SBN HOLDINGS LIMITED Annual Report 2022

ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 154 SBN HOLDINGS LIMITED Annual report 2022 155 3. Financial instruments continued Impairment continued The key components of the impairment methodology are described as follows: Significant increase in credit risk Low credit risk Default Forward-looking information Write-off At each reporting date the group assesses whether the credit risk of its exposures has increased significantly since initial recognition by considering the change in the risk of default occurring over the expected life of the financial asset. Credit risk of exposures which are overdue for more than 30 days are also considered to have increased significantly. Exposures are generally considered to have a low credit risk where there is a low risk of default, the exposure has a strong capacity to meet its contractual cash flow obligations and adverse changes in economic and business conditions may not necessarily reduce the exposure's ability to fulfil its contractual obligations. The group's definition of default has been aligned to its internal credit risk management definitions and approaches. A financial asset is considered to be in default when there is objective evidence of impairment. The following criteria are used in determining whether there is objective evidence of impairment for financial assets or groups of financial assets: ■ significant financial difficulty of borrower and/or modification (i.e. known cash flow difficulties experienced by the borrower) ■ a breach of contract, such as default or delinquency in interest and/or principal payments disappearance of active market due to financial difficulties ■■it becomes probable that the borrower will enter bankruptcy or other financial reorganisation ■where the group, for economic or legal reasons relating to the borrower's financial difficulty, grants the borrower a concession that the group would not otherwise consider. Exposures which are overdue for more than 90 days are also considered to be in default. Forward-looking information is incorporated into the group's impairment methodology calculations and in the group's assessment of SICR. The group includes all forward-looking information which is reasonable and available without undue cost or effort. The information will typically include expected macro-economic conditions and factors that are expected to impact portfolios or individual counterparty exposures. Financial assets are written off when there is no reasonable expectation of recovery. Financial assets which are written off may still be subject to enforcement activities. ECLS are recognised within the statement of financial position as follows: Financial assets measured at amortised cost (including loan commitments) Off-balance sheet exposures (excluding loan commitments) Financial assets measured at fair value through OCI Recognised as a deduction from the gross carrying amount of the asset (group of assets). Where the impairment allowance exceeds the gross carrying amount of the asset (group of assets), the excess is recognised as a provision within other liabilities. Recognised as a provision within other liabilities. Recognised in the fair value reserve within equity. The carrying value of the financial asset is recognised in the statement of financial position at fair value. Cash and balances with the central bank Cash and balances with the central bank comprise coins and bank notes and balances with BoN. Included in balances with central bank are balances that primarily comprise of reserving requirements held with the central bank which are readily convertible to a known amount of cash and available for use by the group and company within less than three months since initial deposit, subject to certain restrictions and limitations levied by the central bank, but are subject to an insignificant risk of changes in value. Coins and bank notes and balances with central banks comprising reserving requirements are measured at fair value through profit or loss-default. Cash and cash equivalents Cash and cash equivalents comprise of cash and balances with the central bank and on demand gross loans and advances to banks, which are readily convertible to a known amount of cash and available for use by the group and company within less than three months since initial deposit. The on demand gross loans and advances to banks are held to meet short-term cash commitments, rather than for investment purposes. 3. Financial instruments continued Reclassification Reclassifications of debt financial assets are permitted when, and only when, the group changes its business model or managing financial assets, in which case all affected financial assets are reclassified. Reclassifications are accounted for prospectively from the date of reclassification as follows: ■Financial assets that are reclassified from amortised cost to fair value are measured at fair value at the date of reclassification with any difference in measurement basis being recognised in other gains and losses on financial instruments ■The fair value of a financial asset that is reclassified from fair value to amortised cost becomes the financial asset's new carrying value ■Financial assets that are reclassified from amortised cost to fair value through OCI are measured at fair value at the date of reclassification with any difference in measurement basis being recognised in OCI ■The fair value of a financial asset that is reclassified from fair value through OCI to amortised cost becomes the financial asset's new carrying value with the cumulative fair value adjustment recognised in OCI being recognised against the new carrying value ■The carrying value of financial assets that are reclassified from fair value through profit or loss to fair value through OCI remains at fair value ■The carrying value of financial assets that are reclassified from fair value through OCI to fair value through profit or loss remains at fair value, with the cumulative fair value adjustment in OCI being recognised in the income statement at the date of reclassification. Financial liabilities Nature Held-for-trading Designated at fair value through profit or loss Amortised cost Subsequent measurement Those financial liabilities incurred principally for the purpose of repurchasing in the near term (including all derivative financial liabilities) 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. Financial liabilities are designated to be measured at fair value in the following instances: ■to eliminate or significantly reduce an accounting mismatch that would otherwise arise where the financial liabilities are managed and their performance evaluated and reported on a fair value basis ■ where the financial liability contains one or more embedded derivatives that significantly modify the financial liability's cash flows. All other financial liability's not included in the above categories. Subsequent to initial measurement, financial liabilities are classified in their respective categories and measured at either amortised cost or fair value as follows: Held-for-trading Designated at fair value through profit or loss Amortised cost Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue. Fair value, with gains and losses arising from changes in fair value (including interest and dividends but excluding fair value gains and losses attributable to own credit risk) are recognised in the other gains and losses on financial instruments as part of non-interest revenue. Fair value gains and losses attributable to changes in own credit risk are recognised within OCI, unless this would create or enlarge an accounting mismatch in which case the own credit risk changes are recognised within trading revenue. Amortised cost using the effective interest method recognised in interest expense.