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Fair Values Of Financial Instruments

12 Months Ended

Dec. 31, 2021

Fair Value Of Financial Instruments [Abstract]

40. Fair values of financial instruments

Assets and liabilities measured at fair value

The fair value hierarchy of assets and liabilities measured at fair value as of December 31, 2021 is detailed below:


	Book value		Total fair value		Level 1 Fair value		Level 2 Fair value		Level 3 Fair value
Financial assets

Financial assets at fair value through profit or loss - Debt securities		1,396,925		1,396,925		1,396,145		780		—
- Derivatives		2,816,482		2,816,482		—		2,816,482		—
- Equity instruments		6,403,268		6,403,268		2,289,351		—		4,113,917
Financial assets at fair value through other comprehensive income - Debt securities		167,039,478		167,039,478		55,145,256		110,853,002		1,041,220
Financial assets at fair value through other comprehensive income - Equity instruments		36,083		36,083		—		36,083		—

Total		177,692,236		177,692,236		58,830,752		113,706,347		5,155,137

Financial liabilities at fair value through profit or loss

Derivatives		314,215		314,215		—		314,215		—

Total		314,215		314,215		—		314,215		—

The fair value hierarchy of assets and liabilities measured at fair value as of December 31, 2020 is detailed below:


	Book value		Total fair value		Level 1 Fair value		Level 2 Fair value		Level 3 Fair value
Financial assets

Financial assets at fair value through profit or loss
- Debt securities		1,423,018		1,423,018		818,068		604,950		—
- Derivatives		5,853,137		5,853,137		—		4,069,007		1,784,130
- Equity instruments		11,767,330		11,767,330		2,659,805		—		9,107,525
Financial assets at fair value through other comprehensive income - Debt securities		192,516,731		192,516,731		2,939,100		189,577,631		—
Financial assets at fair value through other comprehensive income - Equity instruments		43,018		43,018		—		43,018		—

Total		211,603,234		211,603,234		6,416,973		194,294,606		10,891,655

Financial liabilities at fair value through profit or loss
Derivatives		284,818		284,818		—		284,818		—

Total		284,818		284,818		—		284,818		—

The fair value of a financial asset or liability is the price that would be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date.

The most objective and usual reference of the fair value of a financial asset or liability is the price that would be paid in an orderly, transparent and deep market, that is to say, its quoted or market price.

If it is not possible to obtain a market price, a fair value is determined using best market practice quoting techniques, such as cash flows discount based on a yields curve for the same class and type of instrument, or if there is no market curve with the same characteristics of the bond, the fair value is calculated considering the latest market price plus interest accrued until the valuation date (whichever is more representative for the security).

In line with the accounting standard, a three-level classification of financial instruments is established. This classification is mainly based on the observability of the necessary inputs to calculate that fair value, defining the following levels:

•

Level 1: Financial instruments valued with quoted prices in an active market. Active market means a market that allows the observation of representative prices with sufficient frequency and daily volume.

•

Level 2: Financial instruments that do not have an active market, but that may be valued through observable market inputs. Observable market inputs should be understood as such assets with market quoted prices that allow to calculate an interest rate curve or determine a credit spread.

•

Level 3: Valuation using models where variables not obtained from observable market inputs are used.

Financial assets at fair value mainly consist of BCRA Liquidity Bills and Argentine Government Bonds, together with a minor share in Argentine Treasury Bills and Corporate Bonds. Likewise, financial derivatives are classified at fair value, which include futures that are valued at the price of the market where they are traded and foreign currency NDF

(non-delivery

forwards), put options, and interest rate swaps.

Transfers between hierarchy levels

b.1) Transfers from Level 1 to Level 2

The following instruments measured at fair value were transferred from Level 1 to Level 2 of the fair value hierarchy as of December 31, 2021 and 2020:


	December 31, 2021		December 31, 2020
Treasury Bonds adjusted by CER in pesos maturing in 2021		—		94,640

The bond was transferred because it had not been listed on the market the number of days necessary to be considered Level 1.

b.2) Transfers from Level 2 to Level 1

The following instruments measured at fair value were transferred from Level 2 to Level 1 of the fair value hierarchy as of December 31, 2021:


	December 31, 2021
Treasury Bonds adjusted by 1.20% CER in pesos maturing 03-18-2022		4,225,658
Treasury Bonds adjusted by 1.50% CER in pesos maturing 03-25-2024		12,733,272
Treasury Bonds adjusted by 1.40% CER in pesos maturing 03-25-2023		9,717,708
Treasury Bonds adjusted by 1.30% CER in pesos maturing 09-20-2022		10,809,133

The transfer is due to the fact that the bonds were listed on the market the number of days necessary to be considered Level 1. As of December 31, 2020, there were no transfers from Level 2 to Level 1.

b.3) Valuation techniques for Levels 2 and 3

The valuation techniques for Level 2 and 3 are described in the paragraphs below.

Fixed Income

The determination of fair value prices set forth by the Bank for fixed income consists of considering reference market prices from the Electronic Open Market, in Spanish, Mercado Abierto Electrónico (“MAE”), the main market where bonds are traded.

For Argentine Treasury Bonds (medium- and long-term debt instruments) prices are captured from MAE. If bonds have not traded for the last 10 business days, fair value is determined by discounting cash flows using the pertinent discount curve.

Argentine Treasury Bills (short-term debt instruments) which have not traded for the last 10 business days are measured by reference to their cash flows discounted using the respective yield curve, based on the currency in which the bills were issued. In particular,

US-dollar

linked Treasury Bills (Lelinks) are measured using the yield curve in pesos.

Liquidity bills issued by the BCRA without quoted prices in MAE on the last day of the month, the fair value is determined by discounting cash flows using the monetary policy rate. The monetary policy rate is the rate used by the Central Bank of Argentina to make monetary policy.The benchmark rate used for monetary policy is the interest rate on liquidity bills (LELIQs).

Swaps

For swaps, the fair valuation consists of discounting future cash flows using the interest rate, according to the rate curve resulting from the implicit yield of Rosario Futures Exchange (ROFEX) futures, the main derivatives market in Argentina where these types of securities are traded.

Non-Deliverable

Forwards

The fair value of NDFs consists of discounting the future cash flows to be exchanged pursuant to the contract, using a discount curve that will depend on the currency of each cash flow. The result is then calculated by subtracting the present values in pesos, estimating the value in pesos based on the applicable spot exchange rate, depending on whether the contract is local or offshore.

For local peso-dollar swap contracts, cash flows in pesos are discounted using the yield curve in pesos resulting from the prices of ROFEX futures and the U.S. dollar spot selling exchange rate published by Banco de la Nación Argentina (“BNA”). Cash flows in U.S. dollars are discounted using the Overnight Index Swap (OIS) international dollar yield curve. Then, the present value of cash flows in dollars is netted by converting such cash flows into pesos using the U.S. dollar spot selling exchange rate published by BNA.

For local peso-euro swap contracts, cash flows in pesos are discounted using the yield curve in pesos resulting from the prices of ROFEX futures and the U.S. dollar spot selling exchange rate published by BNA. Cash flows in euros are discounted using the yield curve in euros. Then, the present value of cash flows in euros is netted by converting such cash flows into pesos using the euro spot selling exchange rate published by BNA.

For offshore peso-dollar swap contracts, cash flows in pesos are discounted using the yield curve in pesos resulting from market quoted forward prices sourced from ICAP Broker. Cash flows in dollars are discounted using the OIS yield curve. Then, the present value of cash flows in dollars is netted by converting such cash flows into pesos using the Emerging Markets Traders Association (EMTA) U.S. dollar spot exchange rate.

The valuation techniques used for Level 3 financial assets require the use of variables that are not based on observable market inputs. Below is a detail of the valuation techniques used for each financial asset:

Investments in Equity Instruments

The fair value of the equity interest held in Prisma Medios of Pago S.A., classified as Level 3 (Note 9.3).

On October 1, 2021, the Bank, together with the other Class B shareholders, gave notice corresponding to the exercise of the put option and thus initiated the procedure for the sale of 49% of the company’s capital stock.

On March 18, 2022, the transfer of the entire remaining shareholding of the Bank in Prisma Medios de Pago S.A. has been completed for a price of US$ 40,038,121.84.

As of December 31, 2021, the fair value of the equity interest held in Prisma Medios of Pago S.A was

4,113,917.

Corporate Bonds

The fair value of the following corporate bonds held in portfolio:

•

ON Petroquímica (ON PCR G)

•

ON Arcor (ON ARCOR17)

•

ON Vista oil y gas (ON VISTA11)

•

ON Ledesma (ON LDCAO)

•

ON Luz de tres picos (ON LTP1)

•

ON Newsan (ON WNC10O)

The valuation of corporate bonds classified as Level 3 has been determined by the Entity’s Management on the basis of the latest available market price (or subscription price, if the security had not been listed in a market since the date of issuance) plus interest accrued to date. If the security has paid coupon, then the “clean” price is calculated. If principal was repaid, then repayment amount is deducted and the “dirty” price is recalculated, with interest being accrued until period end.

The most relevant

non-observable

inputs include:

•

Projected BADLAR scenarios

•

Latest market price

•

Projected Dollar BCRA Communication “A” 3500

•

Projected UVA

The tables below shows a sensitivity analysis for each of the above-mentioned securities:


Badlar Scenarios	Changes in final price
Badlar Scenarios	ON PCR G			ON WNC10O			ON LDCAO
+ 1%		0.011616	%		0.002136	%		0.014013	%
+ 2%		0.023232	%		0.004440	%		0.028175	%
+ 3%		0.034848	%		0.006745	%		0.042337	%


Latest market price scenarios	Changes in final price
	PCR G			WNC10O			LDCAO			ARCOR17			VISTA11			LTP1
+ 2%		1.930	%		1.968	%		2.043	%		1.997	%		2.008	%		2.000	%
+ 5%		4.826	%		4.920	%		5.108	%		4.994	%		5.021	%		5.000	%
+ 10%		9.652	%		9.839	%		10.215	%		9.987	%		10.042	%		10.000	%


Dollar 3500 Scenarios	Changes in final price
Dollar 3500 Scenarios	ON VISTA11			ON LTP1
+ 2%		2.000	%		2.000	%
+ 5%		5.000	%		5.000	%
+10%		10.000	%		10.000	%


UVA Scenarios	Changes in final price
UVA Scenarios	ON ARCOR17
+ 2%		2.000	%
+ 5%		5.000	%
+10%		10.000	%

b.4) Reconciliation of opening and ending balances of Level 3 assets and liabilities at fair value

The following table shows a reconciliation between opening balances and final balances of Level 3 fair values as of December 31, 2021 and 2020:


	December 31, 2021			December 31, 2020
Balance at the beginning of the fiscal year		10,891,656			7,640,237
Investments in equity instruments – Prisma Medios de Pago S.A. (*)		(1,483,592	)		5,085,061
Derivatives - Put options - Prisma Medios de Pago S.A. (*)		(1,182,000	)		750,180
Private securities - Corporate bonds		1,041,220			—
Dividends received		(582,269	)		(682,674	)
Net monetary inflation adjustment		(3,529,878	)		(1,901,148	)

Balance at year-end		5,155,137			10,891,656

(*)

Presented

in Gains on financial assets and liabilities at fair value through profit or loss, net.

Fair value of Assets and Liabilities not measured at fair value

Below is a description of methodologies and assumptions used to assess the fair value of the main financial instruments not measured at fair value, when the instrument does not have a quoted price in a known market.

•

Assets and liabilities with fair value similar to their accounting balance

For financial assets and financial liabilities maturing in less than three months, it is considered that the accounting balance is similar to fair value.

•

Fixed rate financial instruments

The fair value of financial assets was assessed by discounting future cash flows from market rates at each measurement date for financial instruments with similar characteristics, adding a liquidity premium

(non-observable

input) that expresses the added value or additional cost necessary to dispose of the asset.

•

Variable rate financial instruments

For financial assets and financial liabilities accruing a variable rate, it is considered that the accounting balance is similar to the fair value.

The fair value hierarchy of assets and liabilities not measured at fair value as of December 31, 2021 is detailed below:


	Book value		Total fair value			Level 2 Fair value		Level 3 Fair value
Financial assets

Cash and cash equivalents		218,277,286		(a	)		—		—
Other financial assets		28,437,414		(a	)		—		—
Debt securities		19,857,627		22,084,903			22,084,903		—
Loans and advances		378,995,107		373,131,211			—		373,131,211
Reverse repurchase agreements		137,382,938		(a	)		—		—

Financial liabilities

Deposits		708,336,185		699,975,184			699,975,184		—
Other financial liabilities		61,592,426		(a	)		—		—
Bank loans		11,758,005		11,490,026			11,490,026		—
Debt securities issued		502,975		398,573			398,573		—

The fair value hierarchy of assets and liabilities not measured at fair value as of December 31, 2020 is detailed below:


	Book value		Total fair value			Level 2 Fair value		Level 3 Fair value
Financial assets

Cash and cash equivalents		229,491,716		(a	)		—		—
Other financial assets		31,458,292		(a	)		—		—
Loans and advances		422,010,840		417,263,061			—		417,263,061
Reverse repurchase agreements		73,488,887		(a	)		—		—
Financial liabilities

Deposits		721,837,845		715,158,115			2,532,537		712,625,578
Other financial liabilities		59,209,439		(a	)		—		—
Bank loans		14,529,681		14,898,662			7,265,248		7,633,414
Debt securities issued		1,764,178		1,717,199			1,717,199		—

a)	The Group does not report the fair value as the accounting values are a reasonable approximation of the fair values.