Note 37 – Critical estimates and assumptions

The Management and the Board of Directors have discussed the developments, choices and disclosures regarding the Group’s critical accounting policies and estimates as well as the application of these policies and estimates. They have also discussed and assessed future assumptions and other important sources of uncertainty in the assumptions as per the balance sheet date that may represent a substantial risk for material restatements of the carrying amounts in the financial statements in the coming financial years. Certain critical estimates have been made through the application of the Group’s accounting policies described below.

Measurement of acquired credit-impaired loan portfolios

As described in Note 18 "Acquired Loan Portfolios" the recognition of acquired non-performing loans is based on the Group’s own forecast of future cash flows from acquired portfolios. Although the Group’s cash flow forecasts have historically been reasonably accurate, future deviations cannot be ruled out. The Group applies internal rules and a formalised decision-making process for the adjustment of previously adopted cash flow forecasts. The internal rules are based on a 15-year period. The effective interest rate for acquired credit-impaired loan portfolios is based on the initial cash flow forecast specified at acquisition date.

As regards credit-impaired loans, new assumptions made during the year indicate lower expected returns for the next few quarters due to Covid-19. This reduction is expected to be partially recovered through increased collections in later quarters, although some permanent loss is anticipated. While the method used to assess future collection performance has proven to be correct, our estimates will be modified to reflect the continued uncertainty regarding Covid-19’s effects on the economic situation.

Measurement of acquired performing loans

The Company also acquires performing loans, for which both effective interest rate and cash flow are subject to the contractual obligations defined at acquisition. The effective interest rate here is also based on initial expected future cash flows as per the customer contract, discounted by the purchase price. Cash flows are regularly adjusted as receivables are paid or customer terms and conditions are renegotiated.

The measurement of the expected credit loss (ECL) for financial assets measured at amortised cost is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g., the likelihood of customers defaulting and the resulting losses). A number of assessments are required in applying the accounting requirements for measuring ECL, such as:

  • Determining criteria for significant increase in credit risk
  • Choosing appropriate models and assumptions for ECL measurement
  • Establishing the number and relative weightings of forward-looking scenarios for each market

For performing loans, Hoist Finance has found no reason to adjust model assumptions due to Covid-19 beyond the scope of the directives issued by the EBA. Payment holidays have been granted to virtually all who have applied and have proven to be a good tool for customers in Hoist Finance’s portfolios.

Detailed information on these estimates and assumptions is included in Note 33 "Risk Management".

Measurement of deferred tax assets

Deferred tax assets pertaining to loss carry-forwards or other future tax deductions are reported to the extent it is deemed probable that they may be offset against future tax surplus. Carrying values for deferred tax assets at each balance sheet date are presented in Note 13 "Tax".

Measurement and impairment testing of goodwill

Assessments are required to identify the cash-generating units. In the annual impairment test, the value in use of the cash-generating units is calculated by discounting estimated future cash flows. Cash flow forecasts are based on an assessment of future collections, portfolio acquisitions, and cost accounting and revenue recognition. Additional details on impairment testing for goodwill are presented in Note 20 "Intangible Assets".


Assessments are required to determine whether existing legal or informal obligations exist and to calculate the probability, timing and amount of outflows. Claims arising from civil proceedings and official matters require a higher degree of assessment than other types of provisions.

Additional Tier 1 capital

Hoist Finance’s Additional Tier 1 capital (AT1 capital) comprises depreciable perpetual debt instruments. Hoist Finance has no obligation to pay cash or other financial assets to the holders of the instruments. In other words, Hoist Finance has a unilateral and unconditional right to choose not to make payments. Therefore, AT1 capital does not comprise a financial liability, and is instead recognised as equity.

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- Annual Report 2020 -
- Årsredovisning 2020 -