Valuation models

Triodos Bank measures fair values using the following fair-value hierarchy, which reflects the significance of the inputs used in making the measurements.

  • Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments.

  • Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques in which all significant inputs are, directly or indirectly, observable from market data.

  • Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs that are not observable and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Triodos bank determines the fair value of its financial instruments using the following bases. The fair value of listed debt securities at amortised cost is the market value. The fair value of unlisted debt securities at amortised cost is public quoted information if available or nominal value. The fair value of loans and advances to banks, lease liabilities, deposits from banks, deposits from customers and debt issued and other borrowed funds has been determined by calculating the net present value of expected interest and redemption cash flows, based on market interest rates as at the end of the year. The fair value of loans and advances to customers (including mortgages) has been determined by calculating the net present value of the interest and redemption cash flows, with account taken of expected prepayment behaviour. The net present value is calculated by using market data, i.e. zero coupon rates, as at the end of the year, which are adjusted with a Triodos Bank-specific spread. The spread is based on the expected margin the business units expect to make over the market base rates in the coming years on their production of business loans and mortgages. Part of the corporate loans and mortgages includes caps and/or floors on interest rates. The fair value of other assets and liabilities is assumed to be equal to the balance sheet value.

Investment securities comprise participating interests and debt where no significant influence can be exercised and are carried at fair value through either comprehensive income or profit or loss. In the case of an investment security that is listed on an active stock exchange, the fair value will be deemed to be equal to the most recently published stock exchange price. In the case of an investment security 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 our 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.

Derivatives held for risk management are carried at fair value through profit or loss. These instruments are split between interest rate swaps and foreign exchange rate forward contracts. The interest rate swaps are valued using the appropriate discount curve to calculate the net present value of expected cash flows under the contracts. This curve is openly observable from market data. The foreign exchange rate forward contracts are valued using the forward exchange rate for the corresponding currency, as observable from market data.

Financial instruments measured at fair value – fair-value hierarchy

The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair-value hierarchy into which the fair-value measurement is categorised. There have been no transfers of financial instruments between different levels during the reporting period.

2022
Amounts in thousands of EUR

Level 1

Level 2

Level 3

Total

Derivative assets held for risk management

 

 

 

 

Interest rate

-

290,310

-

290,310

Foreign exchange

-

5,386

-

5,386

Total

-

295,696

-

295,696

 

 

 

 

 

Investment securities

 

 

 

 

Equities

17,073

13,866

5,153

36,092

Debt

-

190

-

190

Total

17,073

14,056

5,153

36,282

 

 

 

 

 

Derivative liabilities held for risk management

 

 

 

 

Interest rate

-

-

-

-

Foreign exchange

-

1,249

-

1,249

Total

-

1,249

-

1,249

2021
Amounts in thousands of EUR

Level 1

Level 2

Level 3

Total

Derivative assets held for risk management

 

 

 

 

Interest rate

-

17,983

-

17,983

Foreign exchange

-

1,667

-

1,667

Total

-

19,650

-

19,650

 

 

 

 

 

Investment securities

 

 

 

 

Equities

11,739

13,784

4,705

30,228

Debt

-

5,463

-

5,463

Total

11,739

19,247

4,705

35,691

 

 

 

 

 

Derivative liabilities held for risk management

 

 

 

Interest rate

-

2,757

-

2,757

Foreign exchange

-

4,190

-

4,190

Total

-

6,947

-

6,947

Level 3 valuations relate to participating interest which are valued at fair-value through other comprehensive income. Total fair value changes amount to EUR 431.0 (2021: EUR 135.0).

Financial instruments not measured at fair value

The following table sets out the dirty fair values of financial instruments not measured at fair value and analyses them by the level in the fair-value hierarchy into which each fair-value measurement is categorised. The dirty fair value includes the current interest accrual.

2022
Amounts in thousands of EUR

Level 1

Level 2

Level 3

Total fair values

Total Carrying

Assets

 

 

 

 

 

Debt securities at amortised cost

1,487,611

108,395

-

1,596,006

1,689,780

Loans and advances to banks

-

-

332,012

332,012

332,493

Loans and advances to customers

-

-

9,890,824

9,890,824

10,619,676

Investment securities

9,436

-

-

9,436

9,436

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits from banks

-

-

332,740

332,740

337,087

Deposits from customers

-

-

12,832,274

12,832,274

13,816,340

Subordinated debt

-

-

202,927

202,927

259,884

Lease liabilities

-

-

12,566

12,566

13,924

2021
Amounts in thousands of EUR

Level 1

Level 2

Level 3

Total fair values

Total Carrying

Assets

 

 

 

 

 

Debt securities at amortised cost

1,407,965

85,174

-

1,493,139

1,483,378

Loans and advances to banks

-

-

266,300

266,300

265,796

Loans and advances to customers

-

-

10,357,966

10,357,966

10,167,798

Investment securities

4,285

-

-

4,285

4,285

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits from banks

-

-

1,605,889

1,605,889

1,608,306

Deposits from customers

-

-

13,276,234

13,276,234

13,285,072

Subordinated debt

-

-

255,233

255,233

255,615

Lease liabilities

-

-

19,730

19,730

17,425

Fair-value of the cash and cash equivalents approximates the total carrying amount as these are on demand balances and therefore not included in the above table.