Investor Presentaiton
106
STANDARD BANK NAMIBIA LIMITED
Annual financial statements 2020
107
3. Financial instruments
Initial measurement - financial instruments
All financial instruments are measured initially at fair value plus directly attributable transaction costs and fees, except for those
financial instruments that are subsequently measured at fair value through profit or loss where such transaction costs and fees are
immediately recognised in profit or loss. Financial instruments are recognised (derecognised) on the date the company commits to
purchase (sell) the instruments (trade date accounting).
Financial assets
Nature
Amortised cost
Fair value through OCI
Held-for-trading
Designated at fair value
through profit or loss
Fair value through profit
or loss-default
A debt instrument that meets both of the following conditions (other than those designated
at fair value through profit or loss):
• Held within a business model whose objective is to hold the debt instrument (financial
asset) in order to collect contractual cash flows; and
⚫ The contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
This assessment includes determining the objective of holding the asset and whether the
contractual cash flows are consistent with a basic lending arrangement. Where the contractual
terms introduce exposure to risk or volatility that are not considered de minimis and are
inconsistent with a basic lending arrangement, the financial asset is classified as fair value
through profit or loss - default.
A debt instrument that meets both of the following conditions (other than those designated
at fair value through profit or loss):
• Held within a business model in which the debt instrument (financial asset) is managed
to both collect contractual cash flows and sell financial assets; and
The contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
This assessment includes determining the objective of holding the asset and whether the
contractual cash flows are consistent with a basic lending arrangement. Where the contractual
terms introduce exposure to risk or volatility that are not considered de minimis and are
inconsistent with a basic lending arrangement, the financial asset is classified as fair value
through profit or loss-default.
Equity financial assets which are not held-for-trading and are irrevocably elected (on an
instrument-by-instrument basis) to be presented at fair value through OCI.
Financial assets acquired principally for the purpose of selling in the near term (including
all derivative financial assets) and those that form 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.
Included are commodities that are acquired principally for the purpose of selling in the near
future or generating a profit from fluctuations in price or broker-trader margin.
Financial assets are designated to be measured at fair value through profit or loss to eliminate
or significantly reduce an accounting mismatch that would otherwise arise.
Financial assets that are not classified into one of the above mentioned financial asset
categories.
Subsequent measurement
Subsequent to initial measurement, financial assets are classified in their respective categories and measured at either amortised
cost or fair value as follows:
Amortised cost
Fair value through OCI
Held-for-trading
Designated at fair value
through profit or loss
Fair value through profit or
loss - default
Impairment
Amortised cost using the effective interest method with interest recognised in interest income,
less any expected credit impairment losses which are recognised as part of credit impairment
charges.
Directly attributable transaction costs and fees received are capitalised and amortised through
interest income as part of the effective interest rate.
Debt instrument: Fair value, with gains and losses recognised directly in the fair value through
OCI reserve. When a debt financial asset is disposed of, the cumulative fair value adjustments,
previously recognised in OCI, are reclassified to the other gains and losses on financial
instruments within non-interest revenue. Expected credit impairments losses are recognised
as part of credit impairment charges. However, for these FVOCI debt instruments the expected
credit loss is recognised in OCI and does not reduce the carrying amount of the financial asset
in the statement of financial position. Interest income on a debt financial asset is recognised in
interest income in terms of the effective interest rate method. Dividends received are
recognised in interest income within profit or loss.
Equity instrument: Fair value, with gains and losses recognised directly in the fair value
through OCI reserve. When equity financial assets are disposed of, the cumulative fair value
adjustments in OCI are reclassified within reserves to retained income.
Dividends received on equity instruments are recognised in other revenue within non-interest
income.
Fair value, with gains and losses arising from changes in fair value (including interest and
dividends) recognised in trading revenue.
Fair value gains and losses (including interest and dividends) on the financial asset recognised
in the income statement as part of other gains and losses on financial instruments within
non-interest revenue.
Debt instruments - Fair value gains and losses (including interest and dividends) on the
financial asset recognised in the income statement as part of other gains and losses on
financial instruments within non-interest revenue.
Equity instruments - Fair value gains and losses on the financial asset recognised in the
income statement as part of other gains and losses on financial instruments. Dividends
received on equity instruments are recognised in other revenue within non-interest revenue.
ECL is recognised on debt financial assets classified as at either amortised cost or fair value through OCI, financial guarantee
contracts that are not designated at fair value through profit or loss as well as loan commitments that are neither measured at fair
value through profit or loss nor are used to provide a loan at a below market interest rate.
The measurement basis of the ECL of a financial asset includes assessing whether there has been a SICR at the reporting date
which includes forward-looking information that is available without undue cost or effort at the reporting date about past events,
current conditions and forecasts of future economic conditions. The measurement basis of the ECL, which is set out in the table
that follows, is measured as the unbiased and probability-weighted amount that is determined by evaluating a range of possible
outcomes, the time value of money and forward-looking information.
Stage 1
Stage 2
Stage 3 (credit impaired
assets)
A 12-month ECL is calculated for financial assets which are neither credit-impaired on
origination nor for which there has been a SICR.
A lifetime ECL allowance is calculated for financial assets that are assessed to have displayed a
SICR since origination and are not considered low credit risk.
A lifetime ECL is calculated for financial assets that are assessed to be credit impaired.
The following criteria are used in determining whether the financial asset is impaired:
⚫ default
•
significant financial difficulty of borrower and/or modification
°
probability of bankruptcy or financial reorganisation
⚫ disappearance of an active market due to financial difficulties.View entire presentation