Annual Report 2015
83
2 SIGNIFICANT ACCOUNTING POLICIES
(continued)
2.6 Summary of significant accounting policies
(continued)
c) Financial instruments
(continued)
ii) Investment securities
(continued)
Available-for-sale
(continued)
Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are
recognised in other comprehensive income net of applicable deferred tax. When the securities are disposed of, the
related accumulated fair value adjustments are included in other income. When securities become impaired, the
related accumulated fair value adjustments previously recognised in equity are included in the consolidated statement
of income as an impairment expense on investment securities.
iii) Debt securities and other fund raising instruments
Debt securities and other fund raising instruments are recognised initially at fair value net of transaction costs, and
subsequently measured at amortised cost using the effective interest rate method.
d) Impairment of financial assets
The Group assesses, at each consolidated statement of financial position date, whether there is any objective evidence
that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired when
the carrying value is greater than the recoverable amount and there is objective evidence of impairment. The recoverable
amount is the present value of the future cash flows.
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.
