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Loans and receivables are initially recognised at fair value, which includes the price of transaction, significant costs of transaction,
significant handling fees paid or received, discount and premium, etc., and subsequently measured using the effective interest method.
However, if the effect of discount is insignificant, following the “Regulations Governing the Preparation of Financial Reports by
Public Banks”, loans and receivables can be measured at initial amount.
Interest accruing on loans and receivables is recognised as ‘interest revenue’. An impairment loss is recognised when there is an
objective evidence of impairment on loans and receivables. Allowance for impairment is a deduction to carrying amount of loans
and receivables, which is under the ‘allowance for bad debts and reserve for guarantee liabilities’ account.
(C)
Financial assets at fair value through profit or loss
Financial assets are classified as financial assets at fair value through profit or loss if they are acquired principally for the purpose
of selling or repurchasing or gaining profit in the short-term, or if they are derivative instruments. These financial assets are initially
recognised at fair value.
Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:
a.
Hybrid (combined) contracts; or
b.
They eliminate or significantly reduce a measurement or recognition inconsistency; or
c.
They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management
or investment strategy.
Any changes in fair value of financial assets at fair value through profit or loss and financial assets designated as at fair value through
profit or loss on initial recognition are recognised under the ‘gain/loss on financial assets and liabilities at fair value through profit
or loss’ account in the consolidated statement of comprehensive income.
(D)
Held-to-maturity financial assets
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity date
that the Bank and its subsidiaries have the positive intention and ability to hold to maturity other than those that meet the definition
of loans and receivables, designated as available-for-sale financial assets and those that are designated as at fair value through profit
or loss on initial recognition by subsidiaries.
Interest accruing on held-to-maturity financial assets is recognised as ‘interest revenue’. An impairment loss is recognised when
there is an objective evidence of impairment on financial assets. Impairment loss is a deduction to carrying amount of financial
assets, which is recognised under the ‘impairment loss on financial assets’ account.
(E)
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are not classified in held-to-maturity financial assets, financial assets at
fair value through profit or loss and loans and receivables. Financial assets and liabilities that are attributed to equity and debt
investments on initial recognition are assessed at fair value. Transaction costs which are attributable to the acquisition should be
capitalized.
Available-for-sale financial assets are measured at fair value with changes in fair value recognised in other comprehensive income.
When the financial asset is no longer recognised, the cumulative unrealized gain or loss that was previously recognised in other
comprehensive income is recognised in profit or loss.
An impairment loss is recognised when there is an objective evidence of impairment. If financial assets have not been derecognised,
accumulated impairment loss related to the financial assets that was previously recognised in other comprehensive income shall be
reclassified to profit or loss. Impairment loss of an investment in an equity instrument recognised in profit or loss shall not be
reversed through profit or loss. Any subsequent increases in fair value of an investment in an equity instrument are recognised in
other comprehensive income. If the impairment loss of bond investments decreases with objective evidence indicating that an
impairment loss has been incurred after the impairment is recognised, the impairment amount is reversed and recognised in current
profit and loss.
Equity instruments with no quoted price in an active market are initially recognised at fair value plus acquisition or issuance cost.
The fair value can be reasonably estimated when the following criteria are met at the balance sheet date: (a) the variability in the
range of reasonable fair value estimate is not significant for that equity instrument; or (b) probabilities of the various estimates within
the range can be reasonably assessed and used in estimating fair value.
(F)
Other financial assets
Other financial assets include investments in debt instruments without active market, overdue receivables not from lending, bill of
exchange negotiated and financial assets measured at cost.
a.
Debt investments with no active market
Investments in debt instruments without active market are initially recognised at fair value on the trade date plus transaction
costs of acquisition or issuance. Disposal gain or loss is recognised when such investments are derecognised. Bond
investments without active market are measured at amortized cost using the effective interest method.
b.
Financial assets carried at cost
Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be
reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are
presented in ‘financial assets measured at cost’.