Report from the Commission to the European Parliament, the Council and the Court of Auditors - Annual Report from the Commission on the Guarantee Fund and the management thereof in 2009 SEC(2010)805 final
Date: 2010-07-02
Institutions: European Commission
Subjects: activity report, credit guarantee, financial management, fund (EU)

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EUROPEAN COMMISSION 

Brussels, 2.7.2010 
COM(2010)353 final 

REPORT FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT, THE COUNCIL  
AND THE COURT OF AUDITORS 

Annual report from the Commission 
on the Guarantee Fund and the management thereof in 2009 

SEC(2010)805 final 

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REPORT FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT, THE COUNCIL  
AND THE COURT OF AUDITORS 

Annual report from the Commission 
on the Guarantee Fund and the management thereof in 2009 

CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

Legal basis.................................................................................................................... 3 

Position of the Fund at 31 December 2009.................................................................. 3 

Financial flows of the Fund (resources of the Fund) ................................................... 3 

Presentation of the accounts......................................................................................... 5 

Pre-consolidated financial statement for the Guarantee Fund at 31 December 2009 .. 5 

2.3.1.  Guarantee Fund: Pre-consolidated balance sheet......................................................... 6 

2.3.2.  Guarantee Fund: Pre-consolidated economic outturn account..................................... 8 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

4. 

4.1. 

4.2. 

Payments to or from the Fund...................................................................................... 9 

Legal basis for payments to the Fund from the general budget ................................... 9 

Payments to or from the general budget in the course of the financial year................ 9 

Interest from investment of the Fund’s liquid assets ................................................... 9 

Recovery from defaulting debtors.............................................................................. 10 

The Fund’s liabilities ................................................................................................. 11 

Default payments ....................................................................................................... 11 

EIB remuneration ....................................................................................................... 11 

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1. 

LEGAL BASIS  

Council  Regulation  (EC,  Euratom)  No 480/2009  of  25 May 20091  (codified  version) 
established a Guarantee Fund for external actions (‘the Fund’) in order to repay the Union’s 
creditors  in  the  event  of  default  by  beneficiaries  of  loans  granted  or  guaranteed  by  the 
European  Union.  In  accordance  with  Article 7  of  the  Regulation,  the  Commission  entrusted 
the  financial  management  of  the  Fund  to  the  European  Investment  Bank  (EIB)  under  an 
Agreement  signed  between  the  Community  and  the  EIB  on  23 November 1994  in  Brussels 
and on 25 November 1994 in Luxembourg (‘the Agreement’).  

Under  Article 8(2)  of  the  Agreement,  by  1 March  of  each  year  the  EIB  must  send  the 
Commission an annual status report on the Fund and the management thereof (‘Statement of 
financial  performance’)  and  a  financial  statement  for  the  Fund  for  the  preceding  year 
(‘Statement of financial position of the Fund’). Further details of the report covering the year 
2009 can be found in Section 2 of the Commission Staff Working Document. 

In  addition,  Article 8  of  the  Regulation  requires  the  Commission  to  send  a  report  to  the 
European Parliament, the Council and the Court of Auditors on the situation of the Fund and 
the management thereof for each financial year by 31 May of the following year. 

2. 

POSITION OF THE FUND AT 31 DECEMBER 2009 

2.1. 

Financial flows of the Fund (resources of the Fund) 

The  position  of  the  Fund  is  presented  in  accordance  with  International  Financial  Reporting 
Standards (IFRS) at the close of the 2009 financial year. 

The  Fund  totalled  EUR 1 240 497 760.63  (see  Section  2  of  the  Staff  Working  Document: 
Statement  of  financial  position  of  the Fund  at 31  December 2009, as provided  by  the  EIB). 
This is the sum of the flows since the Fund was established: 

1 

OJ L 145, 10.6.2009, p. 10 (‘the Regulation’). 

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Guarantee Fund 

Budget payments to the Fund 

Successive yearly net results 

Recoveries  of  payments  made  by  the  Fund 
for defaults 

Accrued2  EIB  management  and  audit  fees  in 
2008  corresponding  to  the  payments  to  be 
made in 2009 

Commission  received  on  late  recovery  in 
2002 

Adjustment due to application of the IFRS for 
the  valuation  of  the  Fund’s  portfolio  (See 
item  ‘Reserves’  in  the  liabilities  on  the 
Guarantee Fund balance sheet in Section 2 of 
the SWD) 

Minus calls on the Fund’s resources 

Minus  successive  repayments  of  the  surplus 
in  the  Fund  to  the  general  budget  of  the 
European  Union  and  repayments  following 
accession of candidate countries to the EU 

Amount

+ EUR 2 891 874 500.00

+ EUR 717 683 872.56

+ EUR 576 705 008.19

+ EUR 717 539.60

+ EUR 5 090 662.91

+ EUR 27 678 560.35

- EUR 477 860 856.19

- EUR 2 501 391 526.79

Accounting  value  of 
December 2009 

the  Fund  at  31 

EUR 1 240 497 760.63

Under Article 5 of the Fund Regulation, the amount to be transferred from the budget to the 
Fund in year n + 1 is calculated on the basis of the difference between the target amount and 
the  value  of  the  Fund’s  net  assets  at  the  end  of  year  n  -  1,  calculated  at  the  beginning  of 
year n. 

The  Fund’s  net  assets  (i.e.  the  Fund’s  net  cash  resources)  at  31  December  2009  totalled 
the  Fund, 
EUR 1 333 590 221.03.  This 
i.e. EUR 1 240 497 760.63,  minus  accrued  EIB  and  audit  fees  of  EUR 717 539.60,  of  which 
EUR 687 539.60  were  management  fees  (2009  EIB  remuneration)  and  the  transfer  from  the 
budget of EUR 93 810 000.00, as established in 2009 for the 2010 budget3. 

the  accounting  value  of 

the  sum  of 

is 

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This amount of EUR 717 539.60 includes EUR 687 539.60 for EIB management fees plus external audit 
fees of EUR 30 000.00 in 2009 (see Section 3.7, ‘Current liabilities’, in the SWD). 
The amount of EUR 93 810 000.00 was paid to the Fund on 10 February 2010 from the general budget 
of the European Union. 

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Article 3  of  the  amended  Regulation4  sets  a  target  amount  for  the  Fund  of  9 %  of  the  total 
outstanding capital liabilities arising from each operation, plus any unpaid interest receivable. 

Outstanding  lending  and  loan  guarantee  operations  for  third  countries  plus  accrued  interest 
totalled  EUR 16 360 727 665.19  at  31  December  2009,  of  which  EUR 121 760 043.39  was 
accrued  interest.  The  ratio  between  the  Fund’s  net  assets  of  EUR 1 333 590 221.03  and  the 
outstanding capital liabilities referred to in the Regulation was 8.15 %. Since this is lower than 
the  target  amount  of  9 %  of  the  total  guaranteed  outstanding  amount  (rounded  to 
EUR 1 472 470 000.00),  a  transfer  has  to  be  made  from  the  general  budget  of  the  European 
Union to the Fund, as provided for in Article 5 of the Regulation. The amount to be included 
in 2010 as provisioning in the preliminary draft budget for 2011 is EUR 138 880 000.00. 

2.2. 

Presentation of the accounts 

Since  the  Commission  decided  to  present  its  accounts  in  accordance  with  new  accounting 
rules based on IPSAS/IFRS principles, the pre-consolidated financial statements for the Fund 
have also been drawn up in accordance with these principles, as explained in the SWD. 

2.3. 

Pre-consolidated 
31 December 2009 

financial 

statement 

for 

the  Guarantee  Fund 

at 

The  total  amount  indicated  in  the  pre-consolidated  balance  sheet  is  EUR 1 091 447 384.92. 
This includes the total amount of the Fund plus any arrears covered by the Fund, the interest 
accrued  on  late  payments  and  other  accounting  accruals  and  thus  produces  a  full  set  of 
financial  statements  for  the  Fund  at  the  end  of  the  year  to  be  consolidated  in  the  EU 
consolidated balance sheet. 

The major changes in the presentation of accounts are explained in the notes and reconcile the 
figures with the EIB financial statement presented in the SWD (see Section 2). 

4 

The amended Regulation stipulates that operations concerning accession countries covered by the Fund 
remain covered by the EU guarantee after the date of accession. However, from that date they cease to 
be external actions of the EU and are covered directly by the general budget of the European Union and 
no longer by the Fund. 

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2.3.1.  Guarantee Fund: Pre-consolidated balance sheet 

Balance sheet: Assets (EUR) 

2009 

2008 

Current assets 

Short-term receivables 

Others 

3 626.09

Short-term investments 

1 049 413 319.19

886 949 667.40

AFS portfolio — cost 

1 004 786 115.50

857 292 051.50

AFS portfolio — actuarial difference 

-3 096 484 .22

-633 286.00

AFS portfolio — adjustment to fair 
value 

27 525 747.60

11 509 579.98

AFS portfolio — accruals 

20 197 940.31

18 781 321.92

AFS portfolio — impairment 

Cash and cash equivalents 

191 080 815.35

204 497 717.52

Current accounts 

1 078 498.12

1 209 530.44

Short-term deposits — nominal 

153 300 000.00

182 557 991.00

Accrued interest on short-term deposits 

113 282.91

872 562.49

Other cash equivalents — cost 

36 554 203.91

19 842 008.01

Accrued interest on other cash 
equivalents 

34 830.41

15 625.58

Total current assets 

1 240 497 760.63

1 091 447 384.92

TOTAL 

1 240 497 760.63

1 091 447 384.92

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Balance sheet: Liabilities (EUR) 

2009 

2008 

A. EQUITY 

Capital (Guarantee Fund) 

390 482 973.21

298 522 973.21

Payment from the budget 

390 482 973.21

298 522 973.21

(surplus to be paid to the budget) 

Reserves 

27 678 560.35

11 565 625.28

First-time application — fair value 
reserve 

152 812.75

56 045.30

Change in fair value of AFS assets 

27 525 747.60

11 509 579.98

Accumulated surplus/deficit 

780 668 814.11

732 583 019.02

Results brought forward 

780 668 814.11

732 583 019.02

Economic result of the year 

80 949 873.36

48 085 795.09

Total equity 

1 239 780 221.03

1 090 757 412.60

B. CURRENT LIABILITIES 

Accounts payables 

717 539.60

689 972.32

Others 

717 539.60

689 972.32

Total current liabilities 

717 539.60

689 972.32

TOTAL 

1 240 497 760.63

1 091 447 384.92

Notes on the balance sheet: 

•  ‘Short-term receivables/others’ means the amount of calls on the Fund. This includes the 
capital, interest and penalties due to the budget of the European Union following release of 
the Fund guarantee. 

•  The difference in ‘accumulated surplus’ in equity compared with the financial position of 
the Fund presented in Section 2 of the SWD is explained by the successive repayments of 
calls and penalties to the Fund. 

•  ‘Accounts payables/others’ in 2009 include the EIB management commission, audit fees, 
accrual  of  closing  accounts  audit  fees  and  accrual  of  the  recovery  fees  due  to  the  EIB 
following payment of the penalty fees due to the Fund. 

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2.3.2.  Guarantee Fund: Pre-consolidated economic outturn account 

Guarantee Fund — Consolidated economic outturn 
account (EUR) 

2009 

2008 

Financial operations revenue 

41 753 692.10 

48 907 685.22

Interest income 

Interest income on cash and cash equivalents 

3 496 637.06 

8 095 172.09

Interest income on AFS assets 

38 180 007.32 

39 622 151.89

Other interest income 

Exchange gains 

Realised gains on sale of AFS assets 

Reversal of impairment losses on AFS assets 

Other financial income 

77 047.72 

105 124.43

1 085 236.81

Financial operations expenses 

-803 818.74 

-821 890.13

Interest charges 

Interest charges on cash and cash equivalents 

Exchange losses 

Realised losses on sale of AFS assets 

Impairment losses on AFS assets 

Other financial charges 

of which: Management fees 

-803 818.74 

-821 890.13

-687 539.60 

-658 322.32

SURPLUS FROM NON-OPERATING ACTIVITIES 

40 949 873.36 

48 085 795.09

SURPLUS FROM ORDINARY ACTIVITIES 

Extraordinary gains 

Extraordinary losses 

SURPLUS FROM EXTRAORDINARY ITEMS 

ECONOMIC RESULT OF THE YEAR 

40 949 873.36 

48 085 795.09

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Note on the pre-consolidated economic outturn account: 

‘Other  financial  charges’  include  the  EIB  management  commission,  audit  fees,  accrual  of 
closing accounts audit fees and accrual of the recovery fees due to the EIB following payment 
of the outstanding penalty fees due to the Fund. 

3. 

PAYMENTS TO OR FROM THE FUND 

3.1. 

Legal basis for payments to the Fund from the general budget 

The  Fund  Regulation  was  amended  in  20075  to  ensure  more  efficient  use  of  budgetary 
resources by provisioning the Fund on the basis of the observed amounts of guaranteed loans 
outstanding. 

In  line  with  the  amended  Regulation,  a  new  rule  applies  to  provisioning  of  the  Fund.  The 
target  amount  is  9 %  of  the  loans  and  guaranteed  loans  outstanding,  including  all  types  of 
operations covered (EIB, MFA and Euratom loans) outside the EU. The difference between 
the  target  amount  and  the  value  of  the  Fund’s  net  assets  will  result  in  provisioning  from 
budget line 01040114 ‘Provisioning of the Guarantee Fund’ to the Fund or in payment from 
the Fund to the budget in the event of a surplus. 

Under the Interinstitutional Agreement between the European Parliament, the Council and the 
Commission on budgetary discipline and sound financial management6, the amount available 
for financing the Fund is provided from budget line 01040114 ‘Provisioning of the Guarantee 
Fund’ under Heading 4 (External Relations) and not ‘off budget’ as was the case before 2007. 

3.2. 

Payments to or from the general budget in the course of the financial year 

On the basis of outstanding guaranteed operations of EUR 16 360.73 million as at 31.12.2008, 
an  amount  of  EUR 93.81 million,  corresponding  to  the  2008  provisioning,  was  inserted  in 
budget  line  01040114  ‘Provisioning  of  the  Guarantee  Fund’  for  2009  in  the  statement  of 
expenditure in the general budget of the European Union for 2010. This amount was paid in 
one transaction from the budget to the Fund on 10 February 2010. 

3.3. 

Interest from investment of the Fund’s liquid assets 

The  Fund’s  liquid  assets  are  invested  in  accordance  with  the  management  principles  laid 
down in the Annex to the Community/EIB Agreement of 23/25 November 1994, as amended 
by  Supplementary  Agreement  No 1  of  17/23 September 1996,  Supplementary  Agreement 
No 2  of  26  April/8 May 2002  and  Supplementary  Agreement  No  3  of  25  February  2008. 
Accordingly, 20 % of the Fund must be invested in short-term investments (up to one year). 
These  investments  include  variable-rate  securities,  irrespective  of  their  maturity  dates,  and 
fixed-rate securities with a maximum of one year remaining to maturity, irrespective of their 
initial maturity period. This is because fixed-rate securities are reimbursable at 100 % of their 
nominal value at the end of their life, while variable-rate securities can usually be sold at any 
time  at  a  price  close  to  100 %,  whatever  their  remaining  period  to  maturity.  To  maintain  a 

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Council Regulation (EC, Euratom) No 89/2007 of 30 January 2007 amending Council Regulation (EC, 
Euratom) No 2728/94 establishing a Guarantee Fund for external actions, OJ L 22, 31.1.2007, p. 1. 
OJ C 139, 14.6.2006, p. 1. 

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balance  between  the  various  instruments  providing  the  required  liquidity,  a  minimum  of 
EUR 100 000 000.00 is kept in monetary investments, particularly bank deposits. 

In 2009 the portfolio yielded a total return of 4.56 %, against 6.42 % in 2008. 

The accounting results were strongly affected by the very low levels of absolute interest rates, 
which  reduced  the  level  of  financial  income.  Market  conditions  in  2009  slowly  improved 
compared with 2008, helped by the combination of the various rescue packages, government 
intervention and central bank measures which kept interest rates low and liquidity abundant. 
The  portfolio  outperformed  the  benchmark  by  77.80  basis  points  (see  Section  1.4.2.  of  the 
SWD  ‘Performance’  for  details).  During  the  first  half  of  2009,  the  Fund’s  performance 
totalled  0.1587  basis  points  due  to  a  volatile  market  environment.  The  Fund’s  performance 
accelerated during the second half up to December. This significant increase was mainly due 
to  higher  asset  prices  resulting  from  a  tightening  of  credit  spreads,  generating  a  positive 
impact on the return on the securities portfolio. 

The list of banks authorised to receive deposits is agreed by the Commission and the EIB. The 
original list has been regularly revised in the light of the latest changes in bank ratings. The 
banks  all  have  a  Moody’s  rating  of  at  least  P1  for  short-term  investments  or  an  equivalent 
Standard & Poor’s or Fitch rating. The investments made with them are governed by rules to 
ensure a competitive return and to avoid any concentration of risk. 

In 2009, interest income on cash and cash equivalents, on the Fund’s current accounts and on 
securities totalled EUR 41 753 692.10, broken down as follows: 

– 

– 

From  deposits  and  current  accounts:  EUR 3 496 637.06;  this  reflects  the 
situation at 31 December 2009, including interest received on bank deposits of 
EUR 4 206 817.81 and changes in accrued interest of -EUR 740 074.75 in 2009. 
Current accounts raised EUR 29 894.00 from interest. 

From  securities:  EUR 38 180 007.32;  this  includes  EUR 36 922 145.60  of 
interest on securities and changes in accrued interest of +EUR 1 416 618.39 at 
31  December  2009.  The  interest  on  securities  is  generated  by  investments 
placed  in  the  form  of  securities  in  accordance  with  the  investment  principles 
laid down in the Agreement giving the EIB the mandate to manage the Fund’s 
liquid assets. Of this amount, an adjustment of -EUR 158 756.67 must be made 
from the securities entered in the course of the year as the difference between 
the  entry  price  and  the  redemption  value  divided  pro  rata  temporis  over  the 
remaining  life  of  the  securities  held  (corresponding  to  the  spread  of  the 
premium or discount entered in the profit-and-loss account). 

The interest received is entered in the results for the financial year. 

3.4. 

Recovery from defaulting debtors  

The Fund has no amount to be recovered. 

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4. 

THE FUND’S LIABILITIES 

4.1. 

Default payments 

The Fund was not called on for default payments in 2009. 

4.2. 

EIB remuneration 

The second Supplementary Agreement to the Agreement signed on 26 April and 8 May 2002 
lays  down  that  the  Bank’s  remuneration  is  to  be  calculated  by  applying  degressive  annual 
rates of fees to each tranche of the Fund’s assets. This remuneration is calculated on the basis 
of the annual average assets of the Fund. 

The Bank’s remuneration for 2009 was set at EUR 687 539.60 and was entered in the profit-
and-loss account and as accruals (liabilities) on the balance sheet. The remuneration was paid 
from the Fund to the EIB in January 2010. 

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