SFIL Annual financial report 2018

3 I Consolidated financial statements in accordance with IFRS 106 SFIL Annual Financial Report 2018 Amount after restatment phase 1 Adjustment value phase 1 Ajustement phase 2 IFRS 9 1/1/2018 Restatment of financial assets available for sale (a) Restatment of Bonds assimilated to loans and advances in IAS 39 (b) Restatement of loans and advances non SPPI (c) Other restatement (d) Provisions for credit risk (e) LIABILITIES Central banks - - - - - - - Derivatives at fair value through net income 1,480 - - - - - 1,480 Hedging derivatives 6,587 - - - - - 6,587 Due to banks at amortized cost 4,215 - - - - - 4,215 Customer borrowing and deposits at amortized cost - - - - (1) - (1) Debt securities at amortized cost 56,315 - - - - - 56,315 Fair value revaluation of portfolio hedge 883 - - - - - 883 Current tax liabilities 1 - - - - - 1 Deferred tax liabilities - - - - - - - Other liabilities 1,434 - - - - - 1,434 Provisions 48 - - - - 6 54 Subordinated debt - - - - - - - EQUITY 1,469 32 51 (158) 131 (6) 1,519 Capital 1,445 - - - - - 1,445 Reserves and retained earnings 72 - - (158) 131 (6) 39 Gains and losses recognised in equity (102) 32 51 - - - (19) Net income for the period 54 - - - - - 54 TOTAL 72,432 32 51 (158) 130 (0) 72,487 (a) The reserve composed of the fair value adjustments accumulated in equity until December 31, 2017 on the debt securities reclassified from the Available for sale financial assets category under IAS 39 standard to Bonds at amortized cost under IFRS 9 standard has been reversed. (b) Most od the debt securities which were classified as Loans and advances to customers at amortized cost under IAS 39 standard had been classified as Available for sale financial assets at initial recognition and had been subsequently reclassified in this category in October 1, 2008 in accordance with the limited amendment to IAS 39 endorsed by the European Union in October 15, 2008. This reclassification has resulted into the freezing of the reserve composed of the fair value adjustments accumulated in equity on these assets; this reserve has subsequently been amortized until December 31, 2017. In January 1, 2018, the retrospective application of IFRS 9 standard results in the reversal of the fraction yet not amortized of this reserve. (c) The measurement at fair value through net income under IFRS 9 of loans previously measured at amortized cost under IAS 39 has impacted the value of the underlying loans. (d) The policy implemented by SFIL from its creation to reduce loan sensitivity resulted in the transformation of a large number of loans with a structured (non-SPPI) component into fixed or variable rate loans (SPPI). These transactions did not give rise to derecognition of the initial assets under IAS 39, as the financial conditions of the new loan complied with the principle of IAS 39 AG62. However, under IFRS 9, the terms of the restructured transaction are substantially diferent, as there is a change in the SPPI criterion, which is a key factor for the definition of the applicable accounting treatment. Since the application of the standard is retroactive, an adjustment of the value of the underlying loans has been recorded as a counterpart to equity on the date of first application of the standard; this adjustment corresponds to the impacts (adjusted for the time-related amortization) that would have resulted from the derecognition of the loans on the date of their transformation. In addition, on the Liability side of the balance sheet, the value of the debt securities issued has been adjusted as a counterpart to equity: this adjustment concerns issued securities which have been transformed prior to December 31, 2017 and for which the application of IFRS 9 standard would have resulted in their derecognition and the recognition of a result. Time-related amortization of this result is taken into account. (e) The entry into force of the new impairment model for credit risk has resulted in January 1, 2018 in a EUR 10 million increase of impairments (without considering tax efects), which can be broken down into the following efects: - Recognition of loss allowances on Bucket 1 contracts: EUR -7 million; - Recognition of loss allowances on Bucket 2 contracts: EUR -39 million; - Complete reversal of the stock of collective impairments previously recognized: EUR +24 million; - Variations of specific impairment on Bucket 3 contracts (base changing): EUR +12 million, the main efect of this impact is the reversal of the impairment on assets measured at amortized cost until December 31, 2017 under IAS 39 and that are measured at fair value through net income from January 1, 2018 under IFRS 9.