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EFRAG questions whether the proposals go far enough in acknowledging the difference between a portfolio approach versus an individual item approach. This becomes particularly important in those cases where entities have a net risk position of core deposits.
EFRAG believes that entities are hedging only interest rate risk, and are not hedging, but managing, prepayment risk. Since IAS 39 allows an entity to hedge an amount that is less then the amount of the net risk position, EFRAG considers approach C to be the preferred way of designating the hedged item.
However, we consider there are also valid conceptual and practical arguments for method D (percentage approach) when prepayment is not being hedged.