Annual Report: - Gorenjska banka

As most of the Bank’s deposits are either short term with rates being almost equal to market rate
or have a variable rate, being market rate, there is no significant difference between the fair value of
these deposits and their carrying value.
4.4.1.4. Borrowings
Most of the Bank’s long-term debt has no quoted market prices and fair value is estimated as the
present value of future cash flows, discounted at interest rates available at the repoting date to the
Bank for new debt of similar type and remaining maturity. Again, as the majority of the Bank’s longterm
debt is with variable interest rates there is no significant difference between their carrying and
fair value.
4.4.2. Financial instruments measured at fair value
Financial instruments held for trading and available for sale are measured at fair value. Measurement
and recognition at fair value is disclosed in Note 2.4.2.
4.4.3. Fair value hierarchy
IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from
independent sources; unobservable inputs reflect the Bank’s market assumptions. These two types
of inputs have created the following fair value hierarchy:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This
level includes listed equity securities and debt instruments on exchanges and exchanges traded
derivatives like futures.
• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). This
level includes the majority of the OTC derivative contracts, traded loans, issued structured debt
and equity investments. The sources of input parameters like LIBOR yield curve or counterparty
credit risk are Bloomberg and Reuters. Fair value is also determined on the basis of information
obtained on the last available transaction.
• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable
inputs). This level includes equity investments and debt instruments with significant unobservable
components.
This hierarchy requires the use of observable market data when available. The Bank considers
relevant and observable market prices in its valuations where possible.
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Gorenjska banka, d. d., Kranj
Annual Report 2011
Financial Report