| 2.10 | Financial guarantees |
Financial guarantees are those contracts requiring that the issuer carries out specific payments to reimburse the creditor for losses incurred when a specific debtor defaults its payment obligation, in accordance with the original or modified conditions, of a debt instrument; regardless of its legal form.
Liabilities arising from financial guarantees are initially measured at fair value, which is generally the value of the fee received, adjusted for the directly attributable transaction costs incurred, and the initial fair value is amortized over the life of the guarantee or the commitment. The liability is subsequently carried at the higher of this amortized amount and the present value of any expected payment to settle the liability when a payment under the contract has become probable.
The financial guarantees are periodically reviewed with the purpose of determining the credit risk exposure, and, as the case may be, estimate the need to recognize a provision, which is determined by applying criteria similar to those established to quantify the losses for financial assets impairment.
The provisions established over financial guarantee agreements classified as impaired, are recognized as liabilities under “Provisions – other provisions” and recognized in profit or loss.
