COLLATERAL AND OFFSETTING

ACCOUNTING POLICY:

Norges Bank receives collateral in securities lending transactions, repurchase and reverse repurchase agree-ment transactions and financial derivative transactions.

Cash collateral

Cash collateral received in connection with securities lending transactions or OTC derivative transactions is recognised as Deposits in banks together with a corresponding liability, Cash collateral received. Cash collateral received in connection with repurchase agreement transactions is recognised as Deposits in banks with a cor-responding short-term financial liability, Borrowing associated with repurchase agreements. Both short-term liabilities, Cash collateral received and Borrowing associated with repurchase agreements, are designated at initial recognition as financial liabilities measured at fair value through profit or loss. Reinvestments of cash col-lateral in the form of reverse repurchase agreements and bonds are recognised in the balance sheet and accounted for in the same manner as comparable investments.

Cash transferred to counterparties in reverse repurchase agreement transactions, or cash collateral posted in OTC derivative transactions is derecognised. A corresponding receivable reflecting the cash amount that will be returned, is recognised as an asset as Lending associated with reverse repurchase agreements or cash collat-eral posted (as part of Other assets), respectively. Financial assets Lending associated with reverse repurchase

COLLATERAL

Different types of transactions are entered into whereby collateral is received or posted. This includes securities lending transactions, derivative transactions and repurchase and reverse repur-chase agreements (see Tables 9.1 to 9.3) and Note 8 Transferred financial assets. For details on moni-toring counterparty risk in connection with collat-eral, see Note 7 Risk.

Securities lending

When a security is lent, the borrower transfers collateral to the agent in the form of cash or secu-rities. The collateral includes a margin and is held on behalf of the lender. Agreements with agents have provisions reducing the Bank’s counterparty risk in cases where collateral has been received in the form of cash or government bonds. These provisions ensure that the Bank will be compen-sated if the counterparty is unable to return the borrowed securities or if the collateral posted for the loan is insufficient to cover losses in the event of borrower default.

Financial derivatives

Cash collateral is posted or received in accordance with positions in foreign exchange contracts and unlisted (OTC) financial derivative contracts (inter-est rate swaps, credit default swaps and equity swaps).

Repurchase and reverse repurchase agreements Through repurchase and reverse repurchase agreements, Norges Bank receives or posts collat-eral in securities in return for cash. Norges Bank is a party to reverse repurchase agreements, where the counterparty has transferred bonds or equi-ties to the Bank, and the Bank has transferred cash to the counterparty (reverse repo, buy sell backs and triparties). Such contracts are used in connection with placing liquidity and also through agency securities lending as reinvestments of cash collateral received in connection with securi-ties lending. Norges Bank is also a party to repur-chase agreements (see Note 8 Transferred finan-cial assets).

Tables 9.1 to 9.3 show an overview of securities received and posted as collateral, together with received or posted cash collateral.

Table 9.1 Securities received as collateral

Amounts in NOK millions

31 Dec. 2014 31 Dec. 2013

Carrying

amount Fair value Carrying

amount Fair value Equities received as collateral under securities lending

programmes - 5 522 - 2 904

Bonds received as collateral under securities lending

programmes - 779 - 468

Equities received as collateral under reverse repurchase

agreements - 520 - 911

Bonds received as collateral under reverse repurchase

agreements - 39 480 - 22 088

Total securities received as collateral - 46 301 - 26 371

Securities received in connection with securities lending or reverse repurchase agreements may be sold or pledged. At 31 December 2014 and 31

December 2013, no securities had been sold or pledged.

Table 9.2 Securities transferred or posted as collateral

Amounts in NOK millions

31 Dec. 2014 31 Dec. 2013

Carrying

amount Fair value Carrying

amount Fair value Equities transferred under securities lending programmes 6 404 6 404 4 355 4 355 Bond posted as collateral in futures contracts (initial margin) 261 261 203 203 Total securities transferred or posted as collateral 6 665 6 665 4 558 4 558

Table 9.3 Cash received/posted as collateral

Amounts in NOK millions

31 Dec. 2014 31 Dec. .2013

Received Posted Received Posted

Related to repurchase agreements - 50 803 - 22 970

Related to securities lending programmes* 762 - 1 365 -

Related to derivative transactions - - - 99

Total cash collateral 762 50 803 1 365 23 069

* Collateral received is reinvested in its entirety in reverse repurchase agreements.

ACCOUNTING POLICY

Financial assets and liabilities are only offset, and presented net in the balance sheet, if Norges Bank has a legally enforceable right to set off the recognised amounts and the intention to settle on a net basis, or to realise the asset and settle the liability simultaneously, in accordance with IAS 32 Financial Instruments: Pres-entation. The aforementioned criteria are not met for any financial assets and liabilities, hence no amounts are offset and presented net in the balance sheet. For this reason, Table 9.4 does not include a column for amounts offset/netted in the balance sheet.

OFFSETTING

Table 9.4 shows an overview of financial assets and liabilities, the effects of legally enforceable netting agreements and related collateral to reduce credit risk.

The column Assets/Liabilities in the balance sheet subject to netting shows the carrying amounts of financial assets and liabilities that are subject to legally enforceable netting agreements.

These amounts are adjusted for effects of

poten-For various counterparties and transaction types, cash collateral will be both posted to and received from the same counterparty. Therefore, received cash collateral can be netted against posted cash collateral and vice-versa.

Some netting agreements have been found to be potentially unenforceable. Transactions under such contracts are shown together with unsettled trades in the column Unsettled trades and assets/

liabilities not subject to enforceable netting

agree-Table 9.4 Assets and liabilities subject to netting agreements

Amounts in NOK millions

ASSETS Amounts subject to enforceable netting agreements 31 Dec. 2014

Description and assets not

sub-ject to enforceable netting agreements

Gross finan-cial assets as

recognised

Amounts in NOK millions

LIABILITIES Amounts subject to enforceable netting agreements 31 Dec. 2014

Description and liabilities not subject to

Amounts in NOK millions

ASSETS Amounts subject to enforceable netting agreements 31 Dec. 2013

Description and assets not

sub-ject to enforceable netting agreements

Gross finan-cial assets as

recognised

Amounts in NOK millions

LIABILITIES Amounts subject to enforceable netting agreements 31 Dec. 2013

Description and liabilities not subject to

bankruptcy estate could be performed for certain groups of instruments, irrespective of whether the instruments belong to the GPFG or Norway’s

foreign exchange reserves. Such cross nettings will be settled between these portfolios and are there-fore not adjusted for in the table.