Critical Accounting Estimates and Judgements

NIBC makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

Judgements and estimates are principally made in the following areas:

  • Estimated impairment of goodwill arising on consolidated non-financial companies;
  • Fair value of certain financial instruments;
  • Impact of reclassified financial assets;
  • Impairment of corporate loans;
  • Impairment of equity investments classified as Available for Sale;
  • Securitisations and special purpose entities;
  • Pension benefits; and
  • Income taxes.

 

 

Estimated impairment of goodwill arising on consolidated non-financial companies

 

The Group tests annually whether its goodwill is impaired in accordance with its accounting policy.

 

The recoverable amount of a group of cash generating units (CGUs) related to consolidated non-financial companies is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by the Managing Boards of the acquirer companies covering a ten year period (2009-2018). Cash flows beyond the ten year period are extrapolated using an estimated perpetual growth rate.

 

The key assumptions used in the value-in-use calculations for 2008 are as follows:

  • Perpetual growth rate    2.0%-2.5%
  • Pre-tax discount rate    11.7%-12.7%
  • Tax rate    25.5%-28.95%

 

Management determined budgeted results based upon past performance and its expectations of market developments. The discount rate (weighted average cost of capital) used is pre-tax and reflects specific risks relating to the operations of the group of CGUs.

 

The Group has not recognised a goodwill impairment charge for the consolidated non-financial companies.

 

The rate used to discount the future cash flows of the group of CGUs can have a significant effect on the group of CGUs valuation. The discount rate calculated depends on inputs reflecting a number of financial and economic variables including the risk-free interest rate and a premium to reflect the inherent risk of the business being evaluated.

These variables are established on the basis of management judgement.

 

If the estimated pre-tax discount rate applied to the discounted cash flow for the group of CGUs had been 1% higher than management estimates (12.7%-13.7% instead of 11.7%-12.7%) the Group would also not have recognised a goodwill impairment charge.

 

Management judgement is also required in estimating the future cash flows of the group of CGUs. These values are sensitive to the cash flows projected for the periods for which detailed forecasts are available, and to assumptions regarding the long-term pattern of sustainable cash flows thereafter. While the acceptable range within which underlying assumptions can be applied is governed by the requirement to compare resulting forecasts with actual performance and verifiable economic data in future years, the cash flow forecasts necessarily and appropriately reflect management’s view of future business prospects.

 

When this exercise demonstrates that the expected cash flows of a group of CGUs have declined and/or that its discount rate has increased, the effect is to reduce the estimated recoverable amount. If this results in an estimated recoverable amount that is lower than the carrying value of the group of CGUs, a charge for impairment of goodwill will be recorded, thereby reducing by a corresponding amount NIBC’s profit for the year.

 

If the budgeted profit before tax of the group of CGUs used in the value-in-use calculation had been 5% lower than management’s estimates at 31 December 2008, the Group would also not have recognised a goodwill impairment charge in respect of its controlled non-financial companies.

 

 

Fair value of certain financial instruments

 

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable willing parties in an arm’s length transaction. NIBC determines fair value either by reference to a quoted price in an active market for a given financial instrument or, when a quoted price in an active market is not available, by using a valuation technique.

 

If NIBC determines fair value using valuation techniques (for example, in the case of mortgage loans, corporate loans and certain debt investments), the valuation is determined by discounting to present value the cash flows (after expected pre-payments) that it expects to receive from holding the instrument. These discounted cash flow models require management to estimate a number of parameters, including interest rate yield curves, credit spreads, liquidity risk premiums, equity and commodity prices, option volatilities and currency rates. Some parameters are either directly observable or are implied from instrument prices in the market place. In light of the dramatic widening in credit spreads, valuations have become particularly sensitive to this parameter. Due to the absence of liquidity in a number of financial instruments, directly observable data on credit spreads is sparse.

 

The calculation of fair value for any financial instrument may also require adjustment of the quoted price or the value generated by the valuation technique to reflect the cost of credit risk and liquidity risk (where not embedded in underlying models or prices used) or to reflect hedging costs not captured in the valuation model (to the extent that they would be taken into account by market participants in determining a price).

 

The process of determining fair value for illiquid instruments using valuation techniques requires estimation of the expected maturity of an instrument (and therefore the expected cash flows), certain pricing parameters, or other assumptions or model characteristics. Although NIBC calibrates its valuation techniques against industry standards and observable transaction prices (to the extent that this is possible in current market conditions), the calculation of fair value is an inherently subjective process, particularly when data on observable transactions is sparse.

 

In 2008, market conditions were characterised by the near absence of liquidity in credit markets and a significant widening of credit spreads. In these market conditions, the estimation of the fair value of NIBC’s residential mortgage loans, corporate loans, its own liabilities designated at Fair Value through Profit or Loss and the financial assets reclassified out of Held for Trading and Available for Sale categories is highly judgemental and necessarily subjective, given the absence of market transactions and other observable market data. Consequently, the ranges within which NIBC has estimated the fair value of these portfolios have widened significantly.

 

Gains (or losses) are recognised upon initial recognition only when such profits (or losses) can be measured by reference to observable current market transactions or valuation techniques based on observable market inputs.

 

 

EU structured credits

NIBC considers the European asset backed securities (ABS) market to be inactive during 2008. Effective 1 July 2008, Debt investments amounting to EUR 838 million were reclassified from financial assets at Fair Value through Profit or Loss (trading) and Available for Sale to Loans and Receivables at Amortised Cost. Consequently, the fair value at 30 June 2008 of those debt investments has been used as the amortised cost of the reclassified debt investments.

 

For the determination of fair value at 30 June 2008, NIBC incorporated, where available, market observable prices and rates derived from market verifiable data. Where such factors are not market observable, changes in assumptions could affect the reported fair value of financial instruments. NIBC has determined fair value in a consistent manner over time, ensuring comparability and continuity of valuations, but estimating fair value in an inactive market inherently involves a significant degree of judgement. Valuation adjustments are also made to reflect such elements as deteriorating creditworthiness and liquidity. Although a significant degree of judgement is, in some cases, required in establishing fair values, management believes that the fair values recorded in the Balance Sheet and the changes in fair values recorded in the Income Statement reflect the underlying economics, based on NIBC’s established fair value and model governance policies and the related controls and procedural safeguards.

 

At 31 December 2008, the fair value of the portfolio EU structured credits that was not reclassified amounts to EUR 98 million.

 

The valuation of EU structured credits as at 30 June 2008 and 31 December 2008 is sensitive to a range of factors, in particular, to market observable broker quotes. A 100 basis point change in the weighted average quoted price applied in the 31 December 2008 and 30 June 2008 valuation of Debt investments Held for Trading would have an impact on fair value of EUR 1.5 million and EUR 9 million, respectively.

 

 

Credit default swaps

NIBC has analysed the structured Credit default swaps (CDS) market and considered it to be inactive during 2008. At 31 December 2008, the fair value of this portfolio was EUR 2 million Derivative financial assets Held for Trading and EUR 12 million Derivative financial liabilities Held for Trading.

 

For the valuation as of 31 December 2008, NIBC incorporated, where available, market observable credit spreads linked to the underlying instruments derived from multiple broker quotes. Where such factors are not market observable, changes in assumptions could affect the reported fair value of financial instruments. NIBC has determined fair value in a consistent manner over time, ensuring comparability and continuity of valuations, but estimating fair value in an inactive market inherently involves a significant degree of judgement. Valuation adjustments are also made to reflect such elements as deteriorating creditworthiness and liquidity. The valuation of the structured credit CDS portfolio as at 31 December 2008 is sensitive to a range of factors, in particular, market observable credit spreads. A 100 basis point change in the weighted average credit spread used to determine the fair value of this portfolio at 31 December 2008 would have led to an increase or decrease of the fair value of the derivatives Held for Trading by EUR 0.5 million.

 

NIBC considers the single name and index CDS markets to be active during 2008.

 

 

Structured investments

The structured investment portfolio consists of three types of investments described as follows:

  • Investments in tax efficient funds;
  • Investments in credit fixed income funds; and
  • Investments in tax efficient investment vehicles.

 

The fund investments are priced on observed transaction values for structures that are set up for third parties. The positions in credit fixed income funds are priced using the valuation statements of the administrators. These valuations form the basis at arms’ length market transactions in these funds and therefore, serve as a reliable basis for valuation. The fair values of the investments in the tax efficient vehicles (bonds issued by financials) are determined using market observable credit spreads based on quotes provided by market participants.

 

NIBC considers the market for structured investments to be active, during 2008.

 

 

Own liabilities designated at Fair Value through Profit or Loss

At 31 December 2008, the fair value of these liabilities was estimated to be EUR 3,745 million (2007: EUR 4,864 million). This portfolio was designated at Fair Value through Profit or Loss and is reported on the face of the Balance Sheet under the following headings:

  • Financial liabilities at Fair Value through Profit or Loss Own debt securities in issue;
  • Financial liabilities at Fair Value through Profit or Loss Debt securities in issue structured; and
  • Financial liabilities at Fair Value through Profit or Loss Subordinated liabilities.

 

NIBC considers the market for these liabilities inactive during 2008. Debt securities in issue structured consist of notes issued with embedded derivatives that are tailored to specific investors’ needs. The return on these notes is dependent upon the level of certain underlying equity, interest rate, currency, credit, commodity or inflation-linked indices. The embedded derivative within each note issued is fully hedged on a back-to-back basis, such that effectively synthetic floating rate funding is created. Because of this economic hedge, the Income Statement is not sensitive to fluctuations in the price of these indices.

 

In the case of Debt securities in issue structured and Subordinated liabilities, the fair value of the notes issued and the back-to-back hedging swaps is determined using a valuation model developed by a third party employing Monte Carlo simulation, lattice valuations or closed formulas, depending on the type of embedded derivative.

 

For each class of own financial liabilities at Fair Value through Profit or Loss, the expected cash flows are discounted to present value using interbank zero-coupon rates. The resulting fair value is adjusted for movements in the credit spread applicable to NIBC issued funding.

 

The credit spread used to revalue these liabilities was based on the observable spread (including guarantee fee) on NIBC’s issue of EUR 1.4 billion of three year funding notes issued in December 2008. This funding was guaranteed by the Dutch State under the Credit Guarantee Scheme. Whilst recognising that NIBC’s obligations under this funding transaction are guaranteed by the Dutch State, NIBC believes that it provides the most appropriate spread for revaluation purposes because the spread is based on a directly observable transaction and because other data on applicable credit spreads (e.g. CDS rates and funding transactions by other comparable institutions) is sparse and its application to NIBC’s funding programmes is highly subjective.

 

The observable Dutch State guaranteed funding credit spread includes a guarantee fee paid to the Dutch State that is based on NIBC’s credit rating as below A-. The guarantee fee is based on an average of market observed credit spreads for debt issuances of similar rated banks calculated by the Dutch State. In addition, NIBC paid a liquidity premium to the lenders, which is included in the credit spread applied for 31 December 2008 valuation of the liabilities designated at Fair Value through Profit or Loss. Bearing in mind the market inactivity, both for cash and synthetic NIBC funding and protection, other market indicators such as Itraxx indices and credit curve developments, support the reasonableness of the range in which the applied credit spread falls.

 

The valuation of all the above classes of own liabilities designated at Fair Value through Profit or Loss is sensitive to the estimated credit spread used to discount future expected cash flows. A 10 basis point change in the weighted average credit spread used to discount future expected cash flows would increase or decrease the fair value of these own liabilities by EUR 15 million (2007: EUR 19 million).

 

 

Residential mortgages

NIBC determines the fair value of residential mortgages (both those it holds in its own warehouse and those it has securitised) by using a valuation model developed by NIBC. NIBC considers the market for these assets to be inactive during 2008. To calculate the fair value, NIBC discounts expected cash flows (after expected prepayments) to present value using inter bank zero-coupon rates, adjusted for a spread that principally takes into account the credit spread risk of the mortgages and uncertainty relating to prepayment estimates. In the absence of observable primary RMBS transactions in combination with the declining relevance of RMBS indices, NIBC has used observed offered mortgage rates as an additional benchmark to determine this spread.

 

On the basis of the available data on RMBS spreads and offered mortgage rates, NIBC concluded that in 2008 the use of offered mortgage rates provides the best estimate of the spread that would be inherent in a hypothetical transaction at the balance sheet date motivated by normal business considerations. The underlying assumption underpinning the valuations is that professional market parties interested in building exposures in the residential mortgage market would be indifferent between originating the loans themselves or acquiring existing portfolios.

 

The offered mortgage rate is determined by collecting mortgage rates from other professional lenders sorted by product, loan to value class and the fixed rate period. The discount spread is derived by comparing the offered mortgage rate to the market interest rates taking into account the upfront mortgage offering costs embedded in the offered mortgage rate.

 

Prices for mortgage loans in the form of offered mortgage rates and the estimated prepayment rate are the most significant and subjective parameters used in the valuation of the residential mortgages as of 31 December 2008. The determination of the applicable offered mortgage rates and prepayment rates requires NIBC to make subjective judgements. A one basis point shift in either direction of the discount spread across the mortgage portfolio would have had either a positive or a negative impact as of 31 December 2008 of approximately EUR 3.6 million (2007: EUR 3.5 million) on the fair value of the mortgages. A 1% point shift in the assumption NIBC makes about expected prepayments would have had an impact as of 31 December 2008 of approximately EUR 1.5 million (2007: EUR 11.2 million) on the fair value of the mortgages.

 

 

Loans

 

Loans at Fair Value through Profit or Loss

Loans designated at Fair Value through Profit or Loss consists of assets that are traded in the secondary loan market or active syndications market. In an active market environment, these assets are mark-to-market by applying market bid quotes observed on the secondary market. The quotes received from other banks or brokers and applied in the mark-to-market process are calibrated to actual trades executed and settled to the extent possible.

 

During 2008, the secondary loan market was confronted with exceptionally low volumes and on the syndication market only a few deals could be used as pricing references for the Loans designated at Fair Value through Profit or Loss as at 31 December 2008. In certain instances, additional pricing reference points have been obtained by collecting spreads using primary transactions that are comparable with the loans in the Fair Value through Profit or Loss category.

 

A one basis point shift in the applicable credit spread in either direction would have an impact of EUR 0.45 million on the fair value of the Loans designated at Fair Value through Profit or Loss as at 31 December 2008. 

 

Loans designated as Available for Sale

NIBC applied an internal valuation model for determining the fair value of the loans designated as Available for Sale. The reason for applying a valuation model is that there is no active market for these assets. As at 1 July 2008, all Loans in the amount of EUR 4,285 million designated as Available for Sale were reclassified to Loans and Receivables at Amortised Cost. Consequently, the fair value as at 30 June 2008 of the Loans designated as Available for Sale has been used as the amortised cost of the reclassified loans.

 

The model used to determine the fair value as at 30 June 2008 assumed that the book is securitised. The most significant valuation parameters are yield curves by currency and the credit discount spread. An average life of the loan book of four years is assumed, consistent with NIBC’s historical experience. The valuation is particularly sensitive to the credit spread assumptions. This spread reflects two important inputs. The first is Collateralised Loan Obligation (CLO) and Commercial Mortgage Backed Securities (CMBS) spreads, both derived from independent brokers. The CLO and CMBS markets were both characterised by the near absence of primary issuances. Consequently, in the absence of observable primary transactions, the credit spread used for valuation purposes as at 30 June 2008 was derived largely from spreads quoted by independent banks.

 

The second input is the model used to tranche the portfolio. NIBC applies the Fitch Vector model (version 3.01), including the probabilities of default provided by Fitch.

 

A one basis point shift in the applicable credit spread as at 30 June 2008 in either direction would have an impact of EUR 1 million (2007: EUR 1 million) on the fair value of these loans.

 

 

Fair value of financial assets venture capital organisation within operating segment Merchant Banking

The Group estimates the fair value of its venture capital assets using valuation models, and it applies the valuation principles set forth by the International Private Equity and Venture Capital Valuation Guidelines to the extent these are consistent with IAS 39.

 

At 31 December 2008, the fair value of this portfolio was estimated to be EUR 296 million. This portfolio is reported on the face of the Balance Sheet under financial assets at Fair Value through Profit or Loss on the line item Investments in associates (EUR 188 million) and under financial assets at Available for Sale in the line item Equity investments (EUR 108 million).

 

The fair value of equity investments is established by applying capitalisation multiples to maintainable earnings. Maintainable earnings are estimated based on the last twelve months’ EBITDA, adjusted for one-off gains and losses. Capitalisation multiples are derived from the enterprise value and the normalised trailing last twelve months EBITDA at the time of the acquisition. At each balance sheet date, the capitalisation multiple of each equity investment is compared against those derived from the market capitalisation and publicly available earnings information of traded peers, where these can be identified. Peer capitalisation multiples are normalised for factors such as, amongst others, differences in regional and economic environment, time lags in earnings information, liquidity and one-off gains and losses.

 

The resulting enterprise value is adjusted for net debt, minority interests and management incentive plans to arrive at the fair value of the equity.

 

The determination of the fair value of unlisted financial assets in this manner is necessarily a subjective process. For the Equity investments as at 31 December 2008, a 10% increase in the capitalisation multiples that the Group uses would have produced an increase in the fair value of the Equity investments of approximately EUR 32.8 million. A 10% decrease in capitalisation multiples would have produced a decrease in the fair value of the Equity investments of approximately EUR 31.9 million.

 

 

Impact of reclassified financial assets

 

NIBC has chosen to reclassify as of 1 July 2008 certain financial assets that are no longer held for the purpose of selling in the near term as permitted by the October 2008 amendment to lAS 39 and IFRS 7. In NIBC’s judgement, the deterioration in the world’s financial markets is an example of a rare circumstance. Had NIBC determined that the market conditions during the third quarter of 2008 did not represent a rare circumstance or that NIBC did not have the intention and ability to hold the financial assets for the foreseeable future or until maturity and had NIBC therefore not reclassified the financial assets, a post-tax net loss of EUR 117 million would have been recognised in profit or loss and a post-tax net loss of EUR 220 million would have been recognised in the revaluation reserve in equity due to incremental fair value losses.

 

 

Impairment of corporate loans

 

NIBC assesses whether there is an indication of impairment of corporate loans classified as Available for Sale assets or as Loans and Receivables at Amortised Cost on an individual basis and at least quarterly. NIBC considers a range of factors that have a bearing on the expected future cash flows that it expects to receive from the loan, including the business prospects of the borrower and its industry sector, the realisable value of collateral held, the level of subordination relative to other lenders and creditors, and the likely cost and likely duration of any recovery process. Subjective judgements are made in the process including, among others, the determination of expected future cash flows and their timing, the market value of collateral, and market discount rates. Furthermore, NIBC’s judgements change with time as new information becomes available, or as recovery strategies evolve, resulting in frequent revisions to individual impairments, on a case-by-case basis. NIBC regularly reviews the methodology and assumptions used for estimating both the amount and timing of future cash flows, to reduce any differences between loss estimates and actual loss experience.

 

If, as at 31 December 2008, for each of the impaired corporate loans, the net present value of the estimated cash flows had been 5% lower than estimated, NIBC would have recognised an additional impairment loss of EUR 6.5 million (2007: EUR 6.8 million). If, as at 31 December 2008, for each of NIBC’s impaired corporate loans, the net present value of the estimated cash flows had been 5% higher than estimated, the impairment loss would have been reduced by EUR 6.5 million (2007: EUR 6.8 million).

 

 

Impairment of Equity investments classified as Available for Sale

 

NIBC determines an impairment loss on the Available for Sale Equity investments held in the investment portfolio of the venture capital organisation within the operating segment Merchant Banking when there has been a significant or prolonged decline in the fair value below its original cost (including previous impairment losses). NIBC exercises judgement in determining what is ‘significant’ or ‘prolonged’ by evaluating, among other factors, whether the decline is outside the normal range of volatility in the asset’s price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the company whose securities NIBC holds, a decline in industry or sector performance, adverse changes in technology or problems with operational or financing cash flows.

 

The level of the impairment loss that NIBC recognises in the Consolidated Income Statement is the cumulative loss that had been recognised directly in equity. If NIBC had deemed ‘significant’ or ‘prolonged’ all of the declines in fair value of Equity investments below cost, the effect would have been EUR 2.2 million (2007: EUR 0.8 million) reduction in the Profit before tax from continuing operations (Gains less losses from financial assets) in 2008.

 

 

Securitisations and special purpose entities

 

NIBC sponsors the formation of Special Purpose Entities (SPEs) primarily for the purpose of allowing clients to hold investments in separate legal entities, to allow clients to invest jointly in alternative assets, for asset securitisation transactions, and for buying or selling credit protection. NIBC does not consolidate SPEs that it does not control.

 

The determination of whether NIBC exercises control over an SPE requires NIBC to make judgements about its exposure to the risks and rewards derived from the SPE as well as its ability to make operational decisions for the SPE in question. In many instances, elements are present that considered in isolation indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. In such cases, the SPE is consolidated.

 

When assessing whether NIBC has to consolidate an SPE, it evaluates a range of factors, including whether:

  • It will obtain the majority of the benefits of the activities of an SPE;
  • It retains the majority of the residual ownership risks related to the assets in order to obtain the benefits from its activities;
  • It has decision-making powers to obtain the majority of the benefits; and
  • The activities of the SPE are being conducted on NIBC’s behalf according to NIBC’s specific business needs so that it obtains the benefits from the SPEs operations. Such an evaluation is necessarily subjective.

 

Were the Group not to consolidate the assets, liabilities and the results of these consolidated SPEs, the net effect on the Balance Sheet would be a decrease in net assets of EUR 6.0 billion (2007: EUR 7.3 billion) and the net effect on the Income Statement in both 2008 and 2007 would be insignificant.

 

 

De-recognition of assets and recognition of continuous involvement

NIBC executed transactions under their CMBS programme. The purpose of this programme is to offer NIBC real estate clients access to the capital markets. NIBC established SPEs for the commercial backed securities programme. All loans transferred to the SPEs are collateralised by commercial real estate properties. The SPEs obtain funding from the capital markets by issuing CMBS notes. The commercial real estate loans, included in the commercial mortgage backed securities programme, were originated by NIBC or by other banks prior to the securitisation. The total amount of commercial loans originated by NIBC prior to the securitisation and that was subsequently transferred to these SPEs amounts to EUR 1,288 million. The notional amount at 31 December 2008 was EUR 1,233 million (2007: EUR 1,243 million). The loans that continued to be recognised to the extent of NIBC’s continuing involvement amounted to EUR 701 million at 31 December 2008 (2007: EUR 710 million). The reason for recognising this continuing involvement is that based on a risks and rewards analysis, NIBC did not transfer substantially all risks and rewards associated with the securitised assets. The continuing involvement is reflected in the Balance Sheet as EUR 630 million (2007: EUR 638 million) in Securitised loans valued at Amortised Cost and with a corresponding amount in Debt securities in issue related to Securitised mortgages and Loans, EUR 64 million (2007: EUR 64 million) in Loans at Fair Value through Profit or Loss and with a corresponding amount in Debt securities in issue related to securitised mortgages and Loans and EUR 7 million (2007: EUR 8 million) in Debt investments at Fair Value through Profit or Loss which concerns the fair value of NIBC’s investment in certain CMBS notes.

 

 

Pension benefits

 

The present value of pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) of pensions include the discount rate, the expected return on plan assets, future salary increases, future inflation and future pension increases. Any changes in these assumptions will impact the carrying amount of pension obligations.

 

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

 

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 43.

 

Were the discount rate used to differ by 10% from management’s estimates, the carrying amount of pension obligations would be an estimated EUR 12.9 million (2007: EUR 14 million) lower or EUR 14.2 million (2007: EUR 16 million) higher. The service cost would be EUR 0.4 million (2007: EUR 0.7 million) lower or EUR 0.4 million (2007: EUR 0.8 million) higher.

 

 

Income taxes

 

NIBC is subject to income taxes in a number of tax jurisdictions. NIBC makes estimates in determining its worldwide provision for income taxes, and files its tax returns after the finalisation of its Financial Statements. The ultimate tax determination by tax authorities for certain transactions arising in the ordinary course of business may remain uncertain for several years after their occurrence. NIBC recognises assets and or liabilities for taxation when it is probable that the relevant taxation authority will require NIBC to receive and or pay taxation. Where the final outcome of such determination is different from the amounts that were initially estimated and recorded, these differences will impact the income tax expenses or deferred tax position in the period in which the determination is made.