4.1 Financial assets

The following accounting portfolios based on national GAAP shall be used for financial assets:

(a) ‘Trading financial assets’;

(b) ‘Non-trading non-derivative financial assets measured at fair value through profit or loss’;

(c) ‘Non-trading non-derivative financial assets measured at fair value to equity;

(d) ‘Non-trading non-derivative financial assets measured at a cost-based method’;

(e) ‘Other non-trading non-derivative financial assets’.

‘Trading financial assets’ includes all financial assets classified as trading under the relevant national GAAP based on BAD. Irrespective of the measurement methodology applied under the relevant national GAAP based on BAD, all derivatives with a positive balance for the reporting institution that are not classified as hedge accounting in accordance with paragraph 22 of this Part shall be reported as trading financial assets. That classification shall also apply to derivatives which according to national GAAP based on BAD are not recognised on the balance-sheet, or have only the changes in their fair value recognised on-balance sheet or which are used as economic hedges as defined in paragraph 137 of Part 2 of this Annex.

Under national GAAP based on BAD, for financial assets, ‘cost-based methods’ shall include those valuation rules by which the debt instrument is measured at cost plus interest accrued less impairment losses.

Under national GAAP based on BAD, ‘Non-trading non-derivative financial assets measured at a cost-based method’ includes financial instruments measured at cost-based methods as well as instruments measured at the lower of cost or market (‘LOCOM’) under a non-continuous basis (moderate LOCOM), regardless of their actual measurement as of the reporting reference date. Assets measured at moderate LOCOM are assets for which LOCOM is applied only in specific circumstances. The applicable accounting framework provides for those circumstances, such as impairment, a prolonged decline in fair value compared to cost or change in the management intent.

Under national GAAP based on BAD, ‘Other non-trading non-derivative financial assets’ shall include financial assets that do not qualify for inclusion in other accounting portfolios. That accounting portfolio includes, among others, financial assets that are measured at LOCOM on a continuous basis (‘strict LOCOM’). Assets measured at strict LOCOM are assets for which the applicable accounting framework either provides for the initial and subsequent measurement at LOCOM, or the initial measurement at cost and the subsequent measurement at LOCOM.

Regardless of their measurement method, investments in subsidiaries, joint ventures and associates that are not fully or proportionally consolidated under the regulatory scope of consolidation are reported in ‘Investments in subsidiaries, joint ventures and associates’, except where they are classified as held for sale in accordance with IFRS 5.

‘Derivatives - Hedge accounting’ shall include derivatives with a positive balance for the reporting institution held for hedge accounting under IFRS. Under national GAAP based on BAD, banking book derivatives shall be classified as derivatives held for hedge accounting only where there are special accounting rules for banking book derivatives under the relevant national GAAP based on BAD and the derivatives reduce risk of another position in the banking book.