Annual REPORT

ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
NOTES TO THE FINANCIAL STATEMENTS (Continued)
3 CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued)
(i)
Critical judgements in applying the group’s accounting policies (continued)
Impairment losses on loans and receivables
The group reviews its loan portfolios to assess impairment regularly. In determining whether an impairment loss
should be recorded in the profit and loss, the group makes judgements as to whether there is any observable data
indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans, before a
decrease can be identified with an individual loan in that portfolio.
This evidence may include observable data indicating that there has been an adverse change in the payment status
of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group.
Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective
evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology
and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to
reduce any differences between loss estimates and actual loss experience.
Impairment of available-for-sale investments
The group reviews its debt securities classified as available–for–sale investments at each reporting date to assess
whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances.
The group also records impairment charges on available–for–sale equity investments when there has been a significant
or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’
requires judgment. In making this judgment, the group evaluates, among other factors, historical share price movements
and duration and extent to which the fair value of an investment is less than its cost.
Held -to-maturity investments
The group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable
payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this
judgement, the group evaluates its intention and ability to hold such investments to maturity. If the group fails to
keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant
amount close to maturity – it will be required to reclassify the entire class as available-for-sale. The investments
would therefore be measured at fair value not amortised cost.
Classification of leases of land and buildings as finance or operating leases
At the inception of each lease of land or building, the group considers the substance rather than the form of the
lease contract. Examples of situations that individually or in combination would normally lead to a lease being
classified as a finance lease are:
· The lease transfers ownership of the asset to the lessee by the end of the lease term;
· The lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the
fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the
lease, that the option will be exercised;
· The lease term is for the major part of the economic life of the asset even if title is not transferred;
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