Annual Report 1993. Balance Sheet and Profit and Loss Account of Eesti Pank for 1993

The balance sheet and profit and loss account have been compiled according to the accounting principles set by Estonian legislation, international accounting standards so far as they are appropriate to a central bank and decisions of the Board of Eesti Pank.

As the annual report presents the data of the reporting period together with the data of the previous year, the figures for 1992 have been made comparable to the data for 1993. Notes to the balance sheet are set out here. Comments on the profit and loss account are included here.

LIABILITIES

Expenditure

NOTES AND EXPLANATIONS TO THE BALANCE SHEET OF EESTI PANK

Principles of accounting

Transactions denominated in foreign currencies are translated into kroons, the legal tender of the Republic of Estonia, using the official exchange rates of Eesti Pank valid on the day the transaction was carried out. Foreign currency assets and liabilities are translated into Estonian kroons at the Eesti Pank exchange rate valid on the balance sheet date. Realized and unrealized foreign exchange gains and losses are recorded in reserves.

The accounts have been prepared on the historical cost basis of accounting, modified to include the revaluation of certain assets as referred to in the notes below.

Income and expenditure is accounted for in the respective period on an accruals basis, notwithstanding the actual date the money was received or paid.

Item 1

The gold reserves of Eesti Pank comprised 8,250.171 ounces at the end of 1993, at the end of 1992 the respective amount was 82,282.866 ounces. The gold is included in the balance sheet at its market value as of the end of 1993 of 5419.2028 Estonian kroons (USD 390.50) per ounce.

Item 2

The item "Convertible foreign currency assets" includes current account balances, deposits, reverse repurchase agreements and government bonds denominated in convertible foreign currency. Bonds are recorded at their market value at the end of 1993. Reverse repos are recorded at cost plus accrued interest. The item also includes accrued interest on current account balances and deposits.

The bank's rules for investing the foreign currency reserves of Eesti Pank allow transactions with trustworthy institutions of high international standing only.

The foreign currency reserves of Eesti Pank have more than doubled during 1993, reflecting convertible foreign currency purchased from Estonian commercial banks and earnings on foreign currency reserves.

Item 3 (and item 12)

These items include the asset and related liability arising from the loans granted by the International Monetary Fund to Estonia to increase foreign currency reserves and develop the economy in the amounts of SDR 41,555,356 on the assets side and SDR 41,850,000 on the liabilities side of the balance sheet (EEK 748,026,784.97 and 753,330,562.80, respectively). Amounts shown on the assets and liabilities sides are different because loan interest and commission fees have been deducted from the amount shown on the assets side. Interest earned and interest payable on the SDR accounts, included in income and expenditure for 1993, but not paid into or paid from the SDR accounts by the end of 1993, are also included in these balances.

By the end of 1993 Estonia had received SDR 41,850,000 (753,330,562.80 kroons) divided into two parts: the so called stand-by loan of SDR 30,225,000 and the systemic transformation facility of SDR 11,625,000. Interest charged for using the SDR is based on the average daily balance of outstanding purchases, using the SDR interest rate.

The SDR are translated into Estonian kroons during the financial year of the IMF (from 1 May to 30 April) at a fixed exchange rate. During the year ended 30 April 1994 SDR 1 equals EEK 18.000731 while during the previous financial year the exchange rate was 17.06124 kroons, respectively. The revaluation of the SDR takes place on 30 April, at the end of the IMF financial year.

As IMF resources are used by purchasing them for kroons, the IMF member has an obligation to repurchase its currency later, either for SDR or for some other convertible currency. The purchase of SDR is treated as an increase of the foreign currency reserves. The maximum amount of a loan which can be obtained from the IMF is up to 400% of the quota.

Item 4 (and item 12)

Membership in the IMF is shown on the assets side of the balance sheet and equals the country's quota in the IMF, which in turn is shown in kroons under liabilities ("IMF kroon accounts"). At the end of 1993 the quota of Estonia in the IMF was SDR 46,500,000 (EEK 837,033,991.50). Loans obtained from the IMF and Estonia's quota in this organisation comprise IMF kroon accounts with Eesti Pank and are shown under a respective item under liabilities.

Item 5 (and item 18)

This item shows the accounts of Eesti Pank held with the central banks of CIS countries, Latvia and Lithuania and used for settlements with those countries. Under liabilities the offsetting amount is shown as demand deposits of Estonian banks in item 18 "Non-convertible foreign currency".

Non-convertible foreign currency accounts are translated into kroons using the official DEM exchange rate of the central banks of the respective countries on 31 December 1993 and the official Eesti Pank kroon/DEM rate on the same day.

Item 6

The total amount of loans granted to Estonian commercial banks in 1993 was 454,607,679.60 kroons, excluding the indebtedness rising from a guarantee obligation that has to be fulfilled and which is referred to below.

By the end of 1993 overdue loans amounted to 59,542,926.43 kroons, with the total analysed as follows:

In addition, as a result of the liquidation of Tartu Kommertspank, a loan granted to Tartu Kommertspank by the Russian Agriculture Bank for the amount of 15,022,293.84 kroons and guaranteed by Eesti Pank has become a balance sheet liability of Eesti Pank.

Other loans comprise the loans granted to other enterprises and to Eesti Pank employees. Loans to enterprises also include credits granted to former banks, which have partly been revalued in the balance sheet. The bulk of the total amount of loans to enterprises is accounted for by a long term loan of 63,473,812.23 kroons given to the Painküla Starch Factory by Donau Bank AG (Austria, Vienna) and Estonian Land Bank, guaranteed by Eesti Pank. As the Painküla Starch Factory was privatised the guarantee turned into an Eesti Pank liability because the privatisation contract does not provide for payment of the loan by the new owner.

Loan balances also include accrued interest, not yet received.

Item 7

This item includes 50 interest free 10-year debentures of Eesti Maapank (Estonian Land Bank), aggregate nominal value 5 million kroons, maturing on 1 September 2002. The debentures were purchased for 2 million kroons, and are carried at this amount in the balance sheet.

In addition, the item includes VEB Fund certificates with a total nominal value of 103 million kroons. VEB Fund certificates are marketable registered securities backed by the claims of the North Estonian Bank Ltd and Union Baltic Bank on accounts frozen in the former Vneshekonombank in Moscow. The VEB Fund certificates have been purchased from the Põhja-Eesti Pank (North-Estonian Bank) for 100 million kroons and from the Government of the Republic of Estonia for shares in the above bank. The value of the shares was 3 million kroons.

Item 8

This item includes shares and participations in international financial and other organisations.

Bank for International Settlements (BIS) shares with a total book value of 7,837.50 kroons are included at their historical cost in 1930 (when Eesti Pank joined the BIS), taking into account conversions from Estonian kroons to roubles in 1940 and from roubles to Estonian kroons in 1992. At the present time Eesti Pank has 700 BIS shares, 200 of which are voting shares.

Eesti Pank joined SWIFT on 20 August 1993 by purchasing one share for 32,000 Belgian francs (12,426.24 kroons).

Eesti Pank shares in the Estonian Investment Bank (EstIB) amount to 47,523,488.00 kroons and in Eesti Hoiupank (Estonian Savings Bank) to 14,000,000.00 kroons. The share of Eesti Pank in EstIB is 66 2/3% and in Eesti Hoiupank 66 2/3%.

Eesti Pank shares in the joint stock company "Inkassaator" amount to 1,000,000 kroons, representing 100% of the company.

Item 9

This item includes accrued interest on Eesti Pank certificates of deposit sold to banks.

In addition, prepayments for services and goods, an amount receivable from an Estonian commercial bank in respect of an unsettled foreign exchange transaction and sundry other debtors and other assets.

Item 10

Fixed assets are included at initial cost or valuation less depreciation deducted on a straight line basis using the following annual rates:

The nearly double increase of the net book value of fixed assets in 1993 is caused by the renovation of buildings and the increase in their book value due to revaluation, the purchase of office and computer equipment and expenditure on furnishing offices.

Item 11

"Foreign debts" show the debt of Eesti Pank to Finnish Vientiluotto OY of 62,221,739.58 kroons, to the Russian Agriculture Bank (guarantor's duty due to the liquidation of the Tartu Kommertspank) of 13,877,600.00 kroons and to Donau Bank AG in Austria (the loan to the Painküla Starch Factory) of 36,027,489.12 kroons.

The balancing items on the assets side are in "Loans to financial institutions" and "Other loans".

Item 12

This item shows the Estonian kroon deposits of the IMF held with Eesti Pank, which include loans granted by the IMF and the quota of the Republic of Estonia in the IMF (see also items 3 and 4).

Item 13

This item includes accounts held with Eesti Pank by the central banks of the CIS countries, Latvia and Lithuania, which are used for carrying out transactions between Estonia and the above countries through Eesti Pank.

Item 14

The item shows banknotes and coins issued for circulation by Eesti Pank. The structure of cash in circulation is shown on page *** of the Annual Report.

Item 15

The correspondent accounts of Estonian commercial banks with Eesti Pank are shown here.

Item 16

The short-term Certificates of Deposit shown here are discountable papers with EEK 100,000 nominal value.

Item 17

The convertible foreign currency account shows the demand deposit of the Government of the Republic of Estonia held with Eesti Pank. The ECU loan granted to the Government by the European Union has been translated into Estonian kroons. For this loan Eesti Pank acts as the borrower's agent for the Republic of Estonia.

Item 18

This item includes non-convertible currency demand deposits of the Government of the Republic of Estonia and of Estonian banks with Eesti Pank. The deposits are related to transactions with the CIS countries, Latvia and Lithuania carried out through Eesti Pank.

Item 19

This item includes sundry other accounts payable at the beginning of 1994 for 1993 costs.

A long-term credit of EEK 7,600,000 granted to the Painküla Starch Factory by the Estonian Land Bank and guaranteed by Eesti Pank is also included here. The Painküla Starch Factory having been privatised, the guarantor's duty became a liability of Eesti Pank, as the privatisation agreement does not provide for payment of the loan by the new enterprise.

Item 20

Capital and reserves can be broken down as follows:

Fixed capital has increased due to the amounts received from the Estonian Privatisation Board.

Bond revaluations show the effect of revaluing foreign currency bonds held at the end of 1993 at their market value.

Exchange translation differences and gold revaluations show the difference between the kroon values at the end of 1992 and 1993 of those assets and liabilities expressed in foreign currency, and the effects of the revaluation of gold at the end of the year.

The special reserve has been reduced in 1993 by charging against it the losses on writing off of rouble assets and liabilities, according to a Board of Eesti Pank decision. At the end of 1992 the special reserve had not been available for this purpose. The writing off of revalued rouble assets and liabilities was calculated from the financial results of 1992. The loss of 1992 was covered from the special reserve. The amount of rouble assets and liabilities deducted from special reserve will be replaced from the next ten years profits.

COMMENTS ON THE PROFIT AND LOSS ACCOUNT OF EESTI PANK

Interest earned from foreign exchange reserves deposited abroad has increased more than five times, compared to 1992. The reason for this is the increase of convertible foreign exchange reserves and their more effective investment.

Interest income on deposits with and loans granted to other banks has decreased compared to 1992 because the functions and activities of Eesti Pank have changed considerably since monetary reform. Interest rates for 1993 were considerably lower than those for 1992 (the difference is especially large compared to the pre-monetary reform period).

Other income reflects gains on realisation of gold, interest on loans granted to the employees of Eesti Pank, repayment of loans written off in previous years, extraordinary and other income not in conflict with the Law of the Central Bank or the Statutes of Eesti Pank. In 1992 this item mainly reflected earnings from regulating rouble transactions.

Interest payable by Eesti Pank on domestic transactions has increased by 24 million kroons, compared to 1992. The reason for this was the increase in interest paid to Eesti Hoiupank (Estonian Savings Bank) on its required reserves held with Eesti Pank in 1993 and the increase in interest on certificates of deposits issued by Eesti Pank.

The increase in interest on foreign loans was caused by the significant increase in IMF credits during 1993.

Expenditure in connection with guarantees given has emerged due to liabilities rising from a guarantee by Eesti Pank in respect of a loan to Tartu Kommertspank from the Russian Agriculture Bank.

The depreciation increase calculated for fixed assets was caused by the increase in fixed assets due to additions and revaluation as well as changes in depreciation rates.

The growth of administrative and maintenance costs is mainly due to the increase in renovation and personnel costs as well as the increase in communication costs, postal and transport services. Also in 1993 the expenses for data processing, obtaining and distributing information and the development of security systems increased.

Other necessary Eesti Pank expenses have decreased, compared to 1992. In 1992 expenses consisted mainly of the write off of rouble assets. In 1993 the charges mainly relate to establishment of provisions against and the writing-off of non-performing loans.