Management Report Appendices Governance
Consolidated Financial Company Financial
on appropriate money market interest rates for debts with
comparable credit risks and terms to maturity.
Financial Assets and Derivatives Held for Trading.
Financial assets held for trading are carried at fair value based on
available quoted prices in an active market. If quoted prices in an
active market are not available, the fair value is estimated based
on discounted cash flow models and option valuation models.
Derivatives are recognized at fair value determined on the basis
of listed market prices (mid-prices are 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.
For OTC derivatives credit valuation adjustments (CVA) are made
to reflect expected credit losses related to the non-performance
risk of a given counterparty. A CVA is determined per
counterparty and depends on expected future exposure taking
into account collateral, netting agreements and other relevant
contractual factors, default probability and recovery rates. The
CVA calculation is based on available market data including
credit default swap (CDS) spreads, Where CDS spreads are not
available relevant proxies are used. A debit valuation adjustment
(DVA) is made to include own credit in the valuation of OTC
derivatives. The calculation of DVA is consistent with the CVA
framework and is calculated using the Rabobank CDS spread.
Another factor that must be taken into account is the funding
valuation adjustments (FVA). FVA concerns the valuation
difference between transactions hedged by securities and
transactions not hedged by securities. Collateralized transactions
are valued by means of a discounting curve, based on the
overnight index spread. Non-collateralized transactions are
valued by means of a discounting curve, based on Euribor/Libor
plus a spread which reflects the market conditions.
Financial Assets Designated at Fair Value and Financial Assets
Mandatorily at Fair Value.
These financial assets are carried at fair value based on quoted
prices on an active market if available. If not, they are estimated
from comparable assets on the market, or using valuation
methods, including appropriate discounted cash flow models
and option valuation models.
Loans and Advances to Customers.
The fair value of loans and advances to customers is estimated
by discounting expected future cash flows using current market
rates for similar loans, considering the creditworthiness of the
counterparty. For thefair valuation of residential mortgage loans,
the contractual cash flows are adjusted for the prepayment rate
of the portfolio. For variable-interest loans that are repriced
regularly and do not vary significantly in terms of credit risk, the
fair value approximates the carrying amount.
Financial Assets at Fair Value through Other Comprehensive
Income and Available-for-sale Financial Assets.
These financial assets are measured at fair value based on listed
market prices. If quoted prices on an active market are not
available, the fair value is estimated based on discounted cash
flow models and option valuation models.
Deposits from Credit Institutions.
Foans and advances to credit institutions includes interbank
placings, items to be collected and deposits. The fair values of
floating rate placings, that are repriced regularly and do not vary
significantly in terms of credit risk, and overnight deposits are
their carrying amounts. The estimated fair value of fixed-interest
deposits is based on the present value of the cash flows,
calculated based on valid money market interest rates for debts
with comparable credit risks and terms to maturity.
Deposits from Customers.
Deposits from customers includes current accounts and deposits.
The fair value of savings and current account balances that have
no specific termination date are assumed to be the amount
payable on demand on the reporting date i.e. their carrying
amount on that date. The fair value of these deposits is estimated
from the present value of the cash flows based on current bid
rates for interest for similar arrangements and terms to maturity
and that match the items to be measured. The carrying amount
of variable-interest deposits is a good approximation oftheirfair
value on the reporting date.
Financial Liabilities Held for Trading.
The fair value of financial liabilities held for trading is based on
available quoted prices on an active market. If quoted prices on
an active market are not available, the fair value is estimated on
the basis of valuation models.
Financial Liabilities Designated at Fair Value.
The fair value option is used to eliminate the accounting
mismatch and valuation asymmetry between these instruments
and the hedging derivatives which would occur if these
instruments would have been accounted for at amortized cost.
The financial liabilities designated at fair value include structured
notes and structured deposits which are managed and reported
on a fair value basis together with the hedging derivatives. The
fair value of these liabilities is determined by discounting
contractual cash flows using credit adjusted yield curves based
on available market data in the secondary market and appropriate
Annual Report 2018 - Consolidated Financial Statements