10.20. Embedded derivatives

If a hybrid (combined) instrument comprises a host contract which is an asset under the IFRS 9, the Group applies the requirements specified in paragraphs 4.1.1-4.1.5 of IFRS 9 to the whole hybrid contract.

If a hybrid (combined) instrument comprises a host contract which is not an asset under the IFRS 9, the embedded derivative is separated from the host contract and accounted for as a derivative under IFRS 9 only if:

• the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract;
• a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
• the hybrid (combined) instrument is not measured at fair value with changes in fair value recognised in profit or loss (i.e. a derivative that is embedded in a financial asset or financial liability at fair value through profit or loss is not separated).

Embedded derivatives are accounted for in a manner similar to individual derivative instruments which are not treated as hedging instruments.

The scope in which the economic characteristics and risk specific to a given embedded derivative instrument expressed in a foreign currency are directly related to the economic characteristics and risk specific to the host contract, also covers situations when the currency of the host contract is a typical currency for purchase or sale agreements of non-financial items on the market of a given transaction.

The assessment whether an embedded derivative should be separated is conducted by the Group at the time of its initial recognition.