Principles underlying financial statement reporting and comments
The unaudited interim financial statements were drawn up in accordance with the International Financial Reporting Standards (IFRS)/IAS 34. The semi-annual financial statements are prepared applying the same accounting and valuation principles as were applied for the 2019 financial statements.
New and revised International Financial Reporting Standards
Since 1 January 2020, the following new and revised standards and interpretations have taken effect:
Interest Rate Benchmark Reform (changes to IFRS 9, IAS 39 and IFRS 7)
In September 2019, the IASB published changes to IFRS 9, IAS 39 and IFRS 7, which concluded the first phase of its work. These provide for a temporary exemption from the application of specific hedge accounting requirements in respect of hedge relationships which are directly affected by the reform of interbank offered rates (IBORs).
The amendments take effect in respect of accounting periods beginning on or subsequent to 1 January 2020. At present, VP Bank Group only applies portfolio fair value hedge accounting. The changes will have no material impact on VP Bank Group’s consolidated accounts.
A project team is currently analysing the implications Phase II (adjustments after the introduction of new reference interest rates) will have for VP Bank Group.
Definition of materiality (changes to IAS 1 and IAS 8)
In October 2018, the IASB published changes to IAS 1 and IAS 8 with a view to adjusting the definition of “material” across all standards and making clearer certain aspects of the definition. The changes will demonstrate that materiality depends on the nature or extent of the information or both. A company must assess whether the information is material in the context of the financial statements either in isolation or in combination with other information.
In the amendments it is explained that information is deemed to be concealed if transmitted in such a way that its effect reflects that of an omission of information or the provision of inaccurate information. Key information may for example be concealed if information relating to a significant item, transaction or another event is spread out across the financial statements or disclosed in vague or unclear language. Key information may also be concealed if different elements, transactions or events are unduly aggregated or, vice versa, if similar elements are unduly split up.
Following the changes, the threshold “could influence”, which indicates that a potential influencing of users cannot be ruled out, will be replaced, and the definition of the term “material” is to be associated with “probable” influence. As such, the change in definition makes it clear that, when assessing materiality, only that influence over the economic decisions of main users which might reasonably be expected need to be taken into account.
The amendments take effect in respect of accounting periods beginning on or subsequent to 1 January 2020. The changes will have no material impact on VP Bank Group’s consolidated accounts.
Post-balance-sheet date events
On 7 July 2020, VP Bank (Luxembourg) SA signed an agreement to acquire the private banking division of Öhman Bank S.A. in Luxembourg. The asset deal transaction involved the acquisition of a client advisor team of eleven employees as well as client assets totalling roughly EUR 760 million. The transaction is expected to be concluded by 1 January 2021 at the latest. The acquisition process had not yet started at the time of the approval of the semi-annual financial statements. As such, the information under IFRS 3.B64 cannot be supplied yet. The calculation and disclosure of the required financial information relating to acquired assets and liabilities as well as any goodwill from the transaction will be published in the annual report as of 31 December 2020.
The Board of Directors reviewed and approved the semi-annual report and authorised it for publication in its meeting of 13 August 2020.
As part of its ordinary banking activities, VP Bank Group is involved in various legal and regulatory proceedings. The legal and administrative environment in which VP Bank Group operates involves significant litigation, 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 employs the relevant processes, reports and committees to monitor and manage these risks. It also establishes provisions for ongoing and threatened proceedings if the probability that such proceedings will entail a financial loss is judged to be greater than the probability of this not being the case. In isolated cases in which the amount cannot be reliably estimated, for instance because of the early stage or the complexity of the proceedings or other factors, no provision is established but a contingent liability is disclosed.
The risks described below are not necessarily the only ones to which VP Bank Group is exposed. Additional risks which are presently unknown or risks and proceedings which are currently considered as being insignificant may equally impact the future course of business, operating results, financial investments and the outlook of VP Bank Group.
The Russian Agency for Deposit Insurance (DIA), 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 different stages of development.
In the first proceedings against VP Bank (Switzerland) Ltd involving an amount in dispute of USD 10 million, the 9th Arbitration Appeal Court 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 approximately USD 10 million. The judgement became res judicata on 19 September 2017. All extraordinary legal remedies without suspensive effect were dismissed.
The debt collection procedure opened on 7 June 2018 in Moscow has so far gone nowhere. In a letter dated 31 July 2019, the DIA, in its capacity as insolvency administrator, issued the first call for payment to VP Bank (Switzerland) Ltd. VP Bank Group will not comply with this request as it contests this ruling. Further developments will be monitored by local lawyers in Moscow.
The second proceedings against VP Bank Ltd, and now VP Bank (Switzerland) Ltd, in an amount in dispute of USD 15 million are of a similar nature but are not yet closed. On 16 March 2018, the Supreme Court confirmed the jurisdiction of the Russian courts and dismissed the case to the Arbitration Court for substantive judgement. On 22 May 2019, the Arbitration Court ruled in favour of VP Bank Ltd and VP Bank (Switzerland) Ltd. This judgement was confirmed by the Court of Appeal on 12 August 2019. On 19 November 2019, the Court of Cassation overturned the judgements of the lower-instance courts and dismissed the case to the court of first instance (Arbitration Court) for a new ruling. VP Bank Ltd and VP Bank (Switzerland) Ltd appealed to the Judicial Chamber of the Supreme Court against the ruling.
In both cases, VP Bank Ltd considers the risk of outflow of funds to be small, which is why no provision has been formed.
In another case, the High Court of Justice in London brought a civil action against VP Bank (Switzerland) Ltd at the beginning of 2020. VP Bank Ltd is also named as a defendant and was notified of the action in March 2020. The main defendant is a former body of a foreign pension fund. The latter is said to have acted unlawfully in its role by accepting distribution remunerations for investment funds. The action has also been brought against various other banks and individuals that processed payments or paid distribution remunerations.
VP Bank Ltd and VP Bank (Switzerland) Ltd are accused of a violation of due diligence obligations. They are also accused of involvement in the processing of questionable third-party fees and commissions of at least USD 46 million, meaning they would have to assume non-contractual collective liability for the damages incurred. VP Bank is disputing the accusations and the place of jurisdiction. At the moment it considers the risk of an outflow of funds to be small, which is why no provision has been formed.
Most important foreign-currency exchange rates
The exchange rates for the most important foreign currencies are as follows: