Mega Bank Annual Report 2017

46 Mega Bank -46- A financial liability shall be classified as held for trading, if it is incurred principally for the purpose of repurchasing it in the near term; or on initial recognition, is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. A derivative is also classified as held for trading, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument. Financial liability held for trading also includes the obligations of delivery of financial assets borrowed by the seller. Above financial liability is shown as “ financial liability at fair value through profit or loss ” in the consolidated balance sheet. At initial recognition, it is not revocable if a debt instrument is designated at fair value through profit and loss. When the fair value method is adopted, the main contract and the embedded derivative need not be recognized respectively. Any changes in fair value of financial liabilities at fair value through profit or loss and financial liabilities designated as at fair value through profit or loss on initial recognition are recognized under the ‘gain/loss on financia l assets and liabilities at fair value through profit or loss’ account in the consolidated statement of comprehensive income. (B) Financial liabilities measured at amortized cost All other financial liabilities that are not classified as financial liabilities at fair value through profit or loss are classified as financial liabilities measured at amortized cost. C. Determination of fair value Fair value and level information of financial instruments are provided in Note 7. D. Derecognition of financial instruments The Bank and subsidiaries derecognize a financial asset when one of the following conditions is met: (A) The contractual rights to receive cash flows from the financial asset expire. (B) The contractual rights to receive cash flows from the financial asset have been transferred and the Bank and subsidiaries have transferred substantially all risks and rewards of ownership of the financial asset. (C) The contractual rights to receive cash flows from the financial asset have been transferred; however, it has not retained control of the financial asset. A financial liability is derecognized when the obligation under the liability specified in the contract is discharged or cancelled or expires. In case of securities lending or borrowing by the Bank and subsidiaries or provision of bonds or stocks as security for repo trading, the Bank and subsidiaries does not derecognize the financial asset, because substantially all risks and rewards of ownership of the financial asset are still retained in the Bank and subsidiaries. (8) Offsetting financial instruments Financial assets and liabilities are offset and reported in the net amount in the consolidated balance sheet when (A) there is a legally enforceable right to offset the recognized amounts and (B) there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. (9) Financial asset-evaluation, provision and reversal of impairment losses A. The Bank and subsidiaries would presume that a financial asset or a group of financial assets is impaired and recognize the impairment losses only if there is objective evidence that a financial asset or a group of financial assets is impaired as a result of a loss event that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets. B. The criteria that the Bank and subsidiaries use to determine whether there is objective evidence of an impairment loss is as follows: (A) Significant financial difficulty of the issuer or debtor; (B) A breach of contract, such as a default or delinquency in interest or principal payments; (C) The Bank and subsidiaries, for economic or legal reasons relating to the borrower’s financial difficulty, granted the borrowe r a concession that a lender would not otherwise consider; (D) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation; (E) The disappearance of an active market for that financial asset because of financial difficulties; (F) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the Bank and subsidiaries, including adverse changes in the payment status of borrowers in the Bank and subsidiaries or national or local economic conditions that correlate with defaults on the assets in the Bank and subsidiaries; (G) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or (H) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. (I) Others are implemented in accordance with the Bank and subsidiaries’ internal policies. C. The assessment methods of impairment on loans and receivables are based on two categories: individual and collective assessments. Individual assessments are classified as different groups based on whether there is objective evidence of significant impairment of the