Bahamas - FirstCaribbean International Bank

FIRSTCARIBBEAN INTERNATIONAL BANK (BAHAMAS) LIMITEDNotes to Consolidated Financial StatementsOctober 31, 2002(expressed in thousands of Bahamian dollars)2 Significant accounting policies...continuedA financial asset is impaired if its carrying amount is greater than its estimated recoverable amount.The amount of the impairment loss for assets carried at amortised cost is calculated as the differencebetween the asset’s carrying amount and the present value of expected future cash flows discounted atthe financial instrument’s original effective interest rate. By comparison, the recoverable amount of aninstrument measured at fair value is the present value of expected future cash flows discounted at thecurrent market rate of interest for a similar financial asset.Interest earned whilst holding investment securities is reported as interest income. Dividends receivedare included separately in interest income.All regular way purchases and sales of investment securities are recognised at trade date, which is thedate that the Bank commits to purchase or sell the asset. All other purchases and sales are recognised asderivative forward transactions until settlement.Originated loans and provisions for loan impairmentLoans and advances originated by the Bank by providing money directly to the borrower arecategorized as originated loans and are carried at amortised cost. Third party expenses, such as legalfees, incurred in securing a loan are expensed as incurred. Interest income is accounted for on theaccrual basis for all loans and advances other than those that are impaired.Loan fees are recognized in income at the inception of the loan.A credit risk provision for loan impairment is established if there is objective evidence that the Bankwill not be able to collect all amounts due. The amount of the provision is the difference between thecarrying amount and the recoverable amount, being the estimated present value of expected cashflows, including amounts recoverable from guarantees and collateral, discounted based on the interestrate at inception of the loan.The loan loss provision also covers losses where there is objective evidence that probable losses arepresent in components of the loan portfolio at the balance sheet date. These have been estimatedbased upon historical patterns of losses in each component, the credit ratings allocated to theborrowers and reflecting the current economic climate in which the borrowers operate and is classifiedas a provision for inherent risk. When a loan is uncollectable, it is written off against the relatedprovision for impairments; subsequent recoveries are credited to the bad and doubtful debt expense inthe income statement.If the amount of the impairment subsequently decreases due to an event occurring after the writedown,the release of the provision is credited to the bad and doubtful debt expense.56