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 Annual Report 2018 - Consolidated Financial Statements 142

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Annual Reports Rabobank | 2018 | | pagina 144