Credit quality analysis

The following tables set out information about the credit quality of financial assets, loan commitments and guarantee contracts. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts. For loan commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or guaranteed, respectively.

The following table shows the loans and advances to banks at amortised cost, which are all in stage 1.

 

2021

2020

Loans and advances to banks at amortised cost

Stage 1

Stage 1

Gross amount

265,820

164,629

allowance for expected credit losses

-24

-18

Carrying amount

265,796

164,611

Triodos Bank applies ratings to its loans and advances to customers based on its credit risk policy. Within the policy clients with total business loans above EUR 250,000 are rated. Clients with retail mortgage loans and or total business loans below EUR 250,000 have no rating appointed. These are represented in the not rated category. The below table shows the loans and advances to customers within the rating categories.

 

2021

Loans and advances to customers at amortised cost

Stage 1

Stage 2

Stage 3

Total

Rating 1-9: Normal risk

5,519,854

586,885

-

6,106,739

Rating 10-13: Increased risk

24,364

135,437

-

159,801

Rating 14: Default

-

-

244,320

244,320

Not rated

3,671,195

34,723

-

3,705,918

Gross amount

9,215,413

757,045

244,320

10,216,778

allowance for expected credit losses

-8,675

-3,418

-36,887

-48,980

Carrying amount

9,206,738

753,627

207,433

10,167,798

 

2020

Loans and advances to customers at amortised cost

Stage 1

Stage 2

Stage 3

Total

Rating 1-9: Normal risk

5,315,917

611,226

-

5,927,143

Rating 10-13: Increased risk

39,664

119,416

-

159,080

Rating 14: Default

-

-

214,649

214,649

Not rated

2,697,674

209,134

-

2,906,808

Gross amount

8,053,255

939,776

214,649

9,207,680

allowance for expected credit losses

-8,148

-9,384

-33,438

-50,970

Carrying amount

8,045,107

930,392

181,211

9,156,710

The following table sets out information about the overdue status of loans and advances to customers in Stages 1, 2 and 3.

 

2021

Loans and advances to customers at amortised cost

Stage 1

Stage 2

Stage 3

Total

Current

9,215,413

751,907

-

9,967,320

Overdue < 90 days

-

5,138

-

5,138

Overdue > 90 days

-

-

244,320

244,320

Total

9,215,413

757,045

244,320

10,216,778

 

2020

Loans and advances to customers at amortised cost

Stage 1

Stage 2

Stage 3

Total

Current

8,050,729

285,271

-

8,336,000

Overdue < 90 days

2,526

654,505

-

657,031

Overdue > 90 days

-

-

214,649

214,649

Total

8,053,255

939,776

214,649

9,207,680

All debt securities at amortised cost are within stage 1 The below table sets out the debt securities per rating.

 

2021

2020

Debt securities at amortised cost

Stage 1

Stage 1

AAA

34,263

67,941

AA

509,173

390,372

A

539,528

428,501

BBB

400,424

430,550

allowance for expected credit losses

-10

-63

Carrying amount

1,483,378

1,317,301

Loan commitments are not (yet) rated and the ECL is determined based on the business loans and mortgage loans portfolios. The outcome is presented in the table below.

 

2021

Loan commitments

Stage 1

Stage 2

Total

Gross carrying amount

1,065,319

77,377

1,142,696

allowance for expected credit losses

-1,103

-292

-1,395

Carrying amount (provision)

-1,103

-292

-1,395

 

2020

Loan commitments

Stage 1

Stage 2

Total

Gross carrying amount

1,301,301

141,622

1,442,923

allowance for expected credit losses

-1,025

-1,209

-2,234

Carrying amount (provision)

-1,025

-1,209

-2,234

All financial guarantee contracts are within stage 1 as shown in the table below.

 

2021

2020

Financial guarantee contracts

Stage 1

Stage 1

Gross carrying amount

37,712

41,009

allowance for expected credit losses

-21

-14

Carrying amount (provision)

-21

-14

Collateral held and other credit enhancements

Triodos Bank can hold collateral and other credit enhancements against certain of its credit exposures. The following table sets out the principal types of collateral held against different types of financial assets.

 

Percentage of exposure that is subject to collateral requirements

 

2021

2020

Principal type of collateral held

Non-trading derivatives

100

100

Cash Collective

Loans and advances to customers

 

 

 

Mortgage lending

98

97

Residential Property

Business lending

63

61

Commercial Property, Other

Current accounts

-

-

None

The following table stratifies credit exposures from mortgage loans and advances to retail customers by ranges of loan-to-value (LTV) ratio. LTV is calculated as the ratio of the gross amount of the loan – or the amount committed for loan commitments – to the value of the collateral. The valuation of the collateral excludes any adjustments for obtaining and selling the collateral. The value of the collateral for residential mortgage loans is based on the collateral value at origination updated according to changes in house price indices. For credit-impaired loans the value of collateral is based on the most recent appraisals.

LTV ratio

2021

2020

Less than 65%

1,669,593

1,400,205

65-75%

501,592

338,468

75-90%

609,655

458,956

More than 90%

840,288

542,301

Total residential mortgage lending

3,621,128

2,739,930

Details of financial and non-financial assets obtained during the year by taking possession of collateral held as security against loans and advances and held at the year end are shown below.

Triodos Bank sometimes repossesses assets which come from acquisition in public auctions. These assets are collaterals of an executed loan. A part of the repossessed assets however will not be sold immediately because Triodos Bank has opted to add value by letting these assets; these are therefore presented as investment properties.

Allowance for expected credit losses

The following tables show reconciliations from the opening to the closing balance of the allowance for expected credit losses by class of financial instrument.

Triodos Bank uses three stages to classify the expected credit loss (ECL) for financial instruments. The ECL for stages 1 and 2 is determined by the probability of default (PD), the loss given default (LGD) and the exposure at default (EAD) per exposure, which are determined with the use of a model that includes several drivers. These drivers can be client-specific or based on macro-economic scenarios.

  • Stage 1 includes the financial instruments that have (close to) similar credit risk since origination. For this category ECL is determined based on the PD, LGD, and EAD over the 12 months after balance sheet date.

  • Stage 2 includes the financial instruments which have had a significant increase in credit risk since origination. The ECL for stage 2 is determined based on the PD, LGD, and EAD over the entire lifetime of the financial instrument.

  • Stage 3 includes the financial instruments which are in default. The ECL for this stage is also determined over the entire lifetime, considering default-specific scenarios.

The ECL provision represents an estimate of the expected credit loss over the current portfolio. The future development of the underlying parameters can influence this estimate positively (or negatively) leading to a decrease (or increase) of expected credit losses in future periods. If economic growth is expected to develop positively in future periods, fewer defaults are expected. This will have a positive effect on the ECL and result in lower ECL provision for stage 1 and 2.

Newly originated financial instruments are initially included in stage 1. Changes in ratings of clients may trigger re-classification in different stages. When a rating declines significantly, the loan is transferred from stage 1 to stage 2. If the decline persists and the loan goes into default, it is moved into stage 3. Unfortunately, the default may be cured, causing credit ratings to go up, in which case the loan can be transferred back to stage 2 or stage 1.

When the drivers of the PD and LGD are changed, the ECL amounts per financial instrument are recalculated. This is captured in the net remeasurement of allowance for expected credit losses. The net remeasurement can be broken down into multiple parameters that influence the PD and LGD:

  1. Remeasurement in calculated ECL of individual loans which have transferred between stage 1 and stage 2.

  2. Changes in forward-looking macro-economic scenarios.

  3. Changes in individual loan or advance behaviour such as changes in rating not triggering stage transfer or loan amount due to repayment.

The total expected credit loss allowances can be broken down as follows:

 

2021

Total expected credit loss allowances

Stage 1

Stage 2

Stage 3

Total

ECL loans and advances to banks at amortised cost

24

-

-

24

ECL loans and advances to customers at amortised cost - Business loans and current accounts

8,058

3,057

36,787

47,902

ECL loans and advances to customers at amortised cost - Mortgages

617

361

100

1,078

ECL debt securities at amortised cost

10

-

-

10

ECL financial guarantees

21

-

-

21

ECL loan commitments issued

1,103

292

-

1,395

ECL other assets

12

-

1,107

1,119

Total expected credit loss allowances

9,845

3,710

37,994

51,549

 

2020

Total expected credit loss allowances

Stage 1

Stage 2

Stage 3

Total

ECL loans and advances to banks at amortised cost

18

-

-

18

ECL loans and advances to customers at amortised cost - Business loans and current accounts

7,287

9,061

32,972

49,320

ECL loans and advances to customers at amortised cost - Mortgages

861

323

466

1,650

ECL debt securities at amortised cost

63

-

-

63

ECL financial guarantees

14

-

-

14

ECL loan commitments issued

1,025

1,208

-

2,233

ECL other assets

10

-

695

705

Total expected credit loss allowances

9,278

10,592

34,133

54,003

The following tables present the movements of these ECL allowances per financial instrument.

The first table shows the movement in ECL allowance for loans and advances to banks at amortised cost. There have been no rating changes for banks, and no change in credit risk, from issuance of current outstanding balance. As a result, everything remains within stage 1.

 

2021

2020

ECL loans and advances to banks at amortised cost

Stage 1

Stage 1

Balance at 1 January

18

42

Net remeasurement of allowance for expected credit losses

6

-24

Net portfolio growth

-

-

Balance at 31 December

24

18

The following table shows the movements within the ECL for business loans and current accounts. The allowance for expected credit losses in this table includes ECL on off-balance sheet loan commitments for certain retail products such as credit cards and overdrafts, because Triodos Bank determines the ECL per exposure, including any loan commitment component.

 

2021

ECL loans and advances to customers at amortised cost - Business loans and current accounts

Stage 1

Stage 2

Stage 3

Total

Balance at 1 January

7,287

9,061

32,972

49,320

 

 

 

 

 

Net remeasurement of allowance for expected credit losses

-610

-5,868

5,979

-499

of which:

 

 

 

 

- Effect of transition between stages

853

-307

395

941

- Macro-economic forward-looking impact

-3,766

-6,566

-

-10,332

- Update ECL model

938

-457

-

481

- Individual loan or advance behaviour

1,365

1,462

5,584

8,411

 

 

 

 

 

Net portfolio growth

1,301

-237

-

1,064

Other transfers

-

-

-

-

Write-offs

-

-

-2,306

-2,306

Exchange rate differences

80

101

142

323

Balance at 31 December

8,058

3,057

36,787

47,902

 

2020

ECL loans and advances to customers at amortised cost - Business loans and current accounts

Stage 1

Stage 2

Stage 3

Total

Balance at 1 January

4,102

828

28,011

32,941

 

 

 

 

 

Net remeasurement of allowance for expected credit losses

1,658

7,093

10,047

18,798

of which:

 

 

 

 

- Effect of transition between stages

-1,558

5,357

45

3,844

- Macro-economic forward-looking impact

7,356

1,228

-

8,584

- Update ECL model

-36

-40

-

-76

- Individual loan or advance behaviour

-4,104

548

10,002

8,208

 

 

 

 

 

Net portfolio growth

1,545

1,202

-

2,747

Other transfers

-

-

-696

-696

Write-offs

-

-

-4,287

-4,287

Exchange rate differences

-18

-62

-103

-183

Balance at 31 December

7,287

9,061

32,972

49,320

The following table shows the movements within the ECL for mortgage loans.

 

2021

ECL loans and advances to customers at amortised cost – Mortgages

Stage 1

Stage 2

Stage 3

Total

Balance at 1 January

861

323

466

1,650

 

 

 

 

 

Net remeasurement of allowance for expected credit losses

-375

-31

-366

-772

of which:

 

 

 

 

- Effect of transition between stages

-2

41

-

39

- Macro-economic forward-looking impact

-150

-80

-

-230

- Update ECL model

-160

20

-

-140

- Individual loan or advance behaviour

-63

-12

-366

-441

 

 

 

 

 

Net portfolio growth

131

69

-

200

Balance at 31 December

617

361

100

1,078

 

2020

ECL loans and advances to customers at amortised cost – Mortgages

Stage 1

Stage 2

Stage 3

Total

Balance at 1 January

373

169

296

838

 

 

 

 

 

Net remeasurement of allowance for expected credit losses

156

74

170

400

of which:

 

 

 

 

- Effect of transition between stages

-1

-56

13

-44

- Macro-economic forward-looking impact

197

109

-

306

- Update ECL model

6

13

-

19

- Individual loan or advance behaviour

-46

8

157

119

 

 

 

 

 

Net portfolio growth

332

80

-

412

Balance at 31 December

861

323

466

1,650

For the movements within the ECL for business loans, current accounts, and mortgages together, refer to note 3 Loans and advances to customers.

The following table shows the movements within the ECL for debt securities at amortised cost.

 

2021

2020

ECL debt securities at amortised cost

Stage 1

Stage 1

Balance at 1 January

63

34

Net remeasurement of allowance for expected credit losses

-

6

Net portfolio growth

-54

23

Foreign exchange and other movements

1

-

Balance at 31 December

10

63

The following table shows the movements within the ECL for financial guarantees.

 

2021

2020

ECL financial guarantees

Stage 1

Stage 1

Balance at 1 January

14

19

Net remeasurement of allowance for expected credit losses

7

-5

Net portfolio growth

-

-

Foreign exchange and other movements

-

-

Balance at 31 December

21

14

Loan commitments issued result in issued loans when offers are signed or when commitments are used. The following table shows the movements within the ECL for loan commitments.

 

2021

ECL loan commitments issued

Stage 1

Stage 2

Total

Balance at 1 January

1,025

1,208

2,233

 

 

 

 

Net remeasurement of allowance for expected credit losses

102

-904

-802

of which:

 

 

 

- Macro-economic forward-looking impact

-26

-575

-601

- Update ECL model

128

-329

-201

- Individual commitment behaviour

-

-

-

 

 

 

 

Net portfolio growth

-37

-28

-65

Foreign exchange and other movements

13

16

29

Balance at 31 December

1,103

292

1,395

 

2020

ECL loan commitments issued

Stage 1

Stage 2

Total

Balance at 1 January

570

106

676

 

 

 

 

Net remeasurement of allowance for expected credit losses

271

1,067

1,338

of which:

 

 

 

- Macro-economic forward-looking impact

469

1,825

2,294

- Update ECL model

-4

-2

-6

- Individual commitment behaviour

-194

-756

-950

 

 

 

 

Net portfolio growth

184

35

219

Foreign exchange and other movements

-

-

-

Balance at 31 December

1,025

1,208

2,233

Allowance for expected credit losses reconciliation to income statement

The following table provides a reconciliation between:

  • amounts shown in the above tables reconciling opening and closing balances of allowance for expected credit losses per class of financial instrument; and

  • the ‘impairment losses on financial instruments’ line item in the consolidated statement of profit or loss and other comprehensive income, refer to 29 Impairment result on financial instruments.

 

2021

Impairment losses on financial instruments

Stage 1

Stage 2

Stage 3

Total

Loans and advances to banks

6

-

-

6

Loans and advances to customers

447

-6,067

5,613

-7

Debts securities at amortised cost

-53

-

-

-53

Financial guarantees

7

-

-

7

Loan commitments issued

65

-932

-

-867

Other assets

3

-

411

414

Impairment losses on financial instruments for the year

475

-6,999

6,024

-500

 

2020

Impairment losses on financial instruments

Stage 1

Stage 2

Stage 3

Total

 

 

 

 

 

Loans and advances to banks

-24

-

-

-24

Loans and advances to customers

3,723

8,414

10,221

22,358

Debts securities at amortised cost

29

-

-

29

Financial guarantees

-5

-

-

-5

Loan commitments issued

455

1,102

-

1,557

Impairment losses on financial instruments for the year

4,178

9,516

10,221

23,915

Triodos Bank has an annual incurred loss rate of 0.06% (2020: 0.12%) The annual incurred loss rate is the ratio of stage-3 impairment losses over the average loan book.

Credit-impaired financial assets

The following table sets out a reconciliation of changes in the net carrying amount of credit- impaired loans and advances to customers.

 

2021

2020

Credit-impaired loans and advances to customers at 1 January

33,438

28,307

Addition

11,662

14,125

Write-off

-2,306

-4,287

Release

-6,049

-3,908

Other transfers

-

-696

Exchange rate differences

142

-103

Balance sheet value as at 31 December

36,887

33,438

Modified financial assets

The following table provides information on financial assets that were modified during the reporting period. The net modification loss comprises the modification result minus modification fees or penalty interest received.

 

2021

2020

Financial assets modified during the period

 

 

Amortised cost before modification

92,441

65,730

Net modification loss

-27

7

Offsetting financial assets and financial liabilities

Triodos Bank does not make use of any netting under master agreements for its financial instruments.

The International Swaps and Derivatives Association (ISDA) and similar master netting arrangements do not meet the criteria for offsetting in the statement of financial position. This is because they create a right of set-off of recognised amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Group or the counterparties or following other predetermined events. In addition, Triodos Bank and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously.

Triodos Bank receives and gives collateral in the form of cash in respect of the derivatives held for risk management. This collateral is subject to standard industry terms including, when appropriate, an ISDA credit support annex. This means that securities received/given as collateral can be pledged or sold during the term of the transaction but have to be returned on maturity of the transaction. The terms also give each party the right to terminate the related transactions on the counterparty’s failure to post collateral.

The impact of potential collateral requirements is increasing at Triodos Bank. The amount pledged with central and commercial banks, for payment system purposes, increased in 2021 and is expected to increase with the further growth of Triodos Bank.

Collateral needs stemming from FX forwards increased in 2021 because of EUR/GBP exchange rate developments. At the end of 2021, a total net amount of EUR 13.5 million cash collateral was posted (2020: EUR 7.1 million).

Interest rate swaps which are centrally cleared, increased the potential collateral needs as well during the year. At the end of 2021 a total net amount of EUR 25.8 million cash collateral was posted (2020: EUR 12.6 million). The cash collateral posted as part of the ISDA agreement as mentioned above, is eligible for the counterparty in case of default.

Debt securities and loans are used as collateral with the Dutch Central Bank for a possible debit balance and participation in open market operations of the European Central Bank. At the end of 2021, Triodos Bank participated in two longer-term refinancing operations (TLTRO) for an amount of EUR 1,550 million. A collateral value of EUR 1,749 million was placed with the Dutch Central Bank (2020: EUR 878 million).