The Bank evaluates and documents the effectiveness of a hedge in accordance with IAS 39. The Bank employs fair value hedging to manage its interest rate risk. In its hedging operations the Bank protects against movements in the market interest rate. Changes in credit spread are not taken to account when measuring hedge effectiveness. In the case of fair value hedging, both the hedging instrument and the hedged object are recorded at fair value, and changes in these values from the opening balance are recognised in profit/loss.
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 2022||Nominal amount 31 Dec 2021|
|Group (NOK million)||Hedging instrument||Hedging object||Ineffectivity||Hedging instrument||Hedging object||Ineffectivity|
|Accounting line in Balance Sheet||Derivatives||Debt createdby issuanceof securities||Derivatives||Debt createdby issuanceof securities|
|Debt at fixed interest||Interest swap||Interest swap|
|Debt in currency at fixed interest||Interest andcurrency swap||Interest andcurrency swap|
|Book value 31 Dec 2022||Book value 31 Dec 2021|
|Hedging instrument||Hedging object||Ineffectivity in PL||Hedging instrument||Hedging object||Ineffectivity in PL|
|Recorded amount Assets||294||353|
|Recorded amount Liabilities||2,368||35,868||511||31,461|
|Accumulated value changes ending balance||-2,185||-2,233||- 30||- 88|
|Accumulated value changes opening balance||-30||-88||634||570|
|Change in fair value||-2155||-2145||-10||-||-664||- 657||- 6|
|Accounting line in profit and loss||Net return on financial investments||Net return on financial investments|
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|
|EURIBOR 3M||-||17,169||- 17,169|
|EURIBOR 6M||-||273||- 273|
|OIBOR 3M||-||13,542||- 13,542|
|USDLIB 3M||-||1,478||- 1,478|
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