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78 NOTES / ACCOUNTING AND VALUATION PRINCIPLES
(4) Currency translation
Assets and liabilities in foreign currencies are converted at the indicative rates of exchange announced by the European
Central Bank on the reporting date (31 December 2004):
Currency Mid-rate Currency Mid-rate Currency Mid-rate
AUD 1.7459 DKK 7.4388 PLN 4.0845
CAD 1.6416 GBP 0.70505 ROL 39,390
CHF 1.5429 HUF 245.97 SEK 9.0206
CYP 0.5800 JPY 139.65 SKK 38.745
CZK 30.464 NOK 8.2365 USD 1.3621
(5) Loans and advances
Loans and advances to banks and customers, as long as they are original loans, are reported at their nominal
amount or their acquisition cost. Loans and advances to customers acquired in the secondary market, as long as
they are allocated to loans available for sale, are reported at their fair value. Loans and advances to customers
acquired on the secondary market but not allocated to loans available for sale are reported at their acquisition
cost. Individual valuation adjustments are made to take into account recognisable delcredere and sovereign risks.
Valuation adjustments are not offset against the corresponding loans and advances but are shown openly in the
Balance Sheet.
(6) Leasing business
As a rule, fixed assets serving for leasing purposes are classified as finance leases and are entered in the Group
Balance Sheet in accordance with IAS 17 under the individual categories of receivables and at the present value
of the discounted leasing claims.
(7) Risk provisions
Risk provisions in the lending business cover impairment losses (for financial loans) and provisions (for quarantee
loans) for all recognisable credit and sovereign risks. In its credit risk management, Investkredit Group uses a financial
standing assessment system and an internal rating procedure. Accordingly, every active customer is allocated
an external or internal rating. The internal grading corresponds to Standard & Poor’s standard rating scale/the
composite rating scale and takes place in several stages. The business development of all companies is continuously
analysed and the credit risk is regularly evaluated. That makes it possible to classify assets in the banking
book and off-balance-sheet business fully according to criteria of creditworthiness and collateral. In the case of
problematic positions, a special management team provides intensive support.
(8) Trading assets
Securities, derivative financial instruments and other items of the trading portfolio are reported at fair value on
the balance sheet date, according to IAS 39. In the case of listed instruments, the stock exchange price is taken
as the fair value. The value of unlisted instruments is measured by the cash value method (the cash value of discounted
future cash flows) or by the use of suitable option price models (the value resulting from the application
of option price formulae according to the Garman-Kohlhagen, Black-Scholes or Hull-White models). All results
under these items are reported in the Income Statement under net trading result. To measure the market risk,
value at risk (VAR) is calculated according to a model based on a confidence level of 99% and a holding period
of 1 day. There are VAR limits for the interest-rate risk, the share price risk and the currency risk. The standard pro-