1.1 Credit risk

Qualitative information

Overview

The banking group currently operates in the following fields:

  • acquisition and management of trade receivables in Italy and abroad; business abroad is undertaken through both the internal structures of the Parent Company (International Area) and the subsidiary IFIS Finance; the offer of financial and accounts receivable management support is mainly aimed at the segment of Small- and Medium-sized Enterprises;
  • acquisition and management of non-performing loans (Distressed Retail Loans);
  • acquisition and management of tax receivables.

The Treasury Department's operations complement such activities, and although they are particularly significant on certain occasions, they do not change the mission of the banking Group, which continues to be focused on providing financial and accounts receivable management support to Small and Medium-sized Enterprises.

The factoring business is characterised by the direct assumption of risks related to granting advances and loans, as well as guarantees, if any, on trade receivables of mainly small- and medium-sized enterprises, according to the growth strategies defined and pursued by the Group.

Traditional factoring operations are complemented with the business of acquiring distressed financial (Distressed Retail Loans, that is non-performing loans), trade and tax receivables. The sellers are typically banks, financial institutions, insolvency proceedings and businesses.

Given the particular business of the Group’s companies, credit risk is the most important element to consider as far as the general risks assumed by the Group are concerned. The maintenance of effective credit risk management is a strategic objective for the Banca IFIS Group, pursued through the adoption of integrated tools and processes that ensure correct credit risk management in all its phases (preparation, lending, monitoring and management, and intervening on troubled loans).

Vis-à-vis surplus liquidity, if any, the Banca IFIS Group carries out operations involving very short-term deposits with highly creditworthy banking counterparties. Given the counterparties, the short

time frames and the modest amounts involved, the credit risk associated with this activity is particularly low.

During 2014, the Group did not purchase securities. The outstanding portfolio consists of securities largely classified under available for sale or held to maturity financial assets. These financial assets, which due to their classification are included in the banking book’s scope even though they are not involved in the Bank's traditional lending operations, give rise to credit risk. The risk lies in the issuer’s inability to repay in part or in full its obligations at maturity. However, bonds held by the Banca IFIS Group consist almost entirely of Italian government bonds and, to a lesser extent, bank bonds. The overall portfolio's average residual life is approximately twenty-two months and the maximum duration per individual asset is lower than five years.

The Banca IFIS Group does not carry out any operation involving credit derivatives.

Credit risk management policies

Organisational aspects

Credit risks in factoring operations directly arise from financing the business customers and guaranteeing them, when requested, against the account debtor’s default. Credit risk management takes place during two specific phases of the credit process: the initial credit assessment phase and, in case of a positive outcome, throughout the entire relationship with the seller/debtor counterparties. In order to increase the quality of its receivables portfolio, Banca IFIS deemed it appropriate to centralise the main phases related to risk taking and control as part of factoring operations in the Bank's Head Office, allowing for a high degree of homogeneity in lending operations and to strictly monitor individual positions through the specialisation of resources and separation of functions at all decision-making levels. In carrying out its operations, the Polish subsidiary IFIS Finance can take certain decisions independently within the operational and organisational limits defined by the Parent Company, Banca IFIS.

In the first phase of the risk management process, the responsible organisational structure shall assess the creditworthiness of the seller and debtor counterparties, the nature of the commercial relationship between them, and the quality of the receivables factored. A multi-level system of delegations and decision-making powers allows the most senior analysts to assume increasingly growing, but still modest, risks. Greater risks can be taken by service and area managers. As for higher amounts, powers are attributed solely to the General Manager, the Chief Executive Officer, the Credit Committee, and the Board of Directors.

The Bank’s branches do not have decision-making powers as for the assumption of credit risk. Rather, they have the responsibility of doing business in the local area and managing relationships with customers. Therefore, within the limits and with the procedures established by the Head Office’s competent bodies, Branches manage ordinary operations with customers under the constant monitoring of the Head Office.

Qualified and specialised staff follow all stages of a relationship: from the sale of the receivables to the granting of advances, from the administrative management of the receivables to their collection, from the identification of anomalies, if any, to the verification and definition of the most appropriate actions to recover the debt, also with support from the Legal Department, if necessary.

As already specified, the Banca IFIS Group purchases also distressed receivables in the following business areas:

  • tax receivables usually acquired from insolvency proceedings and due from tax authorities;
  • financial receivables acquired from consumer credit companies, banks and leasing companies;
  • trade receivables acquired from insolvency proceedings and companies.

Purchasing the different types of receivables is a fundamental aspect of the credit process. Prior to this phase, highly skilled analysts carry out a thorough due diligence of the portfolio being transferred and the relevant organisational impact. Once the due diligence is completed, the Group sets the terms and conditions for offering/acquiring the receivables portfolio and how to manage it (individual or collective management), assessing the relevant impact on operating structures.

In order to collect distressed retail loans (DRL), the Banca IFIS Group can count on an in-house legal office, a widespread and tested network of credit collection companies operating throughout Italy, and a network of agents. This structure, together with several lawyers located near the courts, ensures the utmost flexibility as well as effective and timely actions to recover all types of receivables.

The Banca IFIS Group pays particular attention to the concentration of credit risk with reference to all the Group’s companies, both at an individual and consolidated level. Banca IFIS’s Board of Directors has delegated the Top Management to take action to contain major risks. In line with the Board of Directors’ instructions, all positions at risk that significantly expose the Group, even if amounting to less than 10% of total own funds, are systematically monitored.

Management, measurement and control systems

The operational procedure governing Banca IFIS Group’s credit process within traditional factoring operations is audited during the year and expressly requires a thorough and individual assessment of all the counterparties (both the customer-seller and the account debtor) involved in the factoring relationship.

Within factoring operations, credit risk is constantly monitored by means of procedures and instruments allowing to rapidly identify particular anomalies.

The bank has instruments and procedures in place allowing to evaluate and monitor risks. Specifically:

  • it assesses the creditworthiness of the seller and the debtor;
  • it immediately identifies the risk in each individual cash advance or financing transaction;
  • it defines adequate pricing for each class of risk right from the initial commercial analysis of the feasibility of the operation.

Following a positive assessment and after starting to work with the customer, the bank continues to monitor the relevant credit risk using selected databases.

Protests, prejudicial events or signs of loans turning bad automatically lead to the suspension of operations. The ensuing analysis aims to assess the seriousness of the anomalies and whether the problems are permanent or temporary, so as to decide whether to maintain the relationship or reduce the exposures.

As for the activities concerning the Distressed Retail Loans business and the purchasing of tax receivables arising from insolvency proceedings, in order to ensure increasingly efficient control over

the operations undertaken, the Group continued to invest in information systems dedicated to monitoring those portfolios.

Purchases of distressed retail loans are particularly significant. Those loans are classified as from their purchase under impaired loans. These are financial receivables (purchased from consumer credit companies, banks and leasing companies) and, to a lesser extent, trade receivables (acquired from insolvency proceedings and companies) which, in light of the characteristics of the receivable and the invoice seller, are duly classified in portfolios homogeneous in terms of management and collection methods (judicial and non-judicial). In particular, the Bank implements the following methods:

  • collective management, characterised by non-judicial collection operations carried out mainly by specialist collection agencies;
  • individual management, characterised by judicial collection operations carried out mainly with the help of specialist external law firms.

With reference to these receivables, the Group systematically monitors the cash flows from debt collection operations, which are used also for the purposes of backtesting the simulation model of expected cash flows or the individual estimates made by the managers of the individual positions.

As for the credit risk associated with the bond portfolio, considering that it is made up mainly of Italian government bonds and, to a lower extent, short-term bank bonds, the Banca IFIS Group constantly monitors the credit quality of the bond issuers. The Risk Management function periodically reports to the bank's Board of Directors and Top Management on the composition of the bond portfolio.

As for Basel 2 principles for calculating capital requirements against first-pillar credit risks, the Bank chose to adopt the Standardised Approach.

Credit risk mitigation techniques

Within the factoring activity, when the type and/or quality of factored receivables do not fully satisfy requirements or, more generally, the invoice seller is not sufficiently creditworthy, the bank’s established practice is to hedge the credit risk assumed by the Group by obtaining additional surety bonds from the shareholders or directors of the invoice seller.

As for the account debtors in factoring relationships, wherever the Bank believes that the elements available to assess the account debtor do not allow to properly measure/assume the related credit risk, or the proposed amount of risk exceeds the limits identified during the debtor’s assessment, the Bank adequately hedges the risk of default of the account debtor. Guarantees issued by correspondent factors and/or insurance policies underwritten with specialised operators are the main hedge against non-domestic account debtors in non-recourse operations.

As for operations concerning distressed loans (Distressed Retail Loans and purchases of tax receivables arising from insolvency proceedings) and the relevant business model, generally no action is taken to hedge credit risks.

Impaired financial assets

With reference to factoring operations, relationships with customers are constantly monitored by the competent Head Office’s department, based on both the relationship’s performance and monitoring

instruments implemented for counterparties at risk (Central Credit Register, protests and prejudicial events, etc.). Should anomalous trends and/or prejudicial elements arise on the part of the counterparty, the situation is placed under watch and the Head Office’s Credit Management Area directly supervises the Branch’s management of the relationship until the anomalies have been overcome.

Should the situation deteriorate or become critical, the Troubled Loans Area – Monitored Positions Service takes over the management of the relationship. Once it has duly examined the case and the relevant opportunities, it decides whether to maintain the position until the problems have been overcome or reduce the exposure. Based on available information, it also considers whether or not to classify the counterparty under bad loans or subjective substandard loans.

Managing impaired positions, either substandard or bad loans, normally falls under the responsibility of the Troubled Loans Area – Disputes Service, which takes the most appropriate actions to hedge and recover debts, periodically reporting to the Top Management and the Board of Directors. If it is believed that the problems encountered by the seller and/or the debtor could be successfully overcome with the Bank adequately hedging the credit risk, the position may be restructured and placed, once again, under the management and monitoring of the Monitored Positions Service or, if appropriate, the Customer Area. 

Individual impairment losses, upon proposal by the Disputes Service, are assessed by the Top Management and submitted to the Board of Directors for approval.

A similar process is formally in place also for IFIS Finance Sp. Z o. o. Nonetheless, it should be noted that the subsidiary has only marginal exposure to impaired loans.

A significant portion of Distressed Retail Loans is classified under impaired loans. The purchase of receivables at amounts well below their par value and cash flows generally higher than the price paid minimise the risk of losses.

As for impaired loans purchased and not yet collected, the overall outstanding par value of the portfolio is around 5.617 million Euro. At the time of purchase, the historical par value of these receivables was approximately 5.673 million Euro, and they were acquired for approximately 151 million Euro, i.e. an average price equal to 3,4% of the historical par value. During 2014, the Group acquired approximately 2.025 million Euro in receivables at an average price of 3,74%; out of the total 2.025 million Euro, the receivables for which the debtor had already signed bills of exchange accounted for nearly 10 million Euro, and the relevant average purchase price was 24,5%. The overall portfolio of impaired loans purchased and not yet collected has an overall weighted average life of around 29 months from their purchase date.

As far as collective management is concerned (receivables managed through non-judicial operations), the annual trend in cash flows registered an average negative deviation of approximately 4% compared to the estimates made using the forecasting model (amount-weighted average), and an average positive deviation of 53% compared to the manager's collection estimates for the individually managed portfolio (judicial operations).

Furthermore, it should be noted that overall at the end of 2014 there were approximately 12 million Euro in outstanding bills of exchange. In December 2014, the Bank sold a portfolio of receivables from bills of exchange with a total par value of nearly 219 million Euro.

Furthermore, at the end of 2014 there were approximately 71 million Euro in outstanding settlement plans.

Should DRL be classified as bad loans, or should they become objectively impaired, the changes in the amortised cost calculated by discounting the new cash flows at the original effective interest rate compared to the prior period amortised cost are recognised under item 130 Net impairment losses/reversals on receivables.

DRL receivables are measured at amortised cost; the expected cash flows used for calculating the amortised cost are estimated with a statistical model based on proprietary historical time series on collection operations as far as the so-called collective management is concerned, and the estimates made by the analyst as far as the so-called individual management is concerned.

Quantitative information

A. Credit quality

A.1 Impaired and performing loans: amounts, impairment losses, trend, economic and geographical distribution

A.1.1 Distribution of financial assets by portfolio and credit quality (book values)

Portfolio/qualityBanking groupOther companiesTotal 
 Non performing loansSubstandard loansRescheduled loansOverdue loansOverdue loans not impairedOther assetsImpairedOther
1. Financial assets held for trading - - - - - - - - -
2. Available for sale financial assets - - - - - 229.868 - - 229.868
3. Financial assets held to maturity - - - - - 4.827.363 - - 4.827.363
4. Due from banks - - - - - 274.858 - - 274.858
5. Loans to customers 103.138 103.228 14.375 27.347 829.434 1.736.808 - - 2.814.330
6. Financial assets measured at fair value - - - - - - - - -
7. Financial assets under disposal - - - - - - - - -
8. Hedging derivatives - - - - - - - - -
Total 31.12.2014 103.138 103.228 14.375 27.347 829.434 7.068.897 - - 8.146.419
Total 31.12.2013 117.808 123.236 8.351 41.658 633.731 10.121.805 - - 11.046.589
 

Equity securities and OEIC units are not included in this table. 

A.1.2 Distribution of exposures by portfolio and credit quality (gross and net amounts)

Portfolio/qualityImpaired loansPerformingTotal
(net exposure) 
 Gross exposureSpecific impairment lossesNet exposureGross exposureSpecific impairment lossesNet exposure
A. Banking group              
1. Financial assets held for trading - - - X X - -
2. Available for sale financial assets - - - 229.868 - 229.868 229.868
3. Financial assets held to maturity - - - 4.827.363 - 4.827.363 4.827.363
4. Due from banks - - - 274.858 - 274.858 274.858
5. Loans to customers 474.472 226.384 248.088 2.576.814 10.572 2.566.242 2.814.330
6. Financial assets measured at fair value - - - X X - -
7. Financial assets under disposal - - - - - - -
8. Hedging derivatives - - - X X - -
Total A 474.472 226.384 248.088 7.908.903 10.572 7.898.331 8.146.419
B. Other companies included in the consolidation scope              
1. Financial assets held for trading - - - X X - -
2. Available for sale financial assets - - - - - - -
3. Financial assets held to maturity - - - - - - -
4. Due from banks - - - - - - -
5. Loans to customers - - - - - - -
6. Financial assets measured at fair value - - - X X - -
7. Financial assets under disposal - - - - - - -
8. Hedging derivatives - - - X X - -
Total B - - - - - - -
Total 31.12.2014 474.472 226.384 248.088 7.908.903 10.572 7.898.331 8.146.419
Total 31.12.2013 487.254 196.201 291.053 10.762.602 7.076 10.755.536 11.046.589
 

Equity securities and OEIC units are not included in this table.

In compliance with paragraph 37, letter a) of IFRS 7 “Financial Instruments: Disclosures”, here below is the maturity analysis for past due amounts relating to performing loans – Other loans.

(in thousand of Euros)31.12.201431.12.2013
Overdue up to 3 months 364.696 252.336
Overdue > 3 months < 6 months 130.910 135.858
Overdue > 6 months < 1 year 107.560 77.050
Overdue > 3 months 6 months 1 year 236.742 169.147
Total 839.908 634.391

A.1.3 Banking group - On- and off-balance-sheet exposures to banks: gross and net amounts

Types of loans/valuesGross exposureSpecific net impairment lossesPortfolio impairment lossesNet exposure
A. CASH EXPOSURE        
a) Non-performing loans - - X -
b) Substandard loans - - X -
c) Rescheduled loans - - X -
d) Overdue loans - - X -
f) Other 275.371 X - 275.371
Total A 275.371 - - 275.371
B. OFF-BALANCE-SHEET EXPOSURES        
a) Impaired - - X -
b) Other 13.888 X - 13.888
Total B 13.888 - - 13.888
Total (A+B) 289.259 - - 289.259

On-balance-sheet exposures include all cash financial assets due from banks, regardless of the portfolio they are included in (held for trading, available for sale, held to maturity, loans and receivables, etc.)     

A.1.6 Banking group – On- and off-balance-sheet exposures to customers: gross and net amounts

Types of loans/valuesGross exposureSpecific net impairment lossesPortfolio impairment lossesNet exposure
A. CASH EXPOSURE        
a) Non-performing loans 313.818 210.680 X 103.138
b) Substandard loans 116.662 13.434 X 103.228
c) Rescheduled loans 15.972 1.598 X 14.374
d) Overdue loans 28.020 672 X 27.348
f) Other 7.633.533 X 10.572 7.622.961
TOTAL A 8.108.005 226.384 10.572 7.871.049
B. OFF-BALANCE-SHEET EXPOSURES        
a) Impaired 6.637 - X 6.637
b) Other 189.019 X - 189.019
TOTAL B 195.656 - - 195.656
TOTAL (A+B) 8.303.661 226.384 10.572 8.066.705

On-balance-sheet exposures include all cash financial assets due from customers, regardless of the portfolio they are included in (available for sale, held to maturity, loans and receivables).

A.1.7 Banking group – On-balance-sheet exposures to customers: trends in gross impaired loans

Type/CategoriesNon-performing loansSubstandard loansRescheduled loansOverdue loans
A. Opening gross exposure 301.685 133.742 9.395 42.432
- of which: transferred and not derecognised  - - - -
B. Increases 64.158 210.895  12.992 345.845
B.1 Inflows from performing loans 259 73.642 - 254.363
B.2 Transfers from other impaired loan categories 29.613 24.416 9.682 2.823
B.3 Other increases 34.286 112.837 3.310 88.659
C. Reductions 52.025 227.975  6.415 360.257
C.1 Outflows to performing loans - 27.428 367 218.905
C.2 Derecognitions 2.752 116 - 86
C.3 Collections 29.575 73.245 3.842 115.792
C.4 Collections from transfers 9.190 16.495 - -
C.4 bis Losses on disposal - - - -
C.5 Transfers to other impaired loan categories 46 41.798 1.105 23.585
C.6 Other reductions 10.462 68.893 1.101 1.889
D. Closing gross exposure 313.818 116.662 15.972 28.020
- of which: transferred and not derecognised - - - -

Total net impaired loans amounted to 248,1 million Euro, compared to 291,1 million Euro at the end of 2013 (-14,8%). All categories except restructured loans registered a decrease. 

Total bad loans to customers at 31 December 2014, net of value adjustments, were 103,1 million Euro, against 117,8 million Euro at 31 December 2013. The change was substantially due to the decrease in the trade receivables sector (-34,9%).

At 31 December 20134, substandard loans totalled 103,2 million Euro, compared to 123,2 million Euro in 2013 (-16,2%), of which 65,3 million Euro related to the DRL sector (61,4 million Euro at the end of 2013). The decrease is substantially due to transfers to lower risk categories (past-due or performing) or collections, as well as the adjustments made during the period.

Restructured loans totalled 14,4 million Euro, compared with 8,4 million Euro at the end of 2013 (+72,1%). The rise was largely attributable to the transfer of receivables previously classified as substandard to this category.

Past due loans totalled 27,3 million Euro, compared with 41,7 million Euro for the previous financial year. It should be noted that net past due loans refer for 3,9 million Euro (6,0 million Euro at the end of 2013) to receivables due from the Public Administration purchased outright as part of factoring operations.

A.1.8 Banking group – On-balance-sheet exposures to customers: trends in overall impairment losses/reversals

Type/CategoriesNon-performing loansSubstandard loansRescheduled loansOverdue loans
A.  Opening balance of total impairment losses/ reversals of impairment losses 183.877 10.506 1.044 774
- of which: transferred and not derecognised - - - -
B.  Increases 32.777 9.006 1.254 -
B.1 Impairment losses 29.049 9.006 1.254 -
B.1 bis Losses on disposal - - - -
B.2 Transfers from other impaired loan categories 3.728 - - -
B.3 Other increases - - - -
C. Reductions 5.974 6.078 700 102
C.1 Impairment reversals from measurement 5.674 2.233 290 -
C.2 Impairment reversals from collection 133 1 - -
C.2 bis Profit from disposal - - - -
C.3 Derecognitions 167 116 - -
C.4 Transfers to other impaired loan categories - 3.728 - -
C.5 Other reductions - - 410 102
D. Closing balance of total impairment losses/ reversals of impairment losses 210.680 13.434 1.598 672
- of which: transferred and not derecognised - - - -
     

A.2 Classification of exposures based on external and internal ratings

A.2.1 Distribution of on- and off-balance-sheet exposures by class of external rating

For the purposes of calculating capital requirements against credit risk, the Banca IFIS Group uses the external credit assessment institution (ECAI) Fitch Ratings exclusively for the positions recognised under “Exposures to Central Governments and Central Banks”; no external ratings are used for the other asset classes. In light of the composition of the Group’s assets, external ratings are used exclusively for the portfolio of government bonds. 

A.2.2 Distribution of on- and off-balance-sheet exposures by class of internal rating

The Group does not use internal ratings for the purposes of prudential supervision. The Bank is currently implementing the new Internal Rating System for the domestic business segment.     

A.3.2 Banking group – Guaranteed exposures to customers

 Net exposure   Collateral guarantees (1) Personal guarantees (2)  Total
(1)+(2) 
 Credit derivativesEndorsement credits
  Property mortgages Property finance leases Securities Other collateral guaranteesCLN Other derivatives Governments and central banks Other public entities Banks Other entities
 Governments and central banksOther public entitiesBanksOther subjects
1. Guaranteed cash exposure: 277.726 41.660 - - - - - - - - - -   233.050 274.710
1.1 totally guaranteed 215.128 25.817 - - - - - - - - - -   189.311 215.128
- of which impaired 29.643 25.817 - - - - - - - - - - - 3.826 29.643
1.2 partially guaranteed 62.598 15.843 - - - - - - - - - - - 43.739 59.582
- of which impaired 6.415 5.589 - - - - - - - - - - - 675 6.264
2. Guaranteed off-balance-sheet exposure: - - - - - - - - - - - - - - -
2.1 totally guaranteed - - - - - - - - - - - - - - -
- of which impaired - - - - - - - - - - - - - - -
2.2 partially guaranteed - - - - - - - - - - - - - - -
- of which impaired - - - - - - - - - - - - - - -
       

B. Concentration and distribution of exposures

B.1 Banking group - Distribution of on- and off-balance-sheet exposures to customers by category (book value)

Exposures/ counterpartiesGovernments and Central BanksOther public entitiesFinancial institutionsInsurance companiesNon-financial companiesOther entities
 Net exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversalNet exposureSpecific impairment losses/reversalPortfolio impairment losses/reversal
A. Cash exposure                                    
A.1 Non-performing loans - - X 4.601 5.940 X 17 - X - - X 34.782 196.536 X 63.738 8.204 X
A.2 Substandard loans - - X 3.406 1.868 X 2 - X - - X 35.642 11.274 X 64.178 292 X
A.3 Rescheduled loans - - X - - X 9.058 1.362 X - - X 5.316 236 X - - X
A.4 Overdue loans 684 - X 3.245 1 X - - X - - X 18.529 537 X 4.890 134 X
A.5 Other 5.139.570 X - 652.730 X 88 111.210 X 54 1 X - 1.715.259 X 10.404 4.190 X 26
Total A 5.140.254 - - 663.982 7.809 88 120.287 1.362 54 1 - - 1.809.528 208.583 10.404 136.996 8.630 26
B. Off-balance-sheet  exposures"                                    
B.1 Non-performing loans - - X - - X - - X - - X 156 - X - - X
B.2 Substandard loans - - X - - X - - X - - X 5.502 - X - - X
B.3 Other impaired loans - - X - - X - - X - - X 979 - X - - X
B.4 Other - X - 540 X - 13.813 X - 99 X - 173.948 X - 619 X -
Total B - - - 540 - - 13.813 - - 99 - - 180.585 - - 619 - -
Total (A+B) 31.12.2014 5.140.254 - - 664.522 7.809 88 134.100 1.362 54 100 - - 1.990.113 208.583 10.404 137.615 8.630 26
Total (A+B) 31.12.2013 8.366.556 1 - 510.306 8.106 187 159.899 1.265 32 - - - 1.597.649 180.471 6.813 124.036 6.358 44
       

B.2 Banking group - Geographical distribution of on- and off-balance-sheet exposures to customers (book value)

Exposures/Geographic areasItalyOther European countriesAmericaAsiaRest of the World
 Net exposureOverall impairment losses/ reversalsNet exposureOverall impairment losses/ reversalsNet exposureOverall impairment losses/ reversalsNet exposureOverall impairment losses/ reversalsNet exposureOverall impairment losses/ reversals
A. Cash exposure                    
A.1 Non-performing loans 102.352 206.236 766 4.439 9 5 1 - 10 -
A.2 Substandard loans 102.455 12.861 754 573 11 - 2 - 6 -
A.3 Rescheduled loans 14.374 1.598 - - - - - - - -
A.4 Overdue loans 27.346 672 2 - - - - - - -
A.5 Other 7.522.372 10.146 99.725 421 - - 543 3 320 2
Total A 7.768.899 231.513 101.247 5.433 20 5 546 3 336 2
B. Off-balance-sheet exposure"                    
B.1 Non-performing loans 156 - - - - - - - - -
B.2 Substandard loans 5.500 - 2 - - - - - - -
B.3 Other impaired loans 979 - - - - - - - - -
B.4 Other 175.418 - 12.079 - - - 1.004 - 518 -
Total B 182.053 - 12.081 - - - 1.004 - 518 -
Total (A+B) 31.12.2014 7.950.952 231.513 113.328 5.433 20 5 1.550 3 854 2
Total (A+B) 31.12.2013 10.694.792 199.151 63.018 4.124 20 - 391 1 225 1
     

B.3 Banking group – Geographical distribution of on- and off-balance-sheet exposures to banks (book value)

Exposures/Geographic areasItalyOther European countriesAmericaAsiaRest of the World
 Net exposureImpairment losses/reversalNet exposureImpairment losses/reversalNet exposureImpairment losses/reversalNet exposureImpairment losses/reversalNet exposureImpairment losses/reversal
A. Cash exposure                    
A.1 Non-performing loans - - - - - - - - - -
A.2 Substandard loans - - - - - - - - - -
A.3 Rescheduled loans - - - - - - - - - -
A.4 Overdue loans - - - - - - - - - -
A.5 Other 270.068 - 5.117 - 186 - - - - -
Total A 270.068 - 5.117 - 186 - - - - -
B. Off-balance-sheet exposure"                    
B.1 Non-performing loans - - - - - - - - - -
B.2 Substandard loans - - - - - - - - - -
B.3 Other impaired loans - - - - - - - - - -
B.4 Other loans 13.888 - - - - - - - - -
Total B 13.888 - - - - - - - - -
Total (A+B) 31.12.2014 283.956 - 5.117 - 186 - - - - -
Total (A+B) 31.12.2013 448.085 - 6.0000 - - - - - - -

B.4 Major exposures

  31.12.201431.12.2013
a) Carrying amount 5.682.017 8.812.978
b) Weighted value 375.451 333.388
c) Number 10 9

The overall weighted amount of major exposures at 31 December 2014 consisted of 194,4 million Euro in receivables due from banks and 181,0 million Euro in loans to customers.

Disclosure regarding Sovereign Debt

On 5 August 2011, CONSOB (drawing on ESMA document no. 2011/266 of 28 July 2011) issued Communication no. DEM/11070007 on disclosures by listed companies of their exposures to sovereign debt and market performance, the management of exposures to sovereign debt, and their operating and financial impact also subsequent to 31 December 2014.

In compliance with the provisions of the aforementioned communication, it should be noted that at 31 December 2014 the book value of exposures to sovereign debt(1) represented by debt securities was 5.056,7 million Euro, and consisted entirely of Italian government bonds; these securities, with a par value of 5.093,5 million Euro, are classified under Available for sale (AFS) financial assets or Held-to-maturity (HTM) financial assets and included in the banking book; the weighted residual average life of these securities is approximately twenty-two months.

The fair values used to measure the exposures to sovereign debt at 31 December 2014 are considered level 1, and the exposures concerned were not impaired at that date. For further details on the measurement method applied and the classification, please refer to the sections on Accounting policies and Information on the consolidated statement of financial position.

Pursuant to the CONSOB Communication, besides the exposure to sovereign debt, it is also necessary to consider receivables due from the Italian National Administration, which at 31 December 2014 totalled 747,5 million Euro, with 83,5 million Euro due from the “central Government” (of which 81,9 million Euro relating to tax receivables) and 664,0 million Euro due from “other public bodies”.

The valuation reserve, gross of the tax effect related to the overall position in Italian government bonds, went from a positive value of 471 thousand Euro (315 thousand Euro net of the tax effect) to a positive value of approximately 141 million Euro at 18 February 2015 (94 million Euro net of the tax effect). At the date of preparation of these Notes, the latent gain relating to government bonds recognised in the HTM portfolio and measured at amortised cost (133,7 million Euro gross of the relevant tax effect at the end of 2014) amounted to 147,2 million Euro, gross of taxes.

(1) As indicated in the ESMA document, ‘exposures to sovereign debt’ refer to bonds issued by and loans given to central and local government and governmental bodies.

D. Disclosure on structured entities (other than securitisation vehicles)

D.2 Unconsolidated structured entities

Qualitative information

During 2014, Banca IFIS bought a property in Florence to be renovated for 9,6 million Euro. It plans to move the NPL area's offices there.

At the same time, the Bank sold a finance lease agreement concerning the property currently housing the NPL Area to a newco, a special purpose vehicle set up exclusively to manage said property and owned by a real estate company not related to the Banca IFIS Group. Pending completion of the renovation works, the Bank entered into a lease agreement with the newco to continue using the current offices. The rent is substantially in line with the lease payments.

Following the sale of the lease agreement, Banca IFIS is jointly liable for the settlement of lease payments. To hedge the risk of insolvency on the part of the newco, Banca IFIS obtained that it set up a 1 million Euro security deposit with the Bank as well as a lien on 99% of voting shares in the newco, to be exercised in the event the newco defaults on its obligations.

In 2014, the newco regularly settled the lease payments due using the money raised from the leased property.

Since the sale of the lease agreement does not meet the requirements of IAS 39 for derecognising the financial liability, Banca IFIS continues to recognise the building under property, plant and equipment, and the relevant financial liability under payables due to customers.

Therefore, the Bank, although it does have power over the newco, has no exposure to variable returns, as all the economic effects of the structured entity have already been recognised in the Bank's financial statements because the lease agreement sold was not derecognised. Thus, the Bank did not consolidate the structured entity line-by-line.

In case the newco defaults, Banca IFIS, by exercising the collateral, would reacquire full ownership of the lease agreement, and consequently of the underlying property. Therefore, it faces no operational, financial or cash flow risk.

Quantitative information

Items/ Type of structured entityAccounting portfolios under assetsTotal assets
(A)
Accounting portfolios under liabilitiesTotalliabilities
(B)
Net book value
(C=A-B)
Maximum exposure to the risk of loss
(D)
Difference between exposure to the risk of loss and book value
(E=D-C)
1. Special purpose vehicle n.a. - Payables due to customers 1.015 (1.015) - (1.015)

The maximum risk of loss is zero, as can be seen from the qualitative information provided.

E. Sale transactions

A. Financial assets sold and not fully derecognised

Qualitative information

Financial assets sold but not derecognised refer to Italian government bonds used for repurchase agreements with Cassa di Compensazione e Garanzia as counterparty. Those financial assets are recognised under available for sale financial assets and held to maturity financial assets, whereas financing for repurchase agreements is recognised under payables due to customers.

Quantitative information

E.1 Financial assets sold and not derecognised: book value and full value

Banking products/portfolioFinancial assets held for tradingFinancial assets measured at fair valueAvailable for sale financial assetsFinancial assets held to maturityDue from banksDue from customersTotal
 ABCABCABCABCABCABC31.12.1431.12.13
A. Cash assets - - - - - -   - - 2.027.433 - - - - - - - - 2.027.433  
1. Debt securities - - - - - -       2.027.433 - - - - - - - - 2.027.433 262.223
2. Equity securities - - - - - - - - - X X X X X X X X X - -
3. O.E.I.C. - - - - - - - - - X X X X X X X X X - -
4. Loans - - - - - - - - - - - - - - - - - - - -
B. Derivative  instruments - - - X X X X X X X X X X X X X X X - -
Total 31.12.2014 - - - - - -       2.027.433 - - - - - - - - 2.027.433 X
 of which impaired - - - - - -       - - - - - - - - - - X
Total 31.12.2013 - - - - - - 28.368     233.855 - - - - - - - - X 262.223
 of which impaired - - - - - - - - - - - - - - - - - - X -

Key:

A= Financial assets sold and fully recognised (book value)

B= Financial assets sold and partly recognised (book value)

C= Financial assets sold and partly recognised (full value)

     

Last updated on 2015-02-18