Under IFRS 13, the fair value measurement uses a fair value hierarchy that reflects the model used in the measurement process which should be in accordance with the following hierarchical levels:
Level 1: Determined on the basis of public (unadjusted) quoted prices in active markets for identical assets and liabilities, these include public debt securities, stocks, derivatives listed.
Level 2: They are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).
Level 3: They are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Trading Financial Assets, Other financial assets at fair value on through income statement, Available-for-sale financial assets and Financial liabilities held for trading
Level 1: The securities with high liquidity and quoted prices in active market are classified as level 1. At this level there were classified most of the Brazilian Government Securities (mainly LTN, LFT, NTN-B, NTN-C and NTN-F), shares in stock exchange and other securities traded in the active market.
Level 2: When quoted price cannot be observed, the Management, using its own internal models, make its best estimate of the price that would be set by the market. These models use data based on observable market parameters as an important reference. Various techniques are used to make these estimates, including the extrapolation of observable market data and extrapolation techniques. The best evidence of fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions carried out with the same instrument or similar instruments or can be measured using a valuation technique in which the variables used include only data from observable market, especially interest rates. These securities are classified within Level 2 of the fair value hierarchy and are composed mainly by Private Securities (highlighting the Debenture portfolio) in a market with less liquidity than those classified at Level 1.
Level 3: When there is information that is not based on observable market data, Banco Santander uses internally developed models, from curves generated according to the internal model. Level 3 comprises mainly unlisted shares.
Derivatives
Level 1: Derivatives traded on stock exchanges are classified in Level 1 of the hierarchy.
Level 2: For derivatives traded over the counter, the valuation (primarily swaps and options) usually uses observable market data, such as: exchange rates, interest rates, volatility, correlation between indexes and market liquidity.
When pricing the financial instruments aforementioned, it is used the Black-Scholes Model (exchange rate options, interest rate options; caps and floors) and the present value method (discount of future values by market curves).
Level 3: Derivatives not traded in the stock exchange and that do not have an observable data in a active market were classified as Level 3. These are composed by exotic derivatives.
The following table shows a summary of the fair values of financial assets and liabilities for the period ended December 31, 2017, 2016 and 2015, classified based on several measurement methods adopted by the Bank to determine their fair value:
| Thousand of reais |
|
| 2017 | |||||
| Level 1 (1) | Level 2 (1) | Level 3 | Total | |||||
| Financial assets held for trading |
| 34,380,542 |
| 18,059,034 |
| - |
| 52,439,576 |
| Debt instruments |
| 33,891,360 |
| 988,321 |
| - |
| 34,879,681 |
| Equity instruments |
| 489,182 |
| 588 |
| - |
| 489,770 |
| Derivatives |
| - |
| 17,070,125 |
| - |
| 17,070,125 |
| Financial assets designated at fair value through profit or loss |
| 1,593,951 |
| 64,738 |
| 33,368 |
| 1,692,057 |
| Debt instruments |
| 1,593,951 |
| 64,738 |
| - |
| 1,658,689 |
| Equity instruments |
| - |
| - |
| 33,368 |
| 33,368 |
| Financial assets - available-for-sale |
| 79,301,016 |
| 6,382,225 |
| 140,143 |
| 85,823,384 |
| Debt instruments |
| 78,335,629 |
| 6,381,118 |
| - |
| 84,716,747 |
| Equity instruments |
| 965,387 |
| 1,107 |
| 140,143 |
| 1,106,637 |
| Hedging derivatives (assets) |
| - |
| 192,763 |
| - |
| 192,763 |
| Financial liabilities held for trading |
| 32,808,392 |
| 16,514,154 |
| - |
| 49,322,546 |
| Derivatives |
| - |
| 16,514,154 |
| - |
| 16,514,154 |
| Short positions |
| 32,808,392 |
| - |
| - |
| 32,808,392 |
| Hedging derivatives (liabilities) |
| - |
| 163,332 |
| - |
| 163,332 |
| Thousand of reais |
|
| 2016 | |||||
| Level 2 | Level 3 | Total | ||||||
| Level 1 | ||||||||
| Financial assets held for trading |
| 59,410,908 |
| 25,462,755 |
| - |
| 84,873,663 |
| Debt instruments |
| 59,034,363 |
| 960,583 |
| - |
| 59,994,946 |
| Equity instruments |
| 376,545 |
| 21,916 |
| - |
| 398,461 |
| Trading derivatives |
| - |
| 24,480,256 |
| - |
| 24,480,256 |
| Financial assets designated at fair value through profit or loss |
| 1,597,660 |
| 76,035 |
| 37,509 |
| 1,711,204 |
| Debt instruments |
| 1,592,714 |
| 76,035 |
| - |
| 1,668,749 |
| Equity instruments |
| 4,946 |
| - |
| 37,509 |
| 42,455 |
| Financial assets - available-for-sale |
| 51,160,044 |
| 5,703,389 |
| 951,612 |
| 57,815,045 |
| Debt instruments |
| 50,172,609 |
| 5,656,963 |
| - |
| 55,829,572 |
| Equity instruments |
| 987,435 |
| 46,426 |
| 951,612 |
| 1,985,473 |
| Hedging derivatives (assets) |
| - |
| 222,717 |
| - |
| 222,717 |
| Financial liabilities held for trading |
| 31,694,269 |
| 19,925,600 |
| - |
| 51,619,869 |
| Derivatives |
| - |
| 19,925,600 |
| - |
| 19,925,600 |
| Short positions |
| 31,694,269 |
| - |
| - |
| 31,694,269 |
| Hedging derivatives (liabilities) |
| - |
| 311,015 |
| - |
| 311,015 |
| Thousand of reais |
|
| 2015 | |||||
| Level 2 | Level 3 | Total | ||||||
| Level 1 | ||||||||
| Financial assets held for trading |
| 24,952,744 |
| 25,583,987 |
| - |
| 50,536,731 |
| Debt instruments |
| 24,579,100 |
| 614,498 |
| - |
| 25,193,598 |
| Equity instruments |
| 373,644 |
| 31,329 |
| - |
| 404,973 |
| Derivatives |
| - |
| 24,938,160 |
| - |
| 24,938,160 |
| Financial assets designated at fair value through profit or loss |
| 1,420,332 |
| 86,238 |
| 573,664 |
| 2,080,234 |
| Debt instruments |
| 1,420,332 |
| 86,238 |
| - |
| 1,506,570 |
| Equity instruments |
| - |
| - |
| 573,664 |
| 573,664 |
| Financial assets - available-for-sale |
| 56,497,320 |
| 10,910,469 |
| 857,817 |
| 68,265,606 |
| Debt instruments |
| 56,250,013 |
| 10,853,261 |
| - |
| 67,103,274 |
| Equity instruments |
| 247,307 |
| 57,208 |
| 857,817 |
| 1,162,332 |
| Hedging derivatives (assets) |
| - |
| 1,312,202 |
| - |
| 1,312,202 |
| Financial liabilities held for trading |
| 20,047,631 |
| 22,340,137 |
| - |
| 42,387,768 |
| Derivatives |
| - |
| 22,340,137 |
| - |
| 22,340,137 |
| Short positions |
| 20,047,631 |
| - |
| - |
| 20,047,631 |
| Hedging derivatives (liabilities) |
| - |
| 2,376,822 |
| - |
| 2,376,822 |
Movements in fair value of Level 3
The following tables demonstrate the movements during 2017, 2016 and 2015 for the financial assets and liabilities classified as Level 3 in the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thousand of reais |
|
|
|
|
| Fair Value |
| Gains/ losses (Realized-Not Realized) |
| Transfers in and/ or out of Level 3 |
| Additions |
| Settled |
| Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial assets designated at fair value through profit or loss | 37,509 |
| (2,555) |
| - |
| - |
| (1,586) |
| 33,368 | |||||
| Financial assets - available-for-sale | 951,612 |
| 18,474 |
| - |
| - |
| (829,943) |
| 140,143 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thousand of reais |
|
|
|
|
| Fair Value |
| Gains/ losses (Realized-Not Realized) |
| Transfers in and/ or out of Level 3 |
| Additions |
| Settled |
| Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial assets designated at fair value through profit or loss |
| 573,664 |
| 2,806 |
| (14,345) |
| 111 |
| (524,727) |
| 37,509 | ||||
| Financial assets - available-for-sale |
| 857,817 |
| (60,934) |
| (3,085) |
| 461,185 |
| (303,371) |
| 951,612 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thousand of reais |
|
|
|
|
| Fair Value |
| Gains/ losses (Realized-Not Realized) |
| Transfers in and/ or out of Level 3 |
| Additions |
| Settled |
| Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial assets held for trading |
| 3,329 |
| - |
| - |
| - |
| (3,329) |
| - | ||||
| Financial assets designated at fair value through profit or loss |
| 902,794 |
| (329,130) |
| - |
| - |
| - |
| 573,664 | ||||
| Financial assets - available-for-sale |
| 897,956 |
| (58,008) |
| - |
| 54,785 |
| (36,916) |
| 857,817 | ||||
Financial assets and liabilities not measured at fair value
The financial assets owned by the Bank are measured at fair value in the accompanying consolidated balance sheets, except for loans and receivables.
Similarly, the Bank's financial liabilities except for financial liabilities held for trading and those measured at fair value - are measured at amortized cost in the consolidated balance sheets.
i) Financial assets measured at other than fair value
Below is a comparison of the carrying amounts of financial assets of the Bank measured by a value other than the fair value and their respective fair values on December 31, 2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thousand of reais |
|
|
|
|
|
|
|
|
| 2017 | ||||||
|
|
|
|
|
|
|
|
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Assets |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Money market investments - Brazilian Central Bank (note 5) |
|
|
| 33,831,521 |
| 33,914,021 |
| - |
| 33,914,021 |
| - | ||||
| Investments Held-to-Maturity (note 7) |
|
|
|
|
| 10,214,454 |
| 10,587,117 |
| 7,251,246 |
| 3,335,871 |
| - | ||
| Loans and receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loans and amounts due from credit institutions (note 6) |
|
|
| 32,300,095 |
| 32,300,095 |
| - |
| 32,300,095 |
| - | ||||
| Loans and advances to customers (note 10) |
|
|
| 272,420,157 |
| 275,647,324 |
| - |
| - |
| 275,647,324 | ||||
| Loans and receivables - Debt instruments (note 7) |
|
|
| 17,616,515 |
| 17,127,511 |
| - |
| 17,127,511 |
| - | ||||
| Total |
|
|
|
|
|
|
| 366,382,742 |
| 369,576,068 |
| 7,251,246 |
| 86,677,498 |
| 275,647,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thousand of reais |
|
|
|
|
|
|
|
|
| 2016 | ||||||
|
|
|
|
|
|
|
|
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Assets |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Money market investments - Brazilian Central Bank (note 5) |
|
|
| 46,371,814 |
| 46,341,971 |
| - |
| 46,341,971 |
| - | ||||
| Investments Held-to-Maturity (note 7) |
|
|
|
|
| 10,048,761 |
| 10,555,437 |
| 6,942,173 |
| 3,613,264 |
| - | ||
| Loans and receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loans and amounts due from credit institutions (note 6) |
|
|
| 27,762,473 |
| 27,757,607 |
| - |
| 27,757,607 |
| - | ||||
| Loans and advances to customers (note 10) |
|
|
| 252,002,774 |
| 253,860,027 |
| - |
| - |
| 253,860,027 | ||||
| Loans and receivables - Debt instruments (note 7) |
|
|
| 16,283,259 |
| 16,003,885 |
| - |
| 16,003,885 |
| - | ||||
| Total |
|
|
|
|
|
|
| 352,469,081 |
| 354,518,927 |
| 6,942,173 |
| 93,716,727 |
| 253,860,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thousand of reais |
|
|
|
|
|
|
|
|
| 2015 | ||||||
|
|
|
|
|
|
|
|
| Carrying Amount |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Assets |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Money market investments - Brazilian Central Bank (note 5) |
|
|
| 31,316,917 |
| 31,310,136 |
| - |
| 31,310,136 |
| - | ||||
| Investments Held-to-Maturity (note 7) |
|
|
|
|
|
|
| 10,097,836 |
| 9,257,519 |
| 5,698,211 |
| 3,559,308 |
| - |
| Loans and receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Loans and amounts due from credit institutions (note 6) |
|
|
| 42,422,638 |
| 42,381,130 |
| - |
| 42,381,130 |
| - | ||||
| Loans and advances to customers (note 10) |
|
|
| 252,033,449 |
| 251,319,173 |
| - |
| - |
| 251,319,173 | ||||
| Loans and receivables - Debt instruments (note 7) |
|
|
|
| 11,812,701 |
| 11,457,378 |
| - |
| 11,457,378 |
| - | |||
| Total |
|
|
|
|
|
|
| 347,683,541 |
| 345,725,336 |
| 5,698,211 |
| 88,707,952 |
| 251,319,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ii) Financial liabilities measured at other than fair value
Following is a comparison of the carrying amounts of Bank´s financial liabilities measured by a value other than fair value and their respective fair values on December 31 , 2017, 2016 and 2015:
| Thousand of reais |
|
|
|
| 2017 | |||||
| Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||
| Liabilities | ||||||||||
| Financial liabilities at amortized cost: | ||||||||||
| Deposits from Bacen and credit institutions (note 17) |
| 79,068,604 |
| 79,068,564 |
| - |
| - |
| 79,068,564 |
| Customer deposits (note 18) |
| 258,482,156 |
| 258,576,177 |
| - |
| - |
| 258,576,177 |
| Marketable debt securities (note 19) |
| 70,247,012 |
| 70,245,820 |
| - |
| 2,000,552 |
| 68,245,268 |
| Subordinated liabilities (note 20) |
| 519,230 |
| 528,799 |
| - |
| - |
| 528,799 |
| Debt Instruments Eligible to Compose Capital (note 21) |
| 8,436,901 |
| 8,436,901 |
| - |
| 8,436,901 |
| - |
| Other financial liabilities (note 22) |
| 44,260,735 |
| 43,003,735 |
| - |
| - |
| 43,003,735 |
| Total |
| 461,014,638 |
| 459,859,996 |
| - |
| 10,437,453 |
| 449,422,543 |
| Thousand of reais |
|
|
|
| 2016 | |||||
| Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||
| Liabilities | ||||||||||
| Financial liabilities at amortized cost: | ||||||||||
| Centrals banks (note 17) |
| 78,319,960 |
| 78,323,271 |
| - |
| - |
| 78,323,271 |
| Customers (note 18) |
| 231,079,303 |
| 231,125,526 |
| - |
| - |
| 231,125,526 |
| Marketable debt securities (note 19) |
| 99,842,955 |
| 99,671,288 |
| - |
| 7,321,870 |
| 92,349,418 |
| Subordinated liabilities (note 20) |
| 466,246 |
| 452,439 |
| - |
| - |
| 452,439 |
| Debt Instruments Eligible to Compose Capital (note 21) |
| 8,311,918 |
| 8,311,918 |
| - |
| 8,311,918 |
| - |
| Other financial liabilities (note 22) |
| 36,879,099 |
| 35,622,099 |
| - |
| - |
| 35,622,099 |
| Total |
| 454,899,481 |
| 453,506,541 |
| - |
| 15,633,788 |
| 437,872,753 |
|
| ||||||||||
| Thousand of reais |
|
|
|
| 2015 | |||||
| Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | ||||||
| Liabilities | ||||||||||
| Financial liabilities at amortized cost: | ||||||||||
| Centrals banks (note 17) |
| 69,306,902 |
| 69,307,617 |
| - |
| - |
| 69,307,617 |
| Customers (note 18) |
| 227,462,949 |
| 227,422,985 |
| - |
| - |
| 227,422,985 |
| Marketable debt securities (note 19) |
| 94,658,300 |
| 95,486,114 |
| - |
| 13,712,057 |
| 81,774,057 |
| Subordinated liabilities (note 20) |
| 8,097,304 |
| 8,142,296 |
| - |
| - |
| 8,142,296 |
| Debt Instruments Eligible to Compose Capital (note 21) |
| 9,959,037 |
| 9,959,037 |
| - |
| 9,959,037 |
| - |
| Other financial liabilities (note 22) |
| 32,072,645 |
| 30,815,646 |
| - |
| - |
| 30,815,646 |
| Total |
| 441,557,137 |
| 441,133,695 |
| - |
| 23,671,094 |
| 417,462,601 |
The methods and assumptions used to estimate the fair values summarized in the tables above are set forth below:
- Loans and amounts due from credit institutions and from clients - Fair value are estimated for groups of loans with similar characteristics. The fair value was measured by discounting estimated cash flow using the average interest rate of new contracts. That is, the future cash flow of the current loan portfolio is estimated using the contractual rates, and then the new loans spread over the risk free interest rate are incorporated to the risk free yield curve in order to calculate the loan portfolio fair value. In terms of behavior assumptions, it is important to highlight that a prepayment rate is applied to the loan portfolio, thus a more realistic future cash flow is achieved.
- Deposits from Bacen and credit institutions and Client deposits - The fair value of deposits was calculated by discounting the difference between the cash flows on a contractual basis and current market rates for instruments with similar maturities. For variable-rate deposits, the carrying amount was considered to approximates fair value.
- Debt and Subordinated Securities and Debt Instruments Eligible to Compose Capital - The fair value of long-term loans were estimated by cash flow discounted at the interest rate offered on the market with similar terms and maturities.
The valuation techniques used to estimate each level are defined in note 2.e.