2019 Universal registration document and annual financial report - BNP PARIBAS470
6 information on the Parent ComPany finanCial statements at 31 deCemBer 2019
6
Notes to the parent company financial statements
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 income under Income on equities and other variable income 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 remain 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.
If a significant portion of the Debt securities held to maturity is sold or reclassified into a different category, the sold or reclassified securities cannot be returned to the Debt securities held to maturity category at any time during the current financial period or the following two financial years. All the securities classified as Debt securities held to maturity would then be reclassified as Securities available for sale in the medium term .
If exceptional market circumstances necessitate a change in investment strategy, and Trading account securities and Securities available for sale are reclassified as Debt securities held to maturity , the sale of any Debt securities held to maturity prior to the maturity date would not invoke the reclassification clauses in the above paragraph if the sale occurred because the securities had once again become tradable on an active market.
Equity securities held for long-term investment, investments in subsidiaries and affiliates
Equity interests include investments in subsidiaries and affiliates in which BNP Paribas SA exercises significant influence over management and investments considered strategic to BNP Paribas SA s business development. This influence is deemed to exist when BNP Paribas SA holds an ownership interest of at least 10%.
Equity securities held for long-term investment are shares and related instruments that BNP Paribas SA intends to hold on a long-term basis in order to earn a satisfactory long-term rate of return without taking an active part in the management of the issuing company, but with the intention of promoting the development of lasting business relationships by creating special ties with the issuer.
