Annual Report 2012 - National Savings Bank

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214THE RESULTS OF A CHALLENGING YEARNOTES TO THE FINANCIAL STATEMENTSthe transaction’s economic substance as aloan by the Bank. The difference betweenthe purchase and resale prices is recordedin ‘Net interest income’ and is accrued overthe life of the agreement using the EIR.2.3.2 Impairment of Financial Instrumentsi. Impairment of financial assetsThe Bank assesses at each statement offinancial position date whether there is anyobjective evidence that a financial asset ora group of financial assets is impaired. Afinancial asset or a group of financial assetsis deemed to be impaired if, and only if,there is objective evidence of impairmentas a result of one or more events that hasoccurred after the initial recognition of theasset (an incurred ‘loss event’) and thatloss event (or events) has a impact on theestimated future cash flows of the financialasset or the group of financial assets thatcan be reliably estimated.Evidence of impairment may includeindications that the borrower or a groupof borrowers is experiencing significantfinancial difficulty, the probability that theywill enter bankruptcy or other financialreorganization, default or delinquency ininterest or principal payments and whereobservable data indicates that there is ameasurable decrease in the estimatedfuture cash flows, such as changesin arrears or economic conditions thatcorrelate with defaults.ii. Financial assets carried at amortizedcostFor financial assets carried at amortizedcost (such as amounts due from banks,loans and advances to customers as wellas held-to-maturity investments), the Bankfirst assesses individually whether objectiveevidence of impairment exists for financialassets that are individually significant, orcollectively for financial assets that arenot individually significant. If the Bankdetermines that no objective evidenceof impairment exists for an individuallyassessed financial asset, it includes theasset in a group of financial assets withsimilar credit risk characteristics andcollectively assesses them for impairment.Assets that are individually assessed forimpairment and for which an impairmentloss is, or continues to be, recognized arenot included in a collective assessment ofimpairment.If there is objective evidence that animpairment loss has been incurred, theamount of the loss is measured as thedifference between the asset’s carryingamount and the present value of estimatedfuture cash flows (excluding futureexpected credit losses that have not yetbeen incurred). The carrying amount ofthe asset is reduced through the use ofan allowance account and the amountof the loss is recognized in the IncomeStatement. Interest income continues tobe accrued on the reduced carrying amountand is accrued using the rate of interestused to discount the future cash flows forthe purpose of measuring the impairmentloss. The interest income is recorded aspart of ‘Interest and similar income’. Loanstogether with the associated allowanceare written off when there is no realisticprospect of future recovery and all collateralhas been realized or has been transferredto the Bank. If, in a subsequent year, theamount of the estimated impairment lossincreased or decreased because of anevent occurring after the impairment wasrecognized, the previously recognizedimpairment loss is increased or reduced byadjusting the allowance account. If a futurewrite-off is later recovered, the recovery iscredited to the ‘Credit loss expense’.The present value of the estimated futurecash flows is discounted at the financialasset’s original EIR. If a loan has a variableinterest rate, the discount rate for measuringany impairment loss is the current EIR. Ifthe Bank has reclassified trading assetsto loans and advances, the discount ratefor measuring any impairment loss is thenew EIR determined at the reclassificationdate. The calculation of the present valueof the estimated future cash flows of acollateralised financial asset reflects thecash flows that may result from foreclosureless costs for obtaining and selling thecollateral, whether or not foreclosure isprobable.For the purpose of a collective evaluationof impairment, financial assets are groupedon the basis of the Bank’s internal creditgrading system, that considers credit riskcharacteristics such as asset type industry,geographical location, collateral type, pastduestatus and other relevant factors.Future cash flows on a group of financialassets that are collectively evaluated forimpairment are estimated on the basis ofhistorical loss experience for assets withcredit risk characteristics similar to thosein the group. Historical loss experience isadjusted on the basis of current observabledate to reflect the effect of currentNATIONAL SAVINGS BANK . ANNUAL REPORT 2012
215THE RESULTS OF A CHALLENGING YEARNOTES TO THE FINANCIAL STATEMENTSconditions on which the historical lossexperience is based and to remove theeffect of conditions in the historical periodthat do not exist currently. Estimates ofchanges in future cash flows reflect, andare directionally consistent with, changesin related observable data from year toyear (such as changes in unemploymentrates, property prices, commodity prices,payment status, or other factors that areindicative of incurred losses in the groupand their magnitude). The methodologyand assumptions used for estimating futurecash flows are reviewed regularly to reduceany differences between loss estimatesand actual loss experience.iii. Available-for-sale financial investmentsFor available-for-sale financial investmentsincluding debt securities, the Bank assessesat each Statement of Financial Position datewhether there is objective evidence that aninvestment is impaired.In the case of debt instruments classifiedas available-for-sale, the Bank assessesindividually whether there is objectiveevidence of impairment based on thesame criteria as financial asset carried atamortized cost. However, the amountrecorded for impairment is the cumulativeloss measured as the difference betweenthe amortized cost and the current fairvalue, less any impairment loss on thatinvestment previously recognized in theIncome Statement. Future interest incomeis based on the reduced carrying amountand is accrued using the rate of interestused to discount the future cash flows forthe purpose of measuring the impairmentloss. The interest income is recorded aspart of ‘Interest and similar income’. If,in a subsequent period, the fair value of adebt instrument increased and the increasecan be objectively related to a credit eventoccurring after the impairment loss wasrecognized in the Income Statement, theimpairment loss is reversed through theIncome Statement.In the case of equity investments classified asavailable-for-sale, objective evidence wouldalso include a ‘significant’ or ‘prolonged’decline in the fair value of the investmentbelow its cost. The Bank treats ‘significant’generally as 20% and ‘prolonged’ generallyas greater than six months. Where thereis evidence of impairment, the cumulativeloss measured as the difference betweenthe acquisition cost and the current fairvalue, less any impairment loss on thatinvestment previously recognized in theIncome Statement is removed from equityand recognized in the Income Statement.Impairment losses on equity investmentsare not reversed through the IncomeStatement; increases in the fair valueafter impairment are recognized in othercomprehensive income.iv. Renegotiated loansWhere possible, the Bank seeks torestructure loans rather than to takepossession of collateral. This may involveextending the payment arrangements andthe agreement of new loan conditions.Once the terms have been renegotiated anyimpairment is measured using the originalEIR as calculated before the modification ofterms and the loan is no longer consideredpast due. Management continually reviewsrenegotiated loans to ensure that all criteriaare met and that future payments are likelyto occur. The loans continue to be subjectto an individual or collective impairmentassessment, calculated using the loan’soriginal EIR.2.3.3 Recognition of income and expensesfor financial instrumentsRevenue is recognized to the extent that itis probable that the economic benefits willflow to the Bank and the revenue can bereliably measured. The following specificrecognition criteria must also be met beforerevenue is recognized.i. Interest and similar income andexpenseFor all financial instruments measured atamortized cost, interest bearing financialassets classified as available-for-sale andfinancial instruments designated at fairvalue through profit or loss, interest incomeor expense is recorded using the EIR, whichis the rate that exactly discounts estimatedfuture cash payments or receipts throughthe expected life of the financial instrumentor a shorter period, where appropriate, tothe net carrying amount of the financialasset or financial liability. The calculationtakes into account all contractual termsof the financial instrument (for example,prepayment options) and includes anyfees or incremental costs that are directlyattributable to the instrument and are anintegral part of the EIR, but not future creditlosses.The carrying amount of the financial assetor financial liability is adjusted if the Bankrevises its estimates of payments orreceipts. The adjusted carrying amount isNATIONAL SAVINGS BANK . ANNUAL REPORT 2012
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ROOTEDANNUAL REPORT 2012
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ROOTEDNATIONAL SAVINGS BANK l ANNUA
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5MISSIONProviding our customers wit
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7ROOTEDFor over 40 years, the Natio
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92000Establishment of subsidiary co
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11HOW WE PERFORMED IN 2012FINANCIAL
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13CHAPTER 1FIRMLY ANCHOREDSTRATEGY
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15A MESSAGE FROM MR SUNIL S. SIRISE
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17A MESSAGE FROM MR SUNIL S. SIRISE
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19A REVIEW BYMR. HENNAYAKE BANDARAG
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21A REVIEW BY MR HENNAYAKE BANDARAG
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23A REVIEW BY MR HENNAYAKE BANDARAG
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25CHAPTER 2HOW WE PERFORMED IN 2012
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33HOW WE PERFORMED IN 2012ECONOMIC
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35HOW WE PERFORMED IN 2012ECONOMIC
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37HOW WE PERFORMED IN 2012ACHIEVEME
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39HOW WE PERFORMED IN 2012OPERATION
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51HOW WE PERFORMED IN 2012FUTURE PL
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53CHAPTER 3ROOTED IN OUR HERITAGEGO
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55ROOTED IN OUR HERITAGEGOVERNANCE
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85ROOTED IN OUR HERITAGEBOARD OF DI
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87ROOTED IN OUR HERITAGEBOARD OF DI
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89ROOTED IN OUR HERITAGEGENERAL MAN
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91ROOTED IN OUR HERITAGECORPORATE M
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93ROOTED IN OUR HERITAGEEXECUTIVE M
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95ROOTED IN OUR HERITAGEREPORT OF T
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101ROOTED IN OUR HERITAGEREPORT OF
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103CHAPTER 4ASSESSING AND MANAGING
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105ASSESSING AND MANAGING OUR RISK
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137CHAPTER 5BRANCHING OUT INTO NEW
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139BRANCHING OUT INTO NEW VENTURESS
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Page 165 and 166: 163BRANCHING OUT INTO NEW VENTURESS
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Page 185 and 186: 183CHAPTER 6THE RESULTS OF A CHALLE
Page 187 and 188: 185THE RESULTS OF A CHALLENGING YEA
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Page 253 and 254: 251CHAPTER 7ANNEXURESNATIONAL SAVIN
Page 255 and 256: 253STATEMENT OF FINANCIAL POSITION
Page 257 and 258: 255TEN YEARS AT A GLANCE(Rs Mn)Year
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Page 261 and 262: 259OUR PRODUCTS AND SERVICES19. Ran
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Page 265 and 266: 263BRANCH NETWORKCentral Province1.
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265CORRESPONDENT BANKSCiti Bank NA,
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267EXCHANGE COMPANIESHabib Qatar In
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269GLOSSARYCredit RatingsAn evaluat
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271GLOSSARYReturn on Average Assets
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273CORPORATE INFORMATIONCOMPLIANCE
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Annual Report 2012 - National Savings Bank

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