all counterparties, as well as for the total derivatives portfolio. For example,

risk concentrations in the swap portfolio are assessed and managed and the portfolio’s spread across

rating categories and countries monitored. Of the total derivatives portfolio, over 15% of the contracts

- measured by notional amounts - was entered into with financial institutions that have at least double

A ratings. The total fair value exposure from derivatives to financial counterparties at year-end 2012

was €1,387 million, of which €969 million was covered by collateral pledged to the Bank (2011: €2,538

million and €1,491 million, respectively). The total fair value exposure from derivatives from financial

counterparties at year-end 2012 was €7,243 million, of which €6,725 million was covered by collateral

provided by the Bank (2011: €4,523 million and €4,330 million, respectively).For

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The tables below break down counterparty risk by rating category. Rating categories are based on

counterparty ratings published by S&P and Moody’s.

Positive replacement values of derivatives

Rating Nominal amount

Fair value Collateral

AAA 1,190 187 175

AA 3,372 337 75

A 14,390 863 719

Total 18,952 1,387 969

Negative replacement values of derivatives

Rating Nominal amount

Fair value Collateral

AA 11,742 838 789

A 72,996 6,376 5,937

BBB 316 29 -

Total 85,054 7,243 6,725

Settlement risk refers to the risk that, in settling a transaction, a counterparty fails to meet its obligations while the Bank meets its own. Instances in which this may happen include when the notional amount of a foreign exchange swap is ultimately exchanged and the associated foreign currency funding repaid. The resulting currency risk is hedged one-on-one using foreign currency swaps. The Bank monitors settlement risks that arise chiefly upon payment and receipt of foreign currency.

CURRENCY RISK: “The possible impact on profit and capital of changes in exchange rates”

The Bank’s policy is to eliminate all currency risks on both loans granted and borrowings. Currency risks arise primarily in respect of funds borrowed by the Bank. NWB Bank borrows significant amounts in foreign currency. The resulting currency risks are fully hedged immediately by entering into currency swaps.

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The table below shows the nominal values in millions in local currencies.

2012 2011

CCY Asset Liability Derivatives Total Asset Liability Derivatives Total

AUD -1,906 1,906 - -1,366 1,366 -

CAD -416 416 - -609 609 -

CHF -5,747 5,747 - -5,443 5,443 -

GBP -4,056 4,056 - -3,332 3,332 -

HKD -1,253 1,253 - -2,311 2,311 -

JPY -430,560 430,560 - -480,969 480,969 -

NOK -4,125 4,125 - -500 500 -

NZD -230 230 - -33 33 -

SEK -2,100 2,100 - -865 865 -

USD 138 -22,942 22,804 - 160 -22,436 22,276 -

ZAR - - - -125 125 -

OPERATIONAL RISK: “The possible impact on profit and capital of inadequate or ineffective internal processes and systems, inadequate or ineffective human actions or external events”

For NWB Bank, the main components of operational risk are losses incurred due to disruptions to the information, transaction processing and settlement systems, and ineffective procedures, particularly with respect to new services or products, as well as fraudulent and/or unauthorised actions on the part of employees or third parties.

ProceduresAs part of the management of operational risks, all important processes are described. The Internal Audit Department checks regularly whether the various procedures are being properly adhered to and whether they are still effective. The process descriptions are updated regularly.

New products or servicesThis process refers to the procedures the Bank follows in deciding whether it will produce or distribute a certain product, either at its own risk and expense or for the benefit of its clients, or whether it will enter a new market. This process involves a widely-scoped review in terms of transparency and risk management. No new product is marketed or distributed without careful consideration of risks by those responsible for risk management and meticulous checks against other relevant aspects. The Managing Board is responsible for the effectiveness of the product approval process. The Internal Audit Department, based on its annual risk assessment, each year verifies the process’ design, existence and effectiveness and reports its findings to the Managing Board and the Audit and Risk Committee.

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IncidentsAny incidents are reported to the compliance officer. If so requested by the Managing Board, the Internal Audit Department investigates the causes. The compliance officer proposes measures where necessary to prevent similar incidents from occurring in the future.

Information systemsTo prevent disruptions to the information systems, NWB Bank makes ongoing investments to improve its systems. Key words include security, integration, manageability and continuity. A transparent infrastructure and ICT organisation and optimum security of ICT components are in place to limit as far as possible the impact of operational disruptions at NWB Bank. For this purpose, adequate service and maintenance contracts have been concluded for all relevant hardware and software, IT employees receive training and contracts have been entered into with external parties for back-up, recovery and contingency facilities. In emergencies, NWB Bank has access to an external location where it can continue all its core activities. An online disaster recovery location will be available in 2013. This will allow ICT services to be continued immediately in the event of a disaster. The project is scheduled for completion in 2013.

Further efforts were undertaken in 2012 with regard to the project aimed at improving management reporting by setting up a data warehouse. This has resulted in a transition in terms of quality with regard to data gathering and robust management information and reporting.

OutsourcingIn 2006, NWB Bank outsourced its back office for customer funds transfers and the related ICT support operations. This means that certain services are performed outside the core of the business. The direct organisational management has therefore been reduced. At the same time, an additional control mechanism has been set up because NWB Bank continues to be responsible for funds transfers. This control mechanism focuses on a controlled and hence measurable and verifiable service.

Integrity and complianceNWB Bank attaches great value to its reputation as a solid and respectable Bank for the public sector. For this reason, compliance and integrity play an important role in the Bank’s control mechanism. The Bank wishes to ensure that its customers and investors can be completely confident in using its services and secure in the knowledge that their funds are safe.

In compliance with the Dutch Banking Code, the members of the Managing Board each signed the moral and ethical conduct declaration. The principles set out in this declaration apply to all employees. They were laid down in more detail in a code of conduct. This code forms part of the employment contracts, and it was posted on both the Intranet and the Bank’s website. The members of the Managing and Supervisory Boards will take the banker’s oath in 2013, pursuant to the Dutch Oath or Promise (Financial Sector) Regulation (Regeling eed of belofte financiële sector), which came into effect on 1 January 2013.

NWB Bank transfers some of the compliance-based duties to the Legal Affairs Department and, where supervision of compliance with the Insider Regulation is concerned, to an external supervisor. The external supervisor reports to the Managing Board and the Supervisory Board, while the internal compliance officer reports directly to the Managing Board. These reporting lines confirm the value that the Bank attaches to the internal supervision and the work of both compliance officers. The supervision-based rules and codes of conduct are an important element of the compliance role.

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Legal riskLike any other bank, NWB Bank is exposed to legal risk. NWB Bank operates on the principle of providing proper and sound financial services. The rapid succession of new and complex laws and regulation over the past few years is putting pressure on legal risk management. By keeping tabs on new trends in laws and regulations, and using standard contracts whenever possible, the Bank seeks to limit the legal risks for both NWB Bank and its customers. If needed, external advisers are consulted on legal issues and to review documents relating to these transactions.

Capital management policyIn 2012, NWB Bank complied with all the external and internal capital requirements. It seeks to maintain the highest possible credit rating, which is that of the State of the Netherlands. Rating agencies Moody’s and Standard & Poor’s (S&P) confirmed its AAA ratings in their annual assessments. While confirming the AAA rating, S&P placed the Bank on “negative outlook”, in common with the State of the Netherlands. S&P qualifies NWB Bank, a public-sector bank, as a Government Related Entity (“GRE”) with an exceptionally high likelihood of “extraordinary government support”, which links the Bank’s rating to that of the State of the Netherlands.

The main capital ratio is calculated in accordance with the standards set by the Financial Services Act (Wet Financieel Toezicht). These standards are based on the international solvency guidelines of the Basel Committee on Banking Supervision. The ratio compares the total capital base (net of proposed dividends) and the total of risk-weighted assets and off-balance sheet items. The minimum required ratio of total capital to risk-weighted assets is 8%.

With effect from 1 January 2008, the Bank switched from the Basel I to the Basel II supervisory regime. There are three pillars of the Basel II supervisory regime:

Pillar 1: the minimum capital requirements for each category of risk: credit risk, market risk, operational risk and concentration risk;

Pillar 2: internal processes for risk management and setting internal capital requirements: Supervisory Review and Evaluation Process (SREP) and Internal Capital Adequacy Assessment Process (ICAAP), outlier criterion and stress tests; and

Pillar 3: publication of financial headline figure requirements: market discipline and transparency.

1) Pillar 1The standardised method for credit risk uses external ratings linked to certain risk weightings. NWB Bank uses the credit ratings of Moody’s and S&P. The market risk concerns risks in the trading portfolio and currency and commodity risks. NWB Bank does not keep a trading portfolio and can apply an add-on to the credit risk in line with the standardised method for any residual market risk. When calculating qualifying capital for operational risk, NWB Bank uses the basic indicator approach. Under this approach, 15% of the relevant indicator is taken as a benchmark for the operational risk. The relevant indicator is the three-year average of the total of the annual net interest income and the annual net non-interest income at the end of the financial year. For NWB Bank, the indicator is limited to the net interest income. The Large Positions rule limits the concentration risk of a bank. NWB Bank’s large positions are connected to the swap portfolio. These positions are limited as much as possible by concluding CSAs and applying netting.

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Calculation of the Pillar 1 BIS Solvency ratio as at the reporting date: 2012 2011

Equity excluding revaluation reserves and addition of profit to reserves 1,225 1,185

Revaluation reserves (Tier 2 capital) 1 3

Total equity (A) 1,226 1,188

Weighted credit risk 933 1,112

Weighted operational risk 170 203

Total weighted risks (B) 1,103 1,315

BIS Solvency ratio (A/B) 111% 90%

The Bank’s equity, which almost exclusively comprises Tier-1 capital, went up by €38 million to €1,226 million in 2012 (31 December 2011: €1,188 million). The BIS Solvency ratio went up mainly because the Bank further mitigated the risk run on swap counterparties by entering into collateral support agreements with a number of swap counterparties with which it had not already done so.

2) Pillar 2The SREP is an evaluation by De Nederlandsche Bank, acting in its capacity of supervisory authority, in which it attempts to establish that a bank has its solvency management, capital adequacy and ICAAP in order. The outlier criterion sets a maximum interest rate risk that a bank may run on its equity. Stress tests can be applied under pillar 1 and pillar 2. Using sensitivity analyses or scenarios, banks can gain a better understanding of their risk profile. NWB Bank applies stress tests both on a regular basis and when prompted by extraordinary events.

3) Pillar 3Market discipline and transparency in the publication of solvency risks are important elements of the Basel rules for Pillar 3. Central to these publications is information on the solvency and the risk profile of a bank, providing disclosures on such matters as its capital structure, capital adequacy, risk management and risk measurement in line with the objective of IFRS 7. Pillar 3 disclosure requirements are based on Pillar 1 requirements. This means that they are more prescriptive than those under IFRS 7, which has a “through the eyes of management” approach to risk disclosures. Conversely, Pillar 3 has less detailed presentation requirements than IFRS. NWB Bank has documented its disclosure policies and published them on its website. The objective of NWB Bank’s disclosure policies is to practice maximum transparency in a practicable manner.

Developments relating to the introduction of the Basel III supervisory regime are discussed in the Report of the Managing Board.

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35 Information on related partiesThe shareholders and the members of the Managing and Supervisory Boards qualify as related parties. With respect to the obligation to report information on related parties, there are no particular circumstances at NWB Bank that warrant disclosure.

For more information on the remuneration of, and loans to, members of the Supervisory Board and the Managing Board, as well as the contribution to Stichting NWB Fonds, please refer to Notes 4 and 5.

As at 31 December 2012, an amount of €5,252 million in loans had been granted to shareholders on market terms (2011: €5,171 million).

36 Events after the balance sheet dateNo material events occurred between the reporting date and the date of the preparation of the financial statements that had such an impact on the overall presentation of the financial statements that disclosure in this section was considered necessary.

37 Members of the Managing Board and Supervisory Board

Managing BoardRon Walkier Lidwin van Velden Frenk van der Vliet

Supervisory boardDolf van den Brink Peter GlasAge Bakker Else Bos Victor Goedvolk Sjaak Jansen Maurice OostendorpAlbertine van Vliet-KuiperBerend-Jan baron van Voorst tot Voorst

The Hague, the Netherlands7 March 2013

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Other information

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Independent auditor’s report

To the General Meeting of Shareholders of Nederlandse Waterschapsbank N.V.

Report on the financial statementsWe have audited the accompanying financial statements 2012 of Nederlandse Waterschapsbank N.V., The Hague, which comprise the balance sheet as at 31 December 2012, the statements of income, comprehensive income, changes in equity, and cash flows for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information.

Management’s responsibilityManagement is responsible for the preparation and fair presentation of these financial statements and for the preparation of the Report of the Managing Board, both in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

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Opinion In our opinion, the financial statements give a true and fair view of the financial position of Nederlandse Waterschapsbank N.V. as at 31 December 2012 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirementsPursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the Report of the Managing Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the Report of the Managing Board, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.

Amstelveen, the Netherlands7 March 2013KPMG Accountants N.V.

M. Frikkee RA

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Articles of Association provisions governing profit appropriationAs from 2005, the appropriation of profit is governed by Article 21 of the Articles of Association, which reads as follows.

Article 21

1 Profit shall be distributed only insofar as the shareholders’ equity of the company exceeds the amount of that part of its issued capital which is paid up and called up, plus the reserves which must be kept by law or the Articles of Association.

2 The annual profit disclosed in the adopted statement of income shall be allocated as follows: a the Managing Board is authorised, subject to the prior approval of the Supervisory Board, to

appropriate all or part of the profit to reserves; b any balance of profit remaining after the addition to reserves shall be at the disposal of the

shareholders in general meeting; c to the extent that the shareholders in general meeting do not decide to distribute a dividend for any

financial year, such profit shall be added to reserves.

3 The shareholders in general meeting can decide to make a profit distribution chargeable to a distributable reserve only on the basis of a resolution proposed by the Managing Board and approved by the Supervisory Board.

4 To the extent that the company has profits, the Managing Board, subject to the approval of the Supervisory Board, may with due regard for the provisions of paragraphs 1 and 2 of this Article decide to distribute an interim dividend on the basis of an interim statement of the company’s financial position as provided for in Section 105, sub-section 4 of Book 2 of the Dutch Civil Code.

5 On a resolution proposed by the Managing Board with the approval of the Supervisory Board, the shareholders in general meeting can decide to distribute to shareholders a dividend or interim dividend other than in cash chargeable to the part of the profit to which they are entitled.

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Proposed profit appropriation(in thousands of euros) 2012 2011

Profit for the year 40,034 74,715

The proposed profit appropriation is as follows

Cash dividends on A shares 0% - 0% -

Cash dividends on B shares 0% - 0% -

- -

Added to the reserves on the approvalof the Supervisory Board 40,034 74,715

40,034 74,715

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List of shareholders at 1 January 2013

Number ofA shares

of €115 each

Number ofB shares

of €460 each

Aa en Maas Water Board 627 301

Amstel, Gooi en Vecht Water Board 281 60

Brabantse Delta Water Board 2,016 483

Delfland Water Board 755 60

De Dommel Water Board 533 360

Fryslân Water Board 3,309 100

Groot Salland Water Board 1,588 195

Hollandse Delta Water Board 1,893 143

Hollands Noorderkwartier Water Board 4,399 204

Hunze en Aa’s Water Board 1,915 175

Noorderzijlvest Water Board 1,107 170

Peel en Maasvallei Water Board 1,866 153

Province of Drenthe 15 25

Province of Friesland 24 25

Province of Gelderland 44 50

Province of Limburg 11 20

Province of Noord-Brabant 33 40

Province of Noord-Holland 43 60

Province of Utrecht 43 60

Province of Zeeland 15 20

Province of Zuid-Holland 33 40

Reest en Wieden Water Board 648 37

Regge en Dinkel Water Board 655 300

Rivierenland Water Board 3,968 437

Roer en Overmaas Water Board 535 146

Rijn en IJssel Water Board 5,666 345

Rijnland Water Board 4,858 289

Scheldestromen Water Board 4,380 166

Schieland en de Krimpenerwaard Water Board 610 430

State of the Netherlands 1,208 3,333

De Stichtse Rijnlanden Water Board 224 47

Vallei en Veluwe Water Board 631 88

Velt en Vecht Water Board 6,503 123

Zuiderzeeland Water Board 42 26

50,478 8,511

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Overview of compliance with the principles of the Dutch Banking CodePRINCIPLE COMPLIANCE

2. Supervisory Board

2.1 Composition and expertise2.1.1 Supervisory Board Regulations1, Article 2.72.1.2 Articles of Association2, Article 17, paragraphs 1 and 8: The company has a Supervisory

Board which shall consist of at least seven and at most eleven members. The number of Supervisory Board members shall be determined by the shareholders in general meeting. With the appointment of two Supervisory Directors during the Extraordinary General Meeting of Shareholders of 22 November 2012, the Supervisory Board’s membership temporarily increased to nine. Reference is also made to the Supervisory Board Profile3, Articles 2.3 and 2.4.

2.1.3 Supervisory Board Profile, Article 1.5, and Supervisory Board Regulations, Article 1.1.2.1.4 Supervisory Board Profile, Article 1.62.1.5 Supervisory Board Profile, Article 2.62.1.6 Supervisory Board Regulations, Article 1.92.1.7 Supervisory Board Regulations, Article 13.12.1.8 Supervisory Board Regulations, Article 3.2, paragraph a.2.1.9 Supervisory Board Regulations, Article 6.32.1.10 Supervisory Board Regulations, Articles 6.3 and 6.4

2.2 Tasks and working methods2.2.1 Supervisory Board Regulations, Article 1.82.2.2 ARC Regulations4, Article 2.2

3. Executive Board (Managing Board)

3.1 Composition and expertise3.1.1 Managing Board Regulations5, Article 2.33.1.2 Managing Board Regulations, Article 2.43.1.3 Managing Board Regulations, Article 2.53.1.4 Managing Board Regulations, Article 2.6, and Supervisory Board Regulations,

Article 1.7, paragraph g.3.1.5 Managing Board Regulations, Article 2.73.1.6 Managing Board Regulations, Article 1.23.1.7 Managing Board Regulations, Article 2.83.1.8 Managing Board Regulations, Article 2.9

1 Rules of the Supervisory Board of NWB Bank, March 20102 Articles of Association of NWB Bank, June 20053 Profile for the appointment of members of the Supervisory Board of NWB Bank, March 20104 Rules of the Audit and Risk Committee of NWB Bank, March 20105 Rules of the Managing Board of NWB Bank, March 2010

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3.2 Tasks and working methods3.2.1 Managing Board Regulations, Article 1.23.2.2 Managing Board Regulations, Article 1.33.2.3 Managing Board Regulations, Article 1.43.2.4 Managing Board Regulations, Article 1.4. NWB Bank applies a code of conduct to all of the

Bank’s employees. It has been brought into line with the principles of the moral and ethical conduct declaration.

4. Risk management

4.1 The Bank’s documentation on risk appetite is drafted under the Managing Board’s responsibility and reviewed annually and whenever significant events warrant such a review. At the proposal of the Managing Board, it is submitted to the Supervisory Board for its approval at least once a year, as well as after material changes are made (Managing Board Regulations, Articles 1.6 and 2.8).

4.2 Supervisory Board Regulations, Article 1.8: In discharging itself of its supervisory duties, the Supervisory Board lends particular consideration to the Bank’s risk management. Each discussion on risk management is prepared by the Audit and Risk Committee.

4.3 Supervisory Board Regulations, Article 6.2, and Managing Board Regulations, Article 1.14.4 Managing Board Regulations, Article 1.8: NWB Bank has a risk management and control

system, which is tailored to its organisation. At a minimum, it encompasses risk analyses, risk standards and frameworks for the Bank’s operational and financial objectives, a code of conduct, manuals governing the financial reporting structure and the related reporting procedures, and a monitoring and reporting system.

4.5 Managing Board Regulations, Article 1.10. Furthermore, the Product Approval Process provides that the Internal Audit Department assesses the process’ effectiveness and reports its findings to the Managing Board and the Audit and Risk Committee.

5. Audit

5.1 Managing Board Regulations, Article 1.55.2 The Bank’s Audit Charter provides that the IAD is directly accountable to the Chairman

of the Managing Board. The internal audit function is not subject to line management and is unrelated to the internal controls integrated into the various components of the separate business processes. The IAD reports to the Managing Board. The Head of the IAD autonomously provides the Audit and Risk Committee with copies of the reports on audits performed that are sent to the Managing Board and may contact the Chairman and/or members of the Audit and Risk Committee directly. The Head of the IAD attends the meetings of the Audit and Risk Committee. In addition, the Audit and Risk Committee holds at least one meeting each year with the internal auditor without the Managing Board being present (ARC Regulations, Article 1.3).

5.3 The IAD’s audit and verification duties concern process control and the information that is to be reported (Audit Charter).

5.4 ARC Regulations, Article 1.5. In practice, the Head of the IAD and the external auditor attend

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all Audit and Risk Committee meetings. The IAD’s annual plan and the external auditor’s audit plan are submitted to the Audit and Risk Committee for its approval.

5.5 This is included in the external auditor’s annual audit plan and audit report. 5.6 Twice yearly, tripartite meetings are held between NWB Bank (including the IAD), the external

auditor and the Dutch Central Bank. One meeting covers the outcome of the risk analysis and the design of the external audit, while the other addresses the external audit’s findings.

6. Remuneration policy

6.1 Basis6.1.1 Managing Board Regulations, Article 3.1, and Supervisory Board Regulations, Article 7.1

6.2 Governance6.2.1 Supervisory Board Regulations, Article 7.26.2.2 Supervisory Board Regulations, Article 7.3

6.3 Remuneration of executive board members6.3.1 Managing Board Regulations, Article 4.16.3.2 This is included in the employment contracts of the members of the Managing Board.6.3.3 Remuneration policy6, Paragraph 1.36.3.4 The Bank does not operate any employee stock option or stock ownership plans.

6.4 Variable remuneration6.4.1 Managing Board Regulations, Article 3.16.4.2 Managing Board Regulations, Article 3.16.4.3 Employees’ variable remuneration comprises a profit-sharing payment of up to 7.5% and a

performance payment of up to 7%. Under the performance scheme, a percentage between 0% and 7% is established in reward of special achievements made in the relevant year. In setting the percentage, achievement of individual targets pre-set annually is considered. The Bank sets great store by non-financial performance. Accordingly, it has chosen to depart in some measure from Principle 6.4.3 of the Banking Code, which stipulates that pre-determined and assessable performance criteria be set, as it wishes to base its assessment also on performance that is not pre-determined but still exceptional.

6.4.4 Managing Board Regulations, Article 3.26.4.5 Remuneration policy, Paragraph 1.36.4.6 Remuneration policy, Paragraph 1.3

6 Remuneration policy of NWB Bank, April 2011 (Dutch only)

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Publication details

Editing and coordination of production:Jolette Kramer, NWB Bank The KEY Agency, Amsterdam

Interviews:The KEY Agency, Amsterdam

Translation:Ernst & Young Language & Translation Services, The Hague

Photography:Pictures of the Managing and Supervisory Directors: Bert RietbergPicture on report cover: Ewald H. BeekmanThe pictures in the CSR section were taken by Ursula Jernberg on three primary schools, As Soeffah,De Polsstok and Bijlmerhorst.NWB Fonds: Henk Loijenga

Design and production:The KEY Agency, Amsterdam

© 2013 | Nederlandse Waterschapsbank N.V.

NWB Bank prepared this Annual Report in the Dutch language. The English translation was made for information purposes only. In the event of inconsistencies or differences between the English translation and the original Dutch version of the 2012 Annual Report, the latter will prevail.

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