Annual Report - VÃB banka
Annual Report - VÃB banka
Annual Report - VÃB banka
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2.18 Leasing<br />
The determination of whether an arrangement is a<br />
finance lease is based on the substance of the arrangement<br />
and requires an assessment of whether:<br />
- the fulfillment of the arrangement is dependent<br />
on the use of a specifi c asset or assets that could<br />
only be used by the lessee without major modifi -<br />
cations being made,<br />
- the lease transfers ownership of the asset at the<br />
end of the lease term,<br />
- the VUB Group has the option to purchase the asset<br />
at a price suffi ciently below fair value at exercise<br />
date,<br />
- it is reasonably certain the option will be exercised,<br />
- the lease term is for a major part of the asset’s<br />
economic life even if title is not transferred,<br />
- the present value of minimum lease payments substantially<br />
equals the asset’s fair value at inception.<br />
VUB Group as a lessee<br />
Finance leases, which transfer to the VUB Group substantially<br />
all the risks and benefits incidental to ownership<br />
of the leased item, are capitalized at the inception<br />
of the lease at the fair value of the leased property<br />
or, if lower, at the present value of the minimum lease<br />
payments and included in ‘Property and equipment’<br />
with the corresponding liability to the lessor included<br />
in ‘Other liabilities’. Lease payments are apportioned<br />
between the finance charges and reduction of the<br />
lease liability so as to achieve a constant rate of interest<br />
on the remaining balance of the liability. Finance<br />
charges are charged directly against income in ‘Interest<br />
expense and similar charges’.<br />
Capitalized leased assets are depreciated over the<br />
shorter of the estimated useful life of the asset and<br />
the lease term, if there is no reasonable certainty<br />
that the VUB Group will obtain ownership by the end<br />
of the lease term.<br />
Operating lease payments are not recognized in the<br />
balance sheet. Any rentals payable are accounted<br />
for on a straight-line basis over the lease term and<br />
included in ‘Other operating expenses’.<br />
VUB Group as a lessor<br />
Leases where the VUB Group transfers substantially<br />
all the risk and benefits of ownership of the asset are<br />
classified as finance leases. Leases are recognized<br />
upon acceptance of the asset by the customer at an<br />
amount equal to the net investment in the lease. The<br />
sum of future minimum lease payments and initial<br />
origination fees equate to the gross investment in the<br />
lease. The difference between the gross and net investment<br />
in the lease represents unearned finance income,<br />
which is recognized as revenue in ‘Interest and<br />
similar income’ over the lease term at a constant periodic<br />
rate of return on the net investment in the lease.<br />
79<br />
2.19 Provisions<br />
Provisions are recognized when the Bank has a<br />
present obligation (legal or constructive) as a result<br />
of a past event, and it is probable that an outfl ow<br />
of resources embodying economic benefi ts will be<br />
required to settle the obligation and a reliable estimate<br />
can be made of the amount of the obligation.<br />
2.20 Financial guarantees<br />
Financial guarantees are contracts that require the<br />
Bank to make specifi ed payments to reimburse the<br />
holder for a loss it incurs because a specifi ed debtor<br />
fails to make a payment when due in accordance<br />
with the terms of a debt instrument consisting of<br />
letters of credit, guarantees and acceptances.<br />
Financial guarantee liabilities are initially recognized<br />
at their fair value, and the initial fair value is<br />
amortized over the life of the fi nancial guarantee in<br />
the income statement in ‘Fee and commission income’<br />
on a straight line basis. The guarantee liability<br />
is subsequently carried at the higher of this amortized<br />
amount and the present value of any expected<br />
payment (when a payment under the guarantee<br />
has become probable). Financial guarantees are<br />
included within ‘Other liabilities’. Any increase in<br />
the liability relating to fi nancial guarantees is taken<br />
to the income statement in ‘Impairment losses and<br />
provisions’.<br />
VUB, a bank of Intesa Sanpaolo group