Assets

Accounting policy

Cash and cash equivalents comprises of cash with central banks. Cash and cash equivalents are carried at amortised cost on the balance sheet.

Accounting policy

Loans and advances to banks are financial instruments initially measured at fair value including any incremental direct transaction costs. The loans and advances to banks are held to collect the contractual cash flows and meet the SPPI criteria. Therefore, subsequent measurement is at amortised cost, using the effective interest method in accordance with the Financial instruments paragraph in the accounting principles on page Financial instruments .

Accounting policy

Loans and advances to customers are financial instruments initially measured at fair value including any incremental direct transaction costs. The loans and advances to customers are held to collect the contractual cash flows and meet the SPPI criteria. Therefore, subsequent measurement is at amortised cost, using the effective interest method in accordance with the Financial instruments paragraph in the accounting principles on page Financial instruments .

Critical judgement and estimates

Triodos Bank determines the ECL which is a critical estimate and includes critical judgements. For more details on the critical judgement and estimate of ECL, refer to Financial instruments .

Accounting policy

All debt securities at amortised cost are held in the investment portfolio. These are financial instruments initially measured at fair value including any incremental direct transaction costs. The debt securities are held to collect the contractual cash flows and meet the SPPI criteria. Therefore, subsequent measurement is at amortised cost, using the effective interest method in accordance with the Financial instruments paragraph in the accounting principles on page Financial instruments .

Accounting policy

Investment securities include participating interests in other financial institutions either in equity or debt form and it includes seed capital investments in own investment funds that are classified as associates. The participating interests in equity are designated at FVOCI as these are strategic long-term investments. The participating interest in debt form are measured at FVTPL as these do not meet the SPPI criteria. The participating interest in associates are measured using the equity method.

For securities that are listed on an active stock exchange, the fair value will be deemed to be equal to the most recently published stock exchange price. If the security is not listed on an active stock exchange or where there is no regular price quotation, the fair value will be determined to the best of one's ability using all available data, including an annual report audited by an external independent auditor, interim financial information from the institution and any other relevant data provided to Triodos Bank.

Unrealised and realised changes in the value of investment securities at FVOCI are recognised in the other comprehensive income and will not be recycled to profit or loss. Unrealised and realised changes in the value of investment securities at FVPL are recognised in the profit or loss.

Critical judgement and estimates

Triodos Bank determines the fair values of those financial instruments measured at FVOCI and FVTPL periodically which is a critical estimate. For more details on the measurement of fair values refer to Fair value of financial instruments .

Accounting policy

Intangible assets are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to profit or loss over the asset's estimated economic life using the straight-line method that best reflect the pattern of economic benefits. These estimated useful economic lives are:

• Internally developed assets: 5 to 10 years

• Computer software: 3 to 5 years

• Management contracts: 20 years

Direct costs relating to internally developed assets are capitalised once technical feasibility and economic viability have been established. These costs include co-worker costs and the costs of materials and services. Capitalisation of costs ceases when the asset is capable of operating as intended.

During and after development, accumulated costs are annually reviewed for impairment triggers. If there is an impairment trigger, any impairments will be recognised in the profit or loss in line with the impairment accounting policy for non-financial assets as included on page Impairment of non-financial assets.

The development costs for the banking system will be amortised over the estimated useful life from the moment the system is used, to a maximum of 10 years.

Management contracts paid by Triodos Bank when acquiring the participating interest in Triodos Investment Management B.V. will be written off over a period of 20 years till October 2026. The remaining depreciation period is four years as of the end of 2022.

Computer software that has been purchased will be written off over its useful life. This period will not exceed five years.

Accounting policy

Items of property and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation is charged to profit or loss on a straight-line basis so as to write-off the depreciable amount of each item of property and equipment over its estimated useful life. The depreciable amount is the cost of an asset less its residual value. Land for own use is not depreciated.

The estimated useful lives of Triodos Bank’s property and equipment are:

• Property and leasehold property: 40 years (or lease term if shorter)

• Machinery: 3 to 5 years

• Furniture and fixtures: 5 years

The residual value and useful life of property and equipment are reviewed at each balance sheet date and updated for any changes to previous estimates.

Property under development is valued at the lower of the expenditure and the expected realised value upon completion. The expenditure consists of payments made to third parties. The difference between the proceeds on disposal of equipment and net carrying value is recognised in the profit or loss account under Other income.

Property and equipment are annually reviewed for impairment triggers. If there is an impairment trigger, any impairments will be recognised in the profit or loss accounts in line with the impairment accounting policy for fixed assets as included on page Impairment of non-financial assets.

Critical judgement and estimates

In December 2019 Triodos Bank moved in the Netherlands to the newly developed office building de Reehorst. The innovative design is based on principles of the circular economy and biomimicry. The design and production of materials are based on the structure derived from nature. The building is re-mountable and modular, built with sustainable and reusable materials.

Within common accounting policies the residual value of owned offices is set at zero as information on residual value is lacking. Because this building is circular and set up to have value in the future, Triodos Bank has investigated the residual value. This was captured in a report from a third party circular demolishing company, in which the value of several re-useable components has been calculated. The value is achieved if the components are remounted as a whole in a new building, considering costs for removing. Based on this report Triodos Bank currently estimated the residual value of de Reehorst at EUR 3.0 million.

The residual value gets its value from the market in which components from the building can be reused. At this moment in time this market is in development and new building initiatives using re-useable materials as a starting point are few. Developments on these fronts and other changes (e.g. CO2-tax) can impact the residual value of de Reehorst in the future.

Accounting policy

Investment properties comprise land and buildings that are not occupied for use by, or in the operations of Triodos Bank, nor for sale in the ordinary course of business, but are held primarily to earn rental income and/or for capital appreciation. Investment property is initially measured at cost and subsequently stated at cost less accumulated depreciation and impairment losses. Depreciation is determined in accordance with the accounting principles as stated in note 7 Property and equipment. Investment property are annually reviewed for impairment triggers. If there is an impairment trigger, any impairments will be recognised in the profit or loss accounts in line with the impairment accounting policy for fixed assets as included on page Impairment of non-financial assets.

Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss.

Transfers are made to (or from) investment property only when there is a change in use. When the use of a property changes such that it is reclassified as property and equipment, its carrying value at the date of reclassification becomes its cost for subsequent accounting.

Accounting policy

As a lessee

Triodos Bank assesses whether a contract is or contains a lease, at inception of a contract. Triodos Bank recognises a right of use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, Triodos Bank recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, Triodos Bank uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:

• Fixed lease payments (including in-substance fixed payments), less any lease incentives;

• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

• The amount expected to be payable by the lessee under residual value guarantees;

• The exercise price of purchase options, if the lessee is reasonably certain to exercise the options;

• Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease; and

• Lease payments to be made under reasonably certain extension options.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

Triodos Bank remeasures the lease liability (and makes a corresponding adjustment to the related right of use asset) whenever:

• The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;

• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change due to a change in a floating interest rate, in which case a revised discount rate is used);

• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

The right of use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The right of use assets are annually reviewed for impairment triggers. If there is an impairment trigger, any impairments will be recognised in the profit or loss accounts in line with the impairment accounting policy for non-financial assets as included on page Impairment of non-financial assets.

Whenever Triodos Bank incurs an obligation for costs to restore a leased asset to the condition required by the terms and conditions of the lease, a provision is recognised.

Right of use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that Triodos Bank expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The periodic impact in the profit or loss accounts are the depreciation charges on the right of use assets and the interest charges on the lease liability.

Triodos Bank elected to use the recognition exemption for lease contracts that, at the commencement date, have a lease term of 12 months or less (‘short term leases’), and lease contracts for which the underlying asset is of low value (‘low value assets’). Payments associated with short term leases and leases of low value assets are recognised on a straight line basis as an expense in the consolidated statement of profit or loss.

As a lessor

Triodos Bank enters into lease agreements as a lessor with respect to some of its office space.

Leases for which Triodos Bank is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases. Triodos Bank does not act as a lessor for any finance leases.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

When a contract includes lease and non-lease components, Triodos Bank allocates the consideration under the contract to each component.

Judgement and estimate

The lease liabilities are initially measured at the present value of the future lease payments, discounted at the lessee's incremental borrowing rate (IBR) given that the interest rate implicit in the lease cannot be readily determined. The IBR is the rate of interest that Triodos Bank would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what Triodos Bank ‘would have to pay’, which requires estimation and inherently involves significant judgement when no observable rates are available. Triodos Bank estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific adjustments (such as Triodos Bank's stand-alone credit rating).

Accounting policy

Derivative financial instruments, consisting of foreign currency forward contracts and interest rate swaps, are initially recognised at fair value, with subsequent fair value movements recognised in profit or loss. Triodos Bank uses interest rate swaps and foreign exchange forwards as derivatives for hedging purposes. Fair values of interest rate swaps are determined by discounted cash flows against prevailing market interest rates. Foreign exchange forwards fair values are determined by the movement of the foreign exchange rate. Changes in the fair value are included in the profit or loss account.

The effective portion of fair value movements of those derivatives in a cash flow or net investment hedge relationship are recognised in OCI and recycled to the profit or loss when the related result on the hedged item is recognised in profit or loss.

Hedge Accounting

Triodos Bank elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in accordance with IAS 39. Triodos Bank designates certain derivatives held for risk management as well as certain non-trading derivative financial instruments as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, Triodos Bank formally documents the relationship between the hedging instruments and hedged items, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. Triodos Bank makes an assessment, both on inception of the hedging relationship and on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within the effective range. A hedge is regarded as highly effective if the changes in fair value or cash flows attributable to the hedged risk of the hedging instrument and the hedged item during the period for which the hedge is designated, are expected to offset in a range of 80% to 125%.

Triodos Bank uses derivatives (principally interest rate swaps) for economic hedging purposes in the management of its asset and liability portfolios. The objective of economic hedging is to enter into positions with an opposite risk profile to an identified exposure to reduce that risk exposure. In addition to economic hedging, Triodos Bank also applies hedge accounting. The hedge accounting types are discussed below. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate. If the hedged item is derecognised, any remaining adjustment to the carrying amount is recognised as part of the derecognition gain/loss.

Fair value hedges

Triodos Bank applies macro fair value hedge accounting to the hedges that are in place to hedge the changes in fair value due to changes in interest rates of its longer term fixed-rate financial assets. Under this hedging strategy, interest rates swaps are designated as hedging instruments, which are in an economic hedge relationship with a portfolio of loans and mortgages as hedged item to cover the fair value risk due to changes interest rate. For additional information on the hedge relationship, refer to Non-trading derivatives and hedge accounting .

Net investment hedge of a foreign operation

Triodos Bank hedges its net investment in Triodos Bank UK Limited, its subsidiary in the United Kingdom. The hedged risk is the foreign currency exposure arising from the net investment. Triodos Bank designates the hedged risk as the risk of the GBP spot changes against the Euro, in order to reduce fluctuations in the value of the net investment in its subsidiaries due to movements in the GBP exchange rate. Triodos Bank makes use of foreign exchange forward contracts to hedge this risk. The derivatives are recorded at fair value on the balance sheet.

The fair value movements of these contracts are determined by the changes in spot foreign exchange rate, and the basis spread. The basis spread is the difference between the spot and forward rate in the contract. Triodos Bank elects to use the cost of hedging method for changes in the basis spread and records these in a separate component within equity. The spot rate changes are, together with the changes in the hedge risk, recognised in the translation reserve through OCI. Any ineffective portion of the changes in the fair value of the derivative is recognised immediately in profit or loss. The amount recognised in OCI is fully or partially reclassified to profit or loss as a reclassification adjustment on disposal or partial disposal of the foreign operation, respectively.

Critical judgement and estimates

Triodos Bank determines the fair values of those financial instruments measured at FVOCI and FVTPL periodically which is a critical estimate. For more details on the measurement of fair values refer to Fair value of financial instruments .

Accounting policy

Other assets are recognised initially at fair value and subsequently measured at amortised cost.

Critical judgement and estimates

Triodos Bank determines the ECL which is a critical estimate and includes critical judgements. For more details on the critical judgement and estimate of ECL, refer to Financial instruments .

Accounting policy

A non-current asset is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. The condition for such classification is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.

Non-current assets classified as held for sale are initially measured as the lower of;

• Carrying amount; and

• Fair value less costs to sell.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.