Mizuho Bank Europe Annual Report 2018

63 2018 ANNUAL REPORT 5.9 Risk Management Fair Value The purpose of this information is to give users of the financial statements insight in the fair value of the financial instruments. Fair value is defined as the amount for which a financial instrument could be exchanged between knowledgeable, willing parties in an arm’s length transaction. As far as possible, the fair value is based on market prices. In those situations where a market price is not available, the fair value is estimated using models that discount future cash flows. Related items are marked (*). The valuation methods for those instruments for which the market value differs from the carrying amounts are explained in more detail below. Loans and advances to customers Loans and advances are net of charges for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Debt securities The aggregate fair values are calculated based on quoted market prices, where possible. For those notes of which quoted market prices are not available, a discounted cash flow model is used based on a current yield curve appropriate for the remaining term to maturity. Funds entrusted As the funds entrusted represent short-term deposits and as interest rates are low, the fair value approximated at the carrying value. (in €’000) 31/12/2018 31/12/2017 Carrying amount Fair value Carrying amount Fair value Assets Balances with central banks 1,350,986 1,350,986 772,445 772,445 Banks 476,698 476,698 623,057 623,057 Loans and advances to customers 2,411,712 2,215,751 2,074,411 2,083,287 Debt securities - - 102,335 102,532 4,239,396 4,043,435 3,572,248 3,581,321 Swaps hedge - 4,249 - 2,925 Interest rate swaps 37,980 37,980 47,903 47,903 Cross currency swaps 5,067 5,067 20,205 20,205 Interest rate caps - - 203 203 4,282,443 4,090,731 3,640,559 3,652,557 Liabilities Banks 1,314,500 1,314,500 1,036,207 1,036,192 Funds entrusted 2,346,319 2,346,319 2,063,635 2,063,650 3,660,819 3,660,819 3,099,842 3,099,842 Swaps hedge - 4,059 - 11,059 Interest rate swaps 35,213 35,213 44,515 44,515 Cross currency swaps 5,056 5,056 20,183 20,183 Interest rate caps - - 203 203 3,701,088 3,705,147 3,164,743 3,175,802 Risk Policies MBE’s approach to risk management matches its low complexity. Our Risk Management Framework (RMF) aims to limit the impact of unexpected events on our solvency, liquidity, and business & operational performance to the greatest possible extent. We consciously strive for a low-risk profile by having strategies as well as systems and procedures in place for the identification and mitigation of risks. Making clear choices and