Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
Fair value hedges
The main components of the fair value hedge at Rabobank
are interest rate swaps and cross-currency interest rate swaps
which serve as protection against a potential change in the fair
value of fixed-income financial assets and liabilities in both local
and foreign currencies, such as mortgages, available-for-sale
debt securities and issued debt securities.
Rabobank tests the hedge effectiveness on the basis of
statistical regression analysis models, both prospectively and
retrospectively. At year-end 2016, the hedge relations were
highly effective within the range set by IAS 39.
The IFRS ineffectiveness for the year ended 31 December 2017 was
57 (2016:118).The result on the hedging instrument amounted
to -946 (2016: -850), with the result from the hedged position,
allocable to the hedged risk, amounting to-889 (2016: 968).
Cash flow hedges
Rabobank's cash flow hedges consist mainly of cross-currency
interest rate swaps which serve to protect against a potential
change in cash flows from financial assets in foreign currencies
with floating interest rates.
Rabobank tests the hedge effectiveness on the basis of
statistical regression analysis models, both prospectively and
retrospectively. At year-end 2017 and 2016, the hedge relations
were highly effective within the range set by IAS 39.
In 2017, Rabobank accounted for an amount of-594 (2016:
-87) after taxation in other comprehensive income as effective
changes in the fair value of derivatives in cash flow hedges.
In 2017, an amount of 622 (2016: 56) aftertaxation of cash
flow hedge reserves was reclassified to the income statement.
On 31 December 2017, the cash flow hedge reserves as part
of equity totalled -42 (2016: -70) after taxation. This amount
fluctuates along with the fair value of the derivatives in the cash
flow hedges and is accounted for in the income statement over
the term of the hedged positions as trading result. The cash
flow hedge reserve relates to a large number of derivatives and
hedged positions with different terms.The maximum term is
23 years, with the largest concentrations exceeding five years.
The IFRS ineffectiveness for the year ended 31 December 2017
was 178 (2016: 148).
Net investment hedges
Rabobank uses forward foreign exchange contracts to hedge
a portion of the currency translation risk of net investments in
foreign operations. On 31 December 2017, forward contracts
with a nominal amount of 1,834 (2016:1,230) were designated
as net investment hedges.These resulted in exchange gains
and losses of-88 for the year (2016: -6), which are deferred
in equity. A total of 22 was made in withdrawals from equity
during the reporting year (2016: 24) as a result of the disposal of
a hedged equity instrument. For the year ended 31 December
2017, Rabobank reported no ineffectiveness resulting from the
net investment hedges.
10.4 Notional amount and fair value
Although the notional amount of certain types of financial
instruments provides a basis for comparing instruments that
are included in the statement of financial position, it does
not necessarily represent the related future cash flows or the
fair values of the instruments and therefore the exposure of
Rabobank to credit or exchange risks. The nominal value is
the amount of the asset, reference rate or index underlying
a derivative financial instrument, which represents the basis
on which changes in a derivative financial instrument's value
are measured. It provides an indication of the volume of
transactions executed by Rabobank, but is not a measure
of risk exposure. Some derivatives are standardised in terms
of notional amount or settlement date and are specifically
designed for trading on active markets (exchanges).
Other derivatives are specifically constructed for individual
clients and not for trading on an exchange, even though they
can be traded at prices negotiated between buyers and sellers
(OTC instruments).
The positive fair value represents the cost for Rabobank to
replace all contracts on which it will be entitled to receive
payment if all counterparties were to default. This is the
standard method in the industry for calculating the current
credit risk exposure.The negative fair value represents the
cost of all Rabobank contracts on which it will have to make
payment if Rabobank defaults. The totals of the positive and
negative fair values are disclosed separately in the statement of
financial position. Derivatives are positive (assets) or negative
(liabilities) as a result of fluctuations in market or exchange rates
in relation to their contract values.The total contract amount
or notional amount of derivatives held, the degree to which
these instruments are positive or negative, and hence the total
fair value of the derivative financial assets and liabilities can
sometimes fluctuate significantly.
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