Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
If any loans suffer impairment losses, they are written down
to their recoverable amounts.The interest income recognised
henceforth is based on the original discount rate for the
calculation of the present value of the future cash flows used
to determine the recoverable amounts. Interest on derivatives
held for economic hedging purposes is shown separately under
interest income.
2.14 Commission
Income from asset management activities consists mainly of
unit trust, fund management commission and administration.
Income from asset management and insurance brokerage is
recognised as earned once the services have been provided.
Commission is generally recognised on an accrual basis.
Commission received for negotiating a transaction, or taking
part in negotiations on behalf of third parties, for example the
acquisition of a portfolio of loans, shares or other securities,
or the sale or purchase of companies, is recognised upon
completion of the underlying transactions.
2.15 Loans and advances to customers and loans and
advances to banks
Loans and advances to customers and loans and advances to
banks are non-derivatives with fixed or definable payments that
are not listed on an active market. An exception hereto are such
assets that Rabobank classifies as held for trading purposes, or
initially recognised at fair value for which value adjustments
are recognised in the profit and loss account, or as available for
sale. Loans and advances to customers and banks are initially
recognised at fair value, including transaction costs, and
subsequently carried at amortised cost, including transaction
costs.
Loans are subject to either individual or collective impairment
analyses. A value adjustment, an allowance for expected
losses on loans, is recognised if there is objective evidence
that Rabobank will not be able to collect all amounts due
under the original terms of the contract. The amount of the
allowance is the difference between the carrying amount and
the recoverable amount i.e. the present value of expected cash
flows. As well as the expected interest income and repayments,
the allowance also includes the amounts that can be obtained
from guarantees and securities and are discounted at present
value at the original (average) effective interest rate.
The allowance for loans includes losses if there is objective
evidence that losses are allocable to some portions of the loan
portfolio at the reporting date.
Examples of objective evidence for value adjustments are:
significant financial difficulties on the part of the borrower;
default in making interest and/or redemption payments on
the part of the borrower;
loan renegotiations;
possibility of bankruptcy or financial reorganisation on the
part of the borrower;
changes in borrowers' payment status;
changes in economic circumstances that could cause the
borrower to default.
For each separate business unit, the losses are estimated on
the basis of the credit ratings of the borrowers and the value of
the collateral provided to the bank, with consideration given
to the actual economic conditions under which the borrowers
conduct their activities. The carrying amount of the loans is
reduced through the use of a provision account, based on
what the bank considers the most likely scenario, and the loss
is recognised in the profit and loss account. Provisions for the
impairment of expected loan losses are made as soon as the
enforcement process is completed, the security provided has
been realised, when virtually no other means of recovery are
available and in the event of a formal cancellation of a debt.
Any amounts subsequently collected are added under the
item 'Loan impairment charges' in the profit and loss account.
As soon as the prospects for continuity have recovered and
arrears have been cleared as agreed, the loan is no longer
considered impaired (not fully collectible). Management
continually assesses these renegotiated loans to ensure that all
criteria are satisfied with a view to expected future cash flows.
Non-performing loans are loans that meet at least one of the
following criteria:
These are material loans in arrears by more than 90 days;
It is likely that the debtor will fail to fully pay their debt
(principal sum, interest or fees) if the bank would not resort
to the enforcement of its security interests (if present),
regardless of the number of days orthe amount in arrears.
The general provision constitutes the provision adopted for
the portion of the portfolio that remains effectively impaired as
in the reporting period but which has not yet been identified
as such (IBNR; incurred but not reported) in the bank's risk
systems. As before, Basel II parameters, adjusted to the IFRS
guidelines and to current developments, are used here in order
to determine the provision. An important factor in determining
the general provision is what is known as the Loss Identification
Period (LIP) i.e. the period between the time a loss event occurs
at the client's company and the time the bank has recorded the
loss event in its risk systems.The LIP is expressed in months and
varies between portfolios.
On each reporting date, management assesses whether there is
objective evidence that reclassified loans previously recognised
as available-for-sale assets have been impaired.
For exposures classified as corporate exposures under CRD
IV, exposures are measured in accordance with the 'one
debtor' principle. This principle entails that the approved limit
186 Rabobank Annual Report 2015
