Available-for-sale investment securities are debt and equity securities which have been designated as available for sale.
At initial recognition they are measured at fair value plus direct transaction costs and then remeasured to fair value and the effects of fair value changes (with the exception of impairment losses) are recognized in other comprehensive income until a given asset is derecognized from the statement of financial position when the accumulated gain/loss is recognized in profit or loss as the result on investment securities. Interest accrued using the effective interest rate on available-for-sale assets is recognized in net interest income.
Impairment allowances on assets classified as available for sale are recognized in the income statement under net impairment allowances and provisions, which results in the derecognition from other comprehensive income accumulated losses on valuation which were previously recorded there and recognizing them in the income statement.
In subsequent periods, if the fair value of debt securities increases, and the increase may be objectively related to an event subsequent to the impairment loss being recognized in the income statement, the impairment loss is reversed and the amount of the reversal is recognized in the income statement.
Impairment losses recognized on equity instruments are not reversed through profit and loss.
Estimates and judgements
At each balance sheet date, the Group assesses whether there is objective evidence that a given financial asset classified to available-for sale financial assets is impaired. If such evidence exists, the Group determines the amounts of impairment allowances.
Objective evidence that a financial asset or group of available-for-sale financial assets is impaired includes the following events:
- significant financial difficulties of the issuer;
- breach of contract by the issuer, such as lack of contracted payments of interest or principal or late payments;
- granting a concession by the lender to the issuer, for economic or legal reasons relating to the borrower’s financial difficulty, that the lender would not otherwise consider (“forbearance practices”);
- deterioration in the issuer’s financial condition in the period of maintaining the exposure;
- high probability of bankruptcy or reorganization of the issuer;
- an increase in the risk of a certain industry in the period of maintaining a significant exposure, in which the issuer operates, reflected by the industry being qualified by the Group as an elevated risk industry.
The Group firstly assesses if impairment on an individual basis for individually significant receivables exists.
If there is objective evidence of impairment on financial assets classified as available-for-sale debt securities not issued by the State Treasury, an impairment allowance is calculated as the difference between the asset’s carrying amount and the present fair value estimated as the value of future cash flows discounted using the original effective interest rate.
The fair value of non-quoted available-for-sale debt securities is determined using valuation models based on discounted cash flows expected to be received from the given financial instrument. In the valuation of non-quoted available-for-sale debt securities, assumptions are also made about the counterparty’s credit risk, which may have an impact on the valuation of the instruments. The credit risk of the securities, for which there is no reliable market price available, is included in the margin, for which the valuation methodology is consistent with the calculation of credit spreads to determine CVA adjustments.
|AVAILABLE-FOR-SALE INVESTMENT SECURITIES||31.12.2017||31.12.2016|
|Debt securities, gross||43 441||36 419|
|Treasury bonds (in PLN)||33 502||25 744|
|Treasury bonds (in foreign currencies)||238||678|
|municipal bonds (in PLN)||4 928||4 552|
|corporate bonds (in PLN)||4 291||4 800|
|corporate bonds (in foreign currencies)||482||645|
|corporate bonds (in PLN)||(246)||(210)|
|corporate bonds (in foreign currencies)||(3)||(67)|
|Total debt securities, net||43 192||36 142|
|Available-for-sale equity securities, gross||304||285|
|not admitted to public trading||150||129|
|admitted to public trading||154||156|
|Total equity securities, net||227||218|
|Participation units in investment funds and shares in collective investment undertakings||256||316|
|Total available-for-sale investment securities, net||43 675||36 676|
In the “PLN State Treasury bonds” item, the State Treasury bonds of the Republic of Poland are recognized. As at 31 December 2017, the item “Foreign currency bonds” comprised State Treasury bonds of the Ukraine.
|AVAILABLE-FOR-SALE INVESTMENT DEBT SECURITIES – THE GROUP'S EXPOSURE TO CREDIT RISK||Exposure|
|impaired, assessed on an individual basis||822||1 297|
|not impaired, not past due||42 619||35 122|
|with an external rating||37 472||30 034|
|with an internal rating||5 147||5 088|
|Total, gross||43 441||36 419|
|Total carrying amount, net||43 192||36 142|
|AVAILABLE-FOR-SALE DEBT SECURITIES BY MATURITY(AT CARRYING AMOUNTS)||31.12.2017||31.12.2016|
|up to 1 month||411||28|
|1 to 3 months||5||36|
|3 months to 1 year||4 323||1 869|
|1 to 5 years||23 026||20 177|
|over 5 years||15 427||14 032|
|Total||43 192||36 142|
|IMPAIRMENT ALLOWANCES – RECONCILIATION OF MOVEMENTS IN 2017||As at the beginning of the period||Recognized during the period||Reversed during the period||Derecognition of assets and settlements||Other||As at the end of the period||Net - impact on the income statement|
|IMPAIRMENT ALLOWANCES – RECONCILIATION OF MOVEMENTS IN 2016||As at the beginning of the period||Recognized during the period||Reversed during the period||Derecognition of assets and settlements||Other||As at the end of the period||Net - impact on the income statement|
In 2016, the Group participated in the acquisition of Visa Europe Limited by Visa Inc. The final settlement of the Group’s share in the transaction comprised:
- EUR 71 million in cash paid to the Group’s account on 21 June 2016;
- 25 612 preference C-series shares of Visa Inc., the value of which as at the transaction date was estimated at USD 21 million;
- a receivable due to deferred payment in cash equivalent to 0.5435987989% of EUR 1 billion, i.e. the amount attributable to all transaction participants, paid on the 3rd anniversary of the transactions, subject to potential adjustments, in the event of the occurrence of situations described in the transaction terms; the value of the above-mentioned receivable as at 21 June 2016 amounted to EUR 6.1 million.
The Group recognized a total of PLN 418 million (profit before taxation) in the income statement due to settlement of the transaction. Within this amount, the amount settled in other comprehensive income due to the valuation of Visa Europe Limited shares amounted to PLN 337 million.
Received preference C-series shares will be converted to ordinary Visa Inc. shares, and the terms of the transaction provide progressive shares conversion. The conversion of all preference shares will occur not later than in 2028. The conversion ratio granted at the moment of the settlement of the transaction and the current ratio as at 31 December 2017 amounts to 13.952 and may be reduced in the period to 2028, which is dependent on potential liabilities in respect of legal claims in that period relating to the acquired company, i.e. Visa Europe Limited.
The preference C-series shares were reclassified to available-for-sale securities and are measured at fair value based on the market price of listed ordinary shares, taking into account a discount for the limited liquidity of the preference shares and the conditions for converting the shares (adjustments resulting from court litigation).
The fair value of Visa Inc. shares held by the Group as at 31 December 2017 was estimated at USD 35 million (an equivalent of PLN 123 million according to the NBP average exchange rate as at the end of 2017). The fair value of the above-mentioned shares as at 31 December 2016 amounted to USD 22 million (equivalent to PLN 92 million according to the NBP average exchange rate as at the end of 2016).