Annual Report 2010 (PDF) - USB Bank

Summary of Significant Accounting Policies
at 31 December 2010
10. Financial instruments (continued)
(iv) Loans and advances to customers (continued)
Doubtful loans are monitored continuously and are reviewed for provisional purposes every three months.
Any subsequent changes to the estimated recoverable amounts and the timing they are expected to be
collected, are compared to prior estimates and any differences arising result in a corresponding charge/
credit in the income statement. A provision for an impaired loan is reversed only when the credit quality
of the customer has improved to such an extent that there is reasonable assurance that all the principal
amount and interest according to the original terms of the loan will be collected. Provision has been made
for the total advances and loan accounts granted prior to 15 August 1974.
In addition to the estimates on an individual basis, the Bank also makes provision for impairment in the
value of loans on a collective basis. To calculate the collective forecast, taking into account loans and
advances which were not considered individually for impairment.
(v) Investments
Investments in equity shares and Government and other bonds, have been classified into investments
available-for-sale and into investments held-to-maturity respectively. Management determines the
appropriate classification of investments at the time of the purchase.
Investments held-to-maturity
Held-to-maturity investments are those which carry fixed or determinable payments and have fixed
maturities, which the Bank has the intention and ability to hold to maturity. After initial measurement,
held-to-maturity investments are subsequently measured at amortised cost using the effective interest
rate method.
Amortised cost is calculated by taking into consideration the difference between the original amount
and the amount payable on maturity, and all fees that are an integral part of the effective interest rate.
Amortisation is included in ‘Interest income’ in the income statement. Losses arising from impairment of
such investments are recognised in ‘Losses from revaluation, sale and impairment of financial instruments’
in the income statement.
Impairment of investments held-to-maturity
For investments classified as held-to-maturity or loans and receivables, the Bank assesses at each reporting
date whether there is objective evidence that they have suffered an impairment loss. If there is objective
evidence that an impairment loss exists, the amount of the loss is measured as the difference between
the book value of the asset and the present value of estimated future cash flows (excluding future credit
losses that have occurred). The book value of the asset is reduced and the amount of loss is recognized
in ‘Loss from revaluation, disposal and impairment of financial instruments’ in the income statement.
If at a later period, the amount of impairment loss decreases and the decrease can be objectively related
to an event occurring after the recognition of impairment, the impairment loss previously recognized is
reversed, and the amount of the reversal is credited to ‘Loss from revaluation, disposal and impairment of
financial instruments’, in the income statement.
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Αnnual Report 2010