Year ended 31 December 2012
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amortised cost or fair value depending on their classification.
Reverse repurchase agreements Reverse repos are treated as collateralised lending. The amount lent
is reflected as an asset either as “Loans and advances to customers”, “Due from banks” or “Financial assets at
fair value through profit or loss”. Amounts paid and received in excess of the amounts
borrowed and lent on the repos and reverse repos are amortised as interest expense and interest income
respectively using the effective interest method. 2.12 Goodwill on consolidation
Goodwill arising from business combinations on or after 1 January 2010 represents the excess of the
consideration transferred, the amount of any non- controlling interest in the acquiree and the acquisition-
date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable
assets acquired. Goodwill in business combinations prior to 1 January 2010 represents the excess of
acquisition cost over the fair values of the identifiable assets acquired, liabilities and contingent liabilities
assumed at the date of exchange. Goodwill is stated at cost less impairment losses and it is tested at least
annually for impairment. At the acquisition date, any goodwill acquired is
allocated to each of the cash-generating units CGU or group of CGUs expected to benefit from the
combination’s synergies for the purpose of impairment testing. The determination of CGUs takes into account
how the Group manages and reports its businesses and requires judgment.
An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the
recoverable amount of the CGU or group of CGUs to which goodwill is allocated. Recoverable amount of a
CGU or CGU group
is the higher of the CGU’s or CGU group’s fair value less cost to sell and its value-in-use.
An impairment loss on goodwill is recognised in the income statement and cannot be reversed in
subsequent periods. 2.13 Properties and other fixed assets
Properties including investment properties and other fixed assets are stated at cost less accumulated
depreciation and allowances for impairment. The cost of an item of properties and other fixed assets includes
its purchase price and any cost that is directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by management.
Depreciation is calculated using the straight-line method to write down the cost of properties and other
fixed assets to their residual values over their estimated useful lives. Generally the useful lives are as follows:
Buildings 50 years or over the remaining
lease period, whichever is shorter
Leasehold land 100 years or remaining lease
period, whichever is shorter. Leasehold land where the
unexpired lease period is more than 100 years is not
depreciated.
IntangibleComputer software
3 - 5 years Office equipment,
5 - 10 years furniture and fittings
The estimated useful life and residual values of properties and fixed assets are reviewed on each
balance sheet date. Subsequent expenditure relating to properties and
other fixed assets that has already been recognised is added to the carrying amount of the asset only when it
is probable that future economic benefits associated with the item will flow to the Group and the cost can be
measured reliably. Other subsequent expenditure is recognised as hire and maintenance expense in the
income statement during the financial year in which it is incurred.
Properties and other fixed assets are subject to an impairment review if there are events or changes in
circumstances which indicate that the carrying amount may not be recoverable.
Upon disposal, the difference between the net disposal proceeds and the carrying amount is taken to the
income statement. Please refer to Note 26 for the details of properties and
other fixed assets and their movements during the year.
2.14 Financial liabilities Initial recognition, classification and subsequent
measurement Financial liabilities are initially recognised at fair value.
The Group classifies and measures its financial liabilities where allowed by FRS in accordance with the
purpose for which the financial liabilities are incurred and managed. Accordingly,
Financial liabilities are classified as financial liabilities at fair value through profit or loss if
they are incurred for the purpose of repurchasing in the near term held for trading or designated by
management on initial recognition designated under the fair value option. This is mainly the case
within the “Treasury” segment and pertains often to short positions in securities for the purpose of
ongoing market making, hedging or trading. Such financial liabilities are reported on the balance sheet
under “Financial liabilities at fair value through profit or loss”.
Year ended 31 December 2012
13
In addition, some financial liabilities used to fund specific financial assets measured at fair value
through profit or loss are designated under the fair value option when doing so eliminates or
significantly reduces measurement or recognition inconsistencies that would otherwise arise. Please
refer to Note 30 for details on these financial liabilities in the Group
’s financial statements. Realised or unrealised gains or losses on financial
liabilities held for trading and financial liabilities designated under the fair value option, except
interest expense , are taken to “Net trading income”
and “Net income from financial instruments designated at fair value” respectively in the income
statement in the period they arise. Derivative liabilities are treated consistently with
derivative assets. Please refer to Note 2.8 for the accounting policy on derivatives.
Other financial liabilities are carried at amortised cost using the effective interest method. These
comprise predominantly the Group ’s deposit
portfolio under “Due to non-bank customers” and
“Due to banks”, and those under “Other liabilities”. Please refer to Note 15 for further details on the types
of financial liabilities classified and measured as above. Determination of fair value
The fair value of financial liabilities is the amount the liability can be settled at. The fair value is estimated by
discounting the future contractual cash flows at the current market interest rate that is available to the
Group for similar financial instruments. Where applicable, a valuation reserve or pricing adjustment is
applied to arrive at the fair value. Please refer also to Note 42.1 for further fair value
measurement disclosures. Derecognition
A financial liability is derecognised from the balance sheet when the obligation specified in the contract is
discharged, cancelled or expired. 2.15 Loan Commitments, Letters of Credit and
Financial Guarantees Loan Commitments
Loan commitments are typically not financial instruments and are not recognised on balance sheet
but are disclosed off-balance sheet in accordance with FRS 37 Provisions, Contingent Liabilities and
Contingent Assets. They form part of the disclosures in Note 38. Upon a loan draw-down by the counterparty,
the amount of the loan is generally accounted for under
“loans and receivables” as described in Note 2.8.
Letters of Credit Letters of credit are recorded off-balance sheet as
contingent liabilities upon issuance, and the corresponding payablesreceivables tofrom the
beneficiariesapplicants are recorded upon acceptance of the underlying documents.
Financial Guarantees A financial guarantee is initially recognised in the
financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition,
the Group
’s liability under each guarantee is measured at the higher of the initial measurement less
amortisation and the best estimate of the expenditure required to settle any financial obligation arising at the
balance sheet date. The exposure to potential losses associated with a
financial guarantee is monitored periodically. When there is objective evidence indicating probable losses,
a provision is recognised for the financial guarantee. 2.16 Provisions and other liabilities
Provisions are recognised when:
the Group has a present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, and a reliable estimate of the amount of the obligation
can be made. The amount recognised as a provision is the best
estimate of the expenditure required to settle the present obligation at the balance sheet date.
2.17 Share capital Ordinary shares and preference shares which do not
