Principles underlying financial statement reporting and comments

The unaudited interim financial statements have been prepared in compliance with International Financial Reporting Standards (IAS 34). The financial statements for the six months were drawn up on the basis of the accounting and valuation principles used for the 2017 annual financial statements. 

The following new and revised Standards and Interpretations have been in force from 1 January 2018 onwards: 

In December 2016, the IASB published numerous amendments to existing IFRS as part of its annual improvement project “Improvements to IFRS 2014–2016 Cycles”. These encompass both amendments to various IFRS impacting the recognition, measurement and disclosure of business transactions as well as terminological and editorial corrections. The amendments have no material impact on the consolidated financial statements.

Financial instruments are allocated at the time of their initial recognition in accordance with the criteria of IFRS 9. VP Bank Group has applied IFRS 9 (2010) since 1 January 2011 and has made early adoption of IFRS 9 (2013) since 1 January 2015. In the event that the hedge conditions were met, VP Bank Group has made early adoption of Hedge Accounting in accordance with IFRS 9 (2013). The modifications between IFRS 9 (2013) and IFRS 9 (2014) concerning the classification and measurement of debt securities at fair value through OCI (FVTOCI), which did not yet exist in IFRS 9 (2013), had no impact on the financial statements. Accordingly, there is also no reconciliation for the new IFRS 9 (2014) concerning classification and measurement (Phase I) as well as Hedge Accounting (Phase III).

As of 1 January 2018, individual and portfolio-based valuation allowances computed in accordance with IAS 39 was replaced by IFRS 9 Impairment. The new Standard encompasses all positions on the assets’ side which are exposed to a potential credit risk and which have not already been measured at fair value in the income statement. On 1 January 2018, the individual and portfolio-based valuation allowances computed in accordance with IAS 39 were derecognised over shareholders’ equity and re-recognised under shareholders’ equity by the estimated credit losses computed in accordance with IFRS 9 Impairment. This derecognition and re-recognition required by the change to IFRS 9 Impairment resulted in an effect after taxes aggregating TCHF 44, which was taken directly to shareholders’ equity. 

The following tables show the split of material balance-­sheet positions which are caught by IFRS 9 Impairment over the individual stages as well as the credit loss allowances (pre-tax) as of 31.12.2017 computed in accordance with the Standard.

As of 31.12.2017, the computed credit loss allowances of VP Bank Group in accordance with IFRS 9 Impairment amounted to CHF 2.2 million for stage 1, CHF 20.7 million for stage 2 and CHF 41.7 million for stage 3. This equates to a sum of CHF 64.6 million. 

The following table shows the valuation allowances as of 31.12.2017 as well as the netting as of 01.01.2018 with IFRS 9 Phase 2.

In accordance with IFRS 9, no restatement with the prior-year period figures was undertaken. 

Supplementary disclosures may be found in the 2017 Annual Report of VP Bank Group, Changes in Financial-Statement Reporting Policies and Comparability, in the section International Financial Reporting Standards, which must be adopted in 2018 or later in sub-section Application of IFRS 9 Impairment on page 135. 

IFRS 15 prescribes when and in which amount a company reporting under IFRS is to recognise revenue. In addition, it is demanded from companies preparing annual financial statements that more informative and relevant disclosures be made available than at present. The Standard offers in this respect a single, principles-based, five-stage model which is to be applied to all contracts with clients. 

IFRS 15 was issued in May 2014 and is to be applied for all financial years commencing on or after 1 January 2018. The adoption of IFRS 15, in general, had no or little impact on the recognition, recording, presentation and disclosures of VP Bank Group. Insofar as material in future, the inclusion of further revenue captions will lead to a more detailed presentation of the types of revenue shown under commission and service income. 

The exchange rates for the most important foreign currencies are as follows:

Within the framework of the authorisation given to it by the Annual General Meeting of Shareholders of 24 April 2015, VP Bank resolved to increase the number of its own shares through a further share repurchase programme of up to 10 per cent of the share capital. VP Bank thus picks up from the two successful programmes from 2015 and 2016. The registered shares so repurchased are to be used for acquisitions or treasury management purposes. 

As part of the public repurchase programme, VP Bank has undertaken to repurchase up to a maximum of 180,000 registered shares A. The repurchase period for the registered shares A will last from 27 June 2018 to 28 June 2019, at the latest, and the repurchases will be made over the regular trading line of SIX Swiss Exchange. At no time, however, will VP Bank hold more of its own registered shares A than it is allowed to hold within the framework of the above-mentioned authorisation by the Annual General Meeting (up to a maximum of 601,500 shares which equals 10 per cent of all registered shares A). 

In addition, VP Bank has resolved to repurchase a maximum of 456,554 of its own unquoted registered shares B at a price of CHF 21.30. The repurchase of its own non-quoted registered shares B will be undertaken by VP Bank and the respective shareholders will be informed directly in writing. As no share certificates will be cancelled, the capital and voting-share relationships will remain unchanged. VP Bank Ltd has commissioned Zürcher Kantonalbank to undertake the repurchase of the listed registered shares A. 

In its meeting of 16 August 2018, the Board of Directors has reviewed, approved and released the semi-annual report for publication. 

The International Accounting Standards Board has published IFRS 16 “Leases” as a new Standard to regulate the accounting for lease arrangements. For lessees, the new Standard provides for a new accounting model which does away with a differentiation between finance leases and operating leases. In future, most leasing agreements will require to be recognised in the balance sheet. For lessors, the rules of IAS 17 Leases will continue to largely apply with the result that here the differentiation between finance leases and operating lease agreements will continue to be made as at present with the related differing accounting consequences. IFRS 16 replaces IAS 17 as well as the related interpretations and is to be applied for the first time for accounting periods beginning on or after 1 January 2019. Early adoption is possible insofar as IFRS 15 Revenues from Contracts with Customers is applied simultaneously. VP Bank Group does not intend to make early application of the Standard. The impact of this new Standard on the Group is not fully analysed, and the project has not yet been completed. In aggregate, however, no material impact is anticipated. 

As part of its ordinary banking activities, VP Bank Group is involved in various legal, regulatory and administrative proceedings. The legal and administrative environment in which it operates, conceals significant process, compliance, reputational and other risks in connection with legal disputes and regulatory proceedings. The impact of these proceedings on the financial strength and profitability of VP Bank Group is dependent on the status of the proceedings and their outcome. VP Bank Group establishes provisions for on-going and threatened proceedings if it judges the probability that such proceedings will entail a financial commitment or loss to be greater than the probability of this not being the case. In isolated cases, in which the amount cannot be reliably estimated, as, for instance, because they are at an early stage or of the complexity of the proceedings or other factors, no provision is established but a contingent liability is disclosed. 

The risks described below are, where applicable, not the only ones which VP Bank Group is exposed to. Additional, presently unknown risks or risks and proceedings currently assessed as being immaterial, may equally have an impact on future business operations, operating results, financial investments and the outlook of VP Bank Group. 

In June 2017, the Group had reached an agreement with the authorities of North Rhine-Westphalia to settle the investigations in connection with untaxed assets of German clients. The agreement covered all subsidiaries of the Group possessing a banking license and included a one-time compensation payment amounting to EUR 9.98 million for which a corresponding provision was established. The Group has now formally closed the proceedings. 

The Russian Agency for Deposit Insurance, as part of the bankruptcy proceedings of two Russian banks, asserts that third-party pledges created in connection with the granting of credits to foreign companies shortly prior to the revocation of the banking license and commencement of bankruptcy proceedings should not have been realised on the open market. Both proceedings are at differing stages of development.

In the first proceedings against VP Bank (Switzerland) Ltd involving a disputed amount of USD 10 million, the Ninth Arbitration Court of Appeal on 24 May 2017 upheld the nullity of the realisation pursuant to Russian bankruptcy law. The court required VP Bank (Switzerland) Ltd to pay an amount of approx. USD 10 million. The sentence became res judicata on 19 September 2017. All extraordinary appeals without suspensive effect were rejected. After the Russian Agency of Deposit Insurance had attempted in vain to obtain satisfaction of its claims directly from an account of VP Bank (Switzerland) Ltd with a Russian bank, the Court Bailiff initiated enforcement proceedings against the Moscow Representative Office on 7 June 2018. As the Group contests the validity of this decision, it will not recognise this claim. In addition, VP Bank Group has initiated measures to protect its own interests and those of its employees.

The second proceedings against VP Bank Ltd, and more recently, VP Bank (Switzerland) Ltd, with an amount in dispute of USD 15 million are similar but are not yet closed. In these proceedings, only the issue of Russian jurisdiction was decided. On 16 March 2018, the competence of Russian courts was confirmed by the Supreme Court. The case is thus again in the hands of the court of first appeal, the Moscow Arbitration Court, as to the substance of the matter. On 16 April 2018, the Moscow Arbitration Court, at the claimant’s request, has involved VP Bank (Switzerland) Ltd as defendant in the proceedings. In principle, such amendments to the claim are also unlawful in accordance with Russian law and for this reason, an appeal was lodged which will be heard on 7 August 2018. In both cases, VP Bank considers the risk of outflow of funds to be small for which reason no provision was established.