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 2015 31 Dec 2014
(NOK million) Level *) Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 5,883 5,883 4,364 4,364
Loans to and claims on customers at amortised cost 3 85,160 85,160 83,168 83,168
Total financial assets at amortised cost   91,043 91,043 87,532 87,532
           
Liabilities          
Debt to credit institutions 2 8,155 8,155 9,123 9,123
Deposits from and debt to customers 2 65,091 65,091 61,202 61,202
Securities debt at amortised cost 2 13,452 14,567 11,624 11,724
Securities debt, hedging 2 21,702 21,349 21,378 21,688
Subordinated debt at amortised cost 2 2,356 2,350 2,364 2,421
Subordinated debt, hedging 2 1,107 1,099 1,006 1,021
Total financial liabilities at amortised cost   111,863 112,611 106,697 107,178

 

Group          
    31 Dec 2015 31 Dec 2014
(NOK million) Level *)  Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 2,407 2,407 1,289 1,289
Loans to and claims on customers at amortised cost 3 88,979 88,979 86,835 86,835
Total financial assets at amortised cost   113,119 113,119 88,123 88,123
           
Liabilities          
Debt to credit institutions 2 8,155 8,155 9,123 9,123
Deposits from and debt to customers 2 64,090 64,090 60,680 60,680
Securities debt at amortised cost 2 13,452 14,567 11,624 11,724
Securities debt, hedging   21,702 21,349 21,378 21,688
Subordinated debt at amortised cost 2 2,356 2,350 2,364 2,421
Subordinated debt, hedging 2 1,107 1,099 1,006 1,021
Total financial liabilities at amortised cost   110,862 111,609 106,175 106,656
           
*) 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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