annual report - Hypo Real Estate Holding AG

Group Accounts
Derivatives that do not qualify for hedge accounting
The Group maintains trading positions in a variety of financial instruments including derivatives. Trading transac -
tions arise both as a result of activity generated by customers and from proprietary trading with a view to generating
incremental income.
Some derivatives, while being economic hedges, do not meet detailed hedge accounting criteria under IFRS.
Derivatives that do not qualify for hedge accounting are accounted for as part of the trading portfolio.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the
asset and settle the liability simultaneously.
Sale and repurchase agreements
Securities sold subject to repurchase agreements (“repos”) are carried as assets in the financial statements when
the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included
in deposits from banks or deposits due to customers, as appropriate. Securities purchased under agreements
to re-sell (“reverse repos”) are recorded as loans and advances to banks or loans and advances to
customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued
over the life of the agreements using the effective interest method.
Impairment of financial assets
(a) Assets carried at amortised cost
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group
of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are
incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred
after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective
evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention
of the Group about the following loss events:
(i) significant financial difficulty of the issuer or obligor;
(ii) a breach of contract, such as a default or delinquency in interest or principal payments;
(iii) the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty,
a concession that the lender would not otherwise consider;
(iv) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
(v) the disappearance of an active market for that financial asset because of financial difficulties; or
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