Note 28 - Fair value of financial instruments

Financial instruments measured at amortised cost

Financial instruments that are not measured at fair value are recognised at amortised cost or are in a hedging relationship. For further details, see note 2 Accounting principles. Amortised cost entails valuing balance sheet items after initially agreed cash flows, adjusted for impairment.

Amortised cost will not always be equal to the values that are in line with the market assessment of the same financial instruments. This is due to different perceptions of market conditions, risk and discount rates.

Methods underlying the determination of fair value of financial instruments that are measured at amortised cost are described below:

Loans to and claims on customers
Current-rate loans are exposed to competition in the market, indicating that possible excess value in the portfolio will not be maintained over a long period. Fair value of current-rate loans is therefore set to amortised cost. The effect  of changes in credit quality in the portfolio is accounted for through collectively assessed impairment write-downs, therefore giving a good expression of fair value in that part of the portfolio where individual write-down assessments have not been made.

Individual write-downs are determined through an assessment of future cash flow, discounted by effective interest rate. Hence the discounted value gives a good expression of the fair value of these loans.

Bonds held to maturity
Change to fair value is calculated by reference to a theoretical valuation of market value based on interest rate and spread curves.

Loans to and claims on credit institutions, Debt to credit institutions  and debt to customers
For loans to and claims on credit institutions, as well as debt to credit institutions and deposits from customers, fair value is estimated equal to amortised cost.

Securities debt and subordinated debt
The calculation of fair value in level 2 is based on observable market values such as on interest rate and spread curves where available.

Parent Bank          
    31 Dec 16 31 Dec 15
(NOK million) Level 1) Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 8,203 8,203 5,883 5,883
Loans to and claims on customers at amortised cost 3 92,673 92,673 85,160 85,160
Total financial assets at amortised cost   100,876 100,876 91,043 91,043
           
Liabilities          
Debt to credit institutions 2 10,299 10,299 8,155 8,155
Deposits from and debt to customers 2 68,391 68,391 65,091 65,091
Securities debt at amortised cost 2 10,689 10,700 13,452 14,567
Securities debt, hedging 2 25,627 25,307 21,702 21,349
Subordinated debt at amortised cost 2 2,057 2,050 2,356 2,350
Subordinated debt, hedging 2 1,083 1,075 1,107 1,099
Total financial liabilities at amortised cost   118,146 117,822 111,863 112,611

 

 

Group          
    31 Dec 16 31 Dec 15
(NOK million)  Level 1) Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 3,892 3,892 2,407 2,407
Loans to and claims on customers at amortised cost 3 97,528 97,528 88,979 88,979
Total financial assets at amortised cost   101,420 101,420 91,385 91,385
           
Liabilities          
Debt to credit institutions 2 10,509 10,509 8,155 8,155
Deposits from and debt to customers 2 67,168 67,168 64,090 64,090
Securities debt at amortised cost 2 10,689 10,700 13,452 14,567
Securities debt, hedging   25,627 25,307 21,702 21,349
Subordinated debt at amortised cost 2 2,099 2,093 2,356 2,350
Subordinated debt, hedging 2 1,083 1,075 1,107 1,099
Total financial liabilities at amortised cost   117,175 116,852 110,862 111,609

1) Fair value is determined by using different methods in three levels. See note 27 for a definition of the levels.

Financial results

Annual report and notes

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