IFRS 9 - Implementation at Deutsche Pfandbriefbank AG (pbb) 3 July 2019 Presentation for University of Regensburg
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IFRS 9 – Implementation at Deutsche Pfandbriefbank AG (pbb) 3 July 2019 Presentation for University of Regensburg Gero Bothe Mail: gero.bothe@pfandbriefbank.com Phone: 089 / 2880 - 28748 Finance Deutsche Pfandbriefbank AG 14.06.2019 / 08:51 Uhr Bothe/ Financial Reporting 1
Agenda 1 Introduction 2 Classification and Measurement 3 Impairment 4 Backup 1: Supplementary slides 5 Backup 2: Solutions for exercises 14.06.2019 / 08:51 Uhr / FI 2
Introduction Deutsche Pfandbriefbank AG (pbb) • Deutsche Pfandbriefbank (pbb) is a leading European financier for commercial real estate investments and public investment projects. It is the largest issuer of Pfandbriefe and an important issuer of covered bonds in Europe. • The geographic focus is on Germany, France, the United Kingdom, the Nordic countries and on selected Central and Eastern European countries. In addition to the European markets, pbb extended its business in the second half of 2016 by entering the US real estate market. • Since 16 July 2015, Deutsche Pfandbriefbank AG is listed in the Prime Standard segment of the Regulated Market of the Frankfurt Stock Exchange (MDAX). 14.06.2019 / 08:51 Uhr / FI 3
Introduction
Structure of IFRS - Overview
International Financial Reporting Standards (IFRS)
Preface Conceptual Framework Standards Interpretations
International Financial Reporting International Accounting International Financial Reporting Standard Interpretation
Standards (IFRS) Standards (IAS) Interpretation Committee (IFRIC) Committee (SIC)
IFRS 1 First-time adoption of IFRS IAS 1 Presentation of financial statements
IFRS 2 Share-based payment IAS 2 Inventories
IFRS 3 Business combination IAS 7 Statement of cash flow
IFRS 4 Insurance contracts IAS 8 Accounting policies, changes in accounting estimates and errors
IFRS 5 Non-current asset held for sale and discontinued operations IAS 10 Events after the reporting period
IFRS 6 Exploration for and evaluation of mineral resources IAS 12 Income taxes
IFRS 7 Finance instruments: disclosures IAS 16 Property, plant and equipment
IFRS 8 Operating segments IAS 19 Employee benefits
IFRS 9 Financial instruments IAS 20 Accounting for government grants and disclosure of goverment assistance
IFRS 10 Consolidated financial statements IAS 21 The effects of changes in foreign exchange rates
IFRS 11 Joint arrangements IAS 23 Borrowing costs
IFRS 12 Disclosure of interests in other entities IAS 24 Related party disclosures
IFRS 13 Fair value measurement IAS 26 Accounting and reporting by retirement plan assets
IFRS 14 Regulatory deferral account IAS 27 Separate financial statements
IFRS 15 Revenue from contracts with customers IAS 28 Investments in associates and joint ventures
IFRS 16 Leases IAS 29 Financial reporting in hyperinflationary economies
IFRS 17 Insurance contracts IAS 32 Financial instruments. Presentation
IAS 33 Earnings per share
• IFRS 9 deals with the accounting of financial instruments IAS 34 Interim financial reporting
(mainly loans, securities, financial liabilities, derivatives). IAS 36 Impairment of assets
• IFRS 9 had to be applied initially on 01.01.2018 and IAS 37 Provisions, contingent liabilities and contingent assets
replaced former IAS 39. IAS 38 Intangible assets
• The introduction of IFRS 9 was a reaction of the criticism IAS 39 Financial Instrumente (recognition and measurement) – hedge accounting
IAS 40 Investment properties
of the G20 in the context of the financial market crisis.
IAS 41 Agriculture
14.06.2019 / 08:51 Uhr / FI 4Introduction
Structure of IFRS: Allocation of standards to balance sheet positions of a bank
General standards: IAS 1, 7, 8, 10, 20, 21, 23, 24, 26, 27, 28, 29, 32, 33, 34
IFRS 1, 2, 3, 4, 6, 8, 10, 11, 14, 15, 16
Assets = use of funds Liabilities = source of funds
IFRS 7, 9, 13, ● Cash reserve ● Liabilities to banks and customers IFRS 7, 9, 13
IAS 39 IAS 39
● Trading assets ● Securitized liabilities
● Loans and advances to bank and customers
● Valuation adjustment from portfolio hedge accounting
● Allowances for losses on loans and advances
● Trading liabilities
● Valuation adjustment from portfolio hedge accounting
● Subordinated liabilities
● Financial investments
● Provisions IAS 19, 37
IAS 16, 36 ● Tangible assets
● Current and deferred tax liabilities IAS 12
IAS 38, 36 ● Intangible assets
● Current and deferred income tax assets ● Equity IAS 1, 32
IAS 12
IAS 40 ● Investment Properties ● Minority interest (non-controlling interests) IAS 1, IFRS 10
IAS 28 ● Financial investments measured at equity ● Liabilities connected to non-current assets held for sale IFRS 5
IAS 2 ● Inventories
IFRS 5 ● Non-current assets held for sale and discontinued
operations
14.06.2019 / 08:51 Uhr / FI 5Introduction
Importance of financial instruments in the light of the business model of banks
Deutsche Pfandbriefbank (pbb) balance sheet 2018
assets pbb Group as of 31.12.2018 in € billion liabilities
Cash reserve 1.4 Stand alone derivatives 0.9
Stand alone derivatives 0.7 Hedging derivatives 2.5
Hedging derivatives 2.2 Liabilities to banks 3.9
Financial instrument Debt securities 9.9 Liabilities to customers 24.9 Financial instrument
Loans to bank 2.2 Bearer bonds 21.2
Loans to customers 41.2 Subordinated liabilities 0.7
Tax assets 0.1 Provisions 0.3
Other assets 0.1 Other liabilities 0.1
equity 3.3
Total assets 57.8 Total liaiblities and equity 57.8
Financial instruments Business model of banks
• IFRS 9 deals with the accounting of financial instruments.
Banks are organizations where people
• Financial instruments are all loans, securities, financial liabilities and
and businesses can invest or borrow
derivatives on the asset and liaibility side of an entity.
money. Banks transform
• A balance sheet of a bank almost completely consists of financial
– amounts,
instruments.
– maturities and
• Financial instruments also play an important role for other companies of the
– risk.
finance industry like insurances and for every industry company.
Banks are traders of money.
• The fair value measurement is prescribed in IFRS 13, the disclosure of
financial instruments is regulated in IFRS 7.
14.06.2019 / 08:51 Uhr / FI 6Introduction
Definitions
• A financial instrument is any contract, that …
• creates a financial asset for one entity and
• a financial liability or equity instrument for another entity.
• A financial asset is any asset that is …
• cash,
• an equity instrument of another entity or
• a contractual right to exchange financial assets/liabilities under potentially favorable conditions.
• A financial liability is any liability that is a contractual obligation …
• to deliver cash or another financial asset to another entity or
• to exchange financial assets/liabilities under potentially unfavorable conditions.
• An equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities.
• A derivative is a financial instrument….that meets all of the following criteria:
a. its value changes in reaction to a change of an underlying interest-rate, a price of a financial instrument, a commodity
price, an exchange rate, a price- or interest index, a liquidity rating… (also called underlying)
b. no initial investments are required…; and
c. it will be settled at a future date.
Forwards (obligation to purchase an underlying asset at a future date at a fixed price), options (right to purchase or sell an
underlying asset at a fixed price) and swaps (obligation to exchange future cash flows of two underlying assets) are examples
for derivatives used in practice
14.06.2019 / 08:51 Uhr / FI 7Agenda 1 Introduction 2 Classification and Measurement 3 Impairment 4 Backup 1: Supplementary slides 5 Backup 2: Solutions or exercises 14.06.2019 / 08:51 Uhr / FI 8
Classification and Measurement
General measurement concepts
Measurement concepts • At inital recognition all financial
instruments are measured at fair
value
• For subsequent measurement
IFRS 9 consists of different
Amortised cost Fair Value measurment concepts: amortised
Measurement cost or fair value.
• Value fluctuations of financial
instruments to be measured at fair
Through P&L value either have to be shown in
Value Through OCI
OCI (other comprehensive income
fluctuations = equity) or in P&L (profit or loss).
• If a financial instruments is not
No impairments accounted at fair value through
Impairments to be to be booked P&L the impairment rules of IFRS
Impairments booked (part of the 9 will have to be applied.
fair value)
• The amortised costs are the amount at which the financial asset or financial liability is measured at initial recognition minus
the principal payments, plus or minus the cumulative amortisation using the effective interest method of any difference between
that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
• IFRS 13 defines the following fair value hierarchy:
o Level 1 – quoted priced (unadjusted) in active markets for identical financial assets or financial liabilities (market prices)
o Level 2 – inputs that are observable either directly or indirectly, other than quoted prices included within Level 1
o Level 3 – valuation techniques that include inputs that are not based on observable market data (unobservable inputs)
14.06.2019 / 08:51 Uhr / FI 9Classification and Measurement
Classification of Financial Assets under IFRS 9 - Overview
Financial assets according to IFRS 9
Abbreviations:
Instrument Equity Debt • P&L = profit or loss account
instrument instrument • OCI = other comprehensive
income = equity
Contractual cash flows
Criterion Equity
Trading
Instrument not fulfilled fulfilled
(can be “healed”
by the bench-
mark test Business model
Option Other business both, collect hold to generate
models (residual contractual cash contractual cash
category) flows and sell flows
assets
Fair value option Fair value option
no use use use no use
Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value Fair Value
Measurement/ through through Amortised
through through through through through
classification OCI* OCI** cost
P&L P&L P&L P&L P&L
*no recycling to P&L at derecognition **recycling to P&L at derecognition
14.06.2019 / 08:51 Uhr / FI 10Classification and Measurement
Contractual Cash Flow Criterion - Overview
IFRS 9 specifies that an asset can only be measured at amortised cost if the contractual terms of the financial asset
give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
The contractual cash flow criterion (CCC) is fulfilled if the cash flows just covers principal and interest payments.
Interest is an unleveraged compensation for the risk faced by pbb for granting / extending the credit. It thus may
encompass the time value of money, the credit risk and other basic lending risks or costs (for example liquidity risk,
administrative costs, profit margin).
Fair
Value at
initial
Interest on the principal amount
Principal
recog- outstanding
nition
Consideration for For example:
the passage of Time Other basic • Liquidity risk
• Administra-
time, if modified a value of Credit risk lending risks or
benchmark test is tive costs
money costs • Profit margin
required
• etc
Examples for constraints
Variable, fix
Maturity and
or No profit
currency
combination sharing
congruency
(cap, floor)
The assessment of the CCC needs to be performed at recognition of the financial asset on the basis of the individual contractual cash flows.
14.06.2019 / 08:51 Uhr / FI 11Classification and Measurement
Contractual Cash Flow Criterion - Benchmark Test
In case of a modified component to compensate for the time of value the contractual cash flow criterion has to be
assessed by performing a benchmark test. For that it has to be checked if the cash flows of the instrument to be
tested differ significantly from the hypothetical benchmark instrument at which there is no modification compensating
the time value of money. Example:
1M
Euribor,
monthly
fixing
Actual
instrument
Benchmark
with
instrument Comparison of cash flows (not of the present modification
without values) in relation to the time value of money
modification (cumulative and periodical) 6M
Euribor,
monthly
fixing
Difference Difference
significant significant
Cash Flow criterion fulfilled?
14.06.2019 / 08:51 Uhr / FI 12Classification and Measurement
Exercise 1: Practical examples for SPPI test
Types of embedded options SPPI test fulfilled?
Floater: The interest rate is variable (e.g. Euribor plus 100 basis points = 1 %).
Yes No
Floater with a floor: The interest rate is variable (e.g. Euribor plus 100 basis points but
Yes No
1.5 % minimum)
Interest rate linked to credit risk: The loan has a fixed interest (e.g. 4 %). It increases by
Yes No
100 basis points if the credit quality decreases (e.g. the ratio loan to value exceeds 80)
Lender option / borrower option: The bank has the right to increase the interest rate to an
Yes No
unlimited level. In this case the borrower can terminate the contract without paying a fee.
Interest rate steps: The interest rate is variable (e.g. Euribor plus 100 basis points). If
Yes No
Euribor exceeds 3 %, the interest rate is set to 0 %.
Reverse Floater: If the market interest rate (e.g. Euribor) increases the interest rate to be
Yes No
paid by the customer decreases and vice versa.
Interest rate linked to a share market index: If DAX increases the interest rate to the
Yes No
customer increases and vice versa.
14.06.2019 / 08:51 Uhr / FI 13Classification and Measurement
Business Model criterion
IFRS 9 distinguishes between the following three business models:
Hold to collect cash flows AC Hold to collect cash flows and sell assets FV OCI
Sale of financial assets Sale of financial assets
• are not part of the strategy („Haltestrategie“), • are part of the strategy - together with the objective to hold
• but can be tolerated under the following circumstances: the assets in order to collect contractual cash flows (“Halten
und Verkaufen”).
–insignificant –Infrequent –close to –Increase in
in value (even if maturity credit risk
significant)
If sales occur
• New business may need to be assigned to a different
business model (however no reclassification of existing
assets).
Residual category (neither hold to collect nor hold to collect and sell) FV P&L
• Business model for strategies that cannot be subsumed under one of the above business models.
• The objective of the strategy on how to generate cash flows does not rely on holding the financial assets but on other means.
Example
• For a portfolio the strategy has the objective to collect cash flows solely by selling the financial assets (as would be the case for
held for trading portfolio).
Abbreviations:
The business model needs to be determined on a portfolio level at every
• AC = amortised cost
reporting period. It can be changed prospectively under exceptional • FV OCI = fair value through OCI (equity)
circumstances. • FV P&L = fair value through profit or loss
14.06.2019 / 08:51 Uhr / FI 14Classification and Measurement
Exercise 2: Practical examples for business model criterion
Description of portfolio Measurement category?
Strategic business: A portfolio of loans or securities with the intention to hold
the assets until maturity. AC FV OCI FV P&L
Liquidity portfolio: A portfolio of loans or securities which shall be sold if the
entity has a need for liquidity. AC FV OCI FV P&L
Non-strategic run down portfolio: A portfolio of loans or securities which shall
be reduced. New business is not done. Positions will be sold occasionally if AC FV OCI FV P&L
there are market opportunities. If not, the positions will be hold until maturity.
Trading business: A portfolio containing loans or securities which shall be
sold in a short time frame. The bank has the intention to generate profits out AC FV OCI FV P&L
of the sale, i.e. market price increases. The bonus of portfolio manager
depends on the performance of the portfolio.
Syndication business: A portfolio of loans or securities (or part of loans or
securities) which shall be syndicated. This means another bank or partner AC FV OCI FV P&L
takes over the positions.
14.06.2019 / 08:51 Uhr / FI 15Classification and Measurement
Reasons and Consequences for Changes in Business Models
Reason for a change in Business Models Consequences
Reclassification based on senior management decision. All affected financial assets need to be reclassified. The
reclassification shall be applied prospectively from the first day of
Example: Management decision to sell a certain portfolio to the first reporting period following the change in business model
reduce RWA. that results in an entity reclassifying financial assets.
Recent history indicates that the originally assessed business As the originally assessed business model was correct, the
model no longer holds for newly originated assets although the existing business is not reclassified but remains in the same
originally assessment of the business model was correct. business model. However the business model for new business is
newly assessed and all new business is classified according to
Example: number and volume of recent sales indicate that a hold this altered business model.
to collect business model is no longer valid for new business.
The originally assessment of the business model was incorrect. There exists a prior period error in the entity’s financial statements
(see IAS 8), which requires a restatement of the financial
statements.
14.06.2019 / 08:51 Uhr / FI 16Classification and Measurement
Measurement of Financial Liabilities under IFRS 9
Financial Liabilities according to IFRS 9
Criterium Trading Non-Trading
Use of fair No use fair
value option value option
Measurment/
Classification Fair Value Amortised Cost
No credit spread
Credit spread induced
induced
value changes
value changes
Value No recognition
P&L OCI P&L
Fluctuations
14.06.2019 / 08:51 Uhr / FI 17Classification and Measurement
Overview of pbb’s balance sheet structure
Assets Liabilities
Real Estate Finance AC Non Derivative Financial Liabilities AC
thereof: Syndication business FV P&L
thereof: Fair Value P&L (Non Recourse) FV P&L Derivatives (Stand Alone and Fair FV P&L
Value Hedge Accounting)
Public Investment Finance AC
thereof: Syndication business FV P&L Non Financial Liabilities (not in Mainly “AC”
IFRS 9 scope, e.g. provisions,
lease liabilities, tax liabilities
Value Portfolio AC
thereof: Possible sales portfolios FV OCI Equity (non IFRS 9) Residual
amount
thereof: CCC FV P&L FV P&L
Other Financial Assets AC
Abbreviations
thereof: Liquidity Portfolio FV OCI • AC = amortised cost
• FV OCI = fair value through OCI (equity)
• FV P&L = fair value through profit or loss
Derivatives (Stand Alone and Fair
FV P&L
Value Hedge Accounting) Explanation
Deutsche Pfandbriefbank (pbb) has the three segments Real
Estate Finance (REF), Public Investment Finance (PIF) and
Non financial assets (not in IFRS 9 mainly “AC” Value Portfolio (VP).
scope , e.g. tangible, intangible,
lease assets, tax assets)
14.06.2019 / 08:51 Uhr / FI 18Classification and Measurement
Exercise 3: Postings for classification and measurement
• t0: A bond is purchased for a price of € 100.
• t1: The bond price increases to € 120.
Example / case
• t2: The bond price decreases to € 95.
• t3: The bond is sold for € 95.
Please write down the postings / booking for all four periods (t0 till t3) for a
bond which:
• is measured at amortised cost,
Exercise • is measured at fair value through other comprehensive income (OCI),
• is measured at fair value through profit or loss (P&L).
Hint: You can neglect deferred taxes and impairments.
14.06.2019 / 08:51 Uhr / FI 19Agenda 1 Introduction 2 Classification and Measurement 3 Impairment 4 Backup 1: IT Impact 5 Backup 2: Solutions for exercises 14.06.2019 / 08:51 Uhr / FI 20
Impairment
General concept
• The credit risk in general is defined as the risk due to an unexpected default of a financial asset. The reason for this can be
either a deterioration in a country’s or counterparty’s creditworthiness or by a deterioration in collateralization.
• IFRS 9 introduces a model according to which provisions for credit losses may be created upon initial recognition of
the financial asset on the basis of expected credit losses at that time but not on incurred losses.
• Upon initial recognition, the impairments in lending business are based on expected credit losses within the following twelve
months (so-called stage 1). The 12-months expected credit loss is part of the lifetime expected credit losses and corresponds
to the expected credit losses from defaults that may occur for the financial instrument within twelve months after balance
sheet date. In case of a significant increase in the financial asset’s credit risk within the context of subsequent measurement
(stage 2) or in case of a credit impairment (stage 3), the impairment has to reflect the lifetime expected credit losses.
• A financial asset will have to moved to stage 2 if the credit quality has deteriorated significantly. This is the case if
o as rebuttable presumption there is a past due of more than 30 days; or
o the financial asset is non-investment grade and the multi-year probability of default at balance
o sheet date exceeds the multi-year probability of default at initial recognition of the financial
o asset by a factor of at least 2.5.
• A financial asset will have to be moved to stage 3 if it is credit-impaired. A deal will be credit-impaired if one or more events
that have detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a
financial asset is credit-impaired include observable data about the following events:
o significant financial difficulty of the issuer or the borrower;
o a breach of contract, such as a default or past due event;
o pbb Group, for economic reasons or contractual reasons relating to the borrower’s financial difficulty, having granted to
the borrower concessions that pbb Group would not otherwise consider;
o it is becoming probable that the borrower will enter bankruptcy or other financial reorganization;
o the disappearance of an active market for that financial asset because of financial difficulties;
o the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.
14.06.2019 / 08:51 Uhr / FI 21Impairment
Overview
no Has the credit quality deteriorated
Stage 1
significantly?
yes
Stage 2 no Is there an objective evidence for an
impairment?
Transfer
between yes
the stages
Stage 3
At recognition assigment of the
financial asset to stage 1 as the initial Transfer criteria between stage 1 and Financial assets that are credit im-
category stage 2 need to be determined, paired are assigned to stage at initial
(only credit-impaired assets are directly transfer can go back and forth recognition
assigned to stage 3)
Measure- Present value of expected credit loss
Present value of expected losses over Present value of expected losses over
ment caused by a default within the next 12
the residual life of the financial asset the residual life of the financial asset
month
of expec- (lifetime expected credit loss) (lifetime expected credit loss)
(1 year expected credit loss)
ted losses
Basis of
effective Gross carrying amount Gross carrying amount Net carrying amount
interest
14.06.2019 / 08:51 Uhr / FI 22Impairment
Exercise 4: Postings for impairments
• t0: A loan (measurement category amortised cost) is originated for a price of € 100.
The loan has a loan loss provision of € 2.
• t1: The credit risk of the loan detoriates significantly. The loan has a loan loss
provision of € 10.
Example / case
• t2: There are objective evidence for an impairment. The loan has a loan loss provision
of € 30.
• t3: The bond is sold for € 70.
14.06.2019 / 08:51 Uhr / FI 23Agenda 1 Introduction 2 Classification and Measurement 3 Impairment 4 Backup 1: Supplementary slides 5 Backup 2: Solution for exercises 14.06.2019 / 08:51 Uhr / FI 24
Backup 1: Supplementary slides
Main effects from IFRS 9 / messages
Changes in accounting Further effects
• IFRS 9 consists of three phases: • IFRS 9 has impacts on almost all
− classification and measurement, most areas of a bank.
− Impairment,
− hedge accounting. • For example, the origination
teams have to bear in mind the
• IFRS 9 has been the most significant change in accounting and new classification logic. As a
financial reporting for the last 15 years (initial application of former IAS further example the Risk
39). department has to be adjust the
impairment calculation.
• IFRS 9 led to a new classification of financial assets for measurment
purposes. The higher number of financial assets to be measured at fair • Furthermore, IFRS 9 has impacts
value through P&L has increased P&L volatility. on existing regulatory reportings
or the bank steering / controlling.
• The changes for financial liabilities are not that material.
• Therefore, the majority of bank‘s
• The amount of impairments increased at initial application date. In IT systems had to be adjusted.
subsequent application impairments and thus P&L is more volatile. Some new systems had to be
developed.
• The effect on hedge accounting are no that material.
• However, the initial application
• IFRS 9 is a principle based standard. There is diversity in practice effects were unexpectedly minor.
when comparing companies. Regulators criticise the judgement a bank
has (e.g. Monatsbericht Deutsche Bundesbank Januar 2019).
14.06.2019 / 08:51 Uhr / FI 25Backup 1 : Supplementary slides
Syndications
.
Deals to be syndicated must be split into two parts. The part to be syndicated has to be measured fair value through P&L, the
part to hold on the balance sheet must be measured at amortized cost.
14.06.2019 / 08:51 Uhr / FI 26Backup 1: Supplementary slides Modification Valuation & Derecognition Test 14.06.2019 / 08:51 Uhr / FI 27
Backup 1: Supplementary slides
IT impact: Overview
Sub ledgers
IT impacts
Risk provision Deposit Securities
Loans Accounts Derivatives
(stage 3) business The application of IFRS 9
had significant impacts on
pbb‘s IT architecture,
especially:
– The subledgers for loans
and securities had to be
Hedge adjusted, e.g. to reflect
Accounting the classification.
Fair value accounting (sub ledger
– A new calculation engine
accounting)
for stage 1 and 2
expected credit losses
Risk provision
(stage 1 / 2) had to be developed.
– A new sub ledger for fair
General ledger value accounting had to
be developed.
Integrated solution (data bus) Fair valuation – The business warehouse
Group consolidation was enlarged by
Calculators automated single deal
lists.
– There were further
effects on the interfaces
Equity / risk Liquidity Regulatory and down stream
Business Warehouse weighted asset risk reporting systems, e.g. for
calculator solution engine regulatory reporting.
Planning &
Finance Controlling Risk Regulatory Tax
14.06.2019 / 08:51 Uhr / FI 28
28Backup 1: Supplementary slides
Split of deals into book value components
• pbb splits the book values into its components. In general, pbb distinguishes cash accounting / amortised cost and hedge / fair
value accounting components.
• Cash accounting / amortised cost components are booked in a loan / security sub ledger; hedge / fair value accounting components
are booked in a newly developed fai value accounting sub ledger.
• The book value components are distributed troughout the ITreporting landscape.
14.06.2019 / 08:51 Uhr / FI 29Backup 1: Supplementary slides
Regulator’s view
Deutsche Bundesbank Monatsbericht Januar 2019, page 81:
„Seit Beginn des Geschäftsjahres 2018 sind kapitalmarktorientierte Kreditinstitute in der EU verpflichtet, bei
der Bilanzierung von Finanzinstrumenten im Konzernabschluss den neuen Standard IFRS 9 (International
Financial Reporting Standard) anzuwenden. Dieser ist die Reaktion auf die Kritik der G20 an den
Bilanzierungsregeln im Zuge der Finanzkrise. Insbesondere wurde die verspätete und unzureichende („too
little, too late“) Bildung von Wertberichtigungen moniert. Im Gegensatz zum „Incurred loss“-Ansatz des
früheren IAS 39 (International Accounting Standard) fordert der IFRS 9 die Berücksichtigung erwarteter
Kreditverluste („expected credit losses“).
Die Umsetzung des neuen Wertberichtigungsmodells verändert die Prozesse in der Rechnungslegung von
nach IFRS bilanzierenden Kreditinstituten. Zudem bestehen mitunter erhebliche Ermessensspielräume bei der
Berechnung der erwarteten Kreditverluste. Der Umgang mit diesen Spielräumen aufseiten der Banken steht
The
auch im Fokus der Bankenaufsicht, die ein Interesse daran hat, dass Wertberichtigungen rechtzeitig und in
regulator’s
angemessener Höhe gebildet werden und die Bilanzen eine möglichst einheitliche Beurteilung der
view
Kreditinstitute („level playing field“) erlauben.
Zum Umstellungsstichtag ergaben sich für die deutschen Institute im Durchschnitt ein moderater
Anstieg der Wertberichtigungen um knapp 6% sowie ein Rückgang der harten Kernkapitalquote
um 11 Basispunkte. Ob langfristig Anpassungen in der regulatorischen Behandlung von Wertberichtigungen
notwendig sind, wird erst auf Basis belastbarer Daten zu bewerten sein. Von der Übergangsregelung einer
stufenweisen Erfassung der Effekte von IFRS 9 in den bankaufsichtlichen Eigenmitteln machen deutsche
Institute bislang keinen Gebrauch.
Eine Notwendigkeit zur Änderung der einschlägigen Bilanzierungsregeln nach dem Handelsgesetzbuch (HGB)
besteht grundsätzlich nicht. Diese beinhalten aufgrund des Vorsichtsprinzips und des Konzeptes der Bildung
von Pauschalwertberichtigungen implizit schon die Möglichkeit zur Berücksichtigung zukunftsgerichteter
Komponenten.“
14.06.2019 / 08:51 Uhr / FI 30Agenda 1 Introduction 2 Classification and Measurement 3 Impairment 4 Backup 1: Supplementary slides 5 Backup 2: Solutions for exercises 14.06.2019 / 08:51 Uhr / FI 31
Backup 2: Solution for exercises
Exercise 1: Practical examples for SPPI test
Types of embedded options SPPI test fulfilled?
Floater: The interest rate is variable (e.g. Euribor plus 100 basis points = 1 %).
Yes No
Floater with a floor: The interest rate is variable (e.g. Euribor plus 100 basis points but
Yes No
1.5 % minimum).
Interest rate linked to credit risk: The loan has a fixed interest (e.g. 4 %). It increases by
Yes No
100 basis points if the credit quality decreases (e.g. the ratio loan to value exceeds 80).
Lender option / borrower option: The bank has the right to increase the interest rate to an
Yes No
unlimited level. In this case the borrower can terminate the contract without paying a fee.
Interest rate steps: The interest rate is variable (e.g. Euribor plus 100 basis points). If
Yes No
Euribor exceeds 3 %, the interest rate is set to 0 %.
Reverse Floater: If the market interest rate (e.g. Euribor) increases the interest rate to be
Yes No
paid by the customer decreases and vice versa.
Interest rate linked to a share market index: If DAX increases the interest rate to the
Yes No
customer increases and vice versa.
14.06.2019 / 08:51 Uhr / FI 32Backup 2: Solution for exercises
Exercise 2: Practical examples for business model criterion
Description of portfolio Measurement category?
Strategic business: A portfolio of loans or securities with the intention to hold
the assets until maturity. AC FV OCI FV P&L
Liquidity portfolio: A portfolio of loans or securities which shall be sold if the
entity has a need for liquidity. AC FV OCI FV P&L
Non-strategic run down portfolio: A portfolio of loans or securities which shall
be reduced. New business is not done. Positions will be sold occasionally if AC FV OCI FV P&L
there are market opportunities. If not, the positions will be hold until maturity.
Trading business: A portfolio containing loans or securities which shall be
sold in a short time frame. The bank has the intention to generate profits out AC FV OCI FV P&L
of the sale, i.e. market price increases. The bonus of portfolio manager
depends on the performance of the portfolio.
Syndication business: A portfolio of loans or securities (or part of loans or
securities) which shall be syndicated. This means another bank or partner AC FV OCI FV P&L
takes over the positions.
14.06.2019 / 08:51 Uhr / FI 33Backup 2: Solution for exercises
Exercise 3: Postings for classification and measurement (1/2)
t0: A bond is purchased for a price of € 100.
t1: The bond price increases to € 120.
Example / case t2: The bond price decreases to € 95.
t3: The bond is sold for € 95.
Hint: Deferred taxes and impairments are neglected.
Postings
Measurement
Period Debit Credit
Category
t0 Bond AC 100 Cash 100
t1 no posting no posting
Amortised Cost
t2 no posting no posting
(AC)
t3 Cash 95 Bond AC 100
Sales loss (P&L) 5
t0 Bond FV OCI 100 Cash 100
Fair Value t1 Bond FV OCI 20 OCI / equity 20
Other
Comprehensive t2 OCI / equity 25 Bond FV OCI 25
Income
(FV OCI) t3 Cash 95 Bond FV OCI 95
Sales loss (P&L) 5 OCI / equity 5
14.06.2019 / 08:51 Uhr / FI 34Backup 2: Solution for exercises
Exercise 3: Postings for classification and measurement (2/2)
t0: A bond is purchased for a price of € 100.
t1: The bond price increases to € 120.
Example / case t2: The bond price decreases to € 95.
t3: The bond is sold for € 95.
Hint: Deferred taxes and impairments are neglected.
Postings
Measurement
Period Debit Credit
Category
t0 Bond FV P&L 100 Cash 100
Fair Value t1 Bond FV P&L 20 Result from FV P&L deals (P&L) 20
Profit or Loss
(FV P&L) t2 Result from FV P&L deals (P&L) 25 Bond FV P&L 25
t3 Cash 95 Bond FV P&L 95
14.06.2019 / 08:51 Uhr / FI 35Backup 2: Solution for exercises
Exercise 4: Postings for impairments
t0: A loan (measurment category amortised cost) is originated for a price of € 100. The
loan has a loan loss provision of € 2.
t1: The credit risk of the loan detoriates significantly. The loan has a loan loss provision
Example / case of € 10.
t2: There are objective evidence for an impairment. The loan has a loan loss provision of
€ 30.
t3: The bond is sold for € 70.
Postings
Period Debit Credit
t0 Loan AC 100 Cash 100
Impairments stage 1 (P&L) 2 Loan loss allowances stage 1 (balance) 2
t1 Loan loss allowances stage 1 (balance) 2 Loan loss allowances stage 2 (balance) 2
Impairments stage 2 (P&L) 8 Loan loss allowances stage 2 (balance) 2
t2 Loan loss allowances stage 2 (balance) 10 Loan loss allowances stage 3 (balance) 10
Impairments stage 3 (P&L) 20 Loan loss allowances stage 3 (balance) 20
t3 Cash 70 Loan AC 100
Loan loss allowances stage 3 (balance) 30
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