La banque d'un monde qui change 2004 - BNP Paribas

Parent company fInancial statementsAdditions to and recoveries of provisions, bad debts writtenoff, recoveries on loans covered by provisions and discountscalculated on restructured loans are recorded in the profitand loss account under “Net additions to provisions forcredit risks and country risks”, with the exception of additionsto provisions for accrued interest on non-performing loanswhich are included in net banking income together withthe interest accrual. Amortisation of discounts on restructuredloans, calculated by the yield-to-maturity method, is includedin net banking income along with the interest on the loans.Accrued interest is recorded periodically on sound loans– including restructured loans – and on doubtful loansthat are not classified as irrecoverable. Interest on doubtfulloans classified as irrecoverable is recorded in the profit andloss account on a cash basis.SecuritiesThe term “securities” covers interbank market securities(mainly promissory notes and mortgage notes); Treasurybills and negotiable certificates of deposit; bonds and otherfixed income instruments (whether fixed- or floating-rate);and equities and other variable income instruments.In application of standard CRC 2000-02, securities areclassified as “Trading account securities”, “Securitiesavailable for sale”, “Equity securities available for salein the medium-term”, “Debt securities held to maturity”,“Equity securities held for long-term investment”, “Otherparticipating interests”, and “Investments in non-consolidatedundertakings”.Where a credit risk has occurred, fixed income securitiesheld in the “available for sale” or “held to maturity” portfolioare classified as doubtful, based on the same criteria as thoseapplied to doubtful loans and commitments.Variable income securities may also be classified as doubtfulif an issuer default risk has occurred. This is the case, inparticular, where the issuer has filed for bankruptcy.When securities exposed to counterparty risk are classifiedas doubtful and the related provision can be separatelyidentified, the corresponding charge is included in “Provisionsfor credit risks and country risks”.• Trading Account SecuritiesSecurities held for up to six months are recorded under“Trading account securities” and valued individually at market.Changes in market values are posted to income.• Securities Available for SaleThis category includes securities held for at least six months,but which are not intended to be held on a long-term basis.Bonds and other fixed income instruments are valued atthe lower of cost (excluding accrued interest) and probablemarket value, which is generally determined on the basisof stock market prices. Accrued interest is posted to the profitand loss account under “Interest income on bonds and otherfixed income instruments”.The difference between cost and the redemption price offixed income securities purchased on the secondary marketis prorated over the life of the securities and posted to theprofit and loss account. In the balance sheet, their carryingvalue is amortised to their redemption value over theirremaining life.Equities are valued at the lower of cost and probable marketvalue, which is generally determined on the basis of stockmarket prices, for listed equities, or the BNP Paribas Group’sshare in net assets calculated on the basis of the mostrecent financial statements available, for unlisted equities.Dividends received are posted to income under “Incomeon equities and other variable income instruments” ona cash basis.The cost of sold securities available for sale is determinedon a first in, first out (FIFO) basis. Disposal gains or lossesand additions to and reversals of lower of cost and marketprovisions are reflected in the profit and loss account under“Net gains on sales of securities available for sale”.• Equity Securities Available for Sale in the Medium-termThis category corresponds to investments made for portfoliomanagement purposes, with the aim of realising a profitin the medium-term without investing on a long-termbasis in the development of the issuer’s business. “Equitysecurities available for sale in the medium-term” includeventure capital investments.“Equity securities available for sale in the medium-term”are recorded individually at the lower of cost and fairvalue. Fair value takes into account the issuer’s generaldevelopment outlook and the planned holding period.The fair value of listed stocks corresponds primarily tothe average stock market price determined over anappropriately long period.275BNP PARIBAS - ANNUAL REPORT 2004