Principles underlying financial statement reporting and notes

VP Bank Ltd, which has its registered office in Vaduz, Liechtenstein, was established in 1956 and is one of the three largest banks in Liechtenstein. Today, VP Bank Group has subsidiaries in Zurich, Luxembourg, the British Virgin Islands, Singapore and Hong Kong, as well as representative offices in Moscow and Hong Kong. As of 31 December 2014, VP Bank Group had 694.9 full-time-equivalent employees (previous year: 705.8).

The Group’s core activities comprise asset management and portfolio advisory services for private and institutional investors as well as lending.

Values disclosed in the financial statements are expressed in thousands of Swiss francs. The 2014 financial statements were drawn up in accordance with International Financial Reporting Standards (IFRS). IFRS contain guidelines which require assumptions and estimates to be made by VP Bank Group in preparing the consolidated financial statements. The main accounting policies are described in this section in order to show how their application impacts the reported results and disclosures.

There were no post-balance-sheet-date events that materially affected the balance sheet and income statement for 2014. 

At its 19 February 2015 meeting, the Board of Directors reviewed, approved and authorised the release of the con­solidated financial statements. These consolidated financial statements will be submitted for approval at the annual general meeting of 24 April 2015.

VP Bank Group is continuing to pursue a course of further growth through acqui­sitions. After receiving the required supervisory authority approval from the Liechtenstein Financial Market Authority, VP Bank Ltd, Vaduz, acquired 100 per cent of the shares of Centrum Bank AG, Vaduz, on 7 January 2015. The acquisition price was CHF 60 million. Following this transaction, Centrum Bank AG, Vaduz, will become a wholly owned subsidiary of VP Bank Ltd, Vaduz. The legal merger between VP Bank Ltd and Centrum Bank AG will be completed effective 30 April 2015. The purchase price allocation (under IFRS) in connection with the acquisition of Centrum Bank is currently being prepared. The definitive calculation and disclosure of the required financial information for acquired assets and liabilities along with any goodwill or negative goodwill (bargain purchase) resulting from the merger with Centrum Bank will be presented in the interim financial statements on 30 June 2015. Consolidated reporting will commence on 30 June 2015. 

The Marxer Foundation for Bank Values, the former sole owner of Centrum Bank AG, will receive an ownership interest in VP Bank Ltd based on the value of the share purchase price. The Board of Directors of VP Bank Ltd, Vaduz, will therefore convene an extraordinary general meeting of shareholders on 10 April 2015 and request a corresponding capital increase. 

The Swiss National Bank’s decisions in January 2015 to eliminate the Swiss franc’s minimum exchange rate against the euro and to shift the target range of the three-month Libor have had no impact on the 2014 consolidated financial statements. These moves have nevertheless resulted in significant market distortions. This difficult environment will pose a significant challenge for VP Bank Group and affect business trends. VP Bank Group is well positioned and is taking concrete steps to address these challenges. 

The implementation of the Basel III regulations takes effect in Liechtenstein on 1 February 2015 and imposes stricter capital and liquidity requirements on credit institutions. As a syste­mically important bank in Liechtenstein, VP Bank must satisfy additional capital buffer requirements. VP Bank’s current tier 1 ratio of 20.5 per cent more than satisfies the 13 per cent level required under the Basel III regulations in Liechtenstein on 1 February 2015 and continues to represent a high level of stability and security. 

IFRS contain guidelines which require VP Bank Group’s management to make certain assumptions and estimates when preparing the consolidated financial statements. The assumptions and estimates are continually reviewed and are based upon historical experience and other factors, including anti­cipated developments arising from probable future events. Actual future occurrences may differ from these estimates.

A credit review is undertaken at least once a year for all value-impaired loans. Should changes have occurred as to the amount and timing of anticipated future payment flows in comparison to previous estimates, the allowance for credit risks is adjusted accordingly. The allowance amount is measured essentially by reference to the difference between the carrying amount and the probable amount which will be recovered, after taking into account the proceeds of realisation from the sale of any collateral. 

A change in the net present value of the estimated future monetary flows of +/– 5 per cent increases or decreases, respectively, the amount of the allowance by CHF 0.6 million (prior year: CHF 1.0 million).

Changes in estimates

No material changes in estimates were made or applied.

The consolidated financial statements encompass the financial statements of VP Bank Ltd, Vaduz, as well as those of its sub­- sidiaries, which are all presented as a single economic unit. Subsidiaries which are directly or indirectly controlled by VP Bank Group are consolidated. Subsidiaries are consolidated as of the date on which control is transferred and deconsolidated as of the date when control ends.

In 2013, the shareholdings in IGT Intergestions Trust reg. Vaduz, Proventus Treuhand und Verwaltung AG, Vaduz, FIB Finanz- und Beteiligungs-AG, Vaduz, as well the 60 per cent equity share in VP Bank and Trust Company (BVI) Limited, Tortola, were sold. These companies are no longer included in the scope of consolidation. The shareholding in VP Bank (BVI) Ltd, Tortola was increased from 60 per cent to 100 per cent.

Capital consolidation is undertaken in accordance with the purchase method, whereby the shareholders’ equity of the consolidated company is netted against the carrying amount of the shareholding in the parent company’s financial statements as of the date of acquisition or the date of establishment. 

Subsequent to initial consolidation, changes occurring through profit or loss and recognised in the consolidated finan­cial statements are allocated to profit reserves. The effects of intra-Group transactions are eliminated in prepar­- ing the consolidated annual financial statements. 

The share of non-controlling interests in shareholders’ equity and Group net income is shown separately in the consolidated balance sheet and income statement.

Shareholdings on which VP Bank Group exercises material influence are recorded using the equity method. A material influence is generally assumed to exist whenever VP Bank Group holds, directly or indirectly, 20 per cent to 50 per cent of the voting rights. 

Under the equity method, the shares of a company are recog­nised at their acquisition cost at the time of acquisition. Subsequently, the carrying value of the associated com­- pany is increased or reduced by the Group’s share of the profits or losses and by changes in the shareholders’ equity of the associated company not shown through profit or loss.

In applying the equity method, the Group ascertains whether it is necessary to record an additional impairment loss for its investments in associated companies. At each reporting date, the Group ascertains whether indications exist that the investment in the associated company may be value-impaired. If so, the difference between the realisable value of the shares in the associated company and its carrying amount is charged against income.

The trade-date method of recording purchases or sales of financial assets and liabilities is applied. This means that transactions are recorded in the balance sheet as of the date when the trade is entered into and not on the date when the trade is subsequently settled.

Revenues from services are recorded when the related service is rendered. Portfolio management fees, securities account fees and similar revenues are recorded on a pro-rata basis over the period during which the service is rendered. Interest is recorded in the period during which it accrues. Dividends are recorded as and when they are received.

Functional currency and reporting currency: the consolidated financial statements are expressed in Swiss francs. 

The foreign-exchange translation into the functional currency is undertaken at the rate of exchange prevailing as of the transaction date. Translation differences arising from such transactions and gains and losses arising from currency translation rates at balance-sheet date rates for monetary financial assets and financial liabilities are shown through profit or loss. 

Unrealised foreign-currency translation differences in non-monetary financial assets are recognised as changes in fair value.

For the purpose of the preparation of the consolidated financial statements, balance sheets of Group companies denomin­ated in a foreign currency are translated into Swiss francs at the year-end exchange rate. Average exchange rates for the reporting period are applied for the translation of items on the income statement, statement of other comprehensive income and cash flow statement. Foreign-currency translation differences resulting from exchange rate movements between the beginning and end of the year and the difference in annual results at average and closing exchange rates are recognised in other comprehensive income.

All balance sheet items (excluding shareholders’ equity) are converted into the Group reporting currency at the rate of exchange prevailing as of the end of the reporting period. The individual items in the income statement are translated at average rates for the period. Foreign-currency differences arising from the translation of financial statements expressed in foreign currencies are recognised directly in shareholders’ equity (income reserves).

Foreign-currency translation differences arising in connection with net investments in foreign companies are recognised in shareholders’ equity. Upon disposal, such foreign-currency translation differences are recorded in the income statement as a part of the gain or loss on disposal.

Goodwill and fair value adjustments from acquisitions of foreign companies are treated as receivables and payables of these foreign companies and are translated at the closing rates prevailing on the balance-sheet date. 

The term “domestic” includes Switzerland.

Cash and cash equivalents encompass cash, receivables arising from money-market paper with an original maturity of no more than 90 days as well as sight balances with banks.

VP Bank Group classifies financial instruments, which also include traditional financial assets and liabilities as well as equity instruments, as follows:

• Financial instruments to be recorded via the income statement (“fair value through profit or loss” (FVTPL) – “trading portfolios” and “financial instruments at fair value”)
• Financial instruments at amortised cost
• Financial instruments at fair value with changes in value and impairment losses recorded in other comprehensive income (FVTOCI)

The classification of financial instruments is made at the time of initial recognition using the criteria set out in IFRS 9. VP Bank Group adopted IFRS 9 (2010) early as of 1 January 2011. In cases where hedge conditions are fulfilled, VP Bank Group will apply hedge accounting in accordance with IFRS 9 (2013) early as of 1 January 2015.

Trading portfolios comprise shares, bonds, precious metals and structured products. Financial assets held for trading purposes are measured at fair value. Short positions in secur­ities are disclosed as liabilities arising from trading portfolios. Realised and unrealised gains and losses are recorded under income from trading activities after deduction of related transaction costs. Interest and dividends from trading activ­ities are recorded under interest income. 

Fair values are based on quoted market prices if an active market exists. If no active market exists, the fair value is deter­mined by reference to listed quotes or external pricing models. 

Investments where the objective consists of holding the financial asset in order to realise the contractual payment flows therefrom and which are made up solely of interest as well as the redemption of parts of the nominal value are recognised at amortised cost using the effective interest method.

A financial investment recognised at amortised cost is classified as being impaired whenever it is probable that the total contractually agreed amount due will not be collected in full. Causes giving rise to an impairment loss can be counterparty- or country-specific. Whenever impairment occurs, the carrying amount of the financial investment is reduced to its realisable value and the differ­ence is charged against “income from financial investments”.

Interest is recognised in the period when it accrues using the effective interest method and is reported in interest income under “interest income from financial instruments at amortised cost”.

Financial instruments not meeting the aforementioned criteria are recognised at fair value. The ensuing gains/losses are reported in “income on financial instruments at fair value” under “income from financial investments”.

Insofar as the criteria of IFRS 9 are not met, a financial instrument may be designated and recorded under this category upon initial recognition.

Interest and dividend income are recorded in “income from financial investments” under the items “interest income from FVTPL financial instruments” and “dividend income from FVTPL financial instruments”.

Investments in equity instruments are recognised in the balance sheet at fair value. Changes in value are shown through profit or loss, except in cases where VP Bank Group has decided that they are to be recognised at fair value through other comprehensive income.

Dividends are reported in “income from financial investments” under the item “dividend income from FVTOCI financial instruments”.

Loans to banks and customers are valued at their effective cost, which equates to the fair value at the time the loans are granted. Subsequent valuations correspond to the amortised cost using the effective interest method. Interest on performing loans is recognised on an accrual basis and reported under interest income using the effective interest method.

Value-impaired loans are amounts outstanding from clients and banks where it is improbable that the debtor can meet its obligations. The reasons for an impairment in value are of a counterparty- or country-specific nature. Interest on value-impaired loans is recorded on an accrual basis. A valuation allowance for credit risk is recorded as a reduction in the carrying amount of a loan in the balance sheet. The allowance is measured essen­tially by reference to the difference between the carrying amount and the amount likely to be recovered after taking into account the realisable proceeds from the disposal of any applicable collateral. For off-balance-sheet positions, on the other hand, such as a fixed facility granted, a provi­sion for credit risks is recorded under provisions. General port­folio-based impairment allowances are recorded to cover potential, as yet unidentified credit risks. A credit review is performed at least once a year for all value-impaired receiv­ables. If changes have occurred as regards the amount and timing of anticipated future flows in com­parison to previous estimates, the valuation allowance for credit risks is adjusted and recorded in the income statement under valuation allowances for credit risks or reversal of valuation allowance and provisions that are no longer required.

A loan is considered to be overdue or non-performing if a material contractually agreed payment remains outstanding for a period of 90 days or more. Such loans are not classified as value-impaired if it can be shown that they are still covered by existing collateral. 

Derivative financial instruments are measured at fair value and recorded in the balance sheet. Fair value is determined on the basis of listed quotations or option pricing models. Realised and unrealised gains and losses are shown through profit or loss. 

When hedging conditions are fulfilled, VP Bank Group will apply hedge accounting in accordance with IFRS 9 (2013) as early as of 1 January 2015.

Under the Group’s risk management policy, VP Bank uses certain derivatives as part of hedge transactions. From an economic perspective, the opposing valuation effects of the underlying and hedging transactions offset one another. However, because these transactions do not satisfy strict and specific IFRS guidelines, asymmetrical valuation differences between the underlying and hedging transactions arise from an accounting standpoint. Fair value changes for such derivatives are shown through profit or loss for the corresponding periods under trading and interest income.

Hedge accounting was not applied for either the reporting period or the previous year. 

Medium-term notes are recorded at their issue price and subsequently measured at their amortised cost.

At the time of their initial recording, bonds are recorded at fair value less transaction costs. Fair value corresponds to consideration received. They are subsequently valued at their amortised cost. As such, the effective interest method is employed in order to amortise the difference between the issue price and redemption amount over the life of the debt instrument. 

Shares in VP Bank Ltd, Vaduz, held by VP Bank Group are disclosed as treasury shares under shareholders’ equity and deducted at acquisition cost. The difference between the sales proceeds of treasury shares and the related acquisition cost is shown under capital reserves. 

Repurchase and reverse repurchase transactions serve to refinance or finance, respectively, or to acquire securities of a certain class. These are recorded as an advance against collateral in the form of securities or as a cash deposit with collateral in the form of own securities.

Securities received and delivered are only recorded in the balance sheet or closed out when the control over the contractual rights (risks and opportunities of ownership) inherent in these securities has been ceded. The fair values of the securities received or delivered are monitored on an ongoing basis in order to provide or demand additional collateral in accordance with the contractual agreements. 

Financial instruments which are lent out or borrowed and valued at fair value, and in respect of which VP Bank Group appears as principal, are recorded in the balance sheet under amounts due to/from customers and banks.

Securities lending and borrowing transactions in which VP Bank Group appears as agent are recorded under off-balance-sheet items.

Fees received or paid are recorded under commission income. 

Provisions are only recorded in the balance sheet if VP Bank Group has a third-party liability arising from a previous event, if the outflow of resources with economic benefit to fulfil this liability is probable, and if this liability can be reliably estimated. If an outflow of funds is unlikely to occur or the amount of the liability cannot be reliably estimated, a con­tingent liability is shown. 

The value of property, plant and equipment and other assets (including goodwill and other intangible assets) is reviewed at least once a year or at any time the carrying amount may be over-valued as a result of occurrences or changed circumstances. If the carrying amount exceeds the realisable value, an impairment charge is recorded.

Property, plant and equipment comprises bank premises, other real estate, furnishings and equipment, as well as IT systems. These assets are valued at acquisition cost less depreciation related to operations. 

Property, plant and equipment are capitalised, provided their purchase or manufacturing cost can be determined reliably, their value exceeds a minimum limit for capitalisation and the assets represent future economic benefits.

Depreciation and amortisation is charged on a straight-line basis over the estimated useful lives:

The depreciation methods and useful lives are reviewed at the end of each year. 

Minor purchases are charged directly to general and admin­istrative expenses. Maintenance and renovation expenses are generally recorded under general and administrative expenses. If the expense is substantial and results in a sig­nificant increase in value, the amounts are capitalised. The capitalised assets are then depreciated over their useful lives. 

Gains on disposal of property, plant and equipment are reported as other income. Losses on disposal lead to additional depreciation of property, plant and equipment.

In the case of a takeover, should the acquisition costs exceed the value of the net assets acquired and valued in accordance with uniform Group guidelines (including identifiable and capitalisable intangible assets), the remaining amount con­stitutes the acquired goodwill. Goodwill is capitalised and subject to an annual review for any impairment. Goodwill is recorded in the original currency and translated on the balance-sheet date at prevailing year-end rates. 

Purchased software is capitalised and amortised over three to seven years. Minor purchases are charged directly to general and administrative expenses.

Internally generated intangible assets such as software are capitalised insofar as the prerequisites for capitalisation set forth in IAS 38 are met, i.e. it is probable that the Group will derive a future economic benefit from the asset and the costs of the asset can be both identified and measured in a reliable manner. Internally produced software meeting these criteria and purchased software are recorded in the balance sheet under software. The capitalised values are amortised on a straight-line basis over their useful lives. The period of amortisation is three to seven years. 

Other intangible assets include separately identifiable in­tangible assets arising from acquisitions, as well as certain purchased client-related assets, etc., and are amortised on a straight-line basis over an estimated useful life of 5 to 10 years. Other intangible assets are recorded in the balance sheet at their purchase cost at the time of acquisition. 

Current income taxes are calculated on the basis of the applic­able tax laws in the individual countries and are booked as expenses in the accounting period in which the related profits are recorded. They are shown as tax liabilities in the balance sheet.

The tax impact of timing differences between the amounts attributed to the assets and liabilities as reported in the consolidated balance sheet and their values reported for tax purposes are recorded as deferred tax assets or deferred tax liabilities. Deferred tax assets arising from timing differences or from the utilisation of tax loss carry-forwards are only recognised when it is probable that sufficient taxable profits will exist, against which these timing differences or tax loss carry-forwards can be offset.

Deferred tax assets and tax liabilities are calculated using the tax rates which are expected to apply in the accounting period in which these tax assets will be realised or tax liabil­ities will be settled. 

Tax assets and tax liabilities are only offset against each other if they relate to the same taxable entity, concern the same tax jurisdiction and an enforceable right of offset exists.

Deferred taxes are credited or charged directly to share­holders’ equity if the tax relates to items which are directly credited or debited to shareholders’ equity in the same or another period. 

The tax savings expected from the utilisation of estimated future realisable loss carry-forwards are capitalised. The probability of realising expected tax benefits is taken into account when valuing a capitalised asset for future tax relief. Tax assets arising from future tax relief encompass deferred taxes on timing differences between the carrying amounts of assets and liabilities in the consolidated balance sheet and those used for tax purposes as well as estimated future realisable loss carry-forwards. Deferred tax receivables in one sovereign tax jurisdiction are offset against deferred tax liabilities of the same jurisdiction if the company has a right of offset between actual tax liabilities and tax claims and the taxes are levied by the same tax authorities; amounts are offset insofar as the maturities correspond. 

VP Bank Group maintains a number of retirement pension plans for the employees of its domestic and foreign entities, including both defined-benefit and defined-contribution plans.

Accrued benefits from and liabilities to these pension funds are calculated on the basis of statistical and actuarial calcu­lations of experts. 

As regards defined-benefit pension plans, pension costs are determined on the basis of various economic and demographic assumptions using the projected unit credit method, which takes into account the number of insurance years actually earned through the date of valuation. Compu­tational assumptions taken into account by the Group include the expected future rate of salary increases, long-term interest earned on retirement assets, retirement patterns and life expectancy. The valuations are performed annually by independent actuaries. Plan assets are re-measured annually at fair values.

Pension costs comprise three components:

• Service costs, which are recognised in the income statement
• Net interest expense, which is also recognised in the income statement
• Revaluation components, which are recognised in the statement of comprehensive income

Service costs encompass current service costs, past service costs and gains and losses from non-routine plan settlements. Gains and losses from plan curtailments are deemed to equate to past service costs. 

Employee contributions and contributions from third parties reduce service cost expense and are deducted therefrom, provided that these derive from pension plan rules or a de facto obligation. 

Net interest expense corresponds to the amount derived from applying the discount rate to the pension liability or plan assets at the beginning of the year. In the process, capital flows of less than one year are recognised on a weighted basis.

Revaluation components encompass actuarial gains and losses from the movement in the present value of pension obligations and plan assets. Actuarial gains and losses result from changes in assumptions and adjustments reflecting actual results. Gains and losses on plan assets equate to the income from plan assets less the amounts contained in net interest expense. Revaluation components also encompass movements in unrecognised assets less the effects contained in net interest expense. Revaluation components are recognised in the statement of comprehensive income and can­- not be booked as earnings in future periods (recycling). The amounts re­cognised in the statement of comprehensive income can be reclassified within shareholders’ equity. Service costs and net interest expense are recorded in the consolidated finan­cial statements under personnel expense. Revaluation com­ponents are recognised in the statement of comprehensive income.

The pension liabilities or plan assets recognised in the con­solidated financial statements correspond to the funding deficit or surplus of defined-benefit pension plans. The recognised pension assets are limited to the present value of the economic benefit of the Group arising from the future reduction in contributions or repayments. 

Liabilities arising in connection with the termination of em­ployment relationships are recognised at the time when the Group has no other alternative but to finance the benefits offered. In any event, the expense is to be recorded at the earliest when the other restructuring cost is also recognised. 

For other long-term benefits, the present value of the acquired commitment is recorded as of the balance-sheet date. Changes in present values are recorded directly in the income statement as personnel expense.

Employer contributions to defined-benefit pension plans are recognised in personnel expense at the date when the employee becomes entitled thereto.

Since 1 January 2014, the following new or revised standards and interpretations have taken effect:

Following the changes, an “investment entity” is defined as an entity with the following characteristics:

• It obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services.
• It commits to its investor(s) that its business purpose is to invest with the objective of achieving capital growth, generating investment income or both.
• It measures and evaluates the performance of substantially all of its investments on a fair value basis.

An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design. The amendments provide that an investment entity should have the following typical charac­teristics:

• More than one investment
• More than one investor
• Investors that are not related to the entity or other members of the group belonging to the entity
• Ownership interests typically exist in the form of equity or simi­lar interests (e.g. partnership interests) to which proportionate shares of the net assets of the investment entity are attributed

The provisions in connection with the offsetting of financial instruments remain fundamentally unchanged by the amendments, which focused much more on clarifying the application guidelines for IAS 32 Financial Instruments: Presentation as regards the terms “currently” and “simultaneously”. New disclosure requirements were also introduced to IFRS 7 Financial Instruments: Disclosures, which pertain to master netting and similar agreements. 

IFRIC 21 provides the following guidance on the recognition of a liability to pay levies. The liability is recognised progressively if the obligating event occurs over a period of time. If an obligation is triggered on reaching a minimum threshold, the liability is recognised when that minimum threshold is reached. The same recognition principles apply to interim financial reports.

Clarifies the definitions of “exercise conditions” and “market condition” and adds definitions for “performance condition” and “service condition” (previously included in the definition of “exercise conditions”).

Requires an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments.

Clarifies that an entity shall only be required to reconcile the total of the reportable segments’ assets to the entity’s assets if the segment assets are reported regularly.

Clarifies that the issuance of IFRS 13 and amendments to IFRS 9 and IAS 39 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting if the effect of not discounting is immaterial.

Clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity.

Clarifies that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.

Clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation.

Numerous new standards, amendments and interpretations of existing standards which are required to be applied for periods starting 1 January 2015 or later were issued. The following new or amended International Financial Reporting Standards or interpretations are currently being reviewed or are immaterial for VP Bank Group. No early application was made by the Group. 

This standard contains requirements for recognition and measurement, derecognition and general hedge accounting. The IASB issued its final version of the standard on 24 July 2014 after having completed the various phases of its com­prehensive financial instruments project. The accounting of financial instruments, previously covered by IAS 39 Financial Instruments: Recognition and Measurement, has now been totally replaced by the accounting provisions of IFRS 9. This latest version of IFRS 9 supersedes all previous versions. The mandatory first-time application is planned for periods beginning on or after 1 January 2018. Early adoption is authorised, subject to local regulations. For a limited period, previous versions of IFRS 9 may be adopted early if this has not already been done, provided the relevant date of initial application is before 1 February 2015. 

IFRS 9 does not replace the requirements for portfolio fair value hedge accounting for interest rate risk under IAS 39. Consequently, the exception in IAS 39 for a fair value hedge of an interest rate exposure of a portfolio of financial assets or financial liabilities continues to apply.

It is therefore still possible to apply the regulations governing fair value hedges of a portfolio’s interest rate exposure or even designate hedging relationships in accordance with the general provisions of IAS 39. 

Since 1 January 2011, VP Bank Group has applied IFRS (2010) early. If hedge conditions are satisfied, VP Bank Group will apply hedge accounting under IFRS 9 (2013) early as of 1 January 2015. 

Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) amends IFRS 11 such that the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3, is required to apply all of the principles on business combinations accounting in IFRS 3 and other IFRSs, with the exception of those principles that conflict with the guidance in IFRS 11. Accordingly, a joint operator that is an acquirer of such an interest has to: 

• Measure the most identifiable assets and liabilities at fair value
• Expense acquisition-related costs (other than debt or equity issuance costs)
• Recognise deferred taxes
• Recognise any goodwill or bargain purchase gain
• Perform impairment tests for the cash generating units to which goodwill has been allocated
• Disclose required information relevant for business combinations

The amendments apply to the acquisition of an interest in an existing joint operation and also to the acquisition of an interest in a joint operation on its formation, unless the formation of the joint operation coincides with the formation of the business. 

The amendments shall be effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted, but corresponding disclosures are required. The amendments apply prospectively.

IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informa­- tive, relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers.

IFRS 15 was issued in May 2014 and shall apply to an annual reporting period beginning on or after 1 January 2017.

With “Defined Benefit Plans: Employee Contributions (Amendments to IAS 19 Employee Benefits)”, the IASB has amended the requirements in IAS 19 for contributions from employees or third parties that are linked to service:

If the amount of the contributions is independent of the number of years of service, contributions may be recognised as a reduction in the service cost in the period in which the related service is rendered (note: this is a permitted but not required method)

If the amount of the contributions depends on the number of years of service, those contributions must be attributed to periods of service using the same attribution method as used for the gross benefit in accordance with paragraph 70 of IAS 19.

The amendments are intended to provide relief in that enti­- ties are allowed to deduct contributions from service costs in the period in which the service is rendered. This was common practice before the 2011 amendments to IAS 19. In those cases, the impact of retrospective application would be minimal.

The amendments are effective for annual periods beginning on or after 1 July 2014.

The focus of value-oriented risk management is to achieve a sustainable return on the capital invested and one which, from the shareholders’ perspective, is commensurate with the risks involved. To achieve this goal, VP Bank supports a rigorous dovetailing of profitability and risk within the scope of the management of its own equity resources; it deliberately chooses not to seek short-term interest gains at the expense of the security of capital. VP Bank avoids extreme risks which can jeopardise the ability to bear risk and, in this respect, the health and existence of the Group, and manages all risks within the annual risk budget laid down by the Board of Directors. Thanks to its strong capitalisation, VP Bank can invest in the expansion of its business. In managing its equity resources, VP Bank measures both the equity required (mini-mum amount of equity to cover the Bank’s risks in accordance with the requirements of applicable supervisory law) and the available eligible equity (VP Bank’s equity is calculated in accordance with the criteria of the supervisory authorities) and project their future development. 

Equity resources which the Bank does not need for its growth or business activities are returned through dividend payments in accordance with the long-term dividend policy. Thus, through active management, VP Bank is in a position to maintain the robust capita­lisation as well as the credit rating and continue to create sustainable value for the shareholders. 

Capital indicators

The determination of the required capital and core capital is carried out on the basis of the IFRS consolidated financial statements, whereby unrealised gains are deducted from core capital. Total capital (core capital and supplementary capital) must amount to a minimum of 8 per cent of the risk-weighted assets. 

As of 31 December 2014, risk-weighted assets totalled CHF 4.2 billion, compared with CHF 4.1 billion the previous year, while core capital was CHF 860.5 million, compared with CHF 840.8 million the previous year. The overall equity ratio contracted from 20.4 per cent as of 31 December 2013 to 20.5 per cent as of 31 December 2014. On both 31 December 2013 and 31 December 2014, VP Bank Group was adequately capitalised in accordance with the respective guidelines of the Financial Market Authority (FMA) of Liechtenstein and the Bank for International Settlements (BIS)