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
