Annual Financial Statements 2020

124 ANNEXURE E - DETAILED ACCOUNTING POLICIES CONTINUED STANDARD BANK NAMIBIA LIMITED Annual financial statements 2020 13. Revenue and expenditure Description Net interest income Net fee and commission revenue Trading revenue Dividend income Other gains/losses on financial instruments Other revenue Recognition and measurement Interest income and expense (with the exception of borrowing costs that are capitalised on qualifying assets, that is assets that necessarily take a substantial period of time to get ready for their intended use or sale and which are not measured at fair value) are recognised in net interest income using the effective interest method for all interest-bearing financial instruments. In terms of the effective interest method, interest is recognised at a rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. Direct incremental transaction costs incurred and origination fees received, including loan commitment fees, as a result of bringing margin- yielding assets or liabilities into the statement of financial position, are capitalised to the carrying amount of financial instruments that are not at fair value through profit or loss and amortised as interest income or expense over the life of the asset or liability as part of the effective interest rate. Where the estimates of payments or receipts on financial assets or financial liabilities are subsequently revised, the carrying amount of the financial asset or financial liability is adjusted to reflect actual and revised estimated cash flows. The carrying amount is calculated by computing the present value of the adjusted cash flows at the financial asset or financial liability's original effective interest rate. Any adjustment to the carrying value is recognised in net interest income. When a financial asset is classified as Stage 3 impaired, interest income is calculated on the impaired value (gross carrying amount less specific impairment) based on the original effective interest rate. The contractual interest income on the gross exposure is suspended and is only credit impairments when the financial asset is reclassified out of Stage 3. Dividends received on preference share investments classified as debt form part of the company's lending activities and are included in interest income. Fee and commission revenue, including accounting transaction fees, card-based commission, documentation and administration fees, electronic banking fees, foreign currency service fees, insurance based fees and commissions, and knowledge-based fees and commissions are recognised as the related services are performed. Loan commitment fees for loans that are not expected to be drawn down are recognised on a straight-line basis over the commitment period. Loan syndication fees, where the company does not participate in the syndication or participates at the same effective interest rate for comparable risk as other participants, are recognised as revenue when the syndication has been completed. Syndication fees that do not meet these criteria are capitalised as origination fees and amortised to the income statement as interest income. The fair value of issued financial guarantee contracts on initial recognition is amortised as income over the term of the contract. Fee and commission expenses, included in net fee and commission revenue, are mainly transaction and service fees relating to financial instruments, which are expensed as the services are received. Expenditure is presented as fee and commission expenses where the expenditure is linked to the production of fee and commission revenue. Trading revenue comprises all gains and losses from changes in the fair value of trading assets and liabilities, together with related interest income, expense and dividends. Dividends are recognised in interest income (other revenue) for debt (equity instruments) when the right to receipt is established. Scrip dividends are recognised as dividends received where the dividend declaration allows for a cash alternative. Includes: ⚫ Fair value gains and losses on financial assets that are classified at fair value through profit or loss (designated and default) ⚫ The gain or loss on the derecognition of a debt financial asset classified as at fair value through OCI Gains and losses arising from the derecognition of financial assets and financial liabilities classified as at amortised cost • • Gains and losses arising from the reclassification of a financial asset from amortised cost to fair value • Gains and losses arising from the modification of a financial asset (which is not distressed) and financial liability as at amortised cost. ⚫ Fair value gains and losses on designated financial liabilities Other revenue includes dividends on equity financial assets, underwriting profit from the company's short-term insurance operations and related insurance activities. 14. Other significant accounting policies Segment reporting An operating segment is a component of the company engaged in business activities, whose operating results are reviewed regularly by management in order to make decisions about resources to be allocated to segments and assessing segment performance. Fiduciary activities The company commonly engages in trust or other fiduciary activities that result in the holding or placing of assets on behalf of individuals, trusts, post-employment benefit plans and other institutions. These assets and the income arising directly thereon are excluded from these annual financial statements as they are not assets of the company. However, fee income earned and fee expenses incurred by the company relating to the company's responsibilities from fiduciary activities are recognised in profit or loss. Statutory credit risk reserve The statutory credit risk reserve represents the amount by which Bank of Namibia require in addition to the IFRS impairment provision. Changes in this reserve are accounted for as transfers to and from retained earnings as appropriate. Non-trading and capital related items Non-trading and capital related items primarily include the following: gains and losses on disposal of subsidiaries, joint ventures and associates (including foreign exchange translation gains and losses) ⚫ gains and losses on the disposal of property and equipment and intangible assets • • Impairment and reversals of impairments of joint ventures and associates impairment of investments in subsidiaries, property and equipment, and intangible assets ⚫ other items of a capital related nature. 15. New standards and interpretations not yet adopted The following new or revised standards, amendments and interpretations are not yet effective for the year ended 31 December 2020 and have not been applied in preparing these annual financial statements. Title: IFRS 4 Insurance Contracts, IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments, IFRS 16 Leases, IAS 39 Financial Instruments: Recognition and Measurement (amendments) Effective date: 1 January 2021 The second phase of Interest Rate Benchmark Reform resulted in amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 requirements to enable companies to deal with its effect on financial instruments and to continue providing useful information to investors. The amendments require entities to update the effective interest rate to reflect the change to the alternative benchmark rate instead of derecognising or adjusting the carrying amount of financial instruments for changes required by the reform. An entity will not have to discontinue hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria. In addition, the amendments require companies to provide additional information to investors about new risks arising from the reform and how it manages the transition to alternative benchmark rates. The company will transition to alternative benchmarks as each interest rate benchmark is replaced. The company has established a working group and detailed project plan, identifying key responsibilities and milestones of the project. The company is in the process of determining the estimated impact as none of the interest rate benchmarks it is exposed to has been replaced. The company is also assessing the system design requirements to accommodate the IBOR changes. Offsetting Income and expenses are presented on a net basis only when permitted by IFRS, or for gains and losses arising from a group of similar transactions. 125