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13 Fair value measurement

Measurement guidelines and classification in the fair value hierarchy

The fair value represents a market-based and not an entity-specific measurement. It is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date on the principal market or the most advantageous market.

Various standard market techniques and models are employed to determine fair value. As far as possible, the LLB Group uses observable input factors from active markets accessible to the company on the measurement date. The fewer the number of observable input factors that can be employed, the more assumptions and estimates have to be utilised to enable an exit price on the measurement date to be determined from the perspective of the market participant. Such assumptions and estimates contain uncertainties, which at a later date can lead to substantial changes in the fair value of financial and non-financial assets and liabilities.

All financial and non-financial assets and liabilities, which possess a fair value, are assigned to one of three levels of fair value hierarchy. It is possible that the input factors, which are used to measure the fair value of individual financial and non-financial assets and liabilities, fall into different levels of the fair value hierarchy. The classification of the financial or non-financial asset or liability in the fair value hierarchy is made to the lowest level, to which one of the significant input factors is assigned.

Level 1

Financial and non-financial assets and liabilities, whose prices are quoted on active markets for identical assets and liabilities and which were not calculated on the basis of valuation techniques or models for the determination of fair value.

Level 2

If no market price quotes are available, or if they cannot be extrapolated from active markets, the fair value is determined by means of valuation techniques or models which are based on assumptions made on the basis of observable market prices and other market quotes.

Level 3

Input factors are considered in the valuation techniques and models to determine the fair value, which are not observable because they are not based on market prices.

Valuation techniques and models

Valuation techniques and models are employed to determine the fair value of financial and non-financial assets and liabilities if no market prices quoted on an active market are available. The LLB Group employs standardised and generally recognised valuation techniques and models.

The LLB Group employs the market-based approach to determine the fair value of investment funds and shares, which are not traded on an active market or which are not listed.

The income-based approach is used if payment streams or expenses and revenues with financial assets and liabilities form the basis for fair value measurement. The present value technique is used to determine the fair value by discounting the payment streams to the present value on the reporting date. Interest rate curves appropriate for the term and / or foreign currency curves, as well as spot prices form the main basis for this purpose. Forward pricing models are used in the case of futures contracts.

To determine the fair value of financial and non-financial assets and liabilities, which are classified as Level 3 positions, the LLB Group takes over the fair value determined by third parties (estimates made by experts).

The following table shows the most important valuation techniques and models together with the key input factors:

 

Valuation technique / model

Inputs

Significant, non-observable inputs

Level 2

 

 

 

Derivative financial instruments (interest rate swaps)

Income approach, present value calculation

Market price of congruent SARON interest rates, spot rates

 

Derivative financial instruments (forward contracts)

Income approach, present value calculation

Market price of congruent SARON interest rates, spot rates

 

Investment funds

Market approach

Market prices of underlying assets

 

Equities

Market approach

Market prices of underlying assets

 

SNB-Bills

Income approach, present value calculation

The underlying interest rate for the contract

 

Due from banks

Income approach, present value calculation

Market price of congruent SARON interest rates

 

Due to banks

Income approach, present value calculation

Market price of congruent SARON interest rates

 

Loans

Income approach, present value calculation

Market price of congruent SARON interest rates

 

Due to customers

Income approach, present value calculation

Market price of congruent SARON interest rates

 

Medium-term notes and shares in bond issues of the Swiss Regional or Cantonal Banks' Central Bond Institutions

Income approach, present value calculation

Market price of congruent SARON interest rates

 

 

 

 

 

Level 3

 

 

 

Infrastructure title

Market approach

Audited financial statements

Illiquidity, special micro-economic conditions

Investment property

External expert opinions, present value calculation

Prices of comparable properties

Assessment of special property factors, expected expenses and earnings for the property

Valuation of assets and liabilities, classified as Level 3

The measurement process to determine the fair value of recurring and non-recurring Level 3 assets and liabilities, especially the non-observable input factors, as shown in the previous table, is explained in the following. No explanation of the interrelationships between observable and non-observable inputs is provided because these have no material influence on the measurement of fair value.

Financial investments measured at fair value through other comprehensive income

These financial investments largely relate to unlisted shares in companies of an infrastructure nature, which offer the services necessary or beneficial for the operation of a bank. The major proportion of the portfolio consists of shares in the SIX Swiss Exchange and in the Pfandbriefbank schweizerischer Hypothekarinstitute (Swiss Mortgage Institutes). The financial investments are periodically revalued on the basis of current company data, or with the aid of external valuation models.

Investment property

These properties are periodically valued by external experts. The assessments take into consideration such circumstances as the location and condition of the property, as well as the costs and income expected in connection with it.

Measurement of fair values through active markets or valuation techniques

The following tables show the fair value and classification of financial and non-financial assets and liabilities of the LLB Group within the fair value hierarchy.

Positions measured at fair value are recognised on a recurring basis in the balance sheet at fair value. As at 30 June 2023, the LLB Group had no assets or liabilities which were measured at fair value on a non-recurring basis in the balance sheet. There were no significant transfers between Level 1, Level 2 and Level 3 financial instruments in the current financial year.

in CHF thousands

30.06.2023

31.12.2022

+/– %

Assets

 

 

 

 

 

 

 

Level 1

 

 

 

Financial investments at fair value through profit and loss

42'642

47'790

– 10.8

Financial investments, recognised at fair value through other comprehensive income

2'173'068

2'544'278

– 14.6

Precious metal receivables

129'315

138'905

– 6.9

Total financial instruments at fair value

2'345'025

2'730'973

– 14.1

 

 

 

 

Precious metals

31'661

35'255

– 10.2

Total other assets at fair value

31'661

35'255

– 10.2

 

 

 

 

Cash and balances with central banks

6'364'040

6'264'269

1.6

Financial investments at amortised cost

428'330

0

 

Total financial instruments not at fair value

6'792'371

6'264'269

8.4

 

 

 

 

Total Level 1

9'169'056

9'030'497

1.5

 

 

 

 

Level 2

 

 

 

Derivative financial instruments

203'169

342'355

– 40.7

of which for hedging purpose

88'918

95'678

– 7.1

Financial investments at fair value through profit and loss 1

42'663

42'157

1.2

Total financial instruments at fair value

245'832

384'512

– 36.1

 

 

 

 

Due from banks

375'463

255'904

46.7

Loans

14'783'516

14'319'169

3.2

Financial investments at amortised cost

0

519'935

– 100.0

Total financial instruments not at fair value

15'158'979

15'095'008

0.4

 

 

 

 

Total Level 2

15'404'811

15'479'520

– 0.5

 

 

 

 

Level 3

 

 

 

Financial investments, recognised at fair value through other comprehensive income 2

33'463

33'297

0.5

Total financial instruments at fair value

33'463

33'297

0.5

 

 

 

 

Investment property

19'483

19'510

– 0.1

Total other assets at fair value

19'483

19'510

– 0.1

 

 

 

 

Total Level 3

52'946

52'807

0.3

 

 

 

 

Total assets

24'626'813

24'562'824

0.3

1 Investment funds and equities

2 Infrastructure titles

in CHF thousands

30.06.2023

31.12.2022

+/– %

Liabilities

 

 

 

 

 

 

 

Level 1

 

 

 

Precious metal liabilities

159'734

173'163

– 7.8

Total financial instruments at fair value

159'734

173'163

– 7.8

 

 

 

 

Bonds

357'062

348'905

2.3

Total financial instruments not at fair value

357'062

348'905

2.3

 

 

 

 

Total Level 1

516'796

522'068

– 1.0

 

 

 

 

Level 2

 

 

 

Derivative financial instruments

120'010

288'679

– 58.4

of which for hedging purpose

20'105

21'303

– 5.6

Total financial instruments at fair value

120'010

288'679

– 58.4

 

 

 

 

Due to banks

1'069'448

1'664'934

– 35.8

Due to customers

19'006'065

18'374'068

3.4

Medium-term notes and shares in bond issues of the Swiss Regional or Cantonal Banks' Central Bond Institutions

1'857'307

1'679'779

10.6

Total financial instruments not at fair value

21'932'820

21'718'781

1.0

 

 

 

 

Total Level 2

22'052'831

22'007'460

0.2

 

 

 

 

Level 3

 

 

 

Total Level 3

0

0

 

 

 

 

 

Total liabilities

22'569'626

22'529'528

0.2

Reconciliation of assets and liabilities classified as Level 3

All Level 3 positions are measured by third parties and, due to their amount, are not material. The reconciliation is therefore not shown in tabular form.

The financial investments measured at fair value through other comprehensive income rose by CHF 0.2 million in the first half of 2023. The increase in the form of unrealised gains was attributable to changes in the fair value.

The change in investment property was due solely to the change in the exchange rate of the Euro to the Swiss franc. The differences from the conversion in the reporting currency are recognised directly in other comprehensive income.

Financial instruments not measured at fair value

The fair value hierarchy also includes details of financial assets and liabilities which are not measured on a fair value basis, but for which a fair value does exist. In addition to their inclusion in the fair value hierarchy, basically a comparison between the fair value and the carrying amount of the individual categories of financial assets and liabilities is to be disclosed.

The following table shows this comparison only for positions which are not measured at fair value, since for positions measured at fair value the carrying amount corresponds to the fair value. Due to the maturity of more than one year, the present value of certain positions is calculated on the basis of SARON interest rates with appropriate maturities. In the case of all other positions, the carrying amount represents a reasonable approximation of the fair value.

 

 

 

 

 

 

30.06.2023

31.12.2022

in CHF thousands

Book amount

Fair value

Book amount

Fair value

Assets

 

 

 

 

Cash and balances with central banks

6'364'040

6'364'040

6'264'269

6'264'269

Due from banks 1

376'132

375'463

256'594

255'904

Loans

14'856'628

14'783'516

14'435'257

14'319'169

Financial investments at amortised cost

435'640

428'330

519'935

519'935

 

 

 

 

 

Liabilities

 

 

 

 

Due to banks

1'071'339

1'069'448

1'667'253

1'664'934

Due to customers 1

19'218'401

19'006'065

18'626'585

18'374'068

Medium-term notes and shares in bond issues of the Swiss Regional or Cantonal Banks' Central Bond Institutions

1'943'669

1'857'307

1'786'475

1'679'779

Bonds

401'116

357'062

401'057

348'905

1 Adjusted to consider the claims or liabilities from precious metals accounts due to the separate disclosure in the fair value hierarchy