Classification criteria

Receivables are composed of loans to customers and banks, both issued directly or acquired by third parties, with fixed or determinable payment dates that are not traded in an active market.

Due from customers are almost entirely made up of advances on demand granted to customers during factoring operations against a recourse portfolio that remains in the assigning counterparty’s statement of financial position or against credit acquired under non-recourse agreements, providing no contractual clauses that eliminate the conditions for their recognition exist.

Recognition criteria

Receivables are initially recognised at the date they are granted to the counterparty at their fair value, including any costs that are directly attributable to their acquisition or determinable right from the beginning of the transaction, even if settled at a later date. Costs that are to be reimbursed by the debtor counterparty or can be considered a normal internal administrative cost are excluded.

Measurement criteria

After initial recognition, the receivables are measured at amortised cost which is equal to the initial amount reduced/increased by reimbursements of principal, impairment losses/reversals of impairment losses and amortisation - calculated using the effective interest method. The effective interest rate is calculated based on the present value of expected cash flows for principal and interest of the amount granted, including any directly attributable costs/income. This method of accounting using financial logic allows the economic effect of the costs/income to be distributed over the residual life of the loan.

Such calculations are not applied for short-term loans, as the effect of discounting would be insignificant. These are measured at their historical cost. An analogous criterion is adopted for loans without a fixed due date or for revocable loans.

At the closure of every reporting period, an assessment is effected in order to determine any loans that, due to events subsequent to the initial recognition of such loans, show signs of possible impairment losses. In adherence to both Bank of Italy’s regulations and IFRS, non-performing loans, substandard loans and rescheduled and overdue loans fall into this category.

In the Notes, write-downs to impaired loans are classified in a detailed table in the cited income statement item even when the calculation method is lump-sum/statistical.

Specifically, non-performing loans are subjected to an analytical valuation and the total amount of the impairment loss on each loan is equal to the difference between the carrying amount at the moment of valuation (amortised cost) and the present value of expected future cash flows, calculated using the effective interest method at the moment in which the loan became non-performing. Expected future cash flows are calculated taking into account expected recovery times based on past history and other significant characteristics, as well as the estimated realisable value of any possible guarantees.

Each subsequent change in the amount or due dates of expected cash flows causing a decrease compared to initial estimates, results in the recognition of an impairment loss in the income statement.

If the quality of an impaired loan or receivable improves and there is reasonable certainty of a timely recovery of the principal and interest, in keeping with the relative original contractual terms, the impairment loss is reversed in the income statement, with a maximum ceiling of the amortised cost that would have occurred in the absence of the previous impairment losses.

Substandard loans are represented by loans to customers facing temporary difficulties, which are likely to be solved within a reasonable period of time (“subjective substandard loans”).

Based on the definition contained in the Bank of Italy’s instructions currently in force, substandard loans also include loans which are not be classified as non-performing loans to customers other than Public Administrations, which satisfy both the following conditions “objective substandard loans”):

  • are overdue and have not been paid and/or are overdraft for more than 270 days;

  • the total amount of the above loans and of the other instalments which have fallen due for less than 270 days and relating to the same debtor, is at least 10% of the total exposure to this debtor.

In the factoring sector, the continuity of amounts overdue is to be determined as follows:

  • in the case of "without recourse” transactions, for every assigned debtor, reference should be made to the invoice showing the biggest delay;

  • in the case of "with recourse” transactions, the following conditions must be satisfied:

  • the advance payment made is equal or higher than the total amounts to fall due;

  • there is at least one invoice which has fallen due for more than 270 days and the total invoices overdue is higher than 10% of total receivables.

Subjective or objective substandard loans relating to without recourse loans or overdrafts amounting to more than EUR 100,000 are recognised in a detailed table; the write-down to each loan is equal to the difference between the amount recognised in the balance sheet at the time of recognition (amortised cost) and the current value of expected future cash flows, calculated using the original effective interest rate or, in case of indexed rates, the last contractually applied rate. Subjective or objective substandard loans relating to without recourse loans or overdrafts amounting to less than EUR 100,000 are subject to collective loss of value recognition.

Objective substandard loans relating to with recourse loans are subject to collective loss of value recognition, since they are not representative of objectively impaired loans.

Restructured loans are defined as loans to counterparties with whom the bank has signed agreements granting a suspension of debt payments while interest rates lower than the original are being negotiated. They are subject to collective loss of value recognition or, if specific factors warrant, to detailed valuation.

Past-due loans, as defined by the Bank of Italy, are subject to collective loss of value recognition.

Performing loans are subject to collective impairment test. Such measurement takes place according to categories of loans considered homogeneous in terms of credit risk and the relative percentage of expected loss. Expected loss takes into account past history and any significant elements existing at the time of measurement that permit the calculation of the value of latent losses for each category.

Derecognition criteria

The entire derecognition of a loan or receivable is effected when it is considered unrecoverable. Derecognitions are recognised directly under impairment losses and are entered as a reduction of the principal. Partial or complete reversals of previous impairment losses are entered as a reduction of the net impairment losses on loans and receivables.

Transferred or securitised financial assets are derecognised when all the related risks and rewards of ownership have been transferred. If the risks and rewards are maintained, these financial assets continue to be recognised, even though the ownership has actually been transferred to a third party.

In such cases, a financial liability is recognised equal to the amount collected at the moment of transfer.

If some, but not all, the risks and rewards have been transferred, the financial assets are only derecognised if control of the asset has been transferred. If, instead, control has been maintained, the financial assets are recognised proportionally to the entity’s continuing involvement in the asset.

Lastly, as far as concerns the transfer of rights to collect on the financial asset, the cash assets are derecognised even if contractual rights to receive cash flows are maintained but an obligation to pay such flows to one or more companies is taken on.