About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements Measurement Measurement Amounts in millions of euros category IFRS 9 category IAS 39 Capital Securities Non-controlling interests Equity instruments issued by subsidiaries Capital Securities Trust Preferred Securities IV Other non-controlling interests Total equity Total equity and liabilities Note December 31, 2017 (IAS 39) Reclassification 5,759 13,199 166 394 475 1,035 39,610 602,991 24 Remeasurements (ECL) Other remeasurements2 (170) (69) 144 (464) January 1,2018 (IFRS 9) 5,759 13,199 166 394 475 1,035 39,584 602,482 1 AC Amortised cost, FVPL Fair value through profit or loss and FVOCI Fair value through other comprehensive income. 2 Amounts in this column relate to remeasurements caused by changes in the measurement category of reclassified financial instruments. 3 The column 'Reclassification' has been adjusted as compared with the Interim financial statements 2018 due to financial assets mandatorily at fair value through profit or loss that were presented as financial assets designated at fair value through profit or loss as per 1 January 2018 for an amount of EUR 856 million. (a) Reclassifications and Remeasurements of Financial Assets The combination of the assessment of 37 separate business models and contractual cash flow characteristics (SPPI test) resulted in some differences in thecomposition offinancial assets measured at amortized cost and at fair value, as compared to IAS 39. The most significant change was the measurement of some legacy, non-core portfolios in the business segments WRR and Real estate.These portfolios were undergoing a pre-sales process and therefore have been classified as "Other business model" and are measured at fair value through profit or loss. This resulted in a negative impact of EUR 156 million before tax. The other classification changes offinancial assets resulted together in a positive impact of EUR 67 million before tax. The altered way of accounting for prepayment penalties and interest averaging results in a negative impact of EUR 304 million before tax. (b) Reclassifications and Remeasurements of Financial Liabilities The classification and measurement offinancial liabilities under IFRS 9 remains the same as under IAS 39 with the exception of financial liabilities designated atfair valuethrough profitand loss. Rabobank has elected to reclassify the callable notes included in the structured funding portfolio measured under IAS 39 at fair value to amortized cost under IFRS 9. 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 amortized cost resulted in the bifurcation of the embedded derivatives whilst at the same time the funding host contract is measured at amortized cost. The amortized cost measurement also better reflects the purpose of the funding transaction. This accounting treatment creates a symmetric valuation and presentation of the embedded (and bifurcated) derivative and the external hedging derivative whilst simultaneously exempting the funding host contract from any fair value changes that would previously have been accounted for in other 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 loans create the majority of the fair value movements in the total comprehensive income.Thetotal impactofthischangeis positive EUR594million before tax. The effective interest rate of the reclassified callable notes determined on January 1, 2018 is 2.3% and the interest expense that has been recognized in the statement of income in 2018 amounted to EUR 136 million. As per December 312018, the fair value of these reclassified financial liabilities is EUR 5,442 million. An aftertax gain of EUR 124 million would have been recognized in total comprehensive income ifthese liabilities had not been reclassified. Reconciliation of Impairment Allowances The following table reconciles the impairment allowances determined in accordance with IAS 39 as at December 31, 2017 to the impairment allowances in accordance with IFRS 9 as per January 1, 2018. The IAS 39 impairment methodology was based on an "incurred loss" model, meaning that an allowance is determined when an instrument is credit-impaired. Next to the allowance for these credit impaired instruments under IAS 39 also an allowance was recognized for assets that were in difficulties but not yet reported as such (incurred but not reported). The allowance for instruments that are credit impaired will generally align with the stage 3 category of IFRS 9. Elowever, within the expected credit loss framework of IFRS 9 the entire portfolio of financial instruments will be assigned an impairment allowance Annual Report 2018 - Consolidated Financial Statements 135

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Annual Reports Rabobank | 2018 | | pagina 137