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eported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the
asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future
events and must be enforceable in the normal course
of business and in the event of default, insolvency or
bankruptcy of the company or the counterparty.
Impairment of financial assets
At each reporting date the group assesses all financial
assets, other than those at fair value through profit or
loss, to determine whether there is objective evidence
that a financial asset or group of financial assets have
been impaired.
An emergence period concept is applied to ensure
that only impairments that exist at the reporting date
are captured. The emergence period is defined as the
time lapse between the occurrence of a trigger event
(unidentified impairment) and the impairment being
identified at an individual account level (identified
impairment).
Trigger events include job loss, credit score downgrade,
default on other accounts or any specific communication
from the client indicating a deterioration of the credit
worthiness. The emergence period, based on actual
experience, vary across subsidiaries and is reviewed
quarterly. The probability of default of each exposure
is based on historical default experience, scaled for
the emergence period relevant to the exposure. The
probability of default is then applied to all exposures in
respect of which no identified impairments have been
recognised.
A financial asset or a group of financial assets are
impaired and impairment losses are incurred only if there
is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of
the asset (a ‘loss event’) and that loss event (or events)
has an impact on the estimated future cash flows of the
financial asset or group of financial assets that can be
reliably estimated.
Criteria that are used by the group in determining
whether there is objective evidence of impairment
include:
»»
known cash flow difficulties experienced by the
borrower
»»
a breach of contract, such as default or delinquency
in interest and/or principal payments; it becoming
probable that the borrower will enter bankruptcy or
other financial reorganisation
»»
concessions granted from the lender to the
borrower that the lender would not have considered
normally
»»
high probability of insolvency
If there is objective evidence that an impairment loss on
loans and receivables has been incurred, the amount
of the loss is measured as the difference between
the asset's carrying amount and the present value of
estimated future cash flows (excluding future credit
losses that have not been incurred) discounted at the
financial asset's original effective interest rate. The
carrying amount of the loan is reduced through the
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use of an allowance for credit losses account and the
loss is recognised as a credit impairment charge in the
Consolidated Combined Statement of Profit or Loss.
If the group determines that no objective evidence of
impairment exists for an individually assessed loan,
whether significant or not, it includes the loan in a group
of financial loans with similar credit risk characteristics
and collectively assesses for impairment. Loans that
are individually assessed for impairment and for which
an impairment loss is recognised are not included in a
collective assessment for impairment.
In order to provide for latent losses in a group of loans
that have not yet been identified as specifically impaired, a
credit impairment for incurred but not reported losses is
recognised based on historic loss patterns and estimated
emergence periods (time period between the loss trigger
events and the date on which the group identifies the
losses).
All significant counterparty relationships are reviewed
periodically. Evidence of impairment may include
indications that the debtors or a group of debtors
is experiencing significant financial difficulty, default
or delinquency in interest or principal payments, the
probability that they will enter bankruptcy or other financial
reorganisation, and where observable data indicate that
there is a measurable decrease in the estimated future
cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
Impaired loans are defined as loans that are one day past
the due date calculated on a cumulative basis by reference
to the original contractual instalment due dates and are
further categorised into the following categories:
»»
Non-performing loans are designated into this
category when the loan becomes past due.
»»
Partial performing loans are past due but have had
at least a partial performance by reference to the
original contractual instalment due date within the last
2 months.
»»
Performing loans are loans that are not past due and
are within contract term.
The impairment of non-performing loans takes into account
past loss experience adjusted for changes in economic
conditions and the nature and level of risk exposure since
the recording of the historic losses.
The group adopts a formulaic approach to its impaired
loans. On non-performing loans a progressively higher
percentage loss rate is applied the longer a customer’s loan
is past due and are grouped into aged categories as per
note 3.
The group assesses the probability of default by making
reference to historical collection data. The historical
collection data are reviewed quarterly to reduce the
difference between the impairment allowance estimate and
actual loss experience.
Rehabilitated loans are non-performing loans where an
outstanding amount has been collected whether partial or
in full. Rehabilitated loans are monitored separately and
are treated as either performing loans or non- performing
loans based on proven subsequent performance history.
Impairment losses are recognised in profit or loss.
Subsequent to impairment, the effects of discounting
unwind over time as interest income.
If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised
(such as an improvement in the customers’ credit rating),
the reversal of the previously recognised impairment loss
is recognised in the Consolidated Combined Statement of
Profit or Loss and Comprehensive Income.
The reversal shall not result in a carrying amount of the
financial asset that exceeds what the amortised cost would
have been had the impairment not been recognised at
the date the impairment is reversed. The amount of the
reversal shall be recognised in the Consolidated Combined
Statement of Profit or Loss and Comprehensive Income.
Impaired loans (and the related impairment allowance)
are written off at the impaired loans earliest of when they
are past due for 365 days or when there is no likelihood of
recalling future payments.
Impaired loans (and the related impairment allowance)
are written off at the earliest of when they are past due for
365 days or when there is no likelihood of recalling future
payments.
The carrying value of these assets, being the present value
of estimated future cash flows discounted at the respective
financial assets' original effective interest rate, is disclosed
as part of net advances.
The estimated recoveries on loans written off are regarded
as insignificant and are recognised as a gain in the
Consolidated Combined Statement of Profit or Loss and
Comprehensive Income.
Loans that are either subject to collective impairment
assessment or individually significant and whose terms
have been renegotiated are no longer considered to be
past due but are reset to performing loan status. These
loans are subject to ongoing review to determine whether
they are considered impaired or past due.
Loans to/(from) related parties
Loans to related parties are classified as loans and
receivables. Loans from related parties are classified as
financial liabilities measured at amortised cost. They are
subsequently stated at amortised cost, any difference
between the proceeds (net of transaction cost) and the
redemption value is recognised in the Consolidated
Combined Statement of Profit or Loss and Comprehensive
Income over the period of the loan using the effective
interest method.
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MyBucks Annual Report 2016 86
87 MyBucks Annual Report 2016