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 2015, VP Bank Group had 734.4 full-time-equivalent employees (previous year: 694.9).

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

Amounts disclosed in the financial statements are expressed in thousands of Swiss francs. The 2015 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 significant accounting policies are described in this section in order to show how their application impacts the VP Bank Group’s reported results and disclosures.

There were no events after the reporting period that mate­ri­ally affected the balance sheet and income statement for 2015. 

The Board of Directors reviewed and approved the consolidated financial statements in its meeting of 18 February 2016 and released it for publication. These consolidated financial statements will be submitted for approval to the Annual Gen­eral Meeting of Shareholders on 29 April 2016.

IFRS contain guidelines which require the VP Bank Group’s management to make certain assumptions and estimates in 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 valuation 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 from the sale of any collateral. A change in the net present value of the estimated future monetary flows of plus or minus 5 per cent increases or decreases, respectively, the amount of the allowance by CHF 0.4 million (previous year: CHF 0.6 million).

No material changes in estimates were made or applied. Additional information on estimates is provided in the corresponding tables of the notes to the financial state­ments (e.g. goodwill, legal disputes, income tax, pension funds, etc.).

The consolidated financial statements encompass the finan­cial statements of VP Bank Ltd, Vaduz, as well as those of its subsidiaries, 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.

At 7 January 2015, VP Bank Ltd, Vaduz, acquired all of the shares of Centrum Bank AG, Vaduz. In accordance with International Financial Reporting Standards (IFRS), Centrum Bank AG was fully consolidated in VP Bank Group’s report­ing as from this date. The legally binding merger between VP Bank Ltd and Centrum Bank AG took effect on 30 April 2015.

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 prepar­ing 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 for which VP Bank Group exercises material influence are recognised 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, shares of a company are recog­nised at their acquisition cost at the time of acquisition. Sub­sequently, the carrying amount of the associated com­pany 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 indicators of impair­ment exist for the associated company. 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 the sub­sequent settlement date.

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 currency 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 the end of the reporting period as regards 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 at 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 (profit 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 at the end of the reporting period. 

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 occurs when they are first recognised in accordance with the criteria of IFRS 9. VP Bank Group early applied both IFRS 9 (2010) as from 1 January 2011 and IFRS 9 (2013) as from 1 January 2015. If hedge conditions are satisfied, VP Bank early applies hedge accounting in accordance with IFRS 9 (2013).

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 recognised 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, 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 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.

For equity instruments with a long-term investment horizon of around 10 years, the OCI option is applied. Long-term value creation is of particular significance in the case of private equity investments.

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 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.

The carrying amounts of loans on which micro fair value hedge accounting is applied are adjusted for changes in fair value attributable to the hedged risk. When portfolio fair value hedge accounting is applied, changes in fair value are recognised under Other assets.

Value-impaired loans are amounts outstanding from clients and banks where it is improbable that the debtor can meet its obligations. The causes of impairment 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. Meanwhile, for off-balance-sheet pos­itions such as a fixed facility granted, a provision for credit risks is recorded under provisions. General portfolio-based impairment is recorded to cover potential, as yet unidentified credit risks. A credit review is performed at least once a year for all value-impaired loans. 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 shown through profit and loss under valuation allowances for credit risks or release of valu­ation allowances and provisions.

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. 

In cases involving micro fair value hedge accounting, hedged liabilities are adjusted for changes in fair value attributable to the hedged risk. When portfolio fair value hedge accounting is applied, changes in fair value are recognised under Other liabilities.

Derivative financial instruments are measured at fair value and recognised in the balance sheet. Fair value is determined using listed prices or options pricing models. Realised and unrealised gains and losses are shown through profit or loss. 

VP Bank Group uses the following derivatives for both trading and hedging purposes. They can be classified into the following main categories:

• Swaps: These are transactions in which two parties exchange cash flows on a nominal set amount for a previously determined period. Interest-rate swaps are interest-rate derivatives used to hedge fixed-rate instruments (e.g. unstructured fixed-rate bonds or covered bonds) against changes in fair value due to market interest-rate changes. Currency swaps involve the exchange of interest-rate payments on underlying amounts in two different currencies with different benchmark interest rates and also generally include the swapping of the nominal amount at the beginning or end of the contractual period. Currency swaps are typically traded over the counter. 
• Forward agreements and futures: These are contractual obligations to purchase or sell a financial instrument or commodity at a future date and set price. Forward agreements are customised agreements negotiated by parties over the counter. Futures, on the other hand, are standardised contracts traded in regulated markets. 
• Options and warrants: These are contractual agreements in which the seller grants the buyer the right but not the obligation to buy (call option) or sell (put option) a set amount of a financial instrument or commodity for a set price before a specified date. The buyer pays the seller a premium for this right. Some options also have complex payment structures. Options may be traded over the counter or in regulated markets. They may also be traded in the form of a warrant. 

VP Bank Group early applied both IFRS 9 (2010) as from 1 January 2011 and IFRS 9 (2013) as from 1 January 2015. If hedge conditions are satisfied, VP Bank early applies hedge accounting in accordance with IFRS 9 (2013).

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 rules may be applied voluntarily. In some circumstances, the application of hedge accounting makes it possible to present a company’s risk management activities in the financial statements. This occurs by comparing gains and losses on the hedging instruments with those on the hedged items designated for specific risks. 

A hedging relationship may be presented in connection with hedge accounting when the following qualitative characteristics are satisfied:

• The hedging relationship consists in permissible hedging instruments and hedged items.
• The company’s risk management strategy and the objective of the hedge is formally designated and documented at the inception of the hedging relationship. 
• The hedging relationship fulfils the effectiveness requirements.

The hedging relationship must be documented at inception. The documentation includes in particular the identification of the hedging instruments and hedged items as well as the designation of the hedged risk and method for assessing the effectiveness of the hedging relationship. To qualify for hedge accounting, the hedging relationship must satisfy the following effectiveness requirements at the start of each hedge period:

• An economic relationship exists between the hedged item and the hedging instrument.
• Credit risk does not dominate the fair value changes that occur as a result of the economic hedge.
• The hedge ratio reflects the quantities of the hedged item and hedging instrument for the actual economic hedge.

The Group uses derivative financial instruments for risk management primarily in connection with interest-rate and currency risk. When derivative and non-derivative financial instruments satisfy specific criteria, they may be classified as hedging instruments and used to hedge the following risks: changes in the fair value of a recognised asset or liability (fair value hedge accounting); variability in expected future cash flows that can be assigned with a high probability of occurrence to recognised assets or liabilities or planned transactions (cash flow hedge accounting); a net investment in a foreign operation (net investment hedging).

IFRS 9 allows for the application of fair value hedge accounting in order to avoid one-sided effects on profit or loss of derivatives used to hedge the fair value of recognised assets or liabilities against one or more designated risks. In particular, the Group’s credit business and marketable securities used for liquidity management are subject to market risk and interest-rate risk insofar as they relate to fixed-rate instruments. These risks are hedged primarily through interest-rate swaps. In accordance with fair value hedge accounting rules, the deri­vative financial instruments used for hedging are recognised at fair value based on the market value of derivative hedging instruments. For the hedged asset or liability, opposing fair value gains and losses resulting from the hedged risk must also be recognised. These gains and losses from the hedging instruments and hedged items are shown through profit or loss. The portion of fair value changes not attributable to the hedged risk is recognised in accordance with the rules for the appropriate valuation category. 

Cash flow hedge accounting and portfolio fair value hedges were not applied in either the current or previous years.

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 AG, Vaduz, held by VP Bank Group are recognised as treasury shares under shareholders’ equity and deducted at acquisition cost. The difference between 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, the outflow of resources with economic benefit to fulfil this liability is probable, and 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. 

Impairment of property, plant and equipment is always reviewed any time their carrying amounts appear to be over­valued due to events or a change in circumstances. If the carrying amount exceeds the realisable value, an impairment charge is recorded. Any release of impairment at a later date is shown through profit or loss.

Goodwill is reviewed for impairment at least once a year. If the carrying amount exceeds the realisable value, a special 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.

As regards acquisitions, if the acquisition costs exceed the value of the net assets acquired and measured 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 conditions 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 reliably measured. Internally produced software meeting these criteria and purchased software are recorded in the balance sheet under software. The capitalised amounts 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 computed 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 computed using the tax rates 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 taxing 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 match.

VP Bank Group maintains a number of pension plans for 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 computed 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 contribution 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 undertaken 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; and
• 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 change 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 cannot 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 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.

At 1 January 2015 the Group implemented several changes to existing IFRS. These changes resulted from the IASB annual improvement project “Improvements to IFRS 2010–2012 and IFRS 2011–2013 cycles”. They include changes to various IFRS affecting recognition, measurement and disclosure of transactions as well as terminology and drafting corrections. The implementation of these changes had no material impact on the consolidated financial statements.

Numerous new standards, amendments and interpretations of existing standards whose application is mandatory for periods starting 1 January 2016 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 VP Bank Group. 

In September 2014, the IASB published several changes to existing IFRS as part of its annual improvement project “Improvements to IFRS 2012–2014 cycles”. They include changes to various IFRS affecting recognition, measurement and disclosure of transactions as well as terminology and drafting corrections. The changes take effect for financial years beginning at or after 1 January 2016. Early adoption is authorised. The implementation of these changes is not expected to have a material impact on the consolidated financial statements.

This standard contains requirements for recognition and measurement, derecognition and general hedge accounting. The IASB issued its final version of the standards 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 financial years beginning on or after 1 January 2018. Early adoption is authorised, subject to local regulations. For a limited time, the early adoption of previous versions of IFRS 9 is authorised (if not already 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. 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. 

VP Bank Group early applied both IFRS 9 (2010) as from 1 January 2011 and IFRS 9 (2013) as from 1 January 2015. If hedge conditions are satisfied, VP Bank early applies hedge accounting in accordance with IFRS 9 (2013). The entire new IFRS 9 must be applied as from 1 January 2018. VP Bank is currently reviewing the impacts of new provi­sions that have not yet been implemented.

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 IFRS, 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 are effective for annual periods beginning on or after 1 January 2016. Earlier adoption 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 informa­tive, 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 applies to an annual reporting period beginning on or after 1 January 2018.

In December 2014, as part of an initiative to improve finan­cial statements presentation and disclosures, the IASB issued amendments to IAS 1 “Presentation of Financial Statements” (“IAS 1”). These changes make clear that the principle of materiality should be applied to the financial statements as a whole, that professional judgment be used in determining which information to disclose and that the use of immaterial information can lead to reduced effectiveness of disclosures. The amendments take effect for financial years beginning on or after 1 January 2016. Early adoption is allowed. The amendments to IAS 1 affect only the Group’s disclosures.

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 reach 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 the equity resources, VP Bank measures both the equity required (minimum 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 computed 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. 

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 13 per cent of the risk-weighted assets. 

At 31 December 2015, risk-weighted assets totalled CHF 3.7 billion, compared with CHF 4.2 billion the previous year, while core capital was CHF 911.2 million, compared with CHF 860.5 million the previous year. The overall equity ratio increased by 3.9 percentage points from 20.5 per cent on 31 December 2014 to 24.4 per cent on 31 December 2015. On both 31 De­cember 2014 and 31 December 2015, 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).