13. Hedging derivatives
The Bank, as part of its financial risk management strategy and for reducing mismatches in the accounting treatment of its transactions, enters into interest rate and foreign currency hedging derivatives, depending on the nature of the hedged risk.
In line with its objective, the Bank classifies its hedges into the following categories:
Cash flow hedges: hedging the exposure to variability in cash flows associated with an asset, liability or highly probable forecast transaction.
Fair value hedges: hedging the exposure to changes in the fair value of assets attributable to an identified, hedged risk.
a) Breakdown
The breakdown by type of hedge of the derivatives qualifying for hedge accounting is as follows:
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12/31/2016 |
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12/31/2017 |
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Assets |
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Liabilities |
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Assets |
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|
Liabilities |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Fair value hedges |
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93 |
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|
3,727 |
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|
59 |
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|
6,572 |
|
Cash flow hedges |
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14,910 |
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|
10,560 |
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15,057 |
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|
4,519 |
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|
|
|
15,003 |
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14,287 |
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|
15,116 |
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|
11,091 |
b) Quantitative information
Fair value hedges
As of December 31, 2016, the hedging derivative positions are as follows:
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Nominal |
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(Million in |
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|
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|
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|
Nominal |
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Transaction |
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|
Transaction |
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|
|
|
|
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(Million Pesos) |
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|
Currency) |
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|
Currency |
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|
Hedged Item and Risk Hedged |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRS |
|
|
2,863 |
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|
2,863 |
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|
Peso |
|
|
Loans and receivables – Interest rate risk |
|
IRS |
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|
1,618 |
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|
78 |
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|
USD |
|
|
Loans and receivables – Interest rate risk |
|
CCS |
|
|
99 |
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|
8 |
|
|
USD |
|
|
Loans and receivables – Interest rate and foreign exchange risk |
|
CCS |
|
|
9,614 |
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|
470 |
|
|
Euro |
|
|
UMS – Interest rate and foreign exchange risk |
|
CCS |
|
|
950 |
|
|
50 |
|
|
USD |
|
|
UMS – Interest rate and foreign exchange risk |
|
CCS |
|
|
251 |
|
|
15 |
|
|
Euro |
|
|
PEMEX Bonds – Interest rate and foreign exchange risk |
|
CCS |
|
|
602 |
|
|
30 |
|
|
Pound Sterling |
|
|
PEMEX Bonds – Interest rate and foreign exchange risk |
|
CCS |
|
|
1,118 |
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|
86 |
|
|
USD |
|
|
PEMEX Bonds – Interest rate and foreign exchange risk |
|
CCS |
|
|
3,860 |
|
|
825 |
|
|
UDIS |
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|
UDIBONDS – Interest rate and inflation risk |
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|
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|
As of December 31, 2017, the hedging derivative positions are as follows:
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Nominal |
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|
|
|
|
|
|
|
|
|
|
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(Million in |
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|
|
|
|
|
|
|
|
|
Nominal |
|
|
Transaction |
|
|
Transaction |
|
|
|
|
|
|
|
(Million Pesos) |
|
|
Currency) |
|
|
Currency |
|
|
Hedged Item and Risk Hedged |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRS |
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|
1,785 |
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|
1,785 |
|
|
Peso |
|
|
Loans and receivables – Interest rate risk |
|
IRS |
|
|
354 |
|
|
18 |
|
|
USD |
|
|
Loans and receivables – Interest rate risk |
|
CCS |
|
|
52 |
|
|
4 |
|
|
USD |
|
|
Loans and receivables –Interest rate and foreign exchange risk |
|
CCS |
|
|
17,598 |
|
|
840 |
|
|
Euro |
|
|
UMS – Interest rate and foreign exchange risk |
|
CCS |
|
|
1,275 |
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|
67 |
|
|
USD |
|
|
UMS – Interest rate and foreign exchange risk |
|
CCS |
|
|
251 |
|
|
15 |
|
|
Euro |
|
|
PEMEX Bonds – Interest rate and foreign exchange risk |
|
CCS |
|
|
73 |
|
|
3 |
|
|
Pound Sterling |
|
|
UMS – Interest rate and foreign exchange risk |
|
CCS |
|
|
602 |
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|
30 |
|
|
Pound Sterling |
|
|
PEMEX Bonds – Interest rate and foreign exchange risk |
|
CCS |
|
|
969 |
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|
76 |
|
|
USD |
|
|
PEMEX Bonds – Interest rate and foreign exchange risk |
|
CCS |
|
|
3,860 |
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|
825 |
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|
UDIS |
|
|
UDIBONDS – Interest rate and inflation risk |
The fair value hedges carried out by the Bank are extended in certain cases up to the year 2031.
For 2015, 2016 and 2017, the effect of valuation for the period of derivative financial instruments for fair value hedging purposes recognized in the consolidated income statement under Gains/(losses) on financial assets and liabilities (net) is 23 million pesos, (363) million pesos and (117) million pesos, respectively (see Note 38).
For 2015, 2016 and 2017, the effect of valuation arising from the risk being hedged of the hedged items for fair value hedging purposes recognized in the consolidated income statement in Gains/(losses) on financial assets and liabilities (net) is (105) million pesos, 375 million pesos and 341 million pesos, respectively (see Note 38).
Each of these hedging derivative instruments is presented in the consolidated balance sheet under Hedging derivatives.
Cash flow hedges
As of December 31, 2016, the positions in derivatives for cash flow hedging purposes are as follows:
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Nominal |
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|
|
|
|
|
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(Million in |
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|
|
|
|
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Nominal |
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|
Transaction |
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|
Transaction |
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|
|
|
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(Million Pesos) |
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|
Currency) |
|
|
Currency |
|
|
Hedged Item and Risk Hedged |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRS |
|
|
2,050 |
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|
2,050 |
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|
Peso |
|
|
BPAGs Bonds – Interest rate risk |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
4,713 |
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|
331 |
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|
USD |
|
|
Loans and receivables – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
4,958 |
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|
261 |
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|
Euro |
|
|
Loans and receivables – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
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|
11,186 |
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|
543 |
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|
USD |
|
|
Senior Unsecured Notes – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
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|
21,546 |
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|
1,045 |
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|
USD |
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|
Tier II Subordinated Capital Notes – Foreign exchange risk |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
2,657 |
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|
136 |
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|
Euro |
|
|
UMS – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
260 |
|
|
10 |
|
|
Pound Sterling |
|
|
UMS – Foreign exchange risk |
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|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
1,093 |
60 |
USD |
UMS – Foreign exchange risk |
||||||||
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Forward Fx-USD |
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24,433 |
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|
1,491 |
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|
USD |
|
|
Brazilian Government Notes – Foreign exchange risk |
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|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017, the hedging derivative positions are as follows:
|
|
|
|
|
|
|
Nominal |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Million in |
|
|
|
|
|
|
|
|
|
|
Nominal |
|
|
Transaction |
|
|
Transaction |
|
|
|
|
|
|
|
(Million Pesos) |
|
|
Currency) |
|
|
Currency |
|
|
Hedged Item and Risk Hedged |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRS |
|
|
700 |
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|
700 |
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|
Peso |
|
|
BPAGs Bonds – Interest rate risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRS |
|
|
4,000 |
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|
4,000 |
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|
Peso |
|
|
Unsecured Bonds – Interest rate risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
3,056 |
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|
221 |
|
|
USD |
|
|
Loans and receivables – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
3,055 |
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|
166 |
|
|
Euro |
|
|
Loans and receivables – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
778 |
|
|
34 |
|
|
Pound Sterling |
|
|
Loans and receivables – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
10,667 |
|
|
543 |
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|
USD |
|
|
Senior Unsecured Notes – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
20,548 |
|
|
1,045 |
|
|
USD |
|
|
Tier II Subordinated Capital Notes – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
2,657 |
|
|
136 |
|
|
Euro |
|
|
UMS – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
260 |
|
|
10 |
|
|
Pound Sterling |
|
|
UMS – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS |
|
|
911 |
|
|
50 |
|
|
USD |
|
|
UMS – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Fx-BRL |
|
|
15,970 |
|
|
2,952 |
|
|
BRL |
|
|
Brazilian Government Notes – Foreign exchange risk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Fx-USD |
|
|
37,853 |
|
|
1,747 |
|
|
USD |
|
|
Brazilian Government Notes – Foreign exchange risk |
During November 2017, the Bank discontinued a cash flow hedge of Loans and receivables for an amount of 37 million USD (nominal value).
During March 2017, the Bank discontinued a cash flow hedge of UMS for an amount of 10 million USD (nominal value).
During April 2015, the Bank discontinued a cash flow hedge of Senior Unsecured Notes for an amount of 318 million USD (nominal value). This cash flow hedge began on December 2012 and February 2013, and at the date of discontinuance an amount of 64 million pesos, corresponding to the effective part of the hedging instrument, was recognized in the consolidated other comprehensive income under Valuation adjustments - Cash flow hedges, such amount will be reclassified to the consolidated income statement over the original term of the Senior Unsecured Notes, which extended through the year 2022.
During April 2015, the Bank discontinued a cash flow hedge of Tier II Subordinated Capital Notes for an amount of 200 million USD (nominal value). This cash flow hedge began on April 2014 and at the date of discontinuance an amount of 44 million pesos, corresponding to the effective part of the hedging instrument, was recognized in the consolidated other comprehensive income under Valuation adjustments - Cash flow hedges, such amount will be reclassified to the consolidated income statement over the original term of the subordinated capital notes, which extended through the year 2019.
During June 2014, the Bank discontinued a cash flow hedge of the Central Bank compulsory deposits for an amount of 500 million pesos (nominal value). This cash flow hedge began on February 2014 and at the date of discontinuance an amount of 12 million pesos, corresponding to the effective part of the hedging instrument, was recognized in the consolidated other comprehensive income under Valuation adjustments - Cash flow hedges, which amount will be reclassified to the consolidated income statement over the original term of the Central Bank compulsory deposits, which extended through the year 2018.
As of December 31, 2016 and 2017, included in the consolidated other comprehensive income under Valuation adjustments - Cash flow hedges, are 86 million pesos and 54 million pesos (see Note 28), respectively, which refer to the accumulated unamortized gain (net of the related tax effect) of hedging derivatives for which hedge accounting was discontinued. Such balances are being reclassified based on the original terms of the forecast transactions. The term of such reclassifying extends through the year 2022. The remaining amount of the total valuation adjustment for cash flow hedges reflected in the consolidated other comprehensive income consists of accumulated unrealized gain or loss on effective cash flow hedges currently in effect.
The cash flow hedges entered into by the Bank are extended in certain cases up to the year 2021 for Brazilian Government Notes, up to the year 2018 for BPAGs Bonds, up to the year 2022 for Senior Unsecured Notes, up to the year 2025 for Loans and receivables and up to the year 2026 for UMS.
A reconciliation of Valuation adjustments – Cash flow hedges is as follows:
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|
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|
2015 |
|
|
2016 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1 |
|
|
293 |
|
|
900 |
|
|
1,383 |
|
|
Valuation adjustments |
|
|
(612) |
|
|
(1,095) |
|
|
(1,585) |
|
|
Amounts reclassified to consolidated income statement |
|
|
1,479 |
|
|
1,785 |
|
|
118 |
|
|
Of which: |
|
|
|
|
|
|
|
|
|
|
|
Income from cash flow hedging derivatives swaps and discontinued cash flow hedge accounting |
|
|
1,483 |
|
|
1,787 |
|
|
120 |
|
|
Cash flow hedges ineffectiveness (Note 38) |
|
|
(4) |
|
|
(2) |
|
|
(2) |
|
|
Income taxes |
|
|
(260) |
|
|
(207) |
|
|
440 |
|
|
Balance at December 31 |
|
|
900 |
|
|
1,383 |
|
|
356 |
|
As of December 31, 2017, the breakdown of the estimated cash flows of the cash flow hedges that are expected to be reclassified from consolidated other comprehensive income to the consolidated income statement is as follows:
|
|
|
|
|
|
|
Between 3 Months and |
|
|
Between 1 Year and 5 |
|
|
|
|
|
|
|
|
|
|
|
Less than 3 Months |
|
|
1 Year |
|
|
Years |
|
|
More than 5 Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows to be received |
|
|
373 |
|
|
1,114 |
|
|
1,845 |
|
|
19 |
|
|
3,351 |
|
|
Cash flows to be paid |
|
|
(354) |
|
|
(780) |
|
|
(1,564) |
|
|
(145) |
|
|
(2,843) |
|
Note 44.a. contains a breakdown of the remaining maturity periods of hedging derivatives.