65
2014 ANNUAL REPORT
2 Significant accounting policies
(continued)
2.6 Summary of significant accounting policies
(continued)
d) Impairment of financial assets
(continued)
i) Advances
All non-performing and individually significant advances are individually reviewed and specific provisions made for the impaired
portion based on the present value of estimated future cash flows and discounted by the original effective interest rate of the loan.
The provision made is the difference between the loan balance and the discounted value of the collateral. Individually insignificant
loans with similar characteristics are assessed for impairment on a group basis.
Regulatory and other loan loss requirements that exceed these amounts are dealt with in the general contingency reserve as an
appropriation of retained earnings.
When all efforts have been exhausted to recover a non-performing loan, that loan is deemed uncollectible and written off against
the related provision for loan losses.
ii) Investment securities
The Group individually assesses each investment security for objective evidence of impairment. If an impaired debt instrument has
been renegotiated, interest continues to be accrued on the reduced carrying amount of the asset and is recorded as part of ‘Interest
income.’ If the fair value of the instrument increases in a subsequent year, the impairment loss is reversed through the consolidated
statement of income.
If there is objective evidence that the cost of an available-for-sale equity security may not be recovered, the security is considered
to be impaired. Objective evidence that the cost may not be recovered includes qualitative impairment criteria as well as a significant
or prolonged decline in the fair value below cost. The Group’s policy considers a significant decline to be one in which the fair value
is below the weighted-average cost by more than 30% or a prolonged decline to be one in which fair value is below the weighted-
average cost for greater than one year. This policy is applied by all subsidiaries at the individual security level.
If an available-for-sale equity security is impaired based upon the Group’s qualitative or quantitative impairment criteria, any
further declines in the fair value at subsequent reporting dates are recognised as impairments. Therefore, at each reporting period,
for an equity security that is determined to be impaired based upon the Group’s impairment criteria, an impairment is recognised for
the difference between the fair value and the original cost basis, less any previously recognised impairments.
e) Leases
Finance Leases
Finance charges on leased assets are taken into income using the amortisation method. This basis reflects a constant periodic rate of
return on the lessor’s net investment in the finance lease. Finance leases net of unearned finance income are included in the consolidated
statement of financial position under advances.
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases are charged to the consolidated statement of income on a straight-line basis over the period of
the lease. Renewal of operating leases is based on mutual agreement between parties prior to the expiration date.
f) Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation. Leasehold buildings and leased equipment are depreciated
over the period of the lease.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the itemwill flow to the Group and the cost of the item can be measured reliably.
All other repairs and maintenance are charged to the consolidated statement of income during the financial period in which they are
incurred.
