Illustrative disclosures for banks IAS 39 31 December 2016 year ends kpmg.com/ifrs Contents About this guide 2 Independent auditors’ report 6 Consolidated fnancial statements 12 Financial highlights 13 Consolidated statement of fnancial position 14 Consolidated statement of proft or loss and other comprehensive income 16 Consolidated statement of changes in equity 18 Consolidated statement of cash fows 22 Notes to the consolidated fnancial statements 24 Appendices 171 I New standards or amendments for 2016 and forthcoming requirements 171 II Presentation of comprehensive income – Two-statement approach 173 Acknowledgements 175 Keeping in touch 176 Notes Basis of preparation 24 Accounting policies 134 1. Reporting entity 24 42. Basis of measurement 134 2. Basis of accounting 24 43. Changes in accounting policies 135 3. Functional and presentation currency 24 44. Signifcant accounting policies 136 4. Use of judgements and estimates 24 45. Standards issued but not yet effective 159 Financial risk review and fair value 25 5. Financial risk review 25 6. Fair values of fnancial instruments 59 Performance for the year 70 7. Operating segments 70 8. Net interest income 74 9. Net fee and commission income 75 10. Net trading income 76 11. Net income from other fnancial instruments at FVTPL 77 12. Other revenue 78 13. Personnel expenses 79 14. Other expenses 85 15. Earnings per share 86 Income taxes 87 16. Income taxes 87 17. Classifcation of fnancial assets and fnancial liabilities 90 Asets 90 18. Cash and cash equivalents 94 19. Trading assets and liabilities 95 20. Derivatives held for risk management 99 21. Loans and advances to banks 101 22. Loans and advances to customers 102 23. Investment securities 104 24. Property and equipment 106 25. Intangible assets and goodwill 107 26. Other assets 109 Liabilities and equity 111 27. Deposits from banks 111 28. Deposits from customers 112 29. Debt securities issued 113 30. Subordinated liabilities 114 31. Provisions 115 32. Other liabilities 116 33. Capital and reserves 117 Group composition 118 34. Group subsidiaries 118 Other information 119 35. Involvement with unconsolidated structured entities 19 36. Transfers of fnancial assets 120 37. Contingencies 124 38. Related parties 125 39. Operating leases 126 40. Subsequent events 127 41. Financial risk management 128 2 | Illustrative disclosures of r bansk under IA S 93 About this guide hT is guide has been produced by the KPMG International tS andards Group p( art o f KPMG IFRG Limited ) and the viesw epx ressed herein are those o f the KPMG International tS andards Group. It is intended to help preparers in the preparation and presentation o f n� ancial statements in accordance iw th IFR S by illustrating one possible of rmat of r n� ancial statements of r a c� titious banik ng group involved in a range o f general banik ng activities ; the ban k is not a r� stt- ime adopter o f IFR.S For more inof rmation on adopting IFR S of r the r� st time, see hC apter.6 � 1 in the 1t3 h edition 2011/6 7 o f our publication Insights into IFRS. Standards covered hT is guide ree� cts standards and interpretations that have been issued by the IA BS as at 13 eD cember 201 6 that are reuq ired to be applied by an entity iw th an annual period beginning on 1 aJ nuary 201 6 c‘( urrently eef f ctive reuq irements.)’ hT e early adoption o f standards that are eef f ctive of r annual periods beginning after 1aJ � nuary 201 6 of‘( rthcoming reuq irements )’ has not been illustrated in thisg� uide. hT is guide is not intended to be seen as a complete and ehx austive summary o f all disclosure reuq irements under IFR.S Instead, it of cuses on disclosure reuq irements that are particularly relevant to bansk . For more eax mples o f other disclosures see our Guide to annual fnancial statements – Illustrative disclosures cO( tober 201.)6 Other guidance In addition, IFR S and its interpretation change over time. Accordingly, this guide should not be used as a substitute of r reef rring to the standards and other relevant interpretative guidance. Preparers should also consider applicable legal and regulatory reuq irements. hT is guide does not consider the reuq irements o f any particular uj risdiction. In preparing this guide, ew had regard to the recommendations made by the nE hanced iD sclosurea T s k Force FTD E ( ) in its report Enhancing the Risk Disclosures of Banks, issued on 2 9 cO tober 2012, and its revision issued on 7 eD cember 201,5 Impact of Expected Credit Loss Approaches on Bank Risk Disclosures. hT e reports’ purpose is to help bansk improve their communication iw th their staek holders in the area o f ris k disclosures, iw th the ultimate aim o f improving investor cond� ence. hT e scope o f the recommendations is iw der than the n� ancial statements because they apply to all n� ancial reports, including public disclosures reuq ired by regulators and other communications iw th staek holders. In some cases, recommendations in the report may impact the manner o f presentation o f inof rmation that is already reuq ired to be disclosed under IFR.S In other cases, it recommends disclosure o f ne w inof rmation. Many regulators continue to of cus on disclosures in n� ancial statements. For eax mple, the uE ropean eS curities and Marek ts Authority MSE( A ) has published its public statement on uE ropean common enof rcement priorities of r 201 6 and issues of r consideration in implementing IFR S 9 Financial Instruments and IFR1�S 5 Revenue from Contracts with Customers. In addition, in preparing this guide ew also had regard to the recommendations made by the aB sel oC mmittee on aB nik ng uS pervision in its Guidance on credit risk and accounting for expected credit losses issued in eD cember 201.5 © 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Appendices Notes Primary statements Auditors’ report INTRODUCTION About this guide � | 3 hT is guide includes an updated illustrative auditors ’ report, as a result o f the What’s new in 2016? adoption o f the of lloiw ng revised and ne w International tS andards on Auditing I( AS s,) hw ich are eef f ctive of r audits o f n� ancial statements of r periods ending on or atf er 1 5 eD cember 201:6 – IAS 700 R( evised ) Forming an Opinion and Reporting on Financial Statements; – IAS 701 Communicating Key Audit Matters in the Independent Auditor’s Report ; and – IAS 720 R( evised ) The Auditor’s Responsibilities Relating to Other Information. hT e guide also provides epx anded prei- mplementation disclosures on the impact o f the adoption o f IFR.9 �S Appendi x I provides a comprehensive list o f ne w reuq irements, distinguishing betew en those that are eef f ctive of r an annual reporting period beginning on 1aJ � nuary 201,6 and those iw th a later eef f ctive date. oN ne o f the ne w standards or amendments to standards had an impact on this guide. hT is guide is part o f our suite o f publications – Guides to fnancial statements – Need for judgement and specic� ally of cuses on compliance iw th IFR.S Although it is not ehx austive, this guide illustrates the disclosures reuq ired by IFR S of r one hypothetical banik ng group, largely iw thout regard to materiality. hT e preparation and presentation o f n� ancial statements reuq ire the preparer to eex rcise uj dgement, in terms o f the choice o f accounting policies, the ordering o f notes to the n� ancial statements, ho w the disclosures should be tailored to ree� ct the entitys’ specic� circumstances, and the relevance o f disclosures considering the needs o f the users. pS ecic� guidance on materiality and its application to the n� ancial statements is Materiality included in paragraphs 213–9 o f IA S 1 Presentation of Financial Statements. Materiality is relevant to the presentation and disclosure o f the items in the n� ancial statements. Preparers need to consider hw ether the n� ancial statements include all o f the inof rmation that is relevant to understanding an entitys’ n� ancial position on the reporting date and its n� ancial perof rmance during the reporting period. Preparers also need to taek care not to reduce the understandability o f an entitys’ n� ancial statements by obscuring material inof rmation iw th immaterial inof rmation or by aggregating material inof rmation that is dief f rent by nature or uf nction. Individual disclosures that are not material to the n� ancial statements do not have to be presented – even i f they are a minimum reuq irement o f a standard. Preparers need to consider the appropriate level o f disclosure based on materiality of r the reporting period. Step-up in the Investors continue to as k of r a stepu- p in the uq ality o f business reporting, so entities should be careuf l not to become buried in compliance to the quality of fnancial ecx lusion o f relevance. In preparing its n� ancial statements, an entity needs statements to ek ep in mind its iw der responsibilities of r reporting this inof rmation in the most meaninguf l aw y. For more inof rmation, see our Better business reportingew � bsite. © 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Appendices Notes Primary statements Auditors’ report INTRODUCTION 4 | Illustrative disclosures of r bansk under IA S 93 Reef rences are included in the letf h- and margin o f this publication. Generally, References the reef rences relate only to presentation and disclosure reuq irements. IAS 1.82(a) Paragraph 28 a( ) o f IA S 1. [IAS 39.46(a)] Paragraph a(64 ) o f IA S .93 hT e bracek t indicates that the paragraph relates to recognition and measurement reuq irements, as opposed to presentation and disclosure reuq irements. Insights 2.3.60.10 Paragraph 2..3 06 .10 o f the 1t3 h edition 2011/6 7 o f our publication Insights into IFRS. hT e of lloiw ng marik ngs in the letf h- and margins indicate the of lloiw ng. In the contetx o f consolidated n� ancial statements, the disclosures in respect o f operating segments ( oN te 7 ) and PE S s( tatement o f prot� or loss and ICO , and oN te 1 )5 apply only i f thep� arent: – has debt or euq ity instruments o( perating segments ) or ordinary shares/ potential ordinary shares PE( )S that are traded in a public marek t – i.e. a domestic or of reign stoc k ecx hange or an overt- hec- ounter marek t, including local and regional marek ts ; or – l� es, or is in the process o f l� ing, its n� ancial statements iw th a securities commission or other regulatory organisation of r the purpose o f issuing any class o f instruments in a public marek t. Maoj r changes related to reuq irements that are ne w in 201.6 Footnotes in italics refer to recommendations in the EDTF report, which are not specifc requirements of IFRS. © 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Appendices Notes Primary statements Auditors’ report INTRODUCTION About this guide � | 5 hT e of lloiw ng abbreviations are used otf en in this guide. Abbreviations GC U aC shg- enerating unit FTDE nE hanced iD sclosure aT s k Force PE S aE rnings per share FPTV L Fair value through prot� or loss IABS International Accounting tS andards oB ard IU IFR S Interpretations oC mmittee publication IFRIC Update ICN oN nc- ontrolling interests oN tes oN tes to the n� ancial statements ICO tO her comprehensive income © 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Appendices Notes Primary statements Auditors’ report INTRODUCTION 6 | Illustrative disclosures of r bansk under IA S 93 [Name of bank] Independent auditors’ report © 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Appendices Notes Primary statements AUDITORS’ REPORT Introduction Independent auditors ’ report | 7 a Independent auditors’ report To the Shareholders of [Name of bank] Opinion eW have audited the consolidated n� ancial statements o f [ Name of bank ] and its subsidiaries t( he Group,) hw ich comprise the consolidated statement o f n� ancial position as at 13 eD � cember 201,6 and the consolidated statements o f prot� or loss and other comprehensive income, changes in euq ity and cash o� sw of r the year then ended, and notes to the consolidated n� ancial statements, including signic� ant accounting policies and other epx lanatoryi� nof rmation. In our opinion, the accompanying consolidated n� ancial statements present af irly, in all material respects, the consolidated n� ancial position o f the Group as at 13 eD cember2� 01,6 and its consolidated n� ancial perof rmance and its consolidated cash o� sw of r the year then ended in accordance iw th International Financial Reporting tS andards I( FR.)S Basis for Opinion eW conducted our audit in accordance iw th International tS andards on Auditing I( AS s.) uO r responsibilities under those standards are uf rther described in the A‘ uditors ’ Responsibilities of r the Audit o f the oC nsolidated Financial tS atements ’ section o f our report. eW are independent o f the Group in accordance iw th the ethical reuq irements that are relevant to our audit o f the consolidated n� ancial statements in [ jurisdiction,] and ew have uf ll� led our ethical responsibilities in accordance iw th these reuq irements. eW believe that the audit evidence ew have obtained is suc� f ient and appropriate to provide a basis of r our opinion. Key Audit Matters Key audit matters are those matters that, in our proef ssional uj dgement, ew re o f most signic� ance in our audit o f the consolidated n� ancial statements o f the current period. hT ese matters ew re addressed in the contetx o f our audit o f the consolidated n� ancial statements as a hw ole, and in of rming our opinion thereon, and ew do not provide a separate opinion on these matters. Impairment of loans and advances to customers eS e oN tes 22 and v()J(4 ii) to the consolidated n� ancial statements. The key audit matter How the matter was addressed in our audit Impairment o f loans and advances to customers uO r procedures in this area included : is a ek y audit matter due to the signic� ance o f – assessing the trends in the local credit the balances, and compleix ty and subej ctivity environment, considering their liek ly impact over estimating timing and amount o f on the Groups’ epx osures and using this impairment. hT e ris k is that the amount o f inof rmation to of cus our testing on the ek y impairment may be misstated. ris k areas; hT e estimation o f the impairment loss alloaw nce – assessing and testing the design and on an individual basis reuq ires management to operating eef f ctiveness o f the controls over maek uj dgements to determine hw ether there the Groups’ loan impairment process – of r is obej ctive evidence o f impairment and to maek eax mple : assumptions about the n� ancial condition o f the borroew rs and epx ected uf ture cash o� sw . a. hT is eax mple report has been prepared based on the of lloiw ng International tS andards on Auditing I( AS s,) eef f ctive of r audits o f n� ancial statements of r periods ending on or atf er 1 5 eD cember 201:6 – IAS 700 R( evised ) Forming an Opinion and Reporting on Financial Statements; – IAS 701 Communicating Key Audit Matters in the Independent Auditor’s Report ; and – IAS 720 R( evised ) The Auditor’s Responsibilities Relating to Other Information and Related Conforming Amendments. hT e of rmat o f the eax mple report does not ree� ct the legal or regulatory reuq irements o f any particular uj risdiction. © 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Appendices Notes Primary statements AUDITORS’ REPORT Introduction 8 | Illustrative disclosures of r bansk under IA S 93 hT e collective impairment loss alloaw nce - controls over the model process, including relates to retail loans and losses incurred but building, monitoring, periodic validation and not yet identie� d I( RNB loss alloaw nce ) on approvals; other loans. hT e audit matters include controls - controls over the completeness and over the models used, accuracy o f input and accuracy o f data input into models; appropriateness o f model overlays. hT e model overlays are reuq ired to address certain nk onw - of r the principal underlying system data and system issues and to ree� ct economic generating credit data, I T controls such as conditions at the year end. access, data management, and change management ; - controls over the identic� ation o f hw ich loans and advances ew re impaired. For individually signic� ant loans this included controls over credit grading and the monitoring process ; and - the management revie w process over the calculations ; – testing a sample o f model overlays, including evaluating the rationale of r the aduj stments, the source o f data used, ek y assumptions and sensitivity o f the overlays to these assumptions. oC mparing the assumptions used to selected etx ernally available industry, n� ancial and economic data; – rep- erof rming certain credit procedures as of llosw : - of r individually signic� ant loans: – perof rming a credit assessment o f a sample o f loans in credit ris k grades 6 � and 7 to determine hw ether their grading aw s appropriate and assess the reasonableness o f the amount and timing o f estimated recoverable cash o� sw , including realisable value o f collateral and ho w of rbearance aw s considered. hW ere available, ew compared the assumptions and estimates made by management to that etx ernally available ; and – perof rming a credit assessment o f a sample o f loans graded 1 to 5 to determine hw ether their grading aw s appropriate ; and - of r retail loans: – testing the accuracy o f ek y inputs into the models; – of r a selection o f models, using our credit modelling specialists to assess the appropriateness o f the impairment calculation methodology ; and – rep- erof rming certain calculations ; and - assessing hw ether disclosures in the n� ancial statements appropriately ree� ct the Groups’ epx osure to credit ris.k © 2017 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Appendices Notes Primary statements AUDITORS’ REPORT Introduction