Quarterly Report • Aug 9, 2017
Quarterly Report
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ABN AMRO Bank N.V.
This is the Interim Financial Report for the year 2017 of ABN AMRO Bank N.V. (ABN AMRO Bank). ABN AMRO Bank N.V. is a wholly owned subsidiary of ABN AMRO Group N.V. (ABN AMRO Group) and operates through the following segments: Retail Banking, Private Banking, Commercial Banking, Corporate & Institutional Banking and Group Functions. The objective of this Interim Financial Report is to comply with regulatory requirements.
The report represents our Interim Report 2017 and our Condensed Consolidated Interim Financial Statements for 2017. The Interim Report contains the financial review, and selected risk, capital, liquidity and funding disclosures for the first half of 2017.
Information in ABN AMRO Bank's Interim Report is not an offer, investment advice or financial service. The Interim Report of ABN AMRO Bank N.V. does not give an extensive overview of all proceedings of ABN AMRO Group. The information in this Interim Report is not intended to encourage any person to buy or sell any product or service from either ABN AMRO Group or ABN AMRO Bank, or to be used as a basis for an investment decision. A decision to invest in products and services of both ABN AMRO Group and ABN AMRO Bank can and should be based on the information in this Interim Report in conjunction with information included in a definitive prospectus and the Key Investor Information (if and to the extent required) as well as the Interim Report of ABN AMRO Group N.V.
The Condensed Consolidated Interim Financial Statements in this report have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU IFRS). The Condensed Consolidated Interim Financial Statements in this report have been neither audited nor reviewed by the external auditor. Certain IFRS disclosures in the Risk, funding & capital information section are labelled as 'IFS' in the respective headings. These disclosures are an integral part of the Condensed Consolidated Interim Financial Statements.
To provide a better understanding of the underlying results, ABN AMRO has adjusted its 2016 results in accordance with EU IFRS for defined special items.
This report is presented in euros (EUR), which is ABN AMRO's presentation currency, rounded to the nearest million (unless otherwise stated). All annual averages in this Interim Report are based on month-end figures. Management does not believe that these month-end averages present trends that are materially different from those that would be presented by daily averages.
Certain figures in this report may not tally exactly due to rounding. Furthermore, certain percentages in this document have been calculated using rounded figures.
In addition, the Interim Financial Report of ABN AMRO Bank's parent company, ABN AMRO Group N.V., including the reviewed Condensed Consolidated Interim Financial Statements is available on abnamro.com/ir. For a download of this report or more information, please visit us at abnamro.com/ir or contact us at [email protected].
| Financial review | 3 |
|---|---|
| Results by segment | 6 |
| Additional financial information | 12 |
| Risk, funding & capital information | 13 |
| Responsibility statement | 21 |
| Condensed consolidated income statement | 23 |
|---|---|
| Condensed consolidated statement of comprehensive income | 24 |
| Condensed consolidated statement of financial position | 25 |
| Condensed consolidated statement of changes in equity | 26 |
| Condensed consolidated statement of cash flows | 28 |
| Notes to the Condensed consolidated Interim Financial Statements | 30 |
Enquiries 66
| Retail Banking | 6 |
|---|---|
| Private Banking | 8 |
| Commercial Banking | 9 |
| Corporate & Institutional Banking | 10 |
| Group Functions | 11 |
Risk, funding & capital information
This financial review includes a discussion and analysis of the results and sets out the financial condition of ABN AMRO based on underlying results.
| (in millions) | First half 2017 | First half 2016 | Change |
|---|---|---|---|
| Net interest income | 3,195 | 3,128 | 2% |
| Net fee and commission income | 852 | 866 | -2% |
| Other operating income | 691 | 178 | |
| Operating income | 4,738 | 4,172 | 14% |
| Personnel expenses | 1,288 | 1,234 | 4% |
| Other expenses | 1,432 | 1,344 | 6% |
| Operating expenses | 2,720 | 2,579 | 5% |
| Operating result | 2,018 | 1,593 | 27% |
| Impairment charges on loans and other receivables | -33 | 56 | |
| Operating profit/(loss) before taxation | 2,051 | 1,537 | 33% |
| Income tax expense | 475 | 400 | 19% |
| Underlying profit/(loss) for the period | 1,576 | 1,136 | 39% |
| Special items | -271 | ||
| Reported profit/(loss) for the period | 1,576 | 866 | 82% |
| Attributable to: | |||
| Owners of the company | 1,561 | 865 | |
| Non-controlling interests | 15 | 1 |
EUR 1,576 million, up by EUR 440 million compared with H1 2016. Higher operating income (partly due to the Private Banking (PB) Asia divestment) and lower loan impairments (broad recovery of the Dutch economy and model refinements) were partly offset by higher operating expenses (costs related to SME derivatives-related issues, the PB Asia divestment and restructuring).
Reported profit for H1 2017 almost doubled compared with H1 2016, largely due to the PB Asia divestment gain in H1 2017 and the provision for SMEs with derivative-related issues of EUR 271 million in H1 2016 (special item).
The underlying return on equity (ROE) increased to 16.7% in H1 2017 compared with 13.1% in H1 2016.
Operating income was EUR 4,738 million, an increase of EUR 566 million. In addition to the proceeds from the PB Asia divestment, the increase in operating income was supported by higher net interest income and other operating income.
Net interest income increased by EUR 67 million to EUR 3,195 million in H1 2017. The increase was predominantly driven by volume growth in corporate loans and residential mortgages. Consumer loans saw somewhat lower volumes and margins.
Net fee and commission income was down EUR 14 million compared with H1 2016. The decline was largely due to the PB Asia divestment. H1 2017 was characterised by improved stock market sentiment as opposed to uncertainty and volatility in the financial markets in H1 2016.
This resulted in higher levels of transaction volumes and an increase in average client assets in our European private bank, resulting in higher net fee and commission income. Fee income was lower at Retail Banking as rates for payment packages were cut for individual clients (since April 2016) and small businesses (since January 2017). Lower fees were recorded at Commercial Banking due to an incidental fee expense and increased competition.
Other operating income increased by EUR 513 million to EUR 691 million. The increase was mainly driven by the proceeds from the PB Asia divestment (EUR 255 million). The remainder was due to favourable hedge accountingrelated income (EUR 118 million versus EUR 68 million negative in Q2 2016), CVA/DVA/FVA results (EUR 43 million versus 47 million negative in Q2 2016) and Equity Participations results (EUR 77 million versus EUR 2 million in H1 2016). The existing (compensation) provision for SME derivatives-related issues was increased by EUR 15 million in both H1 2016 and H1 2017. The large provision in H1 2016 was recorded as a special item.
H1 2016 included a profit of EUR 116 million related to the sale of Visa Europe, a release of a provision related to the sale of the Swiss private banking activities in 2011 (EUR 21 million) and a provision in Group Functions related to the part of the securities financing activities discontinued in 2009.
Personnel expenses increased by EUR 54 million to EUR 1,288 million in H1 2017. H1 2017 included a EUR 25 million restructuring provision, EUR 21 million related to the PB Asia divestment and EUR 12 million severance payments. Lower FTE levels were partly offset by wage inflation and higher pension costs.
Other expenses increased by EUR 88 million, totalling EUR 1,432 million in H1 2017, due to an increase in the provision for project costs for SME derivative-related issues (EUR 54 million), the PB Asia divestment (EUR 35 million) and higher regulatory levies (EUR 155 million versus EUR 110 million in H1 2016). The underlying trend shows the benefits from the cost saving plans.
Impairment charges amounted to a EUR 33 million release in H1 2017 (H1 2016: EUR 56 million charge). Releases were recorded on residential mortgages and consumer loans and limited charges were recorded on corporate loans. All were primarily a reflection of the broad improvements in the Dutch economy and, to a lesser extent, model refinements as H1 2016 included more favourable IBNI releases (EUR 41 million versus EUR 130 million in H1 2016). The overall cost of risk was -3bps in H1 2017.
Starting in 2017, individual balance sheet figures are presented including the impact of netting adjustments. Private banking activities in Asia and the Middle East were recorded as held for sale (and recorded under other assets and other liabilities). The sale was completed on 30 April 2017.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Cash and balances at central banks | 26,648 | 21,861 |
| Financial assets held for trading | 4,658 | 1,607 |
| Derivatives | 11,803 | 14,384 |
| Financial investments | 42,292 | 45,497 |
| Securities financing | 28,958 | 17,589 |
| Loans and receivables - banks | 8,868 | 13,485 |
| Loans and receivables - customers | 272,059 | 267,679 |
| Other | 8,533 | 12,380 |
| Total assets | 403,819 | 394,482 |
| Financial liabilities held for trading | 2,315 | 791 |
| Derivatives | 10,808 | 14,526 |
| Securities financing | 21,786 | 11,625 |
| Due to banks | 18,056 | 13,419 |
| Due to customers | 235,584 | 228,758 |
| Issued debt | 75,461 | 81,278 |
| Subordinated liabilities | 11,975 | 11,171 |
| Other | 7,973 | 13,976 |
| Total liabilities | 383,959 | 375,545 |
| Equity attributable to the owners of the company | 19,843 | 18,932 |
| Equity attributable to non-controlling interests | 17 | 5 |
| Total equity | 19,860 | 18,937 |
| Total liabilities and equity | 403,819 | 394,482 |
Total assets increased by EUR 9.3 billion to EUR 403.8 billion at 30 June 2017. The increase in securities financing and cash and balances at central banks was partly offset by a decrease in financial investments.
Total liabilities increased by EUR 8.4 billion to EUR 384.0 billion at 30 June 2017. This was due mainly to higher securities financing and due to customers.
Total equity increased by EUR 0.9 billion, largely due to the inclusion of the reported profit for the first half of 2017, partly offset by the final 2016 dividend payment.
5
The results by segment section includes a discussion and analysis of the results of the financial condition of ABN AMRO Bank at segment level for the first half of 2017 compared with the first half of 2016. Most of the interest expenses and operating expenses incurred by Group Functions are allocated to the business lines trough net interest income and other expenses, respectively.
| (in millions) | First half 2017 | First half 2016 | Change |
|---|---|---|---|
| Net interest income | 1,739 | 1,685 | 3% |
| Net fee and commission income | 207 | 225 | -8% |
| Other operating income | 12 | 120 | -90% |
| Operating income | 1,957 | 2,029 | -4% |
| Personnel expenses | 230 | 242 | -5% |
| Other expenses | 820 | 846 | -3% |
| Operating expenses | 1,050 | 1,088 | -3% |
| Operating result | 908 | 942 | -4% |
| Impairment charges on loans and other receivables | -59 | 48 | |
| Operating profit/(loss) before taxation | 967 | 894 | 8% |
| Income tax expense | 242 | 220 | 10% |
| Underlying profit/(loss) for the period | 725 | 674 | 7% |
| Special items | |||
| Reported profit/(loss) for the period | 725 | 674 | 7% |
Retail Banking's underlying profit for the period increased to EUR 725 million in H1 2017, up by EUR 51 million compared with H1 2016.The increase was mainly driven by a model refinement on mortgages and the continued and broad improvement of the Dutch economy.
Net interest income increased by 3%, totalling EUR 1,739 million for H1 2017. This was mainly due to higher interest income on mortgages. Interest income on residential mortgages improved year-on-year, driven by higher volumes and the repricing of (pre-crisis) low-margin mortgages throughout 2016. The increase in the residential mortgage portfolio was mainly due to high production levels between Q4 2016 and Q2 2017. Mortgage production grew on the back of low interest rates, clients' concern regarding rising rates and favourable economic conditions. In addition, fee income declined due to the transfer of client assets to Private Banking.
Net fee and commission income declined by EUR 18 million compared with the first half of 2016, mainly due to lower fees being charged for payment packages to individual clients (since April 2016) and small businesses (since January 2017).
6
Other operating income was EUR 12 million in the first half of 2017 (H1 2016: EUR 120 million). The decline is predominantly related to a EUR 101 million profit on the sale of Visa Europe to Visa Inc. in H1 2016.
Personnel expenses decreased by EUR 12 million to EUR 230 million. The number of FTEs declined to 5,309 (30 June 2016: 5,601) following a further reduction in the number of branches and a transfer of employees (September 2016) and clients to Private Banking.
This was to a limited extent offset by a transfer from Group Functions (per end of April 2017) in order to promote the agile way of working.
Other expenses include regulatory levies of EUR 75 million in H1 2017 (H1 2016: EUR 54 million).
Impairment charges decreased, resulting in a EUR 59 million release in H1 2017 (H2 2016: EUR 48 million charge). The release in H1 2017 was mainly driven by a model refinement on mortgages lending in the last quarter of 2017.
Operating results
Private Banking
(in millions) First half 2017 First half 2016 Change Net interest income 326 318 3% Net fee and commission income 292 287 2%
Operating income 892 660 35% Personnel expenses 266 249 7% Other expenses 309 278 11% Operating expenses 575 527 9% Operating result 318 132 140%
Income tax expense 34 24 40%
Other operating income 274 55
Impairment charges on loans and other receivables -4 12 Operating profit/(loss) before taxation 321 120
Underlying profit/(loss) for the period 288 96
8
Special items Reported profit/(loss) for the period 288 96 Private Banking's underlying profit for the period increased to EUR 288 million in H1 2017, up by EUR 192 million compared with H1 2016. The increase was mainly due to the EUR 255 million divestment sale proceeds, partly offset by several unfavourable incidentals and the
Net interest income rose by EUR 8 million, arriving at EUR 326 million for H1 2017. Excluding the PB Asia divestment, net interest income increased by EUR 15 million. The increase was mainly attributable to lower client rates on saving accounts and higher average deposit volumes.
inclusion of only one month contribution by Private
Banking Asia and the Middle East.
Net fee and commission income increased by EUR 5 million, totalling EUR 292 million for H1 2017. Excluding the PB Asia divestment, net fee and commission income increased by EUR 20 million. The increase was attributable to improved stock market sentiment as opposed to uncertainty and volatility in the financial markets in H1 2016. This resulted in higher levels of transaction volumes and an increase in average client assets.
Other operating income in H1 2017 was EUR 219 million higher, mainly due to the EUR 255 million divestment sale proceeds from the sale of the activities in Asia and the Middle East.
Personnel expenses rose by EUR 17 million related to the PB Asia divestment (costs included restructuring provisions and retention payments). Personnel expenses in our domestic activities increased following the transfer of employees from Retail Banking (as of September 2016). Both were partly offset by lower business as usual expenses in Private Banking Asia and the Middle East.
Other expenses increased by EUR 31 million, arriving at EUR 309 million in H1 2017. The increase was mainly attributable to EUR 35 million other expenses related to the PB Asia divestment (wind-down costs). This was partly offset by a lower cost base following the sale and lower allocated costs, mainly resulting from cost-saving programmes.
Impairment releases were EUR 4 million in H1 2017 (H1 2016: EUR 12 million charge).
| (in millions) | First half 2017 | First half 2016 | Change |
|---|---|---|---|
| Net interest income | 686 | 672 | 2% |
| Net fee and commission income | 94 | 101 | -6% |
| Other operating income | 27 | 34 | -22% |
| Operating income | 807 | 808 | 0% |
| Personnel expenses | 149 | 137 | 9% |
| Other expenses | 284 | 285 | 0% |
| Operating expenses | 433 | 422 | 3% |
| Operating result | 374 | 386 | -3% |
| Impairment charges on loans and other receivables | -115 | -123 | 7% |
| Operating profit/(loss) before taxation | 489 | 508 | -4% |
| Income tax expense | 121 | 126 | -4% |
| Underlying profit/(loss) for the period | 367 | 382 | -4% |
| Special items | -8 | ||
| Reported profit/(loss) for the period | 367 | 374 | -2% |
Commercial Banking's underlying profit for the period was EUR 367 million in H1 2017 and was EUR 15 million lower compared with the same period previous year. This was mainly due to higher personnel cost.
Net interest income rose by EUR 14 million coming to EUR 686 million in H1 2017. The increase was mainly driven by the ongoing broad improvement of the Dutch economy. As a result, a higher number of non-performing loans became performing again, which positively impacted net interest income, to a lesser extent supported by improved lending margins and loan growth. Growth in client lending was widely driven, including in asset-based finance and real estate. The low interest environment is still putting pressure on deposit margins. Most client rates are zero, while negative interest rates are charged to a select group of clients.
Net fee and commission income decreased by EUR 7 million to EUR 94 million for H1 2017, partly due to increased competition (lower rates) and an incidental fee expense.
Other operating income was EUR 27 million in the first half year of 2017 (H1 2016: EUR 34 million).
Personnel expenses increased by EUR 12 million, attributable to a higher number of FTEs (compared with H1 2016) and to a lesser extent wage inflation. The increase in FTEs was due to a transfer from Group Functions (per end of April 2017) and for the execution of duty of care projects.
Other expenses remained nearly flat despite an increase in regulatory levies (EUR 7 million). This was attributable to lower allocated costs, mainly resulting from cost saving programmes.
Impairment charges amounted to a release of EUR 115 million for H1 2017 (H1 2016: release EUR 123 million). High impairment releases were the result of a refinement to the SME lending model leading to a release of EUR 80 million in Q2 2017. Both quarters included an IBNI release (EUR 6 million in H1 2017 versus EUR 109 million in H1 2016). Apart from the refined model and IBNI releases, impairment charges further decreased due to the ongoing broad improvement of the Dutch economy.
| (in millions) | First half 2017 | First half 2016 | Change |
|---|---|---|---|
| Net interest income | 464 | 432 | 8% |
| Net fee and commission income | 283 | 280 | 1% |
| Other operating income | 201 | 5 | |
| Operating income | 948 | 717 | 32% |
| Personnel expenses | 213 | 187 | 13% |
| Other expenses | 385 | 333 | 16% |
| Operating expenses | 597 | 520 | 15% |
| Operating result | 351 | 196 | 79% |
| Impairment charges on loans and other receivables | 144 | 124 | 16% |
| Operating profit/(loss) before taxation | 207 | 72 | |
| Income tax expense | 41 | 18 | 128% |
| Underlying profit/(loss) for the period | 166 | 54 | |
| Special items | -263 | ||
| Reported profit/(loss) for the period | 166 | -209 |
Corporate & Institutional Banking's underlying profit for the period was EUR 166 million in H1 2017 and was EUR 112 million higher compared with the same period previous year. Mainly due to other operating income.
Net interest income was EUR 464 million in H1 2017 (H1 2016: EUR 432 million), largely recorded within ECT Clients on the back of increased client lending. Deposit margins improved modestly, mainly on USD deposits. Moreover, a larger number of professional clients are being charged negative interest rates on deposits.
Net fee and commission income amounted to EUR 283 million in H1 2017, nearly flat compared with H1 2016.
Other operating income increased by EUR 196 million to EUR 201 million in H1 2017. This is mainly due to Equity Participations where results amounted to EUR 77 million in H1 2017 (EUR 7 million H1 2016).
Personnel expenses increased by EUR 26 million, mainly due to an increase in FTEs vs. H1 2016 (to support the bank's growth ambitions both in the Netherlands and abroad), wage inflation and higher pension costs.
Other expenses increased by EUR 52 million compared with H1 2017. This was attributable to an update of a provision for project costs by EUR 54 million for SME derivativesrelated issues.
Impairment charges amounted to EUR 144 million in H1 2017 (H1 2016: EUR 124 million).
10
Operating results
Group Functions
Income tax expense 37 12 Underlying profit/(loss) for the period 30 -70 Special items Reported profit/(loss) for the period 30 -70
(in millions) First half 2017 First half 2016 Change
Net fee and commission income -24 -27 10%
Personnel expenses 431 419 3% Other expenses -366 -397 8%
Impairment charges on loans and other receivables -6 97%
Net interest income -21 22
Other operating income 177 -37 Operating income 132 -41
Operating expenses 65 22 Operating result 67 -63
Operating profit/(loss) before taxation 67 -58
Group Function's underlying profit for the period was EUR 30 million in H1 2017 compared with a loss of EUR 70 million in the same period of 2016.
Net interest income went down by EUR 43 million. The decline was partly driven by higher liquidity buffer costs.
Net fee and commission income improved by EUR 3 million.
Other operating income was EUR 177 million in H1 2017 (H1 2016: EUR 37 million loss). The rise in other operating income was mainly driven by hedge accounting-related results and a provision related to the securities financing
activities discontinued in 2009 recorded in H1 2016. This was partly offset by a profit from the sale of Visa Europe to Visa Inc. in H1 2016 (EUR 14 million).
Personnel expenses increased by EUR 12 million. The rise was mainly driven by two restructuring provisions initially recorded in H2 2016.
Other expenses increased by EUR 31 million compared with the same period in 2016 as fewer costs were allocated to the commercial segments. Expenses incurred directly by Group Functions decreased due to realised savings from cost saving programmes and cost control.
To provide a better understanding of the underlying results, ABN AMRO Bank has adjusted reported results for defined special items and material divestments.
Special items are material and non-recurring items which are not related to normal business activities.
In Q2 2016, the addition to the provision for SMEs with derivative-related issues of EUR 361 million gross (EUR 271 million net of tax) was classified as a special item.
| First half 2017 | First half 2016 | |||||
|---|---|---|---|---|---|---|
| Special | Special | |||||
| (in millions) | Underlying | items | Reported | Underlying | items | Reported |
| Net interest income | 3,195 | 3,195 | 3,128 | -10 | 3,118 | |
| Net fee and commission income | 852 | 852 | 866 | 866 | ||
| Other operating income | 691 | 691 | 178 | -351 | -173 | |
| Operating income | 4,738 | 4,738 | 4,172 | -361 | 3,811 | |
| Personnel expenses | 1,288 | 1,288 | 1,234 | 1,234 | ||
| Other expenses | 1,432 | 1,432 | 1,344 | 1,344 | ||
| Operating expenses | 2,720 | 2,720 | 2,579 | 2,579 | ||
| Operating result | 2,018 | 2,018 | 1,593 | -361 | 1,232 | |
| Impairment charges on loans and other receivables | -33 | -33 | 56 | 56 | ||
| Operating profit/(loss) before taxation | 2,051 | 2,051 | 1,537 | -361 | 1,176 | |
| Income tax expense | 475 | 475 | 400 | -90 | 310 | |
| Profit/(loss) for the period | 1,576 | 1,576 | 1,136 | -271 | 866 |
| (in millions) | Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | Q1 2016 |
|---|---|---|---|---|---|---|
| Operating income | ||||||
| SME derivatives | -361 | |||||
| Total impact on Operating Income | -361 | |||||
| Operating expenses | ||||||
| Total impact on Operating expenses | ||||||
| Loan impairments | ||||||
| Total impact on Loan impairments | ||||||
| Total impact on Income tax expense | -90 | |||||
| Total impact on result for the period | -271 |
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Total loans and receivables, gross excluding fair value adjustments | 280,183 | 280,039 |
| Of which Banks | 8,874 | 13,488 |
| Of which Residential mortgages | 151,047 | 149,255 |
| Of which Consumer loans | 12,312 | 12,539 |
| Of which Corporate loans | 93,191 | 90,920 |
| Of which Other loans and receivables - customers | 14,758 | 13,838 |
| On-balance sheet maximum exposure to credit risk | 396,115 | 383,122 |
| Total Exposure at Default (EAD) | 382,687 | 383,118 |
| Of which Retail Banking | 176,481 | 175,879 |
| Of which Private Banking | 19,198 | 22,752 |
| Of which Commercial Banking | 45,019 | 43,959 |
| Of which Corporate & Institutional Banking | 70,749 | 71,208 |
| Of which Group Functions | 71,240 | 69,320 |
| Credit quality indicators1 | ||
| Past due ratio | 1.3% | 1.4% |
| Impaired ratio | 3.1% | 3.3% |
| Coverage ratio | 34.8% | 38.4% |
| Regulatory capital | ||
| Total RWA (REA) | 103,970 | 104,215 |
| Of which Credit risk2 | 80,600 | 83,140 |
| Of which Operational risk | 20,023 | 17,003 |
| Of which Market risk | 3,348 | 4,072 |
| Total RWA (REA)/total EAD | 27.2% | 27.2% |
| Liquidity and funding indicators | ||
| Loan-to-Deposit ratio | 111.6% | 112.7% |
| LCR | >100% | >100% |
| NSFR | >100% | >100% |
| Capital ratios | ||
| Fully-loaded CET1 ratio | 17.6% | 17.0% |
| Fully-loaded leverage ratio | 3.9% | 3.9% |
1 Loans and receivables - customers only.
2 RWA (REA) for credit value adjustment (CVA) is included in credit risk. CVA per 30 June 2017 is EUR 0.7 billion (31 December 2016 EUR 0.8 billion).
| First half 2017 | First half 2016 | |
|---|---|---|
| Underlying cost of risk (in bps)1 | -3 | 4 |
| Impairment charges on loans and other receivables (in EUR million) | -33 | 56 |
1 Annualised impairment charges on loans and receivables - customers for the period divided by the average loans and receivables - customers on the basis of gross carrying amount and excluding fair value adjustment from hedge accounting.
13
Executive Board Report / Risk, funding & capital information
Total loans and receivables remained fairly stable at EUR 280.2 billion at 30 June 2017 (31 December 2016: EUR 280.0 billion). An increase in residential mortgages was due to the mortgage production exceeding the total redemptions. The corporate loan portfolio increased due to client lending related to Corporate & Institutional Banking (C&IB) partly offset by a weakening of the US dollar in the second quarter and, to a lesser extent, lower commodity prices, specificially oil prices. These increases were offset by a decrease in loans to banks.
Exposure at Default (EaD) decreased marginally to EUR 382.7 billion at 30 June 2017 (31 December 2016: EUR 383.1 billion). The EaD of Private Banking decreased due to the Private Banking divestment. This was partly offset by an increase in business volumes in Commercial Banking and Group Functions.
The continued upturn in the Dutch economy is reflected in the improvements of our credit quality indicators, despite challenging circumstances in the ECT Clients business.
Total RWA (REA) decreased marginally to EUR 104.0 billion at 30 June 2017 (31 December 2016: EUR 104.2 billion). RWA (REA) for credit risk decreased due to higher collateral values and improved client ratings within Retail Banking and to a lesser extent due to Corporate & Institutional Banking. Operational risk RWA (REA) increased to EUR 20.0 billion as a result of the implementation of the Advanced Measurement Approach (AMA) for the operational risk capital calculation. The most important driver for the increase are add-ons imposed by the regulator until certain conditions with regard to the operational risk framework are fulfilled. We expect that these add-ons (approximately EUR 2-3 billion) will be largely reversed in the second half of 2017 or in Q1 2018, and consequently the RWA (REA) for operational risk will then be lower again. RWA (REA) for market risk decreased by EUR 0.7 billion, partly due to decreases in positions (mainly bond futures).
The bank maintains a strong liquidity buffer and a stable funding base. The Liquidity Coverage Ratio and the Net Stable Funding Ratio both remained above 100% in the first half year of 2017. The Loan-to-Deposit (LtD) ratio decreased to 112% at 30 June 2017 (31 December 2016: 113%). Main driver was an increase in client deposits, which was partially offset by an increase in client loans.
The cost of risk dropped to -3bps in H1 2017, compared with 4bps in H1 2016. In H1 2017, impairment charges decreased by EUR 89 million and resulted in a release of EUR 33 million (H1 2016: EUR 56 million addition). Most of the portfolios benefitted from lower additions and higher releases. The releases were partly offset by lower IBNI releases (H1 2017: EUR 41 million vs. H1 2016: EUR 130 million).
The table below provides an overview of the figures reported in the Condensed Consolidated balance sheet (net) and the figures reported in the credit risk section (gross).
| 30 June 2017 | 31 December 2016 | |||||
|---|---|---|---|---|---|---|
| (in millions) | Gross carrying amount |
Loan impairment allowance |
Carrying amount |
Gross carrying amount |
Loan impairment allowance |
Carrying amount |
| Loans and receivables - banks | 8,874 | 6 | 8,868 | 13,488 | 3 | 13,485 |
| Residential mortgages | 153,475 | 175 | 153,300 | 152,328 | 258 | 152,069 |
| Less: Fair value adjustment from hedge accounting on residential mortgages |
2,428 | 2,428 | 3,073 | 3,073 | ||
| Residential mortgages, excluding fair value adjustments |
151,047 | 175 | 150,872 | 149,255 | 258 | 148,997 |
| Consumer loans | 12,312 | 381 | 11,932 | 12,539 | 433 | 12,106 |
| Corporate loans | 94,628 | 2,486 | 92,142 | 92,641 | 2,895 | 89,746 |
| Less: Fair value adjustment from hedge accounting on corporate loans |
1,437 | 1,437 | 1,722 | 1,722 | ||
| Corporate loans, excluding fair value adjustments | 93,191 | 2,486 | 90,705 | 90,920 | 2,895 | 88,025 |
| Other loans and receivables - customers1 | 14,768 | 82 | 14,686 | 13,838 | 81 | 13,757 |
| Less: Fair value adjustment from hedge accounting on other loans and receivables - customers |
10 | 10 | ||||
| Other loans and receivables - customers, excluding fair value adjustments1 |
14,758 | 82 | 14,676 | 13,838 | 81 | 13,757 |
| Total loans and receivables - customers, excluding fair value adjustments |
271,309 | 3,124 | 268,185 | 266,551 | 3,666 | 262,884 |
| Fair value adjustments on Loans and receivables - customers | 3,875 | 3,875 | 4,794 | 4,794 | ||
| Total loans and receivables - customers | 275,183 | 3,124 | 272,059 | 271,345 | 3,666 | 267,679 |
| Total loans and receivables, excluding fair value adjustments |
280,183 | 3,130 | 277,053 | 280,039 | 3,669 | 276,369 |
| Total fair value adjustments on Loans and receivables | 3,875 | 3,875 | 4,794 | 4,794 | ||
| Total loans and receivables | 284,057 | 3,130 | 280,927 | 284,833 | 3,669 | 281,164 |
| Other | 122,892 | 113,318 | ||||
| Total assets | 403,819 | 394,482 |
1 Other loans and receivables - customers consists of Government and official institutions, Financial lease receivables and Factoring.
Total past due exposure on loans and receivables customers declined to EUR 3.4 billion at 30 June 2017 (31 December 2016: EUR 3.6 billion). Combined with an increased loan portfolio, the past due ratio improved slightly to 1.3% in the first half of 2017 (31 December 2016: 1.4%). Long-term arrears declined in almost all sub-portfolios, reflecting the overall improvement of the loan portfolio.
At sub-portfolio level, past due exposure on residential mortgages increased marginally, influenced by the
alignment of reporting procedures for some of our smaller mortgage labels in the first quarter of this year. This was more than offset by decreases in consumer loans and corporate loans, in line with the continued upturn of the Dutch economy.
Impaired exposures for the loans and receivables customers portfolio declined to EUR 8.4 billion at 30 June 2017 (31 December 2016: EUR 8.9 billion) and allowances for impairments decreased to EUR 2.9 billion at 30 June 2017 (31 December 2016: EUR 3.4 billion). The coverage ratio declined to 34.8% at 30 June 2017
15
(31 December 2016: 38.4%). The impaired ratio improved to 3.1% at 30 June 2017 (31 December 2016: 3.3%). The decline in impaired exposures and in the allowance for impairments was driven by corporate loans.
Impaired corporate loans decreased as a result of write-offs and clients returning to the performing portfolio within Commercial Banking. In addition, corporate loans were impacted by the sale of matured real estate loans by the FR&R department at the end of June 2017. The decrease within Commercial Banking was offset by a rise in the impaired portfolio within ECT Clients, which was accountable mainly to the transportation portfolio.
Other loans and receivables were impacted by several new impaired files with relatively low coverage ratios.
In H1 2017, impairment charges decreased by EUR 89 million and resulted in a release of EUR 33 million (H1 2016: EUR 56 million addition). Most of the portfolios
benefitted from lower additions and higher releases. The releases were partly offset by lower IBNI releases (H1 2017: EUR 41 million vs. H1 2016: EUR 130 million).
Residential mortgages and consumer loans benefitted from the positive improvement of the Dutch economy, which resulted in releases in both portfolios. For residential mortgages, this was the result of the decreasing default portfolio as well as increasing housing prices. In addition, residential mortgages profited from a model refinement. Corporate loans were impacted by a lower IBNI release in H1 2017 (H1 2017: EUR 6 million vs. H1 2016: EUR 108 million).
Within the corporate loans portfolio, Commercial Banking also benefitted from positive developments in the Dutch economy, in combination with a model refinement, this resulted in several releases. On the other hand, ECT Clients within Corporate & Institutional Banking is still facing challenging market circumstances, resulting in higher impairment charges for C&IB.
| Days past due 30 June 2017 |
31 December 2016 | ||||||
|---|---|---|---|---|---|---|---|
| (in millions) | Gross carrying amount |
<= 30 days |
> 30 days & <= 90 days |
> 90 days | Total past due but not impaired |
Past due ratio |
Past due ratio |
| Loans and receivables - banks | 8,874 | ||||||
| Loans and receivables - customers | |||||||
| Residential mortgages1 | 151,047 | 2,002 | 166 | 6 | 2,174 | 1.4% | 1.4% |
| Consumer loans | 12,312 | 252 | 81 | 52 | 384 | 3.1% | 3.9% |
| Corporate loans1 | 93,191 | 366 | 58 | 74 | 498 | 0.5% | 0.7% |
| Other loans and receivables - customers2 | 14,758 | 336 | 34 | 11 | 382 | 2.6% | 2.8% |
| Total Loans and receivables - customers | 271,309 | 2,956 | 339 | 143 | 3,438 | 1.3% | 1.4% |
| Total Loans and receivables | 280,183 | 2,956 | 339 | 143 | 3,438 | 1.2% | 1.3% |
1 Gross carrying amount excludes fair value adjustments from hedge accounting.
2 Other loans and receivables - customers consists of Government and official institutions, Financial lease receivables and Factoring.
| 30 June 2017 | 31 December 2016 | ||||||
|---|---|---|---|---|---|---|---|
| (in millions) | Gross carrying amount |
Impaired exposures |
Allowances for Impairments for identified credit risk3 |
Coverage ratio |
Impaired ratio |
Coverage ratio |
Impaired ratio |
| Loans and receivables - banks | 8,874 | 0.0% | 0.0% | ||||
| Loans and receivables - customers | |||||||
| Residential mortgages1 | 151,047 | 1,106 | -152 | 13.7% | 0.7% | 16.7% | 0.8% |
| Consumer loans | 12,312 | 659 | -347 | 52.6% | 5.3% | 52.4% | 5.9% |
| Corporate loans1 | 93,191 | 6,321 | -2,359 | 37.3% | 6.8% | 41.2% | 7.4% |
| Other loans and receivables - customers2 | 14,758 | 331 | -71 | 21.3% | 2.2% | 30.7% | 1.6% |
| Total Loans and receivables - customers |
271,309 | 8,417 | -2,928 | 34.8% | 3.1% | 38.4% | 3.3% |
| Total Loans and receivables | 280,183 | 8,417 | -2,928 | 34.8% | 3.0% | 38.4% | 3.2% |
1 Gross carrying amount excludes fair value adjustments from hedge accounting.
2 Other loans and receivables - customers consists of Government and official institutions, Financial lease receivables and Factoring.
3 Amounts excluding Incurred But Not Identified (IBNI).
| First half 2017 | |||||||
|---|---|---|---|---|---|---|---|
| (in millions) | Securities financing |
Banks | Residential mortgages |
Consumer loans |
Corporate loans1 |
Other loans |
Total |
| Balance at begin of period | 3 | 258 | 433 | 2,973 | 2 | 3,670 | |
| Impairment charges for the period | 3 | 17 | 36 | 290 | 346 | ||
| Reversal of impairment allowances no longer required |
-46 | -33 | -257 | -336 | |||
| Recoveries of amounts previously written-off |
-14 | -20 | -9 | -43 | |||
| Total impairment charges on loans and other receivables |
3 | -43 | -17 | 24 | -33 | ||
| Other adjustments | -40 | -35 | -431 | -507 | |||
| Balance at end of period | 6 | 175 | 381 | 2,566 | 3 | 3,130 |
1 Corporate loans includes Financial lease receivables and Factoring.
| First half 2016 | |||||||
|---|---|---|---|---|---|---|---|
| (in millions) | Securities financing |
Banks | Residential mortgages |
Consumer loans |
Corporate loans1 |
Other loans |
Total |
| Balance at begin of period | 11 | 2 | 324 | 561 | 3,470 | 1 | 4,368 |
| Impairment charges for the period | 45 | 88 | 353 | 486 | |||
| Reversal of impairment allowances no longer required |
-2 | -54 | -331 | -388 | |||
| Recoveries of amounts previously written-off |
-12 | -20 | -10 | -43 | |||
| Total impairment charges on loans and other receivables |
-2 | 33 | 14 | 12 | 56 | ||
| Other adjustments | -8 | -71 | -67 | -306 | -1 | -452 | |
| Balance at end of period | 2 | 286 | 508 | 3,176 | 3,972 |
1 Corporate loans includes Financial lease receivables and Factoring.
17
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| On-balance sheet Off-balance sheet |
-33 | 56 |
| Total impairment charges on loans and other receivables | -33 | 56 |
ABN AMRO is exposed to market risk in its trading book and banking book. ABN AMRO has limited exposure in the trading book.
ABN AMRO uses a combination of portfolio (macro) hedges and specific asset or liability (micro) hedges to swap fixed interest rates for floating interest rate positions. The resulting interest rate positions, after application of interest rate hedges, are in line with the bank's strategy and risk appetite.
Duration of equity decreased from 4.1 to 3.9 years. Although duration increased due to business developments, the effect was muted due to active hedging of the portfolio. Duration reflects value changes due to small parallel shifts of the yield curve. Computation of the duration is based on deriving the change in economic value of a portfolio due to an interest rate increase compared with a base scenario.
The Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) both remained above 100% in H1 2017. This is in line with the bank's targeted early compliance with future regulatory requirements.
The survival period reflects the period that the bank's liquidity position is expected to remain positive in an internally developed (moderate) stress scenario that assumes wholesale funding markets will deteriorate and retail and commercial clients will withdraw part of their deposits. The survival period was consistently >12 months in H1 2017.
The Loan-to-Deposit (LtD) ratio1 decreased from 113% in 31 December 2016 to 112% in 30 June 2017. Main driver behind the lower LtD ratio at 30 June 2017 compared to 31 December 2016, was a EUR 6.8 billion increase in client deposits, partially offset by a EUR 5.1 billion increase in client loans.
The liquidity buffer consists largely of cash and deposits at central banks, government bonds and retained residential mortgage based securities (RMBS). Most of the securities in the liquidity buffer, with the exception of retained RMBS, qualify for the LCR. Furthermore, both the liquidity buffer and the LCR buffer face haircuts based on their market value. These haircuts are used to determine the liquidity value. Haircuts may differ between these two buffers, as the internal assessment of the liquidity buffer deviates from LCR Delegated Act. This explains the differences between the liquidity values. Government bonds, for example, will be subject to a higher internal haircut than the haircut based on LCR Delegated Act. As a result, the value of government bonds for the liquidity buffer is lower than the value that qualifies for the LCR.
The liquidity buffer decreased to EUR 73.4 billion in 30 June 2017 (31 December 2016: EUR 78.9 billion). The main driver for the decrease is lower retained residential mortgage-backed securities (RMBS). Retained RMBS were pledged as collateral for TLTRO II participation of EUR 4.0 billon in March 2017. The movements in the cash & central banks deposits are driven by wholesale funding and developments in the LtD ratio. The higher cash inflows due to TLTRO and client deposits in the first half of 2017 are partially offset by lowering the amount of commercial paper and certificates of deposit.
1 The ratio includes all client-driven loans and deposits, but excludes loans to and deposits from governments.
ABN AMRO's funding strategy aims to optimise and diversify the bank's funding sources. This strategy leads to a diverse, stable and cost-efficient funding base.
Client deposits constitute ABN AMRO's main source of funding. This is complemented by a well-diversified portfolio of wholesale funding. Client deposits increased to EUR 234.8 billion at 30 June 2017 (31 December 2016: EUR 228.0 billion). Total wholesale funding (defined as issued debt plus subordinated liabilities) decreased to EUR 87.4 billion at 30 June 2017 (31 December 2016: EUR 92.5 billion). The decrease since 31 December 2016 was mainly due to a decrease in commercial paper and certificates of deposit, within our targeted bandwidth for short-term funding, allowing us to steer our liquidity ratios efficiently. Other long-term funding increased by EUR 3.0 billion, which is due to EUR 4.0 billion participation in TLTRO II and the maturing of a EUR 1.0 billion long term repurchasing transaction. ABN AMRO's total TLTRO II participation is EUR 8.0 billion.
Long-term funding raised in H1 2017 amounted to EUR 12.1 billion. Long-term funding raised included EUR 3.1 billion of covered bonds, EUR 1.4 billion of Tier 2 capital instruments, EUR 3.6 billion of senior unsecured funding, and EUR 4.0 billion TLTRO II. Unsecured funding issued in H1 2017 is mainly USD denominated. The main drivers were funds needed in relation to the PB Asia divestment and to support Corporate & Institutional Banking growth plans.
A key goal of the funding strategy is to diversify funding sources. Our funding programs allow us to issue various instruments in different currencies and markets, enabling us to diversify our investor base. A description of capital and funding instruments issued by ABN AMRO is provided on our website, abnamro.com/ir. We continuously assess our wholesale funding base in order to optimise the use of funding sources.
The average remaining maturity of the total outstanding long-term wholesale funding remained stable at 4.7 years at 30 June 2017 (31 December 2016: 4.7 years).
ABN AMRO's solid capital position ensures the bank to be compliant with the fully-loaded capital requirements of the Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR). The bank strives to optimise its capital structure in anticipation of pending regulatory requirements. The capital structure consists mainly of common equity and loss-absorbing instruments to cover unexpected losses. The subordination of the loss absorbing instruments provides further protection to senior creditors.
The overall capital base increased slightly during H1 2017, mainly due to accumulated profit. The total RWA (REA) decreased to EUR 104.0 billion at 30 June 2017 (31 December 2016: EUR 104.2 billion). At 30 June 2017, the fully loaded Common Equity Tier 1 (CET1), Tier 1 and Total Capital ratios were 17.6%, 18.6% and 24.8%, respectively. In anticipation of Basel IV, all capital ratios were well above regulatory minimum requirements and in line with the bank's risk appetite and strategic ambitions.
In 2017, ABN AMRO will be required to meet a minimum CET1 ratio of 9.0% on a consolidated basis, excluding a counter-cyclical buffer, but including a 1.25% capital conservation buffer and a 1.5% systemic risk buffer (SRB). ABN AMRO Bank is comfortably above the 9.0% minimum, with a phase-in CET1 ratio amounting to 17.7% at 30 June 2017.
The Maximum Distributable Amount (MDA) trigger level for ABN AMRO Bank N.V. is 9.0% CET1 capital, to be increased by any Additional Tier 1 (AT1) or Tier 2 capital shortfall. At 30 June 2017, the AT1 shortfall was 0.6%, implying an MDA trigger level of 9.6%. Based on full phase-in of the SRB (from 1.5% in 2017 to 3.0% in 2019) and the capital conservation buffer (from 1.25% in 2017 to 2.5% in 2019), the fully-loaded MDA trigger level is expected to increase to 11.75% in 2019, assuming there is no AT1 or Tier 2 capital shortfall.
The CRR introduced a non-risk based leverage ratio which will be monitored until 2017 and further refined and calibrated before becoming a binding measure with effect from 2018. ABN AMRO Bank aims for a leverage ratio of at least 4% by year-end 2018, to be achieved through profit retention, issuance of AT1 instruments and management of the exposure measure.
At 30 June 2017, the fully-loaded leverage ratio was 3.9% (31 December 2017: 3.9%).
On 6 April 2016, the Basel Committee issued a consultative document on the revision of the Basel III leverage ratio framework. The areas subject to proposed revision include a change in calculation of the derivative exposure and the credit conversion factors for off-balance sheet items. The revised calculation method of derivative exposure is also mentioned in a draft CRR regulation published in November 2016, which could result in a decrease of the exposure measure for clearing guarantees. This decrease would amount to approximately EUR 45-55 billion, or a 40-50bps increase in the fully-loaded leverage ratio. The proposed adjustment of credit conversion factors for off-balance sheet exposures by the Basel Committee, for example unconditionally cancellable commitments, would partly offset this potential increase.
ABN AMRO monitors pending regulatory requirements in relation to MREL and aims for its MREL eligible liabilities to represent at least 8% of total assets by year-end 2018 (through profit retention, subordinated debt and potentially non-preferred senior debt). The final MREL terms, as well as bank-specific MREL requirements, determine what precise measures need to be undertaken to comply with these requirements. At 30 June 2017, the MREL eligible liabilities (solely based on own funds and other subordinated liabilities) represented 7.6% of total assets.
Proposals have been published to amend current legislation. Amongst others, these proposals aim to implement TLAC standards for GSIBs (Global Systemically Important Banks) in the EU. The proposals apply a harmonised minimum TLAC level to EU GSIBs while introducing a firm-specific MREL regime for GSIBs
and DSIBs (Domestic Systemically Important Banks). Furthermore, the proposals introduce consequences of breaching MREL requirements relating to the CBR (Combined Buffer Requirement) and MDA (Maximum Distributable Amount) breach. A revision proposes the facilitation of the issuance of a new liability class of "non-preferred senior" by requiring member states to introduce such layer in their local insolvency laws. Further amendments include changes to the calculation of MREL and MREL eligibility criteria, which could affect the level of future MREL requirements as well as the level of reported MREL capacity.
CRD IV and CRR constitute the framework for implementation of Basel III in the European Union. CRD IV and CRR have been phased in since 1 January 2014 and will be fully effective by January 2019. In November 2016, the European Commission issued draft proposals to amend CRD IV and CRR.
Under what is commonly referred to as Basel IV, the Basel Committee on Banking Supervision proposes to revise the use of the Standardised Approach, the advanced/IRB approach and the design of a capital floor framework based on this revised Standardised Approach. The aim of the revised capital floor framework is to enhance the reliability and comparability of risk-weighted capital ratios. Revision of the Standardised Approach for mortgage loans, corporate loans and specialised lending in combination with revision of the capital floors could lead to a significant increase in risk-weighted assets for ABN AMRO.
Regulatory developments, such as the Basel proposal (especially with respect to risk-weighting of mortgages, corporate loans and specialised lending) and increasingly strict capital requirements set by the regulators, could have a significant impact on the bank's capital position going forward. ABN AMRO will continue to further strengthen its capital position and focus on capital efficiency. We still expect an agreement on Basel IV; however, if no agreement is reached this year, we will present an updated view on our capital position in the first quarter of 2018.
Pursuant to section 5:25d, paragraph 2(c), of the Dutch Financial Supervision Act (Wet op het financieel toezicht (Wft)), the members of the Executive Board state that to the best of their knowledge:
Amsterdam, 8 August 2017
Kees van Dijkhuizen, Chief Executive Officer Johan van Hall, Vice-Chairman Wietze Reehoorn, Chief Risk Officer
21
| Condensed consolidated income statement |
23 |
|---|---|
| Condensed consolidated statement of comprehensive income |
24 |
| Condensed consolidated statement of financial position |
25 |
| Condensed consolidated statement of changes in equity |
26 |
| Condensed consolidated statement of cash flows |
28 |
| 1 | Accounting policies | 30 |
|---|---|---|
| 2 | Segment reporting | 35 |
| 3 | Overview of financial assets and liabilities | |
| by measurement base | 42 | |
| 4 | Operating income | 43 |
| 5 | Operating expenses | 43 |
| 6 | Income tax expense | 44 |
| 7 | Financial assets and liabilities held for trading | 45 |
| 8 | Derivatives | 45 |
| 9 | Financial investments | 47 |
| 10 | Securities financing | 48 |
| 11 | Fair value of financial investments | 49 |
| 12 | Loans and receivables - banks | 55 |
| 13 | Loans and receivables - customers | 56 |
| 14 | Aquisitions and divestments | 57 |
| 15 | Due to banks | 57 |
| 16 | Due to customers | 57 |
| 17 | Issued debt and subordinated liabilities | 58 |
| 18 | Provisions | 59 |
| 19 | Commitments of contingent liabilities | 61 |
| 20 | Related parties | 62 |
| 21 | Post balance sheet events | 64 |
Condensed consolidated Interim Financial Statements 2017
| (in millions) Note |
First half 2017 | First half 2016 |
|---|---|---|
| Income | ||
| Interest income | 6,316 | 6,371 |
| Interest expense | 3,121 | 3,253 |
| Net interest income | 3,195 | 3,118 |
| Fee and commission income | 1,554 | 1,540 |
| Fee and commission expense | 701 | 674 |
| Net fee and commission income | 852 | 866 |
| Net trading income | 154 | -343 |
| Share of result in equity accounted investments | 13 | 26 |
| Other operating income | 523 | 145 |
| Operating income 4 |
4,738 | 3,811 |
| Expenses | ||
| Personnel expenses | 1,288 | 1,234 |
| General and administrative expenses | 1,335 | 1,258 |
| Depreciation and amortisation of tangible and intangible assets | 97 | 86 |
| Operating expenses 5 |
2,720 | 2,579 |
| Impairment charges on loans and other receivables | -33 | 56 |
| Total expenses | 2,687 | 2,635 |
| Operating profit/(loss) before taxation | 2,051 | 1,176 |
| Income tax expense 6 |
475 | 310 |
| Profit/(loss) for the period | 1,576 | 866 |
| Attributable to: | ||
| Owners of the company | 1,561 | 865 |
| Non-controlling interests | 15 | 1 |
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| Profit/(loss) for the period | 1,576 | 866 |
| Other comprehensive income: | ||
| Items that will not be reclassified to the income statement | ||
| Remeasurement gains / (losses) on defined benefit plans | -11 | |
| Items that will not be reclassified to the income statement before taxation | -11 | |
| Income tax relating to items that will not be reclassified to the income statement | -3 | |
| Items that will not be reclassified to the income statement after taxation | -8 | |
| Items that may be reclassified to the income statement | ||
| Unrealised gains/(losses) currency translation | -124 | -25 |
| Unrealised gains/(losses) available-for-sale | -45 | 110 |
| Unrealised gains/(losses) cash flow hedge | -78 | -122 |
| Share of other comprehensive income of associates | 1 | -7 |
| Other changes | ||
| Other comprehensive income for the period before taxation | -246 | -44 |
| Income tax relating to items that may be reclassified to the income statement | -32 | -4 |
| Other comprehensive income for the period after taxation | -214 | -40 |
| Total comprehensive income/(expense) for the period after taxation | 1,362 | 818 |
| Attributable to: | ||
| Owners of the company | 1,346 | 817 |
| Non-controlling interests | 15 | 1 |
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Assets | ||
| Cash and balances at central banks | 26,648 | 21,861 |
| Financial assets held for trading | 4,658 | 1,607 |
| Derivatives | 11,803 | 14,384 |
| Financial investments | 42,292 | 45,497 |
| Securities financing | 28,958 | 17,589 |
| Loans and receivables - banks | 8,868 | 13,485 |
| Residential mortgages | 153,300 | 152,069 |
| Consumer loans | 11,932 | 12,106 |
| Corporate loans | 99,126 | 96,058 |
| Other loans and receivables - customers | 7,702 | 7,445 |
| Equity accounted investments | 669 | 765 |
| Property and equipment | 1,477 | 1,418 |
| Goodwill and other intangible assets | 234 | 251 |
| Assets held for sale | 33 | 3,481 |
| Tax assets | 684 | 415 |
| Other | 5,435 | 6,050 |
| Total assets | 403,819 | 394,482 |
| Liabilities | ||
| Financial liabilities held for trading | 2,315 | 791 |
| Derivatives | 10,808 | 14,526 |
| Securities financing | 21,786 | 11,625 |
| Due to banks | 18,056 | 13,419 |
| Demand deposits | 122,677 | 119,848 |
| Saving deposits | 97,922 | 92,740 |
| Time deposits | 14,984 | 16,169 |
| Issued debt | 75,461 | 81,278 |
| Subordinated liabilities | 11,975 | 11,171 |
| Other liabilities | 7,973 | 13,976 |
| Total liabilities | 383,959 | 375,545 |
| Equity | ||
| Share capital | 800 | 800 |
| Share premium | 4,041 | 4,041 |
| Other reserves (incl retained earnings/profit for the period) | 14,232 | 13,106 |
| Accumulated other comprehensive income | -223 | -9 |
| AT1 capital securities | 993 | 993 |
| Equity attributable to the owners of the parent company | 19,843 | 18,932 |
| Equity attributable to non-controlling interests | 17 | 5 |
| Total equity | 19,860 | 18,937 |
| Total liabilities and equity | 403,819 | 394,482 |
| (in millions) | Share capital |
Share premium |
Other reserves including retained earnings |
Accumulated other comprehensive income |
Net profit/(loss) attributable to shareholders |
AT1 capital securities |
Total | Non-con trolling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|---|
| Balance at 1 January 2016 | 800 | 4,041 | 10,219 | -394 | 1,908 | 993 | 17,568 | 17 | 17,584 |
| Total comprehensive income | -48 | 843 | 22 | 817 | 1 | 818 | |||
| Transfer | 1,908 | -1,908 | |||||||
| Dividend | -414 | -414 | -12 | -426 | |||||
| Paid interest on AT1 capital securities | -22 | -22 | -22 | ||||||
| Other changes in equity | 5 | 5 | 5 | ||||||
| Balance at 30 June 2016 | 800 | 4,041 | 11,719 | -442 | 843 | 993 | 17,954 | 5 | 17,960 |
| Balance at 1 January 2017 | 800 | 4,041 | 11,343 | -9 | 1,763 | 993 18,932 | 5 18,937 | ||
| Total comprehensive income | -214 | 1,539 | 22 | 1,346 | 15 | 1,362 | |||
| Transfer | 1,763 | -1,763 | |||||||
| Dividend | -414 | -414 | -3 | -417 | |||||
| Paid interest on AT1 capital securities | -22 | -22 | -22 | ||||||
| Other changes in equity | |||||||||
| Balance at 30 June 2017 | 800 | 4,041 | 12,693 | -223 | 1,539 | 993 19,843 | 17 | 19,860 |
26
Specification of other comprehensive income is as follows:
| (in millions) | Remeasurement gains/(losses) on post-retirement benefit plans |
Currency translation reserve |
Available-for sale reserve |
Cash flow hedge reserve |
Share of OCI of associates and joint ventures |
Total |
|---|---|---|---|---|---|---|
| Balance at 1 January 2016 | -41 | 137 | 473 | -1,056 | 93 | -394 |
| Net gains/(losses) arising during the period | -11 | -25 | 229 | -106 | -7 | 80 |
| Less: Net realised gains/(losses) included in income statement |
119 | 16 | 134 | |||
| Net gains/(losses) in equity | -11 | -25 | 110 | -122 | -7 | -55 |
| Related income tax | -3 | 27 | -30 | -7 | ||
| Balance at 30 June 2016 | -49 | 112 | 556 | -1,148 | 86 | -442 |
| Balance at 1 January 2017 | -13 | 166 | 557 | -843 | 124 | -9 |
| Net gains/(losses) arising during the period | -124 | -38 | -183 | 1 | -344 | |
| Less: Net realised gains/(losses) included in income statement |
8 | -105 | -98 | |||
| Net gains/(losses) in equity | -124 | -45 | -78 | 1 | -246 | |
| Related income tax | 1 | -13 | -19 | -32 | ||
| Balance at 30 June 2017 | -13 | 41 | 525 | -901 | 124 | -223 |
Total comprehensive income amounted to EUR 1,362 million (2016 first half year: EUR 818 million).
The total amount contains EUR 1,539 million realised profit (2016 first half year: EUR 843 million), EUR 214 unrealised losses as other comprehensive income (2016 first half year: 48 million unrealised losses), EUR 22 million attributable to holders of AT1 capital securities (2016 first half year: EUR 22 million) and EUR 15 million on non-controlling interests (2016 first half year: EUR 1 million).
Transfer includes the allocation of the profit/loss of the prior period to the other reserves.
A final dividend of EUR 414 million was paid out to ordinary shareholders in the first half year of 2017 bringing the total dividend over 2016 to EUR 790 million (2016 first half year : EUR 414 million).
Share of other comprehensive income of associates and joint ventures is related to the movement in other comprehensive income of the associates and joint ventures of ABN AMRO.
Condensed consolidated Interim Financial Statements 2017
The following table shows the determination of cash and cash equivalents.
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| Profit/(loss) for the period | 1,576 | 866 |
| Adjustments on non-cash items included in profit: | ||
| (Un)realised gains/(losses) | -367 | 120 |
| Share of profits in associates and joint ventures | -11 | -28 |
| Depreciation, amortisation and accretion | 206 | 186 |
| Provisions and impairment losses | 116 | 494 |
| Income tax expense | 475 | 310 |
| Operating activities: | ||
| Assets held for trading | -3,051 | -2,754 |
| Derivatives - assets | 2,514 | -4,208 |
| Securities financing - assets | -12,403 | -14,564 |
| Loans and receivables - banks | 3,525 | -1,949 |
| Residential mortgages | -1,190 | -1,544 |
| Consumer loans | -1,266 | 334 |
| Corporate loans | -5,954 | 4,847 |
| Other loans and receivables - customers | -530 | -2,357 |
| Other assets | 587 | -421 |
| Liabilities held for trading | 1,525 | 1,531 |
| Derivatives - liabilities | -3,711 | 4,606 |
| Securities financing - liabilities | 10,915 | 11,845 |
| Due to banks | 4,687 | -2,391 |
| Demand deposits | 5,678 | -6,047 |
| Saving deposits | 5,529 | 2,555 |
| Time deposits | 703 | 934 |
| Other due to customers | -3 | |
| Liabilities arising from insurance and investment contracts | -133 | -214 |
| Net changes in all other operational assets and liabilities | -3,155 | -776 |
| Dividend received from associates | 63 | 63 |
| Income tax paid | -814 | -1,260 |
| Cash flow from operating activities | 5,513 | -9,826 |
continued >
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| Investing activities: | ||
| Purchases of financial investments | -7,861 | -12,907 |
| Proceeds from sales and redemptions of financial investments | 9,975 | 8,576 |
| Acquisition of subsidiaries (net of cash acquired), associates and joint ventures | -17 | |
| Divestments of subsidiaries (net of cash sold), associates and joint ventures | 84 | 31 |
| Proceeds from sale of private banking activities in Asia and the Middle East | -1,188 | |
| Purchases of property and equipment | -221 | -168 |
| Sales of plant and equipment under operational lease | ||
| Proceeds from sales of property and equipment | 25 | 40 |
| Purchases of intangible assets | -8 | -13 |
| Cash flow from investing activities | 806 | -4,459 |
| Financing activities: | ||
| Proceeds from the issuance of debt | 16,368 | 14,451 |
| Repayment of issued debt | -19,706 | -14,863 |
| Proceeds from subordinated liabilities issued | 1,402 | 2,618 |
| Repayment of subordinated liabilities issued | -83 | -1,342 |
| Dividends paid to the owners of the parent company | -414 | -414 |
| Interests paid AT1 capital securities | 22 | 22 |
| Dividends paid to other non-controlling interests | -3 | -12 |
| Cash flow from financing activities | -2,415 | 460 |
| Net increase/(decrease) of cash and cash equivalents | 3,904 | -13,825 |
| Cash and cash equivalents as at 1 January | 24,954 | 30,551 |
| Effect of exchange rate differences on cash and cash equivalents | -71 | -35 |
| Cash and cash equivalents as at 30 June | 28,788 | 16,692 |
| Supplementary disclosure of operating cash flow information | ||
| Interest paid | 3,754 | 4,060 |
| Interest received | 6,514 | 6,589 |
| Dividend received excluding associates | 27 | 5 |
| (in millions) | 30 June 2017 | 30 June 2016 |
|---|---|---|
| Cash and balances at central banks | 26,648 | 12,773 |
| Loans and receivables banks (less than 3 months)1 | 2,140 | 3,918 |
| Total cash and cash equivalents | 28,788 | 16,692 |
1 Loans and receivables banks with an original maturity less than 3 months is included in Loans and receivables banks. See note 12.
Condensed consolidated Interim Financial Statements 2017
The notes to the Condensed Consolidated Interim Financial Statements, including the 'IFS'-labelled sections in the Risk, funding & capital information section, are an integral part of these Condensed Consolidated Interim Financial Statements.
ABN AMRO Bank N.V. (referred to as ABN AMRO Bank) provides financial services in the Netherlands and abroad, together with its consolidated group of entities. ABN AMRO Bank is a public limited liability company, incorporated under Dutch law on 9 April 2009, and registered at Gustav Mahlerlaan 10, 1082 PP Amsterdam, the Netherlands (Chamber of Commerce number 34334259).
All ordinary shares in ABN AMRO Bank N.V., representing 100% of the voting rights, have been held by ABN AMRO Group N.V. since 9 April 2009. As at 30 June 2017, all shares in the capital of ABN AMRO Group are held by two foundations: NLFI and STAK AAG. On that date, NLFI held 63% and STAK AAG held 37% of the shares in the issued capital of ABN AMRO Group. Both foundations have issued depositary receipts for shares in ABN AMRO Group. Only STAK AAG's depositary receipts are issued with the cooperation of ABN AMRO Group and traded on Euronext Amsterdam.
ABN AMRO Bank provides a broad range of financial services to retail, private and corporate banking clients. These activities are conducted primarily in the Netherlands and selectively abroad.
The Condensed Consolidated Interim Financial Statements of ABN AMRO Bank for the six months ending on 30 June 2017 incorporate financial information of ABN AMRO Bank N.V., its controlled entities, interests in associates and joint ventures. The Condensed Consolidated Interim Financial Statements were prepared by the Executive Board and authorised for issue by the Supervisory Board and Executive Board on 8 August 2017.
The Condensed Consolidated Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting (endorsed by the European Union (EU)).
The Condensed Consolidated Interim Financial Statements do not include all the information and disclosures required in the Annual Financial Statements and should be read in conjunction with ABN AMRO Bank's 2016 Consolidated Annual Financial Statements, which were prepared in accordance with the International Financial Reporting Standards (IFRS) as endorsed by the EU.
The accounting policies used in these Condensed Consolidated Interim Financial Statements are consistent with those set out in the notes to the 2016 Consolidated Annual Financial Statements of ABN AMRO Bank, except for the changes in accounting policies described in this chapter.
The Condensed Consolidated Interim Financial Statements are presented in euros, which is the reporting currency of ABN AMRO Bank, rounded to the nearest million (unless otherwise stated).
During the first half of 2017 no new EU endorsed standards or amendments became effective. In addition, ABN AMRO Bank did not have any other reasons to change its accounting policies.
The following amendments to IFRSs are issued by the IASB and endorsed by the EU, but are not yet effective. The amendments are required to be applied as from 1 January 2018. Note that only the amendments to IFRSs that are relevant for ABN AMRO Bank are discussed.
IFRS 9 Financial Instruments was endorsed by the EU in November 2016. This endorsement means that IFRS 9 will apply to ABN AMRO Bank from 1 January 2018 onwards. IFRS 9 will replace the current standard for recognition and measurement of financial instruments (IAS 39). IFRS 9 will have an impact in two areas: classification and measurement of financial instruments and impairment. ABN AMRO has chosen not to apply the IFRS 9 guidance on hedge accounting as this does not cover the majority of the bank's hedging programmes (the so-called macro-hedge). ABN AMRO Bank will apply the principles of IFRS 9 retrospectively from 1 January 2018 onwards. In line with the transitional provisions of the standard, ABN AMRO will not provide comparative figures.
IFRS 9 replaces the 'incurred loss' model with the 'expected credit loss model' which is designed to be more forward-looking. The standard requires a three stage approach to measure expected credit losses:
ABN AMRO Bank has based the implementation of IFRS 9 on its existing credit risk management processes and procedures as described in the Credit risk management chapter of the 2016 Annual Report. ABN AMRO has therefore chosen to apply the same default definition for IFRS 9 purposes as it currently uses for credit risk management purposes. A default is considered to have occurred when:
Furthermore, the bank made decisions in determining when credit risk of financial assets has increased significantly. The key quantitative metric to establish whether a financial asset has significantly increased credit risk is the deterioration of the lifetime probability of default. The lifetime probability of default is the likelihood that a counterparty will default during the lifetime of the financial instrument. The lifetime probability of default depends on credit risk drivers like type of product, characteristics of the financial instruments, the borrower, the geographical region as well as future developments of the economy.
ABN AMRO Bank has also chosen qualitative triggers based on the credit risk life cycle to identify financial assets with significant increased credit risk. A financial instrument that is forborne or is assigned a watch status is deemed to have significant increased credit risk. Furthermore, in general, the bank will apply the backstop of 30 days past due as an automatic trigger of significantly increased credit risk. ABN AMRO Bank starts counting days past due from the first day that a counterparty is past due on any financial obligation, regardless of the amount. ABN AMRO Bank recognises favourable changes in credit risk consistently with unfavourable changes in credit risk except when a financial instrument is forborne. In such case, a credit improvement period of usually 1 year applies before a client can transfer back to fully performing.
ABN AMRO Bank is going to report a 12-months expected loss for financial instruments that do not have significantly increased credit risk, and a lifetime expected loss for financial instruments that have significantly increased credit risk from 1 January 2018 onwards. ABN AMRO Bank makes a distinction between two types of calculation methods for impairment losses:
With the introduction of IFRS 9, ABN AMRO ceases to report Incurred but not identified (IBNI) impairment losses.
ABN AMRO Bank uses specific IFRS 9 expected loss models to measure the credit risk of individual exposures and portfolios. These models quantify the Probability of Loss (PL), Loss Given Loss (LGL) and Exposure at Loss (EAL) for the financial instrument. In addition, the lifetime Probability of Default is calculated in order to determine if a counterparty experienced a significant increase in credit risk.
The models are based on statistical and expert information and use quantitative as well as qualitative risk drivers. Using input values for the risk drivers, the model calculates lifetime PDs, PLs, LGLs and EALs. EAL is established on a monthly basis using actual limits and outstanding exposure data. Lifetime PD and LGL are determined at least annually.
The Probability of Loss is the likelihood that a counterparty will reach the loss status. The loss status is the moment after all necessary procedures have been completed and the amount of the loss has been determined.
The Exposure at Loss model estimates the expected exposure of a counterparty at the time a loss is realised for that counterparty. In the event that all or part of a facility is undrawn (the outstanding exposure is less than the limit) at the time of the calculation, a percentage of this undrawn amount is added to the exposure to reflect the possibility that a larger part of the facility is utilised when the counterparty reaches the loss status.
The Loss Given Loss (LGL) model estimates the economic loss that results from a credit facility in the event that the counterparty reaches the loss status. It is expressed as the ratio of the loss on an exposure to the amount outstanding at this stage. The models use specific facility and counterparty characteristics and collateral pledged to the bank.
A lifetime PD percentage is attached to each financial instrument at origination of the instrument and at each reporting date. At each reporting date, the deterioration of the lifetime PD is calculated. If this deterioration is significant, the financial instrument is identified as showing a significant increase in credit risk.
Every year the various components of the IFRS 9 expected loss model are validated by an independent model validation department and submitted to the Methodology Acceptance Group (MAG) for approval. The IFRS 9 expected loss model is developed alongside the stress testing methodology and incorporates forward-looking information based on the concepts of this methodology. In general, three different scenarios of future economic developments will be incorporated in a probability weighted manner into the IFRS 9 expected loss calculation and risk stage determination. These scenarios are developed by ABN AMRO Bank's Group Economics on an annual basis and reviewed at each reporting date. The macro-economic values forecasted by Group Economics and used for the expected loss calculation are chosen by Credit Risk Modelling based on statistical relevance as the credit risk driver and expert judgement of the business. ABN AMRO Bank has aligned its forward-looking scenarios with those used in the budgeting process. Macro-economic values are specifically forecasted for two to three years and subsequently will grow to the long term average. The scenarios used for the calculation of the expected losses will be approved by the Scenario and Stress Testing Committee at each reporting date.
Since the expected loss model is also based on future economic conditions, the state of the economy and the related uncertainty at 1 January 2018 is relevant to the impact of impairment losses on the capital of ABN AMRO Bank. Estimating future economic conditions requires professional judgement,
and outcomes are dependent on economic conditions at the implementation date. After the implementation of IFRS 9 on 1 January 2018, any developments in the impairment losses will impact ABN AMRO Bank's profit or loss. Since the expected loss model is driven more by possible future economic developments, it is expected that the impairment losses will be more volatile than under the current accounting standard (IAS 39). This volatility will affect the reported earnings per share.
ABN AMRO Bank has finalised its analysis for classification and measurement. ABN AMRO Bank classifies its financial instruments based on the business model used to manage the instruments and the contractual cash flow characteristics of this financial instrument. Financial instruments will only be measured at amortised cost if two conditions are met. The business model has the objective to collect all contractual cashflows till maturity and the contractual cashflows solely represent payments of principal and interest (SPPI test). Reclassifications of financial instruments due to the implementation of IFRS 9 are limited and mainly result in a transfer of specific assets from amortised cost measurement to fair value through profit or loss measurement. Reclassifications are mainly related to a specific portfolio of corporate loans for which the return is based on the underlying value of commodity prices and which are hedged by means of commodity futures. These loans do not meet the SPPI criterion. Furthermore, specific equity securities are reclassified from measurement at fair value with movements reported in equity to measurement at fair value with movements reported in profit or loss.
This new standard establishes a comprehensive framework for determining when to recognise revenue and how much revenue to recognise. It is effective for annual periods beginning on or after 1 January 2018. Based on our initial analysis performed the standard will not have a significant impact.
The following new or revised standards and amendments have been issued by the IASB, but are not yet endorsed by the European Union and are therefore not open for early adoption. Note that only the amendments to IFRSs that are relevant for ABN AMRO Bank are discussed.
In June 2016 the IASB issued amendments to IFRS 2 Share-based Payments: Classification and Measurement of Share-based Payment Transactions, which will become effective on 1 January 2018. The issuance consists of three amendments that clarify how to account for certain types of share-based payment transactions. Based on our initial analysis performed the amendments will not have any impact.
The new standard on leases was issued by the IASB in January 2016 and will become effective on 1 January 2019. IFRS 16 replaces IAS 17 Leases and removes the distinction between 'Operational' and 'Financial' lease for lessees. The requirements for lessor accounting remain largely unchanged. ABN AMRO Bank is currently assessing the impact of the new standard.
Recognition of Deferred Tax Assets for Unrealised losses. The amendment clarifies how to account for deferred tax assets related to debt instruments measured at fair value. Based on our initial analysis performed the amendments will not have any impact.
Internal reporting to the Executive Board changed in the first half of 2017, as per the Board's request. As a consequence, the operating segment Corporate Banking has been split into Commericial Banking and Corporate & Institutional Banking. Comparative information is restated to reflect this change.
Retail Banking serves individual clients with investable assets up to EUR 500,000 and small businesses with turnover up to EUR 1 million. Retail Banking offers a wide variety of banking and insurance products through an omni-channel distribution network.
Private Banking provides total solutions to its clients' global wealth management needs and offers a rich array of products and services designed to address their individual requirements. Private Banking operates under the brand name ABN AMRO MeesPierson in the Netherlands and internationally under ABN AMRO Private Banking, as well as local brands such as Banque Neuflize OBC in France and Bethmann Bank in Germany.
Commercial Banking serves business clients with revenues from EUR 1 million up to EUR 250 million, and clients active in Commercial Real Estate (excluding publicly listed companies, which are served by the Corporate & Institutional Banking segment). ABN AMRO's Lease and Commercial Finance activities are also part of this segment.
Corporate & Intitutional Banking serves business clients with revenues exceeding EUR 250 million, as well as financial institutions, listed commercial real estate clients and clients in the sectors energy, commodities, transportation and diamond & jewellery. It also provides products and services related to financial markets. This segment includes Clearing as well.
Group Functions supports the business segments and consists of Innovation & Technology (I&T), Finance, Risk Management, Strategy & Sustainability, Transformation & HR, Audit and the Corporate Office. The majority of the Group Functions costs are allocated to the businesses.
| First half 2017 | ||||||
|---|---|---|---|---|---|---|
| (in millions) | Retail Banking |
Private Banking |
Commercial Banking |
Corporate & Institutional Banking |
Group Functions |
Total |
| Net interest income | 1,739 | 326 | 686 | 464 | -21 | 3,195 |
| Net fee and commission income | 207 | 292 | 94 | 283 | -24 | 852 |
| Net trading income | 2 | 19 | 1 | 134 | -1 | 154 |
| Share of result in equity accounted investments | 9 | 1 | 1 | 2 | 13 | |
| Other operating income | 1 | 253 | 25 | 65 | 178 | 523 |
| Operating income | 1,957 | 892 | 807 | 948 | 132 | 4,738 |
| Expenses | ||||||
| Personnel expenses | 230 | 266 | 149 | 213 | 431 | 1,288 |
| General and administrative expenses | 256 | 158 | 62 | 176 | 683 | 1,335 |
| Depreciation and amortisation of tangible | ||||||
| and intangible assets | 3 | 19 | 2 | 6 | 66 | 97 |
| Intersegment revenues/expenses | 561 | 132 | 220 | 202 | -1,114 | |
| Operating expenses | 1,050 | 575 | 433 | 597 | 65 | 2,720 |
| Impairment charges on loans and other receivables | -59 | -4 | -115 | 144 | -33 | |
| Total expenses | 991 | 571 | 319 | 741 | 65 | 2,687 |
| Operating profit/(loss) before taxation | 967 | 321 | 489 | 207 | 67 | 2,051 |
| Income tax expense | 242 | 34 | 121 | 41 | 37 | 475 |
| Profit/(loss) for the period | 725 | 288 | 367 | 166 | 30 | 1,576 |
| Attributable to: | ||||||
| Owners of the company | 725 | 288 | 367 | 151 | 30 | 1,561 |
| Non-controlling interests | 15 | 15 |
36
| First half 2016 | ||||||
|---|---|---|---|---|---|---|
| (in millions) | Retail Banking |
Private Banking |
Commercial Banking |
Corporate & Institutional Banking |
Group Functions |
Total |
| Income | ||||||
| Net interest income | 1,685 | 318 | 662 | 432 | 22 | 3,118 |
| Net fee and commission income | 225 | 287 | 101 | 280 | -27 | 866 |
| Net trading income | 2 | 21 | 1 | -330 | -37 | -343 |
| Share of result in equity accounted investments | 20 | 8 | -2 | -3 | 3 | 26 |
| Other operating income | 97 | 27 | 36 | -12 | -3 | 145 |
| Operating income | 2,029 | 660 | 798 | 366 | -41 | 3,811 |
| Expenses | ||||||
| Personnel expenses | 242 | 249 | 137 | 187 | 419 | 1,234 |
| General and administrative expenses | 229 | 130 | 53 | 114 | 733 | 1,258 |
| Depreciation and amortisation of tangible and intangible | ||||||
| assets | 3 | 11 | 2 | 7 | 63 | 86 |
| Intersegment revenues/expenses | 613 | 137 | 231 | 212 | -1,193 | |
| Operating expenses | 1,088 | 527 | 422 | 520 | 22 | 2,579 |
| Impairment charges on loans and other receivables | 48 | 12 | -123 | 124 | -6 | 56 |
| Total expenses | 1,135 | 539 | 299 | 645 | 16 | 2,635 |
| Operating profit/(loss) before taxation | 894 | 120 | 498 | -279 | -58 | 1,176 |
| Income tax expense | 220 | 24 | 124 | -70 | 12 | 310 |
| Profit/(loss) for the period | 674 | 96 | 374 | -209 | -70 | 866 |
| Attributable to: | ||||||
| Owners of the company | 674 | 96 | 374 | -210 | -70 | 865 |
| Non-controlling interests | 1 | 1 |
Net interest income increased by 3%, totalling EUR 1,739 million for H1 2017. This was mainly due to higher interest income on residential mortgages. Interest income on residential mortgages improved year-on-year, driven by higher volumes and the repricing of (pre-crisis) low-margin mortgages throughout 2016. The increase in the residential mortgage portfolio was mainly due to high production levels between Q4 2016 and Q2 2017. Mortgage production grew on the back of low interest rates, clients' concern regarding rising rates and favourable economic conditions.
Net fee and commission income declined by EUR 18 million compared with the first half of 2016, mainly due to lower fees being charged for payment packages to individual clients (since April 2016) and small businesses (since January 2017). In addition, fee income declined due to the transfer of client assets to Private Banking.
Other operating income came to EUR 1 million in H1 2017 (H1 2016: EUR 97 million). The decline was predominantly related to a EUR 101 million gain on the sale of Visa Europe to Visa Inc. in H1 2016.
Condensed consolidated Interim Financial Statements 2017
Personnel expenses decreased by EUR 12 million to EUR 230 million. The number of FTEs declined to 5,309 (30 June 2016: 5,601) following a further reduction in the number of branches and a transfer of employees (September 2016) and clients to Private Banking. This was to a limited extent offset by a transfer from Group Functions (per end of April 2017) in order to promote the agile way of working.
General and administrative expenses included regulatory levies of EUR 75 million in H1 2017 (H1 2016: EUR 54 million).
Impairment charges decreased, resulting in a EUR 59 million release in H1 2017 (H2 2016: EUR 48 million charge). The loan impairment releases were due to the continued improvement of the Dutch economy, a model refinement on mortgages and rising house prices.
Net interest income rose by EUR 8 million, arriving at EUR 326 million for H1 2017. Excluding the divestment (sale of Private Banking Asia and the Middle East), net interest income increased by EUR 15 million. The increase was mainly attributable to lower client rates on saving accounts and higher average deposit volumes.
Net fee and commission income increased by EUR 5 million, totalling EUR 292 million for H1 2017. Excluding the divestment (sale of Private Banking Asia and the Middle East), net fee and commission income increased by EUR 20 million. The increase was attributable to improved stock market sentiment as opposed to uncertainty and volatility in the financial markets in H1 2016. This resulted in higher levels of transaction volumes and an increase in average client assets.
Other operating income grew by EUR 226 million to EUR 253 million in H1 2017. This increase was mainly due to the EUR 255 million divestment proceeds from the sale of activities in Asia and the Middle East.
Personnel expenses rose by EUR 17 million related to the divestment of Private Banking Asia and the Middle East (costs included restructuring provisions and retention payments). Personnel expenses in our domestic activities increased following the transfer of employees from Retail Banking (as of September 2016). Both were partly offset by lower business as usual expenses in Private Banking Asia and the Middle East.
General and administrative expenses increased by EUR 28 million, arriving at EUR 158 million in H1 2017. The increase was mainly attributable to EUR 35 million other expenses related to the PB Asia divestment (wind-down costs). The rise in general and administrative expenses was partly offset by a lower cost base following the sale and lower allocated costs, mainly resulting from cost saving programmes.
Impairment releases were EUR 4 million in the first half year of 2017 (H1 2016: EUR 12 million charge).
Condensed consolidated Interim Financial Statements 2017
Net interest income rose by EUR 24 million coming to EUR 686 million in H1 2017. The increase was mainly driven by the ongoing broad improvement of the Dutch economy. As a result, a higher number of non-performing loans became performing again, which positively impacted net interest income, to a lesser extent supported by improved lending margins and loan growth. Growth in client lending was widely driven, including in asset-based finance and real estate. The low interest environment is still putting pressure on deposit margins. Most client rates are zero, while negative interest rates are charged to a select group of clients.
Net fee and commission income decreased by EUR 7 million to EUR 94 million for H1 2017, partly due to increased competition (lower rates) and an incidental fee expense.
Personnel expenses increased by EUR 12 million, attributable to a higher number of FTEs (compared with H1 2016) and to a lesser extent wage inflation. The increase in FTEs was due to a transfer from Group Functions (at the end of April 2017) and for the execution of duty of care projects.
General and administrative expenses increased by EUR 9 million to EUR 62 million for H1 of 2017, due to an increase in regulatory levies (EUR 7 million).
Impairment charges amounted to a release of EUR 115 million for H1 2017 (H1 2016: release EUR 123 million). High impairment releases were the result of the ongoing improvement of the Dutch economy and an SME model refinement. Both quarters included an IBNI release (EUR 6 million in H1 2017 versus EUR 109 million in H1 2016).
Net interest income was EUR 464 million in H1 2017 (H1 2016: EUR 432 million), largely recorded within ECT Clients on the back of increased client lending. Deposit margins improved modestly, mainly on USD deposits. Moreover, a larger number of professional clients are being charged negative interest rates on deposits.
Net fee and commission income amounted to EUR 283 million in H1 2017, nearly flat compared with H1 2016.
Other operating income increased by EUR 77 million to EUR 65 million in H1 2017. This was due to higher Equity Participations results.
Personnel expenses increased by EUR 26 million, mainly due to an increase in FTEs (to support the bank's growth ambitions both in the Netherlands and abroad), wage inflation and higher pension costs.
General and administrative expenses amounted to EUR 176 million, up by EUR 62 million compared with H1 2016. This was attributable to a EUR 54 million addition to a provision for project costs for SME derivatives-related issues.
Impairment charges amounted to EUR 144 million in H1 2017 (H1 2016: EUR 124 million).
Net interest income went down by EUR 43 million. The decline was partly driven by higher liquidity buffer costs.
Other operating income was EUR 178 million in H1 2017 (H1 2016: EUR 3 million loss). The rise in other operating income was mainly driven by hedge accounting-related results and a provision related to the securities financing activities discontinued in 2009 recorded in H1 2016. This was partly offset by a profit from the sale of Visa Europe to Visa Inc. in H1 2016 (EUR 14 million).
Personnel expenses increased by EUR 12 million. The rise was mainly driven by an addition to the restructuring provision that was initially recorded in H2 2016.
General and administrative expenses decreased by EUR 50 million due to savings realised from cost-saving programmes and cost control.
| 30 June 2017 | ||||||
|---|---|---|---|---|---|---|
| Retail | Private | Commercial | Corporate & Institutional |
Group | ||
| (in millions) | Banking | Banking | Banking | Banking | Functions | Total |
| Assets | ||||||
| Financial assets held for trading | 4,658 | 4,658 | ||||
| Derivatives | 29 | 10,446 | 1,328 | 11,803 | ||
| Securities financing | 15 | 6,249 | 22,694 | 28,958 | ||
| Residential mortgages | 147,948 | 2,917 | 7 | 2,428 | 153,300 | |
| Consumer loans | 7,344 | 3,910 | 676 | 1 | 11,932 | |
| Corporate loans | 2,507 | 5,397 | 37,786 | 49,304 | 4,133 | 99,126 |
| Other loans and receivables - customers | 3 | 283 | 7,121 | 293 | 7,702 | |
| Other | 1,671 | 8,304 | 1,699 | 6,066 | 68,600 | 86,341 |
| Total assets | 159,473 | 20,573 | 40,451 | 83,845 | 99,477 | 403,819 |
| Liabilities | ||||||
| Financial liabilities held for trading | 2,315 | 2,315 | ||||
| Derivatives | 16 | 8,719 | 2,072 | 10,808 | ||
| Securities financing | 55 | 2,443 | 19,289 | 21,786 | ||
| Demand deposits | 26,791 | 40,137 | 31,155 | 24,165 | 429 | 122,677 |
| Saving deposits | 73,828 | 20,709 | 3,377 | 8 | 97,922 | |
| Time deposits | 2,786 | 4,605 | 258 | 4,595 | 2,741 | 14,984 |
| Other due to customers | ||||||
| Other | 56,069 | -44,949 | 5,661 | 41,600 | 55,085 | 113,466 |
| Total liabilities | 159,473 | 20,573 | 40,451 | 83,845 | 79,616 | 383,958 |
| (in millions) | Retail Banking |
Private Banking |
Commercial Banking |
Corporate & Institutional Banking |
Group Functions |
Total |
|---|---|---|---|---|---|---|
| Assets | ||||||
| Financial assets held for trading | 1,607 | 1,607 | ||||
| Derivatives | 54 | 12,038 | 2,293 | 14,384 | ||
| Securities financing | 14 | 4,634 | 12,941 | 17,589 | ||
| Residential mortgages | 146,065 | 2,924 | 8 | 3,073 | 152,069 | |
| Consumer loans | 7,684 | 3,752 | 670 | 12,106 | ||
| Corporate loans | 2,518 | 5,449 | 36,297 | 47,361 | 4,433 | 96,058 |
| Other loans and receivables - customers | 305 | 6,853 | 288 | 7,445 | ||
| Other | 2,313 | 12,426 | 1,735 | 8,374 | 68,375 | 93,223 |
| Total assets | 158,580 | 24,618 | 39,014 | 80,866 | 91,403 | 394,482 |
| Liabilities | ||||||
| Financial liabilities held for trading | 791 | 791 | ||||
| Derivatives | 30 | 10,087 | 4,409 | 14,526 | ||
| Securities financing | 3 | 1,101 | 10,522 | 11,625 | ||
| Demand deposits | 25,514 | 39,490 | 31,431 | 23,009 | 404 | 119,848 |
| Saving deposits | 72,019 | 17,345 | 3,363 | 13 | 92,740 | |
| Time deposits | 5,217 | 4,990 | 145 | 4,414 | 1,404 | 16,169 |
| Other due to customers | ||||||
| Other | 55,831 | -37,240 | 4,075 | 41,452 | 55,727 | 119,845 |
| Total liabilities | 158,580 | 24,618 | 39,014 | 80,866 | 72,466 | 375,544 |
Total assets increased by EUR 9.3 billion to EUR 403.8 billion at 30 June 2017. The increase in securities financing and cash and balances at central banks was partly offset by a decrease in financial investments.
Total liabilities increased by EUR 8.4 billion to EUR 384.0 billion at 30 June 2017. This was due mainly to higher securities financing and due to customers.
ABN AMRO Bank Interim Financial Report 2017
| 30 June 2017 | |||||
|---|---|---|---|---|---|
| Fair value | Fair value | ||||
| (in millions) | Amortised cost | through profit or loss - Trading |
through profit or loss - Other |
Available for sale financial assets |
Total |
| Financial assets | |||||
| Cash and balances at central banks | 26,648 | 26,648 | |||
| Financial assets held for trading | 4,658 | 4,658 | |||
| Derivatives | 10,638 | 1,165 | 11,803 | ||
| Financial investments | 723 | 41,569 | 42,292 | ||
| Securities financing | 28,958 | 28,958 | |||
| Loans and receivables - Banks | 8,868 | 8,868 | |||
| Loans and receivables - Customers | 272,059 | 272,059 | |||
| Other assets | 2,674 | 2,674 | |||
| Total financial assets | 336,533 | 15,296 | 4,562 | 41,569 | 397,960 |
| Financial Liabilities | |||||
| Financial liabilities held for trading | 2,315 | 2,315 | |||
| Derivatives | 9,057 | 1,751 | 10,808 | ||
| Securities financing | 21,786 | 21,786 | |||
| Due to banks | 18,056 | 18,056 | |||
| Due to customers | 235,584 | 235,584 | |||
| Issued debt | 73,933 | 1,528 | 75,461 | ||
| Subordinated liabilities | 11,975 | 11,975 | |||
| Other liabilities | 2,674 | 2,674 | |||
| Total financial liabilities | 361,334 | 11,372 | 5,953 | 378,659 |
| 31 December 2016 | |||||
|---|---|---|---|---|---|
| Fair value through profit or |
Fair value through profit or |
Available for sale | |||
| (in millions) | Amortised cost | loss - Trading | loss - Other | financial assets | Total |
| Financial assets | |||||
| Cash and balances at central banks | 21,861 | 21,861 | |||
| Financial assets held for trading | 1,607 | 1,607 | |||
| Derivatives | 12,211 | 2,173 | 14,384 | ||
| Financial investments | 778 | 44,719 | 45,497 | ||
| Securities financing | 17,589 | 17,589 | |||
| Loans and receivables - Banks | 13,485 | 13,485 | |||
| Loans and receivables - Customers | 267,679 | 267,679 | |||
| Other assets | 3,275 | 3,275 | |||
| Total financial assets | 320,614 | 13,818 | 6,226 | 44,719 | 385,377 |
| Financial Liabilities | |||||
| Financial liabilities held for trading | 791 | 791 | |||
| Derivatives | 10,401 | 4,126 | 14,526 | ||
| Securities financing | 11,625 | 11,625 | |||
| Due to banks | 13,419 | 13,419 | |||
| Due to customers | 228,758 | 228,758 | |||
| Issued debt | 79,639 | 1,639 | 81,278 | ||
| Subordinated liabilities | 11,171 | 11,171 | |||
| Other liabilities | 3,275 | 3,275 | |||
| Total financial liabilities | 344,613 | 11,191 | 9,040 | 364,844 |
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| Net interest income | 3,195 | 3,118 |
| Net fee and commission income | 852 | 866 |
| Net trading income | 154 | -343 |
| Share of result in equity accounted investments | 13 | 26 |
| Other income | 523 | 145 |
| Total operating income | 4,738 | 3,811 |
Total operating income increased by EUR 927 million to EUR 4,738 million compared with EUR 3,811 million during H1 2016.
Net interest income increased by EUR 77 million to EUR 3,195 million in H1 2017 compared with EUR 3,118 million during the same period in 2016. The increase was predominantly driven by volume growth in corporate loans and residential mortgages.
Net fee and commission income decreased by 14 million to EUR 852 million in H1 2017 compared with EUR 866 million in H1 2016. The decline was mainly driven by the fact that Private Banking Asia and the Middle East only made one month's contribution. The decrease was further offset by higher Asset under Management fees, mainly in Germany and France, chiefly as a result of improved stock market sentiment.
Net trading income amounted to EUR 154 million in H1 2017 and was EUR 497 million higher compared with H1 2016. This was due to an addition to a one-off provision in Corporate & Institutional Banking of EUR 15 million in H1 2017, compared to additions to the provision of EUR 366 million in H1 2016. Moreover, the increase was related to the effect of CVA/DVA/FVA results, which amounted to EUR 43 million (losses in 2016: EUR 47 million). Lastly, in 2016 a provision was included related to the securities financing activities discontinued in 2009.
Other income increased by EUR 378 million to EUR 523 million in H1 2017 compared with EUR 145 million in the same period of 2016. This increase was due mainly to the sale of Private Banking Asia and the Middle East (EUR 255 million). Hedge accounting related-results were higher in H1 2017, as were Equity participations results.
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| Personnel expenses | 1,288 | 1,234 |
| General and administrative expenses | 1,335 | 1,258 |
| Depreciation and amortisation of tangible and intangible assets | 97 | 86 |
| Total operating expenses | 2,720 | 2,579 |
Condensed consolidated Interim Financial Statements 2017
Total operating expenses increased by EUR 141 million to EUR 2,720 million in H1 2017 compared with EUR 2,579 million in the same period of 2016, driven by higher personnel expenses (EUR 54 million) and general and administrative expenses (EUR 77 million).
Personnel expenses amounted to EUR 1,288 million for H1 2017, an increase of EUR 54 million compared with H1 2016. For more details, please see Personnel expenses.
General and administrative expenses increased by EUR 77 million in H1 2017 compared with H1 2016. This was related to an increase in the provision for project costs for SME derivatives-related issues (EUR 54 million), the Private Banking divestment (EUR 27 million) and higher regulatory levies, partly offset by lower external staffing expenses (EUR 42 million).
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| Salaries and wages | 851 | 853 |
| Social security charges | 120 | 123 |
| Pension expenses relating to defined benefit plans | 2 | 3 |
| Defined contribution plan expenses | 188 | 172 |
| Other | 127 | 83 |
| Total personnel expenses | 1,288 | 1,234 |
Personnel expenses increased by EUR 54 million to EUR 1,288 million in H1 2017. H1 2017 included a EUR 25 million restructuring provision, EUR 21 million related to the Private Banking divestment and EUR 12 million in severance payments. Lower FTE levels were partly offset by wage inflation and higher pension costs.
Personnel expenses include costs for a variable compensation plan for Identified Staff. This plan is not an employee share-based payment plan as defined in IFRS 2 Share Based Payment. As a result of the introduction of ABN AMRO depositary receipts on the Amsterdam stock exchange, ABN AMRO is in the process of changing the variable compensation plan into a plan that may qualify as a share-based payment plan.
| (in millions) | First half 2017 | First half 2016 |
|---|---|---|
| Income tax expense | 475 | 310 |
Income tax expense amounted to EUR 475 million in H1 2017, EUR 165 million higher than in the same period of 2016. This was mainly the result of a higher operating profit. The sale of Private Banking Asia and the Middle East, resulting in a book gain of EUR 200 million, was tax exempt.
44
Financial assets and liabilities held for trading relates mainly to client-facilitating activities carried out by the Global Markets business. These contracts are managed on a combined basis and should therefore be assessed on a total portfolio basis and not as stand-alone asset and liability classes.
The following table shows the composition of assets held for trading.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Trading securities: | ||
| Government bonds | 2,850 | 1,152 |
| Corporate debt securities | 1,665 | 400 |
| Equity securities | 126 | 35 |
| Total trading securities | 4,642 | 1,586 |
| Trading book loans | 16 | 21 |
| Total assets held for trading | 4,658 | 1,607 |
Financial assets held for trading increased by EUR 3.1 billion to EUR 4.7 billion at 30 June 2017. This increase was a combination of higher government bonds (EUR 1.7 billion) and higher corporate debt securities (EUR 1.3 billion).
The increase in government bonds was mainly related to the European Stability Mechanism and French, German and Dutch bond positions. These portfolios are mainly a result of the primary dealership in these countries and for the purpose of client facilitation. Most of these contracts are hedged with short positions in corporate debt securities, government bonds and futures. The increase in corporate debt securities was mainly related to German and French positions.
The following table shows the composition of liabilities held for trading.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Bonds | 2,104 | 690 |
| Equity securities | 47 | 33 |
| Total short security positions | 2,151 | 723 |
| Other liabilities held for trading | 164 | 67 |
| Total liabilities held for trading | 2,315 | 791 |
Financial liabilities held for trading increased by EUR 1.5 billion to EUR 2.3 billion at 30 June 2017. The increase resulted from higher short positions in bonds, mainly related to Dutch and French government bonds and corporate debt securities.
Derivatives comprise derivatives held for trading and derivatives held for risk management purposes. Derivatives held for trading serve to help us facilitate the needs of our clients. Derivatives held for risk management purposes include all derivatives that qualify for hedge accounting and derivatives included in an economic hedge.
ABN AMRO Bank Interim Financial Report 2017
| 30 June 2017 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Derivatives held for trading | Economic hedges | Hedge accounting | Total derivatives |
|||||||
| (in millions) | Interest rate |
Currency | Other | Interest rate |
Currency | Other | Interest rate |
Currency | Other | |
| Exchange traded | ||||||||||
| Fair value assets | 10 | 9 | 2 | 21 | ||||||
| Fair value liabilities | 2 | 3 | 13 | 18 | ||||||
| Notionals | 606 | 191 | 1,253 | 2,050 | ||||||
| Over-the-counter | ||||||||||
| Central counterparties | ||||||||||
| Fair value assets | ||||||||||
| Fair value liabilities | ||||||||||
| Notionals | 723,288 | 5,799 | 147,553 | 876,640 | ||||||
| Other bilateral | ||||||||||
| Fair value assets | 6,808 | 3,064 | 151 | 117 | 447 | 28 | 1,165 | 11,782 | ||
| Fair value liabilities | 5,176 | 3,034 | 169 | 58 | 595 | 6 | 1,751 | 10,789 | ||
| Notionals | 142,398 | 206,011 | 1,010 | 1,635 | 25,963 | 1,520 | 13,971 | 392,509 | ||
| Total | ||||||||||
| Fair value assets | 6,818 | 3,064 | 161 | 117 | 447 | 30 | 1,165 | 11,803 | ||
| Fair value liabilities | 5,179 | 3,034 | 172 | 58 | 595 | 19 | 1,751 | 10,808 | ||
| Notionals | 866,292 | 206,011 | 1,201 | 7,434 | 25,963 | 2,773 | 161,524 | 1,271,198 |
| 31 December 2016 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Derivatives held for trading | Economic hedges Hedge accounting |
Total derivatives |
||||||||
| (in millions) | Interest rate |
Currency | Other | Interest rate |
Currency | Other | Interest rate |
Currency | Other | |
| Exchange traded | ||||||||||
| Fair value assets | 2 | 9 | 33 | 44 | ||||||
| Fair value liabilities | 6 | 17 | 22 | |||||||
| Notionals | 110 | 258 | 1,062 | 1,431 | ||||||
| Over-the-counter Central counterparties Fair value assets |
||||||||||
| Fair value liabilities Notionals |
695,879 | 5,436 | 134,496 | 835,811 | ||||||
| Other bilateral | ||||||||||
| Fair value assets | 8,967 | 2,367 | 131 | 173 | 507 | 23 | 2,173 | 14,341 | ||
| Fair value liabilities | 6,883 | 2,555 | 96 | 96 | 660 | 88 | 4,126 | 14,504 | ||
| Notionals | 157,676 | 156,402 | 1,350 | 2,923 | 25,936 | 1,263 | 29,051 | 374,601 | ||
| Total | ||||||||||
| Fair value assets | 8,969 | 2,367 | 140 | 173 | 507 | 56 | 2,173 | 14,384 | ||
| Fair value liabilities | 6,889 | 2,555 | 113 | 96 | 660 | 88 | 4,126 | 14,526 | ||
| Notionals | 853,666 | 156,402 | 1,608 | 8,359 | 25,936 | 2,325 | 163,547 | 1,211,843 |
Condensed consolidated Interim Financial Statements 2017
Over-the-counter derivatives cleared with a CCP are not presented in our Statement of financial position.
The notional amount of the interest rate derivatives held for trading at 30 June 2017 amounted to EUR 866.3 billion, an increase of EUR 12.6 billion compared with EUR 853.7 billion at 31 December 2016. This increase was mainly due to higher client activity within Financial Institutions through clearing with central counterparties. At 30 June 2017 the fair value of interest rate derivatives decreased, due mainly to the increase in long-term interest rates compared with year-end 2016.
The notional amount of the currency derivatives held for trading at 30 June 2017 amounted to EUR 206.0 billion, an increase of EUR 49.6 billion compared with EUR 156.4 billion at 31 December 2016. This increase was mainly due to higher client activity caused by increased volatility of the foreign exchange market compared with 2016.
The notional amount of the other derivatives held for trading at 30 June 2017 amounted to EUR 1.2 billion, a decrease of EUR 0.4 billion compared with EUR 1.6 billion at 31 December 2016.
Financial investments can be broken down as follows:
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Financial investments: | ||
| Available-for-sale | 41,569 | 44,719 |
| Held at fair value through profit or loss | 723 | 778 |
| Total financial investments | 42,292 | 45,497 |
Financial investments amounted to EUR 42.3 billion at 30 June 2017, a decrease of EUR 3.2 billion compared with EUR 45.5 billion at 31 December 2016. The decrease was mainly caused by sales and redemptions of other OECD and non-OECD government bonds and US Treasury bonds (EUR 2.0 billion), securities issued by financial institutions (EUR 0.5 billion) and a decrease in mortgage-backed securities (EUR 0.6 billion).
The fair value of financial investments available-for-sale including gross unrealised gains and losses is as follows:
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Interest-earning securities: | ||
| Dutch government | 6,629 | 6,592 |
| US Treasury and US government | 2,739 | 3,497 |
| Other OECD government | 19,878 | 20,987 |
| Non OECD government | 750 | 913 |
| European Union | 1,712 | 1,756 |
| Mortgage- and other asset-backed securities | 2,598 | 3,244 |
| Financial institutions | 6,681 | 7,220 |
| Non-financial institutions | 51 | 59 |
| Subtotal | 41,038 | 44,267 |
| Equity instruments | 551 | 473 |
| Total investments available-for-sale, gross | 41,589 | 44,740 |
| 30 June 2017 | 31 December 2016 | |||
|---|---|---|---|---|
| (in millions) | Banks | Customers | Banks | Customers |
| Assets | ||||
| Reverse repurchase agreements | 4,053 | 12,197 | 954 | 8,725 |
| Securities borrowing transactions | 5,286 | 5,075 | 3,731 | 3,252 |
| Unsettled securities transactions | 898 | 1,448 | 297 | 632 |
| Total | 10,238 | 18,720 | 4,981 | 12,608 |
| Liabilities | ||||
| Repurchase agreements | 1,209 | 16,193 | 2,007 | 6,059 |
| Securities lending transactions | 665 | 1,752 | 616 | 1,891 |
| Unsettled securities transactions | 706 | 1,262 | 44 | 1,008 |
| Total | 2,579 | 19,207 | 2,667 | 8,958 |
Securities financing transactions include balances relating to reverse repurchase activities and cash collateral on securities borrowed. ABN AMRO controls credit risk associated with these activities by monitoring counterparty credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to ABN AMRO when deemed necessary.
The movements of securities financing assets and liabilities with banks and customers are a result of the cyclicality of the business.
Condensed consolidated Interim Financial Statements 2017
The internal controls of fair value measurement, the valuation techniques and the inputs used for these valuation techniques are consistent with those set out in the notes to ABN AMRO's 2016 Consolidated Annual Financial Statements.
Fair value is defined as the price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants at the measurement date.
ABN AMRO analyses financial instruments held at fair value, broken down into the three categories from the fair value hierarchy as described below.
Level 1 financial instruments are those that are valued using unadjusted quoted prices in active markets for identical financial instruments.
Level 2 financial instruments are those valued using techniques based primarily on observable market data. Instruments in this category are valued using quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.
Level 3 financial instruments are those valued using a valuation technique where at least one input, which has a significant effect on the instrument's valuation, is not based on observable market data. The effect of fair value adjustments on the instrument's valuation is included in the assessment.
ABN AMRO recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change occurred.
The following table presents the valuation methods used in determining the fair values of financial instruments carried at fair value.
30 June 2017 31 December 2016
50
| (in millions) | Quoted market prices in active markets |
Valuation techniques -observable inputs |
Valuation techniques -significant unobserva ble inputs |
Total fair value |
Quoted market prices in active markets |
Valuation techniques -observable inputs |
Valuation techniques -significant unobservable inputs |
Total fair value |
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Government debt securities | 2,850 | 2,850 | 1,152 | 1,152 | ||||
| Corporate debt securities | 1,643 | 23 | 1,665 | 389 | 11 | 400 | ||
| Equity securities | 126 | 126 | 35 | 35 | ||||
| Other financial assets held for trading | 16 | 16 | 21 | 21 | ||||
| Financial assets held for trading | 4,619 | 39 | 4,658 | 1,576 | 31 | 1,607 | ||
| Interest rate derivatives | 10 | 7,876 | 98 | 7,983 | 2 | 11,064 | 76 | 11,141 |
| Foreign exchange contracts | 3,053 | 11 | 3,064 | 2,350 | 17 | 2,367 | ||
| Other derivatives | 12 | 742 | 2 | 755 | 42 | 820 | 14 | 876 |
| Derivatives | 21 | 11,671 | 111 | 11,803 | 44 | 14,233 | 107 | 14,384 |
| Government debt securities | ||||||||
| Equity instruments | 56 | 666 | 723 | 45 | 730 | 775 | ||
| Other | 2 | 3 | ||||||
| Financial investments designated at fair value through profit or loss |
56 | 666 | 723 | 47 | 731 | 778 | ||
| Government debt securities | 31,290 | 419 | 31,709 | 33,324 | 421 | 33,745 | ||
| Corporate debt securities | 5,775 | 916 | 40 | 6,732 | 6,013 | 1,227 | 38 | 7,279 |
| Equity instruments | 304 | 62 | 164 | 531 | 218 | 59 | 174 | 451 |
| Other debt securities | 2,384 | 214 | 2,598 | 2,519 | 724 | 3,244 | ||
| Financial assets available for sale | 39,754 | 978 | 837 | 41,569 | 42,075 | 1,286 | 1,358 | 44,719 |
| Unit-linked investments | 1,660 | 1,014 | 2,674 | 2,219 | 1,056 | 3,275 | ||
| Total financial assets | 46,110 | 13,702 | 1,614 | 61,427 | 45,961 | 16,606 | 2,196 | 64,763 |
| Liabilities | ||||||||
| Short positions in Government | ||||||||
| debt securities | 1,438 | 1,438 | 390 | 390 | ||||
| Corporate debt securities | 645 | 22 | 666 | 294 | 6 | 300 | ||
| Equity securities | 47 | 47 | 33 | 33 | ||||
| Other financial liabilities held for trading | 164 | 164 | 67 | 67 | ||||
| Financial liabilities held for trading |
2,130 | 185 | 2,315 | 717 | 73 | 791 | ||
| Interest rate derivatives | 2 | 6,927 | 6,929 | 6 | 11,009 | 11,015 | ||
| Foreign exchange contracts | 3,034 | 3,034 | 2,555 | 2,555 | ||||
| Other derivatives | 18 | 825 | 2 | 844 | 17 | 926 | 14 | 957 |
| Derivatives | 20 | 10,786 | 2 | 10,808 | 22 | 14,490 | 14 | 14,526 |
| Issued debt | 1,313 | 215 | 1,528 | 1,398 | 241 | 1,639 | ||
| Unit-linked for policyholders | 1,660 | 1,014 | 2,674 | 2,219 | 1,056 | 3,275 | ||
| Total financial liabilities | 3,810 | 13,299 | 216 | 17,325 | 2,959 | 17,017 | 255 | 20,231 |
There were no material transfers between levels 1 and 2.
There were no material transfers between levels 1 and 2 into level 3.
The following table shows a reconciliation of the opening and closing amounts of level 3 financial assets that are recorded at fair value:
| Assets | Liabilities | |||||
|---|---|---|---|---|---|---|
| (in millions) | Financial investments available for sale |
Financial investments designated at fair value through profit or loss |
Derivatives held for trading |
Derivatives not held for trading |
Derivatives not held for trading |
Issued debt |
| Balance at 1 January 2016 | 1,354 | 577 | 18 | 39 | 39 | |
| Purchases | 2 | 122 | ||||
| Sales | -2 | -55 | ||||
| Redemptions | -101 | -30 | ||||
| Gains/(losses) recorded in profit and loss1 | 2 | 28 | ||||
| Unrealised gains/(losses) | 4 | 16 | 2 | -25 | -25 | -4 |
| Transfer between levels | 72 | 245 | ||||
| Other movements2 | 99 | 74 | ||||
| Balance at 31 December 2016 | 1,358 | 731 | 93 | 14 | 14 | 241 |
| Purchases | 5 | 25 | ||||
| Sales | -37 | -61 | ||||
| Redemptions | -483 | -3 | ||||
| Gains/(losses) recorded in profit and loss | -3 | -1 | -1 | -1 | ||
| Unrealised gains/(losses)1 | -2 | 18 | -12 | -12 | -12 | -27 |
| Transfer between levels | 28 | |||||
| Other movements | -42 | |||||
| Balance at 30 June 2017 | 837 | 667 | 109 | 2 | 2 | 215 |
1 Included in other operating income.
2 In 2016 an amount of EUR 82 million in investments in venture capital was reclassified from Equity accounted associates and Corporate loans to Financial investments.
Equities designated at fair value through profit or loss
ABN AMRO has a position in a Polish bond, denominated in euros (in note 9 Financial investments, part of other OECD government), for which the market is relatively illiquid. The bond is valued using a discounted cash flow model. The main inputs are the interest rate curve, liquidity spread and credit spread. The valuation spread is determined using an internal model. The sensitivity analysis is performed by using a range of reasonable valuation spreads.
Debt securities consist of non-listed residential mortgage-backed securities (RMBS). These are structured in such a way that prepayments on the underlying mortgage portfolio are used to repay the holder of the A-note. The fair value is determined using a discounted cash flow model based on inputs such as the interest rate curve, discount spread and prepayment rate. The prepayment rate is identified as a significant unobservable input. The sensitivity analysis is performed by stressing this rate.
51
Preferred shares are shares for which the dividend is fixed for a period of 10 years, after which the dividend is redetermined and the shares can also be redeemed. The position is valued using a discounted cash flow model for which the relevant inputs are the interest curve, liquidity spread and credit spread. The liquidity spread and credit spread are unobservable inputs and are derived from similar securities. The sensitivity of the preferred shares is determined by using a range of reasonable spreads and by considering the call option that is held by the issuer.
Equities designated at fair value through profit and loss classified as level 3 mainly comprise private equity investments.
Private equity shares are designated at fair value, for which two calculation techniques apply:
Securitisation swaps linked to the RMBS transactions are valued using a discounted cash flow model for which the behaviour of the underlying mortgage portfolio is also relevant. Inputs used to determine fair value are the interest rate curve and prepayment rate. The latter is the significant unobservable input that classifies these instruments as level 3. The sensitivity analysis is performed by stressing the prepayment rate.
Interest rate swaps related to RMBS transactions are valued based on assumptions about the behaviour of the underlying mortgage portfolio and the characteristics of the transaction. Cash flows are forecast and discounted using appropriate forward and discount curves.
A credit valuation adjustment (CVA) reflects counterparty credit risk in the fair value measurement of uncollateralised and partially collateralised OTC derivatives. For counterparties that do not have an observable credit spread ABN AMRO applies a proxied credit spread extracted from counterparties of comparable credit quality that do have an observable credit spread. ABN AMRO performs a probability of default assessment for each counterparty and allocates an appropriate internal credit risk measure known as a Uniform Counterparty Rating (UCR). This UCR, which is significant to the entire fair value measurement of the derivative contracts included in the following table of level 3 sensitivity information, is internally generated and is therefore an unobservable input.
| Valuation technique |
Unobservable data |
Carrying value |
Weighted average |
alternative assumptions | Reasonably possible | |||
|---|---|---|---|---|---|---|---|---|
| (in millions) | Minimum range |
Maximum range |
Increase in fair value |
Decrease in fair value |
||||
| 30 June 2017 | ||||||||
| Equity shares | Private equity valuation Private equity |
EBITDA multiples Net asset |
198 | 5.0 | 6.0 | 5.4 | 20 | -21 |
| Equity shares | valuation | value | 632 | 23 | -20 | |||
| Interest earning securities - Government bonds |
Discounted cash flow |
Liquidity and credit spread |
419 | 32 | 104 | 51 | 10 | -25 |
| Interest earning securities - other | Discounted cash flow |
Prepayment rate |
254 | 5.9% | 21.2% | 10.4% | 1 | -12 |
| Derivatives held for trading | Discounted cash flow |
Probability of default |
109 | 0.2% | 100.0% | 60.2% | 8 | -12 |
| Derivatives not held for trading - assets/liabilities (net) |
Discounted cash flow |
Prepayment rate |
5.9% | 21.2% | 10.4% | |||
| Issued debt | Discounted cash flow |
Credit spread | 215 | 97 | 130 | 111 | 7 | -2 |
| 31 December 2016 | ||||||||
| Private equity |
EBITDA | |||||||
| Equity shares | valuation | multiples | 186 | 4.0 | 6.0 | 5.1 | 14 | -14 |
| Private | ||||||||
| equity | Net asset | |||||||
| Equity shares | valuation | value | 719 | 25 | -27 | |||
| Interest earning securities - | Discounted | Liquidity and | ||||||
| Government bonds | cash flow | credit spread | 421 | 85 | 102 | 95 | 5 | -7 |
| Discounted | Prepayment | |||||||
| Interest earning securities - other | cash flow | rate | 763 | 7.8% | 15.0% | 10.4% | 3 | -5 |
| Discounted | Probability of | |||||||
| Derivatives held for trading | cash flow | default | 93 | 0.3% | 100.0% | 71.6% | 9 | -8 |
| Derivatives not held for trading | Discounted | Prepayment | ||||||
| - assets/liabilities (net) | cash flow | rate | 7.8% | 15.0% | 10.4% | |||
| Discounted | ||||||||
| Issued debt | cash flow | Credit spread | 241 | 97 | 130 | 110 | 7 | -3 |
The methods and assumptions applied to estimate the fair values of financial instruments not carried at fair value are consistent with those set out in note 21 of the Consolidated Annual Financial Statements 2016.
| 30 June 2017 | ||||||
|---|---|---|---|---|---|---|
| Carrying value | Total fair value | Difference | ||||
| (in millions) | Quoted market prices in active markets |
Valuation techniques -observable inputs |
Valuation techniques -significant unobservable inputs |
|||
| Assets | ||||||
| Cash and balances at central banks | 26,648 | 26,648 | 26,648 | |||
| Securities financing | 28,958 | 28,958 | 28,958 | |||
| Loans and receivables - banks | 8,868 | 2,294 | 6,574 | 8,868 | ||
| Loans and receivables - customers | 272,059 | 7,669 | 272,874 | 280,543 | 8,483 | |
| Total | 336,533 | 65,569 | 279,448 | 345,017 | 8,483 | |
| Liabilities | ||||||
| Securities financing | 21,786 | 21,786 | 21,786 | |||
| Due to banks | 18,056 | 3,549 | 14,507 | 18,056 | ||
| Due to customers | 235,584 | 360 | 235,223 | 235,584 | ||
| Issued debt | 73,933 | 35,109 | 39,770 | 74,879 | -946 | |
| Subordinated liabilities | 11,975 | 7,222 | 5,468 | 12,690 | -716 | |
| Total | 361,334 | 42,331 | 70,934 | 249,731 | 362,996 | -1,661 |
| 31 December 2016 | ||||||
|---|---|---|---|---|---|---|
| Carrying value | Total fair value | Difference | ||||
| (in millions) | Quoted market prices in active markets |
Valuation techniques -observable inputs |
Valuation techniques -significant unobservable inputs |
|||
| Assets | ||||||
| Cash and balances at central banks | 21,861 | 21,861 | 21,861 | |||
| Securities financing | 17,589 | 17,589 | 17,589 | |||
| Loans and receivables - banks | 13,485 | 4,503 | 8,982 | 13,485 | ||
| Loans and receivables - customers | 267,679 | 6,645 | 270,216 | 276,861 | 9,182 | |
| Total | 320,614 | 50,598 | 279,198 | 329,796 | 9,182 | |
| Liabilities | ||||||
| Securities financing | 11,625 | 11,625 | 11,625 | |||
| Due to banks | 13,419 | 3,209 | 10,210 | 13,419 | ||
| Due to customers | 228,758 | 612 | 228,146 | 228,758 | ||
| Issued debt | 79,639 | 31,615 | 48,943 | 80,557 | -918 | |
| Subordinated liabilities | 11,171 | 5,762 | 5,998 | 11,759 | -588 | |
| Total | 344,613 | 37,377 | 70,387 | 238,356 | 346,119 | -1,506 |
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Interest-bearing deposits | 3,480 | 5,041 |
| Loans and advances | 3,218 | 5,162 |
| Mandatory reserve deposits with central banks | 243 | 306 |
| Other | 1,932 | 2,978 |
| Subtotal | 8,874 | 13,488 |
| Less: loan impairment allowance | 6 | 3 |
| Loans and receivables - banks | 8,868 | 13,485 |
Loans and receivables – banks decreased by EUR 4.6 billion to EUR 8.9 billion at 30 June 2017. Interest-bearing deposits decreased by EUR 1.6 billion to EUR 3.5 billion at 30 June 2017 mainly as a result of a reclassification to cash and cash balances at central banks.
Loans and advances decreased by EUR 1.9 billion to EUR 3.2 billion at 30 June 2017 mainly due to lower pledged cash collateral related to derivatives for which ABN AMRO Bank needs to pledge collateral with the counterparty.
Other loans decreased by EUR 1.0 billion to EUR 1.9 billion at 30 June 2017 mainly due to a decrease in trade bills purchased. This was partly due to the dollar depreciation and partly to a decrease in commodity prices.
This item is comprised of amounts in loans and receivables to non-banking clients.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Residential mortgages (excluding fair value adjustment) | 151,047 | 149,255 |
| Fair value adjustment from hedge accounting on residential mortgages | 2,428 | 3,073 |
| Residential mortgages, gross | 153,475 | 152,328 |
| Less: loan impairment allowances - residential mortgage loans | 175 | 258 |
| Residential mortgages | 153,300 | 152,069 |
| Consumer loans, gross | 12,312 | 12,539 |
| Less: loan impairment allowances - consumer loans | 381 | 433 |
| Consumer loans | 11,932 | 12,106 |
| Corporate loans | 93,191 | 90,920 |
| Fair value adjustment from hedge accounting on corporate loans | 1,437 | 1,722 |
| Financial lease receivables | 4,238 | 4,069 |
| Factoring | 2,826 | 2,321 |
| Corporate loans, gross | 101,692 | 99,031 |
| Less: loan impairment allowances - corporate loans | 2,566 | 2,973 |
| Corporate loans | 99,126 | 96,058 |
| Government and official institutions | 1,442 | 1,445 |
| Other loans | 6,252 | 6,003 |
| Fair value adjustment from hedge accounting on other loans | 10 | |
| Other loans and receivables customers, gross | 7,704 | 7,448 |
| Less: loan impairment allowances - other | 3 | 2 |
| Other loans and receivables customers | 7,702 | 7,445 |
| Loans and receivables - customers | 272,059 | 267,679 |
Loans and receivables – customers increased by EUR 4.4 billion to EUR 272.1 billion at 30 June 2017.
Residential mortgages increased by EUR 1.2 billion to EUR 153.3 billion at 30 June 2017. The increase was driven by low interest rates and favourable economic conditions.
Consumer loans decreased by EUR 0.2 billion to EUR 11.9 billion, mainly driven by lower volumes in Retail Banking.
Corporate loans grew by EUR 3.1 billion to EUR 99.1 billion, mainly driven by an increase in corporate loans due to ABN AMRO Bank, including increased activities in the Factoring and Finance Lease business.
Other loans and receivables – customers increased by EUR 0.3 billion to EUR 7.7 billion, mainly driven by an increase in the Commodity Finance business (EUR 0.4 billion) and a decrease in the Clearing business (EUR 0.1 billion).
The above changes include the fair value adjustment from hedge accounting, of which corporate loans decreased by EUR 0.3 billion to EUR 1.4 billion and residential mortgage decreased by EUR 0.6 billion to EUR 2.4 billion. Both movements were due to the movement in interest curves.
Details on loan impairments are provided in the Risk, funding & capital information section.
| First half 2017 | First half 2016 | |||
|---|---|---|---|---|
| (in millions) | Acquisitions | Divestments | Acquisitions | Divestments |
| Net assets acquired/Net assets divested | 1,400 | 19 | -10 | |
| Cash used for acquisitions/received for divestments | -1,104 | -17 | 31 |
The sale of ABN AMRO's Private Banking operations in Asia and the Middle East was completed on 30 April 2017. A total amount of EUR 3,202 million in assets and EUR 4,645 million in liabilities were divested. The sale resulted in total gross sale proceeds of EUR 255 million.
This item is comprised of amounts due to banking institutions, including central banks and multilateral developments banks.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Deposits from banks: | ||
| Demand deposits | 2,586 | 2,591 |
| Time deposits | 1,687 | 1,475 |
| Other deposits | 13,759 | 9,329 |
| Total deposits | 18,033 | 13,394 |
| Other Due to banks | 24 | 25 |
| Total due to banks | 18,056 | 13,419 |
Due to banks increased by a total of EUR 4.6 billion to EUR 18.1 billion at 30 June 2017. Other deposits increased by EUR 4.4 billion as a result of an increase in the participation in the TLTRO programme in March 2017 (EUR 4.0 billion).
This item is comprised of amounts due to non-banking clients.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Demand deposits | 122,677 | 119,848 |
| Saving deposits | 97,922 | 92,740 |
| Time deposits | 14,984 | 16,169 |
| Total due to customers | 235,584 | 228,758 |
Due to customers increased by EUR 6.8 billion to EUR 235.6 billion at 30 June 2017, as a result of the increase in demand deposits (EUR 2.8 billion), savings deposits (EUR 5.2 billion) and a decrease in time deposits (EUR 1.2 billion).
57
Condensed consolidated Interim Financial Statements 2017
Demand deposits increased by EUR 2.8 billion to EUR 122.7 billion at 30 June 2017 due to higher outstanding positions held by Retail Banking clients (EUR 1.3 billion), Private Banking clients (EUR 0.6 billion), and Commercial Banking and Corporate & Institutional clients (EUR 0.9 billion).
Savings deposits increased by EUR 5.2 billion to EUR 97.9 billion mainly due to higher outstanding positions held by Retail Banking clients, due to a shift from time deposits to savings deposits, and to deposited holiday allowances.
Time deposits decreased by EUR 1.2 billion to EUR 15.0.billion mainly as a result of a decrease in Retail Banking clients (EUR 2.4 billion) and an increase in government and investor funding (EUR 1.3 billion).
The following table shows the types of debt certificates issued by ABN AMRO and the amounts outstanding at 30 June 2017 and 31 December 2016, respectively.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Bonds and notes issued | 62,436 | 62,882 |
| Certificates of deposit and commercial paper | 11,491 | 16,705 |
| Saving certificates | 6 | 52 |
| Total at amortised cost | 73,933 | 79,639 |
| Designated at fair value through profit or loss | 1,528 | 1,639 |
| Total issued debt | 75,461 | 81,278 |
| - of which matures within one year | 20,493 | 27,754 |
Total issued debt decreased by EUR 5.8 billion to EUR 75.5 billion at 30 June 2017. This decline was mainly due to the redemption of EUR 5.2 billion in certificates of deposits and commercial paper and EUR 0.4 billion in bonds and notes issued. Movements in these debt instruments are related to a continuous process of redemption and issuance of long-term and short-term funding.
The amounts of issued and redeemed debt during the period are shown in the Consolidated statement of cash flows. Further details of the funding programmes are provided in the Risk, funding & capital chapter.
The cumulative change in fair value of the structured notes attributable to a change in credit risk amounted to a loss of EUR 11 million in H1 2017 (full-year 2016: EUR 13 million).
For all financial liabilities designated at fair value through profit or loss, the amount that ABN AMRO would contractually be required to pay at maturity was EUR 1.5 billion at 30 June 2017 (31 December 2016: EUR 1.5 billion).
The following table shows the outstanding subordinated liabilities issued by ABN AMRO and the amounts outstanding at 30 June 2017 and 31 December 2016, respectively.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Subordinated liabilities | 11,975 | 11,171 |
Subordinated liabilities increased by EUR 0.8 billion to EUR 12.0 billion at 30 June 2017, compared with EUR 11.2 billion at 31 December 2016. This increase was mainly driven by an issued subordinated loan, for the nominal amount of USD 1.5 billion at a rate of 4.4%, with a first call date of March 2023, offset by accrued and paid interest of EUR 0.5 billion.
No perpetual loans are recorded at reporting date.
The issued and outstanding loans qualifying as subordinated liabilities are subordinated to all other current and future liabilities.
The following table shows a breakdown of provisions at 30 June 2017 and 31 December 2016, respectively.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Insurance fund liabilities | 67 | 127 |
| Provision for pension commitments | 82 | 86 |
| Restructuring provision | 410 | 417 |
| Other staff provision | 112 | 117 |
| Legal provisions | 757 | 731 |
| Other provisions | 181 | 193 |
| Total provisions | 1,609 | 1,672 |
Total provisions decreased by EUR 63 million to EUR 1,609 million at 30 June 2017 compared with EUR 1,672 million at 31 December 2016. This was mainly due to decreases in the insurance provisions.
In 2015 ABN AMRO started a review, at the request of both the Netherlands Authority for the Financial Markets (AFM) and the Dutch Ministry of Finance, to determine whether the bank had acted in accordance with its duty of care obligations with respect to the sale of interest rate derivatives to SME clients. In the second quarter of 2015 ABN AMRO first recognised a provision for the compensation of clients who had suffered damage.
In December 2015 the AFM announced that it found the review performed by banks to be insufficient. In light of this finding, the Dutch Minister of Finance appointed a committee of independent experts (the Committee) to develop a Uniform Recovery Framework in consultation with the participating banks.
On 5 July 2016 the Committee presented the Uniform Recovery Framework. On that same date ABN AMRO announced it would adhere to this framework. As a result, ABN AMRO increased its provision.
Since 5 July 2016, the Committee, the AFM, the banks and the external file reviewers have worked together to monitor how the Uniform Recovery Framework works in practice. The Committee has now added the findings to the Uniform Recovery Framework, which was finalised on 19 December 2016.
ABN AMRO has set up its own client reassessment process and the related checks and balances. In the first quarter of 2017, ABN AMRO started the reassessment of around 6,800 clients with some 9,000 interest rate derivatives. ABN AMRO aims to propose a solution under the Uniform Recovery Framework for each of these clients before the end of 2017. At various points in the process, the reassessments will be checked by an independent external file reviewer, in ABN AMRO's case audit firm PwC, and will be supervised by the AFM. The total provision for SME derivatives-related issues amounted to EUR 576 million at 30 June 2017. This amount consists of the total client compensation (EUR 534 million) and project costs (EUR 109 million), after payments already made for both elements.
ABN AMRO has sold mortgage loans with floating, often Euribor-based, interest rates (close to 1% of the total mortgage portfolio) to consumers. An important element of the pricing model of these mortgage loans is the ability of ABN AMRO to on-charge costs, allocated and unallocated, to its clients by adjusting the margin charge on the Euribor. In many of these products, ABN AMRO has structured its ability to do so in provisions in its terms and conditions that allow it to unilaterally adjust the margin charge or the floating interest rate, pricing or contract terms. ABN AMRO's external funding costs (spread on top of Euribor) have gone up and ABN AMRO has adjusted the margin charge upward in many cases. As a result, clients are contesting the ability of ABN AMRO to do so. The complaints are based on a number of specific and general legal principles. In 2012, on top of multiple individual cases, class actions were brought by Stichting Stop de Banken and Stichting Euribar in relation to mortgage agreements with a floating interest rate based on Euribor, alleging that ABN AMRO was contractually not allowed to unilaterally increase the level of the applicable margin and that it had violated its duty of care. ABN AMRO lost the class action cases in the lower court in November 2015. In its judgement, the Amsterdam court took a rather principled view of unconditional (pricing) amendment provisions. ABN AMRO filed for an appeal against this judgement. ABN AMRO has recognised a provision for this matter.
International Card Services B.V. (ICS), the credit card business of ABN AMRO, has identified certain issues from its past in respect of the granting of credit to consumers, as a result of which certain clients have been provided with loans above their lending capacity. This has been reported to the AFM. ICS has drafted a redress scheme that addresses remedial measures for clients that have been affected, which will, among other things, include financial compensation for certain clients. The recovery framework is currently being executed and is expected to be finalised by the end of 2018. ABN AMRO has recognised a provision in respect of this redress scheme.
Condensed consolidated Interim Financial Statements 2017
The tax treatment of certain transactions relating to discontinued securities financing activities are currently the subject of discussions with the Swiss and German tax authorities. In Switzerland, the discussion regards the beneficial ownership of shares held by subsidiaries of former Fortis Bank Nederland (FBN). Those subsidiaries reclaimed dividend withholding tax, while according to the Swiss tax authorities they were not entitled to reclaim this tax.
The German tax authorities have issued tax assessments against a former German subsidiary of FBN and against a German branch to reclaim dividend withholding tax amounts previously reclaimed by that German company and that branch. The German tax authorities dispute these reclaims. ABN AMRO has also received liability notices related to these reclaims. ABN AMRO has recognised provisions which are currently considered sufficient to cover potential claims made by the Swiss and German tax authorities.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Committed credit facilities | 28,954 | 27,299 |
| Guarantees and other commitments: | ||
| Guarantees granted | 2,439 | 2,659 |
| Irrevocable letters of credit | 6,094 | 6,178 |
| Recourse risks arising from discounted bills | 6,041 | 7,037 |
| Total guarantees and other commitments | 14,573 | 15,873 |
| Total | 43,527 | 43,173 |
The total of committed credit facilities, guarantees and other commitments increased by EUR 0.4 billion to EUR 43.5 billion at 30 June 2017 compared with EUR 43.2 billion at 31 December 2016. This increase was caused by an increase of EUR 1.7 billion in the committed credit facilities, offset by a decrease of EUR 1.3 billion in the guarantees and other commitments.
The increase in committed credit facilities was related to higher volume of credit lines granted to credit institutions, commercial and consumer clients of EUR 2.0 billion, partly offset by lower outstanding credit offers of EUR 0.3 billion.
ABN AMRO is involved in a number of legal proceedings which relate to the ordinary course of business in a number of jurisdictions. In presenting the Condensed Consolidated Interim Financial Statements, management makes estimates regarding the outcome of legal, regulatory and arbitration matters and takes a charge to income when losses with respect to such matters are probable. Charges other than those taken periodically for defence costs are not established for matters when losses cannot be reasonably estimated. Other contingent liabilities include an Irrevocable Payment Commitment (IPC) to the Single Resolution Board (SRB) in Brussels. In April 2016, the SRB provided credit institutions the option to fullfill part of the obligation to pay the annual ex-ante contributions to the Single Resolution Fund (SRF) through IPCs. To secure full and punctual payment, when called by the SRB, credit institutions needed to constitute cash collateral and fully transfer legal ownership to the SRB.
Condensed consolidated Interim Financial Statements 2017
On 1 March 2016, the AFM published a press release and a letter addressed to the Dutch Minister of Finance advising him to appoint a panel of independent experts for advice on the reassessment of SME and middle market interest rate derivatives. On 5 July 2016 the Uniform Recovery Framework prepared by this panel of independent experts was presented, and ABN AMRO has committed to this framework. The Uniform Recovery Framework was finalised on 19 December 2016. This will lead to revised compensation solutions for clients. ABN AMRO intends to make an offer to all clients in scope of the Uniform Recovery Framework before year-end 2017. However, it is unclear how the Uniform Recovery Framework will impact pending and future litigation. As this is a possible liability dependent on a future event, there is no provision for this possible outflow of resources and it is therefore considered a contingency. In this respect, reference is made to note 18 Provisions.
Section 2:334t of the Dutch Civil Code requires that in the event of an entity being divided into two or more parts through a legal demerger, each part remains liable to the creditors of the other demerged part. Such liabilities relate only to obligations existing as at the date of the legal demerger. As explained in more detail in Note 34 of the 2016 Condensed Consolidated Annual Financial Statements, ABN AMRO was subject to a demerger with RBS N.V. in 2010.
On 1 April 2010 ABN AMRO signed an indemnity agreement with the Dutch State (currently represented by NLFI) for a shortfall in capital above a certain amount related to specific assets and liabilities of RFS Holdings B.V. In July 2015 ABN AMRO was informed by NLFI about a claim it had received from RBS relating to these assets and liabilities in RFS Holdings B.V. This gives NLFI the right to file a claim with ABN AMRO. As of the publication date of these Condensed Consolidated Interim Financial Statements, ABN AMRO is not aware that a claim will be filed by NLFI. This situation could change in the future.
As part of its business operations, ABN AMRO Bank frequently enters into transactions with related parties. Parties related to ABN AMRO Bank include ABN AMRO Group N.V. with control, the Dutch State and NLFI with significant influence, associates, pension funds, joint ventures, the Executive Board, the Supervisory Board, close family members of any person referred to above, entities controlled or significantly influenced by any person referred to above and any other related entities. ABN AMRO Bank has applied the partial exemption for government-related entities as described in IAS 24 paragraphs 25-27. For further information, see note 35 of the Consolidated Annual Financial Statements 2016.
Loans and advances to the Executive Board, the Supervisory Board and close family members, where applicable, consist mainly of residential mortgages granted under standard personnel conditions. For further information, see note 36 of the Consolidated Annual Financial Statements 2016.
| (in millions) | Joint ventures | Associates | Other | Total |
|---|---|---|---|---|
| 30 June 2017 | ||||
| Assets | 13 | 476 | 489 | |
| Liabilities | 226 | 700 | 926 | |
| Guarantees given | 15 | 15 | ||
| Guarantees received | 15 | 15 | ||
| Irrevocable facilities | 25 | 25 | ||
| First half 2017 | ||||
| Income received | 19 | 26 | 45 | |
| Expenses paid | 6 | 3 | 161 | 170 |
| 31 December 2016 | ||||
| Assets | 14 | 382 | 396 | |
| Liabilities | 205 | 710 | 914 | |
| Guarantees given | 15 | 15 | ||
| Guarantees received | 7 | 7 | ||
| Irrevocable facilities | 26 | 26 | ||
| First half 2016 | ||||
| Income received | 17 | 22 | 38 | |
| Expenses paid | 7 | 5 | 149 | 161 |
Assets with associates increased by EUR 94 million at 30 June 2017 compared with 31 December 2016, mainly due to higher balances with financial institutions.
Liabilities with joint ventures increased by EUR 21 million at 30 June 2017 compared with 31 December 2016, due to higher customer deposits held by other financial corporations.
Expenses paid in the column Other reflect pension contribution paid to the ABN AMRO pension fund.
| (in millions) | 30 June 2017 | 31 December 2016 |
|---|---|---|
| Assets: | ||
| Financial assets held for trading | 603 | 269 |
| Derivatives | 1,288 | 1,701 |
| Financial investments - available for sale | 6,629 | 6,592 |
| Loans and receivables - customers | 779 | 782 |
| Other assets | 99 | 99 |
| Liabilities: | ||
| Derivatives | 1,915 | 2,371 |
| Due to customers | 819 | 830 |
| Financial liabilities held for trading | 410 | 9 |
| Subordinated loans | ||
| First half 2017 | First half 2016 | |
| Income statement: | ||
| Interest income | 69 | 71 |
| Interest expense | 20 | 23 |
| Net trading income | -2 | -19 |
| Net fee and commission income | ||
| Other income | 10 | 39 |
Royal Bank of Scotland (RBS) is still the legal owner of specific Consortium shared assets and liabilities. This means that these assets and liabilities are for the risk and reward of RBS, Santander and the Dutch State as the shareholder of RFS Holdings B.V. On 1 April 2010, ABN AMRO signed an indemnity agreement with the Dutch State for a shortfall in capital above a certain amount related to specific assets and liabilities of RFS Holdings.
Transactions conducted with the Dutch State are limited to normal banking transactions, taxation and other administrative relationships. Normal banking transactions relate to loans and deposits, financial assets held for trading and financial investments - available for sale, and are entered into under the same commercial and market terms that apply to non-related parties.
Transaction and balances related to taxation, such as levies in the Netherlands, are excluded from the table above.
Financial assets held for trading increased by EUR 0.3 billion at 30 June 2017 compared with 31 December 2016, mainly due to higher Dutch government bonds as a result of primary dealership in the Netherlands and of client facilitation. Most of these contracts are hedged with short positions in government bonds.
Derivatives related to both assets and liabilities decreased by EUR 0.4 billion at 30 June 2017 compared with 31 December 2016, mainly due to lower lending positions with the Dutch State. Derivatives transactions with Dutch State are related to the normal course of business.
Financial liabilities held for trading increased by EUR 0.4 billion at 30 June 2017 compared with 31 December 2016, as a result of higher short positions in Dutch government bonds.
Net trading income decreased by EUR 17 million at 30 June 2017 compared with 31 December 2016, due to trading results in sold Dutch government bonds.
Other income decreased by EUR 29 million at 30 June 2017 compared with 31 December 2016, mainly as a result of higher realised gains on financial investments in 2016.
There have been no significant events between 30 june 2017 and the date of approval of these accounts which would require a change to or disclosure in the accounts.
Interim Financial Statements 2017
[email protected] +31 20 6282 282
The Executive Board will host a conference call for analysts and investors on 9 August 2017 at 11:00 am CET (12:00 GMT).To participate in the conference call, we strongly advise analysts and investors to pre-register for the call using the information provided on the ABN AMRO Investor Relations website.
More information can be found on our website abnamro.com/ir.
[email protected] +31 20 6288 900
Gustav Mahlerlaan 10, 1082 PP Amsterdam P.O. Box 283, 1000 EA Amsterdam The Netherlands abnamro.com
Information on our website does not form part of this Interim Report, unless expressly stated otherwise.
ABN AMRO has included in this document, and from time to time may make certain statements in its public statements that may constitute "forward-looking statements". This includes, without limitation, such statements that include the words "expect", "estimate", "project", "anticipate", "should", "intend", "plan", "probability", "risk", "Value-at-Risk ("VaR")", "target", "goal", "objective", "will", "endeavour", "outlook", "optimistic", "prospects" and similar expressions or variations on such expressions. In particular, the document may include forward-looking statements relating but not limited to ABN AMRO's potential exposures to various types of operational, credit and market risk. Such statements are subject to uncertainties.
Forward-looking statements are not historical facts and represent only ABN AMRO's current views and assumptions on future events, many of which, by their nature, are inherently uncertain and beyond our control. Factors that could cause actual results to differ materially from those anticipated by forward-looking statements include, but are not limited to, (macro)-economic, demographic and political conditions and risks, actions taken and policies applied by governments and their agencies, financial regulators and private organisations (including credit rating agencies), market conditions and turbulence in financial and other markets, and the success of ABN AMRO in managing the risks involved in the foregoing.
Any forward-looking statements made by ABN AMRO are current views as at the date they are made. Subject to statutory obligations, ABN AMRO does not intend to publicly update or revise forward-looking statements to reflect events or circumstances after the date the statements were made, and ABN AMRO assumes no obligation to do so.
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