Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
Classification and measurement
Classification and measurement of financial assets is dependent
on two criteria:
1Business model assessment; Assessment how the business is
managed and how the business is seen from a strategic point
of view. Also the frequency and size of the sales are taken into
account.This assessment results in a classification 'Hold to
collect'or'Hold to collect and sell'or 'Other'.
2. Type of contractual cash flows; Assessment of the financial
assets whether the cash flows are solely payment of principal
and interest.
Both criteria will be used to determine whether the financial
assets are accounted for at amortised cost, at fair value with
adjustments recognised in other comprehensive income
(FVOCI), or through profit or loss (FVTPL).The combination of
these two criteria (assessment of 37 separate business models
and contractual cash flow characteristics) will result in some
differences in the composition of financial assets measured at
amortised cost and at fair value, as compared to IAS 39.
The assessment on classification and measurement will not lead
to any significant changes in measurement with the exception
of the change in measurement of some legacy, non-core
portfolios in the business segments WRR and Real estate which
are currently undergoing a pre-sales process before exiting
Rabobank and therefor will be classified as'Other'and will be
measured at fair value through profit or loss. Although the
business model assessment indicates that these portfolios will
be sold in the future, they do not meet the criteria for IFRS 5 as
at 31 December 2017.
The classification and measurement of financial liabilities under
IFRS 9 remains the same as under IAS 39 with the exception of
financial liabilities designated at fair value through profit and
loss. In 2016 Rabobank elected to early adopt section 7.1.2 of
IFRS 9 which requires a reporting entity to present changes
in the fair value of financial liabilities designated at fair value
(which consists mainly of the structured funding portfolio) that
are attributable to changes in credit risk in other comprehensive
income ('OCI'). In doing so the fair value changes that are a
direct result from changes in the own credit standing ('OCA')
of Rabobank were eliminated from the consolidated statement
of income. With the full implementation of IFRS 9 Rabobank
has elected to reclassify the callable notes included in the
structured funding portfolio measured under IAS 39 at fair
value to amortised cost. The purpose of this is to further
reduce the volatility due to own credit standing movements
in total comprehensive income resulting from callable notes.
The reclassification of the callable notes from fair value through
profit or loss to amortised cost will result in the bifurcation of
the embedded derivatives whilst at the same time the funding
host contract is measured at amortised cost. This accounting
treatment creates a symmetric valuation and presentation of
the embedded (and bifurcated) derivative and the external
hedging derivative whilst at the same time the funding host
contract is, in line with the assets for which the funding is
attracted, not subject to any fair value changes that would
previously have been accounted for in total comprehensive
income. Rabobank has decided to do this for callable notes
only and not for other notes included in the structured funding
portfolio since the callable notes create the majority of the fair
value movements in total comprehensive income.
IFRS 9 prescribes a strict application of modification accounting.
This alters the way Rabobank will account for prepayment
penalties and interest rate averaging in the consolidated
statement of income.
Classification measurement - Expected impact
The measurement changes of financial assets under IFRS
9 compared to IAS 39 will result in a negative impact of
approximately EUR 0.1 billion in opening retained earnings as
at 1 January 2018 (net oftax).The reclassification of callable
notes from fair value through profit or loss to amortised cost
will result in a net positive adjustment of approximately EUR 0.4
billion in opening retained earnings (net of tax) and the impact
of modification accounting will be approximately EUR 0.2
billion negative (net of tax).The impact of classification and
measurement will be in total positive EUR 0.1 billion.
Hedge accounting - Requirements
Hedge accounting is an option IFRS offers to mitigate profit
or loss volatility caused by measurement and classification
differences between granted loans and issued debt measured
at amortised cost, assets measured at fair value through OCI
(hedged items) and related hedging derivatives measured at
fair value through profit or loss (hedging derivatives).The assets
and liabilities measured at amortised cost are revalued for the
fair value changes due to the hedged risk. For debt instruments
measured at fair value through OCI the fair value changes
due to the hedged risk on the assets recognised in OCI are
reclassified to profit or loss. In a cash flow hedge the fair value
changes of the derivative are recognised in the cash flow hedge
reserve (effective part only).
One of the main differences between IAS 39 and IFRS 9 for
non-portfolio hedge accounting is that IFRS 9 requires that
there is an economic relationship between the hedged
item and the hedging instrument. IFRS 9 does not permit
voluntary de-designation of the hedge relationship, which
is not in line with our current approach of applying hedge
accounting to a net dynamic risk position which requires
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