The Group and the Bank use the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
The following tables show an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
*An increase in Net Asset Value/share price will lead to an increase in fair value of investment and a decrease in NAV will lead to a decrease in fair value of investments.
The reconcilation for level 3 has been disclosed in note 17(d).
Valuation techniques
Financial assets held for trading measured at fair value through profit or loss
(i) Unquoted equity investments Unquoted equity investments relate to investments in equity funds. The fair value of these investments has been based on their published share price used for trading.
(ii) Government of Mauritius debts securities and Bank of Mauritius bonds and notes Those investments are valued based on the weighted yield bond curve of similar instruments as made publicly available by the local regulator.
(iii) Corporate and Foreign Sovereign debt securities Those investments are valued based on the market yield or market price if available the most which is appropriate.
Equity Investments designated at fair value through other comprehensive income
The investment in equity shares has been fair valued at year end based either on the net assets value of the investee or are based on the market yield of similar instruments as made publicly available by the local regulator.
Derivative Financial Instruments
Derivative products valued using a valuation technique with market observable inputs include forward foreign exchange contracts and option contracts across several asset classes, including but not limited to Funds, commodities, indices and equities. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the foreign exchange spot and forward rates, interest rate curves, volatility curves and/or feeds from appointed valuation/calculation agents.
Transfers between hierarchy
There was no transfer between fair value hierarchy during the year under review.
For financial assets and financial liabilities that have a short term maturity (less than one year), it is assumed that the carrying amount approximates their fair value. This assumption is also applied to demand deposits and savings accounts without a specific maturity.
The fair value of fixed and floating rate financial assets and liabilities carried at amortised cost is estimated by comparing market interest rates when they are first recognised with current market rates for similar financial instruments. The estimated fair value of fixed and floating interest bearing deposits is based on discounted cash flows using prevailing money market interest rates for debts with similar credit risk and maturity. For those notes issued where quoted market prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining terms to maturity and credit spreads.
The fair value of the below financial assets and financial liabilities are classified in level 3 in the fair value hierarchy. Set out below is a comparison, by class, of the carrying amounts and fair values of the Group’s and the Bank’s financial instruments that are not carried at fair value in the financial statements. The table does not include the fair values of non-financial assets and non-financial liabilities