Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
calculated by deducting on a note by note basis the current
fair value of the structured notes portfolio at the reporting
date from the fair value recalculated based on the prevailing
credit curve at the time of origination, with all other pricing
components unchanged.This calculation reflects the amount
that can be attributed to the change in the own credit risk of
Rabobank since the origination of these structured notes.
Debt securities in issue
The fair value of these instruments is calculated using quoted
prices on an active market. For debt securities for which no
quoted prices on an active market are available, a discounted
cash flow model is used on the basis of credit adjusted yield
curves appropriate for the term to maturity.
The following table shows the fair value of financial instruments,
recognised at amortised cost on the basis of the valuation
methods and assumptions detailed below.This table is included
because not all financial instruments are recognised at fair value
in the balance sheet. Fair value represents the price that would
have been received for the sale of an asset or that would have
been paid in order to transfer a liability in a standard transaction
conducted between market participants on the valuation date.
2017
2016
in millions of euros
Carrying
amount
Fair value
Carrying
amount
Fair value
Assets
Cash and cash
equivalents
66,861
66,861
84,405
84,405
Loans and advances
to banks
27,254
27,190
25,444
25,368
Loans and advances to
customers
432,564
443,249
452,807
465,278
Liabilities
Deposits from banks
18,922
18,929
22,006
22,042
Deposits from
customers
340,682
344,783
347,712
353,227
Debt securities in issue
134,423
137,392
159,342
163,622
Subordinated liabilities
16,170
18,042
16,861
18,256
The above stated figures represent the best possible estimates
by management on the basis of a range of methods and
assumptions. If a quoted price on an active market is available,
this is the best estimate of fair value.
If no quoted prices on an active market are available for fixed-
term securities, equity instruments, derivatives and commodity
instruments, Rabobank bases the expected fair value on the
present value of the future cash flows, discounted at market
rates which correspond to the credit ratings and terms to
maturity of the investments. A model-based price can also be
used to determine fair value.
Rabobank follows a policy of having all models used for valuing
financial instruments in the statement of financial position
validated by expert staff who are independent of the staff who
determine the fair values of the financial instruments.
In determining market values or fair values, various factors
have to be considered. These factors include the time value
of money, volatility, underlying options, credit quality of the
counterparty and other factors. The valuation process has been
designed in such a way that market prices that are available
on a periodic basis are systematically used. Modifications to
assumptions might affect the fair value of financial assets and
liabilities held for trading and non-trading purposes.
The table on the next page illustrates the fair value hierarchy
used in determining the fair value of financial assets and
liabilities.The breakdown is as follows:
Level 1Quoted prices on active markets for identical
assets or liabilities; an 'active market' is a market in which
transactions relating to the asset or liability occur with
sufficient frequency and at a sufficient volume in order to
provide price information on a permanent basis;
Level 2: Inputs other than quoted prices included in level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices);
Level 3: Inputs for the asset or liability not based on
observable market data.
Rabobank determines for recurrent valuations of financial
instruments at fair value when transfers between the various
categories of the fair-value hierarchy occurred by reassessing
the level at the end of each reporting period.
Rabobank Annual Report 2017 - Consolidated financial statements
201
