2020 Universal registration document and annual financial report - BNP PARIBAS498
6 information on the Parent ComPany finanCial statements at 31 deCemBer 2020
6
Notes to the parent company financial statements
well as those held as a result of market-making activities. These securities are valued individually at market value if they meet the following criteria:
■ they can be traded on an active market (i.e. a market where third parties have continuous access to market prices through a securities exchange, brokers, traders, or market-makers);
■ the market prices reflect actual, regularly-occurring transactions taking place under normal competition conditions.
Trading account securities also include securities bought or sold for specific asset-management objectives (especially in terms of sensitivity) for trading books comprised of forward financial instruments, securities, or other financial instruments taken globally, as well as borrowed securities. When the latter are not backed by cash, they are presented in the balance sheet as a deduction from the debt representing the value of the borrowed securities. In the same way, financial instruments received as fully-owned collateral under financial guarantee contracts with the right of re-use, recorded in the balance sheet and revalued according to the rules applicable to trading securities, are presented with a deduction from the liability representing the restitution commitment.
Changes in the market value of these securities are recognised in income. Trading account securities cannot be reclassified into another category and must follow the valuation rules for this category until they are sold, fully redeemed, or recognised as a loss and consequently removed from the balance sheet.
In the case of exceptional circumstances necessitating a change in investment strategy, Trading account securities can be reclassified as Securities available for sale or Debt securities held to maturity depending on the new strategy.
If fixed-income securities classified as Trading account securities can no longer be traded on an active market, and if the Bank has the intention and ability to hold these securities for the foreseeable future or until maturity, they can be reclassified as Securities available for sale or Debt securities held to maturity .
The accounting rules for the new category would apply to reclassified securities as of the reclassification date.
If the market in which securities classified as Trading account securities were purchased can no longer be considered active, the securities will be valued using methods that take into account the new market conditions.
Securities available for sale
The Securities available for sale category includes securities not classified into one of the other categories.
Bonds and other fixed-income securities are valued at the lower of cost (excluding accrued interest) or probable market prices. This is generally determined on the basis of stock market prices. Accrued interest is posted to the profit and loss account under Interest income on bonds and other fixed-income securities .
For fixed-income securities available for sale that have been purchased on the secondary market, any difference between cost and redemption price is recognised in income using the actuarial method over the remaining life
of the securities. On the balance sheet, their carrying amount is amortised to their redemption value over their remaining life.
Equities are valued at the lower of cost or probable market prices. This is generally determined on the basis of stock market prices for listed equities, or BNP Paribas SA s share in net equity, calculated on the basis of the most recent financial statements available, for unlisted equities. Dividends received are recognised in the profit and loss account under Income on equities and other variable instruments on a cash basis.
The cost of securities available for sale that have been sold is determined on a first in, first out (FIFO) basis. Disposal gains or losses, and additions to and reversals of lower of cost and market provisions are reflected in the profit and loss account under Gains (losses) on securities available for sale .
In the case of exceptional circumstances necessitating a change in investment strategy, or if the securities can no longer be traded on an active market, securities classified as Securities available for sale may be reclassified as Debt securities held to maturity and must be identified within this portfolio. These securities would then be recognised according to the method used for Debt securities held to maturity .
Equity securities available for sale in the medium term
Equity securities available for sale in the medium term comprise investments made for portfolio management purposes, with the aim of realising a profit in the medium term without investing on a long-term basis in the development of the issuer s business. This category includes venture capital investments.
Equity securities available for sale in the medium term are recorded individually at the lower of historic cost and fair value. Fair value takes into account the issuer s general business outlook and the planned holding period. The fair value of listed shares is determined by reference to the average stock market price determined over a one-month period.
Debt securities held to maturity
Fixed-income securities with a specified maturity (mainly bonds, interbank market securities, Treasury bills, and other negotiable debt securities) are recorded under Debt securities held to maturity to reflect BNP Paribas SA s intention of holding them to maturity.
Bonds classified under this heading are financed by matching funds or hedged against interest-rate exposure for their remaining lives.
The difference between cost and the redemption price of these securities is recognised in income using the actuarial method over the remaining life of the securities. On the balance sheet, their carrying amount is amortised to their redemption value over their remaining life.
Interest on debt securities held to maturity is recorded in the profit and loss account under Interest income on bonds and other fixed-income securities .
An impairment is recognised when a decline in the credit standing of an issuer jeopardises redemption at maturity.
