KB prezent. angl - Komerční banka

074 ➔075
Unconsolidated Financial Statements
under CAS
(m) Sale and repurchase agreements
Securities received as collateral under reverse repo transactions are not recognised on the Bank’s balance sheet and are stated at fair
value in off balance sheet accounts. The off balance sheet accounts do not reflect collateral that is subject to a short sale. The reverse
repo is defined as a standard reverse repurchase transaction and also as a borrowing of securities secured by the transfer of financial
assets and a purchase of securities with a concurrently negotiated resale. Securities provided as collateral under repurchase
transactions are retained within the portfolio in which they were carried prior to their being provided in the repurchase transaction.
In regard to the sale of a security acquired as collateral under a reverse repurchase transaction, the Bank recognises in the balance
sheet an amount payable from a security which is remeasured to fair value.
(n) Derivative financial instruments and hedging
In the normal course of business, the Bank enters into contracts for derivative financial instruments which represent a financial
instrument that requires a very low initial investment relative to the nominal value of the contract. The derivative financial instruments
used include interest rate and currency forwards, swaps, options and securities based derivatives. These financial instruments are
used by the Bank for trading and to hedge interest rate risk and currency exposures associated with its transactions in the financial
markets. The Bank also acts as an intermediary provider of these instruments to certain clients.
Derivative financial instruments are initially recognised in the off balance sheet accounts at the value of the underlying instruments
and subsequently are remeasured to their fair value. Fair values are obtained from quoted market prices, discounted cash flow
models and options pricing models as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities
when fair value is negative.
Certain derivatives are embedded in other financial instruments, such as the conversion option in a convertible bond, and are treated
as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract
is not carried at fair value with unrealised gains and losses reported in the profit and loss statement.
Changes in the fair value of derivatives held for trading are included in the profit and loss statement line Net profit or loss on financial
operations.
On the date a derivative contract is entered into, the Bank designates certain derivatives as either (i) a hedge of the fair value of
a recognised asset or liability (fair value hedge) or (ii) a hedge of a future cashflow attributable to a recognised asset or liability,
a forecasted transaction or a firm commitment (cash flow hedge). Hedge accounting is used for derivatives designated in this way
provided certain criteria are met.
On the date a derivative contract is entered into, the Bank designates certain derivatives as hedges which are recognised using
hedging accounting rules provided that the following criteria are met:
(a) The Bank has developed a risk management strategy;
(b) At the inception of the hedge, the hedging relationship is formally documented, the documentation identifies the hedged item and
the hedging instrument, defines the risk that is being hedged and the approach to establishing whether the hedge is effective;
(c) The hedge is effective, that is, if, at inception and throughout the period, changes in the fair value or cash flows of the hedged
item are almost fully offset by changes in the fair value or cash flows of the hedging instrument and the results are within a range
of 80 percent to 125 percent.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that prove to be highly effective in
relation to the hedged risk, are recorded in the profit and loss statement along with the corresponding change in fair value of the
hedged asset or liability that is attributable to the specific hedged risk. The ineffective element of the hedge is charged directly to the
profit and loss statement line Net profit or loss on financial operations.
If the hedge no longer meets the criteria for hedge accounting, an adjustment to the carrying value of a hedged interest-bearing
financial instrument is amortised to net profit and loss over the period to maturity.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that prove to be highly effective in
relation to hedged risk, are recognised in the hedging reserve in shareholders’ equity. Amounts deferred in equity are transferred to
the profit and loss statement and classified as revenue or expense in the periods during which the hedged assets and liabilities affect
the profit and loss statement. The ineffective element of the hedge is charged directly to the profit and loss line Net profit or loss on
financial operations.