FINANCIAL REPORT 2016

2.5.3. CASH FLOW AND FAIR VALUE INTEREST RATE AND FOREIGN EXCHANGE HEDGING Derivative financial instruments used in a hedging relationship are designated according to the intended purpose: • Fair value hedge; • Cash flow hedge; • Hedge of a net investment in foreign currency. Each hedging relationship is formally documented describing the strategy, item hedged and hedging instrument, and method of measuring effectiveness. 2.5.3.1. Fair value hedges A fair value hedge modifies the risk of changes in the fair value of a fixed-rate financial instrument caused by changes in interest rates. Fair value hedges transform fixed-rate assets or liabilities into floating-rate assets or liabilities. Items hedged are principally fixed-rate loans, securities, deposits and subordinated debt. The financial instruments considered as hedging instruments on December 31, 2016 are interest rate swaps which cover securities or customer demand deposits.

2.5.3.2. Hedging derivative instruments

31.12.2016

31.12.2015

Market value

Market value

Notional amount

Notional amount

(in thousands of euros)

positive

negative

positive

negative

FAIR VALUE HEDGES

10964 10964 10964

228019 18377700 228019 18377700 228019 18377700

18180 18180 18180

99567 25036700 99567 25036700 99567 25036700

Interest rate

TOTAL

2.6. NOTES TOTHE INCOME STATEMENT 2.6.1. INTEREST INCOME AND EXPENSE

31.12.2016

31.12.2015

(in thousands of euros)

Interbank transactions

17944

14632

Customer transactions

98944

27409

Accrued interest receivable on available-for-sale financial assets

163292

171474

Accrued interest receivable on hedging instruments

55240

39933

Other interest and similar income

47670

7998

INTEREST INCOME

383090

261446

Interbank transactions

-62537

-27656

Customer transactions

-5974

-12329

Subordinated debt

-10368

-11394

Accrued interest payable on hedging instruments

-140538

-80204

Other interest and similar expense

-20013

-20

INTEREST EXPENSE

-239430

-131603

25