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Erste Group Bank AG Comments on FINREP Consultation Paper

Core Content

Erste Group Bank AG has provided detailed comments on the proposed amendments to the Guidelines on Financial Reporting (FINREP), focusing on aligning the reporting requirements with IFRS standards and improving clarity and practicality in financial reporting. The comments highlight several discrepancies between the proposed tables and the IFRS requirements, particularly concerning impairment assessments, interest income and expenses, derivatives, and equity instruments.

Main Comments and Key Issues

1. Part 15 – Collective Impairment Assessment Process

• The table for collective impairment assessment is not IAS 39 compliant in step 1B.
• Collective impairment is not allowed for individually impaired loans, regardless of their significance.
• The term "individually insignificant impaired loans" would be more appropriate than "collective impairment" for such cases.

2. Part 19 – Gains and Losses in Income Statement

• Table 15 refers to "gains and losses" but actually includes interest income and expenses, which are not classified as gains or losses under IFRS.
• Table 15A splits interest from derivatives held for trading into income and expenses, but the reference to IAS 18.35 (b) is incorrect.
• There is a need for clarification on whether interest income and expenses from derivatives can include fair value revaluation or only settlement payments.

3. Part 19 – Interest Income and Expenses on Derivatives

• The table should include further explanation for the line items related to hedge accounting.
• The terms "interest income and expenses" should be clarified for derivatives, including whether they apply to open and matched positions or only hedging derivatives.

4. Table 1 – Consolidated Balance Sheet (Assets)

• The references to IAS 39.9 for debt securities and loans and advances are incorrect.
• The term "debt securities" is preferred over "debt instruments" for clarity, and the guidelines should be updated accordingly.

5. Table 1 – Consolidated Balance Sheet (Liabilities)

• The line items "Fair value hedge of interest rate risk" and "Cash flow hedge interest rate risk" should be renamed to avoid confusion with portfolio hedges.
• The line item "Share capital repayable on demand" should be updated to reflect the IAS 32 amendment from 1st January 2009, which classifies such instruments as equity if they meet specific criteria.

6. Table 12 – Provisions

• The item "Pensions and other post retirement benefit obligations" should be rephrased to clarify its scope.
• Defined benefit liabilities and other long-term employee benefits should not be included in Table 12 due to their specific movements and reporting requirements.

7. Table 2 – Consolidated Income Statement

• The line items "Interest income - other assets" and "Interest expenses - other liabilities" need clarification on what they represent.
• The term "other liabilities" may include non-financial liabilities, such as provisions or defined benefit plans, which should be specified.

8. Table 4 and 5C – Credit Risk Information and Counterparty Breakdown

• Table 4 should be renamed to "Loans and receivables designated at fair value through profit or loss" as per IFRS 7.9.
• The column in Table 5C should specify that it relates only to loans and receivables designated at fair value through profit or loss.

9. Table 7 and 16B – Impairment and Allowances Movements

• The column "specific allowances for collectively assessed financial assets" should be renamed to "specific allowances for individually insignificant financial assets".
• Equity instruments in these tables are not subject to separate allowance accounts; impairment is always recorded directly against the asset account.

10. Table 14 – Fee and Commission Income and Expenses

• "Commissions to agents (acquisition costs)" should be clarified as transaction costs under IAS 39.13, which are not reported in the profit and loss statement.

11. Table 15B – Breakdown of Gains and Losses

• The line items should specify the types of hedges they relate to, such as fair value hedges, cash flow hedges, and net investment hedges.
• The term "hedging derivatives" should be changed to "hedging instruments" to include non-derivative financial assets or liabilities used in hedging.

12. Table 15B and 25B – Gains and Losses, Unrealised Gains and Losses

• Separating gains and losses is not required by IFRS 7.
• The requirement to track gains and losses separately may not be feasible with current accounting systems and is not relevant for internal management decisions.

13. Table 17 – Repurchase Agreements and Related Agreements

• The tables should specify the values they refer to (carrying amount, fair value of collateral, etc.).
• The reference to IAS 7.15(a) is misleading and should be corrected.

14. Table 19 – Defined Benefit Plans and Employee Benefits

• The table's scope should be clearly defined to avoid confusion, as it includes both post-employment defined benefit plans and other long-term employee benefits.

15. Table 20 – Loan Commitments and Financial Guarantees

• "Doubtful" loan commitments and financial guarantees should be defined as those for which provision was created on an individual basis under IAS 37.

16. Table 22 – Statements of Changes in Equity

• The logical order of line items should be adjusted so that comprehensive income for the year appears as the last line item before the closing balance.

17. Table 25A – Fair Value of Financial Instruments

• The columns for "unrealised gains and losses" and their split into levels 1, 2, and 3 are not required by IFRS 7.
• The fair value hierarchy disclosure should be limited to financial instruments measured at fair value in the financial statements.

18. Table 25D – Hybrid Financial Instruments

• The column "Held for trading" is not relevant for hybrid instruments measured at fair value through profit or loss, as embedded derivatives are not separated under IAS 39.11 (c).