Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
Associates are entities over which Rabobank has significant
influence and in which it usually holds between 20% and 50%
of the voting rights but over which it does not exercise control.
A joint venture is an agreement between one or more parties
whereby the parties, which have shared control over the
agreement, are entitled to the net assets under the agreement.
Unrealised profits on transactions between Rabobank and its
associates and joint ventures are eliminated in accordance
with the size of Rabobank's interest in the associates and
joint ventures. Unrealised losses are also eliminated unless
the transaction indicates that an impairment loss should be
recognised on the asset transferred.
Investments by Rabobank in associates include the goodwill
acquired. If Rabobank's share in the losses of an associate equals
or exceeds its interest in the associate, Rabobank will not
recognise any more losses of the associate unless Rabobank has
given undertakings or made payments on behalf ofthe associate.
2.3 Derivatives and hedging
General
Derivatives generally comprise foreign exchange contracts,
currency and interest rate futures, forward rate agreements,
currency and interest rate swaps, and currency and interest rate
options (written as well as acquired).
Derivatives can be traded either on the stock exchange or
over the counter (OTC) between Rabobank and a client.
All derivatives are recognised at fair value. The fair value is
determined on the basis of listed market prices (a small bid-ask
range applies to derivatives quoted in EUR, USD and/or GBP,
and mid-prices are used), prices offered by traders, cash flow
discounting models and option valuation models based on
current market prices and contract prices for the underlying
instruments, as well as the time value of money, yield curves
and the volatility ofthe underlying assets and liabilities.
All derivatives are included under assets if their fair value is
positive and under liabilities if their fair value is negative.
Derivatives that are embedded in other financial instruments
are treated separately if their risks and characteristics are not
closely related to those ofthe underlying derivative contract
and this contract is not classified as at fair value, whereby
unrealised profits or losses are recognised in the results.
Instruments not used for hedging
If Rabobank enters into derivatives for trading purposes,
realised and unrealised gains and losses are accounted for
under 'Net income from financial assets and liabilities at fair
value through profit or loss'.
Hedging instruments
Rabobank also uses derivatives as part of asset and liability
management to manage its interest rate risks, credit risks
and foreign currency risks. Rabobank makes use ofthe
possibilities provided by the EU through the carve-out in IAS 39.
The carve-out facilitates the application of fair value portfolio
hedge accounting to certain positions.
On the date of concluding a derivative contract, Rabobank can
designate certain derivatives as: (1) a hedge ofthe fair value
of an asset or liability in the statement of financial position
(fair value hedge); (2) a hedge of future cash flows allocable
to an asset or liability in the statement of financial position,
an expected transaction or a firm commitment (cash flow
hedge); or (3) a hedge of a net investment in a foreign entity
(net investment hedge). Hedge accounting can be applied for
derivatives designated in this manner if certain criteria are met.
The criteria derivatives must satisfy to be recognised as hedging
instruments include the following:
formal documentation ofthe hedging instrument, the
hedged item, the objective ofthe hedge, the hedging
strategy and the hedge relationship before the application of
hedge accounting;
the hedge is expected to be effective (in a range of 80% to
125%) in offsetting changes in the hedged item's fair value
or cash flows allocable to the hedged risks during the entire
reporting period;
the hedge is continuously effective from the moment of
its inception.
Changes in the fair value of derivatives that are designated as
fair value hedges and are effective in relation to the hedged
risks are taken in the profit and loss account, together with
the corresponding changes in the fair value ofthe assets or
liabilities hedged which are taken against the specific risk
being hedged.
If the hedge no longer meets the criteria for hedge accounting
(according to the fair value hedge model), the cumulative
adjustment in the fair value of a hedged interest-bearing
financial instrument is amortised through the profit and loss
account over the period to maturity ofthe normal term for this
interest rate for the financial instrument.
For hedges of net investments in foreign entities, the derivative
is measured at fair value, whereby changes in the fair value,
to the extent that they are effective, are taken up in equity.
The change in the hedged equity instrument as a result of
exchange-rate fluctuations are also recognised under equity
until the equity instrument is disposed of.
Changes in the fair value of derivatives that are designated and
qualify as cash flow hedges and that are effective in relation
182 Rabobank Annual Report 2015
