About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
CDS spreads. All other market risk parameters are valued
consistently with derivatives used to hedge the market risk in
these liabilities. Changes in the fair value that are attributable to
changes in own credit risk are reported in "Other comprehensive
income". The change in fair value that is attributable to changes
in own credit risk is calculated by deducting on a note by note
basis the current fair value of the structured notes portfolio at the
reporting date from the fair value recalculated based on the
prevailing credit curve at the time of origination, with all other
pricing components unchanged. This calculation reflects the
amount that can be attributed to the change in the own credit
risk of Rabobank since the origination of these structured notes.
Debt Securities in Issue.
The fair value of these instruments is calculated using quoted
prices on an active market. For debt securities for which no
quoted prices on an active market are available, a discounted cash
flow model is used based on credit adjusted yield curves
appropriate for the term to maturity.
The following table shows the fair value of financial instruments,
recognized at amortized cost based on the valuation methods
and assumptions detailed below. This table is included because
not all financial instruments are recognized at fair value in the
balance sheet. Fair value represents the price that would have
been either received for the sale of an asset or paid in order to
transfer a liability in a standard transaction conducted between
market participants on the valuation date.
2018
2017
Amounts in millions of euros
Carrying
amount
Fair value
Carrying
amount
Fair value
Assets
Cash and cash equivalents
73,335
73,335
66,861
66,861
Loans and advances to credit
institutions
17,859
17,878
27,254
27,190
Loans and advances to
customers
436,591
443,867
432,564
443,249
Liabilities
Deposits from credit
institutions
19,397
19,333
18,922
18,929
Deposits from customers
342,410
345,719
340,682
344,783
Debt securities in issue
130,806
132,397
134,423
137,392
Subordinated liabilities
16,498
17,220
16,170
18,042
The above stated figures represent the best possible estimates
by management based on a range of methods and assumptions.
If a quoted price on an active market is available, this is the best
estimate of fair value.
If noquoted prices on an active marketareavailableforfixed-term
securities, equity instruments, derivatives and commodity
instruments, Rabobank bases the expected fair value on the
present value ofthe future cash flows, discounted at market rates
which correspond to the credit ratings and terms to maturity of
the investments. A model-based price can also be used to
determine fair value.
Rabobank follows a policy of having all models used for valuing
financial instruments in the statement of financial position
validated by expert staff who are independent ofthe staff who
determine the fair values ofthe financial instruments.
In determining market values or fair values, various factors have
to be considered. These factors include the time value of money,
volatility, underlying options, credit quality ofthe counterparty
and other factors. The valuation process has been designed in
such a way that market prices that are available on a periodic
basis are systematically used. Modifications to assumptions might
affect the fair value of financial assets and liabilities held for
trading and non-trading purposes.
The table on the next page illustrates the fair value hierarchy used
in determining the fair value of financial assets and liabilities. The
breakdown is:
Level 1Quoted prices on active markets for identical assets
or liabilities; an "active market" is a market in which
transactions relating to the asset or liability occur in sufficient
frequency and at a sufficient volume in order to provide price
information on a permanent basis
Level 2: Inputs other than quoted prices included in level 1
that are observable for the asset or liability, either directly (i.e.
as prices) or indirectly (i.e. derived from prices)
Level 3: Inputs for the asset or liability not based on
observable market data.
Rabobank determines for recurrent valuations of financial
instruments at fair value when transfers between the various
categories ofthe fair-value hierarchy occurred by reassessing the
level at the end of each reporting period.
Annual Report 2018 - Consolidated Financial Statements
166
