Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
Hedging instruments
Derivatives are used for asset and liability management
of interest rate risks, credit risks and foreign currency risks.
Rabobank makes use of the IAS 39 EU carve-out options, which
allow the application of fair value portfolio hedge accounting
to certain positions.
At the time of inception, derivatives are designated as one of
the following: (1) a hedge of the fair value of an asset, a group
of assets or a 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 operation (net
investment hedge). Hedge accounting is applied for derivatives
designated in this manner provided that certain criteria are met,
including the following:
There must be formal documentation of the hedging
instrument, the hedged item, the objective of the hedge,
the hedging strategy and the hedge relationship and this
must be in place before hedge accounting may be applied;
The hedge must be expected to be effective, within 80% to
125%, in covering changes in the hedged item's fair value or
the cash flows allocable to the hedged risks during the entire
reporting period; and
The hedge must be 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 terms of the hedged risks
are recognised in the statement of income in'Gains/ (losses) on
financial assets and liabilities at fair value through profit or loss',
together with the corresponding changes in the fair values of
the assets or liabilities hedged.
As and when the hedge no longer meets the criteria for
hedge accounting (applying the fair value hedge model),
the cumulative adjustment to the fair value of a hedged
interest-bearing financial instrument is amortised through
profit and loss over the relevant interest repricing period.
Hedges of net investments in foreign operations are measured
at fair value, with changes in the fair value (to the extent that
they are effective) being recognised in other comprehensive
income. Changes in the hedged equity instrument resulting
from exchange-rate fluctuations are also recognised in other
comprehensive income. Gains and losses accumulated in other
comprehensive income are reclassified to profit or losses when
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 to the hedged risks are recognised in the hedging
reserve included in other comprehensive income (see section
10). Ineffective elements of the changes in the fair value of
derivatives are recognised in the statement of income.
If a forecast transaction or a recognised liability results in the
recognition of a non-financial asset or liability, any deferred
profits or losses included in other comprehensive income are
transferred to the initial carrying amount (cost) of the asset or
liability. In all other cases, deferred amounts included in other
comprehensive income are taken to the statement of income
as income or expense in the periods in which the hedged
recognised liability or the forecast transaction was recognised
in the statement of income.
Although there are economic hedges under Rabobank's
managed risk positions, certain derivative contracts do not
qualify for hedge accounting under the specific IFRS rules and
are therefore treated as derivatives held for trading purposes.
Interest on derivatives held for economic hedging purposes are
shown under interest income, both the receive and pay leg of
the derivative. The fair value of derivatives held for trading and
hedging purposes is disclosed in section 10.
2.4 Financial assets and liabilities held for trading
Financial assets held for trading are financial assets acquired
with the objective of generating profit from short-term
fluctuations in prices or trading margins or they are financial
assets that form part of portfolios characterised by patterns of
short-term profit participation. Financial assets held for trading
are recognised at fair value based on listed bid prices and all
realised and unrealised results therefrom are recognised under
'Gains/ (losses) on financial assets and liabilities at fair value
through profit or loss'. Interest earned on financial assets is
recognised as interest income. Dividends received from financial
assets held for trading are recognised as'Gains/ (losses) on
financial assets and liabilities at fair value through profit or loss'.
Financial liabilities held for trading are mainly negative fair
values of derivatives and delivery obligations that arise on the
short selling of securities. Securities are sold short to realise
gains from short-term price fluctuations.The securities needed
to settle short sales are acquired through securities lending and
repurchasing agreements. Securities sold short are recognised
at fair value on the reporting date.
Rabobank Annual Report 2017 - Consolidated financial statements
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