Annual Report 2012

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Notes to the financial statements(Expressed in millions of RMB, unless otherwise stated)4 Significant accounting policies and accounting estimates (continued)(3) Financial instruments (continued)(b) Derivatives and embedded derivativesThe Group uses derivatives to hedge its exposure to foreign exchange and interest rate risks. Derivatives are recognised at fairvalue upon initial recognition. The positive fair value is recognised as an asset while the negative fair value is recognised as aliability. The gain or loss on re-measurement to fair value is recognised in profit or loss.Certain derivatives are embedded into non-derivative hybrid instruments (the host contracts). The embedded derivatives areseparated from the host contract and accounted for as a separate derivative when (i) the economic characteristics and risksof the embedded derivative are not closely related to the host contract; (ii) a separate instrument with the same terms as theembedded derivative would meet the definition of a derivative; and (iii) the hybrid (combined) instrument is not measured at fairvalue with changes in fair value recognised in profit or loss. When the embedded derivative is separated, the host contract isaccounted for as a financial instrument in accordance with the accounting policies as set out in Note 4(3).(c)Recognition and derecognitionAll financial assets and financial liabilities are recognised in the statement of financial position, when and only when, the Groupbecomes a party to the contractual provisions of the instrument.The Group derecognises a financial asset if the part being considered for derecognition meets one of the following conditions:(i) the contractual rights to receive the cash flows from the financial asset expire; (ii) the contractual rights to receive the cashflows of the financial asset have been transferred and the Group transfers substantially all the risks and rewards of ownershipof the financial asset; or (iii) the Group retains the contractual rights to receive the cash flows of the financial asset, butassumes a contractual obligation to pay the cash flows to the eventual recipient in an agreement that meets all the conditionsof transfer of cash flows and transfers substantially all the risks and rewards of ownership of the financial asset.The difference between the carrying amount of the financial asset derecognised and the consideration received and thecumulative changes in fair value previously recognised in equity are recognised in profit or loss.If the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, but retainscontrol, the Group continues to recognise the financial asset to the extent of its continuing involvement in the financial asset.If the Group has not retained control, it derecognises the financial asset and recognises separately as assets or liabilities anyrights and obligations created or retained in the transfer.The financial liability is derecognised only when: (i) the underlying present obligation specified in the contracts is discharged,cancelled or expired, or (ii) an agreement between the Group and an existing lender to replace the original financial liability witha new financial liability with substantially different terms, or a substantial modification of the terms of an existing financial liabilityis accounted for as an extinguishment of the original financial liability and recognition of a new financial liability.The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised inprofit or loss.(d)MeasurementFinancial instruments are measured initially at fair value plus, in the case of a financial instrument not at fair value throughprofit or loss, transaction costs that are directly attributable to the acquisition or issue of the instrument. Transaction costs forfinancial instruments at fair value through profit or loss are expensed immediately.Subsequent to initial recognition, held-to-maturity investments, loans and receivables and other financial liabilities are measuredat amortised cost, while other categories of financial instruments are measured at fair value, without any deduction fortransaction costs that may occur on sale or other disposal. Investments in available-for-sale equity instruments that do not havea quoted market price in an active market and whose fair value cannot be reliably measured, and derivatives that are linked toand must be settled by delivery of such unquoted equity instruments are measured at cost less impairment losses, if any.Gains and losses from changes in the fair value of financial instruments at fair value through profit or loss are recognised inprofit or loss.Unrealised gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in othercomprehensive income and accumulated separately in equity, except for impairment losses and foreign exchange gains andlosses on monetary items such as debt securities which are recognised in profit or loss.When the available-for-sale financial assets are sold, gains or losses on disposal are recognised in profit or loss. Gains orlosses on disposal include those previously recognised in other comprehensive income and reclassified into the profit or loss.For financial assets and financial liabilities carried at amortised cost, a gain or loss is recognised in profit or loss when thefinancial asset or financial liability is derecognised, impaired, or through the amortisation process.China Construction Bank Corporation annual report <strong>2012</strong>103
Notes to the financial statements(Expressed in millions of RMB, unless otherwise stated)4 Significant accounting policies and accounting estimates (continued)(3) Financial instruments (continued)(e)ImpairmentAt the end of each reporting period, the Group assesses the carrying amount of financial assets (except for those at fairvalue through profit or loss). If there is any objective evidence that a financial asset is impaired, the Group will recognise theimpairment loss in profit or loss. Losses expected as a result of future events, no matter how likely, are not recognised asimpairment losses.Objective evidence that a financial asset is impaired includes one or more events that occurred after the initial recognitionof the asset where the event (or events) has an impact on the estimated future cash flows of the financial asset that can bereliably estimated. Objective evidence includes the following evidence:– significant financial difficulty of the borrower or issuer;– a breach of contract, such as a default or delinquency in interest or principal payments;– the Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower aconcession that the Group would not otherwise consider;– it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;– disappearance of an active market for financial assets because of significant financial difficulties;– observable data indicating that there is a measurable decrease in the estimated future cash flows from a group offinancial assets since the initial recognition of those assets, although the decrease cannot yet be identified with theindividual financial assets in the group, including: adverse changes in the payment status of borrowers in the group,an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property prices formortgages in the relevant area, or adverse changes in industry conditions that affect the borrowers in the group;– significant changes in the technological, market, economic or legal environment that have an adverse effect on the issuerof an equity instrument;– a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost; and– other objective evidence indicating there is an impairment of the financial asset.Loans and receivables and held-to-maturity investmentsIndividual assessmentLoans and receivables and held-to-maturity investments, which are considered individually significant, are assessed individuallyfor impairment. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investmentscarried at amortised cost has been incurred on an individual basis, the amount of the loss is measured as the differencebetween the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s originaleffective interest rate, and recognised in profit or loss.Cash flows relating to short-term loans and receivables and held-to-maturity investments are not discounted if the effect ofdiscounting is immaterial. The calculation of the present value of the estimated future cash flows of a collateralised loan orreceivable reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether ornot foreclosure is probable.Collective assessmentHomogeneous groups of loans and advances to customers not considered individually significant and individually assessed;and loans and receivables and held-to-maturity investments with no objective evidence of impairment on an individual basis areassessed for impairment losses on a collective basis. If there is observable data indicating that there is a measurable decreasein the estimated future cash flows from a group of financial assets since the initial recognition of those financial assets, theimpairment is recognised and recorded in profit or loss.For homogeneous groups of loans and advances that are not considered individually significant, the Group adopts a flow ratemethodology to assess impairment losses on a collective basis. This methodology utilises a statistical analysis of historicaltrends of probability of default and amount of consequential loss, as well as an adjustment of observable data that reflects thecurrent economic conditions.104 China Construction Bank Corporation annual report <strong>2012</strong>
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Annual Report 2012China Constructio
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DEFINITIONSIn this annual report, u
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INTRODUCTIONHeadquartered in Beijin
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2 CORPORATE INFORMATIONLegal name a
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2 CORPORATE INFORMATIONForbes Ranke
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3 CHAIRMAN’S STATEMENTDear shareh
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4 PRESIDENT’S REPORTDear sharehol
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5 MANAGEMENT DISCUSSION AND ANALYSI
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14 UNAUDITED SUPPLEMENTARY FINANCIA
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15 ORGANISATIONAL STRUCTUREPublic R
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16 BRANCHES AND SUBSIDIARIESTier-on
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16 BRANCHES AND SUBSIDIARIESBranche
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16 BRANCHES AND SUBSIDIARIESChongqi
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16 BRANCHES AND SUBSIDIARIESZhejian
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Annual Report 2012

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