Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
Loan renegotiations;
Potential bankruptcy of, or financial reorganisation, within
the borrower;
Changes in the borrower's payment history;
Changes in economic circumstances that could cause the
borrower to default.
Losses are estimated on the basis of the borrowers'credit
ratings and the value of the collateral provided and reflecting
the economic environment in which the borrowers operate.
The carrying amount of loans is reduced by allowances based
on the most-likely-case scenarios, and losses are recognised in
the statement of income.The assets and impairment allowances
are eliminated as and when the foreclosure process has been
completed, the security provided has been realised, virtually no
other means of recovery are available and in the event of any
formal cancellation of debt. Any amounts subsequently collected
are included in 'Loan impairment charges'in the statement of
income. Expected future cash flows on renegotiated loans are
regularly monitored for ongoing validity.
Non-performing loans are loans that meet at least one of the
following criteria:
Loans that are past due by more than 90 days;
It is likely that the borrower will default on all or part of
the debt (including principal, interest and fees) if the bank
were not to enforce its security interests, irrespective of the
amount or period of the delay of payments.
As and when prospects for continuity recover and delays on
payment have been cleared as previously agreed, the loan is no
longer considered impaired and the impairment is reversed.
A general provision is made for impairment in the remaining
element of the portfolio which has not been specifically
identified as impaired within the bank's risk systems (IBNR;
incurred but not reported). Basel II parameters, adjusted to
the IFRS guidelines and to current developments, are used
to determine the provision, together with what is known as
the Loss Identification Period (LIP), the period between the
occurrence of a loss event and the recording of the event in the
bank's risk systems.The LIP is expressed in months and varies
between portfolios.
Exposures classified as corporate exposures under Capital
Requirements Directive CRD IV are measured in accordance
with the'one debtor'principle. This principle requires that the
approved limit for a debtor applies to the sum of all exposures
(including derivatives, guarantees and the like) of the debtor
group into which the debtor has been classified. Debtor
groups include all debtors that are part of the economic entity
with which the borrower is affiliated, including any majority
shareholders of the economic entity. The'one debtor'principle
applies across all entities and group divisions.
2.16 Goodwill and other intangible assets
Goodwill
Goodwill is the amount by which the acquisition price paid
for a subsidiary exceeds the fair value on the date on which
the share of net assets and contingent liabilities of the entity
was acquired. With each acquisition, the other non-controlling
interests are recognised at fair value or at its share of the
identifiable assets and liabilities of the acquired entity. Tests are
performed annually, or more frequently if indications so dictate,
to determine whether there has been impairment.
Other intangible assets, including software
development costs
Costs directly incurred in connection with identifiable and
unique software products over which Rabobank has control and
that will likely provide economic benefits exceeding the costs
for longer than one year are recognised as other intangible
assets. Direct costs include the personnel costs of the software
development team, financing costs and an appropriate portion
of the relevant overhead.
Expenditures that improve the performance of software as
compared with their original specifications are added to the
original cost of the software. Software development costs are
recognised as other intangible assets and amortised on a linear
basis over a period not exceeding five years. Costs related to the
maintenance of software are recognised as an expense at the
time they are incurred.
Other intangible assets also include those identified through
business combinations, and they are amortised over their
expected useful lives when the asset is available for use.
Impairment losses on goodwill
Goodwill is allocated to cash-generating units for the purpose
of impairment testing, which is undertaken at the lowest level
of assets that generate largely independent cash inflows.
During the fourth quarter of each financial year, or more
frequently if there are indications of impairment, goodwill is
tested for impairment and any excess of carrying amount over
recoverable amount is provided.The recoverable amount is the
higher of the value in use and the fair value less selling costs.
The value in use of a cash flow generating unit is determined as
the present value of the expected future pre-tax cash flows of
the cash flow generating unit in question. The key assumptions
used in the cash flow model depend on the input data and they
reflect various judgemental financial and economic variables,
such as risk-free interest rates and premiums reflecting the
risk inherent in the entity concerned. Impairments of goodwill
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