Komplett Bank annual report 2019

Category according to IFRS 9 Key financial assets Criterion for classification in the category and accounting treatment for such assets At fair value through profit or loss Certificates and bonds The category mainly applies to financial assets classed as held for trading. The instrument will be classed as held for trading where it has been acquired or assumed with the purpose of a short-term sale. The portfolio of certificates and bonds is classed in this category as these items are controlled and valued based on fair value in accordance with the Bank’s established guidelines for investments in certificates and bonds. On initial recognition of assets in this category, the assets are measured at fair value. In subsequent periods, assets are measured at fair value, with any changes in value being recognised in the accounting line net gains/losses on certificates and bonds, and currency . Income from interest on certificates and bonds is presented in the income statement under interest income . Financial instruments at fair value are placed in the different levels below based on the quality of market data for the individual type of instrument. The levels reflect the hierarchy that prevails in IFRS on how to measure fair value. In the events that input data from level 1 are available, this should be used rather than input from level 2 and 3. Level 3 is the lowest level of the hierarchy. Level 1: Valuation based on listed prices in an active market Financial instruments valued using listed prices in active markets for identical assets or liabilities are placed in level 1. This category includes government bonds and bonds with pre-emption rights traded in active markets. Level 2: Valuation based on observable market data Financial instruments valued using information where prices are directly or indirectly observable for the assets or liabilities are placed in level 2. This category includes government bond funds. Level 3: Valuation based on non-observable market data If a valuation cannot be established in levels 1 or 2, valuation methods are used that are based on non- observable market data. Financial assets measured at amortised cost Loans and deposits with credit institutions Loans to customers Other receivables Financial assets which are held in a business model whose object is to hold financial assets in order to receive contractually regulated cash flows having contractual terms that lead at specific times to cash flows which solely constitute the payment of the principal and outstanding interest on the principal, shall be measured at amortised cost unless decisions intrinsic to the company would lead to measurements at fair value over profit and loss. Loans to customers, which mostly consist of framework loans and credit card receivables are measured at amortised cost. Upon initial recognition, the asset’s fair value is the amortised cost (normally the acquisition cost) plus transaction costs which are directly attributable to the acquisition or issuing of the financial asset. In subsequent periods, the amortised cost is the value upon initial recognition with the inclusion of capitalised interest net of received cash flows, with the addition or subtraction for changes in the net present value of expected contractual cash flows and net of recorded losses on loans. The effective interest rate is the interest rate which discounts the loan’s contractual cash flows (interest, repayments and fees) over the expected term to the loan’s amortised cost at the time of the establishment. For assets that are not credit impaired, the effective interest is calculated at the asset’s book value before provisions for loan losses. For credit impaired assets, the effective interest rate is computed on the asset’s book value (amortised cost). The Bank considers that a loan or a claim on a client is credit impaired when the loan is more than 90 days past due on the balance sheet date, has been transferred to a debt collection agency (DCA) for recovery, the client is deceased or there is suspicion of fraud. Such exposures are categorised as loans in stage 3. 42 Notes to the financial statements