Financial instruments with fixed or determinable payments and fixed maturity where the Bank has a positive intent and ability to hold to maturity other than loans and receivables which are subsequently measured at amortized cost.
Financial assets at fair value through profit or loss
A financial asset or liability at fair value through profit or loss is a financial asset or financial liability that meets either of the following conditions:
i. it is classified as held-for-trading, if:
Acquired or incurred principally for purpose of selling or repurchasing in the near term;
Part of a portfolio of identified financial instrument that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking; or
A derivate (except for a derivate that is a financial guarantee contract or a designated and effective hedging instrument).
ii. upon initial recognition, it is designated by the Bank at fair value through profit or loss
Financial instruments which are classified as held –for- trading are held principally for purposes of generating a profit from short-term fluctuations in price or dealers margin, and are subsequently measured at fair value. Gains and losses resulting from changes in fair values are recognized in the profit or loss in the year which they relate.
Available-for-sale financial instruments
These are equity financial instruments which are not loans and receivables originated by the Bank; or those held-to- maturity; or financial assets held –for- trading, and are measured at their fair value or cost less provision for impairment losses where fair value is not easily determinable. Gains are recognised in other comprehensive income as available for sales reserve (and included in other reserves as per Bank Statute). Losses that offset previous increases are charged to the available for sale reserve and any excess thereafter if it is prolonged or significant is charged to the profit or loss.
Loans and receivables
Loans and receivables are advances made by the Bank, including staff loans and advances. Loans and receivables are initially measured at the fair value and subsequently at amortized cost using the effective interest (EIR) method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortisation is included in finance cost in profit or loss.
The Bank provides loans facilities to staff to help them acquire or improve and equip their houses and purchase motor vehicles.
Derivatives
Currency swap that requires initial exchange of different currencies of equal fair value is accounted for as a derivative.
Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
m) Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.
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For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm‟s length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models.
n) Impairment of financial assets
The Bank assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred „loss event‟) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
For financial assets carried at amortised cost the Bank first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.
If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset‟s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate,
the discount rate for measuring any impairment loss is the current effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be
accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
The interest income is recorded as part of finance income in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the income statement.
The present value of the estimated future cash flows is discounted at the financial asset‟s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.