Impairment of financial assets

2.8 Impairment of financial assets

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. a Financial assets classified as loans and receivables The Group carries out regular and systematic reviews of all credit facilities extended to customers. The criteria that the Group uses to determine that there is objective evidence of an impairment loss include: •฀ ฀Signiicant฀inancial฀dificulty฀of฀the฀issuer฀or฀obligor,฀ including breach of covenants andor financial conditions; •฀ ฀A฀breach฀of฀contract,฀such฀as฀a฀default฀or฀delinquency฀in฀ interest or principal payments; •฀ ฀Granting฀of฀a฀concession฀to฀the฀borrower,฀for฀economic฀or฀ legal reasons relating to the borrower’s financial difficulty, that the Group would not otherwise consider; and •฀ ฀High฀probability฀of฀bankruptcy฀or฀other฀inancial฀ reorganisation of the borrower. Specific allowances for credit losses A specific allowance for credit losses is established if there is objective evidence that the Group will be unable to collect all amounts due under a claim according to the original contractual terms or the equivalent value. A “claim” means a loan, debt security or a commitment such as a letter of guarantee and letter of credit. A specific allowance for credit losses is recorded as a reduction in the carrying value of a claim on the balance sheet. For an off-balance sheet item such as a commitment, a specific allowance for credit loss is recorded as a component within other liabilities. Specific allowances for credit losses are evaluated either as being counterparty-specific or collectively for a portfolio according to the following principles: Counterparty-specific: Individual credit exposures are evaluated using the discounted cash flow method and an allowance is made when existing facts, conditions or valuations indicate that the Group is not likely to collect the principal and interest due contractually on the claim. An allowance is reversed only when there has been an identifiable event that led to an improvement in the collectability of the claim. When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Recoveries in full or in part of amounts previously written off are credited to the income statement in “Allowances for credit and other losses”. Homogenous consumer loans, such as housing loans and credit card receivables, are pooled according to their risk characteristics, and assessed and provided for collectively as a group, taking into account the historical loss experience of such loans. General allowances for credit losses Apart from specific allowances, the Group also carries general allowances for credit losses. The Group maintains a level of allowances that is deemed sufficient to absorb the estimated credit losses inherent in its loan portfolio including off-balance sheet credit exposures. In determining the level of general allowances, the Group considers country and portfolio risks, as well as industry practices. The Group maintains general allowances of at least 1 of credit exposures arising from both on and off-balance sheet items against which specific allowances have not been made adjusted for collaterals held. This is in accordance with the transitional arrangements under Notice to Banks No. 612 “Credit Files, Grading and Provisioning” issued by the Monetary Authority of Singapore. b Financial assets classified as available-for-sale The Group assesses at each balance sheet date whether there is objective evidence that an available-for-sale financial asset is impaired. In the case of an equity investment, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the asset is impaired. When there is objective evidence of an impairment of an available-for-sale financial asset, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement, is reclassified from the revaluation reserve within equity to the income statement. Impairment losses recognised in the income statement on equity investments are not reversed, until the equity investments are disposed of. A subsequent recovery in the value of an available-for-sale debt instrument whose value has been impaired is reversed through the income statement if there has been an identifiable event that led to the recovery.

2.9 Repurchase agreements