Ársskýrsla Landsbankans - Landsbankinn

Notes to the Consolidated Financial Statements
3. Significant accounting policies (continued)
Foreign currency translation
Transactions in foreign currencies are translated into the functional currency of the respective Group entity at the spot exchange rate at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are measured at amortised cost or fair value,
as applicable, in their respective foreign currencies and are retranslated into the functional currency at the spot exchange rate at that date. The
foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period,
adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end
of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are first measured at fair value in
their respective foreign currencies and then retranslated into the functional currency at the spot exchange rate at the date that the fair value was
determined. All foreign currency differences arising on retranslation are recognised in the income statement.
Due to varying customer financial strength, the Group has assessed the increase in credit risk due to exchange fluctuations in the foreign currency
denominated loan portfolio. While some customers have part of or all of their income in foreign currency, other customers have very limited or no
income in foreign currency. In many instances, customers with limited or no income in foreign currency will encounter difficulty in meeting their
obligations if the ISK depreciates. Therefore, for customers who have limited or no income in foreign currency, the foreign exchange differences
arising through loans and advances to these customers is presented in the income statement net of the amount of foreign exchange difference
deemed to be uncollectible.
Financial assets and liabilities
(a) Recognition
The Group initially recognises loans and advances, deposits and debt securities issued on the date at which they are originated. All other financial
assets and liabilities are initially recognised on the date at which the Group becomes a party to contractual provisions of the instrument. Regular way
purchases and sales of financial assets are recognised on the date at which the Group committed itself to purchasing or selling the asset.
A financial asset or financial liability is initially measured at fair value plus, for an item not subsequently measured at fair value through profit or
loss, transaction costs that are directly attributable to its acquisition or issue.
(b) Classification
The Group classifies all financial assets either as loans and receivables or as at fair value through profit or loss. The Group classifies all financial
liabilities either as at fair value through profit or loss or at amortised cost.
A financial asset or liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the
near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent
actual pattern of short-term profit-taking. Financial assets held for trading consist of debt, equity and derivative instruments. Financial liabilities held
for trading consist of derivative liabilities and short positions, i.e. obligations to deliver financial assets borrowed by the Group and sold to third
parties.
The Group designates certain financial assets upon initial recognition as at fair value through profit or loss when the financial assets are part of a
portfolio of financial instruments which is risk managed and reported to senior management on a fair value basis.
Loans and advances are financial assets with fixed or determinable payments that are not quoted in an active market which the Group originates or
acquires with no intention of trading them.
(c) Derecognition
The Group derecognises a financial asset when the contractual rights to cash flows from the asset expire, or when the Group transfers the rights to
receive contractual cash flows relating to the financial asset in a transaction which substantially transfers all the risks and rewards of owning that
asset. Any interest in transferred financial assets created or retained by the Group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially
all of the risks and rewards of the transferred assets, or a portion of them. In cases where all or substantially all of the risks and rewards are retained,
then transferred assets are not derecognised. Asset transfers whereby all or substantially all risks and rewards are retained include, for example,
securities lending and repurchase transactions.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or when they expire.
(d) Offsetting
Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Group has a
legal right to set off these amounts and intends either to settle on a net basis or to realise the asset and simultaneously settle the liability.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of
similar transactions such as in the Group’s trading activity.
NBI hf. Consolidated Financial Statements 2010 13
All amounts are in ISK million
Allar upphæðir eru í milljónum króna Ársreikningur 2010 113