Ársskýrsla Landsbankans - Landsbankinn

Notes to the Consolidated Financial Statements
3. Significant accounting policies (continued)
Financial assets and liabilities (continued)
(g) Impairment of financial assets (continued)
Impairment of loans and advances (continued)
The present value calculated for estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from
foreclosure, less the costs involved in obtaining and selling the collateral, whether or not foreclosure is probable.
In order to conduct a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics on the basis of the
Group’s grading process, which considers asset type, collateral type, industry, past-due status and other relevant factors. These characteristics are
appropriate for estimating future cash flows in groups of such loans by indicating the debtors’ ability to pay every amount due according to
contractual terms.
Groups of loans are collectively evaluated for impairment on the basis of expected cash flows and of peer review regarding assets with similar credit
risk characteristics. Such peer review is also adjusted on the basis of current observable data, in order to reflect the effects of current conditions that
did not affect the period on which peer review was originally based and to remove the effects of previous loss factors which no longer exist.
Estimates of changes in future cash flows in groups of assets are consistent with changes in observable data from period to period, for example
changes in property prices, payment status, or other factors indicative of trends in the probability and magnitude of Group losses. The Group
regularly reviews its methodology and assumptions for estimating future cash flows in order to minimise discrepancies between estimated losses and
actual loss experience.
When a loan is uncollectible, it is written off against the provision for loan impairment in the statement of financial position. Loans are written off
after all the necessary procedures have been completed, as set out in Group lending policies, and the amount of loss has been determined. Any
subsequent recovery of an amount previously written off is recognised in the income statement in the line item "Net impairment loss on loans and
advances".
If the amount of the impairment loss decreases in the subsequent period and the decrease can be related objectively to an event occurring after the
original impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of
reversal is recognised in the income statement in the line item "Net impairment loss on loans and advances".
Renegotiated loans
Where p possible, , the Groupp seeks to restructure loans rather than to take possession p of collaterals. This mayy involve extendingg the payment py
arrangements and an agreement of new loan terms. Loans which are impaired and whose terms are renegotiated are not considered to be new loans.
Once the terms have been renegotiated these loans are no longer considered past due and any subsequent impairment is measured using the original
effective interest rate as calculated before the modification of terms. Management continuously reviews renegotiated loans to ensure that all criteria
are met and that future payments are likely to occur. These loans continue to be subject to individual or collective impairment assessment. Loans
which are not individually impaired and whose terms are renegotiated are accounted for as new loans. Accordingly, the original loans are
derecognised and the renegotiated loans are recognised as new loans.
Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents are defined as cash, unrestricted balances with the Central Bank and
unrestricted balances with financial institutions.
Bonds and equities
Bonds and equities which are classified as at fair value through profit or loss are recognised at fair value in the statement of financial position both
initially and subsequently to initial recognition. Transaction costs are recognised directly in the income statement. Gains and losses arising from
changes in fair value are recognised directly in the consolidated income statement in the line items "Net gain on financial assets and liabilities held
for trading" and "Net gain on financial assets designated as at fair value through profit or loss", respectively. The gains and losses include interest
income on bonds but exclude foreign exchange gains and losses, which are included in the line item "Net foreign exchange gain (loss)".
Bonds which are classified as loans and receivables are initially measured at fair value plus directly attributable transaction costs, and are
subsequently measured at amortised cost using the effective interest method. Accrued interest is included in the carrying amount of the bonds and it
is recognised in the line item "Interest income" in the income statement.
NBI hf. Consolidated Financial Statements 2010 15
All amounts are in ISK million
Allar upphæðir eru í milljónum króna Ársreikningur 2010 115