Mizuho Bank Europe Annual Report 2018

48 MIZUHO BANK EUROPE N.V. The rationale for the focus on this part of the portfolio derives from the concerns of the European supervisory authorities about the deterioration of the quality of the portfolio; it is feared that forbearance measures might camouflage this deterioration of the portfolio as debtors are able to meet their financial obligations for longer periods owing to the concessions. 2h. Cash flow statement The cash flow statement has been drawn up according to the indirect method, subdivided into the cash flows from operating activities, investment activities and financing activities during the period. Cash and cash equivalents, as referred to in the cash flow statement, comprises of non-restricted balances with central banks and amounts due from banks on demand. In the net cash flow from operating activities, the net result is adjusted in respect to items in the profit and loss account and movements in balance sheet items, which do not result in actual receipts or expenditure during the financial year. 2i. Statement of movement in equity This item shows the movement in share capital and reserves including profit of the current year. 3. Principles for valuation of assets and liabilities 3a. Balances with central banks This item comprises of current account balances with central banks, including the mandatory reserve deposits. 3b. Loans and advances to banks Loans and advances to banks are non- derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are initially recorded at fair value and measured subsequently at amortized cost using the effective interest rate method. Interest on loans and advances is included in interest income and is recognized on an effective interest rate method. An allowance for credit losses is established if there is objective evidence that the bank will be unable to collect all amounts due on a loan according to the original contractual terms or the equivalent value. The allowance is reported as a reduction of the carrying value of a claim on the balance sheet. Additions and reductions to the allowances for credit losses are recorded in the profit and loss statement. 3c. Loans and advances to customers Loans and advances to customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are initially recorded at fair value and measured subsequently at amortized cost using the effective interest rate method. Interest on loans and advances is included in interest income and is recognized on an effective interest rate method. An allowance for credit losses is established if there is objective evidence that the bank will be unable to collect all amounts due on a loan according to the original contractual terms or the equivalent value. The allowance is reported as a reduction of the carrying value of a claim on the balance sheet. Additions and reductions to the allowances for credit losses are recorded in the profit and loss statement. 3d. Debt securities Debt securities are classified as held to maturity investments as the bank has the intention and ability to hold it to maturity. The held to maturity investments are measured at amortized cost using the effective interest rate method. This method uses an effective interest rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Gains and losses are recognized in the income statement when the investments are derecognized or impaired, as well as through the amortization process. 3e. Intangible fixed assets Software is stated at cost less accumulated amortization and any accumulated impairment. Amortization is charged over the estimated useful lives, using straight-line method, over a period of 5 years. The assets’ residual values and estimated useful lives are reviewed at the end of each annual reporting period. 3f. Tangible fixed assets Leasehold improvements, office equipment and other tangible fixed assets are stated

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