avatar bunq B.V. Finance, Insurance, And Real Estate
  • Location: NOORD-HOLLAND 
  • Founded:
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    Table of Contents Report Managing Board 3 Report Supervisory Board 10 Statement of financial position 12 Statement of profit and loss and other comprehensive income 13 Statement of changes in equity 14 Statement of cash flows 15 Notes to financial statements 16 1. General information 1​6 2​. Adoption of new and revised standards 1​6 3​. Use of judgements and estimates 1​9 4​. Significant accounting policies 2​1 5​. Financial risk review and fair value 2​8 6​. Interest income 3​9 7. ​Interest expenses 39 8​. Fee income 40 9​. Fee expenses 40 10​. Personnel expenses 41 11. Depreciation 41 12. Impairment losses 42 13. Other expenses 43 14. Corporate income tax 44 15. Cash and balances with central banks 44 16. Loans and advances to banks 44 17. Investments at amortised cost 45 18. Investments held-to-maturity 46 19. Advances to customers 46 20. ​ Right of use assets 47 21. ​Tangible fixed assets 48 22. ​Other assets 48 23​. Customers deposits 49 24. Other liabilities 49 25. Share capital 50 26. Contingent liabilities 51 27. Related parties 51 28. Subsequent events 52 29. Proposal of appropriation of the result for the financial year 2019 53 Other information 54 2


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    Report Managing Board Why bank of The Free We are bunq - bank of The Free, built by and created for independent thinkers, people who want every tomorrow to be better than today, for themselves, their loved ones, and for the world as a whole. Our goal is as simple as it is ambitious: to make life easy by creating benefits that save time, money and the environment. As Europe’s only completely self-funded challenger bank, we retain the freedom and independence to build a bank rooted in the wants and needs of its users, to build products they love to use, simply because we are free to be the bank that puts its users first every step of the way. In doing so, we radically improve banking for an ever-increasing number of people, changing the way we deal with money and giving everyone an easy means to obtain the most valuable thing in life: freedom. The fact we are a bank that focuses on its users and what they want is reflected in our remuneration policy: we believe that paying bonuses introduce incentives that are not in the best interest of our users. Hence, unlike traditional banks and most of our peers, we do not have variable rewards for our staff and management. Neither do we have staff who earn more than EUR 1 million, something we have to report according to the ‘​Wet op het financieel toezicht’. ​On the contrary, employees nor board members come close to such amounts. The total remuneration of bunq's Managing Board (3 persons) was EUR 318,919 in 2019: on average less than EUR 107,000 per year per board member. Our remuneration policy in turn reflects one of the main reasons bunq was created: to bring colour and diversity to an otherwise uniform and traditional financial system. More than ever is there a need for a fully licensed bank that is built on transparency and innovation, a bank that does not sell users’ private data, a bank where each individual user can decide how their money is invested, a bank that enables people to manage their money on their terms, a bank that warrants a healthy financial system by bringing diversity to it. Although sustainability and diversity have always been embedded in our core values, we decided to stress this to the outside world, adding facts and figures to our philosophy. Consequently this year saw the release of our first sustainability report, in which we outline how we contribute, not just to sustainability and diversity in the banking sector, but to the world as a whole. This report was written at a time when every corner of the world was affected by worldwide lockdowns due to the coronavirus, dramatically revealing the fragility of the economic and financial system as it stands today. Even though most of our staff had to work from home, this hardly affected our work processes as we were already accustomed to work together and communicate effectively by various means. We did observe changes in payment patterns and users showed their trust in bunq as the funds on their accounts increased steadily. Altogether, the coronavirus has had an enormous impact on the daily lives of our users and our staff, but the operational adjustments for bunq were minor. bunq is seen as one of the 4 biggest European challenger banks, together with N26, Revolut and Monzo, that are shaping the future of banking. As any other company, bunq needs to generate revenue to be a healthy company. This report lays out how we accomplished this in 2019 while remaining true to our mission. 3


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    Looking back on 2019 2019 saw many important steps toward making life easy for our users. As an independent bank we are free to innovate at our own pace, matching our users’ demands as they arise. Our products can be divided into three main categories: - ​Travel​, a free subscription tailored to people who want to enjoy carefree traveling; - ​Personal​, tailored to people who want their finances to be easy and free of worries; - ​Business​, tailored to entrepreneurs who want to save time and focus on growing their business without any hassle. Travel users enjoy the worldwide acceptance of a true credit card and benefit from getting the real exchange rate, without any additional charges, anywhere in the world. Personal and Business users also have a current account which allows them to transfer money in various ways including: ● SEPA payments: SEPA credit transfers (SCT), SEPA Direct debits (SDD) and SEPA Instant Credit Transfers; ● Card payments: Maestro, Mastercard; ● International transfers through Swift or TransferWise. Many new features and innovative solutions were added in 2019. Highlights include: For Travel, Personal and Business users: - ​Auto Slice​, allowing you to enjoy time with friends and loved ones without worrying about who paid for what. For Personal and Business users: - ​MassInterest​, the highest interest rate at 0,27% for balances up to € 10,000, where other banks pay zero interest. - ​Online Cards​, for a 100% safe and carefree online shopping experience. Create an Online Card on-the-go, and dispose of it whenever you want. - ​Insights​; saving money by knowing how you spend it. The bunq app automatically categorises your spending. It has been shown that insights in spending can help you save up to 10%. - ​Balance Prediction​, using the latest in machine learning and AI, so you know how much you can spend. For Business users: - ​Receipt Scanning​; scan all your receipts in one go and match them to the right payment automatically. This saves you, or your accountant, time and money when closing your monthly or quarterly accounts. - ​Auto VAT​, automatically set aside VAT for both incoming and outgoing payments, so you are always ready when the tax man comes. Additionally, ​bunq Apps was launched, an online marketplace where coding talent from all over the world can market apps they created using the bunq API, allowing all bunq users to benefit from the possibilities of the bunq API. The biggest highlight of 2019 however was the launch of the ​bunq Green Card​, a metal card that combines all the sophistication of bunq cards with the extra benefit of becoming CO2 free without any effort: for every EUR 100 spent with the Green Card, a tree is planted. 4


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    The response for the Green Card was enormous, the Founders Edition sold out within 15 hours, and in the first two months since its release bunq users had already planted more than 40,000 trees together. Looking forward, bunq will continue to innovate and create features for its users, all to make life easy. Corporate governance bunq B.V. has a two-tiered board model, with a Managing Board and a Supervisory Board. In view of bunq’s modest size, the ‘large corporates regime’ (‘structuurregime’) does not apply. The composition of the Managing Board was as follows during the reporting year: Mr. A. Niknam (CEO) – appointed 1 December 2013 Mr. D. Timessen (CPO) – appointed 1 January 2018 Mr. I.L. van Eeghen (CFRO) – appointed 1 June 2018 Mr Timessen resigned from the Managing Board in November 2019 to emigrate to Spain. On 23 March 2020 Mr B. Wesselink was appointed as Chief Financial and Operations Officer in the Managing Board. Per the same date Mr van Eeghen relinquished his responsibilities relating to Finance and became the Chief Risk Officer. These changes in responsibilities meant that also at board level there is now a distinct separation between the so-called first and second line of defence. While bunq values diversity very much, the Managing Board does not meet the ‘balanced composition’ requirement which stipulates that at least 30% of the seats are filled by women and at least 30% by men. This requirement is applicable to large enterprises, but bunq does not meet the criteria of a large enterprise yet. More importantly, next to gender, we believe that diversity in culture and many other metrics are equally valuable. We truly appreciate people as they are, no matter what, and only distinguish them for their results. The Supervisory Board does meet the ‘balanced composition’ requirement. bunq fully subscribes and adheres to the Code Banken, as far as applicable in this stage of the Company’s life. bunq deviates from the Code Banken regarding the distribution of responsibilities between the CEO and CRO. To reduce the already large span of control of the CEO, the CRO is responsible for the permanent education of the board members. In addition, the internal audit function reports to the CRO and to the Chairman of the Supervisory Board. All bunq employees take the Banker’s Oath. Financial Results During 2019, our user base continued to grow strongly. This is illustrated by the growth in revenues and customer deposits, but also in transaction volumes. Customer deposits grew from EUR 211.2 million per year-end 2018 to EUR 433.7 million per year-end 2019. The fee income grew from EUR 3.1 million in 2018 to EUR 8.6 million in 2019. bunq is still investing in its future, as a result of which it continues to suffer start-up losses. In 2019 the Net result was EUR 13.9 million negative compared to EUR 11.1 million negative in 2018. Cost increases were noted within the Cost of Sales reflecting the increased use by users of their bunq account and additional features being released in 2019. Furthermore, marketing costs increased from EUR 4.2 million to EUR 5.9 million and personnel costs increased from 4.5 million to EUR 6.5 million. During 2019, our average number of Full Time Equivalent (FTE) employees amounted to 96 (2018: 81.5). 5


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    Our financial policy is to ensure that our capital buffers comply with regulations and that sufficient funds are available to fund the expected start-up losses balancing the need to invest and grow with financial prudence. To finance our growth the shareholder injected significant amounts of capital in 2019: EUR 18.4 million. This was primarily to finance start-up losses. During the year, as well as per 31 December 2019, bunq complied with the capital requirements of DNB. The shareholder made an additional capital injection of EUR 2.4 million per 20 January 2020, EUR 3.4 million per 26 February 2020, EUR 1.7 million per 25 March 2020, EUR 2 million per 22 April 2020 and EUR 2.4 million per 27 May 2020. Risks The risk management of the organization is structured following the ‘three lines of defence’ model. The first line of defence are the operational departments which are responsible to identify, mitigate and report the risks. The second line of defence keeps oversight over the first line’s effectiveness to identify and mitigate risks. Compliance and Risk are in the second line of defence. The second line must be independent from the first line of defence. In bunq the second line reports to the CRO. Internal audit provides independent assurance over the adequacy and compliance of the first and second line of defence. Audit tests whether policies and processes are designed adequately and effectively. They also test whether the first and second line of defence operate adequately and are compliant with laws and regulations. bunq is exposed to various sorts of risk. We discuss the most important risks below. Business risk Any start-up, and thus also bunq, must prove that it can become profitable. However, revenues may fall short of expectations due to unexpected market circumstances and/or underperformance. We closely monitor our performance and take action if and when necessary. We strongly believe in our business model, but if the worst comes to the worst then a plan is in place for an orderly wind down of the Company. Operational risk Another important risk is operational risk: the risk of incurring losses due to failing or inadequate internal processes, people or systems, or from external events. As a tech company, technology is important to us. Technology risks are identified and various mitigation measures are in place. In the event that an unexpected event occurs then a business continuity process kicks in to address the situation in the shortest possible time. As a result, the time that services were not available to our users, one of the key metrics, was relatively low in 2019. Our financial reporting is also supported by various IT systems. Internal controls are in place and will continue to be strengthened to improve their auditability. Operational risk losses may be incurred too by other causes than technology, such as human error and fraud. We use various processes and controls to manage these risks. Compliance risk An important non-financial risk is (non-)compliance with laws and regulations. Banks are subject to many rules and regulations and compliance to these standards can be a challenge. Non-compliance may lead to regulatory actions, including fines. Increasingly regulators scrutinise the banks under their supervision on Client Due Diligence and Anti-Money Laundering. We take these risks very seriously as it may cause serious harm to our (and other banks’) customers, to ourselves and to society at large. Banking supervisors regularly perform reviews to assess bunq’s compliance with laws and regulations. In 2018 a review was held leading to a CDD and AML program of improvements that continued in 2019 and early 2020. bunq is still in discussion with the regulator, contesting alleged deficiencies and the consequences thereof. 6


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    Notwithstanding our efforts, we still believe that today’s challenges can only be addressed by cross-banking cooperation with governments. Interest rate risk bunq has assets that pay and liabilities that carry interest. If interest rates change then the interest income on these assets and liabilities may change. Furthermore, the market value of the assets may decrease or the fair value of the liabilities may increase due to changes in interest rate. We manage our interest rate risk within a framework of limits. No derivatives were used to manage interest rate risk in 2019. Credit risk Credit risk is the risk that the value of claims on third parties, including investments, decreases due to an (increased probability of) paymen​t failure. We invest primarily in investment grade-rated bonds and monitor our exposures closely. Due to the increase in customer deposits and the negative interest of the deposit facility with the ECB, we have increased our investments in grade-rated bonds. Since we increased our treasury activities we invested in additional employees in the treasury department and reduced the dependency on external consultants. As our portfolio consists out of multiple bonds in different (geographical and industry) markets, as well as various investment-grade credit ratings, we invested (in addition to the investments in additional staffing) in our market-data infrastructure to ensure that we can monitor our investments more closely, specifically for credit-rating downgrades. Liquidity risk Liquidity risk is the risk that bunq cannot fulfil its payment obligations. At year-end 2019 bunq had placed its funds with the ECB and DNB and in very liquid tradable bonds. As a result, considerable funds were and are directly or at short notice available to fulfill our payment obligations. To determine the desired level of readily available funds we consider stressed conditions when payment obligations may be high. Financing Our ultimate shareholder firmly believes in the full potential of bunq. Up to the end of 2019, he has made capital contributions of EUR 63.3 million to fund the start-up losses and to cover the risks in our operations. The shareholder made an additional capital injection of EUR 2.4 million per 20 January 2020, EUR 3.4 million per 26 February 2020, EUR 1.7 million per 25 March 2020, EUR 2 million per 22 April 2020 and EUR 2.4 million per 27 May 2020. Capital Position The table below shows bunq’s capital ratios: 7


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    As most of the assets are invested with central banks or in (government) bonds the Risk Weighted Assets (RWA) are relatively low and, consequently, CET1% is relatively high. Due to the growth of users and the balances they maintain with bunq, the balance sheet continued to grow strongly in 2019 and consequently the leverage ratio decreased in 2019. Liquidity Ratios 31 Dec 2019 31 Dec 2018 Liquidity Coverage Ratio (LCR) 884% 633% Net Stable Funding Ratio (NSFR) 1,010% 1,271% bunq is very liquid as measured by the regulatory liquidity ratios. The decrease of the LCR is mainly due to a reclassification of some liabilities. Research and Development bunq is very active in research and development, resulting in the release of additional features in its app and/or service-provision. Its research and development program is partially subsidised by the RVO with their WBSO program. For an extensive and non-exhausted list of resulting developments during the financial year we do reference to the paragraph of ”Looking back on 2019”. Our mission: spreading freedom in Europe in 2020 We are committed to continue to invest in our product and to keep on introducing freedom in the financial sector, throughout Europe. In January 2020 we started an advertisement campaign in Germany, France and The Netherlands to increase our brand awareness. Via TV commercials and trams we reached more than 18 million people. In March 2020 we streamlined and simplified our product offering. For individuals we offer Premium, Premium SuperGreen and Travel Card. For business we offer Business and Business SuperGreen. For individuals who want to share their accounts, for example with their partner or children, we introduced bunq+1, which makes sharing a joint account easy. 8


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    In the first half of 2020 we started to invest in residential mortgages in The Netherlands that are tailored to our risk appetite and originated for us. These loans are a welcome expansion of our investment universe as they are complementary to our product offering and relatively safe. We intend to develop our product further and offer new products, either from ourselves or from others. This should lead to sustainable growth in terms of user numbers and revenues. Staff numbers are expected to increase as well, but far less than revenues. We expect that new capital injections will be necessary to finance further growth. The shareholder has expressed his intention to continue his financial support. See also the going-concern assumption on page 19 of this report. Subsequent events Covid-19 has been acknowledged by the World Health Organisation (WHO) as of March 11, 2020. Effects of this pandemic are social and economical instability. bunq is taking all necessary measures to ensure the continuation of our services to our users, taking into account the guidelines set by the RIVM for our employees. This means that we work from home when possible and if we are in the office we keep to the 1,5 meter distance. bunq does not provide credit to her users and has all her investments at the European Central Bank and in a conservative bonds-portfolio leading to a very limited risk in a write-off on bunq’s assets. Due to limited risk in write-offs our capital position remains only affected by the operational investments in our continuous growth. Despite Covid-19, bunq is still growing in user count as in customer deposits, resulting in keeping a healthy liquidity position. As this period is very uncertain, bunq is not able to assess the complete impact of Covid-19 in the upcoming year. Therefore bunq actively monitors the impact of the virus on social and (macro-)economical environment and takes risk-mitigating actions if needed. We would like to express our gratitude to all bunq employees for their dedication and commitment in building our masterpiece. Moreover, we would love to thank all bunq users for their continuous support and valuable feedback. Together we build Bank of The Free. Amsterdam, 30 June 2020 A. Niknam B. Wesselink I.L. van Eeghen 9


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    Report Supervisory Board The Supervisory Board looks back on a good year for bunq. Despite the fact that there are always many challenges for a relative new entrant in the banking landscape, we are happy to see what steps bunq has taken this year. The many ‘bunq Updates’ showed us the many new applications and improvements of existing applications. We are confident that we will see the launch of many new applications that will underline the dynamic and innovative nature of the bunq product. Composition The Supervisory Board (‘The Board’) consists of the following members: Mr. F.J.S.M. Verhees (Chairman) – appointed 17 November 2018 Mr. J.A. de Ruiter – appointed 1 September 2014 Ms. J.M.W.G. Elissen – appointed 1 July 2016 Mrs. G. van Vollenhoven - Eikelenboom – appointed February 2020 Mr. Verhees has been appointed for a term of 4 years ending 2022. Mr. Verhees was a board member of the Executive Board of Van Lanschot Kempen until 2017. He is currently Senior Client Advisor at Van Lanschot Kempen. Mr. de Ruiter was appointed in 2014 and is stepping down per 30 June 2020. He is Chairman of the Managing Board of Koninklijke Volker Wessels B.V. Ms. Elissen was appointed in 2016. She is managing partner of NewGenes, chairman of Justdiggitt, Supervisory Board member of Transavia and Pymwymic. Mrs. G. van Vollenhoven - Eikelenboom has been appointed for a term of 4 years ending 2024. Mrs van Vollenhoven - Eikelenboom was director at De Nederlandsche Bank N.V. until 2019 and is Supervisory Board member at a.s.r. Verzekeringen and Waarborgfonds Sociale Woningbouw. All members of the Supervisory Board are independent and have no relationship other than their role of Supervisory Board member with bunq, its affiliates, shareholder, or Managing Board. The Supervisory Board formally met five times during the year. Apart from this, the members of the Supervisory Board had frequent contact with the Managing Board and key staff throughout the year. The Supervisory Board approved the submission of the Internal Capital Adequacy Assessment Process and the Internal Liquidity Adequacy Assessment Process to the regulator. The Board also met without the presence of the Managing Board. The Board discussed a wide range of topics, including, but not limited to, strategy, marketing, product, business development, financial performance, financial forecasts, capital and liquidity planning, the exit scenario, risk management and internal control, the annual accounts, the relationship with the regulator, compliance (including know your customer, and transaction filtering and monitoring), human resources and the internal culture. The Board was satisfied with the content of the discussions held and supports bunq’s strategy. The Risk and Audit Committee (“​RAC​”) is a sub-committee of the Supervisory Board. The RAC focuses on all matters related to risks and controls in the organization; the internal auditors have a direct reporting line to the RAC. The RAC formally met two times during the first half of the year. Due to the temporary reduced size of the Supervisory Board the agenda and meetings of the RAC 10


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    were integrated with the general Supervisory Board agenda during the year. The same integration occurred with the agenda of the Personnel, Organisation and Remuneration Committee. The audit plan and audit findings were discussed in the Supervisory Board. A self-assessment of the functioning of the Managing Board and Supervisory Board was conducted at the end of 2019. The internal auditor was present during all meetings of the Supervisory Board in 2019. The Supervisory Board also maintains direct contact with the Head of Human Resources and regularly meets senior staff. The Supervisory Board has approved the remuneration policy, and notes that it complies with the requirements of the Banking Code and all applicable laws and regulations. On 25 June 2020, the Supervisory Board discussed these financial statements with the Managing Board. The Supervisory Board will continue to closely monitor how the company adapts to growth. bunq has ambitious plans, and the Board is happy to contribute by maintaining an open dialogue with the Managing Board and stakeholders about the conditions for such growth. In conclusion: The Supervisory Board would like to thank all stakeholders for their trust in bunq. We would also like to thank all staff for their hard work, and for their contribution to the results achieved in 2019. We thank the Managing Board for their leadership, vision and focused style of managing the growth of bunq. Amsterdam, 30 June 2020 Mr. F.J.S.M. Verhees (Chairman) Ms. J.M.W.G. Elissen Mr. J.A. de Ruiter Mrs. G. van Vollenhoven - Eikelenboom 11


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    Statement of financial position 12


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    Statement of profit and loss and other comprehensive income 13


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    Statement of changes in equity 14


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    Statement of cash flows 15


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    Notes to financial statements 1. General information bunq B.V. (the ‘Company’) was incorporated on 26 March 2012 and is domiciled in the Netherlands. The Company’s registered office is at Naritaweg 131-133, 1043 BS Amsterdam. The Company is registered at the Commercial Register of Amsterdam under number 54992060. The principal activities of the Company are banking activities. These financial statements are presented in euros and are rounded to the nearest euro. Company structure The shares of bunq B.V. are held by bunq Holding B.V. (96.01%), domiciled in Amsterdam and by Stichting STAK together (3.99%) domiciled in Amsterdam. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS Standards), as adopted by the European Union (EU). 2. Adoption of new and revised standards New standards with an impact on the annual accounts 2019. IFRS 16 Leases In the current year, the Company has applied IFRS 16 (as issued by the IASB in January 2016) that is effective for annual periods that begin on or after 1 January 2019. IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. Applying IFRS 16, for all leases (except as noted below), the Company: a. recognises right-of-use assets and lease liabilities in the statement of financial position, initially measured at the present value of the future lease payments. b. recognises depreciation of right-of-use assets and interest on lease liabilities in profit or loss. Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36. For short-term leases (lease term of 12 months or less) and leases of low-value assets, the Company has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. There is one contract that fits the criteria for short-term leases, our lease agreement for our support offices in Sofia, Bulgaria, and that contract is disclosed under the contingent liabilities. 16


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    The Company has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC4 will continue to be applied to those contract entered or modified before 1 January 2019. The Company applies the definition of a lease and related guidance set out in IFRS 16 to all contracts entered into or changed on or after 1 January 2019. There is one contract that fits the criteria of IFRS 16, which is the office rental agreement. This contract consists out of the actual lease agreement that is adjusted to IFRS 16 and lease of parking spaces and utility agreement which is exempt under IFRS 16 and is disclosed under the contingent liabilities. The Company has chosen to apply IFRS16:C5(b) under which comparative information is not restated. bunq recognises the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained earnings at the date of initial application. Due to the transition to IFRS 16, the Company’s statement of financial position total will increase by EUR 842,548 as of 1 January 2019. The effect of the transition to IFRS 16 on equity will be nil and the comparative results will not be adjusted due to the transition options. However, following the application of IFRS 16 the lease expenses will in general be reported slightly earlier in future periods, as the interest charges on the leases will decrease over time. In addition, lease expenses will be recognised as interest expenses and depreciation, and no longer as a lease amount under other operating expenses. The table below explains the difference between the operation lease commitments on 31 December 2018 applying IAS 17 and the lease liabilities recognised as a result of the initial application of IFRS 16 on 1 January 2019. The lease agreement has been extended in 2019 with an additional five years, resulting in an increase of lease liability of EUR 591.058. The other changes consists of the items in the lease agreement that are not impacted by IFRS 16, such as utility costs. The other changes consists out of the parking spaces and the utility advances, which are not part of the lease agreement unders IFRS 16. Amendments to IFRS 9 Prepayment features with negative compensation The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the ‘solely payments of principal and interest’ (SPPI) condition, the party 17


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    exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. As bunq does not has prepayment features with negative compensation, this standard is not applicable. IFRIC 23 Uncertainty over Income Tax Treatments The Company has adopted IFRIC 23 for the first time in the current year. IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. bunq does not have uncertainty in her tax position as the deferred tax asset has not been capitalized on the balance sheet. New and revised IFRS standards in issue but not yet effective Amendments to IAS 1 and IAS 8 Definition of material The amendments are intended to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. The concept of ‘obscuring’ material information with immaterial information has been included as part of the new definition. The threshold for materiality influencing users has been changed from ‘could influence’ to ‘could reasonably be expected to influence’. The definition of material in IAS 8 has been replaced by a reference to the definition of material in IAS 1. In addition, the IASB amended other Standards and the Conceptual Framework that contain a definition of material or refer to the term ‘material’ to ensure consistency. The amendments are applied prospectively for annual periods beginning on or after 1 January 2020, with earlier application permitted. bunq does not expect that the new standard will have a financial impact. Amendments to References to the Conceptual Framework in IFRS Standards Together with the revised Conceptual Framework, which became effective upon publication on 29 March 2018, the IASB has also issued Amendments to References to the Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however, update those pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the Framework they are referencing to (the IASC Framework adopted by the IASB in 2001, the IASB Framework of 2010, or the new revised Framework of 2018) or to indicate that definitions in the 18


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    Standard have not been updated with the new definitions developed in the revised Conceptual Framework. The amendments, where they actually are updates, are effective for annual periods beginning on or after 1 January 2020, with early application permitted. bunq does not expect that the amendments will have a material financial impact. 3. Use of judgements and estimates General In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts in these financial statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised on a forward-looking basis. Going-concern assumption These financial statements were prepared under a going-concern assumption. The Company obtained its banking license on 16 September 2014 and started commercial operations in November 2015. The Company is not yet profitable; management of the Company however expects that the commercial activities of the Company will be profitable in the longer term. Management has determined that an additional capital injection is required to ensure that the Company will be sufficiently capitalised to remain operational until profitability is reached, and to provide sufficient buffers to absorb potential adverse scenarios, which is calculated via the Leverage Ratio. The (ultimate) shareholder has made capital injections to the amount of EUR 63,318,000 up to year-end 2019 and has made an additional capital injection of EUR 2.4 million as per 20 January 2020, EUR 3.4 million per 24 February 2020, EUR 1.7 million as per 25 March 2020, EUR 2 million per 22 April 2020 and EUR 1 million as per 28 May 2020. The (ultimate) shareholder intends and is able to provide ongoing capital support for at least a one-year period after signing of the financial statements. The going concern of the company is based on the intention, willingness and the ability of the (ultimate) shareholder to provide such capital support. The expectation is that after the one-year period after signing date of the financial statements further funding is still needed. The Bank Recovery and Exit Plan requires banks to prepare recovery plans to overcome financial distress. The Company has an exit-plan scenario in place which addresses such financial distress events. Through this funding management expects to maintain a capital well above the minimum required capital for at least one year after the date of the financial statements. Therefore, the Managing Board prepared these financial statements based on the going-concern assumption. Capitalisation of research and development expenses The most important activities before the commercial launch in November 2015 primarily consisted of developing the banking infrastructure and researching new techniques and 19


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    processes in the field of financial services. Expenditure on internally developed software is not recognised as an asset in view of the fact that the company cannot yet demonstrate its ability to use the software in a manner that will generate future economic benefits. The aggregate amount of research and development expenditure recognised as expense during the period comprises the personnel expenses related to the development of the IT platform and is estimated at 15% of total personnel expenses. Expected credit loss on financial instruments at amortised cost IFRS 9 requires the recognition of an expected credit loss provision for financial assets measured at amortised cost. The determination of the expected credit loss on financial assets measured at amortised cost requires the use of models and assumptions such as on credit behaviour and future economic developments. A provision is formed for expected credit loss on these assets when it is expected that the Company will not be able to collect all amounts. The Company makes estimates of the realisable value, being the value of future cash flows and the costs necessary to collect the amounts receivable. As the Company has limited historical information available for some financial assets, the parameters of the credit loss model for these instruments are determined on the basis of the available public information. The provision for expected credit loss is then equal to the difference between the carrying value and the realisable value. The most significant assumptions and assessments are: - Definition of a homogeneous group of financial assets with similar characteristics for the assessment of expected credit loss on a collective basis; - Definition of a significant deterioration of credit risk; - Assumptions in the credit loss model for probability of default (PDs), loss given default (LGD) including cure rates and estimates of cash flows from the liquidation of collateral, allocation of the expected cash flows and future macroeconomic factors. In assessing whether the credit risk on a financial asset has increased significantly since initial recognition, the Company compares the risk of a default occurring on the financial asset at the reporting date with the risk of a default occurring on the financial asset at the date of initial recognition. In making this assessment the Company considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information. In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition: - an actual or expected significant deterioration in the financial instruments’ external or internal credit rating; - significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset has been less than its amortised cost; - existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations; - an actual or expected significant deterioration in the operating result of the debtor; - significant increases in credit risk on other financial instruments of the same debtor; and 20


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    - an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations. The Company considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet either of the following criteria are generally not recoverable: - when there is a breach of financial covenants by the debtor; or - information developed internally or obtained from external sources indicates that the debtor is unlike to pay its creditors, including the Company, in full For the investments at amortised costs the expected credit loss is calculated based on the probability of default based on rating and region of the individual investment. Based on a management overlay and an estimation of the loss by a given default the expected credit loss is finalised and adjusted per month. For advances to customers to expected credit loss is determined collectively based on the total recovered amount of previous years. Deferred tax assets Deferred tax assets are recognised if it is probable that future taxable profits will be generated which allow the deferred tax to be recovered. 4. Significant accounting policies 4.1 Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS Standards), as adopted by the European Union (EU). The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. There were no monetary assets or liabilities in foreign currency at the beginning of the reporting year or prior to that date. The activities of the Company have more than doubled in 2019, resulting in an increase in customer deposits of 100%. Therefore the Company has increased its treasury activities, investing part of the 21


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    customer deposits in a bond portfolio to ensure that the negative interest to be paid to the ECB is minimised. Due to the increased activities of our customers, the Company also sees an increase in unsettled positions at 31 December 2019. The principal accounting policies adopted are set out below. 4.2 Financial instruments Financial assets and financial liabilities are recognised in the Company’s statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Classification of financial assets Debt instruments that meet the following conditions are measured subsequently at amortised cost: - the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and - the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Amortised cost and effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. For financial assets other than purchased or originated credit‑impaired financial assets, the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. For purchased or originated credit‑impaired financial assets, a credit‑adjusted effective interest rate is calculated by discounting the estimated future cash flows, including expected credit losses, to the amortised cost of the debt instrument on initial recognition. The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance. Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. For financial assets other than purchased or originated credit‑impaired financial assets, interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit‑impaired (see below). For financial assets that have subsequently become credit‑impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit‑impaired financial instrument improves so that the financial asset is no longer credit‑impaired, interest income is recognized by applying the effective interest rate to the gross carrying amount of the financial asset. 22


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    For purchased or originated credit‑impaired financial assets, the Company recognises interest income by applying the credit‑adjusted effective interest rate to the amortised cost of the financial asset from initial recognition. The calculation does not revert to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset is no longer credit‑impaired. Impairment of financial assets The Company recognises a loss allowance for expected credit losses on investments in debt instruments that are measured at amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Company initially recognises 12‑month ECL on debt instruments. The Company measures the loss allowance for that financial instrument at an amount equal to 12‑month ECL. A 12‑month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. In the event of a structural downgrade in the rating a lifetime ECL will be applied. Credit risk The Company assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if the financial instrument has a low risk of default. The Company considers a financial asset to have low credit risk when the asset has external credit rating of ‘investment grade’ in accordance with the globally understood definition or if an external rating is not available, the asset has an internal rating of ‘performing’. Performing means that the counterparty has a strong financial position and there are no past due amounts. The Company regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due. Due to the increase in customer deposits and the negative interest of the deposit facility with the ECB, we have increased our investments in grade-rated bonds. Since we increased our treasury activities we invested in additional employees in the treasury department and reduced the dependency on external consultants. As our portfolio consists out of multiple bonds in different (geographical and industry) markets, as well as various investment-grade credit ratings, we invested (in addition to the investments in additional staffing) in our market-data infrastructure to ensure that we can monitor our investments more closely, specifically for credit-rating downgrades. Credit‑impaired financial assets A financial asset is credit‑impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit‑impaired includes observable data about the following events: - significant financial difficulty of the issuer or the borrower; - a breach of contract, such as a default or past due event; - the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; - it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or - the disappearance of an active market for that financial asset because of financial difficulties. 23


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    Write‑off policy The Company writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Company’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. Measurement and recognition of expected credit losses The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward‑looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date; for financial guarantee contracts, the exposure includes the amount drawn down as at the reporting date, together with any additional amounts expected to be drawn down in the future by default date determined based on historical trend, the Company’s understanding of the specific future financing needs of the debtors, and other relevant forward‑looking information. For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive, discounted at the original effective interest rate. If the Company has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Company measures the loss allowance at an amount equal to 12‑month ECL at the current reporting date, except for assets for which simplified approach was used. The Company recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognised in other comprehensive income and accumulated in the investment revaluation reserve, and does not reduce the carrying amount of the financial asset in the statement of financial position. Derecognition of financial assets The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. 4.3 Cash and balances with central banks "Cash and balances with central banks" include unrestricted balances held with central banks and highly liquid financial assets with original maturities of three months or less from the acquisition 24


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    date that are subject to an insignificant risk of changes in their fair value and are used by the Company in the management of its short-term commitments. 4.4 Loans and advances to banks "Loans and advances" are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Company does not intend to sell immediately or in the near term. Loans and advances to banks are classified as loans and receivables. Loans and advances to customers include those classified as loans and receivables. Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method minus impairments if any. 4.5 Investments at amortised cost Non-derivative financial assets with fixed or determinable payments and fixed maturity for which the Company has the positive intent and ability to held to maturity and which are designated by management as amortised cost assets are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method less any impairment losses. Interest income from debt securities classified as amortised cost is recognised in Interest income in the statement of profit or loss using the effective interest method minus impairments if any. Investments at amortised cost include only debt securities. 4.6 Advances to customers Advances to customers are stated at amortized costs less the provision for the expected credit loss. 4.7 Tangible fixed assets Equipment and building renovation are stated at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight‑line method, on the following bases: Equipment 20% per annum Building renovation 20% per annum The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. An item of tangible fixed assets is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. 4.8 Impairment of tangible assets At each reporting date, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash‑generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash‑generating units, or otherwise they are allocated to the smallest group of cash‑generating units for which a reasonable and consistent allocation basis can be identified. 25


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    Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‑tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash‑generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash‑generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash‑generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash‑generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Financial assets that are assessed for any significant deterioration of credit risk are investments at amortised cost, loan and advances to banks and advances to customers. The expected credit loss model under IFRS 9 is based on a number of credit quality stages: - Stage 1: Financial instruments that have not had a significant increase in credit risk since initial recognition. A provision for expected credit loss is recognised for these financial instruments based on the probability of default events occurring during the coming 12 months. Interest income is recognised on the basis of the effective interest rate on the gross carrying value; - Stage 2: Financial instruments with a significant increase in credit risk since initial recognition. A provision for expected credit loss is recognised for these financial instruments based on the probability of default events over the expected life of the financial instrument (Lifetime ECL). Interest income is recognised on the basis of the effective interest on the gross carrying value; - Stage 3: Financial instruments with a demonstrable loss event. A provision for expected credit loss is recognised for these financial instruments which is based on the probability of default events over the expected life of the financial instrument (Lifetime ECL). Interest income is recognised on the basis of the effective interest rate on the revised carrying value after deduction of the credit loss provision. Definition of significant deterioration of credit risk The various stages refer to ‘significant deterioration of credit risk’. The Company has adopted the following characteristics for the identification of a significant deterioration of credit risk: - The macro-economic factors exhibit a significant risk of significant deterioration of credit risk; - The external ratings of parties exhibit a relative deterioration of credit risk outside the specified bandwidths. This definition has been specified for each asset on the basis of its characteristics. The assessment of the quality assessment of the credit risk of parties is in line with risk assessments carried out within the risk management framework. The Company assesses all financial assets measured at amortised cost for any significant deterioration of credit risk. When a significant deterioration of credit risk of an asset arises, then the expected credit loss is determined on the basis of the probability of default 26


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    during the lifetime of the asset rather than the probability of default during a period of 12 months. A significant deterioration of credit risk is determined by comparing the credit risk on the reporting date with the credit risk determined on initial recognition of the asset. This assessment is carried out with objective, available and, when possible, prospective information. 4.9 Short‑term and other long‑term employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short‑term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. Liabilities recognised in respect of other long‑term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Company in respect of services provided by employees up to the reporting date. 4.10 Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. 4.11 Other liabilities Other liabilities is initially measured in the balance sheet at fair value and is subsequently measured at amortized cost. 4.12 Revenue Revenue is measured based on the consideration to which the Company expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Company recognises revenue when it transfers service to a customer. 4.13 Interest Interest income and expense are recognised in profit or loss using the effective interest method. The "effective interest rate" is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. Negative interest on balances maintained with the central bank are stated under interest expense. 4.14 Subsequent costs Subsequent expenditure is capitalised only when it is probable that the future economic benefits of the expenditure will flow to the Company. Ongoing repairs and maintenance are expensed as incurred. 4.15 Taxation The income tax expense represents the sum of the tax currently payable and deferred tax. Deferred tax Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax 27


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    assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws, and rates that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. ​P Current tax and deferred tax for the year Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. 4.16 Statement of cash flows The statement of cash flows is prepared in accordance with the indirect method, classifying cash flows as cash flows from operating, investing and financing activities. In the net cash flow from operating activities, the result before tax is adjusted for those items in the statement of profit or loss and changes in items per the statement of financial position, which do not result in actual cash flows during the year. 5. Financial risk review and fair value Financial risk review The Company has exposure to the following risks: ● Credit risk ● Operational risk ● Liquidity risk ● Market risk (including interest rate risk and currency risk) ● Compliance risk ● Business risk This note presents information about the Company’s objectives, policies and processes for measuring and managing risk. Capital is set in such a manner as to cover all identified risks. This note concludes with a description of the Company’s capital management. Risk management framework The Company’s managing board has overall responsibility for the establishment and oversight of the Company’s risk management framework. The managing board has established an independent Risk function, which is responsible for developing and monitoring Company risk management policies. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and 28


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    adherence to limits. The Company has specified its risk limits and articulated its appetite for risk taking in a Risk Appetite Statement, which is reviewed and updated frequently and approved by the Managing and Supervisory Board. The risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Company's Risk and Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Risk and Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Risk and Audit Committee. Next to that, regular penetration tests and reviews are performed of the Company’s IT and network infrastructure, as well as the systems and the app, by a specialised white hacker agency. a. Credit risk This is the risk that the Company's claims on third parties will not be repaid due to insolvency or other payment problems of the third parties. Management of credit risk The Company is not actively involved in providing credit. The credit risk consists of an investment portfolio, deposits held at other banks for operational purposes and certain limited exposures to financial institutions and customers emanating from unsettled transactions and direct debits which may be returned or rejected. Credit risk is managed by setting and monitoring minimum acceptable credit ratings of the issuer or bank involved. Concentration risk is present since the Company holds large sums on demand accounts with the central bank. Also, significant amounts are placed in demand accounts with a few financial institutions. As per reporting date none of the financial assets were past due. The table on the next page gives the Company’s maximum exposure to credit risk, which equals the carrying amounts. Credit exposure is classified according to risk weighting factors, as well as by geography of the Company’s counterparties. Exposure to credit risk 29


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    30


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    31


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    The Company has not obtained any collateral held as security or other types of credit enhancements at the reporting dates. 32


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    The breakdown of the portfolio per country and type of bond is as follows: The investments in corporation bonds are done in the following industries: 33


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    The provision for expected credit losses per financial instrument type and per stage is as follows: b. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk has various sources of which we describe a few. IT risk IT risk can be divided into two parts: ● The risk that business processes and/or information resources are not sufficiently sound or cannot continuously be backed by the IT system. This can result in long-term failure of the system and/or errors in the applications. ● The risk that business processes and information resources are inadequately secured by the IT system causing theft of data and/or unauthorised access by customers, external parties or employees. Management of IT risk The security measures in place to protect the Company's systems include encrypted connections and multi-layered security. All services are inherently designed to mistrust all other services. In addition, intrusion and detection systems are in place, which are updated regularly. The Company performs regular penetration tests by a specialised agency focusing on the security and redundancy of its IT and network infrastructure as well as the software, including the app. A Business Continuity Plan covers unexpected disruptions. Other contingency measures include two real-time fall-back datacenter with an ISO-certification, and contingency possibilities for the office. Software is built on a hardware agnostic basis. To protect the Company's customers, a secure login authentication procedure with 6-figure pin and device authentication is employed. Any sensitive data stored on customer's devices is encrypted. Fraud risk This is the risk of reputation or financial losses due to deception actions by third parties, customers or staff to enrich themselves at the expense of others. 34


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    Management of fraud risk The Company’s processes, controls and division of responsibilities are important mitigants against external and internal fraud risk. Transactions are monitored to detect suspicious transactions. Staff are screened before being employed. There is a Code of Conduct for staff. Legal risk This is the risk that agreements are not accurately documented, contracts may not be enforceable or that legal disputes and conflicts may lead to financial losses. Provisions for legal claims are recognised when the Company has a present legal or constructive obligation as a result of past events and when it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. From time to time the Company is involved in claims and litigations. Management makes estimates as to whether provisions are needed on a case-by-case basis. Management of legal risk Legal risks are identified, monitored and managed by the Company's legal department. The department is involved with material contracts and when disputes occur. External legal advice is sought whenever it is determined that the available in-house knowledge is insufficient. Outsourcing risk The risk that engaging a third party to provide services adversely impacts the bank’s performance and risk management. The risk may materialise due to inadequate delivery of service or due to the liability of the third party to deliver the service. Management of outsourcing risk The Company has an outsourcing policy to manage its outsourcing activities. The policy prescribes the decision process, risk assessments, contracts and service level agreements, monitoring and possible back-up arrangements that need to be in place. c. Liquidity risk The risk that the Company cannot settle its obligations with immediacy. Management of liquidity risk The Company holds significant balances with central banks, which allow it to settle its obligations immediately. Balances are monitored closely and managed to appropriate levels. This is done monthly by Finance based on the average in- and outflow of that month. Within the Company the Treasury department performs stress tests to ensure that it can meet its obligations in times of stress and monitors the liquidity risk indicators on a monthly basis and discuss the outcome of these tests with Risk and Finance. The liquidity risk is also taken into account in the mandatory exit scenario. The Company employs two main liquidity risk indicators, the net stable funding ratio (NSFR) and the liquidity coverage ratio (LCR), both as defined in the regulations on prudential requirements for credit institutions and investment firms to manage its liquidity risks. In addition the Company considers the Balances held at Central Bank. 35


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    d. Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads will affect the Company's income or the value of its holdings of financial instruments. Management of market risk The Company only holds assets and liabilities denominated in euros. As a result, the value of these assets and liabilities are not sensitive to change in currency exchange rates. At 31 December 2019 the company held investments in regional government bonds for an amount of EUR 121,787,347, which are classified as hold to collect. Given this classification a change in interest rates will not affect the Company’s Statement of profit and loss. However, the market value of the investments is sensitive to changes in interest rates and credit spreads. The balances that the Company holds with central banks carry a negative interest rate. Changes in interest rate typically do not impact the fair value of the balances, but can influence the interest costs in the profit and loss. Sensitivity analysis for sudden change in interest rates The table below shows the sensitivities to changes in interest rates where it is assumed that interest bearing exposures remain constant over time. In the calculation of 2019, floors and caps were not taken into account. On 31 December 2019, the Company did not hold any derivatives. The maturity table as of 31 December 2019 is as follows: 36


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    e. Compliance risk The risk of potential non-compliance with applicable laws and regulations. This may lead to financial loss or sanctions. Management of compliance risk Banks are subject to many laws and regulations. Regulators also publish guidance about the interpretation of these regulations. Complying with all these laws, regulations and guidance can be a challenge. The Legal and compliance team keeps an oversight of applicable laws and regulations and instructs the business on compliance. In recent years Client Due Diligence and Anti-Money Laundering received much attention from regulators and the public. bunq recognises the importance of CDD and AML measures to avoid criminals and fraudsters abusing our services and continuously improves its CDD and AML processes to mitigate these risks. Banking supervisors regularly perform reviews to assess bunq’s compliance with laws and regulations. In 2018 a review was held leading to a CDD and AML program of improvements that continued in 2019 and early 2020. The bank is in discussion with the regulator about the consequences of alleged deficiencies. bunq is still in discussion with the regulator, contesting alleged deficiencies and the consequences thereof. f. Business risk The risk that over a longer period of time the revenues are lower and/or the costs are higher than foreseen. This risk may question the long-term viability of the Company. Management of business risk We closely monitor our financial and business performance. If necessary, we take action to address a potential negative development. We strongly believe in our business model, but if the worst happens then we have a plan to manage an orderly wind down. The Dutch deposit guarantee scheme, which covers balances up to EUR 100,000, is applicable. Capital management The Company performs a regular internal capital adequacy assessment at least once a year, with a forward-looking horizon of at least three years. Its starting point is the business growth plan, a risk assessment and the definition of a risk appetite. Based on the outcomes, the Company sets its capital requirements. These projections are regularly reviewed and updated. Such projections include required capital injections to remain compliant with relevant rules. This allows for short- and longer-term management of capital. The capital requirement mainly consists of capital held to fund start-up losses, taking into account the Company’s financial forecasts under different scenarios, also including stress scenarios. The Company’s capital position, including the capital ratios, is presented in the following table: 37


  • Page 38

    The Company has a funding plan in place which describes the measures available to fund the capital requirement. For the situation that no capital funds are available the Company has developed a plan that ensures an orderly wind down. The Company has sufficient capital, time and funding to execute an orderly wind-down, while protecting its creditors. As at both reporting dates, and throughout the year, the Company complied with the externally imposed capital requirements. Fair value of financial instruments Elements relevant to the fair value of financial instruments are described below: ● Investments at amortised cost: ● Loans and advances to banks: This concerns security deposits and prepayments with financial institutions. The deposits carry market conform variable interest rates. The fair value is deemed to equal the carrying amount on the reporting date. ● Deposits from customers: These are deposits held by private customers on their bunq accounts. These deposits are withdrawable on demand. The fair value is deemed to equal the carrying amount on the reporting date. The above disclosed fair value at amortised cost for bunq’s bonds-portfolio is considered a level 1 fair value in the fair value hierarchy at 31 December 2019 for the investments and 38


  • Page 39

    loan and advances to banks. For the deposits from customers the fair value is considered to be a level 2 fair value. No transfers were made between the levels of the fair value hierarchy in either 2018 or 2019. See below an overview of the different levels. 6. Interest income 7. Interest expense 39


  • Page 40

    8. Fee income Other revenue consists mostly out of the interchange fees. 9. Fee expenses 40


  • Page 41

    10. Personnel expenses In 2019, the Company had on average 96.0 (2018: 81.5) staff members based on full time equivalents (FTE). The Company has no pension arrangements in place for its employees. Supervisory Board fees concern payments to the personal holdings of the members of the Supervisory Board. The remuneration of the Supervisory Boards is presented under note ‘Related parties’. 11. Depreciation 41


  • Page 42

    12. Impairment losses This item consists of the movement in the expected credit loss on the financial assets valued at amortised cost. 13. Other expenses 13.1 Office expenses The company has a rental agreement for offices in Sofia as of December 2019, which is for only one year and has a lease obligation of EUR 50.820 a year. As the contract is for one year, the Company will not be measuring this lease obligation under IFRS 16, but exemplify 42


  • Page 43

    the obligation under the non-contingent liabilities.The total costs booked in 2019 amounts to EUR 3.933. 13.2 Marketing expenses 13.3 Technical expenses 13.4 General & Administrative expenses 43


  • Page 44

    Other general expenses concern trademarks, analytical software and banking transaction services. With reference to section 2:382a(1) and (2) of the Dutch Civil Code, the following fees included in the accountant expenses for the financial year have been charged by Deloitte Accountants B.V. to the Company for the year 2019 and 2018 (including VAT): 14. Corporate income tax For 2019 and 2018 the effective tax rate is 0% as the Company did not recognise any deferred tax asset for its tax losses carried forward. The total unused tax losses for which no deferred tax asset is recognised in the statement of financial position amounts to EUR 42,826,849 Deferred tax assets are recognised if it is probable that future taxable profits will be generated which allow the deferred tax to be recovered. See below an overview of the tax losses distributed per year. 15. Cash and balances with central banks The balances are held at De Nederlandsche Bank and the European Central Bank. As of 31 December 2019 an amount of EUR 3.454.840 is held as a mandatory ECBS minimum reserve at the DNB. 44


  • Page 45

    16. Loans and advances to banks The Mastercard deposit concerns a deposit held at another financial institution that has been pledged to secure the obligations arising from the use of debit cards issued by the Company to its customers. The Mastercard prefund and the ICS deposit concern deposits made to facilitate the collection of amounts due under the Mastercard contract and for the use of credit cards held by the Company for its own purposes. The collateral is based on the average daily volume of Mastercard transactions and calculated with a 5 days pipeline risk and an applicable discount and is adjusted once every six months. 17. Investments at amortised cost The rates are taken from Bloomberg. 45


  • Page 46

    18. Investments held-to-maturity 19. Advances to customers Although bunq does not provide credit to her users, there are negative customer balances due to fee charges or credit card reversals. 46


  • Page 47

    20. Right-of-use assets Based on IFRS 16 the rent payments under the office lease are capitalised in the balance sheet as of the year 2019. Below an overview of the capitalised lease obligations, including the opening balance as of 1 January 2019. 47


  • Page 48

    21.Tangible fixed assets 22. Other assets 48


  • Page 49

    23.Customers deposits All deposits from users are current account balances held by consumers or businesses. Not yet designated customer deposits consist of incoming payments that are under review before allocating to customer accounts or refunding back to the originator. 24. Other liabilities All other liabilities have a remaining term shorter than 12 months. Other liabilities include payroll tax and VAT. In the accrued liabilities an amount is recorded for legal claims with third parties, based on the best estimate of the expected outflow. Any deviation from this amount based on the actual outcome of the claim is not expected to be material. 49


  • Page 50

    The maturity analysis of the lease liability is as follows: 25. Share capital A total of 10,018,000 shares have been issued with a nominal value of EUR 118,000. The shares consist of 18,000 A shares and 10,000,000 B shares. The Class B shares are part of the Company’s Tier 1 capital but do not classify as CET1. The capital is fully paid up. bunq Holding B.V. and Stichting STAK Together, jointly holding all shares of bunq B.V., agreed to the following arrangement. In the event that bunq B.V. has profits available for distribution to the shareholders in any accounting reference period, the shareholders shall procure, contrary to the articles of association that this profit distribution (dividend) will first be paid on all the shares held by bunq Holding B.V, pro rata to the number of shares held by bunq Holding B.V., with a maximum of the total amount of the contributions directly or indirectly made by bunq Holding B.V, to bunq B.V. as payment on the shares made in excess of the nominal value of the shares held by bunq Holding B.V. minus any preferent profit distributions on the shares held by bunq Holding B.V. attributable to previous years and/or any other preferent payment bunq Holding B.V. has received on/concerning its shares in previous years. 50

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