Note 29 - Hedge Accounting for Debt created by issue of securities

Accounting Policy

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    
Nominal NOK 11,200 11,200 -   8,025 8,025 -
Debt in currency at fixed interest Interest andcurrency swap       Interest andcurrency swap    
Nominal EUR 23,120 23,120 0   21,902 21,738 -164
Nominal SEK - - -   - - 0
Nominal CHF 3,737 3,737 -   1,690 1,690 -
  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
Eksporter til Excel


IBOR reform

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.

  Nominal amount
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
Total - 32,462 - 32,462
Eksporter til Excel

Annual report and notes

© SpareBank 1 SMN