7. Interest income and expense

Accounting policies

Interest income and expense comprise interest, including premiums and discounts in respect of financial instruments measured at amortized cost and instruments at fair value. Interest income include interest income from hedging derivatives. Interest income also includes deferred fee and commission received and paid accounted for using effective interest rate, which are part of the financial instrument.

Interest income and interest expense are recognised on an accrual basis using the effective interest rate method, that discounts estimated future cash inflows and payments made through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the asset or financial liability. Calculation of the effective interest rate includes all commissions paid and received by parties to an agreement, transaction costs and all other premiums and discounts constituting an integral part of the effective interest rate.

Interest income in the case of financial assets or a group of similar financial assets for which an impairment allowance was recognised is calculated on the basis of the current values of receivables (i.e. net of the

impairment allowance) by using the current interest rate used for discounting future cash flows for the purposes of estimating losses due to impairment.

The effect of the fair value measurement of financial assets taken over as part of the acquisition of the subsidiary is also recognised in interest income.

Income and expenses from sale of insurance products related to loans and advances

Due to the fact that the Group offers insurance products along with loans and advances and there is no possibility of purchasing from the Group the identical insurance product as to the legal form, conditions and economic content without purchasing a loan or an advance, fees received by the Group from sale of insurance products are treated as an integral part of the remuneration from the offered financial instruments.

Remuneration received and due to the Group from offering insurance products for the products directly associated with the financial instruments is settled using the effective interest rate method and recognised in interest income.

Remuneration received and due to the Group for performing intermediary services is recognised in commission income upon the sale of an insurance product or its renewal.

Distribution of remuneration for a commission and an interest part is made in the proportion of the fair value of a financial instrument and the fair value of intermediary service in relation to the sum of these two values.

Costs directly related to the sale of insurance products are settled in a similar manner to the settlement of revenues, according to the principle of matching revenues and expenses, i.e. as part of the amortized cost of a financial instrument or on a one-off basis.

The Group makes a periodical estimation of the compensation amount that will be recoverable in the future due to the early termination of the insurance agreement and accordingly reduces the recognised interest or commission income.

Financial information

loans and other advances to banks121.5110.8
loans and advances to customers, of which:8 363.28 111.7
on impaired loans278.2349.3
investment securities available for sale840.1703.1
derivative hedging instruments340.1450.9
financial assets designated upon initial recognition at fair value through profit and loss225.8222.8
trading financial assets68.655.2
Total 9 964.4 9 657.8
amount of interest income reduction due to negative LIBOR0.20.4

amounts due to banks(107.9)(74.0)
amounts due to customers(1 592.8)(1 955.2)
debt securities in issue and subordinated liabilities(373.4)(509.0)
debt securities available for sale(78.7)(57.2)
trading financial assets(32.7)(18.6)
financial assets designated upon initial recognition at fair value through profit and loss(24.1)(15.2)
Total (2 209.6) (2 629.2)