Note 26 - Fair value of financial instruments at amortised cost

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 IFRS 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 2020 31 Dec 2019
(NOK million) Level 1) Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 12,901 12,901 9,181 9,181
Loans to and claims on customers at amortised cost 2 45,169 45,260 41,105 41,173
Earned income not yet received 2 135 135 107 107
Accounts receivable, securities 2 11 11 13 13
Total financial assets at amortised cost   58,216 58,307 50,406 50,474
           
Liabilities          
Debt to credit institutions 2 12,630 12,630 7,585 7,585
Deposits from and debt to customers 2 98,166 98,166 86,870 86,870
Securities debt at amortised cost 2 10,750 10,619 9,440 9,425
Securities debt, hedging 2 33,301 33,300 33,573 33,374
Subordinated debt at amortised cost 2 1,752 1,752 1,831 1,826
Subordinated debt, hedging 2 -  -  216 212
Lease liabilities 2 303 303 347 347
Debt from securities 2 13 13 9 9
Total financial liabilities at amortised cost   156,915 156,783 139,872 139,649

 

 

Group          
    31 Dec 2020 31 Dec 2019
(NOK million)   Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 5,091 5,091 2,110 2,110
Loans to and claims on customers at amortised cost 2 54,086 54,193 49,351 49,431
Earned income not yet received 2 185 185 132 132
Accounts receivable, securities 2 678 678 292 292
Total financial assets at amortised cost   60,040 60,147 51,886 51,966
           
Liabilities          
Debt to credit institutions 2 13,095 13,095 8,853 8,853
Deposits from and debt to customers 2 97,529 97,529 85,917 85,917
Securities debt at amortised cost 2 10,750 10,619 9,440 9,425
Securities debt, hedging   33,301 33,300 33,573 33,374
Subordinated debt at amortised cost 2 1,795 1,795 1,874 1,869
Subordinated debt, hedging 2 -  -  216 212
Lease liabilities 2 479 479 505 505
Debt from securities 2 568 568 197 197
Total financial liabilities at amortised cost   157,517 157,385 140,576 140,352

1) Fair value is determined by using different methods in three levels. See note 25 for a definition of the levels

Financial results

Annual report and notes

Downloads

© SpareBank 1 SMN