Annual Report - VÃB banka
Annual Report - VÃB banka
Annual Report - VÃB banka
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34. Estimated fair value of certain assets and liabilities<br />
The fair value of fi nancial instruments is the amount<br />
for which an asset could be exchanged, or a liability<br />
settled, between knowledgeable, willing parties<br />
in an arm‘s length transaction. Where available, fair<br />
value estimates are made based on quoted market<br />
prices. However, no readily available market prices<br />
exist for a signifi cant portion of the Bank’s fi nancial<br />
instruments. In circumstances where the quoted<br />
market prices are not readily available, the fair value<br />
is estimated using discounted cash fl ow models<br />
or other pricing models as appropriate. Changes in<br />
underlying assumptions, including discount rates<br />
and estimated future cash fl ows, signifi cantly affect<br />
the estimates. Therefore, the calculated fair market<br />
estimates might not be realized in a current sale of<br />
the fi nancial instrument.<br />
In estimating the fair value of the Bank’s fi nancial<br />
instruments, the following methods and assumptions<br />
were used:<br />
(a) Cash and balances with central banks<br />
The carrying values of cash and cash equivalents<br />
are generally deemed to approximate their fair value.<br />
(b) Loans and advances to banks<br />
The estimated fair value of amounts due from banks<br />
approximates their carrying amounts. Provisions<br />
are taken into consideration when calculating fair<br />
values.<br />
(c) Loans and advances to customers<br />
The fair value of loans and advances to customers<br />
is estimated using discounted cash fl ow analyses,<br />
based upon the risk free interest rate curve adjusted<br />
by relevant credit spreads. Provisions are taken<br />
into consideration when calculating fair values.<br />
(d) Held-to-maturity investments<br />
The fair value of securities carried in the ‘Held-tomaturity<br />
investments’ portfolio is based on quoted<br />
market prices. Where no market prices are available,<br />
the fair value was calculated by discounting<br />
future cash fl ows using risk free interest rate curve<br />
adjusted to refl ect credit risk.<br />
(e) Subsidiaries, associates and jointly controlled<br />
entities<br />
The estimated fair value of investment in subsidiaries,<br />
associates and jointly controlled entities approximates<br />
their carrying amounts.<br />
(f) Deposits from banks and customers<br />
The estimated fair value of deposits from banks approximates<br />
their carrying amounts. The fair value of<br />
deposits from customers with short term maturity<br />
(under one year) is estimated by discounting their<br />
future cash fl ows using the risk free interest rate<br />
curve. Fair value of deposits with maturity over than<br />
one year are discounted using the appropriate current<br />
interest rates offered by the Bank to these clients.<br />
(g) Debt securities in issue<br />
The fair value of debt securities issued by the Bank<br />
is based on quoted market prices. Where no market<br />
prices are available, the fair value was calculated<br />
by discounting future cash fl ows using the risk<br />
free interest rate curve adjusted by credit spreads<br />
refl ecting the credit quality of VUB as the issuer.<br />
99<br />
VUB, a bank of Intesa Sanpaolo group
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