Category according to IFRS 9 Key financial assets Criteria for classification in the category and accounting treatment for such assets At fair value through profit or loss Certificates and bonds This 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 classified in this category as these items are controlled and valued based on fair value and in accordance with the Bank’s established guidelines for investments in certificates and bonds. At initial recognition, the assets are measured at fair value. In subsequent periods, assets are measured at fair value, with any changes in value being recognised in net gains/(losses) on certificates, bonds and currency. Financial instruments at fair value are placed in the three levels 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 event that input data from level 1 are available, this should be used rather than input from level 2 and 3. See note 8 for additional information. 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 objective is to hold the assets in order to collect contractual regulated cash flows; and the contractual terms of the asset give rise on specific dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, shall be measured at amortised cost unless internal decisions lead to the use of measurement at fair value through profit and loss. Loans to customers, which mostly consist of framework loans and credit card receivables are measured at amortised cost. At 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. Effective interest rate is the rate that exactly discounts estimated future cash flow (interest, repayments and fees) through the expected life time of the loan to the 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. The Bank will derecognise a loan from its balance sheet when the rights to the cash flows have expired, normally as a consequence of the client paying principal and interest, but also as a sale to a third party. The Bank will also remove a loan (or a part thereof) with the according loan loss provisions from the balance sheet when the Bank does not have a reasonable expectation to recover the loan (or part thereof). The Bank categorises such a removal from the balance sheet as a realised loss. The Bank will, upon bankruptcy or a legal judgement, record a credit loss as a realised loss. This also applies to those cases where the Bank has ended recovery activities or relinquished parts or the entire exposure. Such cases have been considered immaterial for 2021 and 2020. Realised loan losses are derecognised in the Bank’s accounts. Loans that have been sold as a consequence of portfolio sales are derecognised in the accounts, and differences originating from settlements that are lower than the gross amount leads to the Bank recognising a realised loss. 48 Notes to the financial statements
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