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Hedge accounting
 12 Months Ended
Dec. 31, 2021
Entity [Table]  
Disclosure Of General Hedge Accounting Explanatory
Note 26
 
Hedge accounting
Derivatives designated in hedge accounting relationships
The
 
Group
 
applies
 
hedge
 
accounting
 
to
 
interest
 
rate
 
risk
 
and
foreign exchange
 
risk, including
 
structural foreign
 
exchange risk
related to net investments in foreign operations.
 
›
 
Refer to “Market risk” in the “Risk management
 
and control”
section of this report for more information about
 
how risks arise
and how they are managed by the Group
Hedging instruments and hedged risk
Interest
 
rate
 
swaps
 
are
 
designated
 
in
 
fair
 
value
 
hedges
 
or
 
cash
flow
 
hedges
 
of
 
interest
 
rate
 
risk
 
arising
 
solely
 
from
 
changes
 
in
benchmark interest rates.
 
Fair value
 
changes arising from
 
such risk
are usually the largest component
 
of the overall change
 
in the fair
value of the hedged position in transaction currency.
 
Cross-currency
 
swaps are
 
designated
 
as
 
fair
 
value
 
hedges
 
of
foreign
 
exchange
 
risk.
 
Foreign
 
exchange
 
forwards
 
and
 
foreign
exchange
 
swaps
 
are
 
mainly
 
designated
 
as
 
hedges
 
of
 
structural
foreign
 
exchange
 
risk
 
related
 
to
 
net
 
investments
 
in
 
foreign
operations.
 
In
 
both
 
cases
 
the
 
hedged
 
risk
 
arises
 
solely
 
from
changes in spot foreign exchange rate.
 
The notional
 
of the
 
designated hedging
 
instruments matches
the notional
 
of the
 
hedged items,
 
except when
 
the interest
 
rate
swaps are
 
re-designated in
 
cash flow
 
hedges, in
 
which case
 
the
hedge
 
ratio
 
designated
 
is
 
determined
 
based
 
on
 
the
 
swap
sensitivity.
Hedged items and hedge designation
 
Fair value hedges of interest rate risk related to debt instruments
and loan assets
Fair value hedges of interest
 
rate risk related to debt
 
instruments
and loan assets involve
 
swapping fixed cash flows
 
associated with
the debt issued,
 
debt securities held
 
and, from 2021
 
onward, loan
assets
 
(principally
 
long-term
 
fixed-rate
 
mortgage
 
loans
 
in
 
Swiss
francs formerly designated within “Fair
 
value hedges of portfolio
interest
 
rate
 
risk
 
related
 
to
 
loans
 
designated
 
under
 
IAS 39”)
 
to
floating cash flows by
 
entering into interest rate swaps
 
that either
receive
 
fixed and
 
pay
 
floating cash
 
flows
 
or
 
that
 
pay
 
fixed
 
and
receive floating cash flows.
 
Designations
 
have
 
been
 
made
 
in
 
US
 
dollars,
 
euros,
 
Swiss
francs, Australian dollars, Japanese
 
yen and Singapore dollars.
 
For
new hedging
 
instruments and
 
hedged risk
 
designations entered
into in 2021 in these
 
currencies (with the exception of euro),
 
the
benchmark rate was the relevant alternative reference rate (ARR).
Following the
 
interbank offered
 
rate (IBOR)
 
transition for
 
swaps
with
 
LCH
 
(formerly
 
the
 
London
 
Clearing
 
House)
 
in
 
December
2021,
 
the
 
benchmark
 
hedge
 
rate
 
for
 
Swiss
 
franc
 
and
 
Japanese
yen designations was changed
 
from an IBOR rate
 
to the relevant
ARR with
 
the hedge
 
relationship continuing
 
in accordance
 
with
Interest
 
Rate
 
Benchmark
 
Reform
 
–
 
Phase
 
2
 
(Amendments
 
to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
.
Fair
 
value
 
hedges
 
of
 
portfolio
 
interest
 
rate
 
risk
 
related
 
to
 
loans
designated under IAS 39
Prior to December 2021, the Group
 
hedged an open portfolio of
long-term fixed-rate mortgage loans in
 
Swiss francs using interest
rate swaps that
 
paid a fixed
 
rate of interest
 
and received a
 
floating
rate
 
of
 
interest.
 
Both
 
the
 
hedged
 
portfolio
 
and
 
the
 
hedging
instruments were adjusted
 
on a monthly basis
 
to reflect changes
in
 
size
 
and
 
the
 
maturity
 
profile
 
of
 
the
 
hedged
 
portfolio.
 
Each
month the
 
hedge relationship
 
was discontinued
 
and a
 
new one
designated.
 
Changes in
 
the portfolio
 
were
 
driven by
 
new loans
being originated or loans being repaid.
Cash flow hedges of forecast transactions
The
 
Group
 
hedges forecas
 
t
 
cash flows
 
on
 
non-trading financial
assets
 
and
 
liabilities
 
that
 
bear
 
interest
 
at
 
variable
 
rates
 
or
 
are
expected
 
to
 
be
 
refinanced
 
or
 
reinvested
 
in
 
the
 
future,
 
due
 
to
movements
 
in
 
future
 
market
 
rates. The
 
amounts
 
and
 
timing of
future cash flows, representing
 
both principal and interest flows,
are projected on the basis of
 
contractual terms and other
 
relevant
factors,
 
including
 
estimates
 
of
 
prepayments
 
and
 
defaults.
 
The
aggregate
 
principal
 
balances
 
and
 
interest
 
cash
 
flows
 
across
 
all
portfolios over time form the
 
basis for identifying the non-trading
interest rate risk of the Group, which is hedged with interest rate
swaps,
 
the
 
maximum
 
maturity
 
of
 
which
 
is
 
10
 
years.
 
Cash
 
flow
forecasts
 
and risk
 
exposures
 
are
 
monitored
 
and adjusted
 
on an
ongoing basis, and
 
consequently additional hedging instruments
are traded and designated, or are terminated resulting
 
in a hedge
discontinuance.
 
Hedge
 
designations
 
have
 
been
 
made
 
in
 
the
following
 
currencies:
 
US
 
dollars,
 
euros,
 
Swiss
 
francs,
 
pounds
sterling
 
and
 
Hong
 
Kong
 
dollars.
 
The
 
cash
 
flow
 
hedges
 
in
 
US
dollars, Swiss
 
francs and
 
pounds sterling
 
were discontinued
 
and
replaced with new ARR designations in December 2021.
›
 
Refer to Note
1b
 
for more information
Fair value hedges of foreign exchange risk related to issued debt
instruments
Debt
 
instruments
 
denominated
 
in
 
currencies
 
other than
 
the US
dollar
 
are
 
designated
 
in
 
fair
 
value
 
hedges
 
of
 
spot
 
foreign
exchange
 
risk,
 
in
 
addition
 
to
 
and
 
separate
 
from
 
the
 
fair
 
value
hedges
 
of
 
interest
 
rate
 
risk.
 
Cross-currency
 
swaps
 
economically
convert debt denominated in currencies
 
other than the US dollar
to
 
US
 
dollars.
 
This
 
hedge
 
accounting
 
program
 
started
 
on
1 January
 
2020,
 
with
 
the
 
adoption
 
of
 
the
 
hedge
 
accounting
requirements of IFRS 9,
Financial Instruments,
 
by UBS.
›
 
Refer to Note
1b
 
for more information
Hedges of net investments in foreign operations
The Group applies
 
hedge accounting for
 
certain net investments
in
 
foreign
 
operations,
 
which
 
include
 
subsidiaries,
 
branches
 
and
associates. Upon
 
maturity of
 
hedging instruments,
 
typically two
months,
 
the
 
hedge
 
relationship
 
is
 
terminated
 
and
 
new
designations
 
are
 
made
 
to
 
reflect
 
any
 
changes
 
in
 
the
 
net
investments in foreign operations.
Economic relationship between hedged item and hedging
instrument
For
 
hedges
 
designated
 
under
 
IFRS
 
9,
 
the economic
 
relationship
between
 
the
 
hedged
 
item
 
and
 
the
 
hedging
 
instrument
 
is
determined based on
 
a qualitative analysis
 
of their critical
 
terms.
In cases where hedge designation takes place after origination of
the
 
hedging
 
instrument,
 
a
 
quantitative
 
analysis
 
of
 
the
 
possible
behavior of
 
the hedging
 
derivative and
 
the hedged
 
item during
their respective terms is also performed.
Prior to
 
December 2021, for
 
the fair
 
value hedge of
 
portfolio
interest rate risk related to loans designated under IAS 39, hedge
effectiveness was assessed by
 
comparing changes in the
 
fair value
of
 
the hedged
 
portfolio of
 
loans
 
attributable
 
to
 
changes
 
in
 
the
designated benchmark
 
interest rate
 
with the
 
changes in
 
the fair
value of the interest rate swaps.
Sources of hedge ineffectiveness
 
In
 
hedges
 
of
 
interest
 
rate
 
risk,
 
hedge
 
ineffectiveness
 
can
 
arise
from
 
mismatches
 
of
 
critical
 
terms
 
and
 
/
 
or
 
the
 
use
 
of
 
different
curves
 
to
 
discount
 
the
 
hedged
 
item
 
and
 
instrument,
 
or
 
from
entering
 
into
 
a
 
hedge
 
relationship
 
after
 
the
 
trade
 
date
 
of
 
the
hedging derivative
In
 
hedges
 
of
 
foreign
 
exchange
 
risk
 
related
 
to
 
debt
 
issued,
hedge
 
ineffectiveness
 
can
 
arise
 
due
 
to
 
the
 
discounting
 
of
 
the
hedging instruments and undesignated risk components and
 
lack
of such discounting and risk components in the hedged items.
 
In
 
hedges
 
of
 
net
 
investments
 
in
 
foreign
 
operations,
ineffectiveness is unlikely unless the hedged
 
net assets fall below
the designated hedged
 
amount. The
 
exceptions are
 
hedges where
the
 
hedging
 
currency
 
is
 
not
 
the
 
same
 
as
 
the
 
currency
 
of
 
the
foreign
 
operation,
 
where
 
the
 
currency
 
basis
 
may
 
cause
ineffectiveness.
Hedge ineffectiveness from
 
financial instruments measured
 
at
fair value through profit
 
or loss is
 
recognized in
Other net income.
 
Derivatives not designated in hedge accounting relationships
 
Non-hedge accounted derivatives
 
are mandatorily held
 
for trading
with
 
all
 
fair
 
value
 
movements
 
taken
 
to
Other
 
net
 
income
 
from
financial instruments measured
 
at fair value
 
through profit or
 
loss
,
even
 
when
 
held
 
as
 
an
 
economic
 
hedge
 
or
 
to
 
facilitate
 
client
clearing. The
 
one exception
 
relates to
 
forward points
 
on certain
short-
 
and
 
long-duration
 
foreign
 
exchange
 
contracts
 
acting
 
as
economic hedges, which are reported in
Net interest income.
All hedges: designated hedging instruments
 
and hedge ineffectiveness
As of or for the year ended
31.12.21
Carrying amount
USD million
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Changes in
 
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Interest rate risk
Fair value hedges
89,525
0
7
(1,604)
1,602
(2)
Cash flow hedges
79,573
12
1
(1,185)
990
(196)
Foreign exchange risk
Fair value hedges
2
27,875
87
261
(2,139)
2,181
42
Hedges of net investments in foreign operations
13,939
23
105
497
(497)
0
As of or for the year ended
31.12.20
Carrying amount
USD million
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Changes in
 
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Interest rate risk
Fair value hedges
80,759
12
1,231
(1,247)
(16)
Cash flow hedges
72,732
18
2,213
(2,012)
201
Foreign exchange risk
Fair value hedges
2
21,555
449
7
(1,735)
1,715
(20)
Hedges of net investments in foreign operations
13,775
3
194
(937)
936
(2)
1 Amounts used
 
as the basis
 
for recognizing hedge
 
ineffectiveness for the
 
period.
 
2 The foreign
 
currency basis spread
 
of cross-currency
 
swaps designated as
 
hedging derivatives is
 
excluded from the
 
hedge
accounting designation and accounted for as a cost of hedging with amounts deferred in Other comprehensive income within Equity.
Fair value hedges: designated hedged items
 
USD million
31.12.21
31.12.20
Interest rate
risk
FX risk
Interest rate
risk
FX risk
Debt issued measured at amortized cost
Carrying amount of designated debt issued
74,700
27,875
70,429
21,555
 
of which: accumulated amount of fair value hedge adjustment
478
2,401
Other financial assets measured at amortized cost – debt securities
Carrying amount of designated debt securities
2,677
3,242
 
of which: accumulated amount of fair value hedge adjustment
(7)
(38)
Loans and advances to customers
1
Carrying amount of designated loans
13,835
10,374
of which: accumulated amount of fair value hedge adjustment
2
(109)
100
of which: accumulated amount of fair value hedge adjustment subject
 
to amortization attributable to the portion of the
portfolio that ceased to be part of hedge accounting
2
3
111
1 Prior to 31 December 2021, these amounts were designated in fair value hedges of portfolio interest rate risk under IAS 39.
 
2 As of 31 December 2021, the amount was presented within Loans and advances to
customers, whereas prior to 1 January 2021 amounts were presented within either Other financial assets
 
measured at amortized cost or Other financial liabilities measured at amortized cost.
Fair value hedges: profile of the timing of the
 
nominal amount of the hedging instrument
 
31.12.21
USD billion
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
Total
Interest rate swaps
0
8
10
49
22
90
Cross-currency swaps
 
1
1
6
13
6
28
31.12.20
USD billion
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
Total
Interest rate swaps
1
0
4
9
46
12
70
Cross-currency swaps
 
0
0
4
16
2
22
1 In accordance with IFRS 7 requirements, the fair value hedges of portfolio interest rate risk
 
related to loans and advances to customers designated under IAS 39 are not included.
Cash flow hedge reserve on a pre-tax basis
 
USD million
31.12.21
31.12.20
Amounts related to hedge relationships for which hedge
 
accounting continues to be applied
26
2,560
Amounts related to hedge relationships for which hedge
 
accounting is no longer applied
743
296
Total other comprehensive income recognized directly in equity related to cash flow hedges, on a pre-tax basis
769
2,856
Foreign currency translation reserve on a pre-tax basis
USD million
31.12.21
31.12.20
Amounts related to hedge relationships for which hedge
 
accounting continues to be applied
(45)
(559)
Amounts related to hedge relationships for which hedge
 
accounting is no longer applied
262
268
Total other comprehensive income recognized directly in equity related to hedging instruments
 
designated as net investment hedges, on a pre-tax
basis
217
(291)
Interest rate benchmark reform
The Group continues to apply the relief provided
 
by
Interest Rate
Benchmark
 
Reform
 
(amendments
 
to
 
IFRS 9,
 
IAS 39 and
 
IFRS 7),
published by the IASB in September 2019.
 
The
 
interest
 
rate
 
benchmarks
 
subject
 
to
 
interest
 
rate
benchmark
 
reforms
 
to
 
which
 
the
 
Group’s
 
hedge
 
relationships
were
 
exposed
 
were
 
USD
 
LIBOR,
 
CHF
 
LIBOR,
 
GBP
 
LIBOR,
 
AUD
LIBOR, JPY
 
LIBOR, HKD
 
LIBOR, SGD
 
LIBOR and
 
EONIA. Interest rate
swaps
 
designated
 
in
 
hedge
 
relationships
 
referencing
 
GBP,
 
CHF
and JPY LIBOR transitioned to ARRs
 
in December 2021 when LCH
transitioned
 
its
 
contracts.
 
For
 
other
 
currencies,
 
IBOR
 
quotations
remain available, but all
 
new designations will reference
 
ARR. As
such,
 
ARR
 
designations
 
in
 
these
 
currencies
 
will
 
replace
 
IBOR
designations as IBOR contracts mature.
 
The Group’s hedge
 
relationships are also
 
exposed to the Euro
Inter-bank Offered Rate (EURIBOR), which
 
is expected to continue
to exist as a benchmark rate for the foreseeable future. Thus, the
Group
 
does
 
not
 
consider
 
its
 
hedges
 
involving
 
the
 
EURIBOR
benchmark
 
interest
 
rate
 
to
 
be
 
directly
 
affected
 
by
 
interest
 
rate
benchmark reform.
Apart from
 
EURIBOR hedges,
 
UBS applied
 
the relief
 
to all
 
its
fair value
 
hedges of
 
interest rate
 
risk and to
 
those cash
 
flow hedge
relationships
 
where
 
the
 
hedged
 
risk
 
is
 
LIBOR
 
or
 
EONIA.
 
The
following
 
table
 
provides
 
details
 
on
 
the
 
notional
 
amount
 
and
carrying
 
amount
 
of
 
the
 
hedging
 
instruments
 
in
 
those
 
hedge
relationships maturing after 31 December 2021, or 30 June 2023
for
 
USD
 
LIBOR
 
hedges,
 
which
 
are
 
the
 
cessation
 
dates
 
of
 
the
applicable interest rate benchmarks.
Hedges
 
of
 
net
 
investments
 
in
 
foreign
 
operations
 
are
 
not
affected by the amendments.
›
 
Refer to Note
1a item 2j
for more information about the relief
provided by the amendments to IFRS 9, IAS
 
39 and IFRS 7 related
to interest rate benchmark reform
›
 
Refer to Note 25 Interest rate benchmark reform
 
for more
information about the transition progress
Hedging instruments referencing LIBOR
31.12.21
31.12.20
Carrying amount
Carrying amount
USD million
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
23,367
0
0
37,146
1
(12)
Cash flow hedges
10,803
0
0
11,179
0
0
UBS AG  
Entity [Table]  
Disclosure Of General Hedge Accounting Explanatory
Note 26 Hedge accounting
Derivatives designated in hedge accounting relationships
UBS AG applies hedge
 
accounting to interest rate
 
risk and foreign
exchange risk including structural
 
foreign exchange risk related
 
to
net investments in foreign operations.
 
›
 
Refer to “Market risk” in the “Risk management
 
and control”
section of this report for more information about
 
how risks arise
and how they are managed by UBS AG
Hedging instruments and hedged risk
Interest
 
rate
 
swaps
 
are
 
designated
 
in
 
fair
 
value
 
hedges
 
or
 
cash
flow
 
hedges
 
of
 
interest
 
rate
 
risk
 
arising
 
solely
 
from
 
changes
 
in
benchmark interest rates.
 
Fair value
 
changes arising from
 
such risk
are usually the largest
 
component of the overall
 
change in the
 
fair
value of the hedged position in transaction currency.
 
Cross-currency
 
swaps are
 
designated
 
as
 
fair
 
value
 
hedges
 
of
foreign
 
exchange
 
risk.
 
Foreign
 
exchange
 
forwards
 
and
 
foreign
exchange
 
swaps
 
are
 
mainly
 
designated
 
as
 
hedges
 
of
 
structural
foreign
 
exchange
 
risk
 
related
 
to
 
net
 
investments
 
in
 
foreign
operations.
 
In
 
both
 
cases
 
the
 
hedged
 
risk
 
arises
 
solely
 
from
changes in spot foreign exchange rate.
 
The notional
 
of the
 
designated hedging
 
instruments matches
the notional
 
of the
 
hedged items,
 
except when
 
the interest
 
rate
swaps are
 
re-designated in
 
cash flow
 
hedges, in
 
which case
 
the
hedge
 
ratio
 
designated
 
is
 
determined
 
based
 
on
 
the
 
swap
sensitivity.
Hedged items and hedge designation
 
Fair value hedges of interest rate risk related to debt instruments
and loan assets
Fair value hedges of interest
 
rate risk related to debt
 
instruments
and loan assets involve
 
swapping fixed cash flows
 
associated with
the debt issued,
 
debt securities held
 
and, from 2021
 
onward, loan
assets
 
(principally
 
long-term
 
fixed-rate
 
mortgage
 
loans
 
in
 
Swiss
francs formerly designated within “Fair
 
value hedges of portfolio
interest
 
rate
 
risk
 
related
 
to
 
loans
 
designated
 
under
 
IAS
 
39”) to
floating cash flows by
 
entering into interest rate swaps
 
that either
receive
 
fixed and
 
pay
 
floating cash
 
flows
 
or
 
that
 
pay
 
fixed
 
and
receive floating cash flows.
 
Designations
 
have
 
been
 
made
 
in
 
US
 
dollars,
 
euros,
 
Swiss
francs, Australian dollars, Japanese
 
yen and Singapore dollars.
 
For
new hedging
 
instruments and
 
hedged risk
 
designations entered
into in 2021 in these
 
currencies (with the exception of euro),
 
the
benchmark rate was the
 
relevant
 
alternative reference rate (ARR).
Following the
 
interbank offered
 
rate (IBOR)
 
transition for
 
swaps
with
 
LCH
 
(formerly
 
the
 
London
 
Clearing
 
House)
 
in
 
December
2021,
 
the
 
benchmark
 
hedge
 
rate
 
for
 
Swiss
 
franc
 
and
 
Japanese
yen designations was changed
 
from an IBOR rate
 
to the relevant
ARR with
 
the hedge
 
relationship continuing
 
in accordance
 
with
Interest Rate Benchmark Reform
 
– Phase 2 (Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
.
Fair
 
value
 
hedges
 
of
 
portfolio
 
interest
 
rate
 
risk
 
related
 
to
 
loans
designated under IAS 39
Prior
 
to
 
December
 
2021,
 
UBS AG
 
hedged an
 
open
 
portfolio of
long-term fixed-rate mortgage loans in
 
Swiss francs using interest
rate swaps that
 
paid a fixed
 
rate of interest
 
and received a
 
floating
rate
 
of
 
interest.
 
Both
 
the
 
hedged
 
portfolio
 
and
 
the
 
hedging
instruments were adjusted
 
on a monthly basis
 
to reflect changes
in
 
size
 
and
 
the
 
maturity
 
profile
 
of
 
the
 
hedged
 
portfolio.
 
Each
month the
 
hedge relationship
 
was discontinued
 
and a
 
new one
designated.
 
Changes in
 
the portfolio
 
were
 
driven by
 
new loans
being originated or loans being repaid.
Cash flow hedges of forecast transactions
UBS
 
AG
 
hedges
 
forecast
 
cash
 
flows
 
on
 
non-trading
 
financial
assets
 
and
 
liabilities
 
that
 
bear
 
interest
 
at
 
variable
 
rates
 
or
 
are
expected
 
to
 
be
 
refinanced
 
or
 
reinvested
 
in
 
the
 
future,
 
due
 
to
movements
 
in
 
future
 
market
 
rates. The
 
amounts
 
and
 
timing of
future cash flows, representing
 
both principal and interest flows,
are projected on the basis of
 
contractual terms and other
 
relevant
factors,
 
including
 
estimates
 
of
 
prepayments
 
and
 
defaults.
 
The
aggregate
 
principal
 
balances
 
and
 
interest
 
cash
 
flows
 
across
 
all
portfolios over time form the
 
basis for identifying the non-trading
interest
 
rate risk
 
of UBS
 
AG, which
 
is hedged
 
with interest
 
rate
swaps,
 
the
 
maximum
 
maturity
 
of
 
which
 
is
 
10 years.
 
Cash
 
flow
forecasts
 
and
 
risk exposures
 
are
 
monitored
 
and adjusted
 
on an
ongoing basis, and
 
consequently additional hedging instruments
are traded and designated, or are terminated resulting
 
in a hedge
discontinuance.
 
Hedge
 
designations
 
have
 
been
 
made
 
in
 
the
following
 
currencies
:
US
 
dollars
,
 
euros,
 
Swiss
 
francs,
 
pounds
sterling
 
and
 
Hong
 
Kong
 
dollars.
 
The
 
cash
 
flow
 
hedges
 
in
 
US
dollars, Swiss
 
francs and
 
pounds sterling
 
were discontinued
 
and
replaced with new ARR designations in December 2021.
Fair value hedges of foreign exchange risk related to issued debt
instruments
Debt
 
instruments
 
denominated
 
in
 
currencies
 
other than
 
the US
dollar
are
 
designated
 
in
 
fair
 
value
 
hedges
 
of
 
spot
 
foreign
exchange
 
risk,
 
in
 
addition
 
to
 
and
 
separate
 
from
 
the
 
fair
 
value
hedges
 
of
 
interest
 
rate
 
risk.
 
Cross
 
currency
 
swaps economically
convert debt denominated in currencies
 
other than the US dollar
to
 
US
 
dollars
.
 
This
 
hedge
 
accounting
 
program
 
started
 
on
1 January
 
2020,
 
with
 
the
 
adoption
 
of
 
the
 
hedge
 
accounting
requirements of IFRS 9,
Financial Instruments,
 
by UBS AG.
›
 
Refer to Note
1b
 
for more information
Hedges of net investments in foreign operations
UBS AG applies
 
hedge accounting for
 
certain net investments
 
in
foreign
 
operations
,
 
which
 
include
 
subsidiaries,
 
branches
 
and
associates. Upon
 
maturity of
 
hedging instruments,
 
typically two
months,
 
the
 
hedge
 
relationship
 
is
 
terminated
 
and
 
new
designations
 
are
 
made
 
to
 
reflect
 
any
 
changes
 
in
 
the
 
net
investments in foreign operations.
Economic relationship between hedged item and hedging
instrument
For
 
hedges
 
designated
 
under
 
IFRS
 
9,
 
the economic
 
relationship
between
 
the
 
hedged
 
item
 
and
 
the
 
hedging
 
instrument
 
is
determined based on
 
a qualitative analysis
 
of their critical
 
terms.
In cases where hedge designation takes place after origination of
the
 
hedging
 
instrument,
 
a
 
quantitative
 
analysis
 
of
 
the
 
possible
behavior of
 
the hedging
 
derivative and
 
the hedged
 
item during
their respective terms is also performed.
Prior to
 
December 2021, for
 
the fair
 
value hedge of
 
portfolio
interest rate risk related to loans designated under IAS 39, hedge
effectiveness was assessed by
 
comparing changes in the
 
fair value
of
 
the hedged
 
portfolio of
 
loans
 
attributable
 
to
 
changes
 
in
 
the
designated benchmark
 
interest rate
 
with the
 
changes in
 
the fair
value of the interest rate swaps.
Sources of hedge ineffectiveness
 
In
 
hedges
 
of
 
interest
 
rate
 
risk,
 
hedge
 
ineffectiveness
 
can
 
arise
from
 
mismatches
 
of
 
critical
 
terms
 
and
 
/
 
or
 
the
 
use
 
of
 
different
curves
 
to
 
discount
 
the
 
hedged
 
item
 
and
 
instrument,
 
or
 
from
entering
 
into
 
a
 
hedge
 
relationship
 
after
 
the
 
trade
 
date
 
of
 
the
hedging derivative
In
 
hedges
 
of
 
foreign
 
exchange
 
risk
 
related
 
to
 
debt
 
issued,
hedge
 
ineffectiveness
 
can
 
arise
 
due
 
to
 
the
 
discounting
 
of
 
the
hedging instruments and undesignated risk components and
 
lack
of such discounting and risk components in the hedged items.
 
In
 
hedges
 
of
 
net
 
investments
 
in
 
foreign
 
operations,
ineffectiveness is unlikely unless the hedged
 
net assets fall below
the designated hedged
 
amount. The
 
exceptions are
 
hedges where
the
 
hedging
 
currency
 
is
 
not
 
the
 
same
 
as
 
the
 
currency
 
of
 
the
foreign
 
operation,
 
where
 
the
 
currency
 
basis
 
may
 
cause
ineffectiveness.
Hedge ineffectiveness from
 
financial instruments measured
 
at
fair value through profit
 
or loss is
 
recognized in
Other net income.
 
Derivatives not designated in hedge accounting relationships
 
Non-hedge accounted derivatives
 
are mandatorily held
 
for trading
with
 
all
 
fair
 
value
 
movements
 
taken
 
to
Other
 
net
 
income
 
from
financial instruments measured
 
at fair value
 
through profit or
 
loss
,
even
 
when
 
held
 
as
 
an
 
economic
 
hedge
 
or
 
to
 
facilitate
 
client
clearing. The
 
one exception
 
relates to
 
forward points
 
on certain
short-
 
and
 
long-duration
 
foreign
 
exchange
 
contracts
 
acting
 
as
economic hedges, which are reported in
Net interest income
All hedges: designated hedging instruments
 
and hedge ineffectiveness
As of or for the year ended
31.12.21
USD million
Notional
amount
Carrying amount
Changes in
 
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
89,525
0
7
(1,604)
1,602
(2)
Cash flow hedges
79,573
12
1
(1,185)
990
(196)
Foreign exchange risk
Fair value hedges
2
27,875
87
261
(2,139)
2,181
42
Hedges of net investments in foreign operations
13,761
23
103
492
(491)
0
As of or for the year ended
31.12.20
USD million
Notional
amount
Carrying amount
Changes in
 
fair value of
hedging
instruments
1
Changes in
fair value of
hedged
items
1
Hedge
ineffectiveness
recognized in the
income statement
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
80,759
12
1,231
(1,247)
(16)
Cash flow hedges
72,732
18
2,213
(2,012)
201
Foreign exchange risk
Fair value hedges
2
21,555
449
7
(1,735)
1,715
(20)
Hedges of net investments in foreign operations
13,634
3
193
(939)
938
(2)
1 Amounts used
 
as the basis
 
for recognizing hedge
 
ineffectiveness for the
 
period.
 
2 The
 
foreign currency basis
 
spread of cross
 
-currency swaps designated
 
as hedging derivatives
 
is excluded from
 
the hedge
accounting designation and accounted for as a cost of hedging with amounts deferred in Other comprehensive income within Equity.
Fair value hedges: designated hedged items
 
USD million
31.12.21
31.12.20
Interest rate
risk
FX risk
Interest rate
risk
FX risk
Debt issued measured at amortized cost
Carrying amount of designated debt issued
21,653
11,392
24,247
10,889
 
of which: accumulated amount of fair value hedge adjustment
261
761
Funding from UBS Group AG
Carrying amount of designated debt instruments
53,047
16,483
46,182
10,666
 
of which: accumulated amount of fair value hedge adjustment
218
1,640
Other financial assets measured at amortized cost – debt securities
Carrying amount of designated debt securities
2,677
3,242
 
of which: accumulated amount of fair value hedge adjustment
(7)
(38)
Loans and advances to customers
1
Carrying amount of designated loans
13,835
10,374
of which: accumulated amount of fair value hedge adjustment
2
(109)
100
of which: accumulated amount of fair value hedge adjustment subject
 
to amortization attributable to the
portion of the portfolio that ceased to be part of hedge
 
accounting
2
3
111
1 Prior to 31 December 2021, these amounts were designated in fair value
 
hedges of portfolio interest rate risk under IAS 39.
 
2 As of 31 December 2021, the amount was presented within Loans
 
and advances to
customers, whereas prior to 1 January 2021 amounts were presented within either Other financial assets
 
measured at amortized cost or Other financial liabilities measured at amortized cost.
Fair value hedges: profile of the timing of the
 
nominal amount of the hedging instrument
31.12.21
USD billion
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
Total
Interest rate swaps
0
8
10
49
22
90
Cross-currency swaps
1
1
6
13
6
28
31.12.20
USD billion
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
Total
Interest rate swaps
1
0
4
9
46
12
70
Cross-currency swaps
0
0
4
16
2
22
1 In accordance with IFRS 7 requirements, the fair value hedges of portfolio interest rate risk
 
related to loans and advances to customers designated under IAS 39 are not included.
Cash flow hedge reserve on a pre-tax basis
 
USD million
31.12.21
31.12.20
Amounts related to hedge relationships for which hedge
 
accounting continues to be applied
26
2,560
Amounts related to hedge relationships for which hedge
 
accounting is no longer applied
743
296
Total other comprehensive income recognized directly in equity related to cash flow hedges, on a pre-tax basis
769
2,856
Foreign currency translation reserve on a pre-tax basis
USD million
31.12.21
31.12.20
Amounts related to hedge relationships for which hedge
 
accounting continues to be applied
 
(61)
(569)
Amounts related to hedge relationships for which hedge
 
accounting is no longer applied
 
262
268
Total other comprehensive income recognized directly in equity related to hedging instruments
 
designated as net investment hedges, on a pre-tax
basis
201
(302)
Interest rate benchmark reform
UBS
 
AG
 
continues
 
to
 
apply
 
the
 
relief
 
provided
 
by
Interest
 
Rate
Benchmark
 
Reform
 
(amendments
 
to
 
IFRS 9,
 
IAS 39 and
 
IFRS 7),
published by the IASB in September 2019.
 
The
 
interest
 
rate
 
benchmarks
 
subject
 
to
 
interest
 
rate
benchmark
 
reforms
 
to
 
which
 
the
 
Group’s
 
hedge
 
relationships
were
 
exposed
 
were
 
USD
 
LIBOR,
 
CHF
 
LIBOR,
 
GBP
 
LIBOR,
 
AUD
LIBOR, JPY
 
LIBOR, HKD
 
LIBOR, SGD
 
LIBOR and
 
EONIA. Interest rate
swaps
 
designated
 
in
 
hedge
 
relationships
 
referencing
 
GBP,
 
CHF
and JPY LIBOR transitioned to ARRs
 
in December 2021 when LCH
transitioned
 
its
 
contracts.
 
For
 
other
 
currencies,
 
IBOR
 
quotations
remain available, but all
 
new designations will reference
 
ARR. As
such,
 
ARR
 
designations
 
in
 
these
 
currencies
 
will
 
replace
 
IBOR
designations as IBOR contracts mature.
 
UBS
 
AG’s
 
hedge
 
relationships
 
are
 
also
 
exposed
 
to
 
the
 
Euro
Inter-bank Offered Rate (EURIBOR), which
 
is expected to continue
to exist as a benchmark rate for the foreseeable future. Thus, the
Group
 
does
 
not
 
consider
 
its
 
hedges
 
involving
 
the
 
EURIBOR
benchmark
 
interest
 
rate
 
to
 
be
 
directly
 
affected
 
by
 
interest
 
rate
benchmark reform.
Apart from
 
EURIBOR hedges,
 
UBS AG applied
 
the relief
 
to all
its fair
 
value hedges
 
of interest
 
rate risk
 
and to
 
those cash
 
flow
hedge relationships where the
 
hedged risk is
 
LIBOR or EONIA.
 
The
following
 
table
 
provides
 
details
 
on
 
the
 
notional
 
amount
 
and
carrying
 
amount
 
of
 
the
 
hedging
 
instruments
 
in
 
those
 
hedge
relationships maturing after 31 December 2021, or 30 June 2023
for
 
USD
 
LIBOR
 
hedges,
 
which
 
are
 
the
 
cessation
 
dates
 
of
 
the
applicable interest rate benchmarks.
 
Hedges
 
of
 
net
 
investments
 
in
 
foreign
 
operations
 
are
 
not
affected by the amendments.
›
 
Refer to Note
1a item 2j
for more information about the relief
provided by the amendments to IFRS 9, IAS
 
39 and IFRS 7 related
to interest rate benchmark reform
›
 
Refer to Note 25 Interest rate benchmark reform
 
for more
information about the transition progress
Hedging instruments referencing LIBOR
31.12.21
31.12.20
Carrying amount
Carrying amount
USD million
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Notional
amount
Derivative
financial
assets
Derivative
financial
liabilities
Interest rate risk
Fair value hedges
23,367
0
0
37,146
1
(12)
Cash flow hedges
10,803
0
0
11,179
0
0