MORNBFI Vol. 1 - Planters Development Bank

APP. Q-2011.12.31in the fair value of the HTM security shallbe recognized in profit or loss when thesecurity is derecognized or impaired, andthrough the amortization process.An FI shall assess at each time itprepares its financial statements whetherthere is any objective evidence that an HTMsecurity is impaired.If there is objective evidence that animpairment loss on HTM securities has beenincurred, the amount of the loss is measuredas the difference between the security’scarrying amount and the present value ofestimated future cash flows (excluding futurecredit losses that have not been incurred)discounted at the security’s original effectiveinterest rate (i.e. the effective interest ratecomputed at initial recognition). The carryingamount of the security shall be reducedthrough the use of an allowance account.The amount of the loss shall be recognizedin profit or loss.As a practical expedient, a creditor maymeasure impairment of HTM securities onthe basis of an instrument’s fair value usingan observable market price.An FI first assesses whether objectiveevidence of impairment exists individually forHTM securities that are individually significant,and individually or collectively for HTMsecurities that are not individually significant.If an entity determines that no objectiveevidence of impairment exists for anindividually assessed HTM security, whethersignificant or not, it includes the asset in agroup of HTM securities with similar creditrisk characteristics and collectively assessesthem for impairment. HTM securities that areindividually assessed for impairment and forwhich an impairment loss is or continues tobe recognized are not included in a collectiveassessment of impairment.If, in a subsequent period, the amountof the impairment loss decreases and thedecrease can be related objectively to anevent occurring after the impairment wasrecognized (such as an improvement in thedebtor’s credit rating), the previouslyrecognized impairment loss shall bereversed by adjusting the allowanceaccount. The reversal shall not result in acarrying amount of the security that exceedswhat the amortized cost would have beenhad the impairment not been recognized atthe date the impairment is reversed. Theamount of the reversal shall be recognizedin profit or loss.b. Securities at Fair Value throughProfit or Loss - These consist initially of HFTsecurities. HFT are debt and equitysecurities that are:(1) acquired principally for the purposeof selling or repurchasing them in the nearterm; or(2) part of a portfolio of identifiedsecurities that are managed together and forwhich there is evidence of a recent actualpattern of short-term profit-taking.For this purpose, an FI shall adopt itsown definition of short-term which shall bewithin a (twelve) 12-month period. Saiddefinition which shall be included in itsmanual of operations, shall be applied andused consistently.b.1 HFT securities shall be measuredupon initial recognition at their fair value.Transaction costs incurred at the acquisitionof HFT securities shall be recognizeddirectly in profit or loss. After initialrecognition, an FI shall measure HFTsecurities at their fair values without anydeduction for transaction costs that it mayincur on sale or other disposal. A gain orloss arising from a change in the fair valueof HFT securities shall be recognized inprofit or loss under the account “TradingGain/(Loss)”.c. ASS. These are debt or equitysecurities that are designated as Availablefor-Sale or are not classified/designated asQ RegulationsAppendix Q-20 - Page 4Manual of Regulations for Non-Bank Financial Institutions