ANNUAL REPORT 2006 - DG Hyp

Liabilities
Liabilities are shown on the balance sheet at the
amount due for repayment. The difference between the
nominal value and the initial carrying amount of liabilities is
recognised under deferred items and amortised over the
term of the transaction.
Liabilities classified as structured products (as defined
in Accounting Note BFA 1.003 issued by the Banking
Committee of the IdW) are accounted for as uniform
liabilities as they only contain embedded interest rate
derivatives. Such liabilities are grouped with corresponding
hedge transactions, to form valuation units.
Following a contractual amendment, partial profit
transfers made on silent partnership contributions are
reported in full, regardless of their tax treatment; this is a
change of policy compared to the previous year. Where
such partial profit transfers are not tax-deductible as business
expenses in accordance with section 8a of the German
Corporation Tax Act (Körperschaftssteuergesetz – “KStG”),
the expense is offset by a claim under Group tax overheads,
which neutralises the tax effect. This change in policy has
no impact on income, and is designed to enhance transparency
in reporting profit and loss components.
Provisions
Contingent liabilities are covered by provisions
equalling the anticipated amount of the liability, on the
basis of prudent business judgement. Provisions for pensions
are determined using the cost (“Teilwert”) method in
accordance with actuarial principles, using the actuarial
tables 2005 G by Dr. Klaus Heubeck. The imputed interest
rate used for discounting was reduced from 6.0 per cent to
4.5 per cent during the year under review. In this connection,
we have also set the discount rate for the other provisions
for personnel at 4.5 per cent. The resulting one-off
factor from this change led to an increase in administrative
expenses of € 11.3 million in the 2006 financial year.
Derivative financial instruments
Financial derivatives are accounted for separately in
auxiliary ledgers. These instruments are generally used to
hedge against the interest rate and currency risk exposure
of on-balance sheet transactions. Current interest payments
are amortised and recorded in net interest income.
Income from the disposal (close-out) of interest ratebased
derivative financial instruments are generally recognised
in interest income. Where interest rate swaps are
grouped with securities, to form valuation units (asset
swaps), income realised upon closing out swaps are recognised
in line with the recognition of income of the underlying
transaction, in the net result on financial assets, or in
the net risk provisioning balance, respectively.
62 Deutsche Genossenschafts-Hypothekenbank AG | Annual Report 2006
Notes to the Financial Statements
Premiums paid or received for credit default swaps are
amortised in commission income over the terms of the
transactions.
Premium payments for swaptions entered into as a
hedge against the impact of statutory loan termination
rights pursuant to section 489 of the German Civil Code
(Bürgerliches Gesetzbuch – "BGB") are generally amortised
over the term of the transactions. In view of the non-recognition
for tax purposes of this pro rata distribution, these
swaptions, allocated to the investment portfolio, are now
carried at cost. The deferred taxes formed in this connection
within the meaning of section 274 (2) of the HGB was
reversed in full during the year under review. This change
to the valuation method impacted earnings in the net
amount of € 8.8 million during the year under review.
(3) Currency translation
Assets and liabilities from foreign exchange transactions
are translated in line with section 340h of the HGB and
Statement BFA 3/1995 issued by the IdW. Book receivables,
securities, liabilities and unsettled spot transactions are
generally translated using the ECB reference rate prevailing
on the balance sheet date. Income and expenses from currency
translation are recognised in the income statement in
accordance with section 340h of the HGB. Income and
expenses from foreign exchange forwards which were
entered into exclusively as a hedge of interest-bearing
balance sheet items are recognised in interest income.