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
receivables loans and advances to banks
Loans and advances to customers and receivables 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 receivables
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, a provision 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 provision is the
difference between the carrying amount and the achievable
amount i.e. the cash value of expected cash flows. As well as
the expected interest income and repayments, the provision
amount also includes the amounts that can be obtained from
guarantees and securities and are calculated at present value at
the original (average) effective borrowing rate.
The provision for loans includes losses if there is objective
evidence that losses are allocable to some
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
'Credit loss costs' 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:
Property loans with arrears of 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
264 Rabobank Annual Report 2015