40.1
All financial instruments are classified into one of the following levels using the following hierarchy for determining fair value by valuation technique:
The price that would be paid for it on an organised, transparent and deep market (“quoted price” or “market price”) is used. In general, this level includes debt securities with a liquid market, quoted equity securities, derivatives traded on organised markets and mutual funds.
Valuation techniques are used in which the assumptions correspond to directly or indirectly observable market data or to quoted prices on organised markets.
The fair value of the instruments classified in Level 2, for which there is no market price, is estimated on the basis of the quoted prices of similar instruments and valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.
Valuation techniques are used in which certain of the significant assumptions are not supported by directly observable market inputs.
The fair value of the rest of the financial instruments classified in Level 3, for which there are no directly observable market data, is determined using alternative techniques, including price requests submitted to the issuer or the use of market parameters corresponding to instruments with a risk profile that can be equated to that of the instrument being measured, adjusted to reflect the different intrinsic risks.
For unquoted equity instruments, classified in Level 3, acquisition cost less any impairment loss determined based on available information is considered the best estimate of fair value.
The process for determining fair value ensures that its assets and liabilities are measured appropriately. A committee structure has been put in place on which the process for proposing and approving the arrangement of financial instruments on the market is based:
Without reducing its freedom and independence when making decisions about risk evaluation and quantification, this analysis does entail a process of comparing, reconciling and, where possible, obtaining the consensus of the business areas.
The fair value of the financial instruments recognised in the balance sheet, excluding the insurance business, broken down by associated carrying amount and level is as follows:
31-12-2019 |
31-12-2018 |
31-12-2017 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying amount |
Fair value |
Carrying amount |
Fair value |
Carrying amount |
Fair value |
||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
||||
FA held for trading (Note 11) |
7,370 |
7,370 |
1,189 |
6,169 |
12 |
9,810 |
9,810 |
1,119 |
8,682 |
9 |
10,597 |
10,597 |
2,433 |
8,150 |
14 |
Derivatives |
6,194 |
6,194 |
27 |
6,167 |
8,707 |
8,707 |
32 |
8,675 |
8,162 |
8,162 |
13 |
8,149 |
|||
Equity instruments |
457 |
457 |
457 |
348 |
348 |
348 |
403 |
403 |
403 |
||||||
Debt securities |
719 |
719 |
705 |
2 |
12 |
755 |
755 |
739 |
7 |
9 |
2,032 |
2,032 |
2,017 |
1 |
14 |
FA not designated for trading compulsorily measured at fair value through profit or loss (Note 12) |
427 |
427 |
54 |
59 |
314 |
704 |
704 |
223 |
480 |
||||||
Equity instruments |
198 |
198 |
54 |
2 |
142 |
232 |
232 |
223 |
8 |
||||||
Debt securities |
63 |
63 |
57 |
6 |
145 |
145 |
145 |
||||||||
Loans and advances |
166 |
166 |
166 |
327 |
327 |
327 |
|||||||||
Customers |
166 |
166 |
166 |
327 |
327 |
327 |
|||||||||
FA at fair value through profit or loss |
1 |
1 |
1 |
6,500 |
6,500 |
6,500 |
|||||||||
Equity instruments |
4,299 |
4,299 |
4,299 |
||||||||||||
Debt securities |
1 |
1 |
1 |
2,101 |
2,101 |
2,101 |
|||||||||
Loans and advances |
100 |
100 |
100 |
||||||||||||
FA at fair value with changes in other comprehensive income (Note 13) |
18,371 |
18,371 |
17,414 |
245 |
712 |
21,888 |
21,888 |
20,871 |
145 |
873 |
|||||
Equity instruments |
2,407 |
2,407 |
1,617 |
78 |
712 |
3,565 |
3,565 |
2,686 |
11 |
868 |
|||||
Debt securities |
15,964 |
15,964 |
15,797 |
167 |
18,323 |
18,323 |
18,185 |
134 |
5 |
||||||
Available-for-sale FA |
69,555 |
69,555 |
65,569 |
3,451 |
535 |
||||||||||
Equity instruments |
2,883 |
2,883 |
2,427 |
7 |
449 |
||||||||||
Debt securities |
66,672 |
66,672 |
63,142 |
3,444 |
86 |
||||||||||
A at amortised cost (Note 14) |
244,702 |
264,355 |
11,593 |
1,968 |
250,794 |
242,582 |
259,358 |
11,653 |
638 |
247,067 |
|||||
Debt securities |
17,389 |
17,878 |
11,593 |
1,968 |
4,317 |
17,060 |
17,295 |
11,653 |
638 |
5,004 |
|||||
Loans and advances |
227,313 |
246,477 |
246,477 |
225,522 |
242,063 |
242,063 |
|||||||||
Central banks |
6 |
6 |
6 |
5 |
5 |
5 |
|||||||||
Credit institutions |
5,153 |
5,536 |
5,536 |
7,550 |
8,263 |
8,263 |
|||||||||
Customers |
222,154 |
240,935 |
240,935 |
217,967 |
233,795 |
233,795 |
|||||||||
Loans and receivables |
226,273 |
241,075 |
257 |
240,818 |
|||||||||||
Debt securities |
2,576 |
2,585 |
257 |
2,328 |
|||||||||||
Loans and advances |
223,697 |
238,490 |
238,490 |
||||||||||||
Central banks |
5 |
5 |
5 |
||||||||||||
Credit institutions |
7,374 |
7,957 |
7,957 |
||||||||||||
Customers |
216,318 |
230,529 |
230,529 |
||||||||||||
Held-to-maturity investments |
11,085 |
11,207 |
9,530 |
1,677 |
|||||||||||
Derivatives - Hedge accounting (Note 15) |
2,133 |
2,133 |
2,133 |
2,056 |
2,056 |
2,056 |
2,597 |
2,597 |
2,597 |
31-12-2019 |
31-12-2018 |
31-12-2017 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying amount |
Fair value |
Carrying amount |
Fair value |
Carrying amount |
Fair value |
||||||||||
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
||||
Financial liabilities held for trading (Note 11) |
2,338 |
2,338 |
505 |
1,833 |
9,015 |
9,015 |
477 |
8,538 |
8,605 |
8,605 |
777 |
7,828 |
|||
Derivatives |
1,867 |
1,867 |
34 |
1,833 |
8,616 |
8,616 |
78 |
8,538 |
7,861 |
7,861 |
33 |
7,828 |
|||
Short positions |
471 |
471 |
471 |
399 |
399 |
399 |
744 |
744 |
744 |
||||||
Financial liabilities designated at fair value through profit or loss (Note 1) |
1 |
1 |
1 |
8,241 |
8,241 |
8,241 |
|||||||||
Deposits |
8,241 |
8,241 |
8,241 |
||||||||||||
Other financial liabilities |
1 |
1 |
1 |
||||||||||||
Financial liabilities at amortised cost (Note 22) |
283,975 |
286,577 |
31,589 |
254,988 |
282,460 |
283,017 |
26,941 |
256,076 |
280,898 |
282,191 |
28,497 |
253,694 |
|||
Deposits |
241,735 |
242,664 |
242,664 |
247,640 |
247,458 |
247,458 |
246,804 |
246,568 |
246,568 |
||||||
Central banks |
14,418 |
14,458 |
14,458 |
29,406 |
29,669 |
29,669 |
31,681 |
31,827 |
31,827 |
||||||
Credit institutions |
6,238 |
6,246 |
6,246 |
8,034 |
7,993 |
7,993 |
11,515 |
11,426 |
11,426 |
||||||
Customers |
221,079 |
221,960 |
221,960 |
210,200 |
209,796 |
209,796 |
203,608 |
203,315 |
203.315 |
||||||
Debt securities issued |
33,648 |
35,321 |
31,589 |
3,732 |
29,244 |
29,982 |
26,941 |
3,041 |
29,919 |
31,448 |
28,497 |
2,951 |
|||
Other financial liabilities |
8,592 |
8,592 |
8,592 |
5,576 |
5,577 |
5,577 |
4,175 |
4,175 |
4,175 |
||||||
Derivatives - Hedge accounting (Note 15) |
515 |
515 |
515 |
793 |
793 |
793 |
793 |
793 |
793 |
The measurements obtained using internal models may differ if other techniques were applied or assumptions used regarding interest rates, credit risk spreads, market risk, exchange rate risk, or the related correlations and volatilities. Nevertheless, the Group's Directors consider the models and techniques applied appropriately reflect the fair values of financial assets and financial liabilities recognised in the balance sheet, and the gains and losses on these financial instruments.
The breakdown of the fair value compared to the carrying amount of financial assets under the insurance business (see Note 17) is as follows:
31-12-2019 |
31-12-2018 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Carrying amount |
Fair value |
Carrying amount |
Fair value |
|||||||
Total |
Level 1 |
Level 2 |
Level 3 |
Total |
Level 1 |
Level 2 |
Level 3 |
|||
FINANCIAL ASSETSs |
||||||||||
Financial assets held for trading |
1,066 |
1,066 |
1,066 |
945 |
945 |
943 |
2 |
|||
Debt securities |
1,066 |
1,066 |
1,066 |
945 |
945 |
943 |
2 |
|||
Financial assets designated at fair value through profit or loss |
12,150 |
12,150 |
12,150 |
7,990 |
7,990 |
7,990 |
||||
Equity instruments |
7,704 |
7,704 |
7,704 |
5,265 |
5,265 |
5,265 |
||||
Debt securities |
3,980 |
3,980 |
3,980 |
2,343 |
2,343 |
2,343 |
||||
Loans and advances - Credit institutions |
466 |
466 |
466 |
382 |
382 |
382 |
||||
Available-for-sale financial assets |
58,763 |
58,763 |
58,710 |
53 |
51,345 |
51,345 |
51,344 |
1 |
||
Debt securities |
58,763 |
58,763 |
58,710 |
53 |
51,345 |
51,345 |
51,344 |
1 |
||
Loans and receivables |
530 |
530 |
530 |
1,183 |
1,183 |
1,183 |
||||
Debt securities |
350 |
350 |
350 |
655 |
655 |
655 |
||||
Loans and advances - Credit institutions |
180 |
180 |
180 |
528 |
528 |
528 |
||||
FINANCIAL LIABILITIES |
||||||||||
Contracts designated at fair value through profit or loss |
12,248 |
12,248 |
12,248 |
9,053 |
9,053 |
9,053 |
(*) At 31 December 2017 they are included by financial asset category (IAS 39), see previous table.
The main valuation techniques, assumptions and inputs used in fair value estimation for levels 2 and 3 by type of financial instruments are as follows:
Heading |
Instrument type |
Assesment techniques |
Main assumptions |
|
---|---|---|---|---|
Financial assets and liabilities held for trading |
Derivatives |
Swaps |
Present value method |
|
Exchange rate options Models |
Black-Scholes, Local Stochastic Volatility, Vanna-Volga |
|||
Interest rate options |
Normal Black model |
|||
Index and equity options |
Black-Scholes, Local Volatility models |
|||
Inflation rate options |
Normal Black model |
|||
Credit |
Present Value and Default Intensity method |
|||
Debt securities |
Present value method |
|
||
Financial assets not designated for trading compulsorily measured at fair value through profit or loss |
Equity instruments |
Present value method |
|
|
Debt securities |
||||
Loans and receivables |
Present value method |
|
||
Financial assets at fair value with changes in other comprehensive income |
Equity instruments |
Present value method |
|
|
Debt securities |
||||
Financial assets at amortised cost |
Debt securities |
Present value method |
|
|
Loans and receivables |
Present value method |
|
||
Derivatives - Hedge accounting |
Swaps |
Present value method |
|
|
Interest rate options |
Black model |
|||
Financial liabilities at amortised cost |
Deposits |
Present value method |
|
|
Debt securities issued |
Present value method |
|
(1) Present value method (net present value): this model uses the cash flows of each instrument, which are established in the different contracts, and deducts them to calculate the present value.
(2) Market peers (similar asset prices): market peer instrument prices, reference indices or benchmarks are employed to calculate the performance as of the entry price or its current valuation, making subsequent adjustments to take into account the differences between the measured asset and the one taken as reference. It can also be assumed that the price of an instrument is equivalent to another one.
(3) Black-Scholes model: this model applies a log-normal distribution of the securities prices in such a way that, under a neutral risk, the return expected is the risk-free interest rate. Under this assumption, the price of vanilla options can be calculated analytically, in such a way that the volatility of the price process can be obtained by inverting the BS formula for a premium quoted on the market.
(4) Black model: Black-Scholes model extended to interest rates, futures prices, exchange rates, etc.
(5) Local volatility model: in this model volatility is determined in time according to the degree of moneyness, reproducing the volatility smiles observed in the market. The volatility smile of an option is the empirical relationship observed between its implied volatility and exercise price. These models are appropriate for exotic options using Monte Carlo simulation or the resolution of differential equations for valuation purposes.
(6) Local stochastic volatility model in this model volatility follows a stochastic process in time according to the degree of moneyness, reproducing the volatility smiles observed in the market. These models are appropriate for long-term exotic options using Monte Carlo simulation or the resolution of differential equations for valuation purposes.
(7) Vanna-volga model: this model is based on building the local replica portfolio whose hedging costs of second derivatives, vanna (premium derivative with respect to the volatility and the underlying) and volga (premium's second derivative with respect to the volatility), are added to the corresponding Black-Scholes prices in order to reproduce the volatility smiles.
(8) Early cancellation ratios: early cancellation ratios calibrated to internal historical data.
(9) Credit loss ratios: ratios based on expected loss estimates using IFRS methodology for Stage 2 based on internal models.
(10) Projections of deposits with no maturity: this model is employed to project the maturity of demand deposit accounts based on historical data, considering the sensitivity of the demand deposit accounts' remuneration at market interest rates and the degree of permanence of account balances on the balance sheet.
Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA) are added to the valuation of Over The Counter (OTC) derivatives due to the risk associated with the counterparty's and own credit risk exposure, respectively. In addition, Funding Valuation Adjustment (FVA) is a valuation adjustment of derivatives of customer transactions that are not perfectly collateralised that includes the funding costs related to the liquidity necessary to perform the transaction.
The CVA is calculated bearing in mind the expected exposure with each counterparty in each future maturity. The CVA for an individual counterparty is equal to the sum of the CVA for all maturities. Adjustments are calculating by estimating exposure at default (EAD), the probability of default (PD) and loss given default (LGD) for all derivatives on any underlying at the level of the legal entity with which the CaixaBank Group has exposure. Similarly, DVA is calculated by multiplying the expected negative exposure given the probabilities of default by the Group's LGD.
The data necessary to calculate PD and LGD come from the credit markets (Credit Default Swaps). Counterparty data are applied where available. Where the information is not available, an exercise is carried out that considers – among other factors – the counterparty's sector and rating in order to assign the probability of default and the loss given default, calibrated directly to market or with market adjustment factors for the probability of default and the historical expected loss.
With FVA, the adjustment shares part of the CVA/DVA approaches, since it is also based on the future credit exposure of the derivatives, but in this case the exposures are not netted by counterparty, but rather at aggregate level in order to recognise the joint management of the liquidity. The data necessary to calculate funding cost are also based on prices taken from its issuance and credit derivatives markets.
The change in the value of the CVA/FVA and DVA/FVA adjustments are recognised in “Gains/(losses) on financial assets and liabilities held for trading, net” in the statement of profit or loss. The table below shows the changes to these adjustments:
2019 |
2018 |
2017 |
||||
---|---|---|---|---|---|---|
CVA/FVA |
DVA/FVA |
CVA/FVA |
DVA/FVA |
CVA/FVA |
DVA/FVA |
|
OPENING BALANCE |
(136) |
31 |
(98) |
27 |
(223) |
53 |
Additions/changes in derivatives |
50 |
(12) |
(36) |
4 |
107 |
(26) |
Cancellation or maturity of derivatives |
(0) |
(2) |
18 |
|||
CLOSING BALANCE |
(86) |
19 |
(136) |
31 |
(98) |
27 |
The transfers between levels of the instruments recorded at fair value, excluding the insurance business, are specified below:
From: |
Level 1 |
Level 2 |
Level 3 |
||||
---|---|---|---|---|---|---|---|
To: |
Level 2 |
Level 3 |
Level 1 |
Level 3 |
Level 1 |
Level 2 |
|
ASSETS |
|||||||
Financial assets held for trading |
|||||||
Debt securities |
|||||||
Financial assets at fair value with changes in other comprehensive income |
49 |
5 |
|||||
Debt securities |
49 |
5 |
|||||
Financial assets at amortised cost |
114 |
1,049 |
|||||
Debt securities |
114 |
1,049 |
|||||
Total |
163 |
1,054 |
(*) Certain issuances have been reclassified from level 3 to level 2, due to a rise in the quality of the prices published.
From: |
Level 1 |
Level 2 |
Level 3 |
||||
---|---|---|---|---|---|---|---|
To: |
Level 2 |
Level 3 |
Level 1 |
Level 3 |
Level 1 |
Level 2 |
|
Assets |
93 |
5 |
150 |
||||
Financial assets held for trading |
2 |
||||||
Debt securities |
2 |
||||||
Financial assets at fair value with changes in other comprehensive income |
91 |
5 |
|||||
Debt securities |
91 |
5 |
|||||
Financial assets at amortised cost |
150 |
||||||
Debt securities |
150 |
||||||
Total |
93 |
5 |
150 |
There were no transfers between levels in 2017.
Given the Group's risk profile regarding its portfolio of debt securities measured at fair value (see Note 3.3.3), the change in fair value attributable to credit risk is not expected to be significant.
The change brought about in the Level 3 balance, on instruments registered at fair value, is detailed below:
CaixaBank Group (Exc. Insurance Group) |
Insurance Group |
|||
---|---|---|---|---|
FA at fair value with changes in other comprehensive income |
Available-for-sale financial assets |
|||
Non-trading FA* - Debt sec. |
Debt sec. |
Equity instruments |
Equity instruments |
|
OPENING BALANCE |
145 |
5 |
868 |
0 |
Reclassifications to other levels |
(5) |
|||
Total gains/(losses) |
(85) |
0 |
(110) |
1 |
To profit or loss |
(85) |
|||
To reserves |
(27) |
|||
To equity valuation adjustments |
(83) |
1 |
||
Acquisitions |
1 |
52 |
||
Settlements and other |
(54) |
(47) |
||
CLOSING BALANCE |
6 |
0 |
712 |
53 |
Total gains/(losses) in the period for instruments held at the end of the period |
85 |
0 |
110 |
(1) |
FA: Financial assets; DEBT SEC.: debt securities.
(*) Compulsorily measured at fair value through profit or loss.
(**) No material impacts were recognised as a consequence of the sensitivity analyses carried out on level-3 financial instruments.
CaixaBank Group (Exc. Insurance Group) |
Insurance Group |
|||
---|---|---|---|---|
FA at fair value with changes in other comprehensive income |
Available-for-sale financial assets |
|||
Non-trading FA* - Debt sec. |
Debt sec. |
Equity instruments |
Equity instruments |
|
OPENING BALANCE |
86 |
449 |
31 |
|
First application of IFRS 9 (Note 1) |
148 |
(86) |
52 |
|
ADJUSTED OPENING BALANCE |
148 |
0 |
501 |
31 |
Reclassifications to other levels |
5 |
|||
Total gains/(losses) |
(4) |
0 |
(122) |
(1) |
To profit or loss |
(3) |
(21) |
||
To equity valuation adjustments |
(1) |
(101) |
(1) |
|
Acquisitions |
7 |
(30) |
||
Settlements and other |
(6) |
489 |
||
CLOSING BALANCE |
145 |
5 |
868 |
0 |
Total gains/(losses) in the period for instruments held at the end of the period |
4 |
0 |
122 |
1 |
FA: Financial assets; DEBT SEC.: Debt securities.
(*) Compulsorily measured at fair value through profit or loss.
Available-for-sale financial assets |
||
---|---|---|
Debt sec. |
Equity instruments |
|
OPENING BALANCE |
5 |
570 |
Additions due to business combinations (Note 7) |
86 |
25 |
Reclassifications to other levels |
||
Total gains/(losses) |
9 |
(141) |
To profit or loss |
1 |
(139) |
To equity valuation adjustments |
8 |
(2) |
Acquisitions |
1 |
3 |
Settlements and other |
(15) |
(8) |
CLOSING BALANCE |
86 |
449 |
Total gains/(losses) in the period for instruments held at the end of the period |
(9) |
141 |
FA: Financial assets; DEBT SEC.: Debt securities
40.2
In the particular case of property assets, fair value corresponds to the market appraisal of the asset in its current condition by independent experts:
The fair value of real estate is measured based on Level 2 in the fair value hierarchy.
The fair value of real estate according to their accounting classification is as follows:
2019 |
2018 |
2017 |
||||
---|---|---|---|---|---|---|
Carrying amount |
Fair value |
Carrying amount |
Fair value |
Carrying amount |
Fair value |
|
Tangible assets - Investment property |
2,298 |
2,930 |
2,738 |
3,468 |
3,325 |
4,143 |
Other assets - Inventories |
20 |
20 |
15 |
15 |
841 |
1,078 |
Non-current assets held for sale and disposal groups classified as held for sale |
1,085 |
1,253 |
965 |
1,114 |
5,564 |
6,733 |
Total |
3,403 |
4,203 |
3,718 |
4,597 |
9,730 |
11,954 |
The Group has a corporate policy that guarantees the professional competence and independence and objectivity of external valuation agencies as provided for in legislation, under which these agencies must comply with neutrality and credibility requirements so that use of their estimates does not undermine the reliability of their valuations. This policy stipulates that all valuation agencies and appraisers used by the Group in Spain must be included in the Bank of Spain's Official Registry and that their valuations be performed in accordance with the methodology set out in Ministerial Order ECO/805/2003, of 27 March.
The main companies and agencies with which the Group worked in Spain for the year are listed below
Tangible assets - Investment property |
Other assets - Inventories |
Non-current assets held for sale |
|
---|---|---|---|
Krata, SA |
9% |
2% |
8% |
Tasaciones Inmobiliarias, SA |
22% |
16% |
12% |
Sociedad de Tasación, SA |
17% |
21% |
12% |
Gesvalt, SA |
7% |
4% |
10% |
JLL Valoraciones, SA |
5% |
25% |
6% |
Ibertasa, SA |
0% |
0% |
0% |
CBRE Valuation Advisory, SA |
14% |
21% |
27% |
Gloval Valuation, SA |
18% |
7% |
13% |
Valoraciones y Tasaciones Hipotecarias, SA |
0% |
0% |
0% |
Tecnitasa, SA |
2% |
0% |
2% |
UVE Valoraciones, SA |
6% |
4% |
8% |
Other |
0% |
0% |
2% |
Total |
100% |
100% |
100% |