5 Derivative assets and liabilities a Treasury derivatives Under EU Accounting Directives, derivative instruments in the trading portfolios are marked to market and recorded under "Other assets" or "Other liabilities". Up-front fees are expensed under "Net result on financial operations" and “Interest payable and similar charges”. Interest accrued under derivative instruments is presented under "Prepayments and accrued income" or "Accruals and deferred income". Under IFRS, all derivative assets and derivative liabilities are recognised on the balance sheet and measured at fair value through profit or loss. Accrued interest is reported on the balance sheet within the balance of the instrument to which it relates. Credit valuation adjustment (“CVA”), Debit valuation adjustment (“DVA”) and Collateral Value adjustment (“CollVA”) are included in the fair valuation of derivatives. Changes in fair value of derivatives are recognised in the income statement under "Result on financial operations". b Derivatives and hedging activities Under EU Accounting Directives, hedging derivative instruments are not recognised on the balance sheet. They are reported off balance sheet at nominal amount. Interest accrued under derivative instruments is presented under "Prepayments and accrued income" or "Accruals and deferred income". Up-front fees, redemption premiums or premiums/discounts are amortised over the period to maturity of the related derivatives under "Interest payable and similar charges". Under IFRS, all derivative assets and derivative liabilities are recognised on the balance sheet and measured at fair value through profit or loss. Accrued interest is reported on the balance sheet within the balance of the instrument to which it relates. CVA, DVA and CollVA are included in the fair valuation of derivatives. Changes in fair value of derivatives are recognised in the income statement under "Result on financial operations". The amortisation of premiums and discounts of FX swaps and FX forwards are recorded under "Result on financial operations". For derivatives used in hedge accounting, the gain or loss of the designated part of the hedging instrument is recognised in the income statement. In addition, the Group separates the fair value of the foreign currency basis spread (“CBS”) from the hedging instruments and applies a dedicated accounting treatment. The initial CBS amount, measured at the date of designation, is recorded under “Other comprehensive income” (“OCI”) and is amortised linearly over the residual lifetime of the hedge in the income statement. Subsequent changes in the fair value of the CBS are recognised directly in OCI. For derivatives used in hedge accounting, up-front fees or redemption premiums are amortised over the period to maturity of the related derivative, unless these derivatives are not designated to hedge accounting, in which case they are recognised immediately under "Result on financial operations". Under IFRS, the Group has two transactions that meet the offsetting of financial assets and financial liabilities criteria. C Impairment of financial assets measured at amortised cost and loan commitments Under EU Accounting Directives, value adjustments on loans and advances are only recorded where there is a risk of non-recovery of all or part of their amounts. These value adjustments are accounted for in the profit and loss account as “Value (re-)adjustments in respect of loans and advances and provisions for contingent liabilities” and are deducted from the appropriate asset items on the balance sheet. Value adjustments for debt securities are recorded, if these are other than temporary. These value adjustments are accounted for in the profit and loss account under “Value (re-)adjustments in respect of transferable securities held as financial fixed assets and participating interests” and are deducted from the appropriate asset items on the balance sheet. Under IFRS, the Group is required to recognise a loss allowance for all loans and debt securities measured at amortised cost as well as for off-balance sheet loan commitments. This allowance is based on either lifetime Expected Credit Loss (“ECL”), if there has been a significant increase in credit risk since initial recognition or the instrument is considered as being credit-impaired or otherwise on 12-months ECL. Depending on the nature of the financial instrument, the ECL allowances are deducted from the appropriate asset items on the balance sheet. For off-balance sheet items, a provision for credit loss is reported under “Provisions b) provision for guarantees issued and commitments”. Changes in the ECL allowances are recorded in the income statement either under: · “Change in impairment on loans and advances and provisions for guarantees, net of reversals” for loans and loan commitments or; · “Change in impairment on transferable securities held as financial fixed assets, shares and other variable - yield securities, net of reversals” for debt securities. D Pension funds Under EU Accounting Directives, a 10% corridor approach is adopted, whereby prior year cumulative actuarial surpluses or deficits in excess of 10% of the commitments for retirement benefits are recognised over the expected average remaining service lives of the plan's participants on a straight-line basis in “General administrative expenses a) staff cost”. Under IFRS, the Group applies IAS 19 revised for determining the income or expense related to its post-employment defined benefit plans. Cumulative actuarial surpluses and deficits are recognised in full in "Other comprehensive income" under “Additional reserves”. Adjustments to staff cost are recognised under “General administrative expenses a) staff cost” and adjustments to interest cost under “Interest expense and similar charges”. E Non-controlling interest adjustment The Bank and the European Investment Fund (“the EIF”) together are defined as the Group. The EIB granted a put option to the minority shareholders on their entire holding of its subsidiary, the EIF. Under EU Accounting Directives, the non-controlling interest is recorded separately in the consolidated balance sheet under “Equity attributable to minority interest” while the put option is recorded in the off-balance sheet of the Group. Under IFRS, the non-controlling interest is reclassified and a corresponding financial liability in the amount of the fair value of the option’s exercise price is recognised under “Other liabilities” and attributed to owners of the parent. Subsequently, this financial liability is measured in accordance with IFRS 9, i.e. any changes in the fair value of the financial liability subsequent to the acquisition date are recognised in the consolidated income statement under “Interest expense and similar charge”. Any excess or deficit of non-controlling interest over the agreed price is reversed to “consolidated reserves”. F Fee and commission income The Group recognises under EU Accounting Directives and IFRS fee and commission income from revenues that are satisfied over time on an accrual basis over the service period. Fee and commission income earned from providing or fulfilling point-in-time services (e.g. performance-linked) is recognised when the service has been completed. For certain mandates, the Group has established a deferred income policy in order to address the misalignment between the receipt of income and the services/cost incurred by the Group during the lifetime of the respective mandate. Corresponding adjustments are recorded in the balance sheet under “Deferred income” and released against “Fee and commission income”. Under EU Accounting Directives, this deferral mechanism is only applied prospectively over time, i.e. recognising deferring revenue of the financial year, while under IFRS, the Group used the modified retrospective approach, i.e. recognising the cumulative impact at transition to IFRS 15 in equity. This resulted in a different stock of deferred income and corresponding amounts of revenue to be recorded over the individual years. G Leases Under EU Accounting Directives, the rental charges are recorded under "General administrative expenses b) other administrative expenses". The Group previously classified leases as operating leases based on its assessment of whether the lease transferred the risks and rewards incidental to ownership of the underlying asset to the Group. With the application of IFRS 16, the Group recognises on-balance sheet the right-of-use assets and lease liabilities for contracts that were previously identified as leases applying IAS 17 and IFRIC 4, except for those that are covered by the recognition exemptions (short-term leased assets and low value leased assets based on their original value, when new).
