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. 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 2022 31 Dec 2021
(NOKm) Level 1) Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 21,972 21,972 13,190 13,190
Loans to and claims on customers at amortised cost 2 52,941 53,085 48,434 48,525
Earned income not yet received 2 87 87 152 152
Accounts receivable, securities 2 262 262 20 20
Total financial assets at amortised cost   75,262 75,406 61,796 61,887
           
Liabilities          
Debt to credit institutions 2 14,636 14,636 14,340 14,340
Deposits from and debt to customers 2 122,699 122,699 112,028 112,028
Securities debt at amortised cost 2 11,679 11,605 8,871 8,870
Securities debt, hedging 2 35,868 35,867 31,461 31,460
Subordinated debt at amortised cost 2 2,015 2,014 1,753 1,752
Subordinated debt, hedging 2
Lease liabilities 2 233 233 262 262
Debt from securities 2 176 176 157 157
Total financial liabilities at amortised cost   187,306 187,231 168,872 168,871
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Group          
    31 Dec 2022 31 Dec 2021
(NOKm)   Book value Fair Value Book value Fair Value
Assets          
Loans to and claims on credit institutions 2 11,663 11,663 4,704 4,704
Loans to and claims on customers at amortised cost 2 65,018 65,184 58,637 58,744
Earned income not yet received 2 104 104 186 186
Accounts receivable, securities 2 262 262 300 300
Total financial assets at amortised cost   77,046 77,212 63,828 63,935
           
Liabilities          
Debt to credit institutions 2 14,636 14,636 15,063 15,063
Deposits from and debt to customers 2 122,010 122,010 111,286 111,286
Securities debt at amortised cost 2 11,679 11,605 8,871 8,870
Securities debt, hedging   35,868 35,867 31,461 31,460
Subordinated debt at amortised cost 2 2,058 2,058 1,796 1,796
Subordinated debt, hedging 2
Lease liabilities 2 339 339 476 476
Debt from securities 2 176 176 351 351
Total financial liabilities at amortised cost   186,765 186,690 169,304 169,302
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1) Fair value is determined by using different methods in three levels. See note 25 for a definition of the levels

Annual report and notes

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