nomura bank (luxembourg) s.a. · the directors of nomura bank (luxembourg) s.a. (the “bank”,...

Nomura Bank (Luxembourg) S.A.

Annual accounts,Directors’ report andIndependent auditor’s report

as of 31 March 2016

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Table of Contents

Directors’ Report ............................................................................................................................................................... 3

Independent Auditor’s Report ............................................................................................................................................ 9

Annual accounts

- Statement of financial position ....................................................................................................................................... 11

- Income statement ......................................................................................................................................................... 15

- Statement of comprehensive income ............................................................................................................................ 17

- Statement of changes in equity ..................................................................................................................................... 19

- Statement of cash flows ................................................................................................................................................ 21

- Notes to the annual accounts ........................................................................................................................................ 25

Directors’ Report

Year ended 31 March 2016

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Directors’ Report

Year ended 31 March 2016

The directors of Nomura Bank (Luxembourg) S.A. (the “Bank”, “NBL”, “we”, “our”, “us”) are pleased to announce the financial results of the Bank for the fiscal year ended 31 March 2016. During the fiscal year, we focused on the system improvements and decided to change our core Fund Accounting and Custodian Bank system (project Equinox) as well as to implement a centralised Master Data system (project Rosetta). Both projects are ongoing; Rosetta is planned to go live in 2017 and Equinox in 2018. The main objectives of these projects are to increase efficiency and quality of our client service.

As in previous years, the major part of our businesses has been promoted by the strong relationships with the Nomura Group's global network, specifically in investment trusts businesses in Japan. The economic growth slow-down in China has a negative impact on the Asian market in general and has resulted in a cautious stance over fund investments by Japanese investors. Therefore, the Bank’s Assets under Administration (“AuA”) have been decreased by roughly 20% ($73bn in March 2015 to $59.5bn in March 2016) as of 31 March 2016. This decrease is a consequence of various factors, as negative market fluctuations notably in relation with Fixed Income Investment Funds, outflows of some of the administrated investment funds and the liquidation of a certain number of funds with a fixed maturity, outflows of some of the service vehicles. Luxembourg funds represented $12.7bn ($15bn in March 2015) of the AuA while Cayman funds accounted for $46.8bn ($58bn in March 2015) representing 79% of the AUA. As of 31 March 2016, the Bank was calculating 660 NAV/share (601 in March 2015), servicing more than 324 funds and sub-funds.

Nevertheless, the Bank’s funds custody and funds administration business generated € 61m revenues (9% below fiscal year 2015 and 9% below budget) and its treasury activities, although difficult market conditions prevailed, generated € 22m (same as fiscal year 2015 and 6% below budget).

As a result of these activities and transactions, profit before tax for the fiscal year amounted to € 38m (€ 49m in March 2015), our balance sheet as of 31 March 2016 amounts to € 4,113m (€ 5,186m in March 2015) and shareholders’ equity amounts to € 476m (€ 442m in March 2015). Our Return on Assets as at 31 March 2016 is 0.78%.

Similarly to previous fiscal years, the Bank profitable funds business is first of all to be attributed to Nomura Securities Co., Ltd’s ability to broadly distribute investment funds in Japan. We have faced less new launches compared with previous years, but we have noticed a higher complexity, mainly with the launch of new Funds of Private Equity Funds.

With regards to Global Funds Management S.A. (“GFM”), NBL’s fully owned management company domiciled in Luxembourg, the due diligence process (questionnaire, analysis and reporting) on delegates has been rolled out with a focus on investment advisors, fund administrators and distributors. The company is now looking at its strategic development plan in order to further develop its scope of activities and expand its client base.

In a view to demonstrate the quality of its level of services and related control procedures to its existing and potential new counterparties, the Bank has mandated Ernst & Young to issue a combined ISAE 3402 / U.S. AT section 801 report for the fiscal year 1 April 2015 to 31 March 2016, our third Service Organisation Control report.

The Bank has a permanent focus on managing its business and associated risks appropriately. As in previous fiscal years, this resulted in constant search for improvement in processes, structure, tools, expertise and education. Accordingly, during the year closed on 31 March 2016, significant investments have been made in applications and systems, research and analysis as well as enhancing processes and controls. Those investment commitments are made for the long term and will continue over the next years.

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For illustration purpose, it is important to mention as major achievement the implementation of a dedicated system for booking and pricing of Funds of Private Equity funds in October 2015 and the launch of a Process Optimisation Meeting (PROM) in December 2015 to further improve and redesign existing processes and controls.

Believing that human capital is the most valuable asset of the Bank, we continued investments in our workforce by Training & Development initiatives.

We continued trainings along with the individual development plans established for Senior Managers and invested significantly in technical trainings for all staff members.

We reviewed our approach towards overtime hours, striving to emphasise staff member’s responsibility for their time management and management supervision according to the existing procedure. A strict control and management within organisation payment combined with a flexible approach towards business needs helped to reduce overtime hours performed and paid significantly.

The Bank will continue its strict management of overtime hours, however remaining flexible on the upcoming challenges due to the Banks strategic projects.

As of 31 March 2016, the Bank employs 376 staff (358 in March 2015).

In order to sustain our business coupled with the evolution of legal and business environment, we continuously strengthened the proper monitoring of capital and liquidity related items (solvency, liquidity, large exposure, allocated capital or funding) in line with the continued importance given by the various regulations. In this context, the following developments are worth to be mentioned:

1) Our solvency ratio has remained stable throughout the year, comfortably above the required 10.50% reaching, as of 31 March 2016, the level of 50.66% (39.90% in March 2015) thus further outlining the robustness of our Tier 1 capital.

2) The Basel III and CRR/CRD IV requirements have been successfully on-boarded and corresponding operational processes are continuously enhanced. The Liquidity Coverage Ratio (“LCR”) requirements, formally introduced in October 2015, are being met with an average ratio of 153% (140% as at 31 March 2016). Nevertheless, the liquidity management framework of the Bank requires further ongoing efforts to strengthen the overall approach and capabilities given also the impacts of other regulatory initiatives such as the European Market Infrastructure Regulation (“EMIR”).

3) A core focus, internally as well as externally by regulations, has been and continues to be set on further improving the counterparty / credit risk framework by enhancing the collateral management operations. The capabilities of NBL’s collateral management system have been further expanded preparing the Bank to meet upcoming regulatory requirements in the light of additional margin requirements imposed by EMIR or the Japanese Fund regulations. Furthermore, ongoing focus is set on enhancing and keeping up to date as well as in line with regulations our credit risk mitigation techniques.

We confirm that, during this fiscal year, Internal Audit has completed its internal audit plan FY 2015/16. Management is also performing a close follow-up of all audit issues and is committed to address them timely and adequately.

Because of the nature of our business with main focus on funds administration, custody and agency services, it is by our policies not allowed to take any significant market risks through foreign exchange, interest rate or other market risk drivers. It is also our policy to closely monitor credit risks towards all our counterparties through the specialists in our

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local Risk Management Department with the support of and in full transparency with the risk experts and guidelines of Nomura Group in London. We continuously monitor and manage liquidity risk as well as operational risk and search for improvements within the internal control environment.

The Bank has formalised its approach to risk within the Risk Strategy document, defining the internal risk appetite framework in line with our business and risk profile. The Bank has gone through the internal capital and liquidity adequacy assessment process (“ICAAP & ILAAP”) and performed capital forecasts over a 3-year period by considering the activities of its various business lines and its subsidiaries activities. The Bank has performed stress tests analysis for all the material risks identified such as operational risk, market risk, counterparty credit risk, liquidity risk and systematic risk. As a result of the analysis conducted, and considering all the risks the Bank faces, we concluded that the Bank continues to be adequately capitalised and that our liquidity situation is adequately monitored and managed, in line with the overarching principles of serving clients’ liquidity and ensuring the Bank’s long term viability.

In parallel, under the aegis of the Compliance function, the Regulatory Steering Committee acting as the arm of NBL to properly and timely address relevant Regulatory developments, continued to foster an appropriate knowledge of the key business stakeholders in the regulatory field. During the scrutinised period it notably achieved an effective implementation of deemed appropriate controls and processes in light of the OECD Common Reporting Standards. In addition, several specific working groups were formed notably to tackle Initial Margining requirements for non-cleared OTC derivatives under EMIR as well as reporting and disclosures obligations introduced by the Securities Financing Transactions Regulation.

Furthermore, with the aim of constantly adapting its Organisational model to meet its Regulatory obligations and successfully to achieve its Business goals, NBL has further enhanced its Internal Governance framework through the implementation of dedicated additional components with a particular emphasis on Project Steering and Data Governance considerations.

Finally, the Chief Risk Officer (“CRO”), with the support of the Operational Risks and the Financial Risks professionals chairs the monthly Risk Management Committee meetings with key business stakeholders as well as the Authorised Management attending.

To conclude all actions taken by NBL with regards to new regulatory requirements throughout the fiscal year under review, we should not forget to highlight the continuous efforts of dedicated working groups composed by business experts, control functions holders and external consultancy firms. Below we are listing the most important ones:

1) Process Optimisation Meeting (PROM): we have initiated a dedicated working group with all the business responsible people to do a process optimisation to support the Equinox project, and to realise a number of quick wins in relation with efficiency and quality topics.

2) Due Diligence: multiple on-site visits to sub-custodians and cash correspondent agents took place throughout the fiscal year under review and hereto related progress and findings reports have been shared at the Due Diligence Steering Committee meetings. In addition to the various due diligences, a RFP was initiated for the US market. Currently our Network Management team is evaluating the answers and a decision will be taken in the next weeks.

The Bank has no activities in research and development, has not bought its own shares during the fiscal year and has not created any branches.

There are no post balance sheet events to report that would affect the financial results for the year ended 31 March 2016 or that would require a disclosure in the notes to the annual accounts.

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There will be more financial impact brought to the Bank from ceaseless challenges of regulatory implementation as well as customers’ changes of investment attributes.

The Bank’s strategy for the following years will be axed on three complementary objectives: investments in new IT systems, strong cost control and focus on revenue increase through acquisition of new businesses. Indeed, the Bank will focus on the core system replacement in order to be able to implement a robust and efficient working platform which will enable us to decrease our costs. We will also enforce strong cost control and provide efforts needed to further bring down the costs in the next years. Finally, we will increase our visibility and reinforce our image of first choice funds service provider to Nomura and non-Nomura Group potential clients to gain new businesses and increase revenues.

As a conclusion we would emphasise that the Bank during this last fiscal year decided which direction to take with regards to business and systems developments and started officially the two main system projects Equinox and Rosetta, supporting us to increase our operational efficiency, our client footprint and are key for implementing our strategy.

7 June 2016

Chie SHIMPO (Toriumi) Masaru KONNOChairman President & CEONomura Bank (Luxembourg) S.A. Nomura Bank (Luxembourg) S.A.

Independent auditor’s report

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To the Board of Directors ofNomura Bank (Luxembourg) S.A.Société Anonyme33, rue de GasperichL-5826 Hesperange

Report on the annual accounts

Following our appointment by the Board of Directors, we have audited the accompanying annual accounts of Nomura Bank (Luxembourg) S.A., which comprise the statement of financial position as of 31 March 2016, the income statement, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board of Directors’ responsibility for the annual accounts

The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with International Financial Reporting Standards as adopted by the European Union and for such internal control as the Board of Directors determines is necessary to enable the preparation and presentation of annual accounts that are free from material misstatement, whether due to fraud or error.

Responsibility of the “réviseur d’entreprises agréé”

Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the judgement of the “réviseur d’entreprises agréé”, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the “réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts 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 the Board of Directors, as well as evaluating the overall presentation of the annual accounts.

Responsibility of the “réviseur d’entreprises agréé” (continued)

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the annual accounts give a true and fair view of the financial position of Nomura Bank (Luxembourg) S.A. as of 31 March 2016, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Report on other legal and regulatory requirements

The Directors' report, which is the responsibility of the Board of Directors, is consistent with the annual accounts.

Ernst & Young Société Anonyme Cabinet de révision agréé Sylvie Testa Luxembourg, 7 June 2016

Statement of financial position

As of 31 March 2016(expressed in EUR)

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Assets

Notes 31 March 2016 31 March 2015

Cash and balances with central banks 4, 31, 32 293,003,553 160,005,335

Derivatives held for trading 5, 31, 32, 35 537,292,859 855,020,661

Available-for-sale financial instruments 6, 31, 32, 35 977,250,549 708,333,666 Equity instruments 10,196,522 8,755,064 Debt instruments 967,054,027 699,578,602

Loans and advances 7, 29, 31, 32, 35 2,238,129,734 3,387,891,961 Loans and advances to credit institutions 2,095,572,931 2,680,307,737 Loans and advances to customers 142,556,803 707,584,224

Tangible assets 8, 31 2,891,083 2,740,257

Intangible assets 8, 31 8,296,122 8,928,455

Deferred tax assets 14, 31 10,215,036 383,928

Other assets 9, 31 45,788,548 62,987,801

Total assets 4,112,867,484 5,186,292,064

The accompanying notes form an integral part of these annual accounts.

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Liabilities and shareholders’ equity

Liabilities Notes 31 March 2016 31 March 2015

Derivatives held for trading 10, 31, 32, 35 570,392,921 855,788,067

Financial liabilities designated at fair value through profit or loss 13, 31, 32 89,208,521 89,680,141

Financial liabilities measured at amortised cost 31, 32, 35 2,925,547,477 3,733,844,238 Amounts due to credit institutions 11 185,978,739 2,411,269 Amounts due to customers 12 2,739,568,738 3,731,432,969

Tax liabilities 14, 31 15,580,394 15,163,255 Current tax liabilities 4,450,286 13,946,815 Deferred tax liabilities 11,130,108 1,216,440

Other liabilities 15, 31 36,435,748 49,321,724

Total liabilities 3,637,165,061 4,743,797,425

Shareholders’ equity

Issued capital 16 28,000,000 28,000,000

Reserves (including retained earnings) 17 407,027,971 364,951,006

Available-for-sale reserve 6 8,557,716 7,466,668

Profit for the year 32,116,736 42,076,965

Total shareholders’ equity 475,702,423 442,494,639

Total liabilities and shareholders’ equity 4,112,867,484 5,186,292,064

Income statement

For the year ended 31 March 2016(expressed in EUR)

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Notes 31 March 2016 31 March 2015

Net interest income 35 5,060,241 4,789,401 Interest and similar income 19 12,029,308 15,695,892 Interest and similar expenses 20 (6,969,067) (10,906,491)

Dividend income 21 --- ---

Net fee and commission income 22, 35 77,406,651 82,165,655 Fee and commission income 77,709,256 82,437,240 Fee and commission expenses (302,605) (271,585)

Net realised gains (losses) on financial assets and liabilities not designated at fair value through profit or loss 23 --- ---

Net (un) realised gains (losses) on financial assets and liabilities held for trading 24 18,680,156 22,837,780

Net (un) realised gains (losses) on financial assets and liabilities designated at fair value through profit or loss 13, 32 31,955,077 (7,165,460)

Foreign exchange differences 25 (132,156) (500,498)

Net other operating income/expenses (1,831,756) (791,587) Other operating income 288,086 684,300 Other operating expenses (2,119,842) (1,475,887)

Administrative expenses 26, 29, 30, 34, 35 (52,286,242) (48,280,905)

Depreciation and amortisation (3,878,560) (3,880,870) Tangible assets 8, 27 (3,309,587) (3,235,798) Intangible assets 8, 27 (568,973) (645,072)

Impairment 27 --- ---

Profit before tax 37,613,099 49,173,516

Income tax expenses 14 (5,496,363) (7,096,551)



Statement of comprehensive income


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31 March 2016 31 March 2015


Other comprehensive income

Items that may be reclassified subsequently to profit or loss Net gains (losses) on available-for-sale financial instruments 1,286,782 2,309,540 Income tax relating to components of other comprehensive income (195,734) (333,674)

Other comprehensive income for the year, net of tax 1,091,048 1,975,866

Total comprehensive income for the year, net of tax 33,207,784 44,052,831


Statement of changes in equity


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Balance at Transfers and Total Balance at 31 March 2015 allocation of comprehensive 31 March 2016 prior year’s profit income

Issued capital 28,000,000 --- --- 28,000,000

Profit brought forward 325,349,333 35,576,965 --- 360,926,298

FTA Reserve * 3,201,673 --- --- 3,201,673

Reserves: 36,400,000 6,500,000 --- 42,900,000 a) Legal reserve (1) 2,800,000 --- --- 2,800,000 b) Special reserves (2) 33,600,000 6,500,000 --- 40,100,000

AFS reserve 7,466,668 --- 1,091,048 8,557,716

Profit for the year 42,076,965 (42,076,965) 32,116,736 32,116,736

Shareholders’ equity 442,494,639 --- 33,207,784 475,702,423

Balance at Transfers and Total Balance at 31 March 2014 allocation of comprehensive 31 March 2015 prior year’s profit income

Issued capital 28,000,000 --- --- 28,000,000

Profit brought forward 275,861,993 49,487,340 --- 325,349,333

FTA Reserve 3,201,673 --- --- 3,201,673

Reserves: 31,005,000 5,395,000 --- 36,400,000 a) Legal reserve (1) 2,800,000 --- --- 2,800,000 b) Special reserves (2) 28,205,000 5,395,000 --- 33,600,000

AFS reserve 5,490,802 --- 1,975,866 7,466,668

Profit for the year 54,882,340 (54,882,340) 42,076,965 42,076,965

Shareholders’ equity 398,441,808 --- 44,052,831 442,494,639


* Unavailable reserve1 Legal reserve recorded under Luxembourg law (see Note 17)2 Reserves linked to exoneration of Net Wealth Tax charge subject to conditions (see Note 17)

Statement of cash flows


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31 March 2016 31 March 2015

Profit before tax 37,613,099 49,173,516

Adjustments: Depreciation / Amortisation / Impairment (Note 27) 3,878,560 3,880,870 Fair value adjustments 1,341,827 9,642,687

Cash flows from operating profits before changes in operating assets and liabilities 42,833,486 62,697,073

Net (increase)/decrease in loans and advances to credit institutions 36,922,602 210,132,597 Net (increase)/decrease in loans and advances to customers 565,027,421 (420,645,903) Net (increase)/decrease in available-for-sale financial assets (267,825,835) (251,119,652) Net (increase)/decrease in other assets 17,199,253 252,444 Net increase/(decrease) in deposits from banks 183,567,470 (695,384,647) Net (increase)/decrease in deposits from customers (991,864,231) 654,486,616) Net increase/(decrease) in financial liabilities (Note 32) 29,876,028 (7,942,171) Net increase/(decrease) in other liabilities (12,885,976) 1,726,029) Income tax (15,802,911) (9,637,745) Net variations in other operating assets/liabilities 1,535,760 229,884

Net cash flow from operating activities (411,416,933) (455,205,475)

Acquisition of intangible/tangible assets (Note 8) (3,397,053) (4,660,514)

Net cash flow from investing activities (3,397,053) (4,660,514)

Net increase/decrease in cash and cash equivalents (414,813,986) (459,865,989)

Cash and cash equivalents at the beginning of the year 2,520,161,179 2,980,027,168 Net increase/decrease in cash and cash equivalents (414,813,986) (459,865,989)

Cash and cash equivalents at the end of the year 2,105,347,193 2,520,161,179

of which: not available 138,889,715 160,000,125


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For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than three months maturity from the date of acquisition:

31 March 2016 31 March 2015

Cash and balances with central banks (Note 4) 293,003,553 160,005,335

Loans and advances to credit institutions 1,812,343,640 2,360,155,844 repayable with less or three months maturity from the date of acquisition 1,812,343,640 2,360,155,844

Cash and cash equivalents 2,105,347,193 2,520,161,179


Notes to the annual accounts

As of 31 March 2016

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NOTE 1 - CORPORATE INFORMATION

Corporate matters

Nomura Bank (Luxembourg) S.A. (the “Bank” or “NBL”) was incorporated in Luxembourg on 2 February 1990 as a Société Anonyme.

Nature of the Bank's business

The object of the Bank is to undertake all banking, financial securities and fiduciary operations and to engage in leasing and factoring activities for its own account or for account of its customers.

The Bank can establish or take part in finance and other companies or acquire, encumber or dispose of real estate for its own or for account of its customers.

A significant volume of the Bank’s transactions is concluded directly with companies of the Nomura Group or with their Japanese clients.

Annual accounts

The Bank’s accounting year ends on 31 March of each year. The annual accounts were authorised for issue by the Bank’s Board of Directors on 7 June 2016.

Parent undertaking

The Bank is a subsidiary of Nomura Europe Holdings Plc (the “Parent company”), a holding company incorporated under the laws of United Kingdom and whose registered office is in London. The consolidated accounts of Nomura Europe Holdings Plc may be obtained at 1 Angel Lane, London, EC4R 3AB, UK.

The Bank’s ultimate parent is Nomura Holdings, Inc., a holding company incorporated under the laws of Japan whose registered office is in Tokyo. The consolidated accounts of Nomura Holdings, Inc. may be obtained at 1-9-1, Nihonbashi, Chuoku, Tokyo 103-8645, Japan.

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Note 2.1 - Basis of preparation

The annual accounts are prepared on the historical cost basis except for derivatives held for trading, available-for-sale financial instruments and debt certificates designated at fair value through profit or loss which are measured at fair value.

Statement of compliance

The annual accounts have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and the relative interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) as adopted for use in the European Union.

The preparation of annual accounts in accordance with IFRS requires the Board of Directors to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expense items. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by the Board of Directors in the application of IFRS that have significant effect on the annual accounts and estimates with a significant risk of material adjustments in the next year are developed in Note 3.

Changes in accounting policies

The accounting policies adopted are consistent with those of the previous year, except for the following amendments to IFRS effective as of 1 January 2015. The Bank has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service.

This amendment is effective for annual periods beginning on or after 1 July 2014. This amendment is not relevant to the Bank, since it does not have defined benefit plans with contributions from employees or third parties.

Annual Improvements 2010-2012 Cycle

All the improvements mentioned above are effective for accounting periods beginning on or after

1 July 2014. They include:

- IAS 24 Related Party Disclosures

The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. This amendment is not relevant for the Bank as it does not receive any management services from other entities.

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)


These improvements are effective from 1 July 2014. They include:

- IFRS 13 Fair Value Measurement

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IAS 39. The Bank does not apply the portfolio exception in IFRS 13.

Standards issued but not yet effective

The following IFRS standards and IFRIC interpretations were issued with an effective date for financial periods beginning on or after 1 January 2016. The Bank has chosen not to early adopt these standards and interpretations before their effective dates.

Only accounting policies and disclosures applicable or potentially applicable to the Bank are mentioned below.

IFRS 9 Financial Instruments - Classification and Measurement (Not endorsed by the European Union yet)

In July 2014, the IASB issued the final version of IFRS 9 – Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Analyses will have to be carried on in order to quantify the impact of the whole standard on the Bank’s financial position and performance.

IFRS 15 - Revenue from Contracts with Customers

IFRS 15 provides a model for the recognition and measurement of disposal of certain non-financial assets including property, equipment and intangible assets.

The standard outlines the principles an entity must apply to measure and recognise revenue. The core principle is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.

The principles in IFRS 15 will be applied using a five-step model:

1. Identify the contract(s) with a customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligations in the contract;

5. Recognise revenue when (or as) the entity satisfies a performance obligation.

The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers.

The standard also specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.

Application guidance is provided in IFRS 15 to assist entities in applying its requirements to certain common arrangements, including licences of intellectual property, warranties, rights of return, principal-versus-agent considerations, options for additional goods or services and breakage.

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Either a full retrospective or a modified retrospective application is required for annual periods beginning on or after 1 January 2018, when the IASB finalises their amendments to defer the effective date of IFRS 15 by one year. Early adoption is permitted.

Impact of IFRS 15 on the Bank’s financial position and performance has not been assessed yet.

Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and 38

The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are effective prospectively for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not expected to have any impact on the Bank’s financial position and performance.

Disclosure initiative - Amendments to IAS 1

These amendments are effective for annual periods beginning on or after 1 January 2016.

The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements.

The amendments clarify:

- The materiality requirements in IAS 1;

- That specific line items in the statements of profit or loss and other comprehensive income (OCI) and the statement of financial position may be disaggregated;

- That entities have flexibility as to the order in which they present the notes to financial statements;

- That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statements of profit or loss and other comprehensive income.

The amendments will not have any impact on the Bank’s financial position and performance.


These improvements are effective for annual periods beginning on or after 1 January 2016. They include:

- IFRS 5 Non-current Asset Held for Sale and Discontinued Operations

Assets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively.

- IFRS 7 Financial Instruments: Disclosures

(i) Servicing contracts

The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing

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involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements

The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment must be applied retrospectively.

- IAS 19 Employee Benefits

The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively.

Exemption from preparing consolidated accounts

These annual accounts are prepared on a stand-alone basis.

According to the current Luxembourg regulation, the Bank is exempt from the requirement to publish consolidated accounts and a consolidated management report.

(a) Foreign currency translation

The annual accounts are presented in Euro (“EUR”), which is also the Bank’s functional currency.

Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency exchange rates prevailing at the statement of financial position date. All differences arising on non-trading activities are taken to “Foreign exchange differences” in the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(b) Financial instruments – initial recognition and subsequent measurement

(i) Date of recognition

All financial assets and liabilities are initially recognised on the value date. This includes purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace.

(ii) Initial measurement of financial instruments

The classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

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(iii) Derivatives held for trading

Derivatives held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognised in “Net (un) realised gains (losses) on financial assets and liabilities held for trading”. Interest income or expense is recorded in “Net interest income” according to the terms of the contract, or when the right to the payment has been established.

(iv) Derivatives held for hedging

The Bank may use derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. Where there is a hedging relationship between a derivative financial instrument and a related item being hedged, the hedging instrument is measured at fair value. The treatment of any resulting gains and losses is set out below.

A hedging relationship exists when:

- At the inception of the hedge there is formal documentation of the hedge;

- The hedge is expected to be highly effective throughout the period and prospectively;

- The effectiveness of the hedge can be reliably measured;

- For hedges of a forecasted transaction, the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect net profit or loss.

For the purpose of hedge accounting, the Bank has classified hedges as fair value hedges and cash flow hedges.

Fair value hedges

The change in the fair value of a hedging derivative is recognised in the income statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in the income statement.

For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through the income statement over the remaining term to maturity. Any adjustment to the carrying amount of a hedged financial instrument for which the effective interest rate method is used, is amortised through the income statement.

Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognised, the unamortised fair value is recognised immediately in the income statement.

When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the income statement. The changes in the fair value of the hedging instrument are also recognised in the income statement.

As of 31 March 2016 and 2015, the Bank has no fair value hedged transactions.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in the income statement.

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Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non financial asset or non financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

As of 31 March 2016 and 2015, the Bank has no cash flow hedged transactions.

(v) Financial liabilities designated at fair value through profit or loss

Financial liabilities classified in this category are those that have been designated by management on initial recognition. Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis:

- The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognising gains or losses on them on a different basis; or

- The liabilities are part of a group of financial liabilities which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

- The financial instrument contains one or more embedded derivatives which significantly modify the cash flows that otherwise would be required by the contract.

Financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. Changes in fair value are recorded in “Net (un) realised gains (losses) on financial assets and liabilities designated at fair value through profit or loss” in the income statement.

As of 31 March 2016 and 2015, included in this category are structured medium term notes issued by the Bank which contains embedded derivatives not separately recorded as permitted by IAS 39 – 11 A. These financial instruments are not listed in an active market (see Note 13).

(vi) Available-for-sale financial instruments

Available-for-sale financial instruments include equity and debt securities. Equity instruments classified as available-for-sale are those which are neither classified as held for trading nor designated at fair value through profit or loss. Debt instruments in this category are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.

Available-for-sale equity instruments include mainly non quoted investments in subsidiaries.

The Bank has not designated any loans or receivables as available-for-sale.

After initial measurement, available-for-sale financial instruments are subsequently measured at fair value.

Unrealised gains and losses are recognised directly in equity in the “Available-for-sale reserve”. When the financial instrument is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the income statement in “Net realised gains (losses) on financial assets and liabilities not designated at fair value through profit or loss”. Where the Bank holds more than one investment in the same security they are deemed to be disposed of on a first-in first-out basis.

Dividends earned whilst holding available-for sale equity instruments are recognised in the income statement as “Dividend income”

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when the right of the payment has been established. The losses arising from impairment of such investments are recognised in the income statement in “Impairment losses on financial investments” and removed from the “Available-for-sale reserve”.

(vii) Loans and advances

Loans and advances include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

- Those that the Bank intends to sell immediately or in the near term and those that the Bank upon initial recognition designates at fair value through profit or loss;

- Those that the Bank, upon initial recognition, designates as available-for-sale financial instruments; or

- Those for which the Bank may not recover substantially all of its initial investment, other than because of credit deterioration.

After initial measurement, “Loans and advances” are subsequently measured at amortised cost using the effective interest rate (“EIR”), less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in the caption “Interest and similar income” in the income statement. The losses arising from impairment are recognised in the income statement.

(c) Derecognition of financial assets and financial liabilities

(i) Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

- The rights to receive cash flows from the asset have expired; or

- The Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either:

• The Bank has transferred substantially all the risks and rewards of the asset; or

• The Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Bank’s continuing involvement in the asset. In that case, the Bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Bank has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

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(d) Reverse repurchase agreements

Securities purchased under agreements to resell at a specified future date are not recognised in the statement of financial position. The consideration paid, including accrued interest, is recorded in the statement of financial position reflecting the transaction’s economic substance as a loan by the Bank. The difference between the purchase and resale prices is recorded in the caption “Net interest income” and is accrued over the life of the agreement using the effective interest rate (EIR).

(e) Determination of fair value

The fair value for financial instruments traded in active markets is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.

Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Bank’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect costs to close out positions, counterparty credit and liquidity spread and limitations in the models. Also, profit or loss calculated when such financial instruments are first recorded (“Day 1” profit or loss) is deferred and recognised only when the inputs become observable or on derecognition of the instrument

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 32.

(f) Impairment of financial assets

The Bank assesses at each statement of financial position date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganisation, default or delinquency in interest or principal payments and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(i) Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Bank first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future

35


expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of “Interest and similar income”. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the income statement.

The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading assessment.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group.

Historical loss experience, if any, is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

As of 31 March 2016 and 2015, no impairment losses on financial assets carried at amortised cost have been recorded by the Bank.

(ii) Available-for-sale financial instruments

For available-for-sale financial instruments, the Bank assess at each statement of financial position date whether there is objective evidence that an investment is impaired.

In the case of debt instruments classified as available-for-sale, the Bank assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of “Interest and similar income”. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to credit event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.

In the case of equity investments classified as available-for-sale, objective evidence would also include a “significant” or “prolonged” decline in the fair value of the investment below its cost.

Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and

36


the current fair value, less any impairment loss on that investment previously recognised in the income statement – is reclassified from equity to income statement as a reclassification adjustment. Impairment losses on equity investments are not reversed through the income statement; increases in the fair value after impairment are recognised directly in equity.

(g) Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in the statement of financial position.

(h) Recognition of income and expenses

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

(i) Interest and similar income and expenses

For all financial instruments measured at amortised cost and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as “Other operating income”.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

(ii) Fee and commission income

The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income has to be divided into the following two categories:

Fee income earned from services that are provided over a certain period of time

Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.

Loan commitment fees for loans that are likely to be drawn down and other credit related fees, if any, are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. When it is unlikely that a loan be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis.

Fee income from providing transaction services

Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, if any, are recognised on completion

37


of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

(iii) Dividend income

Dividend income is recognised when the Bank’s right to receive the payment is established.

(i) Cash and cash equivalents

Cash and cash equivalents as referred to in the statement of cash flows comprises cash on hand, current accounts with central banks and amounts due from banks on demand or with an original maturity of three months or less.

(j) Tangible assets

Tangible assets are stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.

Depreciation is calculated using the straight-line method to write down the cost of tangible assets to their residual values over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows:

- Computer hardware: 3 to 5 years;

- Other fixtures and fittings, tools and equipment: 5 years.

Tangible assets are derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in the caption “Other operating income/expenses” in the income statement in the year the asset is derecognised.

(k) Intangible assets

The Bank’s intangible assets include the value of computer software and licences. An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Bank.

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.

Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives as follows:

- Computer software and licences: 3 to 5 years.

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(l) Impairment of non-financial assets

The carrying amounts of the Bank’s assets, except deferred income tax assets and financial assets, are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement. The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

As of 31 March 2016 and 2015, the Bank has not booked any impairment on non-financial assets.

(m) Financial guarantees

In the ordinary course of business, the Bank gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within “Other liabilities”) at fair value, being the premium received. Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially recognised less, when appropriate, cumulative amortisation recognised in the income statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to financial guarantees is recorded in the income statement. The premium received is recognised in the income statement in the caption “Net fee and commission income” on a straight line basis over the life of the guarantee.

(n) Pension benefits

The Bank operates a defined contribution pension plan. The contribution payable to a defined contribution plan is in proportion to the annual gross salary of the concerned employees and is recorded as an expense under “Administrative expenses”. Unpaid contributions are recorded as a liability.

(o) Provisions

Provisions are recognised when the Bank has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the income statement net of any reimbursement.

(p) Taxes

Income tax on the income statement for the year comprises current and deferred taxes. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

(i) Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted by the statement of financial position date.

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(ii) Deferred income tax

Deferred income tax is provided using the liability method, on temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

- Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- In respect of taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred 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 profits will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised except:

- Where the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax is reviewed at each statement of financial position 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 income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each statement of financial position date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets 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 tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date.

Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.

Note 2 - Significant accounting policies (continued)

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

(q) Comparative figures

Certain comparative figures in the notes as of 31 March 2015 have been modified to allow a better comparison.

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NOTE 3 - SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Bank makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Going concern

The Bank’s Board of Directors has made an assessment of the Bank’s ability to continue as a going concern and is satisfied that the Bank has the resources to continue in business for the foreseeable future. Furthermore, the Board of Directors is not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern. Therefore, the annual accounts continue to be prepared on the going concern basis.

(b) Estimation of fair values of financial instruments

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments.

(i) Securities

The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.

(ii) Derivatives

The fair value of derivatives is calculated, for listed instruments, on the basis of market prices ruling at the end of reporting period. When market prices are not available and/or reliable, valuation methods and models are used based on market-derived data (e.g. valuation of listed instruments with similar characteristics, discounted cash flow analysis, option price calculation methods, or valuation used in comparable transactions).

When discounted cash flow techniques are used, estimated future cash flows are based on Board of Directors’ best estimates and the discount rate is a market related rate for a similar instrument at the statement of financial position date. Where other pricing models are used, inputs are based on market related data at the statement of financial position date.

(iii) Interest-bearing loans and borrowings

Fair value is calculated based on discounted expected future principal and interest cash flows.

Where quoted market prices or broker/dealer quotations are not available, prices for similar instruments or valuation pricing models are considered in the determination of fair value. Valuation pricing models consider contractual terms, position size, underlying asset prices, interest rates, dividend rates, time value, volatility and other statistical measurements for the relevant instruments or for instruments with similar characteristics. These models also incorporate adjustments relating to market liquidity adjustments. These adjustments are fundamental components of the fair value calculation process. The valuation technique used maximises the use of market inputs and minimises the use of entity-specific inputs which are unobservable in the market.

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NOTE 3 - SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (continued)

Valuation pricing models and their underlying assumptions impact the amount and timing of unrealised gains and losses recognised, and the use of different valuation pricing models or underlying assumptions could produce different financial results. Any changes in the fixed income, equity, and foreign exchange and commodity markets can impact the Bank’s estimates of fair value in the future, potentially affecting trading gains and losses. The Bank’s estimates of fair value may involve greater subjectivity due to the lack of transparent market data available upon which to base assumptions underlying valuation pricing models.

(iv) Other financial assets / liabilities

For other financial assets / liabilities with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables / payables are discounted to determine the fair value.

(c) Impairment

Assets are subject to impairment tests at the end of reporting periods. In determining whether an impairment loss should be recognised, the Bank makes judgements to ascertain whether there is any objective evidence that a financial asset or group of financial assets is impaired. If there is evidence of a long-term reduction in the value of the asset concerned, this is recognised in income statement on the basis of market prices in the case of listed instruments, and of estimated future cash flows discounted according to the original effective interest rate in the case of unlisted instruments. If the reasons for which the loss was recorded subsequently cease to apply, the impairment is written back to profit and loss accounts.

(d) Deferred taxes

Provisions for income taxes have been calculated on the basis of current, advance and deferred obligations. Advance and deferred taxes are calculated on the basis of temporary differences - without time limits - between the carrying amount of an asset or liability and its tax base.

Deferred tax assets and liabilities have been stated using the assumptions that the tax base of the assets and liabilities are determined by reference to Luxembourg tax principles.

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NOTE 4 - CASH AND CASH BALANCES WITH CENTRAL BANKS (in EUR)

31 March 2016 31 March 2015

Petty cash 3,553 5,018

Cash balances with central banks 293,000,000 160,000,317

Total 293,003,553 160,005,335

Credit institutions established in Luxembourg are required to hold minimum reserves with the Luxembourg Central Bank. These deposits represent 1% of some of their liabilities. Compliance with the reserve requirement is determined on the basis of the institutions’ average daily reserve holdings over the maintenance period, thus reserves of credit institutions can vary from one day to another following their treasury management, the money market or their expectations in interest rates.

Mandatory reserve deposits with the Luxembourg central Bank are not used in the Bank’s day to day operations.

NOTE 5 - DERIVATIVES HELD FOR TRADING – ASSETS (in EUR)

They are composed of the positive fair values of equity linked swaps with an interest component contracts (“ELS”) and forward foreign exchange transactions.

The Bank has entered into equity linked swaps contracts mainly in the context of its medium term notes program (see Note 13). These transactions do not qualify for hedge accounting in accordance with IAS 39 provisions.

The Bank enters into forward foreign exchange contracts mainly in the context of clients’ transactions (these positions are then covered by a reverse transaction in the market) and, to a non significant extent, for dealing purposes.

31 March 2016 31 March 2015

Listed Unlisted Listed Unlisted

Derivatives on interest rates --- 40,421 --- 683,603

Derivatives on foreign exchange rates --- 537,252,438 --- 854,337,058

Total --- 537,292,859 --- 855,020,661

As of 31 March 2016, the global notional amount of the ELS contracts, including ELS with negative fair values, amounts to 123,220,298 (2015: 91,736,841), which is equal to the nominal of the notes (see Note 13).

43

Interest rates Foreign currency Total - 31 March 2016Type of derivatives /

Notional Fair Notional Fair Notional FairUnderlying assets amount value amount value amount value

Unlisted derivative products

Financial derivatives 6,873,989 40,421 15,488,097,419 537,252,438 15,494,971,408 537,292,859

Other --- --- --- --- --- ---

6,873,989 40,421 15,488,097,419 537,252,438 15,494,971,408 537,292,859

Total 6,873,989 40,421 15,488,097,419 537,252,438 15,494,971,408 537,292,859

Interest rates Foreign currency Total - 31 March 2015Type of derivatives /

Notional Fair Notional Fair Notional FairUnderlying assets amount value amount value amount value

Unlisted derivative products

Financial derivatives 37,835,621 683,603 21,473,010,739 854,337,058 21,510,846,360 855,020,661

Other --- --- --- --- --- ---

37,835,621 683,603 21,473,010,739 854,337,058 21,510,846,360 855,020,661

Total 37,835,621 683,603 21,473,010,739 854,337,058 21,510,846,360 855,020,661

NOTE 5 - DERIVATIVES HELD FOR TRADING – ASSETS (in EUR) (continued)

44

NOTE 6 - AVAILABLE-FOR-SALE FINANCIAL INSTRUMENTS (in EUR)

Equity instruments

They are composed of:

31 March 2016 31 March 2015

Listed --- ---

Unlisted 10,196,522 8,755,064

Total 10,196,522 8,755,064

As of 31 March 2016 and 2015, unlisted equity instruments are mainly composed of shares in the following affiliated undertakings:

Name: Global Funds Management S.A.Registered office: 33, rue de Gasperich L-5826 HesperangeProportion of the capital held: 100%Amount of capital and reserves as of 31.03.2016: EUR 7,432,117Profit for the year ended 31.03.2016: EUR 556,554

Name: Global Funds Trust CompanyRegistered office: c/o Maples & Calder P.O. Box 309, Ugland House George Town, Grand Cayman Cayman IslandsProportion of the capital held: 100%Amount of capital and reserves as of 31.03.2016: EUR 1,750,104Profit for the year ended 31.03.2016: EUR 196,252

Available-for-sale equity instruments are also composed, for a not significant amount, of other unlisted securities.

45

Debt instruments

They are composed of:

31 March 2016 31 March 2015

Listed 967,054,027 699,578,602

Unlisted --- ---

Total 967,054,027 699,578,602

As of 31 March 2016 and 2015, listed debt instruments are composed of US, Japanese and European countries highly liquid bonds with residual maturity less than 6 months.

31 March 2016 31 March 2015

France 402,321,418 450,774,515

USA 16,983,367 27,788,543

Japan 503,570,765 34,919,201

Germany --- 111,690,417

Luxembourg 44,178,477 ---

Sweden --- 28,073,389

Belgium --- 46,332,537

Total 967,054,027 699,578,602

Collateral posted

The Bank has pledged some financial assets in favour of Euroclear in order to benefit from a credit facility of USD 400 million to cover daily settlement activity.

31 March 2016 31 March 2015

Fair value of pledged securities 348,167,254 394,640,650

NOTE 6 - AVAILABLE-FOR-SALE FINANCIAL INSTRUMENTS (in EUR) (continued)

46

NOTE 7 - LOANS AND ADVANCES (in EUR)

Total net carrying amounts 31 March 2016 31 March 2015

Unlisted loans and advances to: - Credit institutions 2,095,572,931 2,680,307,737 - Non credit institutions 141,664,416 706,865,906 - Corporate customers 3,745 1,396 - Staff 888,642 716,922

Total 2,238,129,734 3,387,891,961

Impairment allowance for loans and advances

As of 31 March 2016 and 2015, the Bank has not booked any specific and/or collective impairment on its loans and advances.

Loans and advances to credit institutions - breakdown:

31 March 2016 31 March 2015

Current accounts and margin calls 60,487,203 381,558,512

Term deposits 754,995,792 1,154,036,480

Other loans and advances: Reverse repo transactions 1,280,089,936 1,144,712,745

Total 2,095,572,931 2,680,307,737

Loans and advances to non credit institutions - breakdown:

31 March 2016 31 March 2015

Current accounts 28 ---

Term deposits --- ---

Other loans and advances:

Reverse repo transactions 141,664,388 706,865,906

Total 141,664,416 706,865,906

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Guarantees received as collateral

The reverse repo transactions are fully secured by government or corporate bonds.

Loans and advances to corporate customers - breakdown:

31 March 2016 31 March 2015

Current accounts 3,745 1,396

Total 3,745 1,396

Loans and advances to staff - breakdown:

31 March 2016 31 March 2015

Credit cards, personal loans and loans guaranteed by payrolls 888,642 716,922

Total 888,642 716,922

NOTE 8 - MOVEMENTS IN TANGIBLE AND INTANGIBLE ASSETS (in EUR)

The following table represents the movements which have been occurred on the tangible and intangible assets portfolio during the financial year:

Tangible and intangible Gross Additions Disposals/ Gross value Accumulated Net Net assets value at the Transfers at the end of depreciation carrying carrying beginning of the financial amount amount the financial year as of as of year 31 March 2016 31 March 2016

Tangible assets 13,446,570 1,128,618 --- 14,575,188 11,684,105 2,891,083 2,740,257 of which: Computer hardware 8,890,218 1,099,524 --- 9,989,742 7,285,770 2,703,972 2,477,707 Office furniture, fixtures, fittings and equipment 4,556,352 29,094 --- 4,585,446 4,398,335 187,111

Intangible assets 30,164,696 2,268,435 --- 32,433,131 24,137,009 8,296,122 8,928,455 of which: Computer software and licences 30,164,696 2,268,435 --- 32,433,131 24,137,009 8,296,122 8,928,455

NOTE 7 - LOANS AND ADVANCES (in EUR) (continued)

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NOTE 9 - OTHER ASSETS (in EUR)

31 March 2016 31 March 2015

Accounts receivable for the account of third parties 24,649,040 38,028,426

Commissions receivable 12,446,021 16,361,574

Prepaid expenses and other items 8,693,487 8,597,801

Total 45,788,548 62,987,801

Accounts receivable for the account of third parties are “Transitory accounts” maintained by the Bank for operational purposes. These accounts are linked to the accounts payable for the account of third parties in the caption “Other liabilities” (Note 15).

Commissions receivable refer to fees receivable for the services (mainly Custodian, Administration and Paying Agency services) rendered by the Bank. A significant part of those commissions are usually claimed on a quarterly basis.

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They are composed of the negative fair values of the ELS and the forward foreign exchange contracts.

The Bank has entered into the ELS in the context of the medium term notes program (see Note 13). These transactions do not qualify for hedge accounting in accordance with IAS 39 provisions.

The Bank enters into forward foreign exchange contracts mainly in the context of clients’ transactions (these positions are then covered by a reverse transaction in the market) and, to a non-significant extent, for dealing purposes.

31 March 2016 31 March 2015

Listed Unlisted Listed Unlisted

Derivatives on interest rates --- 34,052,198 --- 2,740,303

Derivatives on foreign exchange rates --- 536,340,723 --- 853,047,764

Total --- 570,392,921 --- 855,788,067

Type of derivatives/ Interest rates Foreign currency Total - 31 March 2016

Underlying assets Notional Fair Notional Fair Notional Fair amount value amount value amount value

Unlisted derivative products Financial derivatives 116,346,309 34,052,198 16,024,093,943 536,340,723 16,140,440,252 570,392,921 Other --- --- --- --- --- ---

116,346,309 34,052,198 16,024,093,943 536,340,723 16,140,440,252 570,392,921

Total 116,346,309 34,052,198 16,024,093,943 536,340,723 16,140,440,252 570,392,921

Type of derivatives/ Interest rates Foreign currency Total - 31 March 2015

Underlying assets Notional Fair Notional Fair Notional Fair amount value amount value amount value

Unlisted derivative products Financial derivatives 53,901,220 2,740,303 22,465,515,292 853,047,764 22,519,416,512 855,788,067 Other --- --- --- --- --- ---

53,901,220 2,740,303 22,465,515,292 853,047,764 22,519,416,512 855,788,067

Total 53,901,220 2,740,303 22,465,515,292 853,047,764 22,519,416,512 855,788,067

NOTE 10 - DERIVATIVES HELD FOR TRADING – LIABILITIES (in EUR)

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NOTE 11 - AMOUNTS DUE TO CREDIT INSTITUTIONS (in EUR)

As of 31 March 2016 and 2015, they are composed of:

31 March 2016 31 March 2015

Current accounts, margin calls and deposits on demand 185,978,739 2,411,269

Total 185,978,739 2,411,269

NOTE 12 - AMOUNTS DUE TO CUSTOMERS (in EUR)

As of 31 March 2016 and 2015, they are composed of:

31 March 2016 31 March 2015

Current accounts 2,715,360,260 3,697,670,436

Term deposits 24,208,478 33,762,533

Total 2,739,568,738 3,731,432,969

NOTE 13 - FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS (in EUR)

The Bank issued structured medium term notes with a nominal value of 123,220,299 (2015: 91,736,841) and with structured coupon rates, including embedded derivatives.

The Bank has decided to use the fair value option (see Note 2.2 (b) (v)) to measure these debt certificates under the medium term notes program due to their embedded derivatives. These financial instruments are not listed in an active market. Their fair value is calculated using a valuation technique.

In the context of the medium term notes program, the Bank is entered into equity linked swap transactions (see Notes 5 and 10).

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NOTE 14 - TAX EXPENSES, ASSETS AND LIABILITIES (in EUR)

The components of income tax expenses, tax assets and tax liabilities for the years ended 31 March 2016 and 2015 are:

31 March 2016 31 March 2015

Current tax assets --- ---

Deferred tax assets - due to temporary deductible differences 10,215,036 383,928

Total tax assets 10,215,036 383,928

Current tax liabilities 4,450,286 13,946,815

Deferred tax liabilities - due to temporary taxable differences 11,130,108 1,216,440

Total tax liabilities 15,580,394 15,163,255

Income tax expenses 31 March 2016 31 March 2015

Current taxes 5,609,538 7,120,583

Changes in income tax rate for previous financial years --- ---

Deferred tax assets (113,160) (26,831) Related to previous fiscal exercises (reversed to the income statement) (386,401) (413,232) Generated in the fiscal exercise 273,241 386,401 Changes in income tax rate for previous financial years --- ---

Deferred tax liabilities (15) 2,799 Related to previous fiscal exercises (reversed to the income statement) 350 3,149 Generated in the fiscal exercise (365) (350) Changes in income tax rate for previous financial years --- ---

Total 5,496,363 7,096,551

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Reconciliation of the total tax expenses

A reconciliation between the tax expenses and the accounting profit multiplied by Luxembourg tax rate for the years ended 31 March 2016 and 2015 is as follows:

31 March 2016 31 March 2015

Accounting profit before tax 37,613,099 49,173,516

Tax expenses at income tax rate of 29.97% (2014: 29.97%) 11,272,646 14,737,303

+/- adjustments linked to: income not subject to tax --- --- non-deductible expenses 36,247 346,848

Other (5,812,530) (7,987,600)

Income tax expenses 5,496,363 7,096,551

NOTE 15 - OTHER LIABILITIES (in EUR)

31 March 2016 31 March 2015

Accounts payable for the account of third parties 24,649,040 38,028,426

Salary related contributions 2,511,278 2,568,280

Deferred revenues 4,920,890 4,601,112

Other 4,354,540 4,123,906

Total 36,435,748 49,321,724

Deferred revenues include payments received by the Bank for its agency activities within its own medium term notes program and within other debt securities programs carried out by other companies of the Nomura Group for which the Bank delivers agency services (Calculation Agent, Paying Agent and Settlement Agent).

NOTE 16 - ISSUED CAPITAL

As of 31 March 2016 and 2015, the Bank’s authorised, subscribed and paid-up capital amounts to EUR 28,000,000, represented by 2,800 ordinary shares with a nominal value of EUR 10,000 each.

NOTE 14 - TAX EXPENSES, ASSETS AND LIABILITIES (in EUR) (continued)

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NOTE 17 - RESERVES (INCLUDING RETAINED EARNINGS) (in EUR)

Under Luxembourg law, the Bank must appropriate to a legal reserve an amount equivalent to at least 5% of the annual net profit until such reserve is equal to 10% of the share capital. This appropriation is made in the following year. Distribution of the legal reserve is restricted.

The Bank transferred 10,000,000 to a net worth tax reserve for the tax year 2015 (2014: 8,500,000). Luxembourg tax legislation provides for a reduction in the net worth tax equal to its global amount on the condition that a special reserve is established in an amount equal to 5 times the net worth tax charge for the current year, and maintained for 5 years.

Allocation of results as of 31 March 2015:

Profit of the year 42,076,965

Transfer to special reserve for 2015 10,000,000

Release from special reserve for 2009 (3,500,000)

Allocation to retained earnings 35,576,965

NOTE 18 - ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCY

As of 31 March 2016, the aggregate amount of the Bank’s assets denominated in currencies other than EUR, translated into EUR, amounts to EUR 3,163,104,136 (2015: EUR 4,336,961,561).

As of 31 March 2016, the aggregate amount of the Bank’s liabilities denominated in currencies other than EUR, translated into EUR, amounts to EUR 3,164,951,708 (2015: EUR 4,333,553,613).

NOTE 19 - INTEREST AND SIMILAR INCOME (in EUR)

31 March 2016 31 March 2015

Loans and advances to central banks 16,547 100,662

Loans and advances to credit institutions 5,731,384 7,127,397

Loans and advances to customers 25,320 23,686

Derivatives held for trading 5,288,766 7,706,206

Available-for-sale financial assets 967,291 737,941

Total 12,029,308 15,695,892

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NOTE 20 - INTEREST EXPENSES AND SIMILAR CHARGES (in EUR)

31 March 2016 31 March 2015

Amounts due to central banks 360,601 540,909

Debt certificates designated at fair value through profit or loss 5,111,044 7,560,916

Amounts due to credit institutions 47,005 87,704

Amounts due to customers 1,450,417 2,716,962

Total 6,969,067 10,906,491

NOTE 21 - DIVIDEND INCOME

No dividend has been received for the year ending on 31 March 2016, neither for year ending on 31 March 2015.

NOTE 22 - NET FEE AND COMMISSION INCOME (in EUR)

31 March 2016 31 March 2015

Administration fees 45,018,534 48,454,768

Custody fees 20,604,889 21,373,191

Other fees 12,085,833 12,609,281

Total fee and commission income 77,709,256 82,437,240

Total fee and commission expenses (302,605) (271,585)

Net fee and commission income 77,406,651 82,165,655

NOTE 23 - NET REALISED GAINS (LOSSES) ON FINANCIAL ASSETS AND LIABILITIES NOT DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

As of 31 March 2016 and 2015, there is no net realised gains (losses) recognised in this caption.

NOTE 24 - NET (UN)REALISED GAINS (LOSSES) ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING

As of 31 March 2016 and 2015, this caption includes the realised and unrealised gains and losses on derivative financial instruments.

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NOTE 25 - FOREIGN EXCHANGE DIFFERENCES (in EUR)

31 March 2016 31 March 2015

Spot exchange on derivatives and other financial instruments

Gains 358,350,549 85,863,655

Losses (358,482,705) (86,364,153)

Total (132,156) (500,498)

NOTE 26 - ADMINISTRATIVE EXPENSES (in EUR)

31 March 2016 31 March 2015

Wages and salaries - Wages and salaries 30,141,024 28,187,836 - Social contributions 3,274,496 3,106,850 - Other expenses 1,500,176 1,263,980 - Defined contribution plan 567,547 433,168

Total wages and salaries 35,483,243 32,991,834

Other administrative expenses - Advisory and audit fees 894,126 734,520 - Legal fees 87,784 110,831 - Maintenance, repairs and refurbishment 17,281 22,063 - Rents and leases 2,744,645 2,738,520 - Service providers 189,193 149,675

- Couriers 36,906 33,541 - Telephone and web services 152,287 116,134

- Agency and travel expenses 366,357 272,485 - Membership subscription 557,172 404,911 - IT costs 5,787,473 5,490,354 - Pricing and other services 5,340,828 4,505,953 - Other 818,140 859,759

Total other administrative expenses 16,802,999 15,289,071

Total administrative expenses 52,286,242 48,280,905

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NOTE 27 - DEPRECIATION, AMORTISATION AND IMPAIRMENT (in EUR)

As of 31 March 2016 and 2015, depreciation, amortisation and impairment are as follows:

Amortisation Impairment Amounts recoveries 31 March 2016

Tangible assets 3,309,587 --- --- 3,309,587

Intangible assets 568,973 --- --- 568,973

Total 3,878,560 --- --- 3,878,560

Amortisation Impairment Amounts recoveries 31 March 2015

Tangible assets 3,235,798 --- --- 3,235,798

Intangible assets 645,072 --- --- 645,072

Total 3,880,870 --- --- 3,880,870

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NOTE 28 - GUARANTEES, CONTINGENT LIABILITIES AND COMMITMENTS (in EUR)

The Bank’s guarantees and commitments may be analysed as follows:

31 March 2016 31 March 2015

Guarantees given Financial guarantees 148,420 146,605 Commercial guarantees --- ---

Irrevocable commitments to lend funds to Banks --- --- Customers --- ---

Total 148,420 146,605

As of 31 March 2016, the Bank’s contingent liabilities include guarantees granted by the Bank on behalf of its employees to third parties for an amount of 148,420 (2015: 146,605).

The Bank has also entered into certain other commitments which are not disclosed in the statement of financial position but which are significant for the purposes of assessing its financial situation of the Bank. As of 31 March 2016 and 2015, details of such other commitments are as follows:

31 March 2016 31 March 2015

Commitments in respect of fixed rental payments contracted for premises 12,096,188 14,549,764

There were no such commitments toward related parties as of 31 March 2016 and 2015.

Legal claims

Litigation is a common occurrence in the banking industry due to the nature of the business undertaken. The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Bank makes adjustments to account for any adverse effects which the claims may have on its financial standing.

New deposit guarantee schemes – Fonds de garantie des dépôts Luxembourg (« FGDL ») and Fonds de résolution (« FRL »)

The law related to the resolution, reorganisation and winding-up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes (the “Law”), transposing into Luxembourgish law the directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms and the directive 2014/49/EU related to deposit guarantee and investor compensation schemes, was passed on 18 December 2015.

This new system will cover eligible deposits of each depositor up to an amount of EUR 100,000 and investments up to an amount of EUR 20,000. The Law also provides that deposits resulting from specific transactions or fulfilling a special social or other purpose are covered for an amount above EUR 100,000 for a period of 12 months.

The funded amount of the FRL shall reach by the end of 2024 at least 1% of covered deposits, as defined in article 1 number 36 of the Law, of all authorised credit institutions in all participating Member States. This amount will be collected from the credit institutions through annual contributions during the years 2015 to 2024.

The target level of funding of the FGDL is set at 0.8% of covered deposits, as defined in article 163 number 8 of the Law, of the relevant credit institutions and is to be reached by the end of 2018 through annual contributions. The contributions are to be made in the form of annual payments during the years 2016 to 2018.

When the level of 0.8% is reached, the Luxembourgish credit institutions are to continue to contribute for 8 additional years in order to constitute an additional safety buffer of 0.8% of covered deposits as defined in article 163 number 8 of the Law.

58

NOTE 29 - STAFF

As of 31 March 2016 and 2015, the average number of Bank’s staff is as follows:

31 March 2016 31 March 2015

Management – Senior 4 3

Management – Middle 61 56

Other staff 307 291

Total 372 350

As of 31 March 2016 and 2015, the Bank has granted advances and credits to members of its managerial bodies and has entered into guarantees on their behalf as follows (in EUR):

31 March 2016 31 March 2015

Loans and advances Managerial bodies 15,000 ---

Guarantees Managerial bodies 17,400 17,400

32,400 17,400

NOTE 30 - AUDIT FEES (in EUR)

As of 31 March 2016 and 2015, the audit fees are split as follows:

31 March 2016 31 March 2015

Audit fees 272,273 267,264

Other fees 91,084 10,734

Total 363,357 277,998

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NOTE 31 - RISK MANAGEMENT (in EUR)

In the Note 31, the concept of “hedging” is to be understood from an economic point of view and not from an IFRS point of view.

1. Three Lines of Defence Model

The Bank has adopted the “Three Lines of Defence” model as the outline for risk governance, comprising the following elements:

1) First line of defence – risk owners: the business owns and manages its risks in accordance with agreed risk policies, limits and controls, at the operational level. It is composed of the Bank’s business activities, including fund administration and custody.

2) Second line of defence – risk monitoring functions: formed by support and internal control functions, responsible for defining risk policies and risk processes and controls. For instance: Risk Management function, Compliance, Legal, Finance, IT, but also Information Security, Human Resources and Control & Oversight Department.

3) Third line of defence – risk assurance function: provides independent, objective and critical review of the first two lines of defence. This is performed by Internal Audit, which reports to the Audit Committee and the Board of Directors.

2. Embedding risk governance across the Bank

Board of Directors

The Board of Directors has the ultimate responsibility for setting up the Bank’s appetite for risks and the tolerance limits. In case that the risk appetite is significantly breached, the Board of Directors shall require corrective measures, which may need to be reported to the regulator as per regulatory requirements.

The Board of Directors shall globally define strategies and supervise the risk management and capital adequacy. The Board of Directors also ensures that Management establishes a framework for assessing the various risks, develops a system to relate risk to the Bank’s capital level and establishes a method for monitoring compliance with internal policies. The Board of Directors shall promote the risk culture across the Bank.

Executive Committee (“ExCom”)

The ExCom has the responsibility to manage the Bank’s day-to-day activities. Regarding risk management, the ExCom has to:

1) Implement the Risk Appetite;

2) Adopt and support Risk Management policies and procedures, including controls;

3) Set guidelines for the Risk Management framework;

4) Promote the risk culture across the Bank;

5) Define and review the risk strategy of the Bank.

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Risk Management Committee

Risk Management Committee is a standing committee of the Executive Committee. The purpose of this Committee is to assist the ExCom in fulfilling its responsibility with respect to:

1) Oversight of the Bank’s Risk Management framework, including the significant policies, procedures and practices using in managing the Bank’s risks;

2) Review the adequacy of the Bank’s capital, both economic and regulatory;

3) Review certain risk limits and regular risk reporting and make recommendations to the ExCom when appropriate.

The Risk Management Committee meets on a monthly basis and it is well represented by ExCom members as well as Senior Management of the business units.

Other Committees or Groups

The following Committees meet also on a regular basis to complement the risk governance of the Bank:

1) Information Security Committee is a Committee meeting on a quarterly basis with focus on discussion of Information Security topics including Information Security risks and action plans to mitigate Information Security risks. It is discussed about priorities aiming at enhancing the global security level of the Bank. It reviews and follows-up Information Security incidents and audit points, and follows ISO 27002 leading market methodologies in Information Security;

2) Business Continuity Committee is a Committee meeting on a quarterly basis with focus on business resilience topics, including discussion on risks and mitigating action plans as well as ad-hoc risk assessments and their impacts on the Bank;

3) Monthly Interest Rate Review Meeting, whose purpose is to review and approve acceptable interest rate margin rates for the next month. Interest Rate Risk is monitored by the Risk Management Committee;

4) Pricing Advisory Group, whose purpose is to monitor securities pricing issues and make recommendations to the Management Company and Trustee;

5) Regulatory Steering Committee ascertains that NBL and, to some extents, its affiliated companies, are fully and permanently compliant with laws and regulations applicable to them. The Committee ensures that laws and regulations applicable to NBL and its subsidiaries, and under certain circumstances to its clients, are adequately identified and anticipated. The Committee analyses and categorises laws and regulations based on their impacts on the business model, operations and controls. The Committee thoroughly follows-up on the implementation of any regulatory action plan deemed as appropriate to address the regulatory challenges and ensure compliance of the Bank in a consistent way basis over time. The Committee maintains an appropriate level of regulatory awareness at NBL through communication and trainings. The Committee also ensures that relevant regulatory instruments applicable to NBL’s clients are discussed with them and that opportunities to generate revenues through dedicated services have been identified;

6) Due Diligence Steering Committee is dedicated to the process of Due Diligence on sub-custodians and is mainly responsible for taking decisions concerning the necessity of establishing a new relationship with a new local sub-custodian and / or to terminate an existing one;

7) New Product Approval Committee, whose purpose is to formally approve new fund projects or any other banking related transactions which are in the scope of the Bank’s usual fund and custody business.

NOTE 31 - RISK MANAGEMENT (in EUR) (continued)

61

Risk Management Department (“RMD”)

Risk Management department is structured in 2 teams:

1) Financial Risk team, covering market risk, credit risk, liquidity risk and other financial risks;

2) Operational Risk team, covering operational risk events, Risk Control Self-Assessment (“RCSA”), Key Risk

Indicators (“KRI”) and Scenario analysis.

(a) Market Risk: qualitative information

Market risk is the risk of any impact on the Bank’s financial condition due to adverse market movements caused by market

variables including, but not limited to, interest rates, foreign exchange rates, equity prices, credit spreads and ratings.

Exposure to this type of risk primarily results from trading activities.

The Bank has limited dealing activities on its own account, exclusively related to foreign exchange and interest rate

products.

The size of this activity is expected to remain limited and the related exposure to market risk is considered as non-material

by the Bank.

The Bank is therefore subject to limited equity risk but not subject to commodity risk or basis risk. The economic value of

the Bank could however be impacted by adverse movement in interest rates and/or foreign exchange rates.

(i) Interest Rate Risk

Interest rate risk is the potential adverse change in the economic value of a financial instrument or portfolio due to

fluctuating interest rates.

The Market Risk Management Policy dictates the Bank not to have any material mismatch of assets and liabilities in terms

of maturities.

The analysis of the balance sheet split by time bucket reveals that the Bank is mainly exposed to interest rate risk for

periods less than 1 year.

The long term debt schedule, corresponding to the notes issued within the MTN program, is perfectly offset by the notional

amount of the ELS reported on the assets and liabilities side.

Despite this observation, according to the CSSF circular 08/338, a calculation is performed twice a year to assess the

impact on NBL balance sheet of a +/-200 bps movement in interest rates.

The results indicate that the impact of a 200 bps increase of the interest rates on the economic value of the Bank as of 31

December 2015 (last available calculation) would be - 829,624 (31 December 2014: -1,139,919).

On the other hand, the impact of a decrease of 200 bps would be 406,793 (31 December 2014: 413,312).

This stress test confirmed the non-material nature of interest rate risk to the Bank.

(ii) Foreign Exchange Risk

Exchange rates risk is the risk of loss arising from future movements in the exchange rates applicable to the currency

positions maintained by the Bank. Similarly to all market risks, foreign exchange risk arises from both open and imperfectly

offset or hedged positions.


62

- Foreign Exchange Risks on Own Positions

As agent acting upon the orders of its clients, the Bank deals spot and forward transactions in JPY, USD, and other currencies. The highest transaction volumes are being performed on USD and JPY currencies.

The Treasury Department has to cover each customer’s position, trading or hedging intra-day. As such, no significant speculative transactions are carried out by the Bank for its own account.

The Banks has adopted an Open Currency Position Policy which defines the following open currency position limits:

- Open currency position less than EUR 150,000 equivalent per actively traded currency (with the exception of USD and JPY less than EUR 500,000 equivalent each);

- EUR 50,000 equivalent per other currency;

- Aggregate open position of EUR 2,500,000 equivalent.

Risk Management Department also performs an independent check against Treasury Department figures and reports to ExCom on a daily basis.

The stress testing scenarios resulted in the worst case to a potential loss of EUR 8,714, which is deemed not material.

- Foreign Exchange Risks on the Custody and Administration Fees

Another source of foreign exchange risk relates to the mismatch between expenses (mainly in EUR) and revenues as the invoices to funds clients are mainly denominated in non-EUR currencies (in USD and JPY).

Treasury Department has set up a procedure for converting estimated cash inflows resulting from its main source of revenues: the fund custody and administration fees.

The Treasury Department monitors the trends of exchange rate curves and may suggest converting measures to cope with the risk attached to the negative variation of exchange rates.

This process allows the Bank to reduce its exposure on foreign exchange risk.

(b) Credit risk

Credit risk is the risk that unexpected losses may arise as a result of the Bank’s borrowers or market counterparties failing to meet their obligations to pay. While loans are the largest and most obvious source of credit risk, other sources of credit risk exist throughout the activities of a bank, including in the banking book and in the trading book, and both on and off the balance sheet (derivatives transactions, acceptances, interbank transactions, foreign exchange transactions, bonds, etc.).

(i) Counterparty Credit Risk

Counterparty credit risk is the risk that counterparty will default before settlement in a particular transaction. Counterparty credit risk is the risk that an organisation does not pay out on a credit derivative, credit default swap, credit insurance contract, or other trade or transaction when it is supposed to.

Because of the nature of its activity, the Bank enters into a reduced set of transactions for its own account.

The credit risk management and monitoring is performed at two levels:

• Firstly, at local level, by the Risk Management Department;

• Secondly, at the level of the Group, by Nomura International Plc (“NIP”), which is the London-based securities broker/dealer operating company.

The applicable framework is defined in the Credit Risk Management Policy.


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- On-Balance Sheet Transactions

The counterparty risk for on-balance sheet activities mainly concerns deposits that are done on a daily basis by Treasury Department.

The major part of this liquidity comes from the cash held on the funds cash accounts under the Bank’s custody. These cash positions are then placed on the market by the Bank as deposits or reverse repos essentially with short-term maturities.

Every day, the Treasury Department in charge of cash management monitors its credit limits on the peak exposure of outstanding trades and the maximum tenor, which is a time limit of the exposure, as well as the regulatory large exposures limits that reduce the exposures to a maximum of EUR 150 million by counterparty.

These exposures are compared to the credit limits to define which initial or additional positions may be taken with a specific counterparty.

At the end of the day, Risk Management Department performs relevant exposure control and monitoring. Moreover, a credit risk report is sent by RMD on a daily basis to the ExCom.

Every morning, an extraction of all deposits as of last business day is provided to the Investment Evaluation & Credit Department of NIP and the same day, the Treasury Department, the Risk Management Department and the ExCom receive from NIP a detailed report containing all the limits (exposure and tenor) and the actual positions by counterparty.

On top of the Bank’s internal applicable controls, NIP also performs the credit exposure monitoring of the nostro accounts the Bank holds with its counterparties and for the overdrafts of the funds accounts in the Bank’s books.

- Off-Balance Sheet Transactions

Foreign exchange transactions

The net currency position of the Bank for credit risk exposure on foreign exchange transactions made for its own account remains quite low.

The Bank enters into foreign exchange transactions with the investment funds under administration (in this case, the Bank is the counterparty of the funds) and then an opposite foreign exchange is performed with market counterparties (mainly NIP).

Besides, the Open Currency Position Policy prevents Treasury Department to take an aggregate foreign exchange exposure exceeding EUR 2,500,000 equivalent for its own account.

Equity Linked Swaps

The Bank’s exposure to ELS comes from the Medium-Term Notes (“MTN”) program where the Bank is issuing its own Notes.

In that respect, the Bank, as an issuer, is not exposed to credit risk but may be exposed to interest rate risk.

In order to cover this risk, the Bank enters into Equity Linked Swaps with Nomura Securities Company (“NSC”) every time a Note is issued.

This systematic ELS transaction covers the interest rate risk but creates an exposure to a counterparty risk with NSC.

As of 31 March 2016, the exposure to NSC represented 123,220,298 (nominal amount), of which 10,700,126 less than one year (2015: exposure to NSC: nominal of 91,736,841, of which 12,500,304 less than one year).


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- Netting agreements

As a credit risk mitigation technique, the Bank signed netting agreements with most of its counterparties who have entered into foreign exchange transactions.

These contractual netting agreements create a single legal obligation, covering all included transactions, such that, in the event of a counterparty's failure to perform owing to default, bankruptcy, liquidation or any other similar circumstance, the credit institution would have a claim to receive or an obligation to pay only the net sum of the positive and negative mark-to-market values of included individual transactions.

These netting agreements have been subject to legal opinions and have been submitted to the CSSF for recognition as credit risk mitigation technique.

- Collateral Management Activities

The Bank is engaged in the following collateral management programmes:

Pledge of assets

Main credit risk exposure towards the investment funds comes from forward foreign exchange transactions. In order to reduce this exposure, the Bank has entered into pledge agreements with certain investment funds allowing taking financial collateral (cash or securities). The securities pledged to the Bank meet the eligibility criteria prescribed by the applicable regulation.

Pledge agreements are considered for investment funds having a size of USD 1.5 billion or more.

The exposure of existing investment funds is reviewed on a daily basis, to identify those without pledge agreement and for which the exposure reaches EUR 20 million, to allow appropriate and timely set-up of a pledge agreement.

In case the exposure with one investment fund is going to exceed 25% of the Bank’s eligible own funds, the adequate amount of eligible collateral is transferred from the investment fund’s portfolio and pledged to the collateral account in order to keep the exposure below the 25% limit.

- Margin calls under CSA

For the forward foreign exchange transactions concluded between the Bank and external counterparties, both counterparties to the transaction manage the economic potential loss or gain and require that collateral is allocated to cover the exposure, through a margining process.

The Bank has entered into ISDA/CSA agreements with third-party financial institutions, which describe all the collateral requirements (eligibility, valuation, conditions) that must be followed to cover the mark-to-market exposure arising from these transactions.

In order to make sure that the margin calls are correctly handled, the Bank actively monitors the forward foreign exchange mark-to-market exposure and coverage on a daily basis. The conditions are negotiated by the Bank with the brokers, and are in line with the Group Credit Risk guidelines.


Securities Lending

For the securities lending activity, the Bank acts as an agent to allow NIP, which is the exclusive borrower, to borrow securities from the portfolios of the investment funds that agree to participate as lenders.

All the securities lent to NIP are pledged by collateral (USD cash amount or G-10 government bonds) in order to cover the counterparty risk. This collateral must represent 105% of the market value of the lent securities.

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As agent, the Bank has the responsibility to manage the collateral pledged to cover the counterparty risk. The high eligibility criteria ensure appropriate liquidity of the collateral and the 105% margin covers the potential losses and costs generated by the lent securities buy-in.

The table below shows the credit risk exposure arising from financial assets following the standardised approach. Counterparty credit risk exposure arising from derivatives contracts are measured according to the marked-to-market method. Net exposure consists of the gross exposure less the amount of the collateral received at the reference date.


31 March 2016 Gross Exposure Credit Risk Mitigation Residual Net Exposure

Central Governments or Central Banks 813,554,132 - 813,554,132

Regional Governments or local authorities 214,999,223 - 214,999,223

Public Sector Entities 88,332,641 - 88,332,641

Multilateral Development Banks 44,178,477 - 44,178,477

Institutions 757,402,739 (189,120,273) 568,282,466

Corporates 78,860,540 (29,915,674) 48,944,866

Retail 1,039,837 - 1,039,837

Short-Term Credit Assessment 2,077,429,134 (1,352,524,724) 724,904,410

Equity Exposures 940,340 - 940,340

Other Items 20,822,789 - 20,822,789

Total 4,097,559,852 (1,571,560,671) 2,525,999,181

31 March 2015 Gross Exposure Credit Risk Mitigation Residual Net Exposure

Central Governments or Central Banks 234,121,398 --- 234,121,398

Regional Governments or local authorities 222,282,387 --- 222,282,387

Public Sector Entities 320,182,623 --- 320,182,623

Institutions 888,292,892 (689,420,702) 198,872,190

Corporates 838,724,982 (533,757,684) 304,967,298

Retail 863,527 --- 863,527

Short-Term Credit Assessment 2,428,826,615 (1,105,602,801) 1,323,223,814

Equity Exposures 936,740 --- 936,740

Other Items 11,953,812 --- 11,953,812

Total 4,946,184,976 (2,328,781,187) 2,617,403,789

Exposure 31 March 2016 Exposure 31 March 2015

Guarantees 148,420 146,605

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Credit quality per class of financial assets

The table below shows the credit quality by class of credit risk assets, based on the Bank’s credit rating system (gross exposure amounts at the reference date).

Neither past due nor impaired

Prime Quality High grade Standard Sub- Not rated Past due or Impairment Total 31 March 31 March grade standard 31 March individually 31 March 31 March 2016 2016 2016 31 March grade 2016 impaired 2016 2016 31 March 31 March 2016 2016

Central Governments or Central Banks 309,983,367 503,570,765 --- --- --- --- --- 813,554,132

Regional Governments or local authorities --- 214,999,223 --- --- --- --- --- 214,999,223

Public Sector Entities 88,332,641 --- --- --- --- --- --- 88,332,641

Multilateral Development Banks 44,178,477 --- --- --- --- --- --- 44,178,477

Institutions --- 304,941,878 50,077,030 --- 402,383,831 --- --- 757,402,739

Corporates --- --- --- --- 78,860,540 --- --- 78,860,540

Retail --- --- --- --- 1,039,837 --- --- 1,039,837

Short-Term Credit Assessment --- 1,622,347,924 455,081,210 --- --- --- --- 2,077,429,134

Equity Exposures --- --- --- --- 940,340 --- --- 940,340

Other Items 3,553 --- --- --- 20,819,236 --- --- 20,822,789

Grand Total 442,498,038 2,645,859,790 505,158,240 --- 504,043,784 --- --- 4,097,559,852

Neither past due nor impaired

Prime Quality High grade Standard Sub- Not rated Past due or Impairment Total 31 March 31 March grade standard 31 March individually 31 March 31 March 2015 2015 2015 31 March grade 2015 impaired 2015 2015 31 March 31 March 2015 2015

Central Governments or Central Banks 234,121,398 --- --- --- --- --- --- 234,121,398

Regional Governments or local authorities 97,284,105 124,998,282 --- --- --- --- --- 222,282,387

Public Sector Entities 320,182,623 --- --- --- --- --- --- 320,182,623

Institutions --- 90,845,182 15,364 --- 797,432,346 --- --- 888,292,892

Corporates --- --- --- --- 838,724,982 --- --- 838,724,982

Retail --- --- --- --- 863,527 --- --- 863,527

Short-Term Credit Assessment 120,743,189 2,305,196,884 2,886,542 --- --- --- --- 2,428,826,615

Equity Exposures --- --- --- --- 936,740 --- --- 936,740

Other Items 5,018 --- --- --- 11,948,794 --- --- 11,953,812

Grand Total 772,336,333 2,521,040,348 2,901,906 --- 1,649,906,389 --- --- 4,946,184,976


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Note: Prime quality: AAA High grade: AA-A Standard grade: BBB-BB Sub-standard grade: B and less

Geographical allocation of risks

As of 31 March 2016 and 2015, the distribution by geographical area of the risks before taking into account collateral held and other credit enhancements can be summarised as follows:

31 March 2016 31 March 2015

Australia 2,919,302 5,489,806 Belgium 12,168,605 56,377,810 Japan 623,851,912 138,314,445 Canada 267,362 7,155,481 Germany 651,177,627 707,755,546 Denmark 45,168,798 45,029,114 France 707,459,131 822,984,540 United Kingdom 918,071,730 1,357,940,136 Luxembourg 467,058,182 337,183,893 The Netherlands 452,276,794 325,283,978 USA 49,538,986 81,145,815 Cayman Islands 74,594,640 804,389,432 Singapore 3,799,097 110,789,701 Sweden 8,780,881 33,597,489 Switzerland 67,196,667 99,770,034 Other 13,230,138 12,977,756

Total 4,097,559,852 4,946,184,976


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Collateral received or posted

The Bank posts or receives collateral with its counterparties in order to reduce the risk exposure arising from the forward foreign exchange transactions.

With the counterparties who have signed ISDA credit support annexes, the Bank posts or receives collateral.

With its clients (Funds), the Bank holds collateral as per the pledge agreements in place.

The securities received under reverse repurchase transactions are credit risk mitigants that reduce the credit risk exposure to the concerned counterparties.

None of this collateral has been sold nor repledged:

31 March 2016 31 March 2015

Fair value of cash collateral posted --- 228,282,785

Fair value of cash collateral received 250,673,035 179,434,181

Fair value of securities collateral posted --- ---

Fair value of securities collateral received from Funds 1,558,441,532 1,488,555,974

Fair value of securities collateral received under Reverse Repurchase transactions 1,422,955,667 1,850,158,439

Encumbered assets and unencumbered assets

As of 31 March 2016, they are broken down as follows:

Assets Carrying amount Fair value of Carrying Fair value of of encumbered encumbered amount of unencumbered assets assets unencumbered assets assets

Assets 487,056,969 3,625,810,515

Loans on demand 138,889,715 154,110,285

Equity instruments --- --- 10,196,522 10,196,522

Debt securities 348,167,254 348,167,254 618,886,773 618,886,773

Loans and advances other than loans on demand --- 2,238,129,734

Other assets --- 604,487,201


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Loans on demand --- --- ---

Equity instruments --- 1,251,529,950 ---

Debt securities --- 1,729,867,251 ---

Loans and advances other than loans on demand 250,673,035 --- ---

Other collateral received --- --- ---

Own debt securities issued other than own covered bonds or ABSs --- --- ---

Carrying amount of selected financial liabilities 570,392,921 250,673,035

Derivatives 570,392,921 250,673,035

Deposits --- ---

Debt securities issued --- ---

Other sources of encumbrance --- 2,981,397,200

As of 31 March 2015, they were broken down as follows:

Assets 782,773,385 4,403,518,679

Loans on demand 159,849,949 150,368

Equity instruments 8,755,064 8,755,064

Debt securities 394,640,650 394,640,650 304,937,952 304,937,952

Loans and advances other than loans on demand 228,282,785 3,159,609,175

Other assets 930,066,120

Unencumbered

Collateral received by the Bank

Fair value of encumbered

collateral received or own debt

securities issued

Fair value of collateral received or own debt

securities issued available for

encumbrance

Nominal amount of collateral received or

own debt securities issued not available for

encumbrance

Assets Carrying amount of encumbered

assets


assets

Carrying amount of unencumbered

assets

Fair value of unencumbered

assets

Sources of encumbrance

Matching liabilities, contingent liabilities

or securities lent

Assets, collateral received and own debt securities

issued other than covered bonds and ABSs

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Loans on demand --- --- ---

Equity instruments --- 1,001,087,926 ---

Debt securities --- 2,337,626,487 ---

Loans and advances other than loans on demand 179,434,181 --- ---

Other collateral received --- --- ---

Own debt securities issued other than own covered bonds or ABSs --- --- ---

Carrying amount of selected financial liabilities 855,788,067 179,434,181

Derivatives 855,788,067 179,434,181

Deposits --- ---

Debt securities issued --- ---

Other sources of encumbrance --- 425,970,271

Unencumbered

Collateral received by the Bank


collateral received or own debt

securities issued

Fair value of collateral received or own debt

securities issued available for

encumbrance

Nominal amount of collateral received or

own debt securities issued not available for

encumbrance

Sources of encumbrance

Matching liabilities, contingent liabilities

or securities lent

Assets, collateral received and own debt securities

issued other than covered bonds and ABSs

Concentration of risk

Concentration risk arises where the Bank becomes overly focused on one particular counterparty, business area, issuer or geographical region thereby meaning the Bank’s performance could be overly influenced by a small number of factors.

Large Exposures

The Bank complies with the Large Exposure limits defined by the applicable regulation, namely the EU Regulation 575/2013 which transposes Basel 3 framework at European level. The total risk exposure towards a single client or group of connected clients must not exceed 25% of the own funds of the Bank. In this context, the Bank has asked for and has been granted by CSSF in December 2010 a partial exemption for its intra-group transactions as follows:

– With NBI, the Bank is benefiting from a global exemption up to 1.5 billion;

– With NIP, the Bank is benefiting from an exemption on forward exchange derivative transactions up to 1.3 billion credit risk equivalent (since a Netting Agreement has been effectively put in place with NIP and recognised by the CSSF);

– With Nomura Trust & Banking, the Bank is benefiting from a global exemption.

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Intragroup exposure, in particular towards NIP, has been reduced through the use of short-term reverse repurchase transactions (secured loans).

Exposures with third-party financial institutions are limited to EUR 150 million per counterparty or group of connected clients.

As the Bank is mainly involved with high rated financial institutions established in OECD countries with stable political and economic environment, the country risk can be considered as limited.

Solvency ratio (or Capital ratio)

This ratio, as defined by the applicable regulation, defines the minimum amount of own funds that the Bank has to maintain in relation to the total risk-weighted assets and off-balance sheet items. The minimum level is 8%.

The Bank’s own funds are fully composed of Tier 1 Capital (retained earnings).

As of 31 March 2016, the solvency ratio of the Bank was 50.66% under the EU Regulation 575/2013 (2015: 39.90%).

Impairment

As of 31 March 2016 and 2015, neither specific, nor collective impairments have been recorded by the Bank.

(c) Liquidity risk

Liquidity for a bank is the ability to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses, in both normal and stressed circumstances.

Liquidity risk is composed of Funding liquidity risk and of Market liquidity risk. Funding liquidity risk is the risk that the Bank will not be able to meet efficiently both expected and unexpected current and future cash flows and collateral needs without affecting either daily operations or the financial conditions of the Bank. Market liquidity risk is the risk that a Bank cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption.

Because liquidity risk can be corollary to other risks, such as credit risk and market risk, the liquidity risk management framework has been designed to fit into the overall enterprise risk management framework.

(i) Liquidity Risk Profile

It is the Bank’s policy to have no material mismatch of assets and liabilities in terms of maturities.

The Bank does not have a trading book, and so does not hold significant securities for its own account.

The Bank is a liability-driven bank which does not rely on the interbank market to fund its business. Liquidity is placed with both external and intra-group financial counterparties and in both secured and unsecured form, mainly on an overnight basis. Therefore, NBL has a very limited exposure to funding-liquidity risk and it is not directly exposed to market-liquidity risk.

NBL’s principal source of funding is clients’ deposits, a portion of which is Nomura Group owned. The Bank’s liquidity pool is reflective of the clients’ liquidity: as such there is none or very limited mismatch of currency between assets and liabilities. Consequently, NBL is not relying on any USD funding and is therefore not exposed to the recommendation of the European Systemic Risk Board (‘ESRB’) on USD denominated funding of credit institutions (ESRB/2011/2).

NBL holds a portfolio of liquid assets which is used to offset outflows in the event of stress (Liquidity Buffer) and a portion which is used as collateral for the settlement cycle at International Central Securities Depository (‘ISCD’) as Euroclear, Clearstream, etc. Securities in the liquidity portfolio are held to maturity and consist in highly liquid government bonds.

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Regarding derivatives positions, the Bank has entered into:

– Equity Linked swaps with Nomura Securities Co. Ltd (“NSC”) to hedge the MTN program;

– Foreign exchange (“FX”) forward contracts taken for the funds (undertakings for collective investment administered by the Bank): 1 leg with the funds, 1 leg with brokers, both legs offset each other after consideration of market spread and currency position rounding.

Given the hedging and back-to-back structure of the above mentioned derivative positions, these positions do not have a material impact on the Bank’s liquidity position.

NBL may be subject to liquidity risk as a consequence of other risks, as identified hereafter:

- Counterparty-Credit Risk:

For NBL, the failure of its counterparties could impair its cash flows and hence its ability to meet its commitments as they fall due. This risk is mitigated at two levels. On one hand, Treasury Department deals with selected counterparties within the limits that are set by the Group and, with particular reference to foreign exchange trades, Credit Support Annexes (“CSA”), which have been put in place. On the other hand, NBL has signed pledge agreements with the funds having significant FX exposure, allowing it to take collateral from those funds.

- Concentration Risk:

Concentrations of assets or liabilities can lead to liquidity problems. This risk is mitigated with the respect of credit limits which prevent unacceptable counterparty exposures. Furthermore, the Bank complies with Nomura Global Investment Guidelines setting forth concentration limits in terms of country and product exposures. Although the Bank concentrates a significant portion of its placings within the Group, it is done only in secured form, through the use of reverse repos.

- Operational Risk:

Significant problems can arise if the systems that process payment transactions or participants fail or delay transactions. Similarly, disruptions can be caused by operational problems at the level of critical participants or key third-party service providers. Cash Management activities are monitored by the Treasury and Back Office departments. These activities are governed by clearly defined processes and procedures, which are periodically reviewed.

(ii) Liquidity Risk Appetite

The Bank’s liquidity risk appetite is defined in line with forecasting cash available using the Bank’s Maximum Cumulative Outflow (“MCO”) model. NBL’s liquidity risk appetite is aligned with Nomura Holdings Inc. liquidity risk appetite.

The Bank has set up its liquidity risk appetite as follows:

1. Liquidity under Severe Stress: forecasting cash available under a severe market scenario using the Bank’s MCO model. Remaining positive at all times for at least 12 months and above the Minimum Regulatory Requirement set up by Basel III standards i.e. total inflows must be above 75% of the total outflows.

2. Liquidity under Acute Stress: forecasting cash available under both market- and Nomura event must remain positive at all times for at least 1 month and be above the Minimum Regulatory Requirement.

3. The Liquidity Coverage Ratio and the Net Stable Funding Ratio are prepared in accordance with Basel III standards.

4. No material mismatch between assets and liabilities in terms of maturities and currencies is tolerated. Materiality is defined as a difference large enough to generate interest or Foreign Exchange (FX) Risk.

5. Different Risk Tolerance Zones have been set up (green, amber, red) corresponding to the level of available cash.


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(iii) Liquidity Measurement and Stress Testing

The main Liquidity Risk Measuring and Monitoring tools for the Bank are:

1) Maximum Cumulative Outflow (‘MCO’): the purpose of the model is to determine the adequate size of NBL’s liquidity pool under normal and stressed circumstances in order to meet the Bank’s own liquidity risk appetite both as a standalone entity and as part of Nomura Group. The MCO model compares and matches cumulative inflows and outflows considering both on- and off-balance sheet liquidity risk drivers. NBL liquidity monitoring and stress testing comprise a normal scenarii and two stressed scenarios, applied cumulatively by degree of severity to a starting pool of available cash.

2) Liquidity Buffer: a pool of high liquid and unencumbered assets that can be monetised in certain amount of days whenever deemed necessary. For prudent reasons, NBL considers level 1 type of assets. NBL has purchased highly rated short-term government bonds.

3) Liquidity Coverage Ratio (LCR): the Bank calculates and reports to the CSSF the LCR on a monthly basis as requested by the regulation EU 680/2014. As of 31 March 2016, the LCR is 140%.

4) Basel III liquidity monitoring tools: Risk Management has developed additional liquidity risk monitoring tools in line with Basel III regulation.

(iv) Liquidity Risk Controls and Mitigation

The MCO is run on a daily basis by Risk Management Department and discussed with Treasury Department.

Treasury Department is responsible for managing the liquidity buffer with “no trading intent” to ensure that the portfolio is classified within the banking book and not trading book. Risk Management Department monitors the value of the liquidity buffer and compares it to the minimum required level of liquidity on a daily basis.

Treasury Department provides ExCom members with a daily report which gives an overview of the liquidity situation of the Bank, including a high-level status of the intra-group concentration. The same information is also used to produce the “Monthly Global Treasury Report” for reporting to Global Treasury in London.

Treasury Department sends daily to Global Treasury London the Outstanding Deposits File and the Cash variation between T+1 and T+2. Those reports are consolidated by Global Treasury who sends a summary report back to the Bank and to all the concerned entities.

A daily liquidity conference call is held with Global Treasury London to discuss the liquidity situation at Group level and share business information having a liquidity impact.

Risk Management Department performs a daily analysis of concentrations in terms of counterparties and currencies.

A daily liquidity report is run daily and submitted to LCB. This report identifies the cash inflows and outflows expected in the upcoming five days.

Financial Accounting performs the Liquidity Coverage Ratio calculation and reporting to the CSSF and the BCL as required by the authorities.

Lastly, in case of emergency situation of liquidity shortage, the Head of Treasury may invoke the Liquidity Task Force which will decide on the activation of the Contingency Funding Plan.

These procedures have been set-out to deal with serious adverse market conditions. They operate on an incremental escalation basis where the triggers and related actions depend on the defined severity level (green, red, amber).

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Duration analysis

The tables below present the analysis of financial liabilities of the Bank by contractual maturity dates (initial maturity):

31 March 2016 < 1month ≥1 month ≥3 months ≥6 months ≥1 year ≥2 years ≥5 years Total <3 months <6 months <1 year <2 years <5 years

Derivatives held for trading 45,293,237 470,803,706 19,627,520 760,067 3,515,314 20,310,660 10,082,417 570,392,921

Financial liabilities designated at fair value through profit or loss --- 7,193,891 --- 464,960 10,601,745 45,416,778 25,531,147 89,208,521

Amounts due to credit institutions 185,978,739 --- --- --- --- --- --- 185,978,739

Amounts due to customers 2,735,568,858 --- --- 3,999,880 --- --- --- 2,739,568,738

Total financial liabilities 2,966,840,834 477,997,597 19,627,520 5,224,907 14,117,059 65,727,438 35,613,564 3,585,148,919

31 March 2015 < 1month ≥1 month ≥3 months ≥6 months ≥1 year ≥2 years ≥5 years Total <3 months <6 months <1 year <2 years <5 years

Derivatives held for trading 68,936,119 776,833,635 6,528,741 756,094 392,821 1,622,584 718,073 855,788,067

Financial liabilities designated at fair value through profit or loss --- 2,699,270 457,503 --- 7,380,294 58,536,336 20,606,738 89,680,141

Amounts due to credit institutions 2,411,269 --- --- --- --- --- --- 2,411,269

Amounts due to customers 3,727,685,889 --- --- 3,747,080 --- --- --- 3,731,432,969

Total financial liabilities 3,799,033,277 779,532,905 6,986,244 4,503,174 7,773,115 60,158,920 21,324,811 4,679,312,446


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Duration analysis

The tables below present the analysis of the guarantees of the Bank by contractual maturity dates (initial maturity):

31 March 2016 <1 month ≥1 month ≥3 months ≥6 months ≥1 year ≥2 years ≥5 years Undetermined Total <3 months <6 months <1 year <2 years <5 years

Guarantees --- --- --- --- 10,950 115,170 22,300 --- 148,420

31 March 2015 <1 month ≥1 month ≥3 months ≥6 months ≥1 year ≥2 years ≥5 years Undetermined Total <3 months <6 months <1 year <2 years <5 years

Guarantees --- --- --- --- 22,700 101,630 22,275 --- 146,605


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(d) Foreign exchange risk

Foreign exchange risk is the risk that the value of an asset or liability will fluctuate due to changes in foreign exchange rates.

As of 31 March 2016 and 2015, the assets and liabilities denominated in EUR, in JPY, in USD and in other currencies are as follows:

31 March 2016 EUR JPY USD Other Total

Cash and balances with central banks 293,001,327 110 111 2,005 293,003,553

Derivatives held for trading 4,435,197 50,714,571 1,418,839 480,724,252 537,292,859

Available-for-sale equity instruments 10,196,522 --- --- --- 10,196,522

Available-for-sale debt instruments 313,988,777 503,570,765 149,494,485 --- 967,054,027

Loans and advances Loans and advances to credit institutions 295,400,787 180,781,262 1,519,792,070 99,598,812 2,095,572,931 Loans and advances to customers 888,855 141,664,416 --- 3,532 142,556,803

Tangible assets 2,891,083 --- --- --- 2,891,083

Intangible assets 8,296,122 --- --- --- 8,296,122

Deferred tax assets 10,215,036 --- --- --- 10,215,036

Other assets 10,449,642 6,571,106 26,727,973 2,039,827 45,788,548

Total assets 949,763,348 883,302,230 1,697,433,478 582,368,428 4,112,867,484


Derivatives held for trading 545,589 216,909,367 352,337,691 600,274 570,392,921

Debt certificates designated at fair value through profit or loss --- 84,522,351 4,686,170 --- 89,208,521

Financial liabilities measured at amortised cost Amounts due to credit institutions 90,368,070 --- 95,514,631 96,038 185,978,739 Amounts due to customers 357,318,259 707,827,923 1,575,018,294 99,404,262 2,739,568,738

Tax liabilities 15,580,394 --- --- --- 15,580,394 of which: deferred tax liabilities 11,130,108 --- --- --- 11,130,108

Other liabilities 8,401,041 6,919,044 19,698,320 1,417,343 36,435,748

Total liabilities 472,213,353 1,016,178,685 2,047,255,106 101,517,917 3,637,165,061


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Cash and balances with central banks 160,005,068 --- --- 267 160,005,335


Available-for-sale equity instruments 8,755,064 --- --- --- 8,755,064

Available-for-sale debt instruments 144,998,204 --- 554,580,398 --- 699,578,602

Loans and advances Loans and advances to credit institutions 508,338,998 339,494,557 1,667,032,344 165,441,838 2,680,307,737 Loans and advances to customers 717,361 706,865,906 629 328 707,584,224

Tangible assets 2,740,257 --- --- --- 2,740,257

Intangible assets 8,928,455 --- --- --- 8,928,455

Deferred tax assets 383,928 --- --- --- 383,928

Other assets 13,353,052 6,596,776 41,681,384 1,356,589 62,987,801

Total assets 849,330,503 1,348,793,931 2,802,415,693 185,751,937 5,186,292,064



Debt certificates designated at fair value through profit or loss --- 86,309,955 3,370,186 --- 89,680,141

Financial liabilities measured at amortised cost Amounts due to credit institutions 798,774 --- 1,612,455 40 2,411,269 Amounts due to customers 380,474,315 959,253,006 2,226,337,835 165,367,813 3,731,432,969

Tax liabilities 15,163,255 --- --- --- 15,163,255 of which: deferred tax liabilities 1,216,440 --- --- --- 1,216,440

Other liabilities 11,967,078 5,317,591 31,492,930 544,125 49,321,724

Total liabilities 410,243,812 1,072,086,355 2,291,009,303 970,457,955 4,743,797,425


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(e) Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments.

The tables below show the interest rate risk by maturity dates (residual maturity):

31 March 2016 <1 month ≥1 month ≥3 months ≥6 months ≥9 months ≥12 months or Total <3 months <6 months <9 months <12 months Undetermined

Cash and balances with central banks 293,000,000 --- --- --- --- --- 293,000,000

Derivatives held for trading (ELS) 13,595 --- --- --- 5,256 21,570 40,421

Available-for-sale debt instruments 600,835,003 330,236,197 35,982,827 --- --- --- 967,054,027

Loans and advances Loans and advances to credit institutions 1,845,570,314 196,004,979 53,997,638 --- --- --- 2,095,572,931 Loans and advances to customers 141,711,083 85,044 100,782 91,907 82,581 485,406 142,556,803

Total 2,881,129,995 526,326,220 90,081,247 91,907 87,837 506,976 3,498,224,182


Derivatives held for trading (ELS) 779,372 1,187,848 756,020 3,575,941 4,250,232 23,502,785 34,052,198

Debt certificates designated at fair value through profit or loss 7,681,761 1,565,861 762,454 6,602,499 10,467,697 62,128,249 89,208,521

Financial liabilities measured at amortised cost Amounts due to credit institutions 185,978,739 --- --- --- --- --- 185,978,739 Amounts due to customers 2,735,568,858 --- 3,999,880 --- --- --- 2,739,568,738

Total 2,930,008,730 2,753,709 5,518,354 10,178,440 14,717,929 85,631,034 3,048,808,196

Gap (48,878,735) 523,572,511 84,562,893 (10,086,533) (14,630,092) (85,124,058) 449,415,986


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Cash and balances with central banks 160,000,317 --- --- --- --- --- 160,000,317

Derivatives held for trading (ELS) --- 8,491 43,081 6,999 17,954 607,078 683,603

Available-for-sale debt instruments 296,530,466 375,259,592 27,788,544 --- --- --- 699,578,602

Loans and advances Loans and advances to credit institutions 2,416,601,798 188,683,476 75,022,463 --- --- --- 2,680,307,737 Loans and advances to customers 706,904,207 73,226 87,810 81,545 75,236 362,200 707,584,224

Total 3,580,036,788 564,024,785 102,941,898 88,544 93,190 969,278 4,248,154,483


Derivatives held for trading (ELS) --- 6,825 --- 787 373,101 2,359,590 2,740,303

Debt certificates designated at fair value through profit or loss 2,699,270 1,235,618 1,508,398 1,277,183 5,475,647 77,484,025 89,680,141

Financial liabilities measured at amortised cost Amounts due to credit institutions 2,411,269 --- --- --- --- --- 2,411,269 Amounts due to customers 3,727,685,889 --- 3,747,080 --- --- --- 3,731,432,969

Total 3,732,796,428 1,242,443 5,255,478 1,277,970 5,848,748 79,843,615 3,826,264,682

Gap (152,759,640) 562,782,342 97,686,420 (1,189,426) (5,755,558) (78,874,337) 421,889,801


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f) Operational risk

The Bank has an Operational Risk Management Policy in place which defines the applicable Operational Risk Management Framework (Risk Appetite, incidents reporting, Key Risk Indicators, Risk and Control Self-Assessment).

Operational Risk is defined as the risk of loss associated with inadequate or failed internal

processes, people and systems or from external events. This is based on the standard

Basel definition and excludes strategic risk (the risk of loss as a result of poor strategic

business decisions), but includes the risk of breach of legal and regulatory requirements, and

the risk of damage to the Bank’s reputation if caused by an Operational Risk event.

System Risk is considered to be a component of Operational Risk as defined above.

Operational Risk is deemed to be a risk inherent to NBL activities, being one of its most material risks.

Segregation of duties, internal procedures, and technological systems in place mitigate the risk of losses due to errors or inadequacies.

Besides, NBL has business continuity management in place (including a Disaster Recovery Plan) to ensure ability to operate on an ongoing basis and limit losses in the event of severe business disruption.

(g) Profitability risk

Profitability risk is low due to the fact that management maintains sufficient control over its margins and costs in order to ensure continued profitability.


81

The following table summarises the carrying amounts and fair values of financial assets and liabilities measured at amortised cost in the statement of financial position.

Carrying amount Fair value 31 March 2016 31 March 2015 31 March 2016 31 March 2015

Assets Balances with central banks 293,000,000 160,000,317 293,000,000 160,000,317 Loans and advances 2,238,129,734 3,387,891,961 2,238,129,734 3,387,891,961

Liabilities Financial liabilities measured at amortised cost 2,925,547,477 3,733,844,238 2,925,547,477 3,733,844,238

The fair value of the financial assets and liabilities corresponds to the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

NOTE 32 - FAIR VALUE OF FINANCIAL INSTRUMENTS (in EUR)

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Fair value hierarchy

As of 31 March 2016 and 2015, the Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques:

Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities. This level includes listed equity securities and debt instruments on exchanges (for example, London Stock Exchange, Frankfurt Stock Exchange, New York Stock Exchange) and exchanges traded derivatives like futures (for example, Nasdaq, S&P 500);

Level 2: techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

31 March 2016 Level 1 Level 2 Level 3 Total

Financial assets Balances with central banks --- 293,000,000 --- 293,000,000 Derivatives held for trading --- 537,292,859 --- 537,292,859 Available-for-sale equity instruments --- --- 10,196,522 10,196,522 Available-for-sale debt instruments 967,054,027 --- --- 967,054,027 Loans and advances --- 2,238,129,734 --- 2,238,129,734

Total financial assets 967,054,027 3,068,422,593 10,196,522 4,045,673,142

Financial liabilities Derivatives held for trading --- 570,392,921 --- 570,392,921 Financial liabilities designated at fair value through profit or loss --- --- 89,208,521 89,208,521 Financial liabilities measured at amortised cost --- 2,925,547,477 --- 2,925,547,477

Total financial liabilities --- 3,495,940,398 89,208,521 3,585,148,919

NOTE 32 - FAIR VALUE OF FINANCIAL INSTRUMENTS (in EUR) (continued)

83

31 March 2015 Level 1 Level 2 Level 3 Total

Financial assets Balances with central banks --- 160,000,317 --- 160,000,317 Derivatives held for trading --- 855,020,661 --- 855,020,661 Available-for-sale equity instruments --- --- 8,755,064 8,755,064 Available-for-sale debt instruments 699,578,602 --- --- 699,578,602 Loans and advances --- 3,387,891,961 --- 3,387,891,961

Total financial assets 699,578,602 4,402,912,939 8,755,064 5,111,246,605

Financial liabilities Derivatives held for trading --- 855,788,067 --- 855,788,067 Financial liabilities designated at fair value through profit or loss --- --- 89,680,141 89,680,141 Financial liabilities measured at amortised cost --- 3,733,844,238 --- 3,733,844,238

Total financial liabilities --- 4,589,632,305 89,680,141 4,679,312,446

During the year ending 31 March 2016, in relation with financial instruments measured at fair value, there were no transfers between Level 1 and Level 2 categories, and no transfers into and out of Level 3 category.

During the year ending 31 March 2016, the movement in the Available-for-sale equity instruments classified in the Level 3 mainly results from the revaluation of the related assets at their fair value.

During the year ended 31 March 2016, the movement in the financial liabilities designated at fair value through profit or loss can be analysed as follows:

Financial liabilities designated at fair value through profit or loss as of 31 March 2015 89,680,141

Total loss recognised in the income statement (31,955,077)

Issues 152,638,460

Redemptions (122,762,432)

Transfers from/to Level 3 ---

Foreign exchange rates fluctuations 1,607,429

Financial liabilities designated at fair value through profit or loss as of 31 March 2016 89,208,521

NOTE 32 - FAIR VALUE OF FINANCIAL INSTRUMENTS (in EUR) (continued)

84

NOTE 33 - CAPITAL MANAGEMENT

The Bank maintains an actively managed capital base to cover risks inherent in the business.

The adequacy of the Bank’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (BIS rules/ratios) and adopted by the Commission de Surveillance du Secteur Financier supervising the Bank.

During the years ended 31 March 2016 and 2015, the Bank had complied in full with all its externally imposed capital requirements.

NOTE 34 - RETIREMENT BENEFIT PLAN

Since 2002, the Bank has entered into an agreement for payment of the retirement pension charges under the corporate defined contribution pension plan organised by its Parent company.

Only expatriate employees of the Bank are entitled to participate into this corporate pension plan.

NOTE 35 - RELATED PARTY DISCLOSURES (in EUR)

The Bank has a related party relationship with its Parent company, entities of its Group and with its directors and executive officers.

The amounts of assets, liabilities, income and expenses as of 31 March 2016 and 2015 concerning Group entities, including the Parent company and subsidiaries, are split between subsidiaries and other Group companies :

Subsidiaries: 31 March 2016 31 March 2015

Available-for-sale equity instruments 10,131,182 8,693,324

Total assets 10,131,182 8,693,324

Financial liabilities measured at amortised cost 13,058,455 10,674,058

Total liabilities 13,058,455 10,674,058

Income and expenses 31 March 2016 31 March 2015


85

Group entities: 31 March 2016 31 March 2015


Loans and advances 265,436,659 785,897,932

Total assets 471,955,197 844,017,849


Financial liabilities measured at amortised cost 194,025,675 372,304,434

Total liabilities 283,168,916 833,857,710

Income and expenses 31 March 2016 31 March 2015

Net interest income 5,604,703 8,450,404


The Bank’s incurred in expenses with respect to the remuneration of the members of the administrative, management and supervisory bodies of the Bank are as follows:

31 March 2016 31 March 2015

Supervisory bodies 50,000 50,000

Managerial bodies 1,074,494 1,035,487

Corporate pensions 141,482 184,158

Total 1,265,976 1,269,645

For guarantees granted to Managerial bodies, please refer to Note 29.

NOTE 35 - RELATED PARTY DISCLOSURES (in EUR) (continued)

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NOTE 36 - EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE

The Bank is not aware of any adjusting or non-adjusting event that would have occurred between 31 March 2016 and the date when the present annual accounts were authorised for issue.

Nomura Bank (Luxembourg) S.A.

33, rue de Gasperich - Building A

L-5826 Hesperange

R.C.S. Luxembourg: B 032.921

NIEDERANVEN

nomura bank (luxembourg) s.a. · the directors of nomura bank (luxembourg) s.a. (the “bank”,...

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