Accounting policies
General information
Assets, liabilities, and pending transactions are recognised and measured in accordance with the provisions of Sections 252 et sequens HGB, with due regard to the supplementary provisions for banks (Sections 340 et seq. HGB). The annual financial statements at 31 December 2024 are generally based on the same accounting policies as were applied in the prior year’s annual financial statements. Any changes are described below.
Recognition and measurement of financial instruments
In accordance with Section 11 RechKredV pro rata interest is presented in the corresponding balance sheet item.
Loans and advances / liabilities
Loans and advances are accounted for in accordance with Section 340e (2) HGB, i.e. at their nominal amount less any writedowns. Liabilities are measured at their settlement amount in accordance with Section 253 (1) sentence 2 HGB. Premiums and discounts on loans as well as advances and liabilities are presented as either prepaid expenses or deferred income. Zero bonds are measured at their issue price plus capitalised interest based on the issue yield.
Securities held as fixed assets
The Bank does not keep a trading book pursuant to Section 1 (35) German Banking Act (Kreditwesengesetz, KWG) in conjunction with Article 4 (1) No. 86 Regulation (EU) No. 575/2013.
All securities are carried at amortised cost less any impairments. Reversals of impairments are recognised if the reasons for an earlier impairment no longer apply.
Fixed-income securities held as fixed assets are measured in accordance with the moderate lower of cost or market principle pursuant to Section 253 (3) sentence 5 HGB. On the basis of the criteria defined by the Insurance Committee of the Institute of Public Auditors in Germany (IDW), Rentenbank tests for a potential permanent impairment if the carrying amount of the bond was more than 20 % below the fair value in the last six months prior to the reporting date or if the average of daily fair values over the last twelve months was more than 10 % below the carrying amount.
Because these securities are intended to be held over the long term, no write-downs to fair value are recognised if an identified impairment is considered to be only temporary. In particular, write-downs are not recognised when an identified impairment is only of a temporary nature with respect to future financial performance and it is expected that the securities will be fully repaid when due.
The shares in venture capital funds presented under Shares and other non-fixed-interest securities are held as fixed assets and measured in accordance with the moderate lower of cost or market principle. The elective option allowed by Section 253 (3) Sentence 6 HGB permits the recognition of impairments even when an impairment is not expected to be permanent. This elective option is generally exercised with due regard to the different life phases of the venture capital funds.
Securities allocated to the liquidity reserve
Securities allocated to the liquidity reserve are measured in accordance with the strict lower of cost or market principle (Section 253 (4) HGB). These securities are written down to their lower fair value where applicable.
Equity interests and shares in affiliated companies
Equity interests and shares in affiliated companies are measured at cost in accordance with the rules applicable to fixed assets. They are written down to their lower fair value to account for any impairment that is expected to be permanent.
Derivatives
Derivate werden ausschließlich als Absicherungsinstrumente für bestehende oder absehbare Marktpreisrisiken genutzt. Bewertungseffekte aus den Derivaten werden im Rahmen der verlustfreien Bewertung des Bankbuchs berücksichtigt.
Geleistete und erhaltene Upfront-Zahlungen aus derivativen Verträgen werden in den aktiven bzw. passiven Rechnungsabgrenzungsposten ausgewiesen. Die Auflösungsbeträge von Upfront-Zahlungen aus Swapgeschäften werden je Vertrag mit den nominalen Zinserträgen bzw. -aufwendungen verrechnet.
Other assets / liabilities
Other assets are measured at their nominal amount and Other liabilities at their settlement amount.
Loan loss provisions
Identifiable risks in the lending business are sufficiently accounted for by specific valuation allowances and provisions. In addition to the fund for general banking risks presented in the balance sheet, general valuation allowances and contingency reserves pursuant to Section 340f HGB are recognised to account for latent (credit) risks and deducted from the corresponding asset items.
Rentenbank assesses on a monthly basis whether there are any objective indications that not all payments of interest and principal can be made in accordance with the terms of the underlying contracts. For accounting purposes, the Bank applies the following criteria to determine whether the recognition of a specific valuation allowance for a given receivable is required:
- Significant financial difficulties,
- breach of contract such as default or overdraft event > 90 days,
- economic or contractual concessions by creditors,
- probable insolvency or financial restructuring of the borrower.
The amount of specific valuation allowances on loans and advances is equal to the difference between the outstanding loan amount and the lower fair value at the reporting date. The fair value is determined on the basis of the still expected, discounted returns from the loan exposure. Due consideration is given to furnished collateral.
In accordance with IDW RS BFA 7, general valuation allowances are recognised for latent credit risks, the amount of which is calculated using the probability of default and the loss ratio as a basis.
Due to the low default rates of its portfolio, Rentenbank does not have enough of a default history to allow for a reliable estimate of its default rate.
Therefore, the internal master scale is derived from the realised default rates published by the rating agencies Fitch, Moody’s, and S & P. The probabilities of default are allocated on the basis of the credit quality of the respective business partner.
The loss given default (LGD) rates for specific products and types of transactions are determined by application of analytical and expert-based methods, with due regard to the respective collateralisation.
Determination of fair value of financial instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined with reference to either directly observable exchange or market prices or the Bank’s own calculations on the basis of valuation models and observable market parameters. When valuation models are applied, the fair value of contracts without option features is determined on the basis of the discounted expected future cash flows (discounted cash flow (DCF) method). Contracts with option features are measured by application of recognised option pricing models. Hedged items are discounted to present value using a base curve plus a credit spread based on credit quality.
Derivatives are discounted to present value on the basis of the OIS (overnight interest rate swap) swap curve, as well as basis swap spreads and cross-currency basis spreads. These are differentiated by ma-turity and currency and obtained from external market data providers. Apart from the yield curves and spreads mentioned above, volatilities and correlations are also taken into account in the calculations.
Loss-free valuation of the banking book
According to the IDW Accounting Principle “Specific aspects of the loss-free valuation of interest rate transactions in the banking book (interest book)” (new version of IDW RS BFA 3), a provision for onerous contracts must be recognised in respect of any excess liability in the banking book resulting from an interest rate transaction on the basis of an overall assessment of the transaction.
A periodic (income statement) approach was applied to calculate the amount required to be recognised as a provision in the context of the lossfree valuation of the banking book. The banking book comprises all the Bank’s interest-bearing transactions and is managed on a uniform basis.
For calculation purposes, future period gains or losses in the banking book were determined on the basis of the profit/loss contributions of closed and open interest rate positions.
These future cash flows were discounted to present value at the reporting date on the basis of generally recognised, maturity-matched money market and capital market rates. Risk expenses were calculated on the basis of future expected losses and the proportion of administrative expenses allocable to portfolio management was determined on the basis of internal assessments. Based on these calculations, it was determined that no such provisions needed to be recognised at 31 December 2024.
Trust assets / trust liabilities
Trust assets and trust liabilities are presented as separate balance sheet items in accordance with Section 6 RechKredV. Due to the correlation between trust assets and trust liabilities, both are measured at nominal amounts.
Property and equipment and intangible assets
In accordance with German commercial law, items of property and equipment and intangible assets are measured at cost, less any depreciation and amortisation over their estimated useful lives.
Depreciation of property and equipment and amortisation of intangible assets are charged on a straight-line basis over estimated useful lives, ranging from 33 to 50 years for buildings and from three to six years for operational and office equipment. Intangible assets are amortised on a straight-line basis over a period of three to four years.
Prepaid expenses / deferred income
Other prepaid expenses and deferred income are recognised in accordance with Section 250 (1) and (2) HGB.
Provisions
Provisions are measured at the necessary settlement amount according to prudent business judgement, with due regard to future price and cost increases. Provisions with a remaining term of more than one year are discounted to present value at the reporting date.
Pension provisions
Pension obligations are discounted to present value by application of the average market interest rate for the last ten financial years, as calculated and published on a monthly basis by the Bundesbank in accordance with the German Regulation on the Discounting of Provisions (Rückstellungsabzinsungsverordnung, RückAbzins V). This average interest rate corresponds to the remaining term of the provisions. In accordance with Section 253 (2) sentence 2 HGB, provisions for pension obligations are discounted to present value on a flat-rate basis by application of the average market interest rate corresponding to an assumed remaining term of 15 years.
In accordance with Section 253 HGB, as amended in 2016, provisions for pension obligations are discounted to present value by application of the average market interest rate for the last ten financial years (last seven financial years up to and including 2015), which corresponds to the remaining term of the pension obligations. On this basis, a difference of EUR - 1.4 million (EUR + 2.0 million) was calculated for 2024. According to Section 253 (6) sentence 2 HGB, profits may only be distributed if the freely disposable reserves remaining after distribution, plus any profit carried forward and minus any loss carried forward, are at least equal to the (positive) difference determined in accordance with Section 253 (6) sentence 1 HGB.
Pension provisions are measured in accordance with actuarial principles using the projected unit credit (PUC) method. Under the PUC method, the provision amount is defined as the actuarial present value of the pension obligations earned by employees in the past periods of service up to the reporting date in accordance with the pension formula. The 2018 G Mortality Tables of Prof. Dr. Klaus Heubeck are applied as the biometric calculation parameters.
The following parameters were applied as the basis for the calculation as of 31 December 2024:
| 2024 per annum |
2023 per annum |
|
| Actuarial interest rate pursuant to Section 253 (2) sentence 2 HGB | 1.90 % | 1.83 % |
| Career trend | 1.00 % | 1.00 % |
| Trend of creditable compensation | 2.50 % | 2.50 % |
| Pension trends (range of adjustments) | 1.00 - 2.20 % | 1.00 - 2.50 % |
| Employee turnover | durchschnittlich 5.0 % |
durchschnittlich 5.0 % |
| Increase in the Consumer Price Index (CPI)* | 2.20 % | 2.50 % |
| Development of contribution assessment ceilings | 3.50 % | 3.00 % |
| *Accumulated inflation was included in the CPI adjustment with subsequent funding of 4.2% in 2024 (PY: 4.6%). | ||
Other provisions
Other provisions are discounted to present value by application of the average market interest rates for the past seven financial years, as calculated and published on a monthly basis by the Bundesbank in accordance with the German Regulation on the Discounting of Provisions. This average interest rate corresponds to the remaining terms of the provisions.
Provisions for special promotional loans cover the interest subsidy for the entire term of the loan or until the repricing date.
Valuation units / currency translation
Currency translation and the presentation of the transactions in the balance sheet without currency hedging are done in accordance with Section 340h in conjunction with Section 256a HGB and Section 252 (1) No. 4 HGB. In accordance with Section 277 (5) sentence 2 HGB, currency translation gains are presented in the item of “Other operating income” (conferre Note 24) and currency translation losses in the item of “Other operating expenses” (cf. Note 25).
Rentenbank uses currency swaps and cross-currency interest rate swaps to hedge currency risks. Currency hedges are presented in the balance sheet by way of currency valuation units pursuant to Section 254 H G B. In these valuation units, the cash flows of the hedged item are fully reflected in the hedging instrument, i.e. the derivative (perfect hedge). The Bank utilises the net hedge presentation method to present the offsetting value changes between the hedged item and the hedging instrument.
To measure the effectiveness of hedging relationships, the Bank uses the critical terms match method, by which the terms of the hedged item are continually compared with those of the hedging instrument. Exchange rate fluctuations of the corresponding hedged items and hedging derivatives move in opposite directions and will offset each other in the time until the planned maturity dates of the valuation units with respect to the holding intention for the hedged risk.
Foreign currency-denominated assets, liabilities and pending transactions were translated into euros at the mean spot exchange rate at 31 December 2024. Rentenbank uses the reference rate of the European Central Bank (ECB) for this purpose.