2.14 Fees and Commissions
2.15 Loans and Advances to Customers and
Loans and Advances to Credit
Institutions
2.16 Impairment Allowances on Financial
Assets
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
customers', 'Financial assets at fair value through other
comprehensive income' and 'Derivatives used for fair value
hedge-accounting'. Interest on derivatives held for economic
hedging purposes are shown under interest expense, both the
receive and pay leg of the derivative.
Rabobank earns fee and commission income from a diverse range
of services it provides to its customers. Commissions earned for
the provision of services such as payment services and advisory
fees are generally recognized as the service is provided.
Commission received for negotiating a transaction or for
involvement in negotiations on behalf of third parties (for
example the acquisition of a portfolio of loans, shares or other
securities orthe sale or purchase of companies) is recognized
upon completion of the underlying transaction.
Financial assets that are held for collection of contractual cash
flows where those cash flows represent solely payments of
principal and interest are measured at amortized cost and
presented as 'Loans and advances to credit institutions' or 'Loans
and advances to customers'. At initial recognition, Rabobank
measures these financial assets at its fair value plus transaction
costs that are directly attributable to the acquisition of the
financial asset.
Interest income from these financial assets is included in net
interest income using the effective interest rate method. Any gain
or loss arising on derecognition is recognized directly in profit or
loss and presented in 'Gains/ (losses) arising from the
derecognition of financial assets measured at amortized cost'.
Impairment losses are included in 'Impairment charges on
financial assets' in the statement of income.
Impairmentallowances apply to financial assets atamortized cost
and financial assets at fair value through OCI, as well as to lease
receivables, contract assets, trade receivables, certain loan
commitments and financial guarantees. At initial recognition, an
allowance is formed for the amount of the expected credit losses
from possible defaults in the coming 12 months (stage 1). If
credit risk increased significantly since origination (but remains
non-credit-impaired), an allowance will be required for the
amount that equals the expected credit losses stemming from
possible defaults during the expected lifetime of the financial
asset (stage 2). If the financial instrument becomes credit-
impaired the allowance will remain at the Lifetime ECL (stage 3).
Flowever, for these instruments the interest income will be
recognized by applying the effective interest rate on the net
carrying amount (including the allowance). Financial instruments
become credit-impaired when one or more events have occurred
that had a detrimental impact on estimated future cash flows.
Rabobank does not use the low credit risk exemption for any
financial instrument.
Two fundamental drivers of the IFRS 9 impairments requirements
are a) the methodology for the measurement of 12-Month and
Lifetime Expected Credit Losses and b) the criteria used to
determine whether a 12-month ECL, Lifetime ECL non-credit-
impaired, or Lifetime ECL credit-impaired should be applied (also
referred to as stage determination criteria).
a) Methodology to Determine Expected Credit Losses
In order to determine ECLs Rabobank utilizes point in time
Probability of Default (PD) x Loss Given Default (LGD) x Exposure
at Default (EAD) models for the majority of the portfolio in scope.
Three global macroeconomic scenarios are incorporated into
these models and probability weighted in orderto determine the
expected credit losses. When unexpected external developments
or data quality issues are not sufficiently covered by the outcome
of the ECL models, an adjustment will be made.
b) Stage Determination Criteria
In order to allocate financial instruments in scope between stage
1, stage 2 and stage 3 a framework of qualitative and quantitative
factors has been developed. The criteria for allocating a financial
instrument to stage 3 are fully aligned with the criteria for
assigning a defaulted status, for example 90 days past due status,
or if a debtor is likely to become unable to pay its credit
obligations without liquidation of collateral by the bank. In order
to allocate financial instruments between stages 1 and 2,
Rabobank uses criteria, such as days past due status, special asset
management status and deterioration of the PD since origination.
For portfolios without individual PD's or with PD's that are not
updated on a frequent basis such that an assessment of the
change in PD is not possible, a collective assessment on groups
of financial instruments with shared credit risk characteristics is
made.
Significant Increases in Credit Risk (SICR)
At each reporting date, Rabobankassesses whetherthe credit risk
on financial instruments has increased significantly since initial
recognition.There is a rebuttable presumption thatthe credit risk
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