Bahamas - FirstCaribbean International Bank

Notes to the Consolidated Financial Statements
October 31, 2007
(expressed in thousands of Bahamian dollars)
66
2. Summary of significant accounting policies (continued)
2.7 Derecognition of financial assets and financial liabilities (continued)
(ii) Financial liabilities
A financial liability is derecognised when the obligation under the liability
is discharged, cancelled or expires. Where an existing financial liability
is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognised in the consolidated statement
of income.
2.8 Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase at a specified future date
(‘repos’) are not derecognised from the balance sheet. The corresponding
cash received, including accrued interest, is recognised on the balance
sheet as a ‘Cash collateral on securities lent and repurchase agreements’,
reflecting its economic substance as a loan to the Bank and are reflected in
other borrowed funds (see Note 15). The difference between the sale and
repurchase prices is treated as interest expense and is accrued over the life of
the agreement using the effective interest rate method. Where the transferee
has the right to sell or pledge the asset, the asset is recorded on the balance
sheet as ‘Financial assets held for trading pledged as collateral’.
Conversely, securities purchased under agreements to resell at a specified
future date (‘reverse repos’) are not recognised on the balance sheet. The
corresponding cash paid, including accrued interest, is recognised on the
balance sheet as a ‘Cash collateral on securities borrowed and reverse
repurchase agreements’ and are reflected in loans and advances to customers
(see Note 9). The difference between the purchase and resale prices is treated
as interest income and is accrued over the life of the agreement using the
effective interest rate method.
2.9 Impairment of financial assets
The Bank assesses at each balance sheet date whether there is objective
evidence that a financial asset or group of financial assets is impaired. A
financial asset or a group of financial assets is deemed to be impaired and
impairment losses are incurred if, and only if, there is objective evidence of
impairment as a result of one or more events that occurred after the initial
See Auditors’ Report Page 56.
recognition of the asset (a ‘loss event’) and that loss event (or events) has an
impact on the future cash flows of the financial asset or group of financial
assets that can be reliably estimated. Objective evidence that a financial asset
or group of financial assets is impaired includes observable data that comes
to the attention of the Bank about the following loss events:
i) significant financial difficulty of the issuer or obligor;
ii) a breach of contract, such as a default or delinquency in interest or
principal payments;
iii) the Bank granting to a borrower, for economic or legal reasons relating
to the borrower’s financial difficulty, a concession that the lender would
not otherwise consider;
iv) it becoming probable that the borrower will enter bankruptcy or other
financial reorganisation;
v) the disappearance of an active market for that financial asset because of
financial difficulties; or
vi) observable data indicating that there is a measurable decrease in the
estimated future cash flows from a group of financial assets since the
initial recognition of those assets, although the decrease cannot yet be
identified with the individual financial assets in the group, including:
- adverse changes in the payment status of borrowers in the group; or
- national or local economic conditions that correlate with default on the
assets in the group.
If there is objective evidence that an impairment loss on loans and advances
to customers or held-to-maturity investments carried at amortised cost has
been incurred, the amount of the loss is measured as the difference between
the carrying amount and the recoverable amount, being the estimated
present value of expected cash flows, including amounts recoverable from
guarantees and collateral, discounted based on the current effective interest
rate.
When a loan is uncollectible, it is written off against the related provision
for impairment; subsequent recoveries are credited to the provision for
impairment losses. If the amount of the impairment subsequently decreases
due to an event occurring after the write-down, the release of the provision
is credited to the provision for loan loss impairment in the consolidated
statement of income.
In circumstances where central bank guidelines and regulatory rules
require provisions in excess of those calculated under IFRS, the difference is
accounted for as an appropriation of retained earnings and is included in a
non-distributable general banking reserve.