2.3 Derivatives and Hedging
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
Up until the system's termination on December 11, 2018, the
remaining participants were:
Coöperatieve Rabobank U.A
De Lage Landen International B.V.
Rabo Factoring B.V. (previously named De Lage Landen Trade
Finance B.V.)
Rabo Lease B.V. (previously named De Lage Landen Financial
Services B.V.)
Rabo Direct Financiering B.V (previously named De Lage Landen
Financiering B.V.)
2.2.2 Investments in Associates and Joint Ventures
Investments in associates and joint ventures are initially
recognized at cost (including goodwill) and subsequently
accounted for using the equity method of accounting. Its share
of post-acquisition profits and losses are recognized in the
income statement and its share of post-acquisition movements
in reserves are recognized directly in other comprehensive
income. The cumulative post-acquisition movements are
included in the carrying amount of the investment.
Associates are entities over which Rabobank can exercise
significant influence and in which it generally holds between 20%
and 50% of the voting rights but does not have control. A joint
venture is an agreement between one or more parties under
which the parties jointly have control and are jointly entitled to
the net assets under the agreement. Unrealized profits on
transactions between Rabobank and its associates and joint
ventures are eliminated in proportion to Rabobank's interest in
the respective associates and joint ventures. Unrealized losses are
also eliminated unless the transaction indicates that an
impairment loss should be recognized on the asset(s) underlying
the transaction.
Derivatives generally comprise foreign exchange contracts,
currency and interest rate futures, forward rate agreements,
currency and interest rate swaps and currency and interest rate
options (written or acquired). Derivatives are recognized at fair
value (excluding transaction costs) determined on the basis of
listed market prices (with mid-prices being used for EUR, USD and
GBP derivatives that have a bid-ask range), prices offered by
traders, discounted cash flow models and option valuation
models based on current market prices and contract prices for the
underlying instruments and reflecting the time value of money,
yield curves and the volatility of the underlying assets and
liabilities. Derivatives are included under assets if their fair value
is positive and under liabilities if their fair value is negative.
Derivatives Not Used for Hedging
Realized and unrealized gains and losses on derivatives held for
trading are recognized at fair value in 'Gains/ (losses) on financial
assets and liabilities at fair value through profit or loss'.
Derivatives Used for Hedging
Derivatives are used for asset and liability management of interest
rate risks, credit risks and foreign currency risks. Rabobankapplies
IFRS 9 for non-portfolio hedge accounting. IFRS 9 does not offer
a solution for fair value hedge accounting for a portfolio hedge
of interest rate risk. Rabobankopted to usethe accounting policy
choice of IFRS 9 to continue to apply the IAS 39 EU carve-out for
such portfolio hedge accounting.
At the time of inception, derivatives are designated as one of the
following: (1) a hedge of the fair value of an asset, a group of
assets or a liability in the statement of financial position (fair value
hedge); (2) a hedge of future cash flows allocable to an asset or
liability in the statement of financial position, an expected
transaction or a firm commitment (cash flow hedge); or (3) a
hedge of a net investment in a foreign operation (net investment
hedge). Fledge accounting is applied for derivatives designated
in this manner provided that certain criteria are met, including the
following:
There must be formal documentation ofthe hedging instrument,
the hedged item, the objective ofthe hedge, the hedging
strategy, and the hedge relationship; Documentation ofthe
assessment and analysis ofthe sources of hedge ineffectiveness
and howthe hedges ratio is determined (IFRS 9);The hedge must
be expected to be effective, within 80% to 125% (IAS 39), in
covering changes in the hedged item's fair value or the cash flows
allocable to the hedged risks during the entire reporting period;
The hedge must be continuously effective from the moment of
its inception;There is an economic relationship between the
hedged item and hedging instrument (IFRS 9).
1. Derivatives Used for Fair Value Hedge Accounting
Changes in the fair value of derivatives that are designated as fair
value hedges and are effective in terms ofthe hedged risks are
recognized in the statement of income in 'Gains/ (losses) on
financial assets and liabilities at fair value through profit or loss',
together with the corresponding changes in thefair values ofthe
assets or liabilities hedged.
As and when the hedge no longer meets the criteria for hedge
accounting (applying the fair value hedge model), the cumulative
adjustment to the fair value of a hedged interest-bearing financial
instrument is amortized through profit and loss over the relevant
interest repricing period.
Annual Report 2018 - Consolidated Financial Statements
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