B) PRINCIPAL ACCOUNTING POLICIES
3. SEGMENT REPORTING
4.3. Financial assets held for trading and at fair value through profit or loss
This caption is made up as follows:
31 Dec. 08 31 Dec. 09
Cash 296 765 310 648
Demand deposits at the Bank of Portugal 405 163 445 041 Demand deposits at foreign central banks 741 093 331 528
Accrued interest 294 1 122
1 443 315 1 088 339
31 Dec. 08 31 Dec. 09
FINANCIAL ASSETS HELD FOR TRADING Debt instruments
Listed securities
Bonds issued by Portuguese government entities 2 718 3 613 Bonds issued by foreign government entities 149 285 175 871 Bonds issued by other Portuguese entities
Non-subordinated debt 31 422 15 711
Bonds issued by foreign financial entities 108 6 366 Bonds issued by other foreign entities
Non-subordinated debt 46 080 124 542
Subordinated debt 21 772 11 252
Unlisted securities
Bonds issued by foreign government entities 407 405 1 475 865 Bonds issued by other Portuguese entities
Non-subordinated debt 78 318 26 883
Subordinated debt 42 3 855
Bonds issued by other foreign entities
Non-subordinated debt 120 499 306 571
Subordinated debt 6 869 14 470
864 518 2 164 999 Equity instruments
Listed securities
Shares issued by Portuguese entities 199 612 99 335 Shares issued by foreign entities 225 026 105 891 Unlisted securities
Shares issued by foreign entities 212
424 850 205 226 Other securities
Listed securities
Participating units 120 801 120 813
Unlisted securities
Participating units 210
120 801 121 023 1 410 169 2 491 248 FINANCIAL ASSETS AT FAIR VALUE
THROUGH PROFIT OR LOSS Equity instruments
Unlisted securities
Shares issued by foreign entities 45 858 44 480 45 858 44 480 DERIVATIVE INSTRUMENTS WITH
POSITIVE FAIR VALUE (NOTE 4.4) 335 122 317 851 1 791 149 2 853 579 31 Dec. 08
31 Dec. 09 Domestic credit institutions
Demand deposits 3 166 8 680
Cheques for collection 101 787 153 580
Other 1 569 2 801
Foreign credit institutions
Demand deposits 186 927 57 098
Cheques for collection 3 252 4 904
Accrued interest 43 18
296 744 227 081
This caption includes the following assets hedging capitalisation insurance products issued by BPI Vida:
31 Dec. 08 31 Dec. 09
Debt instruments
Of public entities 155 150 179 539
Other entities 299 559 494 458
Equity Instruments 103 041 25 668
Other securities 120 800 120 180
Derivative instruments with positive fair value 4 45 678 554 819 890
In 2008 and 2009 the BPI Group reclassified bonds from Financial assets held for trading to Financial assets available for sale (note 4.5), Loans and advances to Customers (note 4.7) and Held to maturity investments (note 4.8), under the amendments to IAS 39 䉯
and IFRS 7 (notes 2 and 4.48). The reclassifications made up to 31 October 2008 were based on prices at 1 July 2008 and the reclassifications made after that date were made based on prices at the reclassification date.
4.4. Derivatives
The caption DERIVATIVE INSTRUMENTS HELD FOR TRADING(notes 4.3 and 4.15) is made up as follows:
The caption DERIVATIVE INSTRUMENTS HELD FOR HEDGINGis made up as follows:
31 Dec. 08 Book value Notional
value1
Assets Liabilities 31 Dec. 09
Book value Notional
value1
Assets Liabilities Exchange rate contracts
Futures2 239 448 243 425 20 116
Options 1 1
Exchange forwards and swaps 1 540 065 2 111 1 643 1 287 677 8 227 6 926
Interest rate contracts
Futures 10 665 100 127 296 18 330
Options 1 235 096 11 730 10 663 1 098 287 5 933 5 718
Swaps 13 594 912 190 722 175 846 8 520 935 267 549 223 930
Contracts over shares
Futures 94 349 84 2 259 87 885 260 1 124
Swaps 366 222 14 261 9 285 103 407 20 116 3 506
Options 100 711 1 222 1 233 8 240 230 239
Contracts over credit events
Swaps 8 000 144 144
Contracts over other underlying items
Futures2 95 071 170 205 18 26
Others
Options3 3 273 032 114 747 114 886 486 461 15 479 16 337
Others4 4 421 965 2 893
24 979 536 335 122 318 852 12 133 818 317 851 258 252 1) In the case of swaps and forwards only the asset amounts were considered.
2) The book value of the futures is nil, because they are traded on organised stock exchanges and there is daily financial settlement.
3) Parts of operations that are autonomous for accounting purposes, commonly referred as “embedded derivatives”.
4) At 31 December 2009 the book value of this caption corresponded to changes in the fair value of derivatives associated with financial liabilities for assets not derecognized. At 31 December 2008 these changes were recorded as Corrections of the amount in Liabilities for assets not derecognized, and amounted to 3 597 th. euro (note 4.19).
31 Dec. 08 Book value Notional
value1
Assets Liabilities 31 Dec. 09
Book value Notional
value1
Assets Liabilities Exchange rate contracts
Exchange forwards and swaps 46 813 100 68 240 495 2 370 1 700
Interest rate contracts
Futures 18 500 133 430 12 754
Swaps 16 168 774 286 153 343 664 12 136 505 285 909 321 670
Contracts over shares
Swaps 733 587 796 32 296 794 837 3 297 68 707
Options 333 458 5 268 5 485
Contracts over credit events
Swaps 49 722 1 145 2 534 51 500 2 500 3 674
Contracts over other underlying items
Swaps 271 742 3 639 8 303 397 900 3 484 26 959
Others
Options2 708 151 24 192 24 192 4 027 874 181 600 168 342
36 478 922 316 455 423 811 17 982 569 484 428 596 537 1) In the case of swaps and forwards only the asset amounts were considered.
2) Parts of operations that are autonomous for accounting purposes, commonly referred as “embedded derivatives”.
Consolidated financial statements | Notes 153 The BPI Group’s operations include carrying out derivative
transactions to manage its own positions based on expectations regarding market evolution (trading), meet the needs of its Customers or hedge positions of a structural nature (hedging).
The BPI Group carries out financial derivative transactions in the form of contracts over exchange rates, interest rates, goods and metals futures price, shares or share indices (relating to inflation, shares, among others) or a combination of these. These transactions are realised in over-the-counter (OTC) markets and in organised markets (especially stock exchanges).
Derivatives traded on organised markets follow the standards and rules of these markets.
Derivatives traded on the over-the-counter (OTC) markets are normally based on a standard bilateral contract that covers the group of operations over derivatives between the parties. In the case of inter-professional relationships, there is an ISDA – International Swaps and Derivatives Association Master Agreement. In the case of relations with Customers there is a BPI contract.
These types of contract include offsetting responsibilities in the event of non compliance (the scope of the offsetting is established in the contract itself and is regulated by Portuguese legislation and, in the case of contracts with foreign counterparties or subject to foreign legislation, by the appropriate legislation).
Derivative contracts can also include an agreement to collateralise the credit risk generated by the transactions covered by them.
Derivative contracts between two parties normally include all the derivative OTC transactions carried out between the two parties, irrespective of whether they are for hedging purposes or not.
In accordance with IAS 39, the parts of operations normally known as “embedded derivatives” are also treated separately and recorded as derivatives, in order to recognise, in net income, the fair value of these operations.
All derivatives (embedded or autonomous) are recorded at market value.
Notional value is the reference value for purposes of calculating the flow of payments and receipts resulting from the operation and is recognised in off balance sheet accounts.
Market value (fair value) corresponds to the value of the derivatives if they were traded on the market on the reference date. Changes in the market value of derivatives are recognised in the appropriate balance sheet accounts and have an immediate effect on net income.
In contrast to traditional mutual operations, where the market value is related directly to the amount of the principal loaned, in derivative operations the market value can be:
䊏determined based on market price (ex. futures);
䊏calculated based on the present value of future flows (cash flows), considering the relevant interest rates at the computing date (mark to market: ex. swaps); or,
䊏determined using models that have the objective of calculating the price based on statistical models in accordance with generally accepted principles in the market (mark to model: ex. options).
The amount of the exposure corresponds to the present value of the estimated loss, in the case of counterparty default. In the case of a derivative contract that establishes the compensation of
responsibilities in the event of non-compliance, the amount of the exposure is the sum of the market values of the operations covered by the contract, when positive. In the case of operations for which the contract does not establish the compensation of responsibilities, the amount of the exposure is equal to the sum of the market values of each individual transaction, if positive. The scope of the compensation clauses, in the case of default, is considered by the BPI Group on a conservative perspective, considering that, in the case of doubt, compensation does not exist.
The potential loss in a group of derivative operations on a given date corresponds to the amount of the exposure on that date. In futures contracts, the stock markets being the counterparties for the BPI Group’s operations, the credit risk is eliminated daily through financial settlement. For medium and long term derivatives, contracts usually provide for the netting of outstanding balances with the same counterparty, which eliminates or reduces the credit risk.
Additionally, in order to control the credit risk in OTC derivatives, some agreements have also been signed under which the Bank receives from, or transfers to, the counterparty, assets (in cash or in securities) to guarantee fulfilment of the obligations.
At 31 December 2008 the notional value, by term remaining to maturity was as follows:
At 31 December 2009 the notional value, by term remaining to maturity was as follows:
<= 3 months 3 months
<= 6 months
> 6 months
<= 1 year
> 1 year
<= 5 years
> 5 years Total
Over-the-counter market
Exchange rate contracts 1 259 923 233 171 93 771 13 1 586 878
Forwards 343 942 12 625 83 550 13 440 130
Swaps 915 981 220 546 10 221 1 146 748
Interest rate contracts 1 123 603 1 331 810 3 848 026 12 208 034 12 487 169 30 998 642
Swaps 1 104 457 1 322 924 3 529 119 11 507 243 12 299 943 29 763 686
Options 19 146 8 886 318 907 700 791 187 226 1 234 956
Contracts over indexes and shares 344 349 164 724 160 192 508 316 22 939 1 200 520
Swaps 344 349 84 066 160 192 489 013 22 189 1 099 809
Options 80 658 19 303 750 100 711
Contracts over credit events 57 722 57 722
Swaps 57 722 57 722
Contracts over other underlying items 48 655 17 908 190 404 14 775 271 742
Swaps 48 655 17 908 190 404 14 775 271 742
Others 158 459 143 374 213 270 3 560 267 4 327 778 8 403 148
Options 158 459 143 374 213 270 2 665 233 800 847 3 981 183
Others 895 034 3 526 931 4 421 965
2 934 989 1 890 987 4 315 259 16 524 743 16 852 674 42 518 652 Organized markets
Exchange rate contracts 87 399 20 353 40 227 91 469 239 448
Futures 87 399 20 353 40 227 91 469 239 448
Interest rate contracts 908 798 2 224 000 4 448 000 10 930 000 140 18 510 938
Futures 908 798 2 224 000 4 448 000 10 930 000 18 510 798
Options 140 140
Contracts over indexes and shares 94 349 94 349
Futures 94 349 94 349
Contracts over other underlying items 95 071 95 071
Futures 95 071 95 071
1 185 617 2 244 353 4 488 227 11 021 469 140 18 939 806 4 120 606 4 135 340 8 803 486 27 546 212 16 852 814 61 458 458
<= 3 months > 3 months
<= 6 months
> 6 months
<= 1 year
> 1 year
<= 5 years
> 5 years Total
Over-the-counter market
Exchange rate contracts 1 416 528 67 965 43 679 1 528 172
Forwards 913 220 15 953 25 629 954 802
Swaps 503 308 52 012 18 050 573 370
Interest rate contracts 1 163 105 994 418 2 727 253 8 058 760 8 812 191 21 755 727
Swaps 1 053 055 990 793 2 641 209 7 258 402 8 713 981 20 657 440
Options 110 050 3 625 86 044 800 358 98 210 1 098 287
Contracts over indexes and shares 76 521 52 271 322 719 685 580 102 851 1 239 942
Swaps 74 752 52 271 122 719 599 173 49 329 898 244
Options 1 769 200 000 86 407 53 522 341 698
Contracts over credit events 51 500 51 500
Swaps 51 500 51 500
Contracts over other underlying items 19 367 14 334 90 274 257 040 16 885 397 900
Swaps 19 367 14 334 90 274 257 040 16 885 397 900
Others 45 700 144 500 563 315 2 880 857 879 963 4 514 335
Options 45 700 144 500 563 315 2 880 857 879 963 4 514 335
2 721 221 1 273 488 3 747 240 11 933 737 9 811 890 29 487 576 Organized markets
Exchange rate contracts 243 425 243 425
Futures 243 425 243 425
Interest rate contracts 19 296 12 000 24 000 72 000 127 296
Futures 19 296 12 000 24 000 72 000 127 296
Contracts over indexes and shares 87 885 87 885
Futures 87 885 87 885
Contracts over other underlying items 169 974 231 170 205
Futures 169 974 231 170 205
520 580 12 231 24 000 72 000 628 811
3 241 801 1 285 719 3 771 240 12 005 737 9 811 890 30 116 387
䉯
Consolidated financial statements | Notes 155 At 31 December 2009 the distribution of derivative operations, by
counterparty, was as follows:
31 Dec. 09 % of
Over-the-counter market 34 115 504 186 989 64.3%
OTC with Financial Institutions 29 523 181 44 934 55.6%
OTC with Local and
Administrative Public Sector 7 245 208 0.0%
OTC with Investment /
Pension funds 277 067 4 400 0.5%
OTC with Companies 4 246 519 134 560 8.0%
OTC with Individuals 61 492 2 887 0.1%
Regulated markets 18 939 806 1 35.7%
Stock exchange 18 939 806 1 35.7%
53 055 310 186 990 100.0%
1) Does not include embedded derivates and other options in the amount of 8 403 148 th. euro.
2) Amount of exposure considering netting agreements and collaterals.
At 31 December 2008 the distribution of derivative operations, by counterparty, was as follows:
31 Dec. 08 % of
Over-the-counter market 24 973 241 149 120 97.5%
OTC with Financial Institutions 21 128 879 52 924 82.5%
OTC with Local and
Administrative Public Sector 7 706 124 0.0%
OTC with Investment /
Pension funds 223 820 3 742 0.9%
OTC with Companies 3 513 555 89 539 13.7%
OTC with Individuals 99 281 2 791 0.4%
Regulated markets 628 811 2.5%
Stock exchange 628 811 2.5%
25 602 052 149 120 100.0%
1) Does not include embedded derivates in the amount of 4 514 335 th. euro.
2) Amount of exposure considering netting agreements and collaterals.
At 31 December 2008 the distribution of derivative operations, by counterparty external rating, is as follows:
Over-the-counter market (OTC)
Traded on the stock exchange
Futures5 628 811
628 811
25 602 052 491 529 272 743 149 120
Note: The amounts were accumulated by rating levels of the counterparties, considering the senior medium and long term debt ratings attributed by the Moody’s, Standard & Poor’s and Fitch agencies as of the reference date. The selection of a rating for a given counterparty follows the rules recommended by the Basel Committee in force on the reference date (where there are diverging ratings the second best was selected). The operations with entities without ratings (N.R.) correspond essentially to Customers subject to internal ratings.
1) Does not include embedded derivates in the amount of 4 514 335 th. euro.
2) Exposure without considering netting agreements and collateral.
3) Amount of exposure without considering collateral.
4) Exposure considering netting agreements and collateral.
5) The exposure of the futures is nil, because they are traded on organised stock exchanges and there is daily financial settlement.
At 31 December 2009 the distribution of derivative operations, by counterparty external rating, was as follows:
31 Dec. 09 Notional value1 Gross exposure2 Exposure considering
netting3
Traded on the stock exchange
Futures5 18 939 666
Options 140 1 1 1
18 939 806 1 1 1
53 055 310 434 294 247 242 186 990
Note: The amounts were accumulated by rating levels of the counterparties, considering the senior medium and long term debt ratings attributed by the Moody’s, Standard & Poor’s and Fitch agencies as of the reference date. The selection of a rating for a given counterparty follows the rules recommended by the Basel Committee in force on the reference date (where there are diverging ratings the second best was selected). The operations with entities without ratings (N.R.) correspond essentially to Customers subject to internal ratings.
1) Does not include embedded derivates and other options in the amount of 8 403 148 th. euro.
2) Exposure without considering netting agreements and collateral.
3) Amount of exposure without considering collateral.
4) Exposure considering netting agreements and collateral.
5) The exposure of the futures is nil, because they are traded on organised stock exchanges and there is daily financial settlement.
31 Dec. 08 Notional value1 Gross exposure2 Exposure considering
netting3
Net exposure4