Universal Registration Document 2021

Financial assets carried at fair value through profit and loss

Financial assets carried at fair value through profit and loss comprise:

• assets acquired from inception with the intention of resale in the short term;
• derivatives not classified as hedges (derivatives held for trading) (see note 18.7);
• equity instruments (non-consolidated investments) which the Group has not irrevocably opted to classify as at fair value through OCI with no recycling;
• debt securities that do not meet the requirements of the SPPI test, regardless of their business model. This chiefly concerns shares in investment funds.

These assets are recorded at the transaction date at fair value, which is generally equal to the amount of cash paid out. Transaction costs directly attributable to the acquisition are recorded in the income statement.

At each reporting date, they are adjusted to fair value based on quoted prices where possible, or using recognised valuation techniques such as the discounted cash flow method or reference to external sources otherwise. Changes in the fair value of these instruments are recorded in the income statement under the heading “Other financial income and expenses”.

Financial assets carried at amortised cost

Loans and financial receivables are carried at amortised cost if the business model involves holding the instrument in order to collect contractual cash flows which consist entirely of principal and interest.

The interest received is calculated under the effective interest rate method and recorded in “Other financial income” in the income statement.

Loans and financial receivables that are not eligible for classification at amortised cost are carried at fair value through profit and loss, and recorded in “Other financial income and expenses” in the income statement.

Impairment model

The impairment model is based on expected credit loss (ECL). The Group applies a rating-based approach for counterparties with low credit risk. In application of the risk management policy, the Group’s bond portfolio consists almost entirely of instruments issued by low-risk counterparties rated “Investment Grade”.

In this situation, the ECL is estimated over a 12-month horizon following the year-end.

The threshold indicating a significant increase in credit risk is reached when the counterparty ceases to be rated “Investment Grade”. The significant increase in the default risk may lead to reassessment of the ECL over the instrument’s residual life.

For loans and receivables, the Group has chosen an approach based on the probability of default by the counterparty and assessment of changes in the credit risk