Derivation Rules

Table of Contents

Derivation of Carrying amount

Scope (applicability)

  • The derivation rule applies only to banks that use IFRS.
  • The derivation rule shall only apply if the variable Is carrying amount derived (IS_CRRYG_AMNT_DRVD) in the parameters cube has the value 1.
  • The derivation rule applies to loans and owned securities

Natural language

For instruments fair valued according to their accounting classification, the carrying amount is equal to the fair value of the instrument.

For instruments at amortised cost according to their accounting classification, the carrying amount is equal to their gross carrying amount excluding accrued interest plus their accrued interest minus their accumulated impairment plus the fair value changes due to hedge accounting.

Involved elements

Accounting classification (ACCNTNG_CLSFCTN): Accounting portfolio where the instrument is recorded in accordance with the accounting standard – IFRS or national GAAP –under Regulation (EU) 2015/534 (ECB/2015/13) applied by the observed agent’s legal entity. Involved values:

ID

DESCRIPTION

DEFINITION

14

IFRS: Cash balances at
central banks and other demand deposits

Cash balances at central
banks and other demand deposits in accordance with IFRS.

6

IFRS: Financial assets at
amortised cost

Financial assets measured
at amortised cost in accordance with IFRS.

8

IFRS: Financial assets at
fair value through other comprehensive income

Financial assets measured
at fair value through other comprehensive income due to business model and
cash-flows characteristics in accordance with IFRS.

4

IFRS: Financial assets
designated at fair value through profit or loss

Financial assets measured
at fair value through profit and loss and designated as such upon initial
recognition or subsequently in accordance with IFRS, except those classified
as financial assets held for trading.

2

IFRS: Financial assets
held for trading

Financial assets held for
trading in accordance with IFRS.

41

IFRS: Non-trading
financial assets mandatorily at fair value through profit or loss

Non-trading financial
assets mandatorily at fair value through profit or loss in accordance with
IFRS.

Fair value (FV): Fair value as defined in IFRS 13.9.

Gross carrying amount excluding interest (GRSS_CRRYNG_AMNT_E_INTRST): Gross carrying amount, as defined in IFRS 9 appendix A, excluding accrued interest

Accrued interest (ACCRD_INTRST): The amount of accrued interest on loans at the reporting reference date as defined in Regulation (EU) No 1071/2013 (ECB/2013/33). In accordance with the general principle of accruals accounting, interest receivable on instruments should be subject to on-balance sheet recording as it accrues (i.e. on an accruals basis) rather than when it is actually received (i.e. on a cash basis).

Accumulated impairment (ACCMLTD_IMPRMNT): The amount of loss allowances that are held against or are allocated to the instrument on the reporting reference date. This data attribute applies to instruments subject to impairment under the applied accounting standard.

Fair value changes due to hedge accounting (FV_CHNG_HDG_ACCNTNG): Changes in the fair value of an instrument, which is a hedged item and measured at amortised cost, that are recognised in the carrying amount due to the application of hedge accounting (IFRS 9.6)

Explanation

This derivation rule aims to obtain the IFRS carrying amount from its basic building blocks. It can be split in two parts: For instruments measured at fair value, the carrying amount is simply the fair value of the instrument. For instruments measured at amortised cost, the carrying amount can be subdivided into components that are requested to be reported separately in many frameworks (notably accrued interest and accumulated impairment).

The following schema shows the relation between different values referred to in IFRS 9 or other frameworks:

Carrying
amount

Amortised
cost

Gross
carrying amount

Gross carrying amount excluding interest

Accrued interest

(-) Accumulated
impairment (loss allowance)

Fair value
changes due to hedge accounting

The concepts in green show the concepts required in AnaCredit, while the cells in yellow show the additional variables required in the input layer for instruments at amortised cost if the carrying amount is to be derived.

The following IFRS 9 definitions are related to the concepts above:

Amortised cost of a financial asset or financial liability: The amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, 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.

Gross carrying amount of a financial asset: The amortised cost of a financial asset, before adjusting for any loss allowance.

Loss allowance: The allowance for expected credit losses on financial assets measured in accordance with paragraph 4.1.2 (at amortised cost), lease receivables and contract assets, the accumulated impairment amount for financial assets measured in accordance with paragraph 4.1.2A (at fair value through other comprehensive income) and the provision for expected credit losses on loan commitments and financial guarantee contracts.

Illustrative examples

Let’s suppose we have a loan with the following characteristics:

Initial date

30/05/2016

Number of instalments
(annual)

5

Initial principal amount

1000

Annualised agreed rate

3%

Fair value at inception

990

Transaction costs

8

The creditor classifies the loan as financial asset at amortised cost. For the application of the effective interest rate method, a new amortisation table shall be calculated, containing the figures to be used for calculated the gross carrying amount, as defined in IFRS 9 Appendix A (The amortised cost of a financial asset, before adjusting for any loss allowance)

The effective interest rate is, according to the IFRS 9, the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset.

The resulting effective interest rate, assuming that the estimated future cash receipts are the contractual ones, would be 3.07%. With this rate, the resulting accounting amortisation table would be:

Contractual amortisation table

Date

Accrued interest in the period (contractual)

Instalment (contractual)

Outstanding nominal amount (after cash flow)

30/05/2016

-1000

1000

30/05/2017

30

218.35

811.65

30/05/2018

24.35

218.35

617.64

30/05/2019

18.53

218.35

417.81

30/05/2020

12.53

218.35

211.99

30/05/2021

6.36

218.35

0.00

Note first that the gross carrying amount at inception is different to the outstanding nominal amount. This is due to the fact that the gross carrying amount excluding interest at inception is the initial measurement amount, i.e. the fair value plus the transaction costs.

Case 1

Reporting date 30/6/2016. The input variables (in blue) are provided by the operational systems. From there, the rest of variables can be easily derived.

Carrying amount = 1000.04

Amortised cost = 1000.04

Gross carrying amount = 1000.54

Gross carrying amount excluding interest = 998

Accrued interest = 2.54

(-) Accumulated impairment (loss allowance) = 0.5

Fair value changes due to hedge accounting = 0

It is worth highlighting that:

  • The Gross carrying amount excluding interest can be obtained from the accounting amortisation table.
  • The accrued interest is calculated by applying the effective interest rate to the gross carrying amount excluding interest for the relevant accrual period.
  • The Outstanding nominal amount in this case would be 1000. It is different to the Gross carrying amount excluding interest or the Carrying amount, since it is obtained from contractual figures, not accounting figures.

Case 2

Reporting date 30/06/2017, after the first instalment, which was duly paid.

Carrying amount = 811.86

Amortised cost = 811.86

Gross carrying amount = 812.36

Gross carrying amount excluding interest = 810.29

Accrued interest = 2.07

(-) Accumulated impairment (loss allowance) = 0.5

Fair value changes due to hedge accounting = 0

It is worth highlighting that:

  • The Gross carrying amount excluding interest can again be obtained from the accounting amortisation table.
  • The Outstanding nominal amount would be in this case 811.65, as shown in the contractual amortisation table.

Case 3

Reporting date 31/12/2018. Let’s now suppose that the payment due on 30/05/2018 was not satisfied, and that the loan is considered in stage 3 from 30/06/2018.

Carrying amount = 650.16

Amortised cost = 650.16

Gross carrying amount = 850.16

Gross carrying amount excluding interest = 810.29

Accrued interest = 39.87

(-) Accumulated impairment (loss allowance) = 200

Fair value changes due to hedge accounting = 0

It is worth highlighting that:

  • The Gross carrying amount excluding interest can again be obtained from the accounting amortisation table. But, given that the payment due was not satisfied, the amount to be considered is the one after the latest payment satisfied.
  • The Outstanding nominal amount is simply would be 836 , calculated as the sum of the contractual outstanding amount after the last instalment paid (811.65) plus the interest accrued in the period until the instalment date, which can also be taken from the contractual amortisation table (24.35). No additional interest is to be added to that amount, since the variable is calculated including unpaid past due interest but excluding accrued interest.

Derivation of “Exposure class” and “Risk weight”

Introduction

The variables Exposure class (EXPSR_CLSS) and Risk weight (RSK_WGHT), which are defined in the SHS framework in accordance with CRR, are calculated by the transformation rule D_EXPSR_CLSS_AND_RSK_WGHT. The rule is designed to be applied to the exposures for which the bank follows the standardised approach (SA) to calculate the risk-weighted exposure amounts, in accordance with Part three, Title II, Chapter 2 of CRR. When the internal ratings based (IRB) approach is followed, the bank has to feed the information on the exposure class and the risk weight directly in the input layer. This transformation rule is designed to satisfy SHS requirements.

Even if the SA approach is followed the bank may report the exposure class and the risk weight directly as an input without applying this transformation rule, in this case the value provided as input will be equal to the output.

At this stage, the transformation rule does not cover the following cases:

  • possible changes of exposure class and risk weight due to credit risk mitigation (Part three, Title II, Chapter 4 of CRR);
  • possible changes of exposure class and risk weight due to mortgages on immovable property (Part three, Title II, Chapter 2, Section 2, Articles 124 to 126);
  • the treatment of synthetic securitisations (Part three, Title II, Chapter 5, Section 3, Sub-section 2 of CRR);
  • specific treatments of securitisation positions (Part three, Title II, Chapter 5, Section 3, Sub-section 3, Articles 253 and 254 of CRR), for which some information should be calculated from securitised exposures.

The structure of the transformation rule

The transformation rule is executed on the instances of the cube “Owned securities” (OWND_SCRTY) and it comprises four steps.

  1. Identification of exposures under IRB or to be classified as not applicable.
    For the exposures for which the IRB approach is followed the exposure class and the risk weight are set equal to the variables provided in the input layer. Then some cases where these two variables are not applicable are identified, namely:
  • trading book and no derogation for small trading book business;
  • short positions;
  • intra-group holdings;
  • securitisation positions where the originator has not transferred significant credit risk;
  • transferred assets where the originator has transferred significant credit risk.
    Only if the exposure is in none of the cases here identified the following steps are executed.
  1. The exposure class is assigned.
    The prioritisation criteria followed by the rule are compliant with COREP decision tree.
    For the exposure classes that are disjoint among themselves the assignment is mainly based on the institutional sector of the issuer. The following table summarizes this approach.


    Note: only the exposure classes mainly derived by the issuer’s institutional sector are present in this table; therefore, the conditions to classify the exposure in other classes are not shown here.
  2. The credit quality step is determined.
    For each exposure class a credit quality step associated to a risk weight is assigned. Subject to certain conditions it is determined on the basis of the external credit assessment and it corresponds to the “credit quality step” referred to in the CRR. In other cases some other factors (original maturity, residual maturity, specific credit risk adjustments, etc.) are relevant.
    The rule applies the criteria defined in the CRR. In particular, for some specific cases the approach taken by the BIRD group is as follows:
  • when, in order to assign a certain risk weight, it is required that the exposure is “funded” in a currency, the group believes that the condition is fulfilled if that currency is the domestic currency of the owner;
  • when an exposure to a public sector entity or to a regional government or local authority is to be treated as exposure to the central government, the group assumes that the credit assessment of ECAs may not be used.
  1. The risk weight is assigned.
    The risk weight is assigned on the basis of the cube “Calculation of risk weights” (CLCLTN_RSK_WGHT), which is composed by the variables Exposure class (EXPSR_CLSS), Credit quality step in BIRD process (CRDT_QLTY_STP_BIRD) and Risk weight (RSK_WGHT). The contents of this cube are provided in the table below. In some cases the value of the variable Specific risk weight is used, since it cannot be derived from other input information.

TABLE “Calculation of risk weights”

EXPSR_CLSS

CRDT_QLTY_STP_BIRD

RSK_WGHT

Explanation

6

1

0

Art. 114(2): Table 1

6

2

20

Art. 114(2): Table 1

6

3

50

Art. 114(2): Table 1

6

4

100

Art. 114(2): Table 1

6

5

100

Art. 114(2): Table 1

6

6

150

Art. 114(2): Table 1

6

10

0

Art. 137(2): Table 9

6

11

0

Art. 137(2): Table 9

6

12

20

Art. 137(2): Table 9

6

13

50

Art. 137(2): Table 9

6

14

100

Art. 137(2): Table 9

6

15

100

Art. 137(2): Table 9

6

16

100

Art. 137(2): Table 9

6

17

150

Art. 137(2): Table 9

6

81

0

Art. 114(3,4)

6

87

100

Art. 114(1)

6

99

SPCFC_RSK_WGHT

 

9

1

20

Art. 120: Table 3

9

2

50

Art. 120: Table 3

9

3

50

Art. 120: Table 3

9

4

100

Art. 120: Table 3

9

5

100

Art. 120: Table 3

9

6

150

Art. 120: Table 3

9

11

20

Art. 120: Table 4

9

12

20

Art. 120: Table 4

9

13

20

Art. 120: Table 4

9

14

50

Art. 120: Table 4

9

15

50

Art. 120: Table 4

9

16

150

Art. 120: Table 4

9

21

20

Art. 121: Table 5

9

22

50

Art. 121: Table 5

9

23

100

Art. 121: Table 5

9

24

100

Art. 121: Table 5

9

25

100

Art. 121: Table 5

9

26

150

Art. 121: Table 5

9

81

0

Art. 113(7)

9

83

20

Art. 121(3), Art. 119(2)

9

87

100

Art. 121(2)

9

92

250

Art. 48(4)

9

99

SPCFC_RSK_WGHT

 

13

1

20

Art. 120: Table 3

13

2

50

Art. 120: Table 3

13

3

50

Art. 120: Table 3

13

4

100

Art. 120: Table 3

13

5

100

Art. 120: Table 3

13

6

150

Art. 120: Table 3

13

21

20

Art. 121: Table 5

13

22

50

Art. 121: Table 5

13

23

100

Art. 121: Table 5

13

24

100

Art. 121: Table 5

13

25

100

Art. 121: Table 5

13

26

150

Art. 121: Table 5

13

31

0

Art. 114(2): Table 1

13

32

20

Art. 114(2): Table 1

13

33

50

Art. 114(2): Table 1

13

34

100

Art. 114(2): Table 1

13

35

100

Art. 114(2): Table 1

13

36

150

Art. 114(2): Table 1

13

81

0

Art. 115(2), Art. 114(4)

13

83

20

Art. 121(3), Art. 115(5)

13

87

100

Art. 121(2)

13

99

SPCFC_RSK_WGHT

 

12

1

20

Art. 120: Table 3

12

2

50

Art. 120: Table 3

12

3

50

Art. 120: Table 3

12

4

100

Art. 120: Table 3

12

5

100

Art. 120: Table 3

12

6

150

Art. 120: Table 3

12

21

20

Art. 116: Table 2

12

22

50

Art. 116: Table 2

12

23

100

Art. 116: Table 2

12

24

100

Art. 116: Table 2

12

25

100

Art. 116: Table 2

12

26

150

Art. 116: Table 2

12

31

0

Art. 114(2): Table 1

12

32

20

Art. 114(2): Table 1

12

33

50

Art. 114(2): Table 1

12

34

100

Art. 114(2): Table 1

12

35

100

Art. 114(2): Table 1

12

36

150

Art. 114(2): Table 1

12

41

20

Art. 120: Table 3

12

42

50

Art. 120: Table 3

12

43

50

Art. 120: Table 3

12

44

100

Art. 120: Table 3

12

45

100

Art. 120: Table 3

12

46

150

Art. 120: Table 3

12

51

20

Art. 121: Table 5

12

52

50

Art. 121: Table 5

12

53

100

Art. 121: Table 5

12

54

100

Art. 121: Table 5

12

55

100

Art. 121: Table 5

12

56

150

Art. 121: Table 5

12

81

0

Art. 116(4), Art. 114(4)

12

83

20

Art. 116(3)

12

87

100

Art. 116(1)

12

99

SPCFC_RSK_WGHT

 

11

1

20

Art. 120: Table 3

11

2

50

Art. 120: Table 3

11

3

50

Art. 120: Table 3

11

4

100

Art. 120: Table 3

11

5

100

Art. 120: Table 3

11

6

150

Art. 120: Table 3

11

21

20

Art. 121: Table 5

11

22

50

Art. 121: Table 5

11

23

100

Art. 121: Table 5

11

24

100

Art. 121: Table 5

11

25

100

Art. 121: Table 5

11

26

150

Art. 121: Table 5

11

81

0

Art. 117(2)

11

87

100

Art. 121(2)

10

81

0

Art. 118

7

1

20

Art. 122: Table 6

7

2

50

Art. 122: Table 6

7

3

100

Art. 122: Table 6

7

4

100

Art. 122: Table 6

7

5

150

Art. 122: Table 6

7

6

150

Art. 122: Table 6

7

87

100

Art. 122(2)

7

88

150

Art. 122(2)

8

1

20

Art. 131: Table 7

8

2

50

Art. 131: Table 7

8

3

100

Art. 131: Table 7

8

4

150

Art. 131: Table 7

8

5

150

Art. 131: Table 7

8

6

150

Art. 131: Table 7

4

1

20

Art. 132: Table 8

4

2

50

Art. 132: Table 8

4

3

100

Art. 132: Table 8

4

4

100

Art. 132: Table 8

4

5

150

Art. 132: Table 8

4

6

150

Art. 132: Table 8

4

87

100

Art. 132(1)

4

99

SPCFC_RSK_WGHT

 

3

1

10

Art. 129: Table 6a

3

2

20

Art. 129: Table 6a

3

3

20

Art. 129: Table 6a

3

4

50

Art. 129: Table 6a

3

5

50

Art. 129: Table 6a

3

6

100

Art. 129: Table 6a

3

21

10

Art. 129(5)

3

22

20

Art. 129(5)

3

23

50

Art. 129(5)

3

24

50

Art. 129(5)

3

25

50

Art. 129(5)

3

26

100

Art. 129(5)

3

87

100

Art. 121(2)

14

88

150

Art. 128(1)

2

87

100

Art. 127(1)(b)

2

88

150

Art. 127(1)(a)

1

87

100

Art. 133(2)

1

90

1250

Art. 89(3)

1

92

250

Art. 48(4)

1

93

370

Art. 471

15

1

20

Art. 251: Table 1

15

2

50

Art. 251: Table 1

15

3

100

Art. 251: Table 1

15

4

350

Art. 251: Table 1

15

5

1250

Art. 251: Table 1

15

6

1250

Art. 251: Table 1

15

11

20

Art. 251: Table 1

15

12

50

Art. 251: Table 1

15

13

100

Art. 251: Table 1

15

14

1250

Art. 251: Table 1

15

15

1250

Art. 251: Table 1

15

16

1250

Art. 251: Table 1

15

21

40

Art. 251: Table 1

15

22

100

Art. 251: Table 1

15

23

225

Art. 251: Table 1

15

24

650

Art. 251: Table 1

15

25

1250

Art. 251: Table 1

15

26

1250

Art. 251: Table 1

15

31

40

Art. 251: Table 1

15

32

100

Art. 251: Table 1

15

33

225

Art. 251: Table 1

15

34

1250

Art. 251: Table 1

15

35

1250

Art. 251: Table 1

15

36

1250

Art. 251: Table 1

15

90

1250

Art. 251

16

87

100

 

Derivation of template Z02 of Resolution Plan

Introduction

The derivation of template Z02 requires granular information on the liability structure broken down by liabilities excluded from bail-in and liabilities not excluded from bail-in and further breakdowns by liability classes, counterparty classes.

In order to easily describe the process to assign the liability to the template rows a decision tree was developed. In particular a decision tree for the deposit liabilities and one specific for the securities.

The Tree structure

The assignment of the specific column is not covered by the decision tree and is derived by the sector classification and information related to the group structure, the law that is applicable to the contract and specific information on the securities (listed).

Tree structure for Deposit

Tree structure for Securities