Ársskýrsla Landsbankans - Landsbankinn
Ársskýrsla Landsbankans - Landsbankinn
Ársskýrsla Landsbankans - Landsbankinn
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Notes to the Consolidated Financial Statements<br />
3. Significant accounting policies (continued)<br />
Financial assets and liabilities (continued)<br />
(e) Amortised cost measurement<br />
The amortised cost of a financial asset or liability is the amount of the financial asset or liability, as measured at initial recognition, minus principal<br />
repayments, plus or minus cumulative amortisation using the effective interest method of any difference between the initial amount recognised and<br />
the maturity amount, minus any reduction for impairment.<br />
(f) Fair value measurement<br />
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length<br />
transaction at the measurement date.<br />
The Group measures the fair value of an instrument using quoted prices in an active market for that instrument, if available. A market is regarded as<br />
active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.<br />
Where available, the relevant market’s closing price determines the fair value of financial assets held for trading and of assets designated at fair<br />
value through profit or loss; this will generally be the last trading price.<br />
If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. Valuation techniques include using<br />
recent arm’s length transactions between knowledgeable, willing parties, if available, reference to the current fair value of other instruments that are<br />
substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation technique makes maximum use of market<br />
inputs, relies as little as possible on estimates specific to the Group, incorporates every factor that market participants would consider in setting a<br />
price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent<br />
market expectations and measures of the risk-return factors inherent in the financial instrument. The Bank has a valuation committee which<br />
estimates fair value by applying models and incorporating observable market information and professional judgement. The Group calibrates valuation<br />
techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available,<br />
observable market data.<br />
Should the transaction price differ from the fair value of other observable, current market transactions in the same instrument or be based on a<br />
valuation technique whose variables include only data from observable markets, the Group immediately recognises the difference between the<br />
transaction price and fair value (a Day 1 profit or loss). In cases where fair value is determined using data which is not observable, the difference<br />
between the transaction price and the model value is recognised in the income statement depending on the individual circumstances of the<br />
transaction but not later than when the inputs become observable, or when the instrument is derecognised.<br />
(g) Impairment of financial assets<br />
Impairment of loans and advances<br />
At each reporting date, the Group assesses whether there is any objective evidence that a loan or loan portfolio is impaired. A loan or loan portfolio is<br />
considered impaired and impairment losses are incurred only when there is objective evidence of impairment as a result of one or more events<br />
occurring after initial recognition of the asset (“loss events”) and these loss events impact future cash flows that can be estimated reliably for the<br />
loan or group of loans. Objective evidence of impairment includes observable data on the following loss events:<br />
• significant financial difficulties of the borrower;<br />
• a breach of contract, such as defaulting on instalments or on interest or principal payments;<br />
• the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a refinancing concession that the<br />
lender would not otherwise consider;<br />
• it becomes probable that the borrower will enter into bankruptcy or undergo other financial reorganisation; or<br />
• observable data indicate a measurable decrease in estimated future cash flows from a group of loans since the initial recognition of those assets,<br />
even if the decrease cannot yet be identified with individual financial assets within the group, including adverse changes in the payment status of<br />
borrowers in the group or a general deterioration of economic conditions connected to that group of loans.<br />
The Group defines loans that are individually significant and assesses first whether objective evidence of their impairment exists, and then makes<br />
individual or collective assessments for loans and advances that have not been defined as individually significant. If the Group determines that no<br />
objective evidence of impairment exists for a significant loan, it includes this loan in a group of loans with similar credit risk characteristics and<br />
collectively assesses them for impairment. Individual significant assets for which an impairment loss is recognised are not included in collective<br />
impairment assessments.<br />
If there is objective evidence that an impairment loss has been incurred on loans or advances, the amount of the loss is measured as the difference<br />
between the asset’s carrying amount and its recoverable value. The recoverable value is the present value of estimated future cash flows, excluding<br />
future credit losses that have not been incurred, discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is<br />
reduced by the amount of impairment, using an allowance account, and the amount of the loss is recognised in the line item "Net impairment loss on<br />
loans and advances" in the income statement. In the case of loans with variable interest rates, the discount rate for measuring impairment losses is<br />
the current effective interest rate.<br />
NBI hf. Consolidated Financial Statements 2010 14<br />
All amounts are in ISK million<br />
114 Ársreikningur 2010 Allar upphæðir eru í milljónum króna