Information checkedInformation unaudited Information geprüft Information ungeprüft Accounting principles

2.1.1 General points

1.1 Basis for financial accounting

The interim financial reporting was prepared in accordance with the international accounting standard for interim financial reporting (IAS 34 “Interim Financial Reporting”). The accounting and valuation principles employed in the unaudited consolidated interim management report correspond to those used in the 2020 annual report, which was prepared in accordance with international financial reporting standards (IFRS). In addition, the regulations valid since 1 January 2021 have been applied.

The unaudited financial reporting does not encompass all the data contained in the audited 2020 consolidated financial statement and should, therefore, be read together with the audited consolidated financial statement as at 31 December 2020.

1.2 Use of estimates in the preparation of financial statements

Areas having large scope for estimate judgements, which could be of great significance for the financial statement, include estimates for expected credit losses, goodwill, intangible assets, provisions for legal and litigation risks, fair value conditions for financial instruments classified as Level 3 and liabilities for pension plans. Explanations regarding this point are shown under notes 13 and 14 in the 2021 consolidated interim financial statement and under notes 13, 18, 26 and 34, as well as in the chapter “Pension plans and other long-term benefits” in the 2020 consolidated financial statement.

The LLB Group periodically reviews the actuarial assumptions and parameters used for the calculation of pension obligations. The actuarial assumptions and parameters used for the calculation of pension obligations in the 2020 annual financial statement were adjusted accordingly in the 2021 interim financial reporting. Furthermore, the new technical provisions of the Federal Law on Occupational Old-age, Survivor’s and Disability Insurance (BVG) 2020 were applied.

1.3 New IFRS, amendments and interpretation

New IFRS, as well as revisions and interpretations of existing IFRS, which must be applied for financial years beginning on 1 January 2021 or later, were published, or came into effect.

1.3.1 Changes to accounting principles from 1 January 2021

The following new or amended IFRS or interpretations will be applied by the LLB Group for the first time beginning from 1 January 2021. The LLB Group decided against the early adoption of amendments coming into effect at a later date. On account of their importance, only the amendments in connection with the IBOR reform, Phase 2 are dealt with in more detail.

IBOR Reform, Phase 2 – Amendments to IFRS 9 “Financial Instruments“, IAS 39 “Financial Instruments: Recognition and Measurement“, IFRS 7 “Financial Instruments: Disclosures“, IFRS 4 “Insurance Contracts“ and IFRS 16 “Leases“.

Phase 2 of the reform deals with issues relating to financial reporting at the time of the replacement of an existing benchmark interest rate by an alternative interest rate. The amendments, applicable retrospectively, should mitigate the effects of the IBOR reform on financial reporting.

Within the LLB Group, the project concerning the changeover of interbank interest rates to new benchmark interest rates enjoys a high priority. The smooth transition to the new benchmark interest rates is being ensured within the scope of a groupwide project headed by the Group Treasury Department. Group Treasury regularly reports to the decision-making bodies about the status of the changeover; this is running according to plan.

In the second half of 2021, the changeover of benchmark interest rates for financial instruments affected by the IBOR reform will take place.

The following financial instruments are affected by the changeover:

The changeover of the benchmark interest rates will lead to an adjustment of the effective interest rate with loans to customers and amounts due to customers; the nominal interest rate remains unchanged thanks to the simplification in Phase 2.

The IBOR reform could have an influence on the LLB Group’s hedge accounting. As long as the retrospective effectiveness of the hedging relationships, which are affected by the IBOR reform, remains outside the range of 80 to 125 per cent, the LLB Group will not end the hedge accounting relationship provided the IBOR reform is the reason for it. Up to the present date, all hedge accounting relationships continue to be assessed as highly effective; the simplification was not adopted.

According to the provisions of Phase 2, the changeover to the new benchmark interest rate necessitates that the hedge accounting documentation of the interest rate swaps concerned be updated by the end of the reporting period at the latest. This adjustment will not lead to an ending of the hedge accounting relationship. Rather this means that the provisions of IAS 39 are to be subsequently applied as they were prior to the IBOR reform.

The LLB Group is aware that the IBOR reform can create risks. Essentially, these are operative risks, which are periodically evaluated. Thanks to active risk management, the probability of these risks occurring is assessed as being low. Furthermore, no other transactions for financial instruments will be concluded if they are not based on the new benchmark interest rates.

The Phase 2 amendments have no material effect on the financial statement of the LLB Group. The amendments to IFRS 4 and IFRS 16 will not be implemented.

Other standards and interpretations

The extension of the period of application for the amendments to IFRS 16 “Leases“ concerning rental concessions in connection with the Covid-19 is not relevant for the LLB Group.

1.3.2 Applicable for financial years beginning on 1 January 2022

The following new or amended IFRS or interpretations are relevant for the LLB Group from 1 January 2022 or later. The LLB Group decided against an early adoption unless otherwise stated. On account of their importance, only the amendments relating to IAS 1 in connection with the disclosures initiative are dealt with in more detail.

Amendments to IAS 1 – Material Accounting Policies

The amendments to IAS 1 require that in future entities disclose their material accounting policy information rather than their significant accounting policies. The assessment of what is material depends on the usefulness of the information to the recipients of the financial statement for decision-making purposes. Guidelines were provided for this purpose. The aim of the amendments is to facilitate the provision in the accounting methods of more specific disclosures about the entity instead of general information. The amendments have no effect on the disclosure requirements of individual standards.

The amendments will have no material influence on the financial statement of the LLB Group; however they will affect the presentation of the LLB Group’s accounting principles. These will be streamlined and simplified. A preliminary analysis will commence in the second half of 2021.

The amendments are to be applied prospectively for financial years, which commence on or after 1 January 2023. An earlier adoption is possible.

Other standards and interpretations

According to the preliminary analyses performed, the effects of the following new or amended standards and interpretations have no major influence on the accounting policies of the LLB Group. They concern merely new issues, which were not already dealt with in the 2020 annual report:

• IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” – The amendments introduced the definition of accounting estimates to distinguish changes in accounting estimates from changes in accounting policies.
• IAS 12 “Income Taxes“ – The amendment clarifies that deferred taxes are to be allocated for single transactions on initial recognition if equal amounts of deductible and taxable temporary differences arise from the single transaction.

In the first half of 2021 no changes occurred in the scope of consolidation. The subsidiary LLB Berufliche Vorsorge AG is currently in liquidation and will be withdrawn from the scope of consolidation as per 31 December 2021.

2.4.1 Functional currency and reporting currency

Within the scope of its operative activity, the LLB Group is exposed to financial risks such as market, credit, liquidity and refinancing risks, as well as operational risks. The current situation has not changed substantially in comparison with the situation on 31 December 2020. Therefore the 2021 consolidated interim financial reporting contains only qualitative disclosures regarding credit risks. For more detailed information, we refer to the risk management information in the 2020 annual report.

With regard to the value of its absolute loans, the credit portfolio of the LLB Group has not changed materially during the first half of 2021. In the case of Stage 1 and Stage 2 loans, there were no significant changes in the expected credit losses (30.06.2020: CHF 1.4 million net release), for Stage 3 positions a net release of CHF 0.9 million (30.06.2020: CHF 15.2 million net increase). Across all stages the expected credit losses led to a total gain of CHF 1.0 million (30.06.2020: CHF 13.8 million charge). This is reported in the consolidated income statement.

In comparison with the reporting date 31 December 2020, the models and scenarios for the calculation of expected credit losses were not adjusted. In this respect, LLB continued to follow the recommendations of the regulatory authorities not to consider the effects of short-term economic shocks too strongly in the models. In order to consider the risks and developments on the markets in the calculation of expected credit risks, however, within the scope of its governance process, the LLB Group has updated the input factors, as well as the assumptions and estimates incorporated in its models.

On the basis of an analysis of business transactions, rating adjustments were made for individual business partners. The increase in probability of default led in some cases to a change in classification from Stage 1 to Stage 2. Payment deferments continued to be granted for credits of Stages 1 and 2 where necessary. LLB assesses the effects of the individual adjustments and measures as not being substantial.

At the LLB Group, the bridging loans granted to companies badly affected by the corona pandemic totalled CHF 68 million (31.12.2020: CHF 71 million). This volume is secured almost completely by the State; the LLB Group is exposed to no significant risk as a result of this activity. The loans were classified as being in conformance with the market.

No material events occurred after the balance sheet date which would have a significant influence on the asset, financial and earnings position of the LLB Group.