Interest income and expenses are reported in the

interest income and expenses are reported in the income state-
ment in the line ‘Net interest income’.
If securities purchased under agreement to resell are subsequently
sold to third parties, the obligation to return the securities is
recorded as a short sale within ‘Trading liabilities’.
(vi) Financial assets or financial liabilities designated at fair
value through profit or loss
Financial assets or financial liabilities classified in this category
are those that have been designated by management on initial
recognition (fair value option).
Erste Group uses the fair value option in the case of financial
assets managed on a fair value basis. In accordance with a docu-
mented investment strategy, the performance of the portfolio is
evaluated and regularly reported to the management board. The
portfolio consists largely of investments in bonds issued by EU
governments and EU municipalities.
Financial assets designated at fair value through profit or loss are
recorded in the balance sheet at fair value in the line ‘Financial
assets – at fair value through profit or loss’ with changes in fair
value recognised in the income statement in the line ‘Result from
financial instruments – at fair value through profit or loss’. Inter-
est earned on debt instruments as well as dividend income on
equity instruments is shown in the position ‘Interest and similar
income’.

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Erste Group uses the fair value option in case of some hybrid
financial liabilities, if:
_ such classification eliminates or significantly reduces an ac-
counting mismatch between the financial liability otherwise
measured at amortised cost and the related derivative meas-
ured at fair value; or
_ the entire hybrid contract is designated at fair value through
profit or loss due to existence of an embedded derivative.
The amount of fair value change attributable to changes in own
credit risk for financial liabilities designated at fair value through
profit or loss is calculated by the method described by IFRS 7.
This amount is the difference between the present value of the
liability and the observed market price of the liability at the end
of the period. The rate used for discounting the liability is the sum
of the observed (benchmark) interest rate at the end of the period
and the instrument-specific component of the internal rate of
return determined at the start of the period.
Financial liabilities designated at fair value through profit or loss
are reported under the respective financial liabilities positions
‘Customer deposits’, ‘Debt securities in issue’ or ‘Subordinated
liabilities’. Changes in fair value are recognised in the income
statement in the line ‘Result from financial instruments – at fair
value through profit or loss’. Interest incurred is reported in the
line ‘Interest and similar expenses’.