18 – Receivables and Miscellaneous Assets

The decrease in noncurrent loans and interest receivables was predominantly due to the reclassification of a loan in the amount of €325 million from Wintershall Nederland Transport and Trading B.V., Rijswijk, Netherlands, to Nord Stream 2 AG, and a loan in the amount of €140 million from W & G Transport Holding GmbH, Kassel, Germany, to W & G Infrastruktur Finanzierungs-GmbH, Kassel, Germany, to the assets of the disposal groups. In addition to the above loans, this item included, in particular, loans and interest receivables from BASF Ireland Ltd., Cork, Ireland, to finance the business expansion of Asian companies, and receivables in favor of BASF SE from BASF Pensionskasse VVaG.

The increase in noncurrent derivatives with positive fair values primarily affected the market valuation of combined interest rate and currency swaps. The change in current derivatives with positive fair market values was largely attributable to the lower fair values of precious metal and foreign currency derivatives.

As of January 1, 2018, receivables from bank acceptance drafts are no longer reported under trade accounts receivable, but under other operating receivables, since the remaining credit risks are toward the issuing bank and no longer the customer. Receivables from bank acceptance drafts fell by €226 million in 2018. They totaled €389 million in 2017. This amount was reclassified from trade accounts receivable to other receivables and miscellaneous assets in the Balance Sheet as of December 31, 2017.

Bank acceptance drafts are used as an alternative form of payment in China. They can be held until maturity, discounted by a bank and provided to suppliers as an endorsement in exchange for goods or services before maturity. Depending on the specific agreement, the major risks and opportunities either remain with BASF or are assumed by the counterparty. Only when the counterparty assumes the default risk is the receivable derecognized. If BASF discounts a bank acceptance draft with recourse, a liability toward the credit institution granting the discount is recognized in the amount of the payment received and held to maturity; if BASF endorses the bank acceptance draft to a supplier with recourse, neither receivables from bank acceptance drafts nor trade payables are derecognized. Bank acceptance drafts were endorsed in the amount of €8 million and not derecognized as of December 31, 2018.

Prepaid expenses in 2018 mainly included prepayments of €22 million related to operating activities compared with €62 million in 2017, as well as €83 million in prepayments for insurance in 2018 compared with €50 million in 2017. Prepayments for license costs decreased from €42 million in 2017 to €38 million in 2018.

The increase in current tax refund claims is largely attributable to the rise in open income tax receivables.

Precious metal trading items primarily comprise physical items and precious metal accounts as well as long positions in precious metals, which are largely hedged through sales or derivatives.

Expected losses on trade accounts receivable at BASF are calculated on the basis of internal or external customer ratings and the associated probability of default since January 1, 2018.

The following table presents the gross values and credit risks for trade accounts receivable as of December 31, 2018.

BASF monitors the credit risk associated with counterparties with which receivables are held in the form of financial instruments. In accordance with IFRS 9, impairments for expected credit lossses on receivables are recognized based on this.

Because, pursuant to IAS 39, impairments were only recognized when objective indications for an impairment were present, initial application of IFRS 9 resulted in total additional impairments on trade accounts receivable, loan receivables and other receivables of of €34 million.

At BASF, a comprehensive, global credit insurance program covers accounts receivable, trade. Under a global excess of loss policy, future bad debts are insured for essentially all BASF Group companies excluding joint ventures. The program has no impact on the calculation of impairments in accordance with IFRS 9. No compensation claims were incurred in either 2018 or 2017.

Payment terms are generally agreed upon individually with customers and, as a rule, are within 90 days. In 2018, valuation allowances of €128 million were recognized for trade accounts receivable, and of €117 million were reversed. In the previous year, valuation allowances of €92 million were recognized for trade accounts receivable, and of €113 million were reversed.

In 2018, valuation allowances of €11 million were recognized for other receivables representing financial instruments, and of €9 million were reversed. In the previous year, valuation allowances of €10 million were recognized for all other receivables, and of €6 million were reversed.

The addition and reversal of value allowances included impairments of €2 million due to a change in valuation parameters and €4 million due to foreign currency fluctuations.

The gross values for receivables from bank acceptance drafts as of December 31, 2017 were removed from the aging analysis of trade accounts receivable.

Prior to adoption of IFRS 9, impairments to trade accounts receivable were calculated using amounts past due, among other things.