Financial Statements 2011 - Investing In Africa

Notes To The Financial Statements (Continued)
As at 31 december 2011
3) Summary of significant accounting policies (continued)
g) Income recognition (continued)
I. Interest income and expense (continued)
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss,
interest income is recognised using the rate of interest that was used to discount the future cash flows for purposes of
measuring the allowance for impairment.
Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s trading
operations and are presented together with all other changes in the fair value of trading assets and liabilities in net
trading income.
II. Fee and commission income and expenses
In the normal course of business, the Group earns fees and commission income from a diverse range of services to
its customers. Fees and commission income and expenses that are integral to the effective interest rate on a financial
instrument are included in the measurement of the effective interest rate.
Other fees and commission income, including account servicing fees, investment management fees, placement fees,
brokerage fees, bancassurance fees, and syndication fees, are recognised as the related services are performed. When
a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a
straight-line basis over the commitment period.
Other fees and commission expense relates mainly to transaction and service fees, which are incurred as the services
are received.
III. Net trading income
Net trading income arises from the margins which are achieved through market-making and customer business and
from changes in market value caused by movements in interest and exchange rates, equity prices and other market
variables. It comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised
fair value changes, interest, dividends and foreign exchange differences.
h) Financial instruments
I. Recognition
The Group initially recognises loans and advances, deposits and debt securities issued on the date that they are
originated. All other financial instruments are initially recognised on the trade date at which the Group becomes a party
to the contractual provisions of the instrument.
II. Classification
1. Financial assets
The Group classifies its financial assets into the following categories:
• At fair value through profit or loss
• Loans, advances and receivables
• Held-to-maturity
• Available-for-sale
Management determines the appropriate classification of its investments at initial recognition.
Financial assets at fair value through profit or loss
This category has two sub-categories: Financial assets classified as held for trading and those designated at fair
value through profit or loss at inception.
A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term.
Derivatives are also categorised as held for trading unless they are designated and effective as hedging instruments.
Financial instruments included in this category are recognised initially at fair value, transactions costs are taken
directly to profit or loss. Gains and losses arising from changes in fair value are included directly in profit or loss.
46 • NIC Bank Limited • Annual Report & Financial Statements 2011