The bank has established hedge accounting in order to achieve accounting treatment that reflects how interest rate risk and foreign exchange risk are managed in the case of large long-term borrowings. The hedged objects consist exclusively of debt created by the issuance of financial instruments and are implemented in conformity with IFRS 9 by fair value hedging. For those debt instruments that are included in the hedging portfolio, separate interest rate and exchange rate swaps are entered into with corresponding principle and maturity structure. Inefficiency may nonetheless arise as a result of random market variations in the evaluation of object and instrument.
The hedging instruments (interest rate and exchange rate swaps) are recognised at fair value, whereas the hedged objects are recognised at fair value in respect of the risks that are hedged (interest rate risk and exchange rate risk). Hedge inefficiency, defined as the difference between the value adjustment of the hedging instruments and the value adjustment of the hedged risks in the objects is recognised through profit/loss on an ongoing basis.
|Nominal amount 31 Dec 2020||Nominal amount 31 Dec 2019|
|Group (NOK million)||Hedging instrument||Hedging object||Ineffectivity||Hedging instrument||Hedging object||Ineffectivity|
|Accounting line in Balance Sheet||Derivatives||Debt created
|Debt at fixed interest||Interest swap||Interest swap|
|Nominal NOK||7,943||7,550||- 393||7,789||7,650||- 140|
|Debt in currency at fixed interest||Interest and
|Nominal EUR||22,658||22,644||- 13||23,429||23,429.0||-|
|Nominal SEK||626||600||- 26||846||846||-|
|Book value 31 Dec 2020||Ineffectivity
|Book value 31 Dec 2019||Ineffectivity
|Hedging instrument||Hedging object||Hedging instrument||Hedging object|
|Recorded amount Assets||921||387|
|Recorded amount Liabilities||48||33,481||216||33,790|
|Accumulated value changes ending balance||634||570||167||160|
|Accumulated value changes opening balance||167||104||233||217|
|change in fair value||467||465||1||-66||- 56||- 9|
|Accounting line in profit and loss||Net return
In recent years, reform of and alternatives to IBOR rates have become a priority area for governments across the world. However, there is uncertainty as to the timing and method for any changes. All SpareBank 1 SMN’s interest rate derivatives have IBOR rates as their benchmark, and thus could be affected by changes. The most significant positions are held in EURIBOR and NIBOR. The bank follows market developments closely, and participates in several projects in order to monitor and facilitate any changes. The table below shows exposure and nominal amount for derivatives in hedge relationships that may be affected by the IBOR reform, split on the IBOR rate in question.
|Interest- and currency instrument (NOK million)||Hedging object||Hedging instrument||Net Exposure|
|STIBOR 3M||600||626||- 26|
|USD LIBOR 3M||1,279||1,279|
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