A.1 – General part

Section 1 – Statement of compliance with international accounting standards

The 2015 consolidated financial statements have been drawn up in accordance with the IASs/IFRSs in force at 31 December 2015 issued by the International Accounting Standards Board (IASB), together with the relevant interpretations (IFRICs and SICs). These standards were endorsed by the European Commission in accordance with the provisions in article 6 of European Union Regulation no. 1606/2002. This regulation was implemented in Italy with Legislative Decree no. 38 of 28 February 2005.

In interpreting and adopting the international accounting standards, reference was made also to IASB’s ‘Framework for the preparation and presentation of financial statements’, even though it was not officially approved.

These consolidated financial statements are subject to certification by the delegated corporate bodies and the Corporate Accounting Reporting Officer, as per article 154 bis paragraph 5 of Legislative Decree no. 58 of 24 February 1998.

The consolidated financial statements are audited by Reconta Ernst & Young S.p.A..

Section 2 – Basis of preparation

The consolidated financial statements consist of:

  • the consolidated financial statements (statement of financial position and income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows);
  • the Notes to the Consolidated Financial Statements.

In addition, they contain the Directors’ Report.

The consolidated financial statements have been drawn up according to the general principles of IAS 1, also referring to IASB’s ‘Framework for the preparation and presentation of financial statements’, with particular attention to the fundamental principles of substance over legal form, the concepts of relevance and materiality of information, and the accruals and going concern accounting concepts.

For the preparation of these financial statements, reference was made to the format set out by Bank of Italy’s Circular no. 262 of 22 December 2005, 4th update of 16 December 2015.

The money of account is the Euro and, if not indicated otherwise, amounts are expressed in thousands of Euro. The tables in the notes may include rounded amounts; any inconsistencies and/or discrepancies in the data presented in the different tables are due to these rounding differences.

The notes do not include the items and tables required by Bank of Italy’s Regulation no. 262/2005 where these items are not applicable to the Banca IFIS Group.

Assets and liabilities, as well as costs and revenues, have been offset only if required or permitted by an accounting standard or the relevant interpretation.

Items in the financial statements were classified as in the previous financial year, except for the following.

Concerning the changes in amortised cost other than impairment related to the bad loans of the DRL segment, in 2015 the Bank started classifying them no longer under item 130 Net impairment losses/reversals on receivables, but rather under item 10 Interest income.

This new classification is due to, above all, the intention to better represent in financial reports the economic substance of these exposures; recognising the changes in amortised cost of the positions classified as bad loans under item 130 simply because of the classification of the financial item that generated them does not fairly represent the segment's credit risk. In addition, the Bank's operating methods do not differentiate between positions classified as bad loans and those classified as unlikely to pay or performing.

This approach is consistent with the relevant regulations (Bank of Italy's Circular and IAS 39), which require that the impact of changes in estimated cash flows on the carrying amount of an asset be recognised in profit or loss (IAS 39 AG 8), under item 10 Interest income (Bank of Italy's Circular). The item 130 Net impairment losses/reversals shall include the changes in amortised cost deriving from the impairment of receivables.

The costs for commissions paid to debt collection agents and companies, which are proportioned to the amounts recovered, continue to be recognised under Other administrative expenses. The classification of items in the statement of financial position has not changed.

To allow the users of the financial report as at 31 December 2015 to compare it with the results as at 31 December 2014, the items of profit or loss related to the changes in the amortised cost of receivables for the year 2014 have been restated as described above.

Information on the business as a going concern

The Bank of Italy, Consob and Isvap, with document no. 2 issued on 6 February 2009 (“Disclosure in financial reports on the going concern assumption, financial risks, asset impairment tests and uncertainties in the use of estimations”), together with the subsequent document no. 4 of 4 March 2010, require directors to assess with particular accuracy the existence of the company as a going concern, as per IAS 1.

Unlike in the past, present conditions on financial markets and in the real economy, together with the negative short/medium-term forecasts, require particularly accurate assessments of the going concern assumption, as records of the company’s profitability and easy access to financial resources may no longer be sufficient in the current context.

In this regard, having examined the risks and uncertainties connected to the present macro-economic context, and considering the financial and economic plans drawn up by the parent company, the Banca IFIS Group can indeed be considered a going concern, in that it can be reasonably expected to continue to operate in the foreseeable future. Therefore, the 2015 consolidated financial statements have been prepared in accordance with this fact.

Uncertainties connected to credit and liquidity risks are considered insignificant or, at least, not significant enough to raise doubts over the company’s ability to continue as a going concern, thanks also to the good profitability levels that the Group has consistently achieved, to the quality of its loans, and to its current access to financial resources.

Section 3 - Consolidation scope and method

The consolidated financial statements have been prepared based on the draft financial statements at 31 December 2015, prepared by the directors of the companies included in the consolidation scope for approval by the Shareholders’ Meeting.

Pursuant to the line-by-line method of consolidation, the consolidated financial statements include the financial statements of the parent company, Banca IFIS S.p.A, and its Polish subsidiary, IFIS Finance Sp. Z o. o..

The financial statements of the subsidiary expressed in foreign currencies are translated into Euro in asset and liability items according to the rate of exchange at the end of the period. In the income statement, figures are translated according to the average exchange rate, which is considered as a valid approximation of the spot exchange rate. Exchange differences arising from the application of different exchange rates for the statement of financial position and the income statement, as well as the exchange differences from the translation of the investee company’s equity, are recognised under capital reserves.

Assets and liabilities, off-balance-sheet transactions, income and expenses, as well as the profits and losses arising from relations between the consolidated companies are all eliminated.

Starting with the financial statements for periods beginning after 1 July 2009, business combinations must be recognised by applying the principles established by IFRS 3; purchases of equity investments in which control is obtained and counting as “business combinations” must be recognised by applying the acquisition method, which requires:

  • identification of the acquirer;
  • determination of the acquisition date;
  • recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree;
  • recognition and measurement of goodwill or a gain from a bargain purchase.

As for the subsidiary IFIS Finance Sp. Z o.o., the consolidation process has brought about goodwill for 820 thousand Euro at the period-end exchange rate, recognised under item 130 ‘Intangible assets’.

1. Investments in exclusively controlled companie

Name of company Main office Head office Type(1) Investment Voting rights %(2)
        Held by Quota %  
IFIS Finance Sp. Z o.o . Warsaw Warsaw 1 Banca IFIS S.p.A. 100% 100%

Key
(1) Type:
1 = majority of voting rights in the Annual Shareholders’ Meeting
2 = dominant influence in the Annual Shareholders’ Meeting
3 = agreements with other shareholders
4 = other forms of control
5 = exclusive control as per article 26, paragraph 1, of Legislative Decree no. 87/92
6 = exclusive control as per article 26, paragraph 2, of Legislative Decree no. 87/92
(2) Voting rights in the Annual Shareholders’ Meeting, distinguishing between effective and potential voting rights.

2. Significant judgements and assumptions in determining the scope of consolidation

In order to determine the scope of consolidation, Banca IFIS assessed whether it meets the requirements of IFRS 10 for controlling investees or other entities with which it has any sort of contractual arrangements.

An entity controls another entity when the former has all the following:

  • power over the investee,
  • exposure to variable returns,
  • and the ability to affect the amount of its returns.

The assessment carried out confirmed the scope of consolidation determined in the previous year and identified a non-consolidated structured entity (for more information, see part E, section D of these Notes).

Section 4 – Subsequent events

No significant events occurred between year-end and the preparation of these consolidated financial statements other than those already included herein.

For information on such events, please refer to the Directors’ report.

Section 5 – Other aspects

Risks and uncertainties related to estimates

Using accounting standards often requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. In making the assumptions underlying the estimates, management considers all available information at the reporting date as well as any other factor deemed reasonable for this purpose.

Specifically, it made estimates on the carrying amounts of some items recognised in the consolidated financial statements at 31 December 2015, as per the relevant accounting standards. These estimates are largely based on the expected future recoverability of the amounts recognised and were made on a going concern basis. Such estimates support the carrying amounts reported at 31 December 2015.

Estimates are reviewed at least annually when preparing the financial statements.

The risk of uncertainty in the estimates, considering the materiality of the reported amounts of assets and liabilities and the judgement required of management, substantially concerns the measurement of:

  • fair value of financial instruments not quoted in active markets;
  • trade receivables and DRL receivables;
  • provisions for risks and charges and contingent assets;
  • post-employment benefits;
  • goodwill and other intangible assets.

See Part E – Information on risks and risk management policies.

Concerning the measurement of DRL receivables, in 2015 the Bank reviewed the proprietary model used to estimate the cash flows of the receivables involved in non-judicial debt collection operations, which are used also for the purposes of determining the relevant amortised cost. This review was made also because the Bank acknowledged that the model for non-judicial debt collection operations concerning NPLs has significantly changed over the years. In this new scenario, the previous simulation model no longer represented fairly the economic impact of non-judicial debt collection operations. The Bank also seized this opportunity to ensure that some types of collection instruments with similar characteristics (bills of exchange and settlement plans, the so-called expressions of willingness) are treated consistently.

The new proprietary model abandons the “Monte Carlo” simulation in favour of a simulation of cash flows that projects the “breakdown” of the nominal amount of the receivable “over time” based on the historical recovery profile for similar clusters. In addition, for the positions with funding characteristics (bills of exchange or expressions of willingness), the Bank uses a “deterministic” model based on the measurement of the future instalments of the settlement plan, net of the historical default rate.

The Bank reviewed the assumptions underlying the simulation model by adopting an overall conservative approach to both the breakdown over time and the deterministic simulation. For instance, in estimating the breakdown over time, the Bank has considered shorter time horizons for collecting the receivables than those of the previous simulation model, as well as some conservative constraints concerning characteristics such as the age of the debtor; as for the positions with funding characteristics, measured using a “deterministic” method, the assumptions underlying the model aim to ensure a more prudent and less volatile estimate of results, recognising only the share of settlement plans with regular payments.

In addition to the above conservative assumptions, the risk management, when assessing the Bank's capital adequacy, regularly assesses the so-called model risk by carrying out specific analyses.

The updated model was used in preparing these financial statements.

This caused a change in the estimate of cash flows that, discounted at the original IRR of the positions, resulted in a change in amortised cost, which was recognised in profit or loss in accordance with IAS 39. The overall 8,5 million Euro decrease was mainly attributable to the decision to use a consistent accounting method for similar types of funding instruments. Said impact, recognised under item 10 Interest income, was partially offset by the gains on the three sales completed at the end of 2015, which were recognised under item 100 Profit from sale, which is part of Net banking income. For more details, see below.

Coming into effect of new accounting standards

It is noted that for the annual periods beginning on 1 January 2018 will come into effect the new IFRS 9. The Group started an assessment, that will conclude within 31 December 2016, in collaboration with a leading auditing firm in order to define the road map that will lead to conversion to this new account-ing standard.

Deadlines for the approval and publication of the separate financial statements

Pursuant to art. 154-ter of Legislative Decree no. 58/98 (Consolidated Law on Finance), the Parent must approve the separate financial statements and publish the annual financial report, including the draft separate financial statements, the consolidated financial statements, the directors' report, and the declaration as per article 154-bis, paragraph 5, within 120 days of the end of the financial year. The Board of Directors approved the Parent's draft separate financial statements and the consolidated financial statements on 2 February 2016; the Parent's separate financial statements will be submitted to the Shareholders' Meeting to be held on 22 March 2016 on first call for approval.

There were no other changes requiring disclosure as per IAS 8, paragraphs 28, 29, 30, 31, 39, 40 and 49.