as at December 31, 2003 - EFG Bank Group

22
Notes to the Consolidated Financial Statements (continued)
(t) Pension obligations
The Group participates in a number of defined
contribution and defined benefit pension plans.
For defined benefit plans, the pension costs are
assessed using the projected unit credit method.
Under this method, the cost of providing
pensions is charged to the statement of income so
as to spread the regular cost over the service lives
of employees in accordance with the advice of
qualified actuaries, who value the plans at each
balance sheet date. The pension obligation is
measured at the present value of the estimated
future cash outflows using interest rates of
government securities, which have terms to
maturity approximating the terms of the related
liability. Actuarial gains and losses are recognised
over the average remaining service lives of
employees.
The Group’s contributions to defined
contribution pension plans are charged to the
statement of income in the year to which they
relate.
(u) Repossessed properties
Land and buildings repossessed through the
auction process to recover bad and doubtful
debts are, except where otherwise stated,
included in other assets. Assets acquired from the
auction process are held temporarily for
liquidation and are valued at the lower of cost
and net realisable value. Any gains or losses on
liquidation are included in other operating
income.
(v) Related party transactions
Related parties include directors, their close
families, companies owned or controlled by them
and companies over which they can influence the
financial and operating policies. Transactions of a
similar nature are disclosed on an aggregate
basis. All banking transactions that are entered
into with related parties are accounted for on an
arm’s length basis.
(w) Provisions
Provisions are recognised when the Group has a
present legal or constructive obligation as a result
of past events, it is probable that an outflow of
resources embodying economic benefits will be
required to settle the obligation and a reliable
estimate of the amount of the obligation can be
made.
(x) Segment reporting
A segment is a distinguishable component of the
Group that is engaged in providing products or
services within a particular economic
environment. The Group is organised into four
main business segments. Segment revenue,
segment expenses and segment performance
include transfers between business segments.
Such transfers are accounted for at competitive
prices in line with charges to unaffiliated
customers for similar services.
(y) Treasury shares of quoted subsidiaries
Where the Group, or any of its subsidiaries,
purchases shares in the quoted share capital of
any company in the Group, or obtains rights to
do so, the consideration paid, including any
attributable transaction costs net of income taxes,
is shown as a deduction from total shareholders’
equity. Gains and losses on sales of "treasury"
shares are credited or charged to reserves
respectively.
(z) Fiduciary activities
Where the Group acts in a fiduciary capacity,
such as nominee, trustee or agent, assets and
income arising on fiduciary activities, together
with related undertakings to return such assets to
customers, are excluded from the financial
statements.
3. Use of financial instruments
By its nature the Group’s activities are related to
the use of financial instruments including
derivatives. The Group accepts deposits from
customers for various periods and seeks to earn
above average interest margins by investing these
funds in high quality assets. The Group seeks to
increase these margins by consolidating shortterm
funds and lending for longer periods at
higher rates, whilst maintaining sufficient
liquidity to meet claims that might fall due. The
Group also seeks to raise its interest margins by
obtaining above average margins, net of
EFG Bank Group