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Hedge accounting
 12 Months Ended
Dec. 31, 2022
Hedge Accounting  
Hedge accounting

Note 7 - Hedge accounting

There are three types of hedge relations: Fair value hedge, Cash flow hedge and Hedge of net investment in foreign operations.

In hedge accounting, the groups of risk factors measured by ITAÚ UNIBANCO HOLDING are: 

•Interest Rate: Risk of loss in transactions subject to interest rate variations.
•Currency: Risk of loss in transactions subject to foreign exchange variation.

The structure of risk limits is extended to the risk factor level, where specific limits aim at improving the monitoring and understanding process, as well as avoiding concentration of these risks.

The structures designed for interest rate and exchange rate categories take into account total risk when there are compatible hedging instruments. In certain cases, management may decide to hedge a risk for the risk factor term and limit of the hedging instrument.

The other risk factors hedged by the institution are shown in Note 32. 

To protect cash flows and fair value of instruments designated as hedged items, ITAÚ UNIBANCO HOLDING uses derivative financial instruments and financial assets. Currently Futures Contracts, Options, NDF (Non Deliverable Forwards), Forwards, Swaps and Financial Assets are used.

ITAÚ UNIBANCO HOLDING manages risks through the economic relationship between hedging instruments and hedged items, where the expectation is that these instruments will move in opposite directions and in the same proportion, with the purpose of neutralizing risk factors. 

The designated coverage ratio is always 100% of the risk factor eligible for coverage. Sources of ineffectiveness are in general related to the counterparty’s credit risk and possible mismatches of terms between the hedging instrument and the hedged item.

a) Cash flow hedge

The cash flow hedge strategies of ITAÚ UNIBANCO HOLDING consist of hedging exposure to variations in cash flows, in interest payment and currency exposure which are attributable to changes in interest rates on recognized and unrecognized assets and liabilities. 

ITAÚ UNIBANCO HOLDING applies cash flow hedge strategies as follows: 

Interest rate risks:

•Hedge of time deposits and repurchase agreements: to hedge fluctuations in cash flows of interest payments resulting from changes in the DI interest rate, through futures contracts.
•Hedge of asset transactions: to hedge fluctuations in cash flows of interest receipts resulting from changes in the DI rate, through futures contracts.
•Hedge of assets denominated in UF*: to hedge fluctuations in cash flows of interest receipts resulting from changes in the UF*, through swap contracts.
•Hedge of Funding: to hedge fluctuations in cash flows of interest payments resulting from changes in the TPM* rate, through swap contracts.
•Hedge of loan operations: to hedge fluctuations in cash flows of interest receipts resulting from changes in the TPM* rate, through swap contracts.
•Hedge of repurchase agreements: to hedge fluctuations in cash flows of interest received from changes in Selic (benchmark interest rate), through futures contracts.
•Hedging of expected highly probable transactions: to hedge the risk of variation in the amount of the commitments assumed when resulting from variation in the exchange rates.

*UF – Chilean unit of account / TPM – Monetary policy rate

ITAÚ UNIBANCO HOLDING does not use the qualitative method to evaluate the effectiveness or to measure the ineffectiveness of these strategies. 

For cash flow hedge strategies, ITAÚ UNIBANCO HOLDING uses the hypothetical derivative method. This method is based on a comparison of the change in the fair value of a hypothetical derivative with terms identical to the critical terms of the variable-rate liability, and this change in the fair value is considered a proxy of the present value of the cumulative change in the future cash flow expected for the hedged liability. 

               
    12/31/2022
Hedged item   Hedge instrument
Strategies Heading Book Value Variation in value recognized in Other comprehensive income Cash flow hedge reserve   Notional Amount Variation in fair value used to calculate hedge ineffectiveness 
    Assets Liabilities          
Interest rate risk                
Hedge of deposits and repurchase agreements Securities sold under agreements to resell - 149,300 1,169 1,169   149,210 1,222
Hedge of assets transactions Loans and lease operations and Securities 6,894 - (367) (367)   63,528 (367)
Hedge of asset-backed securities under repurchase agreements Securities purchased under agreements to resell 52,916 - (1,508) (1,508)   50,848 (1,508)
Hedge of loan operations Loans and lease operations 3,283 - (6) (6)   3,288 (6)
Hedge of funding Deposits - 6,881 86 86   6,967 86
Hedge of assets denominated in UF Securities 7,871 - 16 16   7,853 16
Foreign exchange risk                
Hedge of highly probable forecast transactions   - 343 4 191   343 4
Hedge of funding Deposits - 360 (1) (1)   359 (1)
Total   70,964 156,884 (607) (420)   225,396 (554)

 

                 
12/31/2021
    Hedged item   Hedge instrument
Strategies Heading Book Value Variation in value recognized in Other comprehensive income Cash flow hedge reserve   Notional Amount Variation in fair value used to calculate hedge ineffectiveness 
    Assets Liabilities          
Interest rate risk                
Hedge of deposits and repurchase agreements Securities sold under agreements to resell - 39,142 1,065 1,065   39,136 1,072
Hedge of assets transactions Loans and lease operations and Securities 8,621 - (409) (409)   8,213 (409)
Hedge of asset-backed securities under repurchase agreements Securities purchased under agreements to resell 40,526 - (1,686) (1,686)   39,962 (1,698)
Hedge of loan operations Loans and lease operations 131 - - -   131 1
Hedge of funding Deposits - 5,749 30 30   5,779 30
Hedge of assets denominated in UF Securities 14,558 - (127) (127)   14,683 (127)
Foreign exchange risk                
Hedge of highly probable forecast transactions   3,508 - 185 740   3,508 185
Total   67,344 44,891 (942) (387)   111,412 (946)

 

For strategies of deposits and repurchase agreements to resell, asset transactions and asset-backed securities under repurchase agreements, the entity frequently reestablishes the coverage ratio, since both the hedged item and the instruments change over time. This occurs because they are portfolio strategies that reflect the risk management strategy guidelines approved in the proper authority level.

The remaining balance in the reserve of cash flow hedge for which the hedge accounting is no longer applied is R$ 187 (R$ 555 at 12/31/2021).

             
Hedge Instruments 12/31/2022
Notional amount Book Value (1) Variations in fair
value used to calculate
hedge ineffectiveness		 Variation in value  
recognized in Other
comprehensive income 		 Hedge ineffectiveness
recognized in income		 Amount reclassified from
Cash flow hedge
reserve to income
    Assets Liabilities        
Interest rate risk              
Futures 206,586 31 27 (653) (706) 53 -
Forward 10,037 136 646 11 11 - 1
Swaps 8,071 201 11 85 85 - -
Foreign exchange risk              
Futures 249 2 - - - - 378
Forward 94 - 1 4 4 - -
Swaps 359 54 - (1) (1) - -
Total 225,396 424 685 (554) (607) 53 379

 

Hedge Instruments 12/31/2021
Notional amount Book Value (1) Variations in fair value used to calculate hedge ineffectiveness Variation in value recognized in Other comprehensive income  Hedge ineffectiveness recognized in income Amount reclassified from Cash flow hedge reserve to income
    Assets Liabilities        
Interest rate risk            
Futures 87,311 58 24 (1,035) (1,030) (5) (13)
Forward 16,830 118 593 (118) (118) - -
Swaps 3,763 19 - 22 21 1 -
Foreign exchange risk          
Futures 3,480 252 - 185 185 - -
Forward 28 - - - - - -
Total 111,412 447 617 (946) (942) (4) (13)

 

 

b) Hedge of net investment in foreign operations

ITAÚ UNIBANCO HOLDING's strategies for net investments in foreign operations consist of hedging the exposure in the functional currency of the foreign operation against the functional currency of head office.

 

The risk hedged in this type of strategy is the currency risk.

 

ITAÚ UNIBANCO HOLDING does not use the qualitative method to evaluate the effectiveness or to measure the ineffectiveness of these strategies.

 

Instead, ITAÚ UNIBANCO HOLDING uses the Dollar Offset Method, which is based on a comparison of the change in fair value (cash flow) of the hedging instrument, attributable to changes in the exchange rate and the gain (loss) arising from variations in exchange rates on the amount of investment abroad designated as the object of the hedge.

 

             
Strategies 12/31/2022
Hedged item   Hedge instrument
Book Value (2) Variation in value recognized in Other comprehensive income Foreign currency conversion reserve   Notional amount Variation in fair value used to calculate hedge ineffectiveness
  Assets Liabilities          
Foreign exchange risk          
Hedge of net investment in foreign operations (1) 8,983 - (14,836) (14,836)   9,933 (14,996)
Total 8,983 - (14,836) (14,836)   9,933 (14,996)

 

Strategies 12/31/2021
Hedged item   Hedge instrument
Book Value (2) Variation in value recognized in Other comprehensive income Foreign currency conversion reserve   Notional amount Variation in fair value used to calculate hedge ineffectiveness
  Assets Liabilities          
Foreign exchange risk          
Hedge of net investment in foreign operations (1) 11,325 - (14,701) (14,701)   15,924 (14,720)
Total 11,325 - (14,701) (14,701)   15,924 (14,720)
1) Hedge instruments consider the gross tax position.
2) Amounts recorded under heading Derivatives.

 

In the period, the amount of R$ 7,049 (R$ 11,752 at 12/31/2021) was reversed from the hedge relationship, which remaining balance in the Foreign currency conversion reserve (Stockholders' equity) is R$ (3,116) (R$ (5,265) at 12/31/2021), with no effect on the result as foreign investments were maintained.

             
Hedge instruments 12/31/2022
Notional amount Book Value (1) Variations in fair value used to calculate hedge ineffectiveness Variation in the value recognized in Other comprehensive income Hedge ineffectiveness recognized in income Amount reclassified from foreign currency conversion reserve into income
  Assets Liabilities        
Foreign exchange risk          
Future 1,673 - - (5,751) (5,710) (41) -
Future / NDF - Non Deliverable Forward 5,186 176 126 (2,521) (2,411) (110) -
Future / Financial Assets 3,074 4,380 1,839 (6,724) (6,715) (9) -
Total 9,933 4,556 1,965 (14,996) (14,836) (160) -

 

Hedge instruments 12/31/2021
Notional amount Book Value (1) Variations in fair value used to calculate hedge ineffectiveness Variation in the value recognized in Other comprehensive income Hedge ineffectiveness recognized in income Amount reclassified from foreign currency conversion reserve into income
    Assets Liabilities        
Foreign exchange risk          
Future 2,126 286 - (3,252) (3,241) (11) -
Future / NDF - Non Deliverable Forward 8,036 209 95 (3,534) (3,529) (5) -
Future / Financial Assets 5,762 6,566 3,653 (7,934) (7,931) (3) -
Total 15,924 7,061 3,748 (14,720) (14,701) (19) -

c) Fair value hedge

The fair value hedging strategy of ITAÚ UNIBANCO HOLDING consists of hedging the exposure to variation in fair value on the receipt and payment of interest on recognized assets and liabilities. 

ITAÚ UNIBANCO HOLDING applies fair value hedges as follows: 

 Interest rate risk:

•To protect the risk of variation in the fair value of receipt and payment of interest resulting from variations in the fair value of the variable rates involved, by contracting swaps and futures.

ITAÚ UNIBANCO HOLDING does not use the qualitative method to evaluate the effectiveness or to measure the ineffectiveness of these strategies. 

 

Instead, ITAÚ UNIBANCO HOLDING uses the percentage approach and dollar offset method: 

•The percentage approach is based on the calculation of change in the fair value of the revised estimate for the hedged position (hedged item) attributable to the protected risk versus the change in the fair value of the derivative hedging instrument.
•The dollar offset method is based on the difference between the variation in the fair value of the hedging instrument and the variation in the fair value of the hedged item attributed to changes in the interest rate.

The effects of hedge accounting on the financial position and performance of ITAÚ UNIBANCO HOLDING are presented below:

               
Strategies 12/31/2022
Hedge Item   Hedge Instruments (2)
Book Value (1) Fair Value Variation in fair value recognized in income   Notional amount Variation in fair value used to calculate hedge ineffectiveness
  Assets Liabilities Assets Liabilities        
Interest rate risk              
Hedge of loan operations 16,031 - 15,582 - (449)   16,031 448
Hedge of funding - 14,603 - 13,905 698   14,603 (703)
Hedge of securities 7,363 - 7,134 - (229)   7,317 225
Total 23,394 14,603 22,716 13,905 20   37,951 (30)

 

Strategies 12/31/2021
Hedge Item   Hedge Instruments (2)
Book Value (1) Fair Value Variation in fair value recognized in income   Notional amount Variation in fair value used to calculate hedge ineffectiveness
  Assets Liabilities Assets Liabilities        
Interest rate risk              
Hedge of loan operations 8,890 - 8,917 - 27   8,890 (28)
Hedge of funding - 11,051 - 10,661 390   11,051 (388)
Hedge of securities 3,162 - 3,128 - (34)   2,885 29
Total 12,052 11,051 12,045 10,661 383   22,826 (387)
1) Amounts recorded under heading Deposits, Securities, Funds from Interbank Markets and Loan and Lease Operations.
2) Comprises the amount of R$ 4,349 (R$ 6,422 at 12/31/2021), related to instruments exposed by the change in reference interest rates - IBORs.

 

At 12/31/2021, the amount of R$ 8,001 was reversed from the hedge relationship, which effective portion is R$ 125, with no effect on the result because it is a fair value hedge of securities at fair value through other comprehensive income. 

For loan operations strategies, the entity reestablishes the coverage ratio, since both the hedged item and the instruments change over time. This occurs because they are portfolio strategies that reflect the risk management strategy guidelines approved in the proper authority level.

         
Hedge Instruments 12/31/2022
Notional amount Book value (1) Variation in fair value used to calculate hedge ineffectiveness Hedge ineffectiveness recognized in income
    Assets Liabilities    
Interest rate risk        
Swaps 35,091 1,002 929 (49) (10)
Futures 2,860 4 - 19 -
Total 37,951 1,006 929 (30) (10)

 

Hedge Instruments 12/31/2021
Notional amount Book value (1) Variation in fair value used to calculate hedge ineffectiveness Hedge ineffectiveness recognized in income
    Assets Liabilities    
Interest rate risk        
Swaps 22,826 2 551 (387) (4)
Total 22,826 2 551 (387) (4)

 

The table below presents, for each strategy, the notional amount and the fair value adjustments of hedge instruments and the book value of the hedged item:

 

               
  12/31/2022   12/31/2021
Hedge instruments Hedged item   Hedge instruments Hedged item
Notional amount Fair value adjustments Book Value   Notional amount Fair value adjustments Book Value
Hedge of deposits and repurchase agreements 149,210 (27) 149,300   39,136 (24) 39,142
Hedge of highly probable forecast transactions 343 1 343   3,508 252 3,508
Hedge of net investment in foreign operations 9,933 2,591 8,983   15,924 3,313 11,325
Hedge of loan operations (Fair value) 16,031 820 16,031   8,890 (28) 8,890
Hedge of loan operations (Cash flow) 3,288 (11) 3,283   131 - 131
Hedge of funding (Fair value) 14,603 (762) 14,603   11,051 (388) 11,051
Hedge of funding (Cash flow) 7,326 391 7,241   5,779 137 5,749
Hedge of assets transactions 6,528 1 6,894   8,213 8 8,621
Hedge of asset-backed securities under repurchase agreements 50,848 30 52,916   39,962 50 40,526
Hedge of assets denominated in UF 7,853 (646) 7,871   14,683 (593) 14,558
Hedge of securities 7,317 19 7,363   2,885 29 3,162
Total   2,407       2,756  

 

The table below shows the breakdown by maturity of the hedging strategies:

 

                 
  12/31/2022
  0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years Over 10 years Total
Hedge of deposits and repurchase agreements 108,499 26,120 9,110 - 4,726 755 - 149,210
Hedge of highly probable forecast transactions 343 - - - - - - 343
Hedge of net investment in foreign operations (1) 9,933 - - - - - - 9,933
Hedge of loan operations (Fair value) 2,351 3,395 1,244 2,539 2,749 3,753 - 16,031
Hedge of loan operations (Cash flow) - 1,577 1,161 - 550 - - 3,288
Hedge of funding (Fair value) 1,673 885 1,288 3,091 579 4,981 2,106 14,603
Hedge of funding (Cash flow) 5,776 578 - 675 - 297 - 7,326
Hedge of assets transactions - 6,528 - - - - - 6,528
Hedge of asset-backed securities under repurchase agreements 16,696 9,705 22,740 1,085 622 - - 50,848
Hedge of assets denominated in UF 7,853 - - - - - - 7,853
Hedge of securities 3,215 660 1,547 180 346 673 696 7,317
Total 156,339 49,448 37,090 7,570 9,572 10,459 2,802 273,280

 

                 
  12/31/2021
  0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years Over 10 years Total
Hedge of deposits and repurchase agreements 1,284 9,453 14,221 7,313 5,332 1,533 - 39,136
Hedge of highly probable forecast transactions 3,508 - - - - - - 3,508
Hedge of net investment in foreign operations (1) 13,888 - - - - - - 13,888
Hedge of loan operations (Fair value) 3,377 1,522 797 838 809 1,547 - 8,890
Hedge of loan operations (Cash flow) 131 - - - - - - 131
Hedge of funding (Fair value) 1,206 1,072 302 273 2,920 3,916 1,362 11,051
Hedge of funding (Cash flow) 2,147 3,632 - - - - - 5,779
Hedge of assets transactions 2,198 - 6,015 - - - - 8,213
Hedge of asset-backed securities under repurchase agreements 2,322 14,963 8,976 13,098 - 603 - 39,962
Hedge of assets denominated in UF 10,148 4,535 - - - - - 14,683
Hedge of securities - 453 56 1,520 50 805 - 2,884
Total 40,209 35,630 30,367 23,042 9,111 8,404 1,362 148,125
 1) Classified as current, since instruments are frequently renewed.