Annual Report 2012 - Bank Sarasin

financial investment that is available for
sale, the unrealised gain or loss
previously reported under shareholders’
equity is reported in the income statement
under “other ordinary results”.
Interest and dividend income are accrued
for the year under review using the
effective interest method and are reported
under “net interest income”.
Financial assets held to maturity
Investments that are held to maturity are
stated at amortised cost using the
effective interest rate method. A financial
asset held to maturity is regarded as
impaired if it is probable that less than
the total amount owed under the contract
will be recoverable. In the event of
impairment, the carrying amount of an
asset is reduced to its recoverable
amount in profit or loss.
The Sarasin Group does not use this type
of financial instrument.
“Day 1 Profit”
If the transaction price in an inactive
market differs from the fair value of
another transaction observable on the
market or from the fair value of a
valuation model based on observable
market factors, the difference between the
transaction price and the fair value, known
as “Day 1 Profit”, is reported in the
income statement under “net income from
trading operations”.
In those cases where no observable
market factors are used to determine the
fair value, the “Day 1 Profit” is only
reported in the income statement if the
fair value can subsequently be determined
on the basis of observable market data, or
on settlement.
The appropriate method for reporting the
“Day 1 Profit” is determined separately for
each transaction.
Loans granted
Loans granted by the Sarasin Group are
reported in the balance sheet at
amortised cost using the effective interest
method minus any impairment for credit
risks. A loan is deemed to be impaired if
the recovery of the full amount owed
under the contract seems unlikely. The
reasons for impairment are specific to an
individual borrower or country. Interest
income on impaired loans is accrued for
the year under review.
Impaired loans
If a borrower’s total indebtedness exceeds
the amount that can foreseeably be
realised bearing in mind the counterparty
risk and the net proceeds from the
liquidation of any collateral that has been
lodged, a corresponding value adjustment
is made in the income statement. Here
the amount that can foreseeably be
realised corresponds to the cash value of
the borrower’s expected payments.
Reversals of earlier write-downs are
recorded in the income statement.
Non-performing loans
A loan is classified as non-performing as
soon as the contractually agreed capital
and/or interest payments are 90 days
overdue or more. Overdue interest is not
shown as income but is recorded directly
under value adjustments. Being overdue
can indicate that a loan is impaired. Since
the criteria partially (yet not entirely)
coincide with the indicators for impaired
loans, non-performing loans are generally
included under impaired loans.
Financial guarantees
After initial recording, financial guarantees
are as a rule reported in the balance
sheet at whichever value is higher: either
> the provision that has to be set aside
for the financial guarantee (if an
outflow of funds is likely) and whose
size can be reliably estimated, or
> the amount initially recognised less
the cumulative amortisation
recognised in profit or loss.
Bank Sarasin & Co. Ltd, Annual Report 2012 | 18