Triodos Bank has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Several amendments apply for the first time in 2022, but do not have an impact on the consolidated financial statements of Triodos Bank.
IAS 41 Agriculture, IFRS 1 First-time Adoption of International Financial Reporting Standards, and IFRS 3 Business Combinations are not applicable standards for Triodos Bank and therefore the amendments to these standards have no impact on the financial statements. The amendments to IAS 16 Property, Plant and Equipment are not applicable as Triodos Bank doesn't produce any goods to sell.
Amendments effective on or after 1 January 2022 relevant to Triodos Bank are:
IAS 37 - Onerous Contracts – Costs of Fulfilling a Contract
IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities
The amendments do not have an impact on the financial statements.
IAS 37 - Onerous Contracts – Costs of Fulfilling a Contract
An onerous contract is a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
The amendments specify that when assessing whether a contract is onerous or loss-making, an entity needs to include costs that relate directly to a contract to provide goods or services include both incremental costs (e.g., the costs of direct labour and materials) and an allocation of costs directly related to contract activities (e.g., depreciation of equipment used to fulfil the contract as well as costs of contract management and supervision). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.
Triodos Bank currently has no contracts that are recorded as onerous contracts. If any onerous contracts are to be recorded in the future, Triodos Bank will apply the amendments accordingly.
IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities
The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.
Triodos Bank applies these amendments to financial liabilities that are modified or exchanged on or after 1 January 2022. These amendments have no impact for Triodos Bank as there are no modified financial liabilities currently recorded.
The following changes to IFRS are effective on or after 1 January 2022 and are applicable for Triodos Bank:
Amendments to IAS 1 ‘Presentation of Financial Statements’: Classification of Liabilities as Current or Non-current (issued on 23 January 2020, effective 1 January 2023)
Definition of Accounting Estimates - Amendments to IAS 8 (issued in February 2021, effective 1 January 2023)
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2 (issued in February 2021, effective 1 January 2023)
Amendments to IAS 1
Triodos Bank applies the Dutch requirements for annual report layout ("Besluit modellen jaarrekening"), which specifies different layouts for banks. This is in line with IAS 1 and industry practice. The layout applied by Triodos Bank does not differentiate between current and non-current, but is based on liquidity. Therefore, the balance sheet will not be affected by the changes to the definition of current and non-current in IAS 1.
Definition of Accounting Estimates – Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of ‘accounting estimates’. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates.
The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted as long as this fact is disclosed.
When the aforementioned arises in the periods beginning on or after 1 January 2023, Triodos Bank will apply this standard when applicable. Currently these changes have no effect on the financial statements of Triodos Bank for the year 2022.
Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier application permitted. Since the amendments to the Practice Statement 2 provide non-mandatory guidance on the application of the definition of material to accounting policy information, an effective date for these amendments is not necessary.
Triodos Bank is currently assessing the impact of the amendments to determine the impact they will have on Triodos Bank's accounting policy disclosures.
The consolidated financial statements include the financial data of Triodos Bank and its subsidiaries. Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity where the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
The financial statements of subsidiaries are fully consolidated in the consolidated financial statements from the date that control commences until the date that control ceases.
In preparing the consolidated financial statements, inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
List of consolidated entities of Triodos Bank N.V.:
Stichting Triodos Beleggersgiro in Zeist, group company, fully consolidated. This entity was liquidated in 2021;
Legal Owner Triodos Funds B.V. in Zeist, participating interest 100%, group company, fully consolidated;
Triodos Finance B.V. in Zeist, participating interest 100%, group company, fully consolidated. This entity was liquidated in 2021;
Triodos IMMA BVBA in Brussel, participating interest 100%, group company, fully consolidated;
Triodos Investment Management B.V. in Zeist, participating interest 100%, group company, fully consolidated;
Triodos Bank UK Ltd in Bristol, participating interest 100%, group company, fully consolidated.
Other controlled entities:
Sinopel 2019 B.V. in Amsterdam, fully consolidated.
The preparation of the consolidated financial statements requires Triodos Bank to make estimates and assumptions that affect the reported amounts of assets and liabilities and the contingent assets and liabilities at the balance sheet date, and the reported income and expenses for the financial year. Triodos Bank uses estimates, assumptions and judgements which can have a significant impact on the amounts recognised in the financial statements in applying these accounting policies. These estimates and assumptions are based on the most recent information available, and the actual amounts may differ in the future. The principal estimates and assumptions relate to:
Impairments on financial instruments measured at amortised cost and fair value through other comprehensive income;
Fair values of financial assets and financial liabilities;
Residual value de Reehorst.
Estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised or in the period of revision and future periods if the revision impacts both the reporting period and future periods.
The judgements and assumptions involved in the accounting policies that are considered by the Executive Board to be the most important to these financial statements are discussed in the relevant notes.
These consolidated financial statements are presented in Euro, which is Triodos Bank’s functional currency.
Transactions in foreign currencies are translated into the respective functional currencies at the spot exchange rates at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the spot exchange rate at the reporting date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in the foreign currency translated at the spot exchange rate at the end of the year.
Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the spot exchange rate at the date on which the fair value is determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.
Foreign currency differences arising from translation are generally recognised in profit or loss. However, foreign currency differences arising from the translation of the following items are recognised in Other Comprehensive Income (OCI):
equity investments in respect of which an election has been made to present subsequent changes in fair value in OCI;
foreign currency contracts or a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective (see hedge of net investment in a foreign operation); and
qualifying cash flow hedges to the extent that the hedge is effective.
The assets and liabilities of foreign operations are translated into euro at the spot exchange rates at the reporting date. The income and expenses of foreign operations are translated into euro at the spot exchange rates at the dates of the transactions.
Foreign currency differences are recognised in OCI, and accumulated in the foreign currency translation reserve (translation reserve), except to the extent that the translation difference is allocated to Non Controlling Interest (NCI).
This section sets out the general accounting policies regarding the recognition and measurement of each financial instrument. The accounting policies specific to each type of financial instrument is included in each relevant note.
Triodos Bank recognises financial assets and liabilities, with the exception of loans and advances to customers and balances due to customers initially on the trade date, i.e., the date on which Triodos Bank becomes a party to the contractual provisions of the instrument. This includes regular way trades, i.e., purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Loans and advances to customers are recognised when funds are transferred to the customers’ accounts. Triodos Bank recognises deposits from customers when funds are transferred to the Bank.
On initial recognition, financial instruments are measured at fair value. Subsequently they are classified in one of the following categories. Financial liabilities cannot be reclassified. Financial assets are only reclassified where there has been a change in the business model.
Designated as at fair value through profit or loss
A financial instrument may be designated as at fair value through profit or loss (hereafter 'FVTPL') only if such designation:
eliminates or significantly reduces a measurement or recognition inconsistency;
applies to a group of financial assets, financial liabilities or both, that Triodos Bank manages and evaluates on a fair value basis; or
relates to a financial liability that contains an embedded derivative which is not evidently closely related to the host contract.
Financial assets that are designated on initial recognition as being at fair value through profit or loss are recognised at fair value, with transaction costs being recognised in profit or loss, and are subsequently measured at fair value. Gains and losses are recognised in profit or loss as they arise.
Amortised cost financial assets
A financial instrument may be measured at amortised cost if:
the asset is held within a business model whose objective is solely to hold assets to collect contractual cash flows; and
the contractual terms of the financial asset are solely payments of principal and interest (SPPI) on the outstanding balance.
Triodos Bank determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objective, being the risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed.
The business model assessment is based on reasonably expected scenarios without taking 'worst case' or 'stress case' scenarios into account. If cash flows after initial recognition are realised in a way that is different from the original expectations, Triodos Bank does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing the newly originated or newly purchased financial assets going forward. Triodos Bank solely reclassifies financial assets when and only when its business model for managing assets changes. The reclassification takes place from the start of the first reporting period following the change. Such changes are expected to be very infrequent and none occurred during the period.
As a second step of the classification process is the assessment of the contractual terms of the financial asset to identify whether they meet the SPPI test. ‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount). Interest should be in line with a basic lending arrangement and may include the consideration received for the time value of money, the credit risk associated with the principal amount outstanding during a particular period of time, liquidity risk, administrative costs, and a profit margin. Triodos Bank considers the contractual terms of the instrument to assess whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet the SPPI condition. In this assessment, Triodos Bank considers relevant factors such as the currency in which the financial asset is denominated, prepayment options, interest tenor, as well as linkage to energy labels and biobased mortgages. In contrast, contractual terms that introduce a more than the minimum exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. In such cases, the financial asset is required to be measured at FVTPL.
Equity instruments at fair value through other comprehensive income
Upon initial recognition, Triodos Bank occasionally elects to classify irrevocably some of its equity investments as equity instruments at fair value through other comprehensive income (hereafter 'FVOCI') when they meet the definition of Equity and are not held for trading. This classification is determined on an instrument-by-instrument basis. Gains and losses on these equity instruments are never recycled to profit. Dividends are recognised in profit or loss as other operating income when the right of the payment has been established, except when Triodos Bank benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.
Fair value through profit or loss
A financial liability is measured at fair value if it arises from: a financial guarantee contract; a commitment to lend at below market rates; an obligation arising from the failed sale of an asset; or a contingent consideration for a business acquisition. Fair value through profit or loss is the default classification for a financial asset.
Amortised cost financial liabilities
All financial liabilities that are not subsequently measured at fair value are measured at amortised cost, with interest accounted for using the effective interest rate method.
To determine the appropriate method for subsequent measurement, an assessment is made of the business model of each portfolio of financial instruments. Business models are assessed at portfolio level, being the level at which they are managed. This is expected to result in the most consistent classification of assets because it aligns with the stated objectives of the portfolio, its risk management and the ability to monitor sales of assets from a portfolio. The criteria for classifying cash flows as solely principal and interest are assessed against the contractual terms of a facility, with attention to leverage features; prepayment and extension terms; and triggers that might reset the effective rate of interest.
Impairment of financial assets
Allowances for expected credit losses (ECL) are calculated for all financial assets at amortised cost or FVOCI, regardless of whether they are in default.
Triodos Bank calculates ECL based on three probability-weighted scenarios to measure the expected cash shortfalls, discounted at an approximation of the EIR. A cash shortfall is the difference between the cash flows that are due to the entity in accordance with the contract and the cash flows that the entity expects to receive.
The mechanics of the ECL calculations are outlined below and the key elements are, as follows:
PD - The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.
EAD - The Exposure at Default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date.
LGD - The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral or credit enhancements that are integral to the loan and not required to be recognised separately. It is usually expressed as a percentage of the EAD.
The allowance for expected credit losses is the outcome of the formula: PD x LGD x EAD.
Assets are classified into the following categories in line with IFRS 9:
Stage 1: Assets that have not had a significant increase in credit risk since initial recognition. For these assets, 12-month expected credit loss (ECL) is recognised and interest income is calculated on the gross carrying amount of the asset. 12-month ECLs are the expected credit losses that result from default events that are expected within 12 months after the reporting date.
Stage 2: For assets that have experienced a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment, lifetime ECLs are recognised and interest income is still calculated on the gross carrying amount of the asset. Lifetime ECLs are the expected credit losses that result from all possible default events over the expected life of the financial instrument.
Stage 3: For assets that have objective evidence of impairment at the reporting date, lifetime ECLs are recognised and interest income is calculated on the net carrying amount.
Purchased or originated credit impaired (POCI): For assets that have objective evidence of impairment at purchase or origination, lifetime ECLs are recognised and interest income is calculated using the credit adjusted effective interest rate on the net carrying amount.
Expected credit losses are a probability weighted estimate of credit losses, considering various scenarios. For doubtful debtors scenarios are specific to the circumstances of the debtor, whereas for all other debtors the scenarios are based on macroeconomic conditions.
Triodos Bank has different approaches in determining the ECL. For corporate loans ECL for stages 1 and 2 Triodos Bank uses a model for calculating ECL, same goes for financial guarantees and loan commitments issued. For Stage 3 on business lending individual assessments are done. ECL for stages 1 to 3 for mortgage loans is calculated with the use of a model. The ECL on debt securities at amortised cost, loans and advances to banks are also calculated through a model, differing from the corporate loan and mortgage loan models. Refer to the sections Critical judgements and estimates and Credit risk for further information.
Significant increase in credit risk
When a financial instrument has a significant increase in credit risk since initial recognition, Triodos Bank transfers the instrument from Stage 1 to Stage 2. After a financial asset has been transferred to Stage 2, if its credit risk is no longer considered to have significantly increased relative to its initial recognition, the financial asset will move back to Stage 1. In determining whether the risk of default on a financial instrument has increased significantly since initial recognition, Triodos Bank considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on Triodos Bank’s historical experience and expert credit assessment and including forward-looking information, resulting in a credit risk grade, with an internal rating for larger corporate clients.
Triodos Bank allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default and applying judgement of experienced credit risk professionals. Credit risk grades are defined using qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. Making use of general moratoria without conditions, is in itself not a trigger for significant increase in credit risk, but it could indicate a significant increase of credit risk.
Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3.
Each exposure is allocated to a credit risk grade on initial recognition based on available information about the borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The monitoring typically involves use of the following data.
– Information obtained during periodic review of customer files – e.g. audited financial statements, management accounts, budgets and projections. Examples of areas of particular focus are: gross profit margins, financial leverage ratios, debt service coverage, compliance with covenants, quality of management, senior management changes.
– Internally collected data on customer behaviour – e.g. utilisation of overdraft facilities.
– Payment record – this includes overdue status as well as a range of variables about payment ratios. Overdue payments can increase credit risk grade, with days past due over 90 days resulting in default status.
– Data from credit reference agencies, press articles, changes in external credit ratings.
– Affordability metrics.
– Utilisation of the granted limit.
– Quoted bond and credit default swap (CDS) prices for the borrower where available.
– External data from credit reference agencies, including industry-standard credit scores.
– Requests for and granting of forbearance.
– Actual and expected significant changes in the political, regulatory and technological environment of the borrower or in its business activities.
– Existing and forecast changes in business, financial and economic conditions.
Loans with initial ratings 1-3 are considered to exhibit a significant increase in credit risk if they are downgraded by four grades;
Loans with initial ratings 4-7 are considered to exhibit a significant increase in credit risk if they are downgraded by three grades;
Loans with initial ratings 8-9 are considered to exhibit a significant increase in credit risk if they are downgraded by two grades;
Loans with initial ratings 10-12 are considered to exhibit a significant increase in credit risk if they are downgraded by one grade; and
Loans with ratings of 14 are considered to be in default. Therefore a downgrade of a loan with rating 13 would put it in default.
Within the credit risk policy clients with total business loans above EUR 250 thousand are rated on an individual basis at least annually. Clients with retail mortgage loans and or total business loans below EUR 250 thousand have no rating appointed. The frequency depends on the debtor’s creditworthiness, the degree of market exposure and the market in which the debtor operates. The credit committee discusses and, if necessary, takes action with respect to overdue payments from debtors. If there is any doubt regarding the continuity of the debtor’s core operations and/or a debtor fails to settle agreed interest and repayment instalments for a prolonged period, this debtor falls under the category of defaulted and will be managed intensively.
The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by comparing:
The remaining lifetime probability of default (PD) as at the reporting date; with
The remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted where relevant for changes in prepayment expectations).
Triodos Bank uses four objective criteria for determining whether there has been a significant increase in credit risk:
Quantitative test based on movement in PD;
Qualitative indicators, for example placement of a loan on a watchlist;
A backstop of 30 days past due; and
If an exposure is intensively managed.
Additionally, if based on expert judgement it is deemed that these criteria do not cover all increases in credit risk, a management overlay may be applied. Refer to Critical judgement and estimate related to ECL below for any management overlays.
Triodos Bank determines probability of default based on its internal credit rating system for its larger corporate client, which comprises 14 grades. The table below includes the weighted average PD used in the ECL calculation per internal credit rating as determined at the end of current year.
12-month weighted-average PD
Loans are assessed at inception and subsequently periodically reassessed. Movements in the internal credit rating provide the basis to determine whether a significant increase in credit risk has occurred. The credit quality of all counterparties is reviewed and rated at least annually. In addition, Triodos Bank's focus on relationship management supports early identification of risk factors.
Mortgages do not have individual ratings. Individual mortgages have a significant increase in credit risk if they have payments of more than thirty days past due. The significant increase of credit risk of the remaining mortgages is assessed using a collective approach.
Definition of default
Triodos Bank considers a financial asset to be in default when:
The borrower is unlikely to pay its credit obligations to Triodos Bank in full, without recourse by Triodos Bank to actions such as realising security (if any is held); or
The borrower is more than 90 days past due on any material credit obligation to Triodos Bank.
Overdrafts are considered as being past due when:
The customer has breached an advised limit or been advised of a limit smaller than the current amount outstanding; or
It is becoming probable that the borrower will restructure the asset as a result of bankruptcy due to the borrower’s inability to pay its credit obligations.
In assessing whether a borrower is in default, Triodos Bank considers indicators that are:
Qualitative: e.g. breaches of covenant;
Quantitative: e.g. overdue status and non-payment on another obligation of the same issuer to Triodos Bank; and
Based on data developed internally and obtained from external sources.
Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances.
Generating the term structure of PD
Credit risk grades are a primary input into the determination of the term structure of PD for exposures. Triodos Bank collects performance and default information about its credit risk exposures analysed by jurisdiction or region and by type of product and borrower as well as by credit risk grading. For some portfolios, information purchased from external credit reference agencies is also used.
Triodos Bank employs statistical models to analyse the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time.
Impaired loans are written off when Triodos Bank concludes that there is no longer any realistic prospect of recovery of part or all of the loan. For loans that are individually assessed for impairment, the timing of write-off is determined on a case-by-case basis. Such loans are reviewed regularly and write-off will be prompted by bankruptcy, insolvency, renegotiation and similar events. For all other financial instruments write-offs, if any, are also determined on a case-by-case basis.
Critical judgement and estimate related to ECL
The estimation of the ECL is a critical estimate and includes several critical judgements as set out below.
Triodos Bank records an allowance for expected credit loss for all loans and other financial assets not held at fair value through profit or loss, together with loan commitments and financial guarantee contracts.
The measurement of credit impairment under the expected credit loss model depends on management’s assessment of whether a significant increase in credit risk has occurred for each financial asset, its economic forecasts including the probability of each of these, and its modelling of expected performance of each financial asset and its associated collateral in each economic scenario. Significant increase in credit risk requires critical judgement, whereas the economic forecasts and the expected performance are significant estimates that are reflected in the probability of default and the loss given default.
Significant increase in credit risk
Triodos Bank's approach to determining whether a significant increase in credit risk has occurred is, in large part, based on its internal credit rating system. This determination of what downgrade in internal credit rating constitutes a significant increase in credit risk is a significant judgement.
Due to to high inflation in the markets where Triodos Bank is active, it was determined that for those exposures that are facing high increases in prices (for example construction materials and energy) relative to their expected income, have incurred significant increase in credit risk at the end of 2022. Therefore, all exposures that are in the construction phase are moved to stage 2 as a management overlay to the model.
In 2021, the clients of six sectors with a high dependency on the general moratoria and governmental facilities in place due to the COVID-19 crisis, were moved into Stage 2 in full. As these COVID-19 measures are no longer in place, the ECL overlay of moving clients in these six sectors was removed.
Any impact of future outlook is calculated with the use of macroeconomic scenarios. Triodos Bank formulates three economic scenarios: a base case scenario and two less likely scenarios (Up scenario and Down scenario). The base case is aligned with information used by Triodos Bank for other purposes such as strategic planning and budgeting. The macroecoomic scenario's impact the probability of default and the collateral value. The collateral value is used to determine the loss given default.
In developing these macroeconomic scenarios Triodos Bank uses significant judgement. Triodos Bank has incorporated the current economic environment, including its expected future outlook into the macroeconomic scenarios. Triodos Bank uses an independent forecaster to create its macroeconomic scenario's, which includes economic data and forecasts published by governmental bodies, monetary authorities, and supranational organisations such as the OECD and the International Monetary Fund.
The economic scenarios used as at 31 December 2022 included the following Real GDP growth for the years ending 31 December 2023 to 2025 and the long term growth for the years after 2025. The Real GDP growth is the forecasted GDP growth, corrected for the forecasted inflation. This is a critical estimate.
The weighting per scenario reflects the belief of market participants in the likelihood of the occurrence of the scenarios. The weighting is reassessed on a quarterly basis. The 2021 weightings were Base scenario (50%), Up scenario (25%) and Down scenario (25%).
Triodos Bank performed a sensitivity analysis related to the macro economic forecasts, focussing on the key driver, Real GDP growth. The sensitivity analysis had the following outcome:
Amounts in thousands of EUR
Impact on ECL
GDP Growth +2%
GDP Growth +1%
GDP Growth +0.5%
GDP Growth -0.5%
GDP Growth -1%
GDP Growth -2%
Loan performance in different macroeconomic conditions
The performance of each loan in Stages 1 and 2 in the different macroeconomic scenarios is determined by its sector. The table shows by sector the correlation between the macroeconomic indicator and the PD of the client. The correlation used for the year end ECL calculation is provided in the below table.
Art and culture
Philosophy of life
Macroeconomic variable (delta)
Measurement unit of impact
GDP growth (-1%) or Market rate (+2%)
Number of notches
For example, if GDP correlation is low and the GDP growth is -1% rating of loans in that sector are impacted by 1 notch. Impact of notches can be seen in section financial instruments in the table where PD percentages are shown.
Predicted relationships between GDP and default and loss rates on various portfolios of financial assets are critical estimates that have been developed based on management judgement and analysis of historical data.
Derecognition of financial assets and liabilities
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the financial asset have expired. Triodos Bank also derecognises the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition.
Triodos Bank has transferred the financial asset if, and only if, either:
Triodos Bank has transferred its contractual rights to receive cash flows from the financial asset; or
It retains the rights to the cash flows, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement Pass-through arrangements are transactions whereby Triodos Bank retains the contractual rights to receive the cash flows of a financial asset (the ‘original asset’), but assumes a contractual obligation to pay those cash flows to one or more entities (the ‘eventual recipients’), when all of the following three conditions are met:
Triodos Bank has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates
Triodos Bank cannot sell or pledge the original asset other than as security to the eventual recipients
Triodos Bank has to remit any cash flows it collects on behalf of the eventual recipients without material delay.
In addition, Triodos Bank is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents, including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients.
A transfer only qualifies for derecognition if either:
Triodos Bank has transferred substantially all the risks and rewards of the asset; or
Triodos Bank has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset. Control is transferred if and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer.
When the Bank has neither transferred nor retained substantially all the risks and rewards and has retained control of the asset, the asset continues to be recognised only to the extent of continuing involvement, in which case, the associated liability is also recognised. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that have been retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that could be required to pay.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.
Modified assets and liabilities
Triodos Bank can make concessions or modifications to original terms of loans either due to commercial renegotiations or due to distressed restructurings with a view to maximise recovery.
If the modification does not result in cash flows that are substantially different, as set out below, the modification does not result in derecognition. Based on the change in cash flows discounted at the original EIR, Triodos Bank records a modification gain or loss. A modification is considered to be substantial based on qualitative factors and if it results in a difference between the adjusted discounted present value and the original carrying amount of the financial asset of, or greater than, ten percent.
Derecognition due to substantial modification of terms and conditions
Triodos Bank derecognises a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognised as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognised loans are classified as Stage 1 for ECL measurement purposes, unless the new loan is deemed to be credit impaired at recognition date triggering POCI classification.
When assessing whether or not to derecognise a loan to a customer, amongst others, Triodos Bank considers the following qualitative factors:
Change in currency of the loan
Change in counterparty
If the modification is such that the instrument would no longer meet the SPPI criterion
When the borrower is in financial difficulty, rather than taking possession or to otherwise enforce collection of collateral, terms of the loan(s) can be modified. Triodos Bank considers a loan forborne when such concessions or modifications are provided as a result of the borrower’s present or expected financial difficulties and Triodos Bank would not have agreed to them if the borrower had been financially healthy. Indicators of financial difficulties include defaults on covenants or significant concerns raised by the Credit Risk Department. Forbearance may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms. It is policy to monitor forborne loans to help ensure that future payments continue to be likely to occur. Derecognition decisions and classification between Stage 2 and Stage 3 are determined on a case-by-case basis. If these procedures identify a loss in relation to a loan, it is disclosed and managed as an impaired Stage 3 forborne asset until it is collected or written off.
Once an asset has been classified as forborne, it will remain forborne for a minimum 24-month probation period. In order for the loan to be reclassified out of the forborne category, the customer has to meet all of the following criteria:
All of its facilities have to be considered performing;
The probation period of two years has passed from the date the forborne contract was considered performing;
Regular payments of more than an insignificant amount of principal or interest have been made during at least half of the probation period, and;
The customer does not have any contracts that are more than 30 days past due.
Derivatives embedded in contracts shall be separated from the host contract and accounted for separately at fair value if all the below criteria are met:
The host contract is not a financial asset in scope of IFRS 9;
The hybrid contract is not measured at fair value through profit or loss;
The embedded derivative would meet the definition of a stand alone derivative;
The embedded derivative is not closely related to the host contract.
At each balance sheet date, Triodos Bank assesses whether there is any indication that its assets, other than financial instruments, are impaired. If any such indication exists, it estimates the recoverable amount of the asset and the impairment loss if any. If an asset does not generate cash flows that are independent from those of other assets or groups of assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The recoverable amount of an asset or cash-generating unit is the higher of its fair value less cost to sell and its value in use. Value in use is the present value of future cash flows from the asset or cash-generating unit discounted at a rate that reflects market interest rates adjusted for risks specific to the asset or cash-generating unit that have not been taken into account in estimating future cash flows. If the recoverable amount of an intangible or tangible asset is less than its carrying value, an impairment loss is recognised immediately in profit or loss and the carrying value of the asset reduced by the amount of the loss.
If it is established that an impairment that was recognised in the past no longer exists or has reduced, the increased carrying amount of the asset concerned is set no higher than the carrying amount that would have been determined if no impairment value adjustment for the asset concerned had been reported. An impairment of goodwill cannot be reversed.
Triodos Bank has one retained residential mortgage backed securitisation (RMBS) called Sinopel 2019 B.V. (“Sinopel”).
A securitisation is a transaction where a pool of assets is sold to a special purpose vehicle. The special purpose vehicle issues notes with different tranches to finance the purchase price of the assets. With Sinopel Triodos Bank structured a retained RMBS whereby Triodos Bank is the sole buyer of the issued notes and has as such not transferred any credit risk. Through the retained RMBS, Triodos Bank strengthens its financial resilience and gains additional access to (central bank) liquidity by pledging the notes as collateral with the Dutch Central Bank. The Sinopel RMBS is collateralised by Dutch residential mortgages loans. The structure is fully compliant with the new Simple Transparent Standardised EU regulation. For notes issued by Sinopel 2019 B.V., the following ECAIs were involved: DBRS Ratings Limited and S&P Global Ratings Europe. As there is no risk transfer with the Sinopel transaction, the securitisation exposures (notes) are not risk weighted separately. The securitised assets (mortgage loans) are taken into account as if they were not securitised. Triodos Bank consolidates Sinopel in its annual accounts.
Apart from the Sinopel transaction Triodos Bank is not active as originator, investor or sponsor of securitisation exposures. As a result, Triodos Bank does not hold any re-securitisation positions and does not provide securitisation related services to any other SPV.
The notes of the securitisation are pledged as collateral. The carrying amount of the financial assets pledged as collateral is EUR 1346.5 million (2021: 568.8 million).
The cash flow statement sets out the movement in Triodos Bank's funds, broken down into operating activities, investment activities and financing activities. The funds consist of cash and the on demand deposits with banks. The cash flow statement is produced using the indirect method and gives details of the source of cash and cash equivalents over the course of the year. The cash flows are analysed into cash flows from operations, including banking activities, investment activities and financing activities.
Movements in loans and receivables and interbank deposits are included in the cash flow from operating activities. Investment activities are comprised of acquisitions, sales and redemptions in respect of financial investments, as well as property and equipment. The issuing of shares and the borrowing and repayment of long-term funds are treated as financing activities. Cash flows arising from foreign currency transactions are translated into euros using the exchange rates at the date of the cash flows.