Section 1 – Statement of compliance with international accounting standards
The Consolidated Financial Statements at 31 December 2016 have been drawn up in accordance with the IASs/IFRSs in force at said date 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.
Concerning the interpretation and implementation of international accounting standards, the Banca IFIS Group referred to the “Framework for the Preparation and Presentation and Financial Statements”, even though it has not been endorsed by the European Commission, as well as the Implementation Guidance, Basis for Conclusions, and any other documents prepared by the IASB or the IFRIC complementing the accounting standards issued.
The accounting standards adopted in preparing these financial statements are those in force at 31 December 2016 (including SIC and IFRIC interpretations).
The Group also considered the communications from Supervisory Authorities (Bank of Italy, Consob, and ESMA), which provide recommendations on the disclosures to include in the financial statements concerning the most material aspects or the accounting treatment of specific transactions.
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 Italian Legislative Decree no. 58 of 24 February 1998.
The Consolidated Financial Statements are audited by EY 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.
Finally, as per article 123-bis of Italian Legislative Decree no. 58 of 24 February 1998 (Consolidated Law on Finance), the Report on Corporate Governance and Shareholding Structure is available in the “Corporate Governance” Section of the Bank’s internet website www.bancaifis.it.
The Consolidated Financial Statements have been drawn up according to the general principles of IAS 1, referring also 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 Consolidated 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 15 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.
We have used the same classification for the items in the financial statements as in the previous financial year.
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”, as well as 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.
In this regard, having examined the risks and uncertainties associated with 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 2016 Consolidated Financial Statements have been prepared in accordance with this fact.
Uncertainties associated with credit and liquidity risks are considered 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
At 31 December 2016, the Group was composed of the parent company, Banca IFIS S.p.A., the wholly-owned subsidiary, IFIS Finance Sp. Z o. o., the 99,99%-owned subsidiary Interbanca S.p.A. and its subsidiaries IFIS Leasing S.p.A., IFIS Factoring S.r.l., and IFIS Rental Services S.r.l., in which Interbanca owns directly and indirectly all voting rights. All the companies are consolidated using the line-by-line method.
As detailed in Part G of these Notes, Banca IFIS acquired control over the former Interbanca Group on 30 November 2016 after obtaining the authorisation of the competent Supervisory Authorities.
The consolidated financial statements include the financial statements of the parent company Banca IFIS S.p.A. and the mentioned subsidiaries.
The financial statements of the subsidiary IFIS Finance Sp. Z o.o. expressed in foreign currency are translated into Euro by applying the rate of exchange at the end of the period to assets and liabilities. As for the income statement, the items are translated using 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 799 thousand Euro at the period-end exchange rate, recognised under item 130 ‘Intangible assets’.
As for the subsidiaries of the former Interbanca Group, the consolidated financial statements showed a gain on bargain purchase totalling 623,6 million Euro, which was recognised under Other operating income/expenses.
1. Investments in exclusively controlled companies
|Name of the company||Registered office||Head office||Type (1)||Investment||Voting rights % (2)|
|Held by||Share %|
|IFIS Finance Sp. Z o.o.||Warsaw||Warsaw||1||Banca IFIS S.p.A.||100%||100%|
|Interbanca S.p.A.||Milan||Milan||1||Banca IFIS S.p.A.||99.99%||99.99%|
|IFIS Leasing S.p.A.||Mondovì - Province of Cuneo||Mondovì - Province of Cuneo||1||Interbanca S.p.A.||100%||100%|
|IFIS Factoring S.r.l. (3)||Milan||Milan||1||Interbanca S.p.A.||60%||100%|
|IFIS Rental Services S.r.l. (4)||Milan||Milan||1||Interbanca S.p.A.||79%||100%|
|IFIS ABCP Programme S.r.l.||Conegliano - Province of Treviso||Conegliano - Province of Treviso||4||Other||0%||0%|
|Indigo Lease S.r.l.||Conegliano - Province of Treviso||Conegliano - Province of Treviso||4||Other||0%||0%|
|Indigo Loan S.r.l.||Conegliano - Province of Treviso||Conegliano - Province of Treviso||4||Other||0%||0%|
(1) Type of relationship:
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.
(3) The Group owns the remaining 40% through IFIS Leasing S.p.A. – company of the Banking Group 100%-owned directly by Interbanca S.p.A.
(4) The Group owns the remaining 21% through IFIS Leasing S.p.A. – company of the Banking Group 100%-owned directly by Interbanca S.p.A.
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 led the Bank to include the subsidiaries listed in the previous paragraph, as well as the SPVs (Special Purpose Vehicles) set up for securitisation purposes, in the scope of consolidation at 31 December 2016. These SPVs are not legally part of the Banca IFIS Group.
In addition, there was an unconsolidated structured entity (see part E, section D in 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 2016, 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 2016.
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;
- receivables of the NPL Area;
- receivables managed by the Pharma BU, and specifically the interest on arrears considered recoverable;
- non-performing exposures related to the Trade Receivables, Corporate Banking and Leasing sectors;
- provisions for risks and charges;
- post-employment benefits;
- goodwill and other intangible assets.
For more details, see Information on risks and risk management policies as well as Fair value disclosure.
As for the receivables of the Pharma BU, during 2016 the Bank implemented a new model to estimate the cash flows from receivables due from Italy's National Health Service acquired and managed by the Pharma BU. Specifically, the Bank estimates the interest on arrears considered recoverable from the acquisition date based on historical evidence and differentiating according to the type of collection actions taken by the Pharma BU (settlement or judicial action). Overall, the assumptions underlying the estimate of their recoverability were conservative. Banca IFIS estimates cash flows in accordance with the provisions of the joint Bank of Italy/Consob/Ivass document no. 7 of 9 November 2016 “Accounting of interest on arrears as per Italian Legislative Decree 231/2002 on performing loans purchased outright”. The change in estimated cash flows, discounted using the original IRR of the positions, resulted in a 15,8 million Euro change in amortised cost recognised in profit or loss under interest income.
Concerning specifically the measurement of DRL receivables, the risk management, when assessing the Bank's capital adequacy, regularly assesses the so-called model risk by carrying out specific analyses.
Coming into effect of new accounting standards
The consolidated financial statements at 31 December 2016 have been drawn up in accordance with the IASs/IFRSs in force at 31 December 2016. See the paragraph Statement of compliance with international accounting standards.
The Group has adopted for the first time some accounting standards and amendments effective for annual periods beginning on or after 1 January 2016. Here below are the new accounting standards and the amendments to existing accounting standards endorsed by the EU, which have not materially affected the Group's consolidated financial statements.
Amendments to IAS 19 Defined Contribution Plans: Employee Contributions.
Annual Improvements to IFRSs - 2010-2012 Cycle, which concerned:
- IFRS 2 Share-based payments; definition of performance and service conditions.
- IFRS 3 Business Combinations; fair value measurement of contingent consideration arrangements classified as liabilities (or assets).
- IFRS 8 Operating Segments; reconciliation of the reportable segments’ assets to total assets.
- IAS 24 Related Party Disclosures: definition of an entity providing KMP services as related party.
Amendments to IFRS 11: accounting for acquisitions of interests in joint operations
Amendments to IAS 16 and IAS 38: clarification of acceptable methods of depreciation and amortisation
Amendments to IAS 27: equity method in separate financial statements
Annual Improvements to IFRSs - 2012- 2014 Cycle, which concerned:
- IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: changes in the method of disposal not considered as a new plan.
- IFRS 7 Financial Instruments: disclosure of fees in a servicing contract.
IAS 19 Employee Benefits: active market for high-quality corporate bonds
Amendments to IAS 1 Disclosure Initiative.
Amendments to IFRS 10, IFRS 12 and IAS 28: applying the consolidation exception to investment entities.
The Group has not adopted early any other standard, interpretation or amendment issued but not endorsed by the European Union.
Concerning the new IFRS 9, which will become effective on 1 January 2018, during 2016 the Group conducted an assessment together with a leading audit firm to define the road map for the adoption of the new accounting standard. This assessment did not identify any significant impacts for the Group.
Deadlines for the approval and publication of the separate financial statements
Pursuant to art. 154-ter of Italian Legislative Decree no. 58/98 (Consolidated Law on Finance), the Parent must approve the separate financial statements and publish the Consolidated Annual Financial Report, including the draft separate 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 16 March 2017; the Parent's separate financial statements will be submitted to the Shareholders' Meeting to be held on 21 April 2017 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.