Bahamas - FirstCaribbean International Bank

Notes to the Consolidated Financial Statements
October 31, 2007
(expressed in thousands of Bahamian dollars)
2. Summary of significant accounting policies (continued)
2.6 Financial instruments (continued)
liabilities when their fair value is negative. Changes in the fair value of
derivatives held for trading are included in ‘net trading income’ (see
Note 20).
(i)
Financial assets or financial liabilities designated at fair value through
profit or loss (continued)
• The financial instrument contains an embedded derivative, unless the
embedded derivative does not significantly modify the cash flows or
it is clear, with little or no analysis, that it would not be separately
recorded. This category comprises financial assets held for trading. A
financial asset is classified in this category if acquired principally for the
purpose of selling in the short term or if so designated by management.
Derivatives are also categorised as held for trading unless they are
designated as hedges.
Financial assets and financial liabilities at fair value through profit or loss
are recorded in the balance sheet at fair value. Changes in fair value are
recorded in income. Interest earned or incurred is accrued in interest
income or expense, respectively, according to the terms of the contract,
while dividend income is recorded in other operating income when the
right to the payment has been established.
Included in this classification are loans and advances to customers that
are economically hedged by credit derivatives that do not qualify for
hedge accounting as well as structured notes that are managed on a fair
value basis.
Financial assets or financial liabilities held for trading
These assets are recorded in the balance sheet at fair value. A financial
asset is classified in this category if acquired principally for the purpose of
selling in the short-term or if so designated by management. Derivatives
are also categorised as held for trading unless they are designated as
hedges.
Derivatives recorded at fair value through profit or loss
Derivatives embedded in other financial instruments, such as the
conversion option in an acquired convertible bond, are treated as separate
derivatives and recorded at fair value if their economic characteristics
and risks are not closely related to those of the host contract, and the
host contract is not itself held for trading or designated at fair value
through profit or loss. The embedded derivatives separated from the
host are carried at fair value in the trading portfolio with changes in fair
value recognised in the consolidated statement of income.
(ii) Loans and advances to customers
Loans and advances to customers are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market.
They are not entered into with the intention of immediate or shortterm
resale and are not classified as ‘financial assets held for trading’,
designated as ‘financial investment available-for-sale’, or ‘Financial assets
designated at fair value through profit or loss’. After initial measurement,
loans and advances are measured at amortised cost, less allowance for
impairment.
(iii) Held-to-maturity investments
Held-to-maturity financial investments are those which carry fixed
or determinable payments and have fixed maturities and which the
Bank has the intention and ability to hold to maturity. After initial
measurement, held-to-maturity financial investments are subsequently
measured at amortised cost using the effective interest rate method, less
allowance for impairment. Amortised cost is calculated by taking into
account any discount or premium on acquisition and fees that are an
integral part of the effective interest rate. The amortisation is included in
‘Interest and similar income’ in the consolidated statement of income.
The losses arising from impairment of such investments are recognised
in the consolidated statement of income.
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Derivatives include interest rate swaps and futures, credit default swaps,
cross currency swaps, forward foreign exchange contracts and options
on interest rates, foreign currencies and equities. Derivatives are recorded
at fair value and carried as assets when their fair value is positive and as
See Auditors’ Report Page 56.