bank-r-and-a

Overview Strategic report Corporate governance Risk management Financial statements Other information
Notes to the Company financial statements continued
For the year ended 31 December 2013
All amounts are stated in £m unless otherwise indicated
27. Fair values of financial assets and liabilities continued
Carrying
value
Fair Value
(as reported) 1
Fair Value
(applying 2013
methodology) 2
2012
Financial assets
Loans and receivables
Loans and advances to banks 1,047.2 1,046.0 1,047.2
Loans and advances to customers 22,631.9 22,487.6 21,067.4
Fair value adjustments for hedged risk 354.1 354.1 354.1
Investment securities 355.4 380.2 297.9
Amounts owed by other Co-operative Group undertakings 56.4 56.4 56.4
Amounts owed by Co-operative Bank undertakings 12,357.0 12,319.0 12,003.2
Financial liabilities
Financial liabilities at amortised cost
Deposits by banks 3,552.9 3,567.7 3,555.2
Customer accounts 33,750.3 33,969.4 33,969.4
Debt securities in issue 1,752.2 1,799.8 1,889.1
Other borrowed funds 1,258.6 1,161.3 1,394.1
Amounts owed to other Co-operative Group undertakings 190.0 190.0 190.0
Amounts owed to Co-operative Bank undertakings 5,932.6 6,003.6 5,950.8
Amounts owed by other Co-operative Group undertakings has been restated as described in note 1 to the Company financial statements.
1. As reported in the 2012 published Report and Accounts.
2. In 2013, the Bank reviewed and improved the methods used to calculate the fair values. The 2012 comparatives (with the exception of fair value adjustment for hedged risk) have been re-presented
accordingly to reflect these changes in methods.
Key considerations in the calculation of fair values for loans and receivables and financial liabilities at amortised cost are as follows:
Loans and advances to banks/deposits by banks
Loans and advances to banks include interbank placements and items in the course of collection.
The amortised cost value of all loans and advances to banks are deemed to be a close approximation of their fair value due to their short maturity. The estimated
fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money market interest rates for debts with similar credit risk and
remaining maturity.
Loans and advances to customers
The fair value of loans and advances to customers is calculated by segmenting the overall balance into Retail and Corporate.
i. Retail
Fixed rate loans and advances to customers are revalued to fair value based on future interest cash flows (at funding rates) and principal cash flows discounted
using an appropriate market rate. Forecast principal repayments are based on redemption at the earlier of maturity or repricing date with some overlay for
historical behavioural experience where relevant. The eventual timing of future cash flows may be different from the forecast due to unpredictable customer
behaviour. It is assumed there is no fair value adjustment required in respect of interest rate movement on standard variable rate assets.
ii. Corporate
As part of the implementation of the Company’s exit strategy, certain assets have either already been sold during the year or plans to sell are well advanced.
For these assets, the fair value can therefore be determined from the actual sale price achieved or expected to be received.
For other Corporate assets an expected cashflow derived income approach using redemption profile has been used. Under this approach, value is measured by
determining expected cash flows from the portfolio and then considering credit costs, funding costs and tax to derive equity cash flows which are discounted at
an appropriate blended cost of capital.
The Co-operative Bank plc Annual report and accounts 2013
259