Audited Financial Statements 2014

Transcription

Banco Santander (México), S.A.,
Institución de Banca Múltiple, Grupo
Financiero Santander México and
Subsidiaries
Consolidated Financial Statements for
the Years Ended December 31, 2014
and 2013 and Independent Au
Report Dated February 20, 2015
Banco Santander (México), S.A., Institución de Banca Múltiple,
Grupo Financiero Santander México and Subsidiaries
Financial Statements of 2014 and 2013
Table of contents
Page
1
Consolidated Balance Sheets
3
Consolidated Statements of Income
6
Consolidated Statements of Changes in
7
Consolidated Statements of Cash Flows
8
Notes to Consolidated Financial Statements
10
Memorandum accounts (see Note 31)
Own record accounts:
Contingent assets and liabilities
Credit commitments
Assets in trust or mandate:
Trusts
Mandates
Assets in custody or under administration
Collaterals received
Collaterals received and sold or pledged as security
Investment bank operations on account of third parties
Uncollected interest earned on past due loan portfolio
Other accounts
2014
$
12
132,353
2013
$
135,497
247
3,193,157
52,309
27,409
462,753
1,427
656,653
$
4,661,817
12
159,252
136,419
274
3,702,338
100,410
52,003
611,817
1,229
509,968
$
5,273,722
Institutions, issued by the National Banking and Securities Commission, in accordance with the requirements set forth in
articles 99, 101, and 102 of the Credit Institutions Law, of general and mandatory compliance, applied consistently, and
include the operations performed by the Institution as of the aforementioned dates, which were performed and valued in
accordance with sound banking practices and the applicable legal and administrative standards
under the responsibility of the
The accompanying notes are part of these consolidated financial statements.
3
Consolidated Statements of Income
For the years ended December 31, 2014 and 2013
(In millions of Mexican pesos)
2014
Interest income
$
2013
57,162
$
55,211
Interest expense
Financial margin
(19,635)
37,527
(19,197)
36,014
Provisions for loan losses
Financial margin after provisions for loan losses
(14,289)
23,238
(12,852)
23,162
Commission and fee income
16,109
14,540
Commission and fee expense
(3,207)
(2,352)
Net gain on financial assets and liabilities
2,953
2,873
Other operating income
1,451
1,832
(23,224)
17,320
(18,408)
21,647
Equity in results of unconsolidated subsidiaries and associates
Income before income taxes
79
17,399
80
21,727
Current income taxes
(2,121)
(4,823)
Deferred income taxes (net)
(1,224)
(3,345)
2,036
(2,787)
14,054
18,940
Administrative and promotional expenses
Total operating income
Net income
Non-controlling interest
Net income attributable to controlling interest
(1)
$
14,053
(4)
$
18,936
The present Consolidated Statements of Income were prepared in conformity with the
Accounting Criteria for Credit Institutions, issued by the National Banking and Securities
Commission, in accordance with the requirements set forth in articles 99, 101, and 102 of
the Credit Institutions Law, of general and mandatory compliance, applied consistently, and
include all the income and expenses arising from the transactions performed by the
Institution during the aforementioned periods, which were performed and valued in
accordance with sound banking practices and the applicable legal and administrative
standards.
The present Consolidated Statements of Income were approved by the Board of Directors under
4
Consolidated Statements of Cash Flows
2014
Net income
Adjustment for line items that do not require cash flows Result from valuation associated with investing or financing activities
Equity in the results of associate companies
Depreciation of property, furniture and fixtures
Amortizations of intangible assets
Current and deferred income taxes
Deferred employee profit sharing
Estimate of contributions payable in shares
Operating activities:
Margin accounts
Investment in securities
Debtors under sale and repurchase agreements
Derivatives-asset
Loan portfolio-net
Accrued income receivable from securitization transactions
Foreclosed assets
Other operating assets
Deposits
Bank and other loans
Creditors under sale and repurchase agreements
Collateral sold or pledged as security
Derivatives-liability
Other operating liabilities
Payments of income taxes
Net cash provided by operating activities
Investing activities:
Payments for acquisition of mortgage business
Proceeds from disposal of property, furniture and fixtures
Payments for acquisition of property, furniture and fixtures
Cash dividends received
Payments for acquisition of intangible assets
Net cash used in investing activities
$
14,053
2013
$
18,936
(253)
(79)
784
897
3,345
38
250
19,035
(192)
(80)
649
970
2,787
(3,200)
227
20,097
410
(32,848)
30,331
(23,234)
(69,963)
(3)
67
(7,370)
55,382
9,565
26,596
1,738
25,743
(17,336)
(3,594)
14,519
730
(2,093)
(27,217)
7,121
(32,280)
(74)
5,740
34,270
6,308
5,191
5,486
(6,138)
5,330
(10,298)
12,173
-
(509)
5
(1,279)
70
(1,226)
(2,430)
(1,313)
68
(933)
(2,687)
6
2014
Financing activities:
Cash payment of dividends
Subordinated liabilities
Recovery of reserves previously applied to retained earnings
Net cash used in financing activities
2013
(3,473)
20
(3,453)
(18,550)
16,824
43
(1,683)
Net increase in cash and cash equivalents
8,636
7,803
Adjustment to cash flows for changes in exchange rate
2,908
225
89,654
81,626
-
Funds available at the beginning of the year
Funds available at the end of the year
$
101,198
$
89,654
The present Consolidated Statements of Cash Flows were prepared in conformity with
the Accounting Criteria for Credit Institutions, issued by the National Banking and
Securities Commission, in accordance with the requirements set forth in Articles 99,
101, and 102 of the Credit Institutions Law, of general and mandatory compliance,
applied consistently, and include all the cash flow inputs and outputs arising from
the transactions performed by the Institution during the aforementioned periods,
which were performed and valued in accordance with sound banking practices and
lows were approved by the Board of Directors under the
7
Notes to Consolidated Financial Statements
1.
Explanation for translation into English
The accompanying consolidated financial statements have been translated from Spanish into English for use
outside of México. These consolidated financial statements are presented on the basis of accounting criteria
prescribed by the Commission. Certain accounting practices applied by the Institution may not conform to
accounting principles generally accepted in the country of use.
2.
Activity and economic and regulatory environment
Banco Santander (México), S.A., Institución de Banca Múltiple, Grupo Financiero Santander México (the
México
),
which holds 99.99% of its common stock and is regulated by, among others, the Credit Institutions Law and
the General Provisions issued by the Mexican National Banking and Securities Commission (the
banking and credit services under the terms of applicable laws, which services include, among others,
reception of deposits, acceptance of loans, granting of credits, trading of securities and the execution of trust
contracts.
During 2014, the principal macroeconomic indicators underwent certain changes, with accumulated inflation
in 2014 of 4.18% compared to 3.78% in 2013, and an estimated increase in Gross National Product ( GNP )
of between 2% and 2.5% compared to growth of 1.1% in 2013. Furthermore, due to conditions surrounding
international oil prices, towards the end of 2014, the Mexican peso suffered a significant depreciation of 13%
against the US dollar, falling from $13.08 per US dollar at the close of December 2013 to $14.74 per US
dollar at December 31, 2014.
Significant events 2014a. Acquisition of Scotiabank portfolio - On November 26, 2014, the Institution reached an agreement to
acquire from Scotiabank Inverlat, S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank
Inverlat, a portfolio of non-revolving consumer loans comprised of approximately 47,000 customers
for $4,100. This transaction is subject to the appropriate authorizations by the respective regulatory
agencies, for which reason it will not be recorded in the accounting records of the Institution until such
authorizations are obtained, which is expected to occur in the first quarter of 2015.
b. Commitment to sell custody business - During 2014, the Parent Company and the Institution reached
an agreement for the sale of the custody business to FINESP Holdings II B.V., an affiliate of Warburg
On June 19, 2014, the Parent Company announced that it had reached a definitive agreement
with an affiliate of Warburg Pincus and Temasek to acquire 50% of the custody business of
Santander in Spain, México and Brazil through a new company. The close of the transaction
was expected for the fourth quarter of 2014.
8 Also, on June 19, 2014, the Parent Company made an offer to purchase the custody business,
which was accepted by Banco Santander (the Bank), S.A., Institución de Banca Múltiple,
Grupo Financiero Santander México. The selling price agreed was $2,030. Such offer obliges
the Bank to transfer the business; however, this obligation is subject to the following
conditions: i) it is valid until June 19, 2015; ii) it is subject to the same conditions established in
the global agreement signed by the Parent Company; iii) the appropriate authorizations to create
a company whose corporate purpose will be the operation of the custody business must be
obtained from the Mexican authorities; iv) it depends on the global operation, inasmuch as if
the latter is terminated, the operation in México will also be terminated; and v) the transaction
must be made legal through the signing of the respective contracts.
The strategic alliance was approved by the Board of Directors of both the Parent Company and
the Bank during its meeting held on July 22, 2014.
Pursuant to the foregoing, although the Bank has an obligation to transfer the custody business to a
special vehicle because it accepted the offer made by the Parent Company, such obligation is subject to
different conditions which, to date, have not been fulfilled, such as the relevant authorization from the
Mexican financial authorities for the vehicle that will render the custody services, among others.
Furthermore, to date, no final determination has been made regarding the vehicle that will be used to
render the custody service and in which the association will be performed. Consequently, no financial
or tax effect has been recognized in the consolidated financial statements of the Institution.
c. Sale of foreclosed assets - During December 2013, the Institution signed an agreement with a financial
institution for the sale of 1,309 foreclosed assets. The transaction concluded on January 31, 2014 at a
selling price of $282, generating pretax income of $149, which was recorded in the consolidated
ng income
Significant events 2013a. Acquisition of Santander Vivienda - On June 14, 2013, the Institution executed a share purchase-sale
agreement to acquire the shares of ING Hipotecaria, S.A. de C.V., Sociedad Financiera de Objeto
acquisition was subject to the approval of the respective regulatory entities which was granted during
October 2013.
On December 13, 2013, ING Hipotecaria obtained approval from its stockholders to change its
corporate denomination to Santander Vivienda, S.A. de C.V., Sociedad Financiera de Objeto Múltiple,
The change in corporate denomination was
registered in the Public Register of Commerce in September 2013.
ING Group maintained control of Santander Vivienda until the transaction closing date of November
29,
At the transaction closing date, the Institution formalized the acquisition of 100% of the ordinary
voting stock of Santander Vivienda through a cash payment of $541, equal to 100% of the shares and
The fair value of the acquired net assets was $395, which includes the mortgage credit portfolio with a
face value of $11,237 and an estimated fair value of $10,772. A credit portfolio of approximately $363
is not expected to be recovered at the acquisition date. Santander Vivienda currently operates as a
subsidiary of the Institution; given this shareholding relationship, it became a regulated entity as of the
acquisition date.
The Institution
anagement analyzed the fair values of the assets acquired and liabilities assumed
through this transaction, which generated goodwill of $146 based on the synergies that will be
generated once Santander Vivienda is completely integrated into the operations of the Institution.
9
The most significant acquisition accounting adjustments included a reduction in the valuation of the
loan portfolio of $465, as well as a reduction in the valuation of foreclosed assets of $686, thereby
generating a deferred tax asset of $345. These adjustments have been included in the amounts
presented in the following summary table.
The main assets acquired and liabilities assumed, valued at fair value at the acquisition date, are
detailed below:
Heading
Cash and investments in securities
Mortgage portfolio, net
Foreclosed assets, net
Accounts receivable
Other assets
Total assets
$
Other liabilities
Total liabilities
557
10,772
202
95
586
12,212
(11,817)
(11,817)
Acquired net assets
Acquisition cost
$
395
(541)
Goodwill at November 29, 2013
$
(146)
In December 2014, the Institution finished analyzing the estimates regarding the fair values of the
assets and liabilities acquired in this transaction in conformity with Financial Reporting Standard B-7,
Business Acquisitions and no adjustments were identified in addition to those described above.
From the acquisition date and until December 31, 2013, Santander Vivienda contributed $20 to the
consolidated financial margin and $40 to the consolidated net profit of the Institution. If the acquisition
had taken place on January 1, 2013, this entity would have contributed $1,259 to the consolidated
financial margin and $(96) to the consolidated net profit during 2013.
b. Mexican real estate sector In past years, the historic shortage of housing in Mexico drove the
Mexican Government to actively incentivize its development. These incentives led to increased
construction of subsidized housing. The lack of infrastructure, the long distances to the workplaces and
transportation costs led to increased abandonment and mortgage default of these homes. The
foregoing, together with changes in governmental policies in the second quarter of 2012, caused a
strong decrease in the home building and sales of the principal Mexican home builders and an
adjustment in their growth plans and business models in order to compensate for the impacts of these
changes.
In April and June 2014, two of the three largest real estate companies in Mexico were declared
bankrupt as they met the criteria established in the Commercial Bankruptcy Law to be considered
insolvent.
At the beginning of December 2014, one of the three main real estate companies in Mexico sent to the
respective court its request to file a pre-established commercial bankruptcy proceeding.
As of December 31, 2014 and 2013, the loan portfolio of the Institution with the three principal
Mexican real estate companies was $4,903 and $5,140, respectively which represents 1.05% and
1.30% of the total loan portfolio, respectively, and the 0.52% and 0.62% of the total assets of the
Institution, of which $4,720 and $4,265 are non-performing loan portfolio, respectively. At December
31, 2014 and 2013, the Institution has recorded an allowance for loan losses based on the loss
methodology used for this loan portfolio. Aside from this allowance for loan losses, the Institution has
real property collateral to mitigate default events and avoid future material losses.
10
c. Change of Legal Criteria regarding the Payment of Employee Statutory Profit-
-
On August 30, 2013, the Federal Weekly Gazette published a collective federal court decision issued
by the Supreme Court to resolve the conflicts arising from legal verdicts issued by lower level courts,
which establishes that only the employers that exclusively obtain their income from (i) the
management of real property that generates rentals, or (ii) the recovery of loans and interest related to
this real property, are entitled to apply Article 127, section III of the LFT to determine PTU.
The Institution has evaluated the accounting effect of this decision for prior fiscal years and has
concluded that it represents a remote contingency. The evaluation performed by the Institution is based
on the profile of its collective-bargaining agreements, the criteria issued by the Tax Administration
-bargaining agreements and the terms of the reform of
the Law on Injunctive Relief, which establish that legal decisions cannot be applied retroactively. Until
that date, the Institution determined and recorded this obligation in accordance with Article 127 of the
As a result of this change of legal criteria, as of September 2013, the Institution determines and records
its PTU obligation in accordance with Article 10 of the Income Tax Law. Accordingly, as of that date,
entities are required to account for deferred PTU based on Mexican Financial Reporting Standard D-3,
Employee Benefits. The Institution therefore determined and recorded a deferred PTU asset of $2,935,
and promotional
d. Tax reforms - On November 1, 2013, Mexico
take effect at the start of 2014. These reforms include amendments to the Income Tax Law, Value
Added Tax Law and Federal Tax Code. These reforms also eliminated the Business Flat Tax Law and
Cash Deposit Tax Law.
e. Placement of debtures on international markets - On December 27, 2013, the Institution made a
placement of debt instruments denominated Tier 2 Subordinated Notes for the amount of US $1,300
million for a 10-year period, with the option of advance payment in year five. These instruments were
issued and placed according to Rule 144A and Regulation S of the 1933 US Securities Act. Interest
will be paid semiannually on January 30 and July 30 based on an initial annual rate of 5.95%.
The main characteristics of this issuance are as follows:
If advance payment is not made in year five, the respective interest rate applicable during the
second five-year period will be based on the rate set for US five-year Treasury Notes at that
time, plus the spread defined in the placement prospectus.
The instruments have a loss absorption mechanism based on a
, which will be
triggered when basic capitalization ratio levels (Tier 1) of 4.5% are reached.
A partial, proportional write-down until recovering a basic capitalization ratio (Tier 1) of 7%.
When a capitalization ratio of 8% is determined:
Early warning activation - The deferral of principal or interest or other measures determined by
the Commission.
Cause of revocation - A possible write-down due to remediation default.
The possibility of advance payment based on the inability to treat the subordinated notes as
supplementary capital (Tier 2) due to the nondeductibility of interest or increased withholding
tax.
11
3.
Significant accounting policies
The significant accounting policies applied by the Institution are in conformity with the accounting criteria
established by the Commission in the General Provisions Applicable to Credit Institutions and Financial
Companies Regu
, in its circulars and in general and specific official
mandates, which require that management make certain estimates and utilize certain assumptions to determine
the valuation of items included in the consolidated financial statements and to make required disclosures.
Although the actual results may differ, management believes that the estimates and assumptions utilized were
appropriate under the circumstances.
Based on Accounting Criterion A-1 of the Commission, the accounting of the Institution shall be in
Standard
should be applied on the basis that the institutions subject to its rules carry out specialized operations.
Changes in accounting policies Changes in the Accounting Criteria of the Commission Changes that occurred during 2014
On March 26, 2014, the Commission made certain changes to the methodology for the determination of credit
reserves for the loans granted under Article 75 in relation to Sections II and III of Article 224 of the
Commercial Bankruptcy Law, and those loans which, pursuant to Article 43, Section VIII of such Law,
continue to receive payments, as a result of the change in the Commercial Bankruptcy Law made on January
10, 2014.
Also, on September 24, 2014, the Commission published in the Federal Official Gazette the amendments
related to Accounting Criterion B-6, Loan Portfolio, in order to make it consistent with the change in the loan
reserves methodology described in the preceding paragraph. These changes went into effect on the day
following their publication.
The changes to such Accounting Criterion include the incorporation of the definition of payment and an
amendment to the definition of
due portfolio , to exclude those loans engaged in bankruptcy
proceedings which continue to receive payments under the terms established in Article 43, Section VIII of the
Commercial Bankruptcy Law, or are granted in accordance with Article 75 in relation to Sections II and III of
Article 224 of such law.
On May 19, 2014, different amendments to the accounting criteria of credit institutions were published in the
Federal Official Gazette.
These amendments are in line with the continuous updates to the accounting criteria of the Commission, and
seek to achieve consistency with international accounting regulations.
The purpose of the Commission as a result of such modifications is to oblige credit institutions to have
transparent financial information that is comparable with information from institutions operating in other
countries.
Changes in NIF issued by CINIF applicable to the Institution
As of January 1, 2014, the Institution adopted the following new NIFs:
NIF C-11,
Equity
NIF C-12, Financial Instruments with Characteristics of Debt and Equity
Improvements to Financial Reporting Standards 2014
12
Certain significant changes established by these standards are:
NIF C-11, Stockholders' Equity- Establishes the standards for presentation and disclosure and indicates
that advances for future capital increases are presented in stockholders' equity, only when: i) there is
resolution issued by a meeting of partners or owners, where they stipulated that the amounts paid will
be applied to capital increases in the future; ii) a fixed number of shares set to be issued by such
advances, iii) the price per share to be issued for such advances is fixed and iv) it amounts cannot be
reimbursed before they are capitalized.
NIF C-12, Financial Instruments with Characteristics of Debt and Equity- Establishes that the
principal characteristic for a financial instrument to qualify as an equity instrument is that the holder
must be exposed to the risks and benefits of the entity, instead of having the right to collect a fixed
amount from the entity; the classification of a redeemable equity instrument as stockholders' equity,
can be made when certain conditions are fulfilled, such as that the redemption may only be exercised
when the company is liquidated, as long as there is no other unavoidable payment obligation in favor
of the holder; incorporates the concept of subordination, a crucial element in this standard, because if a
financial instrument has a preferential order of payment or reimbursement before other instruments, it
qualifies as a liability because of the obligation to settle it; allows for the classification as equity of an
instrument with an option to issue a fixed number of shares at a fixed price established in a currency
different from the functional currency of the issuer, provided that the option is available to all the
owners of the same class of equity instruments, in proportion to their participation.
Improvements to Financial Reporting Standards 2014: The purpose of the Improvements to Financial
Reporting Standards 2014 (Improvements to NIF 2014) is to incorporate changes and details in order
to establish a more appropriate regulatory approach.
The Improvements to NIF are classified into those improvements that create accounting changes in the
valuation, presentation or disclosure in the financial statements of the entities, and in those detailed
improvements that help to establish a clearer and more comprehensible regulatory approach: since they
are only details, they do not generate accounting c
statements.
The Improvements to NIFs which result in accounting changes are as follows:
NIF C-5, Prepaid Expenses Establishes that amounts paid in foreign currency should be recognized at
the exchange rate in effect on the transaction date, and should not be modified for subsequent changes
in exchange rates.
Bulletin C-15, Impairment in the Value of Long-lived Assets and their Disposal Establishes that it is
not permitted
f impairment losses. Furthermore, the
balance sheets form previous years that are presented for comparative purposes should not been
restated for the presentation of assets and liabilities related to discontinued operations, eliminating the
current difference with the International Financial Reporting Standards ( IFRS ) 5, Non-current Assets
Held for Sale and Discontinued Operations.
The Improvements to NIF which did not generate accounting changes are the following:
Bulletin C-9, Liabilities, Provisions, Contingent Assets and Liabilities and Commitments - The term
13
Bulletin C-15, Impairment in the Value of Long-lived Assets and their Disposal - The definition of the term
, depending on the
financial hypotheses used in the cash flow projections.
At the date of the issuance of these financial statements, the adoption of these improvements did not have a
Changes in accounting policy applicable in 2014 and 2013
Methodology for the determination of the allowance for loan losses applicable to loans granted under the
Commercial Bankruptcy Law
On March 26, 2014, the Commission issued a ruling which amends the Provisions, adjusting the methodology
applicable to the classification of commercial loan portfolio for loans granted under Sections II and III of
Article 224 of the Commercial Bankruptcy Law in order to make it consistent with the modifications made to
such statute on January 10, 2014.
This methodology mainly involves the consideration of collaterals under Article 75 of the Commercial
Bankruptcy Law for the determination of the Severity of Loss applying certain adjustment factors or discount
rates for each type of eligible collateral.
The change in allowance methodology did not have any material effects in the
financial statements as of December 31, 2014.
consolidated
Methodology for the determination of the allowance for loan losses applicable to commercial credit portfolio
On June 24, 2013, the Commission modified the methodology applicable to the classification of the
commercial loan portfolio to changes in the model for recognizing the allowance for loan losses from the
incurred loss model to an expected loss model where losses for the following 12 months are estimated based
on current credit information.
The Commission mandated the recognition of initial cumulative effect of this change in methodology related
to commercial loan portfolio
also established two deadlines for the implementation of these new criteria. The first deadline for determining
and recording the new allowance for loan losses for commercial or business activity loan portfolio is
December 31, 2013, while the second deadline for recognizing the new methodology with respect to
allowance for loan losses for loan portfolio to financial entities is June 30, 2014. The Institution recognized
the initial cumulative financial effect derived from the application of the new classification methodology for
its loan portfolio to financial entities and commercial or business activity loan portfolio as of June 30, 2014
and 2013, respectively.
As of June 30, 2014 and 2013, the initial financial effect derived from the application of the change in
classification methodology for the loan portfolio to financial institutions and commercial credit portfolio
resulted in the recognition
to
NIF D-4, Income Taxes, the Institution recognized the related deferred income tax derived from the change in
classification methodology of the loan portfolio to financial institutions and the commercial loan portfolio
oyee statutory profit sharing (n
Retained earnings
r the amount of $25 and $1,033, respectively. Therefore, the initial financial effect
in classification methodology of the loan portfolio to financial entities and commercial loan portfolio is $58
and $2,412, respectively, net of the related deferred income tax.
14
Special accounting criteria applicable in 2014
Special accounting criteria applicable to loans subject to the support derived from the flooding caused by
In Official Notice P110/2014 dated September 19, 2014, the Commission authorized the application of special
accounting criteria for the purpose of assisting the borrowers of the Institution that were affected as a result of
including the severe rainfall and other adverse natural
phenomena which affected different towns and cities in the State of Baja California Sur.
Such financial aid was applicable to customers who were domiciled in or had loans with the source of
payment located in areas declared as disaster zones by the Interior Department in the Federal Official Gazette.
The purpose of this aid was to assist in the economic recovery of the affected zone through the
implementation of different measures, such as:
1. Those loans with a single payment of principal at maturity and periodic payments of interest, as well as
loans with a single payment of principal and interest at maturity, which were renewed or restructured,
were not considered as overdue portfolio under the terms of that established in Accounting Criterion
B-6, Credit Portfolio
established to the effect that the new deadline granted to the borrower should not exceed three months
as of the date on which it expired.
The above applies to loans included in current portfolio as of the date of the incident, in accordance
with Accounting Criterion B-6 issued by the Commission, and the respective renewal or restructuring
procedures conclude within 120 calendar days after the date of the incident.
2. Loans with periodic principal and interest payments and which are subject to restructuring or renewal
may be considered as current when this event takes place, thereby avoiding the requirements detailed
in Accounting Criterion B-6.
This treatment is applicable as long as the loans in question are recorded as current portfolio at the date
of the casualty, in conformity with Accounting Criterion B-6, provided the respective renewal or
restructuring procedures are concluded no more than 120 calendar days after the casualty date and the
new maturity date granted to the borrower does not exceed three months as of the date on which it
would have originally expired.
3. Loans which from the beginning were stipulated as revolving, which are restructured or renewed
within the 120 calendar days following the date of the adverse weather event, will not be considered as
overdue portfolio under the terms of Accounting Criterion B-6 of the Commission. Such benefit may
not exceed three months as of the date on which they expired. The above applies provided that they
refer to credits which are recorded as current portfolio as of the date of the adverse weather event.
4. The loans indicated in the foregoing will not be considered as restructurings under the terms of
Accounting Criterion B-6 of the Commission.
The Institution received different requests for aid from the borrowers affected by the flooding and damage
the original deadlines. As of December 31, 2014, the balance of the loan portfolio which received this
financial aid was $170. These loans will not be considered as overdue portfolio under the terms of Accounting
Criterion B-6 of the Commission.
The loans which received the aforementioned financial aid are current with their payments of both principal
and interest.
Special accounting criteria applicable in 2013
Special accounting criteria applicable to loans subject to the support provided in response to the flooding
generated by hurricanes Ingrid and Manuel
15
Through Document Number P065/2013 issued on October 18, 2013, the Commission authorized the
application of special accounting criteria to the loans of customers domiciled in areas of Mexico declared as
being in a state of emergency or natural disaster by the Department of the Interior ( SEGOB ), through
publications made in the Federal Official Gazette in September and October 2013. These criteria are also
applicable to loans with a source of payment located in these zones and which were classified as current for
accounting purposes at the casualty date (September 13, 2013) established in the aforementioned declarations
under the following terms:
1. Loans with a single principal payment at maturity and periodic interest payments, as well as loans with
a single principal and interest payment at maturity and that are renewed or restructured, will not be
considered as overdue portfolio according to Accounting Criterion B-6 issued by the Commission. In
this regard, the new maturity period granted to the borrower must not exceed three months as of the
original maturity date.
The above criteria are applicable provided the credits are recorded as current portfolio at the date of the
casualty, as required by Accounting Criterion B-6, and as long as the respective renewal or
restructuring procedures conclude no later than 120 calendar days following the casualty date.
2. Loans with periodic principal and interest payments and which are subject to restructuring or renewal
may be considered as current when this event takes place, thereby avoiding the requirements detailed
in Accounting Criterion B-6.
This treatment is applicable as long as the loans in question are recorded as current portfolio at the date
of the casualty, in conformity with Accounting Criterion B-6, provided the respective renewal or
restructuring procedures are concluded no more than 120 calendar days after the casualty date and the
new maturity date granted to the borrower does not exceed three months as of the date on which it
would have originally expired.
3. Credits which are initially classified as revolving, are restructured or renewed within 120 calendar days
following the casualty date, which are not considered as overdue portfolio according to Accounting
Criterion B-6. However, this benefit must not exceed a three-month period as of the initial maturity
date.
This treatment is applicable to the loans which, at the casualty date, are recorded as current portfolio in
conformity with Accounting Criterion B-6.
The loans referred to in the preceding numerals 1, 2 and 3 will not be considered as restructured under
Accounting Criterion B-6.
In order to support customers affected by this situation, the Institution implemented a series of credit payment
facilities for payrolls, credit cards,
SME and mortgage credits. Customers
requiring this support will not generate a Credit Bureau report.
At December 31, 2013, the Institution received support applications from borrowers affected by the flooding
generated by hurricanes Ingrid and Manuel. This support consisted of deferring original maturity dates by 60
days. The amount of the credit portfolio that received this support was $65.
The borrowers that received the aforementioned support are current with their principal and interest payments.
The significant accounting policies applied by the Institution are as follows:
Monetary unit of the financial statements - The consolidated financial statements and notes for the years
ended December 31, 2014 and 2013 include balances and transactions in Mexican pesos of different
purchasing power.
Basis for consolidation - The accompanying consolidated financial statements include those of the Institution
and its subsidiaries listed below. All significant intercompany balance and transactions have been eliminated
on consolidation.
16
The consolidated subsidiaries and the
equity percentage are as follows:
Equity Percentage
Instituto Santander Serfin, A.C.
Banco Santander, S.A., Fideicomiso 100740.
Fideicomiso GFSSLPT, Banco Santander, S.A.
Santander Holding Vivienda, S.A. de C.V.
Santander Servicios Corporativos, S.A. de C.V.
Santander Servicios Especializados, S.A. de C.V.
2014
2013
99.99%
99.99%
87.87%
87.87%
99.99%
99.99%
99.99%
92.75%
99.99%
99.96%
99.99%
99.99%
99.99%
99.99%
92.75%
99.99%
99.96%
99.99%
Recognition of the effects of inflation in the financial information - Because it operates in a noninflationary environment, the Institution suspended recognition of the effects of on January 1, 2008. Up to
December 31, 2007, the recognition of inflation mainly resulted in gains or losses from inflation on nonmonetary and monetary assets and liabilities.
The balances of assets, liabilities and stockholders' equity include the effects of inflation recognized through
December 31, 2007, during which time Mexico was considered to be an inflationary environment as
previously defined under MFRS. The effects of inflation are derecognized on the date on which the assets and
effects are derecognized. The
consolidated financial statements as of December 31, 2014 and 2013 only include inflation adjustments
not yet been derecognized.
As established in NIF B-10, Effects of Inflation, a non-inflationary environment is defined as one in which the
cumulative inflation rate of the three preceding years is lower than 26%, and which is projected to maintain
stable inflation rates according to the economic forecasts of government agencies. The cumulative inflation of
the three-year periods preceding December 31, 2014 and 2013 is 11.3% and 11.8% respectively. The inflation
percentage under UDIS rates for 2014, 2013 and 2012 was 4.18%, 3.78% and 3.90% respectively;
consequently, the economic environment qualifies as non-inflationary in both years.
Offsetting of financial assets and liabilities - Financial assets and liabilities are offset in such a way that the
debit or credit balance is only presented on the consolidated balance sheet if the Institution has the contractual
right to offset recognized amounts, the intention to settle the net amount or realize the asset and
simultaneously settle the liability.
Funds available - Funds available are valued at face value; foreign currency funds available are valued at fair
value using yearend quoted exchange rates.
Foreign currency acquired that will be settled on a date subsequent to the purchase-sale transaction is
recognized as restricted funds available (foreign currency receivable). Foreign currency sold is recorded as a
credit to funds available (foreign currency deliverable). The offsetting entry is recorded in a debit (credit)
settlement account when a sale or purchase is performed, respectively.
For financial information presentation purposes, accounts receivable and payable settled in foreign currency
settlement
Interbank loans executed for a term of three working days or less, as well as other funds available such as
correspondent banks or other liquid notes, are also included in this line item.
17
Margin accounts - The margin accounts given in cash (and other cash equivalents) required from entities
when performing transactions with derivative financial instruments through recognized stock markets or
exchanges are recorded at their face value.
In the case of margin accounts granted to the clearinghouse and composed by items other than cash, such as
debt instruments or share certificates, the clearinghouse is entitled to sell the component assets embodied in
these margin accounts or give them as collateral. Financial assets given as collateral are presented as restricted
assets; the respective valuation and disclosure standards are then utilized according to the applicable
accounting criterion based on the nature of these assets.
Margin accounts are used to ensure the fulfillment of obligations derived from the performance of
transactions with derivative financial instruments on recognized stock markets and exchanges. Accordingly,
they reflect the initial margin, contributions and withdrawals made during each contractual period.
Trading securities - Trading securities represent investments in debt and equity securities, in proprietary
position and pledged as collateral, which are acquired with the intention of selling them to realize gains from
increases in fair value. Upon acquisition, they are initially recorded at fair value, which includes applicable
discounts or premiums. Furthermore, the cost is determined by the average costs method. They are
subsequently valued at fair value determined by the price vendor engaged by the Institution in accordance
with the Provisions of the Commission. The difference between the historical cost, which is determined using
the average cost method, of the investments in debt securities plus accrued interest and of equity securities
compared with their fa
be distributed to stockholders until the securities are sold.
Fair value is the amount at which an asset may be exchanged or a liability may be settled by informed, willing
.
The transaction costs for the acquisition of trading securities are recognized in earnings on the acquisition
date.
Cash dividends of shares are recognized in earnings in the same period in which the right to receive such
payment is generated.
The exchange gain or loss on foreign currency-denominated investments in securities is recognized in
earnings.
This heading is used to record outstanding transactions derived from the purchase-sale of assigned, unpaid
securities, which are valued and recorded as securities held for trading purposes. The movements of the
securities embodied in each transaction are recorded in the respective debit or credit settlement account.
The accounting criteria used by the Commission allow for reclassifications of trading securities to availablefor-sale only in extraordinary circumstances (for example, a lack of market liquidity, no active market for the
instrument, among others), which will be evaluated and, if applicable, validated with the express authorization
by the Commission. As of December 31 2014 and 2013, no reclassifications were made.
Available for sale securities Available for sale securities are debt instruments and equity shares that are not
held for purposes of realizing gains derived from increases in fair value and, in the case of debt instruments,
those that the entity does not intend or is able to hold to maturity and, therefore, represent a residual category,
i.e., they are acquired for purposes other than those of trading securities or securities held to maturity because
the entity intends to trade them at some point in the future prior to maturity.
Upon acquisition, they are initially recorded at fair value plus the acquisition transaction cost, including
applicable discounts or premiums. They are subsequently valued at fair value.
18
The Institution determines the increase or decrease in the fair value using current prices provided by the price
vendor, which uses various market factors for their determination. The yield on debt securities is recorded
using the imputed interest or effective interest method depending on the nature of the security; such yield is
losses resulting from changes in fair value are recorded in comprehensive income items u
equity, specifically, under the
such securities were not defined as hedged in a fair value hedging relationship through a derivative financial
instrument, in which case they are recognized in earnings.
Cash dividends of shares are recognized in earnings in the same period in which the right to receive such
payment arises.
The exchange gain or loss on foreign currency-denominated investments in securities is recognized in
earnings.
The accounting criteria of the Commission allow for the transfer of securities classified as "held to maturity"
to "available for sale", provided that there is no intention or capacity to hold them to maturity, as well as
reclassifications from the category of trading securities to available for sale under extraordinary circumstances
(for example, a lack of market liquidity, or when there is no active market for the securities, among others),
which should be assessed and, if applicable, validated through the express authorization of the Commission.
As of December 31, 2014 and 2013, no reclassifications were made.
Securities held to maturity - Securities held to maturity are those with fixed or determinable payments and
fixed maturity, which the Institution has both the intention and the ability to hold until maturity. These
securities are initially recorded at fair value plus acquisition transaction costs, including applicable discount or
premium. They are subsequently valued at amortized cost. Interest earned is recorded in the consolidated
accordance with the nature of the instrument.
At December 31, 2014 and 2013, the valuation of the reserve recorded for special CETE-denominated longterm UDIS is $373. Accordingly, this amount was recorded in the consolidated statements of income under
the heading
CETE-denominated UDIS by the Bank of Mexico. Based on the early termination of Debtor Support
Programs, in 2014 and 2013, and given that the Federal Government did not repurchase any special CETEdenominated UDIS, the Institution did not cancel any portion of this reserve during those years.
The accounting criteria of the Commission allow for the transfer of securities classified as "held to maturity"
to "available for sale", provided that there is no intention or capacity to hold them to maturity, as well as
reclassifications from the category of trading securities to available for sale under extraordinary circumstances
(for example, a lack of market liquidity, or when there is no active market for the securities, among others),
which should be assessed and, if applicable, validated through the express authorization of the Commission.
As of December 31, 2014 and 2013, no reclassifications were made.
The cash dividends of equity securities are recognized in earnings during the same period in which the fair
value of these securities is affected as a result of the coupon cutoff date.
Impairment in the value of a financial instrument - The Institution must evaluate whether there is objective
evidence that a financial instrument is impaired as of the consolidated balance sheet date. Impairment is the
condition that arises when the book value of the investments in securities exceeds their recoverable amount.
A financial instrument is considered to be impaired and, accordingly, a loss from impairment is incurred if,
and only if, there is objective evidence of the impairment as a result of one or more events that took place
after the initial recognition of the financial instrument, which had an impact on its estimated future cash flows
that can be reliably determined. It is deemed highly unlikely that one identified event can be the sole cause of
the impairment, and it is more feasible that the combined effect of different events might have caused the
impairment. The expected losses as a result of future events are not recognized, regardless of how probable
they are of occurring.
19
Objective evidence that a credit instrument is impaired includes observable information such as, among
others, the following events:
a)
b)
c)
d)
e)
Significant financial difficulties of the issuer of the instrument;
It is probable that the issuer of the instrument will be declared bankrupt or another financial
restructuring will take place;
Noncompliance with the contractual clauses, such as default on payment of interest or principal;
Disappearance of an active market for the instrument in question due to financial difficulties, or
A measurable decrease in the estimated future cash flows of a group of securities since the initial
recognition of such assets, even though the decrease cannot be matched with the individual securities
of the group, including:
i.
Adverse changes in the payment status of the issuers in the group, or
ii.
Local or national economic conditions which are correlated with defaults on the securities of
the Institution.
Management has not identified objective evidence of impairment of a credit instrument held as of December
31, 2014 and 2013.
Sale and repurchase agreements - Sale and repurchase agreements are those in which the buying party
acquires for a sum of money the ownership of securities and agrees within the agreed term and against
reimbursement of the same price plus a premium, to transfer to the selling party the ownership of the other
securities of the same kind. Unless otherwise agreed, the premium is for the buying party.
For legal purposes, sale and repurchase agreements are considered as a sale in which an agreement to
repurchase the transferred financial assets is executed. Notwithstanding, the economic substance of sale and
repurchase agreements is that of a secured financing in which the buying party provides cash as financing in
exchange for obtaining financial assets that serve as collateral in the event of default.
Sale and repurchase agreements are recorded as indicated below:
When the Institution acts as the buying party on the contract date of the sale and repurchase agreements, the
withdrawal of funds available or a credit settlement account is recognized, recording an account receivable,
initially at the price agreed, which represents the right to recover the cash delivered. The account receivable
will be valued subsequently during the useful life of the sale and repurchase agreements at amortized cost,
recognizing the interest on the sale and repurchase agreements based on the effective interest method in
earnings.
On the contract date of the repurchase transaction, when the Institution acts as the selling party, the entry of
the cash or asset or a debit settlement account is recognized, as well as an account payable, initially at the
price agreed, which represents the obligation to repay such cash to the buying party. The account payable will
be valued subsequently during the useful life of the sale and repurchase agreements at amortized cost,
recognizing the interest on the sale and repurchase agreements based on the effective interest method in
earnings.
When the transactions performed are considered to be cash-oriented, the transaction is intended to obtain cash
financing by using financial assets as collateral for such purpose; by the same token, the buying party obtains
a return on its investment at a certain rate, and as it is not seeking a specific value, receives financial assets as
collateral to mitigate the exposure to credit risk which it faces in relation to the selling party. In this regard,
the selling party pays the buying party the interest on the cash that it received as financing, calculated based
on the rate negotiated in the sale and repurchase agreements. Also, the buying party obtains yields on its
investment, whose payment is assured through the collateral.
20
When the transactions performed are considered to be securities-oriented, the intention of the buying party is
to temporarily accept certain specific securities held by the selling party, by granting cash as collateral, which
serves to mitigate the exposure to risk faced by the selling party in relation to the buying party. In this regard,
the selling party pays the buying party the interest rate negotiated in the sale and repurchase agreements for
the implicit financing obtained on the cash that it received, which rate is generally lower by comparison than
the rates specified in cash-oriented sale and repurchase agreements.
-
-
transactions is identical.
Collateral granted and received other than cash in sale and repurchase agreements - In relation to the
collateral granted by the selling party to the buying party (other than cash), the buying party recognizes the
collateral received in memorandum accounts, following the valuation guidelines for the securities established
in Accounting Criterion B-9, Custody and Management of Assets
- , issued by the
The securities vendor presents the
financial asset on its consolidated balance sheet as a restricted asset. It then applies valuation, presentation
and disclosure standards according to the respective accounting criterion.
Memorandum accounts recognized for collateral received by the buying party are cancelled when the sale and
repurchase agreements matures or when the selling party defaults.
When the buying party sells the collateral, the proceeds from the sale are recorded and an account payable for
the obligation to repay the collateral to the selling party (measured initially at the agreed-upon price) is valued
at fair value. If the collateral is pledged as guarantee in another repurchase or resale agreement, it will be
measured at amortized cost (any difference between the price received and the value of the account payable is
recognized in earnings).
Similarly, if the buying party becomes a selling party due to other sale and repurchase agreements with the
same collateral received as guarantee of the initial transaction, the interest on the second sale and repurchase
agreements must be recognized in earnings as accrued, according to the implied interest method or effective
interest method, while also affecting the account payable valued at amortized cost.
For transactions where the buying party sells or pledges as guarantee the collateral received (for example,
when another repurchase or resale agreement securities loan transaction is established), memorandum
accounts are used to control the collateral sold or pledged as guarantee, which is valued using the standards
applicable to custody transactions included in Accounting Criterion B-9 issued by the Commission.
Memorandum accounts which are recognized for collateral received that in turn is sold or pledged as
collateral by the buyer, are cancelled when the collateral sold is purchased to return it to the selling party, or
when the second transaction matures or the other party defaults.
Securities loans - A securities loan is a type of transaction in which the transfer of securities is agreed
between the lender and the borrower, with the obligation to return such securities or other substantially similar
instruments on a given date, or upon request, with a premium received as consideration. In this transaction,
collateral or security in the form of assets permitted under current regulations, other than cash, is requested by
the lender from the borrower.
For legal purposes, securities loans are considered a sale in which it is agreed to return the securities in
question on a specified date. Notwithstanding, the economic substance of securities loans is that the borrower
may temporarily use a certain type of security whereby the collateral serves to mitigate the risk exposure
faced by the lender in relation to the borrower.
21
Securities loans are recorded as indicated below:
At the contracting date of the securities loan, when it acts as the lender, the Institution records the securities
transferred in connection with the loan as restricted, and applies the applicable rules for valuation,
presentation and disclosure in accordance with the respective accounting treatment.
The premium is recorded initially as deferred revenue, recording the debit settlement account or the entry of
the cash. The amount of the accrued premium is recognized in earnings through the effective interest method
over the effective term of the transaction.
When it acts as the borrower, at the contracting date of the securities loan, the Institution records the security
subject to the loan received in memorandum accounts, following the valuation guidelines established for
securities recognized included in Accounting Criterion B-9 issued by the Commission.
The amount of the premium is recognized initially as a deferred charge, by recording the creditor settlement
account or the cash outlay. The amount of the premium earned is recognized in results for the year through
the imputed interest method or effective interest method for the effective term of the transaction.
The security subject matter of the transaction, as well as the collateral delivered, are presented as restricted,
based on the type of financial asset in question.
The security subject matter of the transaction, as well as the collateral received, are presented in memorandum
Derivatives -The Institution carries out two types of transactions with financial derivatives:
- For hedging purposes - The objective of which is to mitigate the risk of an open risk position through
transactions with financial derivatives.
- For trading purposes The objective of which is different from that of covering open risk positions by
assuming risk positions as a participant in the derivatives market.
The Institution recognizes all its derivatives (including hedging derivatives) as assets or liabilities (depending
on the related rights and/or obligations) in the consolidated balance sheet, initially at fair value, which
presumably is equal to the price agreed in the transaction.
Transaction costs that are directly attributable to the purchase of the derivative are recognized directly in
earnings.
Subsequently, all derivatives are valued at fair value without deducting any transaction costs incurred on the
gain on
relationship.
The rights and obligations of derivatives that are traded in recognized markets or stock exchanges are
considered to have matured when the risk position is closed, i.e., when an opposite derivative with the same
characteristics is traded in such market or stock exchange.
The rights and obligations of derivatives that are not traded in recognized markets or stock exchanges are
considered to have expired when they reach their maturity date, when the rights are exercised by either party
or when the parties early exercise the rights in accordance with the related conditions and the agreed
consideration are settled.
Derivatives are presented under a specific heading of assets or liabilities, depending on whether their fair
value (as a result of the rights and/or obligations they may establish) refers to a debit or credit balance,
respectively. Such debit or credit balances may be offset subject to compliance with the respective offsetting
rules.
22
Derivative assets and liabilities are segregated between derivatives for trading purposes from derivatives for
hedging purposes.
Transactions performed for trading purposes
Warrants:
Warrants are documents which represent the temporary right acquired by holders in exchange for the payment
of a premium to the issue Shares or Indexes. Consequently, as this right expires at the end of the validity
period, holding warrants means recognizing the fact that their intrinsic value and secondary market price may
fluctuate based on the market price of the reference assets.
Forward and future contracts:
The forward and future contracts are those that establish an obligation to buy or sell an underlying asset on a
future date at a pre-established quantity, quality and price on a trading contract. Both forward and futures
contracts are recorded by the Institution as assets and liabilities in the consolidated balance sheets at fair
value, which is theoretically represents the fair value of rights or obligations, established in the underlying
asset purchase-sale contract, to receive and/or deliver the underlying asset, and to receive and/or deliver the
cash equivalent to the underlying asset subject specified in the contract.
earnings.
Differences between the exchange rate agreed in the forward contract for trading purposes and the monthly
forward exchange rate, as well as the valuation effects, are recorded in the consolidated statements of income
Futures entered into for trading purposes are recorded at market value and the difference between such value
and the agreed-upon price is recorded in the consolidated statements of income.
For financial information classification purposes, the asset and liability positions of derivatives that have both
rights and obligations, such as forwards and futures are offset on a contract by contract basis; if the result is a
debit balance, the difference
Option contracts:
Options are contracts that, in exchange for a premium, grant the right, but not the obligation, to buy or sell a
specified number of underlying instruments at a fixed price within a specified period.
The holder of a call has the right, but not the obligation, to buy from the issuer a specified number of
underlying assets at a fixed price (exercise price) within a specified period.
The holder of a put has the right, but not the obligation, to sell a specified number of underlying assets at a
fixed price (exercise price) within a specified period.
Considering the rights granted, options are divided into buy options (calls) and sell options (puts).
Options may be exercised at the end of the specified period (European options) or at any time during such
period (American options); the exercise price is established in the contract and may be exercised at the
hol
premium is the price paid by the holder to the issuer in exchange for the rights granted by the option.
The Institution records the premium paid for the option on the transaction date as an asset or liability. Any
fluctuations from valuation of the premium at market are recognized in the consolidated statements of income
propriate consolidated
balance sheet account. When an option matures or is exercised, the related premium is canceled against
23
Recognized options that represent rights are presented, without offsetting, as a debit balance under the asset
Trading option contracts are recorded in memorandum accounts at their exercise price, multiplied by the
number of securities, distinguishing between options traded on the stock market from over-the-counter
transactions, in order to control risk exposure.
All valuation gains or losses recognized before the option is exercised or before its expiration, are treated as
unrealized and are not capitalized or distributed to stockholders until realized in cash.
Swaps:
A swap contract is an agreement between two parties establishing a bilateral obligation for the exchange of a
series of cash flows within a specified period and on dates previously established.
Swaps are initially recognized by the Institution in the consolidated balance sheet as an asset or liability, at
fair value, which presumably is equal to the agreed-upon price.
The Institution recognizes both an asset and a liability arising from the rights and obligations of the
contractual terms, valued at the present value of the future cash flows to be received or delivered according to
the projection of the implicit future rates to be applied, discounting the market interest rate on the valuation
date using curves provided by the price vendor, which are reviewed by the market risk area.
earnings.
Subsequently, all derivatives other than hedging derivatives are valued at fair value without deducting any
transaction costs incurred during the sale or any other type of disposal, through earnings.
If the counterparty credit risk of a financial asset related to the rights established in the derivatives is
impaired, the book value must be reduced to the estimated recoverable value and the loss is recognized in
earnings. If the impairment situation subsequently disappears, the impairment is reversed up to the amount of
the previously recognized impaired loss, recognizing this effect in earnings when it arises.
A swap contract may be settled in kind or in cash, according to the conditions established.
For purposes of financial statement classification, the asset and liability positions of financial derivatives that
incorporate simultaneous rights and obligations, such as swaps, are offset on a contract by contract basis; if
the offsetting results in a net debit balance, the difference is presented as part of the assets, under the heading
net credit balance arises, it is presented as part of liabilities under the heading
Derivative hedging transaction
The Institution management carries out derivative transactions for hedging purposes, which involve swap
contracts.
Financial assets and liabilities that are designated and comply with the requirements to be accounted for as
hedged items, as well as the derivative financial instruments which form part of the hedge relationship, are
recognized in accordance with the Provisions related to hedge accounting for the recognition of the gain or
loss on the hedge instrument and of the hedged item, as established in Accounting Criterion B-5, Derivatives
and Hedge Transactions issued by the Commission.
24
A hedge relationship qualifies for the use of hedge accounting when all the following conditions are met:
- - - - - Formal designation and sufficient documentation of the hedge relationship.
The hedge must be highly effective in achieving the offsetting of the changes in fair value or in the
cash flows attributable to the hedged risk.
For cash flow hedges, it must be highly probable that the forecast transaction that is intended to be
hedged will occur.
The hedge must be reliably measurable.
The hedge must be evaluated periodically (at least quarterly).
All hedging derivatives are recognized as assets or liabilities (depending on the rights and/or obligations that
they contain) in the consolidated balance sheet, initially at fair value, which refers to the price agreed for the
transaction.
The result of offsetting the asset and liability positions, whether debtor or creditor, is presented independently
of the hedged primary position, forming part of the heading
financial margin in the consolidated statements of income.
Derivative financial instruments contracted for hedging purposes are valued at the market value and the effect
is recognized according to the type of accounting hedge, as follows:
a. Fair value hedge- This represents a hedge of exposure to changes in the fair value of recognized assets
and liabilities or of unrecognized firm commitments, or a portion of both, which is attributable to a
specific risk and which may affect earnings. The primary position for the risk hedged is valued at
market and the hedging derivative instrument at market, and the net effect is recorded in earnings
In fair value hedges, the adjustment to
the book value for the valuation of the hedged item is presented under a separate heading on the
consolidated balance sheet.
b. Cash flow hedge- This represents a hedge of exposure to variations in the cash flows of a forecast
transaction which (i) is attributable to a specific risk associated with a recognized asset or liability, or
with a highly probable event, and which (ii) may affect earnings. The hedging derivative instrument is
valued at fair value. The portion of the gain or loss on the hedging instrument that is effective in the
hedge is recorded within the comprehensive income account and the ineffective part is recorded in
earnings as part of "Net gain on financial assets and liabilities ".
The effective hedge component recognized in stockhol
adjusted to equal the lower (in absolute terms) of the accumulated gain or loss of the hedging
instrument from the start of the hedge, and the accumulated change in the present value of expected
future cash flows of the hedged item from the start of the hedge.
Any remaining gain or loss of the hedging instrument is recognized directly in earnings.
The Institution suspends hedge accounting when the derivative instrument has matured, been sold, is canceled
or exercised, when the derivative financial instrument does not attain a high degree of effectiveness to offset
changes in the fair value or cash flows of the hedged item, or when the hedge designation is canceled.
By ceasing to apply fair value hedge accounting on a prospective basis, any adjustment to the book value for
the valuation of the hedged item attributable to the hedged risk is amortized in earnings. The amortization is
carried out based on the straight-line method during the remaining life of the hedged item.
25
By suspending cash flow hedge accounting, the accrued gain or loss related to the effective part of the
hedging derivative that was recorded in the stockholders' equity as part of comprehensive income, remains in
stockholders' equity until the effects of the forecast transaction or firm commitment affect earnings. If it is no
longer probable that the firm commitment or the forecast transaction will take place, the gain or loss that was
recognized in the comprehensive income account is recorded immediately in earnings. When the hedge of a
forecast transaction initially qualifies for hedge accounting, but subsequently is not highly effective, the
ef
earnings to the degree that the forecast asset or liability affects earnings.
Packages of derivative instruments quoted on a recognized market as a single instrument are jointly
recognized and valued (i.e., without individually disaggregating each derivative financial instrument).
Packages of derivative instruments which are not quoted on a recognized market are recognized and valued in
a disaggregated manner for each component derivative.
The result of offsetting the asset and liability positions, whether debit or credit, is presented separately from
Embedded derivatives - An embedded derivative is a component of a hybrid (combined) financial instrument
that includes a non-derivative contract (known as the host contract) in which certain cash flows vary in a
manner similar to that of an independent derivative. An embedded derivative causes certain cash flows
required by the contract (or even all cash flows) to be modified according to changes in a specific interest
rate, the price of a financial instrument, an exchange rate, a price or rate index, a credit rating or index, or
other variables allowed by applicable laws and regulations, as long as any non-financial variables are not
specific to a portion of the contract. A derivative that is attached to a financial instrument but that
contractually cannot be transferred independently from that instrument or that has a different counterparty, is
not an embedded derivative but a separate financial instrument (for example, in structured transactions).
An embedded derivative is separated from the host contract for purposes of valuation and receives the
accounting treatment of a derivative if all the following characteristics are met:
a. The economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristics and risks of the host contract;
b. A separate financial instrument that has the same terms of the embedded derivative would meet the
definition of a derivative, and
c. The hybrid (compound) financial instrument is not valued at fair value with changes recognized in
earnings (for example, a derivative that is not embedded in a financial asset or a financial liability
valued at fair value should not be separated).
The effects of the valuation of embedded derivatives are recorded under the same line item in which the host
contract is recorded.
A foreign currency embedded derivative in a host contract, which is not a financial instrument, is an integral
part of the agreement and therefore closely related to the host contract provided that it is not leveraged, does
not contain an optional component and requires payments denominated in:
- - - The functional currency of one of the substantial parties to the contract;
The currency in which the price of the related good or service that is acquired or delivered is regularly
denominated for commercial transactions around the world.
A currency which is commonly used in contracts to purchase or sell non-financial items in the
economic environment in which the transaction is performed (for example, a stable and liquid currency
which is commonly used in local transactions, or in foreign trade transactions).
Collateral granted and received for derivatives transactions which are not performed on recognized stock
markets or exchanges The account receivable generated by granting collateral in cash for derivatives
transactions which are not performed on recognized stock markets or exchanges is presented under the
s (net)
accounts payable
26
Granted collateral other than cash remains under its original heading. The account payable, which represents
the assignee's obligation to restitute sold collateral other than cash to the assignor, is presented in the
consolidated bala
pledged as guarantee .
The collateral other than cash for which a right is granted to enable it to be sold or given in guarantee is
presented in memoranda accounts under a specific heading.
Foreign currency transactions - Foreign currency transactions are recorded at the exchange rate in effect on
the transaction date. Assets and liabilities denominated in foreign currency are adjusted at the year-end
exchange rates determined and published by Central Bank.
Revenues and expenses from foreign currency transactions are translated at the exchange rate in effect on the
transaction date, except for transactions carried out by the foreign branch, which are translated at the
exchange rate
in effect at the end of each period.
Foreign exchange fluctuations are recorded in the consolidated statements of income of the year in which they
occur.
Commissions charged and associated costs and expenses - Commissions charged for initial loan granting are
revolving loans, which are amortized over a 12 month period.
The commissions collected for restructuring or renewal are added to those originally generated according to
the terms of the preceding paragraph and are recognized as a deferred credit which is applied to results by
using the straight line method during the new credit period.
Commissions recognized after the initial loan grant, those incurred as part of the maintenance of such loans,
or those collected on undrawn loans are recognized in earnings when they are incurred.
Commissions collected for credit card annual fees, whether the first or subsequent renewal fees, are
The incremental costs and expenses associated with the initial loan grant are recognized as a deferred charge
from collected commissions is recognized.
Any other costs or expenses, including those related to promotion, advertising, potential customers,
management of existing loans (follow-up, control, recoveries, etc.) and other ancillary activities related to the
establishment and monitoring of loan policies are recognized directly in earnings as incurred under the
respective line item that corresponds to the nature of the cost or expense.
Costs and expenses associated with the issuance of credit cards are recognized as a deferred charge, which is
amortized to earnings over a 12 month period under the respective line item that corresponds to the nature of
such cost or expense.
On the cancellation date of a credit line, the remaining unamortized balance of commission fees collected for
credit lines cancelled before the end of the 12 month period are recognized directly in results for the year
.
27
For the years ended December 31, 2014 and, 2013, the main items for which the Institution recorded
in the consolidated statements of income are as follows:
Description
Credit card
Account management
Collection services
Insurance
Investment funds
Financial advice and public offers
Purchase-sale of securities and money market transactions
Checks trading
Foreign trade
Other
2014
2013
$
4,756
816
1,830
3,896
1,149
1,294
514
302
701
851
$
4,463
746
1,597
3,437
1,080
1,109
469
323
572
744
$
16,109
$
14,540
For the years ended December 31, 2014 and 2013, the main items for which the Institution recorded
in the consolidated statements of income are as follows:
Description
Credit card
Insurance
Investment funds
Financial advice and public offers
Purchase-sale of securities and money market transaction
Checks trading
Foreign trade
Other
Commission and fee expense (net)
2014
$
(1,451)
(103)
(73)
(1)
(237)
(33)
2013
$
(966)
(114)
(61)
(6)
(138)
(33)
(7)
(1,027)
(1,309)
$
(3,207)
$
(2,352)
$
12,902
$
12,188
Performing loan portfolio - The Institution applies the following criteria to classify loans as performing
portfolio:
- Loans that are current in the payments of both principal and interest.
- Loans that do not demonstrate the characteristics of non-performing portfolio.
- Restructured or renewed loans which have evidence of sustained payment.
Non-performing loan portfolio - The Institution applies the following criteria to classify uncollected loans as
non-performing
Loans with a single payment of principal and interest at maturity are considered non-performing 30
days after the date of maturity.
Loans with a single payment of principal at maturity and with periodic interest payments are
considered non-performing 90 days after interest is due or 30 days after principal is due.
Loans whose principal and interest payments have been agreed in periodic installments are considered
non-performing 90 days after an installment becomes due.
28
If debts are comprised of revolving loans with two outstanding monthly billing periods or, if the billing
period is not monthly, when payments have been outstanding for 60 or more days.
Mortgage loans with periodic partial payments of principal and interest are considered non-performing
when a payment is 90 days or more past due.
Customer checking accounts showing overdrafts will be reported in the non-performing portfolio at the
date of the overdraft.
If the borrower is declared bankrupt, except for those loans which:
i.
Continue to receive payment under the terms of that established in Article 43, section VIII of
the Commercial Bankruptcy Law, or
ii.
Are granted under the terms of Article 75 in relation to Sections II and III of Article 224 of such
law.
The aforementioned loans will be transferred to overdue portfolio when any of the assumptions described in
the preceding points are met.
The immediately due and payable notes referred to in Accounting Criterion B-1, Funds Available, of
the Commission, at the time they were not collected within the respective term (two or five days, as the
case may be).
Non-performing portfolio which are restructured or renewed will remain in the non-performing portfolio,
until there is evidence of sustained payment; i.e., performance of payment by the borrower without arrears for
the total amount due and payable in terms of principal and interest, for at least three consecutive installments
under the loan payment scheme, or in the case of loans with installments that cover periods in excess of 60
calendar days, the payment of one installment as established in the accounting criteria of the Commission.
The loan payments referred to by the preceding paragraph must cover at least 20% of principal or the total
amount of any interest accrued under payment restructuring or renewal schemes. However, accrued interest
recognized in memoranda accounts is not considered for this purpose.
Furthermore, loans with a single payment of principal upon maturity and periodic payments of interest that
are restructured or renewed during the credit term, are classified as non-performing portfolio until there is
evidence of sustained payment, as well as those in which at least 80% of the original term of the loan has not
elapsed, which did not cover the total amount of the accrued interest or cover the principal of the original
amount of the loan, and which would have been settled as of the date of renewal or restructuring in question.
The accrual of interest earned on the credit transactions is suspended at the time the loan is classified as nonperforming portfolio, including those loans which, in accordance with the respective contract, capitalize
interest to the amount of the debt. While a loan remains in the overdue portfolio, accrued interest is recorded
in memoranda accounts. When this overdue interest is collected, it is directly recognized in results of the year
With regard to ordinary uncollected accrued interest on loans which are considered as non-performing
portfolio, the Institution creates an allowance for the total amount of the interest at the time the loan is
transferred to non-performing portfolio.
Classification of the loan portfolio and allowance for loan lossesThe Institution must classify their portfolios under the following headings:
a. Commercial: direct or contingent loans, including bridge loans denominated in Mexican pesos or
foreign currency, investment units, multiples of the minimum wage ( VSM ) and accrued interest that
are granted to entities or individuals with business activities for commercial or financial purposes.
These loans include those granted to financial entities other than interbank loans for periods of less
than three business days, those involving factoring transactions or finance lease transactions performed
with entities or individuals; loans granted to trustees acting under the auspices of trusts and credit
schemes generally known
an equity impact allows the associated risks to
schemes be individually evaluated. Likewise, the loans granted to federal entities, municipalities and
their decentralized agencies are also included.
29
b. Residential mortgage: direct loans denominated in Mexican pesos, foreign currency, investment units
or Minimum Daily Wage ( SMG ), as well as the interest generated, granted to individuals that are
intended for the acquisition, construction, remodeling or improvement of housing, without any
speculative purpose; includes liquidity loans secured by the borrower's home and those granted for
such purposes to the former employees of the Institution.
c. Consumer: direct loans denominated in Mexican pesos or foreign currency, investment units, multiples
of VSM and accrued interest granted to individuals as a result of credit card transactions, personal
loans, payroll loans (other than those granted through credit cards), loans granted for the acquisition of
durable consumer goods and finance lease transactions performed with individuals. Loans granted to
the former employees of the Institution are also included.
The Institution recognizes reserves created to cover credit risks in conformity with such provisions, based on
the following:
Commercial portfolio:
When classifying the commercial credit portfolio, the Institution considers the Probability of Default, Severity
of the Loss and Exposure to Default, and also classifies the aforementioned commercial credit portfolio into
different groups and establishes different variables for the estimate of the probability of default.
This methodology was adopted by the Institution on June 30, 2014 for the loan portfolio to financial
institutions, and on June 30, 2013 for the commercial credit portfolio, as discussed in Note 2.
The amount of the allowance for loan losses of each loan will be the result of applying the following formula:
In which:
Ri = The amount of the allowance for loan losses to be created for the ith credit.
PIi = The Probability of Default of the ith credit.
SPi = The Loss Severity of the ith credit.
EIi = The Exposure at Default of the ith credit.
The probability of default of each credit (PI i) will be calculated by using the following formula:
i
For the above purposes:
The total credit score of each borrower is obtained by applying the following formula:
In which:
Quantitative credit scorei =
Qualitative credit scorei =
=
Is the score obtained for the ith borrower when evaluating risk factors.
Is the score obtained for the ith borrower when evaluating risk factors.
Is the relative weight of the quantitative credit score.
Unsecured credits
30
The Loss Severity (SPi) of commercial loans without an actual or personal warranties or derived from the loan
will be:
a. b. c. 45%, for Preferred Positions.
75%, for Subordinate Positions; in the case of syndicated loans, these are loans which for payment
priority purposes, are contractually subordinated to those of other creditors.
100%, for loans reporting delays of 18 or more months regarding the payments due under originally
agreed terms.
The Exposure at Default (EIi) of each credit is determined based on the following:
I.
In the case of uncommitted, utilized credit lines which can be unconditionally canceled or which can
be automatically canceled at any time and without prior notice:
EI i = Si
II.
In the case of all other credit lines:
In which:
Si :
The outstanding balance of the ith credit at the rating date, which represents the credit amount
effectively granted to the borrower, adjusted for accrued interest, less principal and interest payments,
as well as forgiveness of debt, rebates and discounts. In any case, the amount to be rated must not
include uncollected accrued interest recognized in memoranda accounts on the balance sheet for loans
included in the overdue portfolio.
Authorized Credit Line: The maximum authorized credit line amount at the rating date.
The Financial Group can recognize actual and personal warranties, as well as those derived from the loan
when estimating the Loss Severity of loans, so as to reduce portfolio rating reserves. In any case, it can opt to
not recognize warranties if they result in larger reserves. For this purpose, the Provisions established by the
Commission are utilized.
Loans granted under the Commercial Bankruptcy Law
On March 26, 2014, the Commission issued a ruling which modifies the Provisions, adjusting the
methodology applicable to the classification of commercial loan portfolio for loans granted under Sections II
and III of Article 224 of the Commercial Bankruptcy Law in order to make it consistent with the
modifications made to such statute on January 10, 2014.
This methodology mainly contemplates the consideration of collateral created under the terms of Article 75 of
the Commercial Bankruptcy Law for the determination of the Severity of the Loss by applying certain
adjustment factors or discount percentages for each type of admissible security interest in real or personal
property.
31
As discussed above, in the case of loans granted under Section II of Article 224 of the Commercial
Bankruptcy Law, the Severity of the Loss will be subject to the following treatment:
i
In which:
Collateral = Any collateral created under the terms of Article 75 of the Commercial Bankruptcy Law by
applying, as the case may be, the respective adjustment factors or discount percentages to each type of
admissible security interest in real or personal property.
Adjusted Estate = The Estate, as this term is defined in the Commercial Bankruptcy Law, deducting the
amount of the obligations referred to in Section I of Article 224 of such law, and applying a 40% discount to
the resulting amount.
Si = Unpaid balance of the credits granted under section II of article 224 of the Commercial Bankruptcy Law
as of the classification date.
In the case of loans granted under Section III of Article 224 of the Commercial Bankruptcy Law, the Severity
of the Loss will be subject to the following treatment:
In which:
Adjusted Estate = The Estate, as this term is defined in the Commercial Bankruptcy Law, deducting the
amount of the obligations referred to in Section I of Article 224 of such law, and applying a 40% discount to
the resulting amount.
Si = Unpaid balance of the loans granted under Section II of Article 224 of the Commercial Bankruptcy Law
as of the classification date
Commercial Loan Portfolio of financial entities (until May 31, 2014) and Commercial Loan Portfolio (until
May 31, 2013):
a. Individual method - For borrowers with balances of over 4,000,000 investment units (UDIS), entails
evaluating:
The creditworthiness of the debtor based on the result obtained from rating, as applicable, 1) the
likelihood of default of the borrower using the proprietary methodology authorized by the
Commission for these purposes, or 2) the application of the standard methodology, specifically
and independently rating country risk, financial risk, industry risk, and payment experience
aspects, as established in those provisions.
A differentiation is made between personal and real collateral, based on an estimate of probable
loss. As a result of the analysis of real collateral, loans are classified into two groups based on
the discounted value of collateral: a) loans fully collateralized and b) loans with an exposed
portion.
32
b. Non-individualized method - For borrowers with balances less than 4,000,000 UDIS:
Parametric calculation of the allowance for loan losses based on the
over the last 12 months and its credit behavior.
payment history
The commercial portfolio is classified every quarter and is filed with the Commission within 30 days
following the classification date. The allowance for loan losses is recorded based on the balance of the
accounts on the last day of each month, considering the classification levels of the classified portfolio as of
the latest known quarter, which includes the updated risks as of the current month-end.
The commercial portfolio rating methodology allows credit institutions to reevaluate the risk inherent to
restructured, renewed or assigned loans based on the value of the respective credit enhancements.
The allowance for loan losses to be established by the Institution under the individual method equals the
amount generated by applying the respective percentage to the secured portion and, if applicable, to the
unsecured portion of the credit rating, based on the following table:
Table of sites within the range of reserves
Risk level
A-1
A-2
B-1
B-2
B-3
C-1
C-2
D
E
Low
Intermediate
0.50%
0.99%
1.00%
5.00%
10.00%
20.00%
40.00%
60.00%
100.00%
0.50%
0.99%
3.00%
7.00%
15.00%
30.00%
50.00%
75.00%
100.00%
High
0.50%
0.99%
4.99%
9.99%
19.99%
39.99%
59.99%
89.99%
100.00%
Loan portfolio of States and Municipalities:
The classification of loan portfolio to states and municipalities considers Probability of Default, Loss Severity
and Exposure at Default, and categorizes the aforementioned portfolio of states and municipalities in different
groups and provides different variables for estimating the probability of default.
The allowance for loan losses for each loan will be the result of applying the following formula:
Where:
Ri =
PIi =
SPi =
EIi =
Amount of allowance for loan losses to be created for the nth credit.
Probability of Default on the nth credit.
Loss Given Default on the nth credit.
Exposure at Default on the nth credit.
33
The Probability of Default on each loan (PI i), will be calculated by using the following formula:
For purposes of obtaining the respective PIi, the total credit score of each borrower is calculated by using the
following formula:
Total Credit Score = (PCCt) + (1- ) PCCl Where:
PCCt: Quantitative Credit Score = IA+ IB + IC
PPCl: Qualitative Credit Score = IIA + IIB
= 80% IA = Average number of days in arrears with banks (IFB) + % of timely payments with
IFB + % of timely payments with non-bank financial institutions.
IB=
Number of recognized ratings agencies in accordance with the provisions which provide a rating to the
state or municipality.
IC=
Total debt to eligible participations + debt service to total adjusted revenues + short-term debt to total
debt + total revenues to current expense + investment to total revenues + proprietary revenues to total
revenues.
IIA= Local unemployment rate + presence of financial services of regulated entities.
IIB = Contingent obligations derived from retirement benefits to total adjusted revenues + operating balance
sheet to local GDP + level and efficiency of collections + soundness and flexibility of the regulatory
and institutional framework for the approval and execution of the budget + soundness and flexibility of
the regulatory and institutional framework for the approval and imposition of local taxes +
transparency in public finances and public debt + issuance of outstanding debt in the securities market.
Unsecured loans
The Loss Given Default (SPi) on the loans granted to states or municipalities which have no real, personal or
credit-based collateral will be:
d. 45%, for Senior Positions.
e. 100%, for Subordinated Positions or when the credit reports 18 or more months of payment arrears for
the amount due and payable under the terms originally agreed.
The Exposure to Default on each credit (EIi) will be determined based on the following:
Si =
The unpaid balance of the nth credit at the classification date, which represents the amount of credit
effectively granted to the borrower, adjusted for accrued interest, less payments of principal and
interest, as well as any reductions, amounts forgiven, rebates and discounts granted. In every case, the
amount subject to the rating must not include the uncollected accrued interest, recognized in
memorandum accounts within the consolidated balance sheet of loans in non-performing portfolio.
34
Credit Line Authorized = Maximum authorized amount of the credit line as of the classification date.
The Institution may recognize the real collateral, personal collateral and credit-based collateral in the estimate
of the Loss Given Default on the loans, with the aim of reducing the allowance derived from the portfolio
classification. For such purpose, the guidance set forth in the Provisions will be applied.
Eligible real collateral may be financial and non-financial. Furthermore, only the real collateral which
complies with the requirements established by the Commission will be recognize.
Residential mortgage loan portfolio
As of March 2012, the Institution, when classifying the housing mortgage loan portfolio, considers the type of
loan, the estimated Probability of Default of the borrowers, the Loss Given Default associated with the value
and nature of the collateral and the Exposure at Default.
Furthermore, the Institution classifies, creates and records the allowances for loan losses on the residential
mortgage loan portfolio as follows:
Due and Payable Amount- Amount the borrower must pay in the billing period, without considering any
previous due and payable amounts that were not paid. If the billing is half monthly or weekly, the due and
payable amounts of the two half months or four weeks in the month, respectively, must be added up so that
the due and payable amount reflects a monthly billing period.
The discounts and rebates may reduce the due and payable amount only when the borrower complies with the
conditions required in the loan contract for such purpose.
Payment Made- Totals the payments made by the borrower in the billing period. Write-offs, reductions,
amounts forgiven, rebates and discounts made to the credit or group of credits are not considered as payments.
If the billing is half monthly or weekly, the payments made for the two half months or four weeks of a month,
respectively, must be added up so that the payment made reflects one full monthly billing period.
The variable "payment made" must be more than or equal to zero.
Value of the Home Vi - The value of the home at the time of the credit origination, restated in accordance with
the following:
I. For loans with an origination date prior to January 1, 2000, in two stages:
a) First stage, based on the SMG
Where:
The value of the home on the origination date reflects the home value ascertained through an
appraisal at the time the loan was originated
b) Second stage, based on the monthly National Consumer Price Index (INPC)
II.
For loans with an origination date prior to January 1, 2000, in accordance with subsection b) of
numeral I above
In any case, the home value at the time of the origination may be restated based on a formal appraisal.
35
Credit Balance Si - The unpaid balance at the classification date, which represents the amount of the credit
effectively granted to the borrower, adjusted for accrued interest, less any insurance payments which were
financed, collections of principal and interest, as well as reductions, amounts forgiven, rebates and discounts
granted, as the case may be.
Days in Arrears- Number of calendar days at the classification date during which the borrower did not fully
settle the due and payable amount under the terms originally agreed.
Credit Denomination (MON) - This variable will take the value of one (1) when the housing loan is
denominated in Investment Units (UDI), minimum wages or a currency other than Mexican pesos, and zero
when it is denominated in pesos.
Completion of File (INTEXP) - This variable will take the value of one (1) if the selling party of the real estate
property participated in obtaining the proof of income or in contracting the appraisal, and zero in any other
case.
The total amount of reserves to be created by the Institution will be equal to the allowance for loan losses, as
follows:
Ri PIi SPi EIi
Where:
Ri =
PIi =
SPi =
EIi =
Amount of allowances for loan losses to be created for the nth credit
In any case, the amount subject to the classification must not include uncollected accrued interest recorded on
the consolidated balance sheet, of loans classified within non-performing portfolio.
Non-revolving consumer loan portfolio:
The Institution may recognize the real collateral, personal collateral and credit-based collateral in the estimate
of the Loss Given Default on the credits, with the aim of reducing the allowance derived from the portfolio
classification. For such purpose, they will use the provisions established by the Commission.
Eligible real collateral may be financial and non-financial. Furthermore, only real collateral that complies
with the requirements established by the Commission will be recognized.
Ri PIi SPi EIi
Where:
Ri =
PIi =
SPi =
EIi =
Amount of allowances to be created for the nth credit.
The classification and creation of the allowances for loan losses on non-revolving consumer credit portfolio is
made using figures as of the final day of each month and is presented to the Commission at the latest 30 days
after the month classified, based on the applicable allowance percentages, as indicated above
36
The consumer loan portfolio related to credit card transactions:
At December 31, 2014 and 2013, at the last day of each month, the Institution classifies, creates and records
an allowance for loan losses for the consumer loan portfolio related to credit card transactions, while also
considering the following:
Topic
Description
Balance payable
Amount payable as of the cutoff date on which the payment period in which the
borrower has to pay the Institution begins.
Payment made
Sum of payments made by the borrower during the payment period.
Credit limit
Maximum authorized limit of the credit line as of the cutoff date on which the
payment period begins.
Minimum payment
due
Minimum amounts as of the cutoff date on which the payment period that the
borrower must cover to comply with his contractual obligation begins.
Default
Event that occurs when the payment made by the borrower does not cover the
minimum payment required by the Institution in the respective account statement.
To estimate the number of defaults, institutions must apply the following table of
equivalencies depending on the billing frequency:
Billing
Number of defaults
Monthly
Bi-weekly
Weekly
1 monthly default = 1 default
1 bi-weekly default = 0.5 defaults
1 weekly default = 0.25 defaults
The total allowance amount that must be established by the Institution for this portfolio is equal to the sum of
the reserves for each loan, which are obtained as follows:
Where:
Ri = Amount of allowances to be created for the nth credit.
PIi= Probability of Default of the i-th loan.
SPi= Loss Given Default of the i-th loan.
EIi= Exposure at Default of the i-th loan.
In order to estimate the reserves is necessary to calculate the Probability of Default, the Loss Given Default
and the Exposure at Default.
Notwithstanding the provisions of this methodology, the Institution must not create allowance for loan losses
in which the balance payable is simultaneously equal to zero and the payment made is greater than zero.
Credit card transactions in which the balance payable is simultaneously equal to or lower than zero and the
payment made is zero will be considered inactive and the related reserves will be obtained as follows:
i
= 2.68% * (Credit Limit
Recoverable Balance)
Where:
Recoverable balance = Amount that represents a right for the borrower, resulting from a payment or bonus as
of the cutoff date on which the payment period begins.
37
For classification purposes, inactive card reserves will have a B-1 risk rating.
The percentage used to determine the allowance for each loan is the result of multiplying the Probability of
Default by Loss Given Default.
The reserve amount will be the result of multiplying the percentage above by the exposure to default.
The rating and creation of the allowance for loan losses of the consumer portfolio relative to credit card
operations are prepared using the amounts as of the last day of each month and are presented to the
Commission no later than 30 days after the month classified, based on the allowance percentages applicable to
each portfolio type, as discussed above.
Acquisition of loan portfolios
The contractual value of the portfolio acquired must be recognized under the loan portfolio line item as of the
portfolio acquisition date based on the portfolio type classified by the originator; any difference in relation to
the acquisition price is recorded as follows:
a) e amount of the allowance for loan losses created as discussed above, and the excess
as a deferred credit, which will be amortized as the respective collections are made, based on the
percentage they represent of the total contractual value of the loan;
b) When the portfolio acquisition price exceeds its contractual value, it is considered as a deferred charge
which is applied as outstanding amounts are collected, based on the proportion they represent of the
contractual value of the credit. When the acquisition price is greater than the contractual value, the
difference is recognized as a deferred charge that will be amortized when the respective collection is
c) When related to the acquisition of revolving loans, the difference will be directly recorded in earnings
on the acquisition date.
The allowance for loan loss is applied to the results of the year for all types of acquired loans, considering any
noncompliance arising since the origination of these loans.
Portfolio restructured in UDIS:
The portfolio restructured in UDIS for trusts is rated according to the rating rules applicable to commercial
and mortgage portfolios, as the case may be.
Additional portfolio allowance:
At December 31, 2014 and 2013, the Institution has recorded an allowance for loan losses in addition to the
minimum requirements established by the standard model issued by the Commission, which considers the
allowance created during the restructuring proc
Commission through Document No. 601-I-38625 in March 2001. These amounts were
provisioned in 2001 and applied to the retained earnings based on the authorization issued by the Commission
for the commercial and mortgage portfolio. The total amount of these additional provisions is $107 and $111,
respectively. This authorization also establishes that loan portfolio recoveries must be applied to the retained
earnings instead of being credited in the consolidated statements of income. For the years ended December
31, 2014 and 2013, the Institution's subsidiaries have recovered $20 and $43, respectively.
At December 31, 2014 and 2013, the allowance for loan losses includes the allowance created to cover the
cost of credit portfolio support programs.
38
Evidence of sustained loan payment:
Loans with a history of payment noncompliance that will be restructured are maintained in the loan stratum in
effect prior to the restructuring, until evidence is obtained of sustained loan payment under the terms
established by the Commission.
Restructuring and renewal processes
A restructuring process is a transaction derived from any of the following situations:
a)
The extension of guarantees given for the credit in question, or
b)
The modification of original credit or payment scheme conditions, which include:
- - - the modification of the interest rate established for the remainder of the credit period;
the change of currency or account unit, or
The concession of a grace period regarding the payment obligations detailed in the original
credit terms, unless this concession is granted after the originally-agreed period, in which case it
is considered as a renewal.
Restructuring transactions do not include those which, at the restructuring date, indicate payment compliance
for the total amount due for principal and interest and which only modify one or more of the following
original credit conditions:
Guarantees: only when they imply the extension or substitution of guarantees for others of higher quality.
Interest rate: when the agreed interest rate improves.
Currency: provided the respective rate is applied to the new currency.
Payment date: only if the change does not mean exceeding or modifying payment periodicity. Modifying the
payment date must not permit nonpayment in any given period.
A renewal is a transaction which extends the loan duration or maturity date or when the loan is paid at any
time using the proceeds of another loan contracted with the same entity in which one of the parties is the same
debtor or another individual or entity with net worth relationships representing a joint risk. A loan is not
considered to be renewed when disposals are made during the term of a pre-established credit line.
Restructured or renewed overdue loans remain in the overdue portfolio until evidence of sustained payment is
obtained; i.e., timely borrower payment compliance as regards the total amount due for principal and interest,
with a minimum of three consecutive payments within the loan payment scheme or, in the case of loans with
payment periods exceeding 60 calendar days, the settlement of one payment, as established by the accounting
criterion issued by the Commission.
The loan payments referred to by the preceding paragraph must cover at least 20% of principal or any interest
accrued under the restructuring or renewal payment scheme. Accrued interest recognized in memoranda
accounts is not considered for this purpose.
If a restructuring or renewal process is used to consolidate different loans granted to the same borrower in a
single loan, the treatment applied to the total balance resulting from this restructuring or renewal process
reflects the treatment given to the lowest rated component loan.
Current loans other than those with a single principal payment and the payment of interest accrued
periodically or at maturity, which are restructured or renewed before at least 80% of the original credit period
has elapsed are only considered as current when the borrower has a) settled all accrued interest, and b) paid
the principal of the original loan amount which was due at the renewal or restructuring date.
39
If all the conditions described in the preceding paragraph are not fulfilled, loans are classified as overdue from
their restructuring or renewal date and until evidence of sustained payment is obtained.
Current loans other than those involving a single principal payment, the payment of interest periodically or at
maturity and which are restructured or renewed during the final 20% of the original loan period are only
considered as current when the borrower has a) settled all accrued interest; b) paid the original loan amount
due at the loan renewal or restructuring date and, c) paid 60% of the original loan amount.
If all the conditions described in the preceding paragraph are not fulfilled, loans are classified as overdue from
their restructuring or renewal date and until evidence of sustained payment is obtained.
Loans involving a single principal payment, the payment of interest periodically or at maturity and which are
restructured during the loan period or renewed at any time are classified as overdue portfolio until evidence of
sustained payment is obtained.
Loans which are initially classified as revolving and which are restructured or renewed at any time are only
considered as current when the borrower has settled all accrued interest, the loan has no overdue billing
periods and the elements needed to justify the
payment capacity are available, i.e., it is highly
likely that the borrower will settle the outstanding payment.
Other receivables, net - The Institution has a policy of reserving against results, those accounts receivable
identified and not identified within 60 days following the initial recording, and/or those items which are
known to be unrecoverable from initial recognition.
Foreclosed assets, (net) - Assets acquired through judicial foreclosure are recorded on the date the approval
ruling of the bid through which the foreclosure was determined is executed.
Property received in lieu of payment is recorded at the lower of net realizable value or cost on the date on
which the related deed is executed or the date that delivery or transfer of the property is formalized.
The value of foreclosed assets recognized is equal to the lower of their cost or fair value after deducting the
strictly indispensable costs and expenses incurred for foreclosure purposes.
The valuation methodology used for allowance for losses on foreclosed assets or goods received as payment
establishes the quarterly creation of additional provisions to recognize the potential decrease in value of
foreclosed assets, whether real property or movable goods, received through legal orders, out-of-court
settlements or as payment, as well as collection rights and investments in securities received as foreclosed
assets or as payment.
The allowance for losses on foreclosed assets
earnings, in
accordance with the procedure established by the Commission based on the time elapsed as of the foreclosure
or payment in kind, by establishing a spread in terms of the deadline and applying a reserve percentage for
movable property and real estate.
If realization problems are identified regarding the values of the foreclosed real estate, the Institution records
an additional allowance based on estimates prepared by its management.
If valuations made after the foreclosure or payment in kind result in the recognition of a decrease in value of
the collection rights, values, movable property or real estate, the reserve percentages indicated in the
provision may be applied to such adjusted value.
Property, furniture and fixtures, (net) - Property, installation expenses and leasehold improvements are
recorded at acquisition cost. The assets currently on hand that were acquired prior to December 31, 2007 were
adjusted for inflation by applying factors derived from the UDI from the date of acquisition until such date.
The related depreciation and amortization are recorded by applying a percentage determined based on their
estimated economic useful lives or, in the case of leasehold improvements, based on the period for which
contracts are executed with leaseholders, which is an average of five years, extendable for another similar
period when requested by the leaseholder.
40
When a property is held for sale, it is recorded at the lower of its carrying amount or net realizable value,
estimated by the Institution
Furniture and fixtures are recorded at their acquisition cost; this amount was restated at December 31, 2003
by applying UDI factors at that date. As of that date, the acquisition of furniture and fixtures was considered
as a monetary item for which the restatement effect was recognized until December 31, 2007 as part of the
monetary position result within the results of those years. The respective depreciation is recorded by applying
a percentage determined according to the estimated economic useful life of these goods to their restated cost
until the date of the most recent restatement or based on acquisitions made since January 1, 2004.
Permanent investments - Are represented by permanent investments made by the Financial Group in entities
where it has neither control, nor joint control, nor significant influence, are initially recorded at acquisition
cost. Any dividends received are recognized in current earnings, except when they are taken from earnings of
periods prior to the acquisition, in which case, they are deducted from the permanent investment. Permanent
investments are subsequently, valued under NIF C7, Investments in Associates, Joint Ventures, and Other
Investments.
Income tax - Income Tax ( ISR ) and the Business Flat Tax ( IETU ) are recorded in earnings of the year in
which they are incurred. Management determines, based on financial and tax projections, whether the
Financial Group and its subsidiaries will incur ISR or IETU, and deferred taxes are recognized based on
which tax system the entity is expected to primarily be subject to. The Financial Group determines the
deferred tax on the temporary differences, tax losses and tax credits, from the initial recognition of the items
and at the end of each period. Deferred taxes derived from temporary differences are recognized using the
assets and liabilities method, which compares the accounting and tax values of assets and liabilities. This
comparison produces deductible and taxable temporary differences, which along with tax losses and tax credit
from the un-deducted allowances for loan losses, are then multiplied by the currently enacted tax rate that is
projected to be in effect when the temporary differences will reverse, or when the tax benefit carryforward is
realized. The amounts arising from these three aforementioned items form part of the recognized deferred tax
asset and liability.
Management records a reserve for certain deferred tax assets to recognize only the deferred tax asset for
which there is a high probability of recovery over a short-term period, considering for this treatment the
amount generated by the tax benefit for un-deducted allowances for loan losses expected to reverse in
accordance with the financial and tax projections prepared by management. Therefore, the effect of such tax
benefit
depending on the classification of the item originating the deferred tax.
Employee Statutory Profit-sharing - As discussed in Note 1, since 2013, the Institution has determined its
PTU obligation in accordance with Article 10 of the Income Tax Law.
Likewise, it recognizes a deferred PTU asset when realization of future economic benefits is probable and
when there is no indication that conditions will change in such a way that the benefits will not be realized as a
result of variations between the accounting and tax bases used to calculate PTU (deductible temporary
differences). A deferred PTU provision is recognized when a liability is likely to be settled in the future and
when there is no indication that likely to change as a result of variations between the accounting and tax bases
used to calculate la PTU (accruable temporary differences).
Current
promotional
Other assets (net) - Software, system developments and intangible assets are recorded originally at the face
value disbursed, and adjusted for inflation through December 31, 2007, using the factor derived from the
UDI.
The amortization of software, internally developed information technology and intangible assets with defined
lives is calculated using the straight line method over their estimated useful lives.
41
maintained by the pension and
retirement fund held in custody by Casa de Bolsa as well as mortgage loans granted to employees with the
The fund assets that are to be used to cover employee pension plan and seniority premiums
are comprised of both investments and loans.
The investments in securities acquired to cover the pension plan and seniority premium are recorded at market
value.
For the purposes of presentation in the consolidated financial statements, if the investment in securities
acquired to cover the pension plan and seniority premium exceed the liability recognized, such excess will be
the value of such assets is less than the related obligations,
the amount is recorded within the heading
Goodwill - Represents the amount by which the acquisition consideration exceeds the fair value of the net
assets of the acquired entity at the acquisition date, which is not applied and is subject to at least annual
impairment tests.
Impairment of long-lived assets in use - The Institution reviews the book value of long-lived assets in use
when evaluating for indicators that such book value might not be recoverable by considering the higher of the
present value of net future cash flows or the net sales price, in the event of its disposal. The impairment is
recorded when the book value exceeds the higher of the aforementioned values. The impairment indicators
considered for this purpose are, among others, operating losses or negative cash flows generated during the
period, combined with a history or projection of losses, depreciation and amortization charged to earnings as
revenue percentages, are significantly higher than those of prior years, the services rendered, competition and
other economic and legal factors.
Provisions - Provisions are recognized when there is a present obligation derived from a past event, for which
the use of economic resources is deemed probable, and which can be reasonably estimated.
Direct employee benefits - These are valued in proportion to the services rendered, considering current wages,
and the liability is recognized as it is accrued. It includes mainly employee profit sharing payable and
incentives (bonuses).
Labor obligations - In accordance with the Federal Labor Law, the Institution has obligations for severance
benefits, pensions and seniority premiums payable to employees who cease rendering their services under
certain circumstances; also, there are other obligations derived from the collective bargaining agreement. The
Institution's policy is to record the liabilities for severance, seniority premiums, pensions and postretirement
medical benefits as they are accrued based on actuarial calculations using the projected unit credit method,
applying nominal interest rates, as established in Note 22 to the consolidated financial statements. Therefore,
a liability is recognized representing the present value of estimated future cash flows required to settle the
obligation for these benefits at the projected retirement dates of all the employees working in the Institution.
The Institution amortizes in future periods the actuarial gains and losses for the pension, seniority premium
and postretirement medical benefits plans, in accordance with the terms of NIF D-3, Employee Benefits. In
relation to severance payments, the actuarial gains and losses are recognized in earnings when they arise.
Share-based payments - The Institution recognizes share-based payment plans according to NIF D-8, Sharebased Payments (NIF D-8). Under this NIF, the Institution's compensation plan is considered as a share-based
transaction which can be settled with equity instruments. Share-based transactions which can be settled
through equity instruments assigned to officers who provide their services to the Institution are valued
according to the fair value of these equity instruments at their assignment date. Details related to the
termination of the fair value of transactions involving share-based payments which are settled through capital
instruments are presented in Note 29.
The fair value determined on the date when share-based payments made through capital instruments take
place is recorded in the consolidated statements
the capital instruments which will eventually be assigned. At the end of each reporting period, the Institution
reviews the estimated number of capital instruments which it expects to assign.
42
- This represents paid-in capital and other capital restated up to
December 31, 2007 using the factor derived from the value of the UDIS. As of 2008, given that the Institution
operates in a non-inflationary environment, the effects of inflation of the period for contributed and earned
capital are not recognized.
Financial margin - The financial margin of the Institution is composed of the difference between total
interest income less interest expense.
Interest income is composed of the yields generated by the loan portfolio, based on the terms established in
the contracts executed with the borrowers, the negotiated interest rates, the application of interest collected in
advance, and the premiums or interest on deposits in financial entities, bank loans, margin accounts,
investments in securities, sale and repurchase agreements and securities loans, as well as debt placement
premiums, commissions charged on initial loan grants, and net equity instrument dividends.
Interest expense is composed of premiums, discounts and interest on deposits in the Institution, bank loans,
sale and repurchase agreements and securities loans, and subordinated debentures, as well as debt placement
discount and issuance expenses. The amortization of costs and expenses related to initial loan granting is also
included under interest expense.
Both interests income and expense are periodically adjusted based on market conditions and the economic
environment.
As of December 31, 2014 and 2013, the main items comprising the financial margin are:
2014
Amount (In millions)
Mexican pesos
US dollars
Interest income:
Interest and yield on loan portfolio
related to credit card transactions
Interest and yield on securities
Interest on funds available
Interest and premium on sale and
repurchase agreements and securities
loans
Interest on margin accounts
Commissions collected on loan
originations
$
31,007
Total interest income
Interest expense:
Interest from demand deposits
Interest from time deposits
Interest on bank and other loans
Interest from credit instruments issued
Obligation interest
loans
1,740
9,725
9,089
1,326
-
3,038
269
-
783
-
32,747
118
58
9,725
9,207
1,384
9
3,038
278
783
1,925
57,162
(3,071)
(4,301)
(1,758)
(541)
(27)
(29)
(116)
(611)
(1,050)
(3,098)
(4,330)
(1,874)
(1,152)
(1,050)
(8,131)
-
(17,802)
$
$
55,237
-
Total interest expense
Financial margin
$
Total
37,435
(8,131)
(1,833)
$
92
(19,635)
$
37,527
43
2013
Amount (In millions)
Mexican pesos
US dollars
Interest income:
related to credit card transactions
Interest and yield on securities
Interest on funds available
loans
Interest on margin accounts
Commissions collected on loan
originations
$
29,003
Total interest income
1,539
9,465
9,060
1,819
-
3,060
375
-
805
-
-
35,184
10
3,060
385
55,211
(2,878)
(5,330)
(803)
(1,445)
(11)
-
(8,730)
(18,403)
$
9,465
9,095
1,859
(9)
(21)
(149)
(604)
(11)
(8,730)
30,542
35
40
1,624
(2,869)
(5,309)
(654)
(841)
Total interest expense
$
805
53,587
Interest expense:
Interest from demand deposits
Interest from time deposits
Interest on bank and other loans
Interest from credit instruments issued
Obligation interest
loans
Financial margin
$
Total
(794)
$
830
(19,197)
$
36,014
Net gain on financial assets and liabilities - As of December 31, 2014 and 2013 the main items comprising
the Net gain on financial assets and liabilities are as follows:
2014
Valuation result
Foreign exchange
Derivatives
Equity shares
Debt instruments
$
Purchase-sale result
Foreign exchange
Derivatives
Equity shares
Debt instruments
Total
2013
(101)
3,918
(79)
472
4,210
$
(688)
(945)
54
322
(1,257)
$
2,953
(36)
(4,074)
(448)
383
(4,175)
(57)
7,760
200
(855)
7,048
$
2,873
44
Earnings per share - Basic earnings per share is calculated by dividing the net majority income from
continuing operations (excluding extraordinary items) by the weighted average number of shares outstanding
in each period, thus giving a retroactive effect to shares issued due to the capitalization of additional paid-in
capital or retained earnings. For the years ended December 31, 2014 and 2013, the average number of
weighted outstanding shares was 80,855,403,803 in both years; the basic earnings per share derived from
continuing operations is $0.17 pesos and 0.23 pesos (face value) respectively.
The determination of earnings per share and diluted earnings per share at 31 December 2014 and 2013 is as
follows:
2014
Income
Earnings per share
Treasury shares
Diluted earnings per share
Less income:
Discontinued operations
Diluted earnings per share from
continuing operations
14,053
14,053
-
14,053
Shares
Weighted
80,855,403,803
2013
Earnings
per Share
(in
Mexican
pesos)
0.17
80,855,403,803
18,936
-
0.17
-
80,855,403,803
Income
18,936
-
0.17
18,936
Shares
Weighted
Earnings
per Share
(in
Mexican
pesos)
80,855,403,803
0.23
80,855,403,803
0.23
-
80,855,403,803
0.23
Comprehensive income - The comprehensive income amount presented in the consolidated statement of
changes in stockholders' equity is the effect of transactions other than those performed with the stockholders
of the Institution during the period and is represented by the net profit plus the recovery effects of the
allowance for loan losses which were previously applied to the retained earnings; the valuation effect of
securities available for sale; the valuation effect of cash flow hedges; the initial effect derived from the first
application of the consumer portfolio rating methodology to credit card transactions; the portfolio of credits
granted to Federal Entities and Municipalities and the housing mortgage credit portfolio, according to the
accounting criteria and special authorizations issued by the Commission. These amounts were directly
recorded in stockholders' equity, net of the respective income tax.
Statement of cash flows - The consolidated statement of cash flows indicates the Institution's capacity to
generate cash and cash equivalents, as well as the manner in which it utilizes these cash flows to cover its
requirements. The consolidated statement of cash flows is prepared according to the indirect method by using
the net result of the period, as required by Accounting Criterion D-4, Cash Flow Statements, of the provisions.
The consolidated statement of cash flows, together with the rest of the consolidated financial statements,
provides information that helps to:
Assess changes in the assets and liabilities of the Institution and in its financial structure.
Assess the amounts and dates of collection and payments to adapt to the circumstances and the
opportunities to generate and/or apply Funds available.
Memoranda accounts (see Note 32) a. Cash is deposited in credit institution checking accounts.
b. Securities in custody and administration are deposited in S. D. Indeval, S.A. de .C.V. ( S.D. Indeval ).
45
Contingent assets and liabilities:
The amount of the financial penalties determined by an administrative or court authority, including the
Commission, is recorded, until the obligation to pay these fines is fulfilled and after the appeals
process has been exhausted.
Credit commitments:
This item represents the amounts of unused letters of credit granted by the Institution, which are
considered irrevocable commercial credit.
Items under this account are subject to classification.
Goods held in trust or representation:
The value of goods held in trust is recorded independently of the administration of each individual
good. The value of goods held in representation is recorded based on the declared value of goods
detailed in the representation contracts executed by the Institution.
Assets in custody or under administration:
This account includes the activity of third-party assets and securities received in custody or to be
managed by the Institution.
Collateral received:
The balance is composed of all collateral received in sale and repurchase agreements in which the
Institution is the buying party, as well as collateral received in a securities loan transaction where the
Institution is the lender.
Collateral received and sold or pledged in guarantee:
The balance is composed of all collateral received in sale and repurchase agreements in which the
Institution is the buying party that in turn is sold by the Institution as a selling party. This balance also
includes the obligation of the borrower (or lender) to return to the lender (or borrower) the assets
subject to the loan transaction carried out by the Institution.
Uncollected, accrued interest derived from the overdue portfolio:
Accrued interest is recorded in memoranda accounts when credits are transferred from the current
portfolio to the overdue portfolio.
4.
Funds available
As of December 31, 2014 and 2013, funds available were as follows:
2014
Central Bank account, net
Time deposits
(1)
(2)
(3)
$
Cash
Foreign correspondents and Mexican banks, net
Foreign currency purchase-sale transactions (settled
in 24-48 hours)
Total funds available
35,872
99
11,098
15,950
26,123
2013
$
12,056
$
101,198
32,711
116
17,560
16,954
9,963
12,350
$
89,654
46
(1) As of December 31, 2014 and 2013, Central Bank account includes compulsory deposits made by the
Institution of $35,872 and $31,320, respectively. As the term of this compulsory deposit is indefinite,
the Central Bank will timely notify the date and procedure to withdraw the respective balances.
Interest on the deposits is payable every 28 days at the rate established in the regulations issued by
Central Bank.
On June 9, 2014, through Circular 9/2014, the Bank of México
the reference interest rate
paid by monetary regulation deposits was changed to the one-day Interbank Interest Rate that the
Banxico Board of Governance Banxico determined as a target rate for monetary policy purposes. As a
result of the above, Banxico established new rules applicable to Monetary Regulation Deposits which
include the following:
a) Banxico terminated the monetary regulation deposits that credit institutions had established in
conformity with Circular 30/2008, issued by Banxico on July 9, 2008, and its respective
amendment disseminated through Circular 36/2008 issued on August 1, 2008.
b) On June 19, 2014, at the opening of operations of the SIAC-Banxico, Banxico made the
necessary deposits in the sole account maintained by each credit institution.
c) Similarly, it indicated the procedure that must be followed by the Institution, for the creation of
monetary regulation deposits in terms of amount, term, yield and composition.
Furthermore, on June 27, 2014, through Circular 11/2014, Banxico increased the amount that credit
institutions are required to maintain in monetary regulation deposits on a proportional basis according
to figures reported for May 2014. The proportional amount calculated based on the amount of
traditional deposits relative to the Institution was $4,552.
(2) At December 31, 2014 and 2013, the Institution has time deposits with Mexican banks for the amount
of $99 and $116, respectively, for an 8 years period and with a 1.50% interest rate.
(3) two business days. As of December 31, 2014 and 2013, these transactions are as follows:
Counterparty
Days
2014
Rate
Balance
(Mexican pesos)
Domestic bank
Domestic bank
Domestic bank
Counterparty
2
2
2
Days
3.0%
3.0%
2.9%
$
2,803
5,000
3,295
$
11,098
2013
Rate
Balance
(Mexican pesos)
Domestic bank
2
3.50%
$
17,560
$
17,560
47
Foreign currency receivable and deliverable on purchases and sales to be settled in 24 and 48 hours as of
December 31, 2014 and 2013, consists of the following:
2014
Foreign currency
(Millions of US dollars)
Purchase of foreign exchange receivable in 24 and 48 hours
1,927
Sale of foreign exchange to be settled in 24 and 48 hours
Mexican pesos
$
(1,109)
818
28,403
(16,347)
$
12,056
2013
Foreign currency
Purchase of foreign exchange receivable in 24 and 48 hours
2,241
Sale of foreign exchange to be settled in 24 and 48 hours
Mexican pesos
$
(1,298)
943
29,342
(16,992)
$
12,350
When the foreign currency deliverable or receivable on the sales and purchases are recorded under the
heading "Funds available", the settlement accounts of these transactions are recorded net in the consolidated
5.
Margin accounts
As of December 31, 2014 and 2013 margin accounts for collateral submitted on derivative transactions in
organized markets are as follows:
Type of Collateral
Mexder, Mercado Mexicano de
Derivados, S.A. de C.V.
Chicago Mercantile Exchange
Mexder, Mercado Mexicano de
Derivados, S.A. de C.V.
Cash
Cash
2014
$
2013
1,523
893
$
439
Actions
$
2,855
2,585
357
323
$
3,265
Guarantee deposits cover positions operated on the Mexican Derivatives Market ( MEXDER ), the Futures
detailed in the Mexican Stock Exchange Index of Prices and Quotations ( IPC ), M20 Bond Rates, M30
Bond Rates, the TIIE 28-day rate, Swaps, Dollar Currency ( DEUA ), IPC Futures Options, and the Chicago
Mercantile Exchange ( CME
S&P ).
48
At December 31, 2014 and 2013, the investment in CETES and UDIBONDS includes the amount of $14,432
and $12, 646, respectively, which refers to the collateral provided for securities loan transactions in which the
lender is Bank of México and other institutions. At December 31, 2014 and 2013, the liability portion of
$14,077 and $12,339
consolidated balance sheet heading and composed as follows:
2014
Loan Term
in Days
Asset guarantee:
Central BankCETES
UDIBONDS
Other institutionsCETES
Shares
1
1
2013
Loan Term
in Days
Amount
$
7,789
6,173
13,962
2
2
470
7
2
14
-
Amount
$
4,235
7,949
12,184
433
29
462
470
Liability loan
Central BankCETES
M Bonds
UDIBONDS
Other institutionsShares
1
1
1
$
14,432
$
9,659
2,273
1,763
13,695
2
2
2
382
382
14
14
$
$
12,646
$
4,037
7,521
390
11,948
391
391
14,077
$
12,339
The net amount of the premiums recognized in securities loan transactions in the consolidated statement of
income as part of the financial margin, is $(456) and $(455) during the years 2014 and 2013, respectively.
As of December 31, 2014 and 2013, the trading securities position includes the following securities that are
under sale and repurchase agreements, at fair value:
2014
Government securitiesFederal Government Development Bonds (BONDES)
M and M10 Bonds
Savings Protection Bonds (BPATS)
Treasury Bills (CETES)
United Mexican States Bonds (UMS)
Federal Government Development Bonds in UDIS
(UDIBONDS)
Subtotal
$
31,864
3,266
38,287
8,230
295
$
13,105
10,362
22,332
21,751
3,327
85,269
Bank securities Unsecured bonds
Promissory Notes
Subtotal
3,172
70,722
-
583
34
34
Private securities Unsecured bonds
Subtotal
Total
2013
583
$
1,324
1,324
85,303
$
72,629
This position is considered restricted within trading securities.
50
Securities held to maturity - As of December 31, 2014 and 2013 were as follows:
2014
Government securitiesSpecial CETES - program of credit support and additional
benefits to the States and Municipalities
Special CETES - support program for housing loan debtors
$
2013
2,389
3,446
Total securities held to maturity
$
2,317
3,342
5,835
LessReserve for Special CETES
5,659
(373)
Total securities held to maturity, net
$
5,462
(373)
$
5,286
On March 30, 2000, the Board of Directors of Banca Serfin (an entity that was merged with the Institution)
approved the creation of a $1,887 million (face value) reserve with respect to the balance of long-term UDIdenominated Special CETES (Reserve for Special CETES) (which mature between 2017 and 2022), recorded in
March 2000. This reserve was applied to retained earnings at that date as per the authorization granted by the
Commission through official letter No. 601-II-424, of April 10, 2000. According to this authorization, Banca
Serfin should proportionally release or cancel the
restructured UDIS portfolio trusts. At December 31, 2014 and 2013, this reserve amounts to $373.
As discussed in Note 9, the Institution executed an agreement for the early settlement of debtor support programs
as credit institutions considered the termination of these programs to be appropriate.
7.
Sale and repurchase agreements
As of December 31, 2014 and 2013, when the Institution acts as purchaser:
Government securitiesFederal Government Development
Bonds (CETES)
Subtotal
Debtors in Repurchase
2014
Collateral received and
sold for Repurchase
Agreements
Agreements
$
Bank securitiesUnsecured bonds
Subtotal
Private bank securities Unsecured bonds
Subtotal
Total
$
629
26,849
27,478
$
Position-net
(5)
(26,766)
(26,771)
4,944
4,944
(451)
(451)
80
80
(80)
(80)
32,502
$
(27,302)
$
624
83
707
4,493
4,493
$
5,200
52
Debtors in Repurchase
Agreements
Government securitiesFederal Government Development
Bonds (BONDES)
M Bonds
Stock certificates
Subtotal
$
43,780
4,812
22,648
10,894
175
82,309
Bank securitiesStock certificates
Promissory notes payable at maturity
Subtotal
$
4,856
156
5,012
Private Bank securitiesUnsecured bonds
Subtotal
Total
2013
Collateral received and
sold for Repurchase
Agreements
(35,129)
(3,654)
(12,233)
(320)
(175)
(51,511)
87,493
$
8,651
1,158
10,415
10,574
30,798
(279)
4,577
156
4,733
(279)
172
172
$
Position-net
(172)
(172)
$
(51,962)
$
35,531
As of December 31, 2014 and 2013, premiums collected and paid on sale and repurchase agreements are $3,026
and $3,045, respectively.
At December 31, 2014 and 2013, repurchase agreements held by the Institution acting as repurchasee traded over
periods of up to 12 days.
When the Institution acts as seller:
2014
Government securitiesFederal Government Development Bonds (BONDES)
M and M10 Bonds
Federal Government Development Bonds in UDIS
(UDIBONDS)
Subtotal
$
2013
31,866
8,215
19,144
41,291
$
14,516
21,256
10,361
24,453
3,327
295
104,138
3,178
1,243
75,007
Bank securitiesUnsecured bonds
Subtotal
34
34
904
904
Private securitiesUnsecured bonds
Subtotal
1,051
1,051
2,716
2,716
Total
$
105,223
$
78,627
As of December 31, 2014 and 2013, premiums collected and paid on sale and repurchase agreements are $7,664
and $8,261, respectively.
As of December 31, 2014 and 2013, the repurchase agreements entered into by the Institution, when acting as the
selling party, were agreed at an average term of three days, with only one transaction at a term of 442 days.
53
8.
Derivatives
As of December 31, 2014 and 2013, the position in financial derivatives instruments is as follows:
2014
Asset Position
FuturesForeign currency futures
Interest rate futures
Index futures
$
2013
Nominal
Asset
Nominal
Asset
Amount
Position
Amount
Position
-
$
20
9,997
-
$
363
4,279
413
7,688
$
45
2
192
ForwardsForeign currency forwards
Interest rate forwards
Index forwards
120,201
5,082
7,307
163
83,250
1,400
3,919
1,177
6
159
OptionsForeign currency options
Interest rate options
Index options
Equity securities options
54,035
164,775
168,415
276
1,727
2,317
1,009
256
22,991
211,853
2,716
857
241
3,500
230
229
1,425,837
381,443
2,330,081
35,148
44,254
92,544
1,649,378
308,336
2,297,080
41,342
26,196
73,319
24,919
947
1,757
20
2,050
32,917
13
3,748
675
8,602
6
198
4,998
64,884
32
4,740
4,391
100
15,525
73
3
300
97,284
$ 2,312,605
SwapsInterest rate swaps (IRS)
Cross currency swaps (CCS)
Total trading
Cash flow hedgesForwardsForeign currency forward
SwapsInterest rate swaps
Cross currency swap
Fair value hedges SwapsInterest rate swaps
Cross currency swaps
Hedge derivatives
Total position
$ 2,394,965
$
$
73,619
54
2014
Liability Position
FuturesForeign currency futures
Interest rate futures
Index futures
Equity securities forward
2013
Nominal
Amount
$
718
177,784
1,595
2
Liability
Position
$
11
550
30
-
Nominal
Amount
$
654
319,030
3,686
-
Liability
Position
$
1
947
65
-
ForwardsForeign currency forwards
Equity securities forwards
158,931
12,195
9,886
396
80,610
11,522
1,100
364
OptionsForeign currency options
Interest rate options
Index options
Equity securities options
57,485
179,648
164,055
2,682
1,481
3,176
470
115
22,738
214,684
224
906
352
4,659
36
80
536
543
190
218
1,574,784
379,509
2,709,924
33,671
44,450
94,779
1,661,867
323,196
2,639,307
39,192
25,019
72,033
28,134
1,954
5,473
102
720
2,050
10,730
19
270
52
1,663
4,389
4,978
7,409
30,640
149
852
1,392
99,168
$ 2,669,947
Index warrants
SwapsInterest rate swaps (IRS)
Cross currency swaps (CCS)
Total trading
Cash flow hedgesForwardsForeign currency forward
SwapsInterest rate swaps
Cross currency swaps
8,232
Fair value hedgesSwapsInterest rate swap
Cross currency swap
Hedge derivatives
Total position
-
2,565
8,499
47,430
$ 2,757,354
$
$
73,425
The
December 31, 2014 and 2013, the recognized surplus value (shortfall) was $3,909 and $(4,084), respectively.
Derivatives and the underlying assets are as follows:
Futures
CXC
DC24
DEUA
FV
IPC
M
MIP
S&P
SWAP
TE28
Forwards
M Bonds
Equity-IBEX
Equity-KOF
Equity-NIKKEI
Equity-S&P
Fx-BRL
Fx-CAD
Fx-EUR
Fx-JPY
Fx-UDI
Fx-USD
Equity-EUROSTOX
Options
C&F-FIRA
C&F-LIBOR
C&F-Tiie
Equity-AMXL
Equity-CEMEX
Equity-EUROSTOX
Equity-EWW
Equity-GENTERA
Equity-GFINBUR
Equity-GFNORTE
Equity-HSCE
Equity-IBEX
Equity-IPC
Equity-NIKKEI
Equity-S&P
Equity-SANMEX
Equity-WALMEX
Fx-EUR
Fx-USD
Swaption-TIIE
Swaps
CCS
CETES
EURIBOR
LIBOR
TIIE
CDI
EURIBOR
LIBOR
TIIE
Warrants
GMX
IPC
NKY
SXE
WMX
55
As of December 31, 2014 and 2013, the guarantees and/or collateral received and delivered for the Over-theCounter (OTC) derivative financing transactions which were not transacted on recognized stock markets or
exchanges are as follows:
Heading
Delivered
Type of Collateral
2014
2013
Other receivables (net)
Foreign Financial Entity
Mexican Financial Entity
Cash
Cash
$
15,856
4,902
$
7,127
8,145
$
20,758
$
15,272
$
453
$
169
$
453
$
169
$
21,211
$
15,441
Trading securities
Government bonds
As of December 31, 2014 and 2013, the negotiable instruments received as surety and/or collateral for the
derivative financial transactions performed in OTC markets are restricted.
Heading
Received
Type of Collateral
2014
2013
Sundry creditors and other accounts payable
Mexican Financial Entities
Cash
Cash
$
3,956
2,077
$
3,186
1,758
$
6,033
$
4,944
$
4,215
668
$
4,883
$
Memorandum accounts
Mexican Financial Entities
Government bonds
Government bonds
$
343
343
that are not transacted on recognized stock
markets or exchanges, the Institution agrees to deliver and/or receive collateral to cover any exposure to market
risk and the credit risk of such transactions. Such collateral is contractually agreed to with each of the
counterparties.
Currently, debt securities, are posted as collateral for transactions with domestic finance companies; cash deposits
and securities are used for transactions with foreign financial entities and institutional customers.
The Institution is prohibited from selling or transfer surety and/or collateral that is given in assets other than cash.
56
Management of derivative financial instrument usage policies
The policies of the Institution allow the use of derivatives for hedging and/or trading purposes.
The main objectives of these products are covering risks and maximizing profitability.
The instruments used are:
Forwards
Futures
Options
Swaps
Warrants
According to the portfolios, implemented strategies can be of a hedge or trading nature.
Trading markets:
Listed
Over the Counter (OTC)
Trading markets are listed and OTC, in which eligible counterparties may be domestic and foreign with internal
authorizations.
The designation of calculation agents is determined in the legal documentation signed with counterparties.
The prices published by authorized price vendors are used to value derivative financial instruments.
The main terms or conditions of the contracts are based on the International Swap Dealers Association ( ISDA )
or a local outline agreement.
The specific policies on margins, collateral and lines of credit are detailed in the internal manuals of the
Institution.
Impairment of derivative financial instruments As of December 31, 2014 and 2013, there is no indication of impairment in credit risk (counterparty) that would
require a modification in the book value of the financial assets related to the rights established in derivative
financial instruments.
Derivative financial instrument transactions for hedging purposes
As of December 31, 2014 and 2013, the Institution holds swap (Interest Rate and Cross Currency) hedging
transactions which are intended to hedge the financial margin with cash flow hedges and fair value hedges
throughout the hedge period.
Quantitative information
Fair value hedges
As of December 31, 2014 and 2013, the Institution holds hedging positions with Interest Rate and Cross Currency
Swaps and with Currency forwards, which are intended to hedge certain risks through cash flow and fair value
hedges throughout the hedge period.
57
During 2014, the Institution structured fair value hedges in their respective currency as follows:
Instrument
Nominal Value
(In millions)
Currency
Instrument and Risk being Hedged
Mexican pesos
Commercial loan portfolio - Interest
rate risk
56
US dollars
rate risk
57
US dollars
Private PEMEX Interest rate risk and
exchange rate risk
Swap IRS
1,968
Swap IRS
Swap CCS
As of December 31, 2014, the hedging derivative positions held as fair value hedges are as follows:
Instrument
Nominal Value
(In millions)
Currency
Mexican pesos
rate risk
324
US dollars
rate risk
157
US dollars
rate risk and exchange rate risk
Interest rate risk and exchange rate
risk
Swap IRS
2,780
Swap IRS
Swap CCS
Swap CCS
18
Euros
Swap CCS
30
Pound sterling
exchange rate risk
Swap CCS
57
US dollars
exchange rate risk
Swap CCS
825
UDIS
UDIBONDS - Interest rate risk and
Inflation risk
As of December 31, 2013, hedging derivative positions held as fair value hedges are as follows:
Instrument
Nominal Value
(In millions)
Currency
Mexican pesos
rate risk
495
US dollars
rate risk
181
US dollars
rate risk and exchange rate risk
Interest rate risk and exchange rate
risk
Swap IRS
2,891
Swap IRS
Swap CCS
Swap CCS
18
Euros
Swap CCS
30
Pound sterling
Private PEMEX Interest rate risk
and exchange rate risk
Swap CCS
825
UDIS
UDIBONDS - Interest rate risk and
Inflation risk
58
Fair value hedges entered into by the Institution are extend from 2015 to 2025.
The net accrued loss as of December 2014 and 2013, which represents the ineffectiveness of the fair value hedges,
is $6 is $15, respectively.
For the years ended December 31, 2014 and 2013, the valuation effect of the hedged items for fair value hedging
p
For the years ended December 31, 2014, and 2013, the valuation effect of derivative financial instruments held
Cash flow hedges
During 2014, the Institution structured cash flow hedges for its commercial credit portfolio and debt issuance, as
follows:
Instrument
Nominal Value
(In millions)
Currency
Euros
rate risk
Swap CCS
265
Swap CCS
1,250
US dollars
Senior Notes - Exchange rate risk
Forward Fx-USD
1,675
US dollars
Brazilian government treasury billsExchange rate risk
Forward Fx-BRL
4,820
Brazilian real
During 2013, the Institution structured cash flow hedges on the commercial portfolio as follows:
Instrument
Nominal Value
(In millions)
Currency
Swap IRS
2,050
Mexican pesos
Swap CCS
121
Euros
Commercial loan portfolio Exchange rate risk
Swap CCS
630
US dollars
Forward Fx-EUR
206
Euros
Forward Fx-USD
134
US dollars
Forward Fx-BRL
375
Brazilian real
- Interest rate risk
59
As of December 31, 2014, the positions in derivatives with cash flow hedging purposes are as follows:
Instrument
Face Value
(In millions)
Currency
Swap IRS
2,050
Mexican pesos
Swap CCS
265
Euros
Swap CCS
309
US dollars
Swap CCS
2,160
US dollars
Forward Fx-USD
1,809
US dollars
Brazilian government treasury bills
Exchange rate risk
Forward Fx-BRL
5,195
Brazilian real
Exchange rate risk
- Interest rate risk
As of December 31, 2013, the positions in derivatives with cash flow hedging purposes are as follows:
Instrument
Nominal Value
(In millions)
Currency
Swap IRS
2,550
Mexican pesos
and BONDES D Bonds Interest rate risk
Swap IRS
175
Mexican pesos
Central Bank compulsory deposits Interest rate risk
Swap CCS
406
US dollars
Swap CCS
121
Euros
Swap CCS
910
US dollars
Forward Fx-EUR
206
Euros
Forward Fx-USD
134
US dollars
Exchange rate risk
Forward Fx-BRL
375
Brazilian real
Exchange rate risk
The effective portion of cash flow hedges recognized in stockholders' equity as part of comprehensive income is
adjusted, in absolute terms, to the lower of the accrued gain or loss of the derivative financial instrument of the
hedge and the accrued change in fair value of the cash flows of the hedged item. As of December 31, 2014 and
2013, the amounts of $6 and $(6), respectively, were recognized in results of the year for the ineffective portion of
the cash flow hedges.
60
Changes in the effective portion of cash flow hedges, which is recognized in stockholders' equity as a part of
comprehensive income, is as follows:
2014
Opening balance
2013
$
24
Entries of the period:
Amount recognized in comprehensive income within
stockholders' equity during the period (net of deferred
taxes)
Amount reclassified from stockholder equity to earnings
during the period (net of deferred taxes)
Balance at December 31, 2014
$
$
90
336
60
(94)
(126)
266
$
24
The periods and amounts expected for cash flows and which affect results are as follows:
Less than 3
Months
More than 3
Months and
less than 1
Year
More than 1
Year and less
than 5 Years
More than 5
Years
Total
Receivable cash flows
$
282
$
856
$
2,629
$
346
$
4,113
Payable cash flows
$
(234)
$
(623)
$
(2,507)
$
(357)
$
(3,721)
In certain cases, the cash flow hedges currently contracted by the Institution extend to 2017 for the Monetary
-forcommercial credit denominated in foreign currency and 2025 for UDIBONOS.
Cancelled cash flow hedges During June 2014, the Institution decided to revoke the designation of the cash flow hedge for IRS derivative
financial instruments which covered the monetary regulation deposit for the amount of $500 (notional value) by
closing the open position with new IRS swaps, which were recorded as trading derivatives.
At December 31, 2014 and 2013, the Institution maintains a balance in stockholders' equity under the heading of
residual accrued gain, net of deferred tax, generated by the effective portion of the hedge derivative which was
recognized in stockholders' equity as part of comprehensive income during the period in which these hedges were
in effect and effective. This balance is applied based on the originally forecast transaction period. The application
period expires between 2015 and 2023.
During 2014, $148 of the valuation of the hedge swaps which were canceled in previous years was recycled from
efers to the accrual of the valuation of the swaps which
Bonds and BONDES D, $122 to the accrual of the valuation of the swaps which covered the
monetary regulation deposit, $6 to the accrual of the valuation of the swaps which covered the commercial
portfolio and $1 to the accrual of the valuation of the swaps which covered the securitized certificate.
During the year 2013, $182 of the valuation of the hedge swaps which were canceled in previous years was
Bonds and BONDES D, $146 to the accrual of the valuation of the swaps which
covered the monetary regulation deposit and $6 to the accrual of the valuation of the swaps which covered the
commercial portfolio.
61
At December 31, 2014, the amount of $1,275 was reclassified from stockholders' equity to earnings due to the
valuation of hedge swaps which were canceled in prior years. Of these, the amount of $604 refers to the valuation
and BONDES D Bonds, the amount of $655 involves the valuation
accrual of swaps which hedged the Central Bank Compulsory Deposit, while the amount of $15 refers to the
valuation accrual of swaps which hedged the commercial loan portfolio and $1 at the valuation accrual of the
swaps that covered the securitization certificates.
At December 31, 2013, the amount of $1,128 was reclassified from stockholders' equity to earnings due to the
valuation of hedge swaps which were canceled in prior years. Of these, the amount of $585 refers to the valuation
and BONDES D Bonds, the amount of $533 involves the valuation
accrual of swaps which hedged the Central Bank Compulsory Deposit, while the amount of $9 refers to the
valuation accrual of swaps which hedged the commercial loan portfolio and $1 at the valuation accrual of the
swaps that covered the securitization certificates.
Formal hedge documentation Once cash flow and fair value hedges are structured, the Institution prepares an individual file for each instrument
containing the following documentation:
9.
hedging operation.
The specific risk or risks to be hedged.
Hedge structure identifying the derivative financial instruments contracted for hedging purposes and the
item generating the hedged risk.
Definition of the elements composing the hedge, its objective and a reference to the effectiveness valuation
method.
Contracts for the hedged item and hedging instrument, as well as confirmation from the counterparty.
Periodic hedge effectiveness tests at the prospective level regarding its estimated future evolution and at
the retrospective level, concerning its past behavior. These tests are applied at least at the end of each
quarter, according to the valuation method defined when creating the hedge files.
Loan portfolio
The detail of the loans granted by economic sector as of December 31, 2014 and 2013 is as follows:
2014
Federal Government loans
$
Manufacturing industry
Retail
Other activities and services
Commercial
Communications and transportation
Construction
Tourism
Farming and cattle-raising
Mining
2013
55,927
$
48,242
182,212
83,954
35,458
10,879
33,028
6,309
9,247
660
409,989
465,916
Interest collected in advance
Un-accrued financial burden from financial leasing
transactions
$
37,487
45,816
160,017
62,211
29,258
12,437
32,707
7,218
7,391
679
357,734
395,221
(331)
(256)
(44)
(33)
465,541
$
394,932
62
During 2014, the average placement rate was 11.84% and 3.61% for loans denominated in Mexican pesos and US
dollars, respectively. During 2013, this rate was 12.36% and 3.66% for loans denominated in Mexican pesos and
US dollars, respectively.
At December 31, 2014 and 2013, the valuation of the portfolio hedged based on derivative financial operations
was $(44) and $4, respectively.
Loans to related parties - At December 31, 2014 and 2013, loans have been granted to related parties per article 73
of the Law on Credit Institutions amounting to $73,238 and $71,913, respectively, which were approved by the
Board of Directors. As of December 31, 2014 and 2013these amounts include a loan granted to Santander
Consumo, S.A. de C.V. SOFOM, E.R. (the SOFOM) for $33,689 and $39,803, respectively, and, at December 31,
for the amount of $27,263 and $19,821, respectively. Furthermore, as of December 31, 2014, it includes a credit
related to Santander Consumo, Santander Hipotecario and Santander Vivienda (subsidiaries of the Bank), which
were eliminated from the balance sheet for consolidation purposes.
Policy and methods used to identify distressed commercial loans - Commercial loans are identified as distressed
in regard to the individual portfolio rating, by considering quantitative elements when they are unsatisfactory and
there are significant weaknesses in cash flow, liquidity, leverage, and/or profitability that may jeopardize the
borrower
ntinue as a going concern or when it has stopped operating. In general, distressed loans
Policy and procedures to identify concentration of credit risk - Concentration of risk is an essential element of
risk management. The Institution continuously monitors the degree of concentration of credit risk portfolios by
economic group. This monitoring starts from the admission study stage with the application of a questionnaire to
the partners of the borrowing group to create a list of companies and assess the exposure of the economic group
by both credit and market risk.
Credit lines unused by customers - As of December 31, 2014 and 2013, unused authorized credit lines amounted
to $83,199 and $103,196, respectively.
Federal Government loans - As of December 31, 2014 and 2013, loans granted to Federal Government agencies,
including those of the support programs and agreements, were as follows:
2014
Additional Benefit Program for:
Mortgage debtors
Early termination of the housing support programs
$
2013
109
$
219
34
49
52,011
851
1,503
1,419
55,784
32,876
898
1,557
1,888
37,219
Guarantees for Final Recovery Remnants of FOVI credits
Other loans granted to government agencies:
Simple loans
General loans
Unsecured loans
Discounted portfolio loans
Total government loans
$
55,927
$
37,487
63
Portfolio by loan type and currency - As of December 31, 2014 and 2013, the loans granted by type and currency
are as follows:
Loan Type
Performing loan portfolio:
Commercial loans
Commercial or business
activity
Loans to financial entities
Loans to government entities
Consumer loans
Mortgage loans
2014
Valued Amount
US dollars
UDIS
Mexican pesos
$
Non-performing loan portfolio
Commercial loans
activity
Consumer loans
Mortgage loans
154,142
5,418
38,504
72,459
95,819
366,342
$
7,929
2
3,165
3,748
14,844
$
381,186
58,791
162
17,421
875
77,249
$
-
960
81
1,041
78,290
$
4,495
4,495
212,933
5,580
55,925
72,459
101,189
448,086
1,570
1,570
8,889
2
3,165
5,399
17,455
-
-
$
Total
$
6,065
$
465,541
2013
Valued Amount
Loan Type
Performing loan portfolio:
Commercial loans
activity
Loans to financial entities
Consumer loans
Mortgage loans
Mexican pesos
$
Non-performing loan portfolio
Commercial loans
activity
Consumer loans
142,472
1,724
23,722
66,609
80,264
314,791
US dollars
$
7,238
2,696
2,611
12,545
$
327,336
UDIS
45,430
522
13,765
864
60,581
$
42
$
5,516
5,517
187,903
2,246
37,487
66,609
86,644
380,889
1,273
1,273
7,280
2,696
4,067
14,043
-
183
225
60,806
1
-
-
$
Total
$
6,790
$
394,932
As of December 31, 2014 and 2013, the loan portfolio of the Institution is unrestricted.
64
Acquisition of Santander Vivienda On June 14, 2013, the Institution executed a share purchase-sale agreement to acquire the shares of ING
Hipotecaria,
which was a subsidiary of ING Group. The acquisition was subject to the approval of the respective regulatory
entities which was granted during October 2013.
. de C.V., Sociedad Financiera de Objeto Múltiple, Entidad No
The change in business name was registered in the Public Records Office in September 2014.
ING Group maintained control of Santander Vivienda until the transaction closing date, November 29, 2013 (the
ing
At the transaction closing date, the Institution formalize the acquisition of 100% of the ordinary voting stock of
Santander Vivienda through a cash payment of $541, equal to 100% of the shares and the value of the
The fair value of the acquired net assets was $395, which includes the mortgage credit portfolio with a face value
of $11,237 and an estimated fair value of $10,772. A loan portfolio of approximately $363 is not expected to be
recovered at the acquisition date. Santander Vivienda currently operates as a subsidiary of the Bank and due to the
equity relationship as of the acquisition date it became a regulated entity.
The Institution
anagement analyzed the fair values of the assets acquired and liabilities assumed through this
transaction, which generated goodwill of $146 based on the synergies that will be generated once Santander
Vivienda is completely integrated into the operations of the Institution.
The most significant acquisition accounting adjustments were the credit portfolio value reduction of $465, as well
as the foreclosed goods value reduction of $686, thereby generating a deferred tax asset of $345. These
adjustments have been included in the values presented in the following summary table.
The main assets acquired and liabilities assumed, valued at fair value at the acquisition date, are detailed below:
Heading
Cash and investments in securities
Mortgage portfolio, net
Foreclosed goods, net
Accounts receivable
Other assets
Total assets
$
Other liabilities
Total liabilities
557
10,772
202
95
586
12,212
(11,817)
(11,817)
Acquired net assets
Acquisition cost
$
395
(541)
Goodwill at November 29, 2013
$
(146)
In December 2014, the Institution concluded the analysis of the estimates regarding the fair values of the assets
and liabilities acquired in this transaction, in conformity with NIF B-7, Business Acquisitions, and no adjustments
were identified additional to those described above.
67
At the date on which Santander Vivienda was acquired, it contributed $20 to the consolidated financial margin
and $40 to the consolidated net profit of the Institution. If the acquisition had taken place on January 1, 2013, this
entity contributed $1,259 to the consolidated financial margin and $(96) to the consolidated net profit of the year.
Sale of written-off portfolio In December 2014, the Institution sold written off credit portfolio to a related party; the face value of these credits
of $226. An independent external advisor determined that this price reflected market prices.
On November 26, 2013, the Institution sold the previously written-off portfolio recognized in Santander Consumo
to an independent entity. The face value of these loans was $26,259, with a portfolio sales price of $80. This sale
generated a profit of $80 for Santander Consumo.
Assignment of payroll portfolio In February 2014, the Institution executed a contract of onerous assignment of loan portfolio with a financial
institution for 19,689 credits related to the payroll loan portfolio, with a carrying amount at the date of sale $532.
The amount received for the sale was $417, generating a loss of $121 in results of the year, which was recorded in
10.
UDIS restructured portfolio
At December 31, 2012, all the loans restructured in UDIS and which were recorded in the respective trusts
reached maturity. The Institution
anagement is currently in the process of liquidating these trusts.
Early elimination of the Borrower Support Programs
The contract to early eliminate the borrower
whereby the banks deemed it advisable to early terminate the following programs, which were created between
1995 and 1998 derived from the debt restructurings, as follows:
a. b. c. Housing Loan Borrower Support Program ( Support Program );
Support Program for the Building of Housing in the process of construction in their personal loan stage
(Support Program); and the
Agreement of Benefits for Housing Loan Borrowers ( Discount Program )
The banks reached agreement with the Mexican Treasury and the Commission. This agreement was handled
through the Mexican Bankers' Association ( ABM ) and establishes that to ensure the proper application of the
early termination agreement scheme, the banks will be subject to the supervision and oversight of the
Commission, and will adhere to the observations and corrections indicated by the Commission, for which purpose
they must provide any and all information requested from them in relation to the performance of the agreement.
The early termination scheme covered the loans restructured or granted in UDIS under the Borrower Support
Programs, the loans denominated in Mexican pesos which are entitled to receive the Discount Program benefits.
Additionally, it covers loans which, as of December 31, 2010 (cutoff date) are current, as well as past-due loans
which as of the same date were restructured, as well as those loans which in order to be current received a
reduction, discount or rebate, regardless of the amount, provided that there is evidence of payment compliance.
On July 26, 2010, the Commission published, in the Federal Official Gazette, the "General provisions applicable
ules for accounting,
reporting and audit requirements for the operation of the Contract, as well as the special rules for the proper
restructuring process of the loans which can apply the benefits of the Mortgage Programs and the Agreement.
68
As established above, the Institution complied with the Contract, which went into effect on July 15, 2010.
At December 31, 2014 and 2013, the total amount of Federal Government housing credit payment obligations is
$109 and $219, respectively; these amounts are recor
.
following the Cutoff Date until the close of the month immediately before the payment date, using for January
2011, the rate resulting from the arithmetical average of the annual rates of return calculated on the discount rate
of the 91 day CETES issued in December 2010, and for the subsequent months the future interest rates of the 91
day CETES of the immediately preceding month, published by the company Proveedor Integral de Precios, S.A.
(price vendor), on the business day immediately following that of the Cutoff Date, or as the case may be, that of
the closest previous month contained in such publication, carried to a 28 day term yield curve, by dividing the
resulting rate by 360 and multiplying the result so obtained by the number of days elapsed during the period in
which it is accrued, and capitalized monthly.
These payment obligations will be subject to the other provisions contained in the Contract and the "Liquidation
In June 2011 and the start of the terms established by the Agreement, Management determined the correct
application and execution of the Agreement to ensure the early settlement of Housing Loan Debtor Support
Programs.
Federal government payment obligation resettled to annual payments over a five-year period; as of December 31,
2014, outstanding payments are as follows:
Annuity
Payment Date
Fifth
June 1, 2015
Amount
$
109
$
109
After determining payable annuities, on September 29, the 2011, management calculated the adjusted amount of
the first annuity payable on December 1, 2011 by considering that the default index is inapplicable to this initial
year. Under the Agreement, if the portfolio exceeds this default index, the Institution loses the Support Benefit
payable by the Federal Government.
The adjustments of the first and second annual payments of December 1, 2011 and June 1, 2012 were $127 and
$118, respectively. On December 1, 2011 and June 1, 2012, the management of the Institution received the
adjusted amounts of the first and second annual payments.
The adjusted amount of the third annuity paid on June 3, 2013 amounted to $121. On June 3, 2013, the
management received the third set amount of annuity.
The adjusted amount of the fourth annuity paid on June 3, 2013 was a price of $127. On June 3, 2013, the
management of the Financial Group received the adjusted amounts of the third annual payments.
The maximum amount that the Institution will have to absorb from loan borrowers which, given their
characteristics, were not included in the Early Settlement Scheme under the Agreement, if these loans become
current and whereby borrowers would be entitled to receive Discount Program benefits, is $32.
69
The remaining balance and maturity dates of these special CETES which, as they were not repurchased by the
Federal Government, are maintained by the Institution in its consolidated balance sheet as of December 31, 2014,
are as follows:
Issuance
Trust
B4-170713
B4-170720
B4-220707
B4-270701
B4-220804
BC-170720
BC-220804
421-5
424-6
422-9
423-2
431-2
424-6
431-2
Non-securities
9,155,840
86,723
12,762,386
15,292,752
440,294
2,875
71,442
Maturity Date
Price in Mexican
pesos
13-jul-2017
20-jul-2017
07-jul-2022
01-jul-2027
04-ago-2022
20-jul-2017
04-ago-2022
$
$
$
$
$
$
$
91.32700
91.32700
91.32700
91.32700
83.61725
29.45004
29.45004
Millions of Mexican
pesos
$
836
8
1,166
1,397
37
2
$
3,446
The remaining balance and maturity dates of these special CETES which, as they were not repurchased by the
Federal Government, are maintained by the Institution in its consolidated balance sheet as of December 31, 2013,
are as follows:
11.
Issuance
Trust
B4-270701
B4-170713
B4-220707
B4-170720
B4-220804
BC-170720
BC-220804
423-2
421-5
422-9
424-6
431-2
424-6
431-2
Non-securities
15,292,752
9,155,840
12,762,386
86,723
440,294
2,875
71,442
Maturity Date
Price in Mexican
pesos
01-jul-2027
13-jul-2017
07-jul-2022
20-jul-2017
04-ago-2022
20- jul-2017
04-ago-2022
$
$
$
$
$
$
$
88.59659
88.59659
88.59659
88.59659
81.11734
28.68260
28.68260
Millions of Mexican
pesos
$
1,354
811
1,131
7
36
1
2
$
3,342
Allowance for loan losses
On March 26, 2014, the Commission issued a Ruling which modifies the provisions, adjusting the methodology
applicable to the classification of commercial loan portfolio for loans granted in conformity with Sections II and
III of Article 224 of the Commercial Bankruptcy Law, in order to make it consistent with the amendments made
to such statute on January 10, 2014.
This methodology mainly includes the consideration of collateral created under the terms of Article 75 of the
Commercial Bankruptcy Law for the determination of the Severity of the Loss, by applying certain adjustment
factors or discount percentages for each type of admissible security interest in personal or real property.
On June 24, 2013, the Commission modified the methodology applicable to the classification of the commercial
loan portfolio to change the model for creating allowance for loan losses from the incurred loss model to an
expected loss model where losses for the following 12 months are estimated based on current credit information.
Such modification entered into effect on the day following its publication.
70
The Commission stipulated the recognition of the initial financial effect derived from the application of the
classification
implementation of this change in methodology: December 31, 2013 to recognize the initial financial effect of the
commercial loan portfolio and June 30, 2014 to recognize the initial financial effect for the loan portfolio to
financial entities. In accordance with the deadline established by the Commission, the Institution recognized the
initial financial effect for the loan portfolio to financial entities and the commercial loan portfolio as of June 30,
2014 and 2013, respectively.
As of June 30, 2014 and 2013, the cumulative financial effect derived from the application of the change in the
rating methodology of the loan portfolio to financial entities and commercial loan portfolio originated an
increased in the allowance for loan losses in the amount of $83 and $3,445, respectively, which were reported in
the consolidated balance sheet under the line item "Allowance for loan losses" with corresponding debit in
Stockholders'
ordance with
provisions of MFRS D-4, Income Taxes, the Institution recognized the deferred tax resulting from the initial
cumulative financial effect derived from the change in the rating methodology of the loan portfolio to financial
entities and the commercial loan portfolio. This was accounted for as an increase in the amount of $25 and $1,033,
consolidated balance sheet asset side with its co
thodology of the commercial loan
portfolio amounted to $58 and $2,412, net of the related deferred income tax.
As of December 31, 2014 and 2013, the allowance for loan losses was $16, 951 and $16, 222, respectively,
assigned as follows:
Performing
Portfolio
2014
Commercial and financial entities
portfolio
Mortgage loans
Credit cards and consumer loans
Total Portfolio
Total Portfolio
Assigned
Allowance
$
3,173
628
6,000
$
4,094
1,036
2,020
$
7,267
1,664
8,020
$
9,801
$
7,150
$
16,951
Performing
Portfolio
2014
Commercial and financial entities
portfolio
Mortgage loans
Credit cards and consumer loans
Non-performing
Portfolio
Non-performing
Portfolio
Assigned
Allowance
$
3,042
740
6,294
$
3,155
1,203
1,788
$
6,197
1,943
8,082
$
10,076
$
6,146
$
16,222
As of December 31, 2014 and 2013, the Institution maintained an allowance for loan losses equivalent to 97%
and 116% of the non-performing portfolio, respectively.
71
12.
Other receivables, (net)
As of December 31, 2014 and 2013, are comprised of:
2014
Debtors due to liquidation of operations
Collateral given in cash for transactions not performed on
recognized stock markets or exchanges ( OTC )
Other debtors
Employee loans
Recoverable taxes
$
2013
15,015
20,758
5,584
3,317
7,053
51,727
Allowance for doubtful accounts
Total
$
10,915
15,272
5,443
3,014
8,619
43,263
(514)
$
51,213
(533)
$
42,730
As of December 31, 2014 and 2013, transaction liquidation debtors are as follows:
2014
Debt instruments
Shares
Foreign currency
Others
Total
13.
2013
$
10,610
435
2,926
1,044
$
7,180
197
3,082
456
$
15,015
$
10,915
Foreclosed assets, (net)
As of December 31, 2014 and 2013 were as follows:
2014
Foreclosed properties
Promissory properties
$
946
4
950
(592)
$
$
358
$
Less- Allowance for losses on foreclosed assets
Total
2013
1,563
3
1,566
(1,141)
425
Changes in the allowance for losses on foreclosed assets are summarized below (at nominal value) for the
years ended December 31, 2014 and 2013:
2014
Opening balance
$
Foreclosed assets reserve of Santander Hipotecario based on its
fair value valuation
Results
Release of reserves for sale of foreclosed assets
Closing balance
2013
1,141
$
-
807
38
(104)
31
(580)
$
592
400
$
1,141
During December 2013, the Institution signed an agreement with a financial institution for the sale of 1,309
foreclosed assets. The transaction concluded on January 31, 2014 at a selling price of $282, generating pre-tax
income of $149, which was recorded
operating income
73
14.
Property, furniture and equipment, (net)
As of December 31, 2014 and 2013 were as follows:
Accumulated
Depreciation
Acquisition Cost
Net Book Value
Properties for office purposes
Fixtures
Computer equipment
Office furniture
Communication equipment
Peripheral computer equipment
Vehicles
Other equipment
$
1,076
5,826
431
1,191
216
587
178
18
$
(372)
(2,400)
(278)
(659)
(96)
(372)
(86)
(1)
$
704
3,426
153
532
120
215
92
17
$
9,523
$
(4,264)
$
5,259
Fixtures
Computer equipment
Office furniture
Vehicles
Other equipment
$
1,076
5,140
383
1,070
138
484
176
17
$
(357)
(2,086)
(236)
(571)
(76)
(299)
(94)
(1)
$
719
3,054
147
499
62
185
82
16
$
8,484
$
(3,720)
$
4,764
$
7,358
The entries in property, furniture, and equipment are as follows:
Acquisition cost:
Balance at January 1, 2013
Additions
Asset acquisition from Santander Vivienda
Disposals
1,313
37
(224)
8,484
Additions
Disposals
1,279
(240)
Accumulated depreciation:
$
9,523
$
(3,272)
Additions
Asset acquisition from Santander Vivienda
Disposals
(649)
(28)
229
(3,720)
Additions
Disposals
(784)
240
$
(4,264)
$
4,764
$
5,259
74
The annual depreciation and amortization rates were as follows:
Percentage
Office furniture
Computer equipment
Vehicles
Fixtures
Other
2% to 5%
10%
25%
25%
20%
20%
10%
10% and 20%
Fibra Uno
During the second quarter of 2012 the Institution executed a contract with Fibra Uno, S.A. de C.V.
subsequent lease of this property for a 20-year period. This transaction was subject to the approval of the
respective regulatory entities, which was granted in May 2012.
The lease contract is considered as an operating lease which cannot be canceled and includes a renewal option
for up to four consecutive five-year periods based on market rates which will be determined at each renewal
date. The lease contract includes rental adjustments based on the National Consumer Price Index, but does
not contain contingent rental payment clauses based on volumes or purchase options. Likewise, it does not
restrict the capacity of the Institution to pay dividends, contract debt or execute additional rental agreements.
According to the operating lease contract, at December 31, 2014, minimum future payments are as follows:
Lease
15.
Fibra Uno
Others
Total
2015
2016
2017
2018
2019
2020 onwards
$
253
266
276
276
276
3,401
$
161
300
482
778
398
180
$
414
566
758
1,054
674
3,581
Minimum future payments
$
4,748
$
2,299
$
7,047
Long-term investment in shares
As of December 31, 2014 and 2013, were as follows:
Equity
Percentage
in 2014
Institution
Other investments
Sundry
Total
2014
2013
$
152
$
144
$
152
$
144
As of December 31, 2014 and 2013, share on profit of no consolidated subsidiaries and associates is as
follows:
Institution
Other investments
2014
2013
$
79
$
80
$
79
$
80
75
16.
Other assets, (net)
As of December 31, 2014 and 2013, were as follows:
2014
Intangibles:
Goodwill (1)
Prepaid expenses
Software and technological developments
Less
$
2013
1,735
498
4,487
6,720
(2,142)
4,578
Accumulated amortization of other assets
Other assets
Security deposits
$
1,735
422
5,405
7,562
(3,389)
4,173
39
39
$
4,617
39
39
$
4,212
Software is amortized over a three-year term from the date acquired. Licenses are amortized over a 3.3-year
term from their date of use. Amortization for intangibles is recorded in the consolidated statements of income
al
(1) Includes goodwill arising from the acquisition of Santander Vivienda from ING Group for $146 and
goodwill arising from the acquisition of the mortgage business acquired from GE in the amount of
$1,589. As of December 31, 2014 and 2013, both amounts of goodwill do not show indicators of
impairment.
Goodwill
The movements in goodwill are as follows:
2014
Balance at the beginning of the year
Additions (Acquisition of Santander Vivienda)
$
Balance at the end of the year
$
2013
1,735
$
1,589
146
1,735
$
1,735
-
Software and technological developments
The movements in software and internally developed information technology systems are as follows:
Acquisition cost:
Balance at January 1,2013
$
Additions
Disposals
933
(99)
5,405
Additions
Disposals
1,226
(2,144)
4,571
$
4,487
76
Accumulated amortization:
$
(2,517)
Additions
Disposals
(970)
98
(3,389)
Additions
Disposals
(897)
2,144
17.
$
(2,142)
Net balance at December 31, 2014
$
2,345
Net balance at December 31, 2013
$
2,016
Foreign currency position
At December 31, 2014 and 2013, foreign currency assets and liabilities of the Institution were as follows:
Millions of US dollars
2014
Funds available
Margin accounts
Investments in securities
Derivatives (net)
Loan portfolio
Valuation adjustment for hedged financial assets
Other receivables (net)
Deposits
Interbank and other loans
Sundry creditors and other payables
Sale and repurchase agreements (net)
Outstanding subordinated liabilities
Net lliability position
Mexican peso equivalent
As of December 31, 2014 and 2013
US dollar, respectively.
$
2013
2,516
61
2,025
(2,962)
5,301
(6)
800
(4,171)
(1,732)
(451)
(123)
(1,324)
1,735
27
1,499
(2,197)
4,603
(9)
585
(3,076)
(1,094)
(555)
(266)
(1,291)
(66)
(39)
(973)
$
(510)
-hour) exchange rate used was $14.7414 and $13.0843 per
As of February 20, 2015, the unaudited foreign currency position (unaudited) was similar to that in effect at
year5.0757 per US dollar.
The Central Bank sets the ceilings for foreign currency liabilities and the liquidity ratio that the Institution
obtains directly or through its foreign agencies, branches or affiliates, which must be determined daily for
such liabilities to enable the Institution to structure their contingency plans and promote longer term funding
within a reasonable time frame.
The Institution performs a large number of foreign currency transactions. Given that the parities of other
currencies against the Mexican peso are linked to the US dollar, the overall foreign currency position is
consolidated into US dollars at each month-end closing.
77
Senior Notes
On November 9, 2013, the Institution placed debt securities known as Senior Notes for the amount of one
billion US dollars for a 10-year period. These securities were issued and placed according to Rule 144A and
Regulation S of the 1933 US Securities Act. Interest will be payable every six months on May 9 and
November 9 as of May 9, 2014. Principal is payable at maturity (November 9, 2022). The securities will
accrue interest at an annual rate of 4.125%. Principal will be payable when the securities mature or, if
applicable, in the event of early payment.
At December 31, 2014 and 2013, the Institution has placed and settled securitization certificates, bank bonds
and senior notes with a market value of $27,028 and $26,253, respectively, which are comprised as follows:
Instrument
Stock Certificates
Stock Certificates
Stock Certificates
Stock Certificates
Stock Certificates
Stock Certificates
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
2014
$
2013
Period
Rate
1,700
5,000
730
2,800
1,300
987
Mar/09/2021
Jan/27/2014
Jan/27/2014
Sep/21/2016
Sep/21/2016
Nov/23/2017
8.91% Fixed rate
Variable Rate(TIIE + 20 bps)
Variable Rate (TIIE + 20 bps)
9.05% Fixed rate
-
11
Jun/11/2014
Variable Rate ( TIIE)
-
93
May/29/2014
Variable Rate (TIIE)
-
200
May/05/2014
58
131
Aug/26/2015
20
20
Oct/15/2015
Index (IBEX35)
-
15
Nov/28/2014
-
28
Jan/14/2014
5
5
Aug/04/2015
8
8
Aug/18/2015
-
11
Aug/28/2014
Index (STOXX 50)
-
20
Jan/24/2014
Exchange rate
-
13
Jan/28/2014
Exchange rate
-
7
Feb/13/2014
Exchange rate
-
150
Jan/10/2014
9.3% Fixed rate
-
11
Jan/13/2014
Exchange rate
-
20
Jan/10/2014
6.0% Fixed rate
1,700
2,800
1,300
986
$
79
Instrument
2014
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
2013
Period
Rate
10% Fixed rate
-
10
Jan/17/2014
-
13
Feb/27/2014
-
13
Jan/02/2014
2. Fixed rate
4. Fixed rate
11
-
Jan/20/2015
Index (Euro STOXX 50)
1,491
-
Mar/02/2017
87
-
Mar/13/2017
50
-
Mar/16/2017
12
-
Mar/24/2017
12
-
06-abr-2017
58
-
07-abr-2016
Index (Euro SX7E)
10
-
26-may-2016
Index (Euro SX5E)
20
-
08-jun-2016
Index (Euro SX5E)
11
-
18-jun-2015
Index (Euro SX7E)
23
-
19-jun-2015
Index (NIKKEI 225)
18
-
24-jun-2015
Index (Euro SX7E)
846
-
29-jun-2017
Index (IBEX35)
100
-
08-ene-2015
Exchange rate
614
-
03-ago-2017
Index (Euro SX5E)
240
-
24-ago-2016
Index (HSCEI and S&P 500)
561
-
06-sep-2017
index (Euro SX5E)
385
-
08-sep-2017
Index (Euro SX5E)
16
-
09-sep-2015
Index (Euro SX5E)
20
-
06-ene-2015
Exchange rate
18
-
13-ene-2015
Exchange rate
11
-
30-ene-2015
Exchange rate
80
Instrument
2014
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Structured Bank
Bonds
Senior notes
Subtotal
2013
-
05-ene-2015
Exchange rate
24
-
17-feb-2015
Exchange rate
34
-
14-oct-2016
Index (Hang Semg)
107
-
06-nov-2017
Index (S&P500)
276
-
17-nov-2016
Index (IBEX35)
600
-
04-ene-2018
Index (EURO STOXX Oil & Gas)
13,084
26,380
04-ene-2018
29-oct-2022
Index (EURO STOXX Oil & Gas)
4.125% Fixed rate
13
14,741
27,314
(260)
(260)
Plus Bonus Valuation
Accrued interest
(177)
151
133
$
Rate
28
Less Issuance costs
Total
Period
27,028
$
26,253
81
As of December 31, 2014 and 2013, the Inst
parties are as follows:
2014
2013
ReceivableFunds available
Debtors under sale and repurchase agreements (1)
Derivatives (asset) (2)
Performing loan portfolio (3)
Other receivables, (net) (4)
$
$
$
$
$
126
629
28,089
2,696
4,465
$
$
$
$
$
67
1,134
19,999
3,188
5,572
PayableDemand deposits (5)
Credit instruments issued (6)
Creditors under sale and repurchase agreements
Interbank and other loans
Derivatives (liabilities) (2)
Creditors from settlement of transactions
Subordinated liabilities
$
$
$
$
$
$
$
$
2,526
727
22,268
$
$
$
$
$
$
$
$
1,382
774
60,041
3,175
20,944
230
1,104
12,766
28,786
2,158
975
14,630
As of December 2014 and 2013, the most significant transactions carried out by the Institution with related and
affiliated companies (at nominal values) were as follows:
2014
2013
RevenuesInterest
Commissions
$
$
176
4,927
$
$
187
4,727
ExpensesInterest
Administrative expenses
Technical assistance
$
$
$
2,245
326
1,761
$
$
$
2,264
319
1,728
$
(1,744)
$
512
Result from derivative financial instrument transactions
(1) As of December 31, 2014, debtors and creditors transactions with agreements are as follows:
Active
Casa de Bolsa Santander, S.A. de C.V., Grupo
Financiero Santander México.
(2) $
Passive
629
$
19,865
As of December 31, 2014, asset and liability transactions with derivative financial instruments are as
follows:
2014
Active
Banco Santander, S.A.
(Spain)
Santander Benelux, S.A.,
N.V.
Abbey National Treasury
Services plc (London)
Others
$
27,256
$
-
28,339
Active
$
828
5
$
2013
Passive
28,089
426
21
$
28,786
$
Passive
12,095
$
12,599
7,822
8,291
70
12
42
12
19,999
$
20,944
84
(3) At December 31, 2013, the entities denominated Produban Servicios Informáticos Generales, S.L.
(PSIG) and Santander Capital Structuring, S.A. de C.V. (SCS), received credits from the Institution for
the amounts of $1,413 and $1,245, respectively, at the 3.39% (PSIG) and 6.14% (SCS) rates.
At December 31, 2013,
roduban Servicios Informáticos
the Bank for the amounts of $1,751, $336, $1,086 and $15, respectively, at an average weight rate of
6.16% (SCS), 6.94% (Polanco), 3.37% (PSIG) and 7.79% (GKM).
(4) At December 31, 2014, other accounts receivable are primarily composed by:
Unpaid transactions of $2,215 with Banco Santander (Spain), S.A.
Collectible commissions of $747 from Zurich Santander Seguros México, S.A. (Zurich
Santander) for the placement of insurance policies through Bank branches.
Collateral given for transactions with derivative financial instruments entered into with Banco
Santander, S.A. (Spain) for the amount of $756.
Available balances in investment contracts for $469 to Banco Santander, S.A. (Spain).
At December 31, 2013, other accounts receivable are primarily composed by:
(5) Unpaid transactions of $3,313 with Banco Santander (Spain), S.A.
Collectible commissions of $762 from Zurich Santander Seguros México, S.A. (Zurich
Santander) for the placement of insurance policies through Bank branches.
Collateral given for transactions with derivative financial instruments entered into with
Benelux, S.A. N.V. for the amount of $424; and Banco Santander, S.A. (Spain) for the amount
of $676.
As of December 31, 2013, time deposits are as follows:
Company
Promociones y
Servicios Santiago,
S.A.
Grupo Financiero
Santander México,
S.A.B. de C.V.
ISBAN México, S.A.
de C.V.
Promociones y
Servicios Monterrey,
S.A. de C.V.
Other
Instrument
Amount
Promissory note in
US dollars
$
Promissory note in
Mexican pesos
Promissory note in
US dollars
Promissory note in
US dollars
Promissory note
$
(6) Term
(years)
Rate
1,789
3 days
0.1200%
254
2 days
2.98%
181
4 days
0.1200%
133
169
3 days
Other
0.1200%
Other
2,526
At December 31, 2013, Zurich Santander and Banco Santander, S.A. (Spain) have an investment in
credit securities issued by the Institution with the following characteristics:
Series
BSANTM
Total
Amount
$
727
$
727
Term
(Days)
Rate
3,671
4.125
85
(7) As of December 31, 2014, Banco Santander, S.A. (Spain) maintains an investment in subordinated
debentures issued by the Bank, the characteristics of this investment are:
Series
Mont
Subordinated debentures
$
14,630
Total
$
14,630
Term (days)
3,960
Rate
5.95%
balance sheet, include $1525 with Banco Santander, S.A. (Spain), at a rate of 0.8089% and with a term of 442
days.
The Institution executed professional service contracts with ISBAN México, S.A. de C.V. ( Isban ),
Ingeniería de Software Bancario, S.L. Spain ( Isban Spain ), Produban México, S.A. de C.V. ( Produban )
and Produban Servicios Informáticos Generales, S.L. ( Produban Spain ) which provide systems
development and operation services, among others. Similarly, the Institution acquired software developed by
Isban, Isban Spain, Produban and Produban Spain for $980 and $722 in 2014 and 2013, respectively.
Management believes that transactions with related parties are performed according to the prices and payment
amounts that would be utilized with or between independent parties for comparable transactions.
23.
Labor benefits
Under Mexican Labor Law, the Institution is liable for severance payments and seniority premiums to
employees terminated under certain circumstances; there are also other obligations derived from the collective
bargaining agreement.
Each year, the Institution records the net periodic cost to create a fund that covers the net projected obligation
from seniority premiums and pensions, medical expenses and severance payments as it accrues based on
actuarial calculations prepared by independent actuaries, which are based on the projected unit credit method
and the parameters established by the Commission. Therefore, the liability is accrued at the present value of
future cash flows required to settle the obligation from benefits projected to the estimated retirement date of
According to its collective bargaining agreements and individual employment contracts, the Institution has a
liability for subsequent retirement benefits, which is composed by the payment of 100% of certain medical
expenses when its employees retire, as well as those incurred by retirees and their family members under the
terms of the respective contracts. The Institution has a defined contribution pension plan, whereby such
institutions agree to pay pre-established cash amounts to a given investment fund, in which the worker
benefits consist of the sum of such contributions, plus or minus the gains or losses from the management of
such funds of those workers who adhered to the new plan, which was optional for them. During 2014 and
2013, the amount recognized by the Institution as an expense for the defined contribution plan was $246 and
$226, respectively.
As of December 31, 2014 and 2013, approximately 1.8% and 2.08% (unaudited) o
employees, respectively, were still enrolled in the defined benefit pension plan while the rest of the employees
had enrolled in the defined contribution pension plan. As of December 31, 2014 and 2013, the investment
fund of the defined contribution pension plan was $4, 479and $4,575, respectively.
At December 31, 2014 and 2013, approximately 83.3% and 80.54% (unaudited) of the workers employed by
the Institution and enrolled in the defined contribution plan have been included in the new Retirement
Medical Coverage subaccount system.
86
As of December 31, 2014, the Institution amortizes variances based on the estimate of 10.25 years for the
pension plan for retirees, 9.25 years for post-retirement medical services and 14.10 years for seniority
premiums, based on the average remaining years of service.
As of December 31, 2013, the Institution amortizes variances based on the estimate of 12.25 years for the
pension plan for retirees, 11.25 years for post-retirement medical services and 14.60 years for seniority
premiums, based on the average remaining years of service.
As of December 31, 2014 and 2013, balances and activity reflected in employee benefits from defined benefit
plans of entities that comprise the Institution, which include pension plans, seniority premiums, medical
expenses and severance payments, were as follows:
2014
Projected benefit obligation
Plan assets
Unfunded liability
$
(7,008)
4,480
(2,528)
Unamortized:
Unrecognized actuarial losses
Net projected liability
2013
$
(6,580)
4,576
(2,004)
1,960
$
(568)
1,685
$
(319)
As of December 31, 2014, the net projected liability for severance payments at the end of the employment
relationship for reasons other than restructuring is $404.
As of December 31, 2014 and 2013, the obligations for acquired benefits are $5,306 and $4,782, respectively.
Net periodic cost consists of the following:
2014
Service cost for the year
Financial cost
Less- Return on plan assets
Actuarial losses
Immediate recognition of actuarial losses for the year
$
2013
143
564
(415)
113
33
$
164
510
(325)
156
57
5
5
$
572
Effects due to reduction and early settlement
Net periodic cost
(6)
$
432
The economic assumptions used were as follows:
Discount rate
Expected rate of return of assets
Wage increases rate
Medical inflation rate
2014
2013
8.25%
8.50%
5.00%
7.12%
9.00%
9.25%
5.00%
7.12%
In July 2001, the Institution executed a collective lifetime payment insurance operation agreement for certain
retirees with Principal México Compañía de Seguros, S.A. de C.V. (Principal). Such agreement establishes
that with the payment of the single premium by the Institution, Principal commits to paying insured retirees a
lifetime payment until the death of the last insured retiree.
87
obligation to its retirees in the consolidated balance sheets, the Institution records the projected benefit
-term account receivable with Principal, which is recorded under the heading of
was calculated by the Institution 's external actuaries at the close of the year, based on the estimates used in
the actuarial study for labor liabilities and the remaining personnel. As of December 31, 2014 and 2013, such
liability is $905 and $921
eliminated against the equivalent balance under the
The reserves for employee benefits net of the contributions to the fund, with the exception of the Casa de
The changes in net projected obligations were as follows:
2014
Opening balance
Benefit payment
Provision for the year
Net projected liability for Santander Vivienda acquisition
Contributions for the year
2013
$
(319)
171
(438)
6
12
$
(492)
128
(572)
(14)
631
$
(568)
$
(319)
Fund movements were as follows:
2014
Opening balance
Contributions
Actual fund yield
Payments made
Fund for Santander Vivienda
Transfer to defined contribution plan
Closing balance
$
2013
4,576
12
338
(432)
$
4,489
631
(86)
(442)
1
(17)
$
4,576
(14)
$
4,480
As of December 31, 2014, the Institution had assets related to the defined benefit plan. Such assets were
invested as follows:
Amount
Fixed incomeGovernment securities
Other types of securities
Variable income
%
$
2,922
417
1,168
65%
9%
26%
$
4,507
100%
Expected return
$
417
Actual return
$
336
88
As of December 31, 2014 and 2013, there is no fund created for severance payments at the end of the
employment relationship for reasons other than restructuring.
Changes in the present value of the defined benefits obligation:
2014
Present value of the defined benefits obligation as
of January 1, 2014 and 2013
Labor cost of the current service
Financial cost
Benefits actual payment during the year
Extinguished obligations
Liabilities for Santander Vivienda
Actuarial loss (gain) on the obligation
Present value of the defined benefits obligation as
of December 31, 2014 and 2013
$
2013
6,580
143
564
(603)
(26)
$
7,292
164
510
(569)
(15)
18
(820)
$
6,580
350
$
7,008
An increase of one percentage point in the trend rate of health care costs for each year would have resulted in
an additional defined benefit obligation of $704 and $768 as of December 31, 2014 and 2013, respectively, as
well as an increase in the net period cost for 2014 and 2013 of $126 and $135, respectively. A decrease of one
percentage point in the trend rate of health care costs for each year would have resulted in a decrease in the
defined benefit obligation of $574 and $621 as of December 31, 2014 and 2013, respectively, as well as a
decrease in the net period cost for 2014 and 2013 of $104 and $108, respectively.
24.
Statutory Profit Sharing
The Institution determined its PTU basis by considering the basis used for income tax purposes, albeit without
Section III of article 127 of the LFT.
The deferred PTU amount recorded in the results at December 31, 2014 and 2013 under the heading of
al
2013, the Institution has a liability of $213 and $209, respectively, for current PTU payable.
At December 31, 2014 and 2013 deferred PTU is composed as follows:
2014
Deferred PTU asset:
Undeducted allowance for loan losses
Property, furniture, and equipment and deferred charges
Accrued liabilities
Unaccrued share tax losses
Commissions and interest received in advance
Foreclosed assets
Surplus value from financial instruments
Deferred PTU asset
$
2013
1,930
645
445
766
121
47
158
4,112
$
1,795
653
333
765
112
34
94
3,786
Deferred PTU liability:
Labor obligations
Exchange rate related financial transactions
Prepaid expenses
Others
Deferred PTU liability
(12)
(646)
(51)
(39)
(748)
(22)
(107)
(44)
(18)
(191)
Less Valuation allowance
(225)
(329)
Deferred PTU asset (net)
$
3,139
$
3,266
89
25.
Creditors from settlement of transactions
As of December 31, 2014 and 2013, are as follows:
2014
Debt securities
Indexed shares
Foreign currency
Option contracts
2013
$
8,522
268
14,993
682
$
12,693
275
15,421
297
$
24,465
$
28,686
26.
As of December 31, 2014 and 2013, sundry creditors and other payables were as follows:
2014
Investments in personnel pensions and seniority premiums
Provision for labor obligations at retirement
$
Provisions and other creditors
Cashier checks and certificates
Credit letters and drafts payable
Value added tax payable
Other obligations
Creditor bank compensation
(4,480)
5,048
568
2013
$
14,592
1,015
1,075
809
189
3,785
$
22,033
(4,576)
4,895
319
20,094
1,228
1,018
740
978
11,308
$
35,685
The line item provision for sundry obligations includes reserves for tax, labor and legal contingencies
established by the Institution at yearend.
Target Related Stock Plan
Management
approved locally by the Audit Committee and Corporate Practices, and by the Board of Directors, and the
General Meeting. The Plan consists of the free del
which is conditioned upon the continued employment of the eligible officers in the Institution for the time
established for the respective cycle and reaching targets related to a) the total return for the shareholder
(RTA), according to the behavior of the share quotation of the Parent Company and b) the profit per share
(BPA).
The Plan consists of five cycles where a maximum number of shares representing the capital of the Parent
Company were assigned from the year 2009 until 2014, subject to reaching the aforementioned targets.
For the years ended December 31, 2014 and 2013, the Institution recognized a charge to earnings for this item
in the amount of $10 and $36, respectively.
Equity benefits plan
On April 27, 2009, the Board of Directors of Banco Santander, S.A. (Spain) approved a supplementary
Program to the Pension Plan (the Program), which will be part of the benefits included in the total
compensation of the participating directors. This Program is exclusively for a reduced sector (designated by
the Human Resources Department of Banco Santander, S.A. (Spain)) of 17 directors of the Institution.
90
The Program consists of the Institution contribution based on fixed remuneration (salary, yearend bonus and
accumulated balance may be provided at the end of the employment relationship subject to the provisions of
the Program.
The first contribution to this Program was made during the year 2009.
At the close of December 2014 and 2013, the Institution recorded in results an expense of $1 and $8,
respectively.
27.
Outstanding subordinated debentures
Tier 2 Subordinated Notes
On December 27, 2013, the Institution placed debt instruments denominated as Tier 2 Subordinated Notes for
the amount of US$ 1,300 million, equal to 1,300,000 instruments with a nominal value of US$ 1,000 each for
a 10-year period with the option of advance amortization in year five. The instruments were issued according
to Rule 144A and Regulation S of the 1933 US Securities Act with a discount of US$ 10 million.
Interest is paid semiannually every January 30 and July 30 of each year, beginning July 30, 2014. Principal
will be paid at maturity of the instruments, earning an annual initial rate of 5.95%.
The main characteristics of this issuance are as follows:
- If advance payment is not made in year five, the respective interest rate applicable during the
second five-year period will be based on the rate set for US five-year Treasury Notes at that
time, plus the spread defined in the placement prospectus.
- The instruments have a loss absorption mechanism based on a
, which will be
triggered when basic capitalization ratio levels (Tier 1) of 4.5% are reached.
- A partial, proportional write-down until recovering a basic capitalization ratio (Tier 1) of 7%.
- When a capitalization ratio of 8% is determined:
Early warning activation- The deferral of principal or interest or other measures determined by
the Commission.
Cause of revocation - A possible write-down due to remediation default.
- The possibility of advance payment based on the inability to treat the subordinated notes as supplementary
capital (Tier 2) due to the non-deductibility of interest or increased tax to be withheld.
91
28.
Income taxes
According to the tax reforms discussed in Note 1, the main modifications affecting the Financial Group are
indicated below:
Main reforms to the Income Tax Law, Business Flat Tax Law, Cash Deposit Law and Value Added Tax
Law
a)
Income Tax
Income tax remains at the definitive 30% rate. The transitory provision established in the Income Tax
Law whereby the 29% rate would be applicable in 2014 and the 28% rate would be applicable in 2015,
was eliminated.
An additional 10% Income Tax is payable on dividends when distributed to individuals and foreign
residents. Income Tax is payable through a tax withholding and is a definitive payment which must be
settled by the stockholder. In the case of foreigners, the terms of specific tax treaties can be applied.
This tax will be applicable on profits distributed as of 2014.
The deduction of payments to workers that are tax-exempt for the latter is limited to 47% or 53% if
certain requirements are fulfilled. Likewise, the deduction of contributions to pension and retirement
funds is also subject to these percentages.
The worker fees paid by the employer are no longer 100% deductible.
The special PTU calculation has been modified. The calculation basis is determined by subtracting
authorized deductions from accruable income, albeit without including the PTU paid during the year or
prior year tax losses. For PTU purposes, all payments made to workers and which are tax-exempt for
them are considered as deductible.
The reforms to the LISR which took effect on January 1, 2014, and replaced the deduction of increases
to the global allowance for loan losses of banking institutions with the deduction of the write-offs
approved by the CNBV for the credit portfolio generated as of 2014, could generate an effect when
determining the effective tax rate of these institutions. The banking association is currently negotiating
with the regulatory and tax authorities to establish a tax treatment to recognize the reality of the credit
portfolio. However, given the nature of these negotiations, the date of their final outcome cannot be
estimated.
b)
Business Flat Tax and Cash Deposits Tax
c)
Value Added Tax
in the border zone.
In 2014 and 2013, the ISR rate is 30%. The aforementioned tax reforms establish that the ISR rate will be
30% in 2014 and subsequent years.
ISR is calculated considering certain effects of inflation, such as depreciation calculated according to values
at constant prices. In addition, the effect of inflation on certain monetary assets and liabilities is accrued or
deducted for the purpose of determining taxable income.
Based on financial projections and the 2014 tax reforms, which repealed the Business Flat Tax (IETU), as
already noted, the Institution will pay income tax (ISR), for which reason it recognizes only deferred ISR.
92
The ISR and IETU provision recorded in results is comprised as follows:
2014
Current expense:
ISR
$
IETU
$
Deferred benefit:
ISR
2013
2,133
-
$
1,208
$
4,893
$
4
$
(2,045)
Reconciliation of the accounting-tax result- The principal items which affected the determination of the tax
result of the Financial Group were the annual adjustment for inflation, the accounting-tax effect on the
purchase and sale of shares, provisions, the result from market valuation, the difference between accounting
and tax depreciation and amortization, and the deduction for bad debts taken by a subsidiary for which there is
no recognized deferred tax asset.
As a result of the LISR tax reforms, as of January 2014, there was a limitation in place on the deduction of
payments to workers which are exempt revenues for them; the deduction for the contribution to the pension
and retirement fund was restricted, and the Social Security fees paid by the employer were considered 100%
nondeductible. Also, the deduction of increases made to the global allowance for loan losses of banks is
substituted by the deduction of those write-offs approved by the Commission in relation to credit portfolio.
Tax Loss Carryforwards - At December 31, 2014, the Institution has tax loss carryforwards for, which will be
indexed until their year of application for the restated amount of:
Applicable
Tax Loss
Maturity
2017
2020
2021
2022
2023
2024
$
1
281
172
6
24
108
Total
$
592
Based on the acquisition of Santander Hipotecario from GE Capital México, the former has restated tax loss
carryforwards of $1,940 that are considered as an account receivable from GE Capital México, which
guaranteed their recovery.
d employee statutory profit sharing (n
comprised as follows:
2014
Deferred ISR
Deferred PTU asset (net) (Note 23)
2013
$
13,746
3,139
$
14,898
3,266
$
16,885
$
18,164
93
Deferred ISR- As of December 31, 2014 and 2013, they are comprised as follows:
2014
Deferred ISR asset:
Undeducted allowance for loan losses
Property, furniture, and equipment and deferred charges
Accrued liabilities
Tax loss carry forwards (shares)
Tax loss carry forwards (other)
Impairment of financial instruments
Labor obligations
Commissions and interest received in advance
Foreclosed assets
Deferred ISR asset:
$
Deferred ISR (liability):
Labor obligations
Exchange rate-related financial transactions
Prepaid expenses
Deferred PTU
Others
Deferred ISR (liability):
10,584
1,938
1,486
2,299
176
480
15
407
234
17,619
$
10,920
1,964
1,221
2,296
154
289
433
189
17,466
(1,937)
(205)
(941)
(116)
(3,199)
(65)
(323)
(159)
(979)
(56)
(1,582)
(674)
(986)
Less Created allowance
Deferred income tax asset (net)
2013
$
13,746
$
14,898
Management records an allowance for the deferred income tax asset in order to recognize the deferred tax
asset that they believe will be recovered, considering for such purposes the effects of the tax credit for nondeductible allowances for loan losses that is expected to reverse, based on the financial and tax projections
prepared by management. The recovery of such asset is dependent on the economic and operating conditions
as the corresponding account, depending on how the item underlying the anticipated deferred tax was
recorded.
The reconciliation of the legal ISR rate and the effective rate expressed as a percentage of profit before ISR is:
2014
2013
Legal tax rate
30%
30%
Less - Effect of loan portfolio
(3%)
(13%)
Effect of financial instruments
(4%)
(2%)
Effects of tax inflation
(4%)
(3%)
Non-deductible expenses and non-taxable income
-
2%
Effect for exchange rates
-
(1%)
Legal tax rate
19%
13%
94
Tax reviews and issues:
The following balances are in effect at December 31, 2014 and 2013:
2014
Net Tax Income Account
Contributed Capital Account
Net Reinvested Tax Income Account
$
$
$
2013
12,438
91,107
111
$
$
$
11,213
80,560
107
29.
As of December 31, 2014 and 2013, capital stock, at nominal value, was as follows:
Number of shares
2014
Fixed capital Series "F" shares
Series "B" shares
Total
2013
2014
2013
67,792,912,762
13,062,491,041
67,792,912,762
13,062,491,041
$
6,779
1,307
$
6,779
1,307
80,855,403,803
80,855,403,803
$
8,086
$
8,086
At the Stockholders Annual Ordinary General Meeting of April 25, 2014, it was agreed that given the
consolidated financial statements approved by the Assembly reported a net income in fiscal year 2013 in the
amount of $18,936, the following applications were made:
a) account
.
b) The net consolidated income for the year by its subsidiaries for the amount of $5,712 under the
The Stockholders Ordinary General Meeting of November 27, 2014, resolved to pay a cash dividend of
$3,473
E
which was paid on
December 29, 2014.
by Grupo Financiero Santander, S.A.B. de C.V. or, directly or
indirectly, by Banco Santander, S.A. (Spain), except when such shares are transferred in guarantee or in
ownership to the Bank Savings Protection Institute. These shares can only be sold with the prior authorization
of the Mexican Treasury Department. No authorization shall be required from such Agency and corporate
bylaws will not have to be amended when the transfer of shares is either in guarantee or ownership, to the
Bank Savings Protection Institute.
Foreign corporations that exercise functions of authority may not participate under any circumstances in the
capital of the Institution. National financial entities cannot do either, including those which form part of the
Institution, except when they act as institutional investors, pursuant to article 19 of the Law on Financial
Groups (LRAF).
If dividends are distributed without incurring the applicable tax to the Institution, such tax must be paid when
the dividend is distributed. Therefore, the Institution must keep track of profits subject to each rate.
Capital reductions incur tax based on the amount by which the distributed amount exceeds its tax value
determined according to the Income Tax Law.
As of January 1, 2014 and according to the reforms of the Income Tax Law, dividends paid by Mexican
companies to individuals and foreign residents are subject to the payment of an additional 10% ISR; however,
tax treaties can be applied in the case of foreign residents.
95
The Institution, is subject to the statutory provision that requires that when less 10% of the net profits of each
year, are separated and transferred to a capital reserve fund, until this is equal to the amount of the share
capital paid. In the case of the Santander Consumo and the other subsidiaries, legal provision establishes the
Constitution of a legal reserve of 5% of the net profit up to 20% of the amount of the share capital. This
reserve is not susceptible to distribute to shareholders during the existence of the institution, except in the
form of dividends in shares.
30.
Share-based payments
Performance share plan
In July 2013, the Board of Directors of the Institution approved a compensation plan for senior executives
which shall have the right to receive shares of the capital stock of the Financial Group once fulfilled certain
conditions. This plan is paid annually during the first three years after the secondary public offering of 24.9%
of the share capital carried out in the month of September 2013 by the Financial Group and is linked to the
revaluation of the Financial Group action in the Mexican stock market during this period of time.
According to this plan, eligible executives will obtain a cash incentive which must be irrevocably used to
acquire the
shares at an exercise price of $31.25 pesos per share (the incentive ).
Each year, the incentive is linked to the attainment of two independent objectives. If these objectives are
attained annually, a third part of the total incentive amount is granted to eligible executives.
The attainment of each objective depends on the payment of 50% of the maximum annual incentive amount to
eligible executives who remain as active officers of the Institution when each of the three plan payments is
made:
1. Absolute revaluation of the Institution
- Fifty percent of the incentive applicable to each
tranche or third assigned to each eligible executive will be delivered if: a) the share revaluation at the
annual assignment date is equal to or higher than 15%, while 25% of the incentive will be delivered in
each tranche or third if b) the share revaluation at the annual assignment date is equal to or higher than
10%; c) if an intermediate revaluation objective of between 10% and 15% is attained, the resulting
incentive amount is calculated based on a lineal interpolation.
2. Relative revaluation. - Fifty percent of the maximum incentive assigned to each eligible executive will
be delivered if the evolution of the Institution's share value is at least equal to the behavior of the IPC
during the period in question.
According to NIF D-8, the fair value of granted plans is estimated from the date on which they are assigned
according to the fair value of the capital instrument on the estimated exercise date, while considering the
periods and conditions under which the capital instruments were granted. The projected fair value is
determined by considering market value assignment conditions, because this condition must be attainable.
However, performance conditions are not considered when projecting the fair value because they are only
used for each period to recognize the number of instruments granted.
In the case of a plan linked to the share price, the cost or expense must reflect the fair value of the shares
projected at the assignment date. According to the number of eligible officers and the compensation plan
specifications described above, the fair value is $173.
During 2014 and 2013, the Institution recognized in the consolidated income statement under the heading
for the amount of $133 for both years, for compensation of sharewithin the consolidated balance sheet.
96
During September 2014, as the Institution
value growth objectives were attained,
it made the second cash incentive payment of the plan for eligible executives. The incentive amount paid to
eligible executives in 2014 was $115, equal to 3,687,589 shares at a price of the year of $31.25 per share.
During September 2013, as the Institution
value growth objectives were attained,
it made the first cash incentive payment of the plan for eligible executives. The incentive amount paid to
eligible executives in 2013 was $110, equal to 3,535,284 shares at a price of the year of $31.25 per share.
Annual bonus for certain Institution officers
The Institution established a policy of paying a deferred annual bonus, payable in cash and shares. This bonus
was previously paid in the shares of the Parent Company.
Similarly, a percentage of this bonus is paid at the start of the following year, while the remaining percentage
will be paid in equal parts during the three subsequent years. This final portion will be subject to the
attainment of certain objectives established in the policy.
At December 31, 2014, the Institution recognized the amount of $117 for the annual bonus payable in the
At December 31, 2013, the Institution recognized the amount of $93 for the annual bonus payable in the
I
31.
Preventive savings protection mechanism
On January 19, 1999, the Bank Savings Protection Law was approved and IPAB was created to establish a
bank savings protection system in favor of individuals that perform any of the guaranteed transactions, and to
regulate financial support granted to full service banking institutions in order to protect the interests of
depositors.
rom the mandatory contributions paid by financial institutions, according to the risk
to which they are exposed. Such contributions are calculated based on the capitalization level of each
by its Board of Directors. These
contributions must be equivalent to one-twelfth of four-thousandths of the monthly average of the daily
balances of liabilities activities of the applicable month.
For 2014 and 2013, the amount of the fund contributions payable by the Institution, as determined by the
IPAB, were $1,887 and $1,342 respectively.
32.
Contingencies
As of December 31, 2014 and 2013, the Institution was the defendant in various legal proceedings and claims
arising in the ordinary course of business. While this situation represents contingent liabilities, according to
decision, they do not expect any significant effect on the consolidated financial statements.
a. IPAB Indemnity:
As of December 31, 2014 and 2013, Grupo Financiero Serfin (which was merged with Grupo
Financiero Santander Mexicano, S.A., currently Grupo Financiero Santander México, S.A.B. de C.V.)
was the defendant in various legal proceedings and claims arising in the ordinary course of business.
While this situation represents contingent liabilities, according to management and its legal, tax and
labor lawyers, in the event of an unfavorable final decision, they do not expect any significant adverse
effect on the consolidated financial statements. This is because all or most of them are covered by the
agreement to purchase shares of the capital stock of Grupo Financiero Serfin, S.A. and Subsidiaries
(Grupo Financiero Serfin) entered into by the Institution and IPAB, as described below.
97
According to the purchase-sale contract executed for the shares of Grupo Financiero Serfin between
the Institution and the IPAB, the latter must respond to the Institution for any amount resulting from
any kind of administrative, legal or arbitration proceedings filed against Grupo Financiero Serfin
and/or the Financial Entities of Grupo Financiero Serfin (Banca Serfin (merged with Banco Santander
Mexicano and currently denominated Banco Santander (México)), Operadora de Bolsa Serfin (merged
with Casa de Bolsa Santander Mexicano, currently denominated Casa de Bolsa Santander),
Almacenadora Serfin (a company liquidated in October 2012), Factoraje Serfin (merged with
Factoring Santander; after the merger, the new entity was denominated Factoring Santander Serfin,
which subsequently merged with Banco Santander Mexicano and is currently denominated Banco
Santander (México)), and Seguros Serfin (formerly Seguros Serfin Lincoln, the absorbing company of
Seguros Santander Mexicano, subsequently denominated Seguros Santander and finally sold in July
2012, as detailed in Note 33), prior to the execution of the contract (May 23, 2000) and for a maximum
three-year period as of that date, and which result in the issuance of a definitive sentence by the
Mexican authorities or courts or foreign courts when involving a definitive sentence with a
standardized counterpart in Mexican law, or a definitive arbitration ruling with a standardized
counterpart in Mexican law.
According to Clause 11 of the above agreement, IPAB is liable before the buyer and designated buyer,
accordingly, for any amount of taxes assessed on Grupo Financiero Serfin and/or its financial entities
by the Mexican tax authorities, including contributions to the Mexican Social Security Institute
( IMSS
INFONAVIT ). This liability,
however, will apply only to taxes, penalties, surcharges and tax restatements payable prior to the date
of transfer of title to the shares of Grupo Financiero Serfin, or generated through that date, but paid on
a later date.
Also, IPAB is therefore liable before the buyer and designated buyer for any amount resulting from
labor claims related to a final adverse court decision issued against Grupo Financiero Serfin and/or its
financial entities, or derived from any agreement executed before the respective arbitration panels,
provided that such claims were filed prior to the date of transfer of ownership of the shares of Grupo
Financiero Serfin.
The share purchase agreement also establishes that: a) the reserves established by Grupo Financiero
Serfin and Banca Serfin for the respective amounts of $546 and $91 (nominal value), relative to legal
and labor contingencies at the transfer date of the shares, as described in Exhibit G of the agreement,
result of applying the CETES rate to the reserves and b) the fees and expenses incurred in connection
with services rendered to defend these entities from any legal, labor, arbitration or administrative
claim, will be borne by IPAB. If this agreement is not fulfilled, IPAB will be released from any
obligation to cover the above-mentioned contingencies.
If Grupo Financiero Serfin and/or its financial entities are required to transfer to IPAB any liabilities
resulting in disputes due to administrative, legal or arbitration proceedings against Grupo Financiero
Serfin and/or its financial entities, the Institution will have Grupo Financiero Serfin and/or its financial
entities take all the necessary steps to transfer such liabilities to IPAB or to any legal vehicle or entity
appointed by IPAB.
Neither Grupo Financiero Serfin nor its financial entities recorded any contingency reserve, in addition
to that recorded prior to their acquisition by the Institution, in connection with any item generated from
transactions performed prior to the transfer date of the shares of Grupo Financiero Serfin to the
Institution, since IPAB will take the measures mentioned in the preceding paragraphs if any
contingency should arise.
As of December 31, 2014 and 2013, the amount of the maximum contingencies related to the lawsuits
that are covered by the IPAB, without considering those undetermined, is $167, for both years.
98
In the amendatory agreement executed for the share purchase-sale contract of September 30, 2010, it
was agreed that the Institution could utilize the created reserve regardless of the nature of the
contingency in question. Accordingly, the Institution will recover paid Value Added Tax and will not
pay the 5% fee charged for the reimbursement procedure. Based on this agreement, in 2012, the
reserve was used for the amounts of $26, for the remaining expenses incurred to handle legal issues.
b. Fiduciary area:
As of December 31, 2014, Management has recorded a provision of $140 (nominal value), to cover the
contingency derived from the fiduciary area in which the Institution acts as trustee.
Institution
Management believes that there will be no additional contingencies that could materially affect the
consolidated financial statements of the Institution.
c. Legal contingencies:
At December 31, 2014 and 2013, as a result of its business activities (without considering
contingencies derived from hedges with the IPAB), the Institution has had certain claims and lawsuits
representing contingent liabilities filed against it. Notwithstanding, management and its internal and
external legal, tax and labor advisers do not expect such proceedings to have a material effect on the
consolidated financial statements in the event of an unfavorable outcome. As of December 31, 2014
and 2013, the Institution has recorded contingency reserves for the amounts of $1,198 and $1,203,
which, based on the opinion of its internal and external legal advisors, Management considers to be
adequate. 33.
Memorandum accounts
Memorandum accounts do not form an integral part of the consolidated balance sheet; accordingly, the only
memorandum accounts covered by the external audit are those used to record transactions which are directly
related to consolidated balance sheet accounts, as follows: contingent assets and liabilities, credit
commitments, collateral received, sold or given in guarantee, and uncollected accrued interest derived from
the non-performing credit portfolio.
Aside from the above memorandum accounts, the Institution also has the following:
a. Assets in trust or mandate (unaudited) As of December 31, 2014 and 2013, the Institution administered the following trusts and mandates:
2014
TrustsAdministration
Guarantee
Investment
$
102,687
8,378
24,432
135,497
247
$
104,771
7,367
24,281
136,419
274
$
135,744
$
136,693
Mandates
Total assets in trust or mandate
2013
99
b. Assets in custody or under administration (unaudited)As of December 31, 2014 and 2013 the Institution has the following assets in custody and under
administration:
2014
Bank securities
Capital Market
Collection documents
Credit operations
Government securities
Furniture and property
Obligations
Other received guarantees
Other securities
Promissory notes, deposit certificates and exchange
bills
Total assets in custody or under administration
$
2013
92,146
790,094
1,869
245,569
1,202,750
263,668
91,631
46,050
105,141
$
354,239
$
3,193,157
77,437
769,490
1,575
241,829
1,169,694
364,701
93,617
444,061
228,680
311,254
$
3,702,338
As of December 31, 2014 and 2013, the revenues generated by this type of assets were $350 and $363,
respectively.
c. Other record accounts (unaudited)As of December 31, 2014 and 2013, other record accounts have a balance of $656,652 and $508,968,
respectively. 34.
Other operating income
As of December 31, 2014 and 2013 is as follows:
2014
Recovery of previously written-off loans
Cancellation of liabilities and reserves
Gain on property disposal
Technical advisory services
Interest on personnel loans
Write-offs and bankruptcies
Legal expenses and portfolio recovery costs
Provision for legal and tax contingencies
Allowance for losses on foreclosed assets
Gain on foreclosed assets sale
Gain on loan portfolio sale
Others
Total
$
$
2013
2,164
239
2
46
111
(654)
(728)
(212)
(40)
478
(100)
145
$
1,451
$
2,155
292
5
143
122
(653)
(507)
(145)
(38)
162
296
1,832
100
In compliance with the prudent regulations for comprehensive risk management applicable to credit
institutions, issued by the National Banking and Securities Commission, the Board of Directors agreed to set
up the Institution Comprehensive Risk Management Committee, based on the guidelines established in the
aforementioned provisions. This Committee meets monthly and ensures that operations adhere to the
objectives, policies and procedures approved by the Board of Directors for Comprehensive Risk Management.
The Comprehensive Risk Management Committee delegates responsibility to the Comprehensive Risk
Management Unit for implementing procedures to measure, manage and control risks according to established
policies. Likewise, it also grants powers to the UAIR to enable it to authorize established limits to be
exceeded, although the Board of Directors must be informed of these departures.
Market Risk The Market Risk Management Department of the Comprehensive Risk Management Unit is responsible for
recommending the market risk management policies to be implemented by the Institution, by establishing the
parameters for measuring risks and delivering reports, analyses and evaluations to senior management, to the
Comprehensive Risk Management Committee and to the Board of Directors.
Market risk management consists of identifying, measuring, monitoring and controlling the risks derived from
the fluctuations of interest and exchange rates, market prices and other risk factors in currency and money
markets and related to derivative financial instruments to which the Institution's positions are exposed.
The measurement of market risk quantifies the potential change in the value of the positions assumed as a
result of changes in market risk factors.
Depending on the type of activities performed by the business units, debt securities and share certificates are
recorded as trading securities, securities available for sale and/or securities held to maturity. In particular,
after the item of securities available for sale, what underlies and identifies them as such is their permanent
status, and they are handled as a structural part of the consolidated balance sheets. The Institution has
established guidelines which must be applied for securities available for sale, as well as adequate controls to
ensure their compliance.
When significant risks are identified, they are measured and assigned limits to ensure adequate control. The
risk is measured from a global perspective through a combination of the methodology applied to trading
portfolios and that applicable to the management of assets and liabilities.
Trading Portfolios To measure risks using a global approach, the Value at Risk ( VaR ) method is followed, which is defined as
the statistical estimate of the potential loss of value of a specific position at a specific period of time and with
a specific level of confidence. The VaR is a universal measure of the exposure level of the various risk
portfolios. It helps compare the risk level assumed among different instruments and markets, expressed in the
exposure level of each portfolio through a unique figure in economic units.
The VaR is calculated by historical simulation with a window of 521 business days (520 for percentage
changes), and a one-day horizon. The calculation is made based on the series of losses and gains simulated by
considering the 1% percentile using constant Mexican pesos and Mexican pesos decreasing exponentially
with a decline factor that is reviewed annually, and the most conservative measurement is reported. The level
of reliance is variable. A 99% level of reliance is assumed.
The historical simulation model has the limitation of assuming that the recent past represents the immediate
future.
102
The quarterly Value at Risk in 2014 (unaudited) was:
*% of VaR related to Net Equity
VaR thousands of
Mexican pesos
%
Trading markets
Market Making
Proprietary Trading
51,607.04
36,912.27
19,670.89
0.05%
0.04%
0.02%
Risk factor
Interest rate
Exchange rate
Variable income
51,607.04
43,616.41
16,098.59
40,294.99
0.05%
0.05%
0.02%
0.04%
The average quarterly Value at Risk in 2014 (unaudited) was:
VaR thousands of
%
Mexican pesos
Trading markets
Market Making
Proprietary Trading
58,829.03
37,263.65
32,637.97
0.06%
0.04%
0.03%
Risk factor
Interest rate
Exchange rate
Variable income
58,829.03
56,891.06
17,729.85
26,692.86
0.06%
0.06%
0.02%
0.03%
Furthermore, monthly simulations are performed of portfolio losses or gains through evaluations under
different scenarios (Stress Tests). These estimates are generated in two ways:
By applying percentage changes observed in a given period of the history, which covers significant
market turbulence, to the risk factors.
By applying changes that depend on the volatility of each to the risk factors
is performed to match daily losses and gains to determine whether the same positions
have been maintained, while only comparing the change in value due to market movements with the value at
risk calculation in order to calibrate utilized models. Although prepared monthly, these reports include all
daily tests.
Management of assets and liabilities
consolidated balance sheet amounts. The
Assets and Liabilities Committee ( ALCO ) is responsible for determining guidelines for managing risk for
the financial margin, net worth and liquidity, which must be followed in the different commercial portfolios.
Under this approach, Finance Senior Management is responsible for executing the strategies defined in the
Assets and Liabilities Committee in order to modify the risk profile of the commercial balance sheet by
following the policies established. Therefore, it is essential to adhere to information requirements for interest
rate, exchange rate and liquidity risks.
103
As part of the financial Management performed by the Institution, the sensitivity of the financial margin
( NIM ) and net worth ( MVE ) of the different consolidated balance sheet headings is analyzed against
interest rate variations. This sensitivity derives from the differences between the expiration and modification
dates of interest rates generated in the different headings of assets and liabilities. The analysis is based on the
classification of each heading sensitive to interest rates over time, depending on their dates of amortization,
expiration or contractual amendment of the applicable interest rate.
The following table shows metrics as a proportion of the established limit:
Sensitivity 1% NIM
Balance Mexican
pesos GAP
Balance US dollars GAP
Sensitivity 1% MVE
Oct-14
Nov-14
Dec-14
Average
Oct-14
Nov-14
Dec-14
Average
92%
48%
78%
57%
82%
41%
84%
48%
64%
21%
65%
26%
67%
1%
66%
16%
Simulation techniques are used to measure the foreseeable valuation of the financial margin and net worth
value under different interest rate scenarios and the sensitivity of both elements in the event of an extreme
movement at the December 31, 2014 close.
Millions of Mexican pesos
Sensitivity 1% NIM
Sensitivity 1% MVE
Non-
Total
Derivatives
Non-
Derivatives
Total
Derivatives
Derivatives
Balance Mexican
pesos GAP
Balance US dollars GAP
978
134
844
(2,350)
90
(57)
147
(3)
1,269
(3,618)
(1,027)
1,024
The Assets and Liabilities Committee adopts investment and hedge strategies to keep these sensitivities
within the objective range.
Limits
Limits are used to control the global risk for the Institution, based on each of their portfolios and books. The
limits structure is applied to control exposures and establish the total risk applied to the business units. These
limits are established for the VaR, loss alert, maximum loss, volume equivalent of type of interest, delta
equivalent of variable income, foreign currency open positions, sensitivity of the financial margin and
sensitivity of net worth.
Liquidity risk
Liquidity risk is ass
reasonable market prices, and to carry out its business plans with stable financing sources. The influencing
factors may be external ( liquidity crisis ) or internal due to excessive concentrations of expirations.
The Institution carries out coordinated management of expirations of assets and liabilities, performing
oversight of maximum profiles of time lags. This oversight is based on analysis of expirations of assets and
liabilities, in relation to contracts and management. The Institution exercises control to maintain a sufficient
amount of liquid assets to guarantee a survival horizon during a minimum number of days in the event of a
liquidity stress scenario without resorting to additional financing sources. The Liquidity Risk is limited in
terms of a minimum period of days established for local, foreign and consolidated currencies.
104
Liquidity Collateral Exposure
The following table shows the liquidity collateral exposure of assets and liabilities with different maturities at
December 31, 2014:
Million of pesos
Structural gap
Non-derivatives
Derivatives
Total
1D
1S
1M
3M
6M
9M
1A
5A
>5A
99,924
101,836
28,226
28,301
36,141
36,601
11,911
14,246
2,336
3,310
21,794
21,510
23,100
23,073
9,804
9,431
(87,387)
(83,550)
53,998
48,914
284
27
373
(3,838)
5,085
(1,912)
(75)
(459)
(2,335)
(973)
Credit Risk
segments
through the three phases of the credit process: admission, follow-up and recovery.
From a global standpoint, the management of credit risk in the Institution covers the identification,
measurement, composition and valuation of aggregated risk and the profitability adjusted to such risk, whose
purpose is to oversee the levels of risk concentration and adjust them to established limits and objectives.
The risks which receive individual treatment are identified and differentiated (risks with companies, financial
institutions and entities) from those handled in standardized fashion (consumer and mortgage loans of private
parties and loans to business and micro-companies).
In the case of risks to which an individual treatment is applied, the Institution has a solvency classification or
associated with each customer from the start of the respective transaction. The customer valuation obtained
after analyzing the relevant risk factors in different areas is subsequently adjusted based on the specific
characteristics of the transaction (guarantee, term, etc.).
Standardized risks, given their special characteristics (a large number of transactions involving relatively
small amounts) require different handling that ensures effective treatment and efficient allocation of
resources, for which automatic decision-making tools are used (expert and credit scoring systems).
The treatment of business loans is also complemented, in its follow-up stage, with the soclassified in such category. Several special oversight situations or degrees are distinguished, from which
different actions may arise. The special oversight rating is reached either by alert signals, systematic reviews
or special initiatives promoted by the Risk Division or Internal Audit.
Recovery Units are a fundamental element in the management of irregular risks and are intended to minimize
the final loss incurred by the Institution. These units perform specialized risk management activities based on
the classification of a given risk as irregular (timely payment noncompliance).
The Institution has implemented a policy of selective growth of the risk and strict actions in the treatment of
late payments and its provisions, based on the prudent criteria defined by the Institution.
Probability of Noncompliance and Expected Losses
According to the Comprehensive Risk Management guidelines detailed in the General Provisions Applicable
to Credit Institutions, as part of their credit risk management, credit institutions must calculate the default
probability. The system allows the default probability to be estimated for different credit portfolios:
a. calibration of the classifications of the customers into one or more specific moments, which are chosen
based on the stability they reflect compared to the last known sample.
105
Subsequently a segmentation of ratings/scores is made on these classification samples. For each of the
segments, the rate of arrears of the calibration samples is calculated and the average is determined, and
is finally adjusted to the cycle using a historical period of 10 years.
b. nternal models, are taken.
For the calculation of the LGD, the recovery and expenses movements are used as of the time of
entering default (more than 90 days in arrears) and these movements are discounted or added to the
amount with which the credit began the recovery period, for which purpose data with a historical depth
of seven years are used.
The calculation of the EAD is made only for revolving products and data with a historical depth of
seven years are used. For the estimate of the EAD the balances of the 12 months prior to the arrears are
taken and compared against the balance of the credit at the time of entering default.
After obtaining the above factors, the Expected Loss (PE) is calculated by using the following formula:
Expected Loss = Noncompliance Probability x Loss Given Default x Exposure at the moment of
Noncompliance
That is: PE = PD * LGD * EAD
Counterparty Risk
The overall credit risk includes a concept whose peculiar nature requires specialized handling: Counterparty
risk.
Counterparty risk is that which the Institution assumes with government, government agencies, financial
institutions, corporations, companies and individuals in its treasury and correspondent banking activities. Its
measurement and control of credit risk in financial instruments, counterparty risk, is handled by a special unit
whose organizational structure is independent of the business units.
The control of counterparty risk is handled each day through the Kondor Global Risk (KGR) system, which
ascertains the line of credit available with any counterparty, in any product and for any term.
the amount that the Institution can lose on current transactions with a given counterparty, if the latter does not
meet its commitments, at any time up to the date of maturity of the operations. The REC considers the Current
Credit Exposure, defined as the cost of replacing the transaction at market value, provided that such value is
positive for the Institution, and is measured as the market value of the transaction (MTM).
Furthermore, the REC incorporates the Potential Credit Exposure or Additional Potential Risk (RPA), which
represents the possible evolution of the current credit exposure up to expiration, based on the characteristics
of the transaction and possible variations in market factors. The Gross REC considers the definitions
described above, without considering mitigating factors like
or collateral.
Apart from the Counterparty Risk, there is the risk of settlement, which arises in any transaction at its
expiration date, given the possibility that the counterparty will not comply with its obligations to pay the
Institution, once the Institution has satisfied its obligations by issuing the respective payment instructions.
Specifically, for the process control this risk, the Executive Director of Financial Risk daily monitors
compliance with the limits credit risk by counterparty, by product, term and other conditions of the
authorization for financial markets. It is also the area responsible for communicating daily, limits,
consumption and any deviation or excessive incurred.
106
Furthermore, monthly reports are submitted to the Comprehensive Risk Management Committee and
quarterly reports are sent to the Board of Directors regarding Counterparty Risk Limits, Issuer Risk Limits
and current consumption, incurred excesses and transactions with unauthorized customers. Information is also
provided regarding the calculation of the Expected Loss from current transactions performed on financial
markets at each monthly close, together with different Expected Loss stress scenarios based on the
methodology and assumptions are approved by the Comprehensive Risk Management Committee.
The Institution has currently approved Counterparty Risk Lines for the following sectors: Mexican Sovereign
Risk and Local Development Banking, Foreign Financial Institutions, Mexican Financial Institutions,
Corporations, Company Banking-SGC, Institutional Banking, Large Enterprise Unit and Project Finance.
The Net REC of counterparty risk lines in the issuer risk of the Institution at the close of the fourth quarter of
2014 is as follows:
Segment
Sovereign risk, development
banks and financial
institutions
Corporate
Company banking
Equivalent Risk to Net Credit
Nov-2014
Dec-2014
Oct-2014
23,039
1,518
174
23,169
1,180
141
Average
16,330
1,449
144
20,846
1,382
153
The Maximum Gross REC of the Institution
quarter of 2014
and which is related to derivative transactions, is distributed in the following manner according to derivative
type:
Equivalent Risk to the
Maximum Gross
Credit
Derivative
Interest rate derivatives
Exchange rate derivatives
Share derivatives
13,627
24,778
513
Total
38,918
The loss expected at the close of the fourth quarter of 2014 and the average quarterly expected loss of
counterparty risk lines and the issuer risk of the Institution of the fourth quarter of 2014 are detailed below:
Segment
Sovereign risk, development
banks and financial
institutions
Corporate
Companies
Expected Loss Fourth Quarter 2014
Nov-2014
Dec-2014
Oct-2014
6
5
1
5
4
1
5
4
1
Average
5
4
1
The segments of Mexican financial institutions and foreign financial institutions are very active counterparties
with which the Institution has current financial instruments positions with a counterparty credit risk. Please
ments with counterparties, which result
in the Net REC.
107
As regards the total collateral received for derivative transactions at the close of the fourth quarter of 2014:
Cash collaterals
Collateral in bonds issued by the Federal Government
57.76%
42.24%
Operating Risk
In terms of Operating Risk, the Institution has policies, procedures and methodologies to identify, control,
mitigate, oversee and disclose Operating Risks.
Different categories and business lines have been established to identify and measure operating risks, in
which operating incidences are grouped in accordance with the methodology applied. This methodology
begins with the identification and documentation of processes, based on self-evaluation tools, and considers
the development of historical databases and indicators of Operating Risk, for the purposes of the respective
control, mitigation and disclosure.
Legal Risk
Legal risk is defined as the potential loss from noncompliance with applicable legal and administrative
provisions, the issuance of adverse administrative and court rulings and the application of penalties in relation
to the transactions performed by the Institution.
The following activities are performed in compliance with Comprehensive Risk Management guidelines: a)
Establishment of policies and procedures to analyze legal validity and ensure the proper instrumentation of the
legal acts performed, b) Estimate the amount of potential losses derived from unfavorable legal or
administrative rulings and the possible application of penalties, c) Analyze legal acts governed by a legal system
outside México, d) Publication among managerial personnel and employees of legal and administrative
provisions applicable to transactions, and e) Performance, at least annually, of internal legal audits.
Technological Risk
Technological risk is defined as the potential loss from damages, interruption, alteration or failures derived
from the use of or dependence on hardware, software, systems, applications, networks and any other
information distribution channel used in the provision of bank services with the customers of the Institution.
The Institution has realized a model to deal with Technological Risk, which is currently integrated into the
service and support processes of the systems areas, in order to identify, oversee, control and report on the
Systems Technology Risks to which the operation is exposed, and is intended to prioritize the establishment
of control measures that will reduce the probability of risks becoming reality.
Risk diversification In accordance with the general risk diversification provisions applicable to credit institutions in the
performance of debit and credit transactions, published in the Federal Official Gazette on April 30, 2003, the
Bank reports that the following credit risk transactions are maintained at December 31, 2014:
At December 31, 2013, no financing has been granted to debtors or groups of individuals representing
immediately preceding the reporting date).
The Asset and Liability operations granted to the three largest debtors or groups of persons which
represent common risk for the aggregate amount of $34,430, representing 44.89% of the basic capital
of the Financial Group.
108
Amortization levels and processes
Pursuant to internal regulations, all products and services marketed by the Institution are approved by the
Local Committee of New Products (CLNP) and the Global Committee of New Products (CGNP). Products or
services whose original authorization is amended or increased require the approval of the CLNP and,
depending on their significance, of the CGNP as well.
All of the areas involved in the operation of the product or service, depending on their nature, as well as those
responsible for their accounting, legal documentation, tax treatment, risk assessment, participate in the
Committee. The authorizations of the Committees must be unanimous as there are no authorizations granted
by a majority of members. In addition to
of local authorities; therefore, the approvals of the Committees are conditional upon the authorization required
by competent authorities, as applicable. Apart from the approval of the Commercialization Committee, there
are products which require authorization from local authorities; consequently, the approvals of the
Commercialization Committee are conditional upon obtaining any authorizations required from the competent
authorities in each case.
Finally, all approvals are presented to the Comprehensive Risk Management Committee (CAIR) for
authorization.
Independent reviews
The Institution is subject to the supervision and oversight of the Commission, Central Bank and Bank of
Spain, which are exercised through follow-up processes, inspection visits, information and documentation
requirements and submission of reports.
Likewise, periodic reviews are performed by Internal and External Auditors.
Generic description of valuation techniques
Derivative financial instruments are valued at their fair value according to the accounting standards detailed in
the Sole Circular for Credit Institutions issued by the Commission through Accounting Criterion B-5,
Derivative Financial Instruments and Hedge Transactions.
A. Valuation methodology
i. For trading purposes
a. Organized markets
The valuation is made using the closing price of the respective market and the prices are
provided by a price supplier.
b. Over the Counter markets (OTC)
i) Derivative financial instruments with optionality
In most cases, a generalized form of the Black and Scholes model is used, which
assumes that the underlying asset follows a lognormal distribution. For exotic
products or when the payment depends on the trajectory of a market variable,
Monte Carlo simulations are used for valuation purposes. In this case, the
assumption is that the logarithms of the variables involved follow a multivariate
normal distribution.
ii) Derivative financial instruments without optionality
The valuation technique is to obtain the present value of future estimated flows.
In all cases, the Institution values its positions and records the value obtained. However, in
certain cases a different calculation agent is established, which could be the same counterparty
or a third party.
109
ii. For hedging purposes
In its commercial banking activity, the Institution has attempted to cover the evolution of the financial
margin of its structural portfolios exposed to adverse shifts in interest rates. The Assets and Liabilities
Committee (ALCO) the body responsible for managing long-term assets and liabilities, has been
building the portfolio with which the Institution obtains such coverage.
A transaction is classified as an accounting hedge when the following conditions are met:
a. The hedging relationship is designated and documented at the beginning in an individual file,
setting its objective and strategy.
b. The hedge is effective for purposes of offsetting variances in fair value or cash flows
attributable to the hedged risk, consistently with the initially documented risk management.
The management of the Institution performs derivative transactions for hedging purposes with swaps
and exchange rate swaps (IRS and CCS) and forwards.
Derivatives for hedging purposes are valued at market value and the effect is recognized in accordance
with the type of accounting hedge, as follows:
a. For fair value hedges, the hedged risk of the primary position and the derivative hedging
instrument are valued at market, recording the net effect in earnings.
b. For cash flow hedges, the derivative hedging instrument is valued at market. The effective
ineffective portion is recorded in earnings.
The Institution suspends hedge accounting when the derivative has matured, has been sold, cancelled
or exercised, when it does not reach a sufficiently high effectiveness level to offset the changes in the
fair value or cash flows of the hedged item, or when the hedging designation is cancelled.
It must be shown that the hedge effectively complies with the objective for which the derivatives were
contracted. This effectiveness requirement assumes that the hedge must comply with a maximum
deviation range of 80% to 125% in regard to the initial objective.
The effectiveness of the hedges must be proven by applying two tests:
a. Prospective test: shows that in the future the hedge will remain within the maximum range.
b. Retrospective test: reviews whether the hedge has remained within the maximum range from its
establishment to date.
At December 31, 2014, fair value and cash flow hedges are prospectively and retrospectively efficient
and are located within the maximum permitted departure range.
B. Reference variables
The most relevant reference variables are:
Exchange rates
Interest rates
Shares
Baskets and share indexes.
C. Valuation frequency
Derivative financial instruments for trading purposes are valued daily.
110
Management of internal and external liquidity sources that may be used for requirements related to
derivatives financial instruments Resources are obtained through the Domestic and International Treasury areas
Changes in the exposure to identified risks, contingencies, and known or expected events of derivative
financial instruments As of December 31, 2014, the Institution does not have any situations or contingencies, such as changes in the
value of the underlying assets or reference values, which may mean that the use of the derivatives may differ
from their original use, significantly modify their scheme or imply a full or partial loss of coverage that may
require the Issuer to assume new obligations, commitments, or cash flow variances that affect its liquidity (for
margin calls); or contingencies or events that are known or expected by management of the Institution, which
may affect future reports.
During 2014, the number of matured derivative financial instruments and closed positions was as follows
(unaudited):
Description
Caps and Floors
Equity Forward
OTC Equity
OTC Fx
Swaptions
Fx Forward
IRS
CCS
Maturity
Closed Positions
1,616
51
3,192
4,547
352
4,808
7,521
489
213
73
806
1,554
107
822
3,543
333
During 2013, the number of matured derivative financial instruments and closed positions was as follows
(unaudited):
Description
Caps and Floors
Equity Forward
OTC Equity
OTC Fx
Swaptions
Fx Forward
IRS
CCS
Bono Forward
Maturity
1,804
49
2,976
2,191
143
3,733
7,309
222
2
Closed Positions
22
38
70
512
31
488
3,812
19
-
The number of margin calls made during 2014 and 2013was that necessary to cover both contributions in
organized markets and those required in collateral agreements.
During 2014 and 2013, there were no counterparty defaults, except for the case of two leading real estate
sector companies and another entity engaged in the financing of wind power developments.
Sensitivity analysis -
Risk identification The market risks sensitivity measurements associated with securities and derivative financial
instruments measure the variation (sensitivity) in the market value of the financial instrument in
question with regard to the variations of each of the related risk factors.
The sensitivity of the value of the financial instruments as regards the modification of market factors is
obtained by completely revaluing the instrument.
111
The sensitivities determined according to each risk factor and the historical consumption associated
with the trading portfolio are detailed below:
The management strategy employed by the Institution is composed by positions based on securities
and derivative financial instruments. The latter are primarily contracted to mitigate the risk generated
by the former. Accordingly, sensitivity or exposure measurements consider both instrument types
taken as a whole.
1. Sensitivity to Equity (EQ Delta) risk factors
The EQ delta indicates the change in portfolio value in relation to the changing prices of assets
with variable returns.
In the case of derivative financial instruments, the calculated EQ delta considers a relative
variation of 1% in the prices of variable assets with variable returns. In the case of securities
with variable returns, the calculated EQ delta considers a relative variation of 1% in the security
market price.
2. Sensitivity to Foreign Exchange (FX Delta) risk factors
The FX delta indicates the change in value of the portfolio with regard to changing exchange
rate asset prices.
In the case of derivative financial instruments, the calculated FX delta considers a relative
variation of 1% in the prices of underlying exchange rate assets. In the case of currency
positions, it considers a relative variation of 1% in the respective exchange rate.
3. Sensitivity to Volatility (VEGA) risk factors
The Vega sensitivity is the measurement derived from changes in the volatility of the
underlying asset (reference asset). The Vega risk represents the risk of a change in the volatility
of the underlying asset, which results in a change in the market value of the derivative financial
instrument.
The calculated Vega activity considers an absolute variation of 1% in the volatility associated
with the value of the underlying asset.
4. Sensitivity to Interest Rate (Rho) risk factors
The sensitivity quantified the variation in the value of the financial instruments contained in the
trading portfolio given a parallel increase of one basis point of interest rate curves.
related to the trading portfolio
position:
Mexican pesos
Other currencies
(Millions of
Mexican pesos)
(0.92)
(2.30)
EQ
FX
IR
10.06
0.28
(5.34)
EQ
FX
7.96
(0.26)
Total rate sensitivity
Sensitivity to 1 basis point
Vega per risk factor
Total
Delta per risk factor (EQ and FX)
Total
It is considered that the above sensitivity tables reflect the prudential management of the
.
112
ii.
Stress Test of derivative financial instruments
The different stress test scenarios are presented below and consider the different hypothetical scenarios
calculated for the Institution's trading portfolio.
Probable Scenario: This scenario was defined based on the movement of a standard deviation of the
risk factors which affect the valuation of instruments which have maintained the trading portfolio in
each period. More specifically:
o o Possible Scenario: In this scenario the risk factors move by 25%.
o o The risk factors IR, FX, VOL are multiplied by 1.25, i.e., they increase by 25%.
The EQ risk factors are multiplied by 0.75, i.e., they decrease by 25%.
Remote Scenario: In this scenario the risk factors move by 50%.
o o iii.
The risk factors of interest rate (IR), volatilities (VOL) and Exchange rate (FX) increased by a
standard deviation, and
The stock market (EQ) risk factors decreased by a standard deviation.
The risk factors IR, FX, VOL are multiplied by 1.50, i.e., they increase by 50%.
The EQ risk factors are multiplied by 0.5, i.e., they decrease by 50%.
Impact on earnings
The results for such scenarios are as follows, showing the impact in earnings if they took place:
Summary of the Stress Test analysis
Stress Test
(all factors)
Risk Profile
Probable Scenario
Remote Scenario
Possible Scenario
38.
$
(10)
(346)
(26)
Capitalization ratio
As of December 31, 2014, the Institution in accordance with the capitalization requirements applicable to full
service banks in effect, the Institution presents the following capitalization ratio, which exceeds the minimum
level required by the authorities:
Transactions referenced to:
Nominal rate in Mexican pesos
Nominal rate in Mexican pesos (surtax)
Actual rate in Mexican pesos (UDI, INPC and SMG)
Nominal rate in foreign currency
Positions in UDI, INPC and SMG
Currency position
Stock portfolio
Total market risk
Assets at Risk
Equivalent Positions
Capital Requirement
$
$
Counterparty with derivatives and repurchase agreements
Issuer positions debt instruments
Borrowers in credit transactions
Guarantors, credit lines and securitizations
Issuers of actual warranties and received personal warranties
Total credit risk
Total operating risk
Total risk
$
81,795
9,859
15,919
14,774
102
4,322
1,559
128,330
6,544
789
1,273
1,182
8
346
125
10,267
36,956
14,444
207,057
19,032
129,376
406,865
2,956
1,156
16,565
1,522
10,350
32,549
61,790
4,943
596,985
$
47,759
113
Capitalization calculation:
Required Basic Capital
Actual Basic Capital
Capital Overage
7.00%
12.85%
5.85%
$
41,789
76,697
34,908
Capital Overage
8.50%
12.85%
4.35%
50,744
76,697
25,953
Capital Overage
10.50%
16.17%
5.67%
62,683
96,517
33,834
For further detail see (Annex 1-O), Complementary information to the fourth quarter of 2014, pursuant to the
obligation to disclose the Capitalization Ratio, which can be found on the website
www.santander.com.mx/informacioninversionistas.
39.
Ratings
As of December 31 2014, the Institution maintains the following classifications
Fitch Ratings
40.
Global levelForeign currency:
Long-term
Short-term
A3
P-2
BBB+
F2
Mexican pesos:
Long-term
Short-term
A3
P-2
BBB+
F2
National level Long-term
Short-term
Aaa.mx
Mx-1
AAA(mex)
F1+(mex)
Contract credit profile (SACP)
Rate of viability (VR)
Support
Financial strength
Issuer Default Rating
Outlook
Cbaa1
Steady
bbb+
2
Steady
New accounting principles
Modifications in accounting criteria issued by the Commission
On May 19, 2014 several amendments to the accounting criteria for credit institutions were published in the
Federal Official Gazette. These modifications reflect the constant updating of the accounting criteria issued by
the Commission, and are also intended to achieve consistency with international accounting regulations. The
most important changes are described below:
a. Accounting Criterion C-5, Consolidation of special-purpose entities, is eliminated.
b. NIF C-21, Agreements with joint control, is added as part of the accounting criteria of the Commission
due to the enactment of such standard by the CINIF.
114
c. For the consolidated financial statements, it is established that those specialcreated before January 1, 2009 in which control was maintained, will not be required to apply the
provisions contained in NIF B-8, Consolidated or combined financial, in relation to their consolidation.
d. It is established that overdrafts on checking accounts of customers who do not have a credit line for
such purposes, will be classified as overdue debts and at the same time as such classification an
estimate must be established for the total amount of such overdraft at the time this occurs.
e. It is established that if the balance of foreign currencies to be received offset with foreign currencies to
f. It is established that if any item of restricted funds available should reach a negative balance, such item
were not considered for such presentation.
g. Credit consolidation The integration into a single loan, two or more loans from the same entity to the
same borrower.
h . The assumptions to consider that there is sustained payment of the credit are specified for credits with
a single payment of principal at maturity: i. It is clarified that the advance payments of restructured or renewed credits, different from those with a
single payment of principal at maturity, regardless of whether the interest is paid periodically or at
maturity, are not considered as sustained payments.
j. The extension of the credit term is incorporated as a restructuring operation.
k. It is established that commissions and charges different from those collected for granting the credit will
be recognized in results of the year on the date that they are accrued and, if part or all of the
consideration received for the collection of the respective commission or tariff is received in advance
of the accrual of the respective income, such advance must be recognized as a liability under the
l. It is established that the immediately due and payable notes referred to in Accounting Criterion B-1,
Funds Available, will be reported as overdue portfolio when they were not collected within the
deadlines established.
m. It is established that payments which were not fully settled under the terms originally agreed and
present 90 or more days in arrears, of credits granted to individuals for remodeling or improvement of
subaccount, will be considered as overdue portfolio.
n. o. The transfer to overdue portfolio of the credits referred to in the preceding point will be subject to the
exceptional term of 180 or more days in arrears as of the date on which:
i. The credit resources are applied to the purpose for which they were granted, or
ii. The borrower begins a new employment relationship for which he has a new employer.
It will be considered that credits different from those with a single payment of principal at maturity or
different from those granted under a line of credit which are restructured or renewed, without at least
80% of the original term of the credit having elapsed, remain valid, only when:
i. The borrower has paid the total amount of the interest accrued at the date of the renewal or
restructuring;
115
ii. iii. The borrower has paid the principal of the original amount of the credit which should have been
paid at the date of the renewal or restructuring, and
There was no extension of any grace period which might have been established in the original
conditions of the credit.
p. Current credits with partial periodic payments of principal and interest which are restructured or
renewed on more than one occasion, may remain in the current portfolio if, apart from having elements
to justify the payment capacity of the debtor, the borrower also fulfills the conditions established in the
preceding point.
q. If different credits granted by the same institution to the same borrower are consolidated by means of
restructuring or renewal, each of the consolidated credits must be analyzed as if they were restructured
or renewed separately and, if as a result of such analysis it is concluded that one or more of such
credits would have been transferred to overdue portfolio as a result of such restructuring or renewal,
then the total balance of the consolidated credit must be transferred to overdue portfolio.
r. With regard to the issue of disclosures for the credit portfolio, new requirements are incorporated, as
follows:
i. ii. iii. iv. s. Composition of the restricted and unrestricted current and overdue portfolio for medium and
residential portfolio, low-income housing and remodeling or improvement guaranteed by the
housing subaccount.
Identification by type of credit by term for the medium and residential portfolio, low-income
housing portfolio and remodeling or improvement guaranteed by the housing subaccount.
Total amount of home loans backed by the housing subaccount, itemized into current and
overdue portfolio and specifying the percentage it represents of total home loans.
Total accrued amount of the restructuring or renewal by type of credit, differentiating those
originated in the year by now including a detail of those consolidated credits which as a result
of a restructuring or renewal were transferred to overdue portfolio, and for restructured credits
to which the criteria for transfer to overdue portfolio were not applied.
The treatment is added for securitization vehicles made and recognized prior to January 1, 2009, by
establishing that it will not be necessary to reevaluate the transfer of financial assets recognized prior to
such date. The principal effects that this exception might have on the financial statements must be
disclosed, as well as the effects of the recognition of the adjustments for valuation of the benefits and of
the asset or liability recognized for administration of transferred financial assets.
t. Criterion C-3, Related Parties.
u. Related parties now include individuals or business entities which directly or indirectly, through one or
more intermediaries, exert significant influence over the entity, are significantly influenced by the entity, or
agreements with common control in which it participates are under significant common influence of the
entity.
v. As an amendment to Accounting Criterion C-4, Information by Segments, the purchase and sale of foreign
currency is incorporated within the segment of treasury and investment banking operations.
NIFs issued by the CINIF applicable to the Institution
116
During 2014 the CINIF issued the following NIFs:
Improvements to NIF 2015 The following improvements, which result in accounting changes were issued
and are effective January 1, 2015:
NIF B-8, Consolidated or Combined Financial Statements Clarifies the criteria to be evaluated in
order to identify an investment entity and indicates that given the nature of the primary activity of an
investment entity, it may be difficult for such an entity to exercise control over the entities in which it
has invested; therefore, an analysis should be carried out in order to conclude whether the entity
exercises control over its investees.
NIF B-16, Financial Statements of Nonprofit Entities NIF B-16 did not establish how to present
other comprehensive income or loss ( OCI ) in the financial statements of nonprofit entities, for which
reason the NIF includes guidance for such entities, but does not require that such amounts be presented
separately from other revenues, costs and expenses in the statement of activities.
Bulletin C-9, Liabilities, Provisions, Contingent Assets and Liabilities and Commitments Clarifies
and modifies the accounting treatment for liabilities arising from customer advances denominated in
foreign currency. When an entity receives advance collections for sales or services denominated in
foreign currency, the changes in exchange rates between the functional currency and the transaction
currency do not affect the amount of the advance collection. Accordingly, the balance of the Customer
advances liability should not be modified as a result of such changes in exchange rates.
NIF B-13, Events Subsequent to the Date of the Financial Statements and Bulletin C-9, Liabilities,
Provisions, Contingent Assets and Liabilities and Commitments NIF B-13 includes in a footnote the
disclosures in the financial statements of an entity when the latter are not prepared on a going concern
basis in accordance with NIF A-7, Presentation and Disclosure. Such requirement was included as
part of the regulatory text in the disclosure standards section of NIF B-13, and as part of Bulletin C-9
to disclose the contingencies arising from the fact that the entity is not operating on a going concern
basis. Consequently, Circular 57, Sufficient Disclosure, is repealed as a result of the Commercial
Bankruptcy Law.
NIF B-15, Conversion of Foreign Currencies The definition of foreign operations was modified to
clarify that it should not only be understood as a legal entity or as a cash generating unit whose
operations are based on or carried out in an economic environment or currency different from those of
the reporting entity, but also to include legal entities or cash generating units which, in relation to the
reporting entity (parent or holding company), that operate using a currency different from that of the
reporting entity, even though it operates in the same country.
a. Effective as of January 1, 2016:
NIF D-3, Employee Benefits
b. Effective as of January 1, 2018:
NIF C-3, Accounts Receivable
NIF C-20, Financial Instruments Receivable
NIF C-9, Provisions, Contingencies and Commitments
NIF C-19, Financial Instruments Payable
At the date of issuance of these consolidated financial statements, the Institution has not completed its
evaluation of the potential effects of adopting these new standards on its financial information.
117

Audited Financial Statements 2014

Transcription

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