XML 65 R28.htm IDEA: XBRL DOCUMENT v2.4.0.8
Derivative financial instruments for hedging purposes
 12 Months Ended
Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
21.
Derivative financial instruments for hedging purposes
 
As of December 31, 2013 and 2012, quantitative information on derivative financial instruments held for hedging purposes is as follows:
 
 
 
2013
 
2012
 
(In thousands of US$)
 
Nominal
 
Fair Value  (1)
 
Nominal
 
Fair Value  (1)
 
 
 
Amount
 
Asset
 
Liability
 
Amount
 
Asset
 
Liability
 
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
494,558
 
4,625
 
1,403
 
480,000
 
8,319
 
6,600
 
Cross-currency interest rate swaps
 
269,488
 
2,783
 
6,834
 
236,866
 
3,525
 
4,665
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
453,000
 
393
 
243
 
-
 
-
 
-
 
Cross-currency interest rate swaps
 
126,308
 
6,392
 
-
 
42,001
 
7,333
 
23
 
Forward foreign exchange
 
88,130
 
684
 
92
 
75,733
 
62
 
411
 
Net investment hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
5,810
 
340
 
-
 
6,196
 
-
 
48
 
Total
 
1,437,294
 
15,217
 
8,572
 
840,796
 
19,239
 
11,747
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net gain on the ineffective portion of hedging activities (2)
 
353
 
 
 
 
 
71
 
 
 
 
 
 
(1) The fair value of assets and liabilities is reported within the derivative financial instruments used for hedging - receivable and payable lines in the consolidated balance sheets, respectively.
(2) Gains and losses resulting from ineffectiveness and credit risk in hedging activities are reported within the derivative financial instruments and hedging line in the consolidated statements of income.
 
The gains and losses resulting from activities of derivative financial instruments and hedging recognized in the consolidated statements of income are presented below:
 
2013
 
(In thousands of US$)
 
Gain (loss)
recognized in OCI
(effective portion)
 
Classification of gain (loss)
 
Gain (loss) reclassified
from accumulated
OCI to the
statements of income
(effective portion)
 
Gain (loss)
recognized on
derivatives
(ineffective portion)
 
 
 
 
 
 
 
 
 
 
 
Derivatives – cash flow hedge
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
226
 
 
 
 
 
 
 
Cross-currency interest rate swaps
 
(734)
 
Gain (loss) on foreign currency exchange
 
-
 
-
 
 
 
 
 
Interest income – loans
 
(11)
 
-
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
1,544
 
Interest income – loans
 
(1,461)
 
-
 
 
 
 
 
Interest expense – borrowings and debt
 
31
 
-
 
 
 
 
 
Gain (loss) on foreign currency exchange
 
1,562
 
-
 
Total
 
1,036
 
 
 
121
 
-
 
 
 
 
 
 
 
 
 
 
 
Derivatives – net investment hedge
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
464
 
Gain (loss) on foreign currency exchange
 
-
 
-
 
Total
 
464
 
 
 
-
 
-
 
 
2012
 
(In thousands of US$)
 
Gain (loss)
recognized in OCI
(effective portion)
 
Classification of gain (loss)
 
Gain (loss) reclassified
from accumulated
OCI to the
statements of income
(effective portion)
 
Gain (loss)
recognized on
derivatives
(ineffective portion)
 
 
 
 
 
 
 
 
 
 
 
Derivatives – cash flow hedge
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
217
 
 
 
 
 
 
 
Cross-currency interest rate swaps
 
3,740
 
Gain (loss) on foreign currency exchange
 
2,481
 
-
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
1,742
 
Interest income – loans
 
(564)
 
-
 
 
 
 
 
Interest expense – borrowings and debt
 
(169)
 
-
 
 
 
 
 
Gain (loss) on foreign currency exchange
 
3,679
 
-
 
Total
 
5,699
 
 
 
5,427
 
-
 
 
 
 
 
 
 
 
 
 
 
Derivatives – net investment hedge
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
109
 
Gain (loss) on foreign currency exchange
 
-
 
-
 
Total
 
109
 
 
 
-
 
-
 
 
2011
 
(In thousands of US$)
 
Gain (loss)
recognized in OCI
(effective portion)
 
Classification of gain (loss)
 
Gain (loss) reclassified
from accumulated
OCI to the
statements of income
(effective portion)
 
Gain (loss)
recognized on
derivatives
(ineffective portion)
 
 
 
 
 
 
 
 
 
 
 
Derivatives – cash flow hedge
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
987
 
 
 
 
 
 
 
Cross-currency interest rate swaps
 
2,270
 
Gain (loss) on foreign currency exchange
 
1,958
 
-
 
 
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
(2,160)
 
Interest income – loans
 
(124)
 
-
 
 
 
 
 
Interest expense – borrowings and debt
 
172
 
-
 
 
 
 
 
Gain (loss) on foreign currency exchange
 
(2,966)
 
-
 
Total
 
1,097
 
 
 
(960)
 
-
 
 
 
 
 
 
 
 
 
 
 
Derivatives – net investment hedge
 
 
 
 
 
 
 
 
 
Forward foreign exchange
 
289
 
Gain (loss) on foreign currency exchange
 
-
 
-
 
Total
 
289
 
 
 
-
 
-
 
 
The Bank recognized in earnings the gain (loss) on derivative financial instruments and the gain (loss) of the hedged asset or liability related to qualifying fair value hedges, as follows: 
 
2013
 
(In thousands of US$)
 
Classification in statements of
income
 
Gain (loss) on
derivatives
 
Gain (loss) on
hedged item
 
Net gain
(loss)
 
Derivatives - fair value hedge
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest income – securities available-for-sale
 
(3,088)
 
4,649
 
1,561
 
 
 
Interest income – loans
 
(39)
 
350
 
311
 
 
 
Interest expense – borrowings and debt
 
3,192
 
(16,204)
 
(13,012)
 
 
 
Derivative financial instruments and hedging
 
(3,622)
 
3,942
 
320
 
Cross-currency interest rate swaps
 
Interest income – loans
 
(795)
 
1,548
 
753
 
 
 
Interest expense – borrowings and debt
 
6,905
 
(12,452)
 
(5,547)
 
 
 
Derivative financial instruments and hedging
 
(6,117)
 
6,150
 
33
 
 
 
Gain (loss) on foreign currency exchange
 
(430)
 
458
 
28
 
 
 
 
 
(3,994)
 
(11,559)
 
(15,553)
 
 
2012
 
(In thousands of US$)
 
Classification in statements of
 
Gain (loss) on
 
Gain (loss) on
 
Net gain
 
 
 
income
 
derivatives
 
hedged item
 
(loss)
 
Derivatives - fair value hedge
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest income – securities available-for-sale
 
(2,982)
 
4,776
 
1,794
 
 
 
Interest expense – borrowings and debt
 
1,564
 
(12,022)
 
(10,458)
 
 
 
Derivative financial instruments and hedging
 
59
 
-
 
59
 
 
 
 
 
 
 
 
 
 
 
Cross-currency interest rate swaps
 
Interest income – loans
 
(239)
 
522
 
283
 
 
 
Interest expense – borrowings and debt
 
8,024
 
(11,187)
 
(3,163)
 
 
 
Derivative financial instruments and hedging
 
12
 
-
 
12
 
 
 
Gain (loss) on foreign currency exchange
 
5,873
 
(6,469)
 
(596)
 
 
 
 
 
12,311
 
(24,380)
 
(12,069)
 
 
2011
 
(In thousands of US$)
 
Classification in statements of 
 
Gain (loss) on
 
Gain (loss) on 
 
Net gain 
 
 
 
 income
 
  derivatives
 
 hedged item
 
 (loss)
 
Derivatives - fair value hedge
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest income – securities available-for-sale
 
(6,857)
 
10,266
 
3,409
 
 
 
Interest expense – borrowings and debt
 
-
 
-
 
-
 
 
 
Derivative financial instruments and hedging
 
74
 
-
 
74
 
Cross-currency interest rate swaps
 
Interest income – loans
 
(33)
 
55
 
22
 
 
 
Interest expense – borrowings and debt
 
4,352
 
(7,874)
 
(3,522)
 
 
 
Derivative financial instruments and hedging
 
2,849
 
-
 
2,849
 
 
 
Gain (loss) on foreign currency exchange
 
(17,427)
 
17,475
 
48
 
 
 
 
 
(17,042)
 
19,922
 
2,880
 
 
For control purposes, derivative instruments are recorded at their nominal amount (“notional amount”) in memorandum accounts. Interest rate swaps are made either in a single currency or cross currency for a prescribed period to exchange a series of interest rate flows, which involve fixed for floating interest payments, and viceversa. The Bank also engages in certain foreign exchange trades to serve customers’ transaction needs and to manage the foreign currency risk. All such positions are hedged with an offsetting contract for the same currency. The Bank manages and controls the risks on these foreign exchange trades by establishing counterparty credit limits by customer and by adopting policies that do not allow for open positions in the credit and investment portfolio. The Bank also uses foreign currency exchange contracts to hedge the foreign exchange risk associated with the Bank’s equity investment in a non-U.S. dollar functional currency foreign subsidiary. Derivative and foreign exchange instruments negotiated by the Bank are executed mainly over-the-counter (OTC). These contracts are executed between two counterparties that negotiate specific agreement terms, including notional amount, exercise price and maturity.
 
The maximum length of time over which the Bank has hedged its exposure to the variability in future cash flows on forecasted transactions is 7.48 years.
 
The Bank estimates that approximately $551 thousand of losses reported in OCI as of December 31, 2013 related to forward foreign exchange contracts are expected to be reclassified into interest income as an adjustment to yield of hedged loans during the twelve-month period ending December 31, 2014.
 
Types of Derivatives and Foreign Exchange Instruments
Interest rate swaps are contracts in which a series of interest rate flows in a single currency are exchanged over a prescribed period. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Cross currency swaps are contracts that generally involve the exchange of both interest and principal amounts in two different currencies. The Bank has designated a portion of these derivative instruments as fair value hedges and a portion as cash flow hedges. Forward foreign exchange contracts represent an agreement to purchase or sell foreign currency at a future date at agreed-upon terms. The Bank has designated these derivative instruments as cash flow hedges and net investment hedges.
 
In addition to hedging derivative financial instruments, the Bank has derivative financial instruments held for trading purposes that have been disclosed in Note 5.