Provisions and other liabilities Provisions are recognised when the Group has a present legal Derivative fi nancial instruments and hedge

2.12 Impairment of non-fi nancial assets Goodwill

An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the recoverable amount of the CGU. Recoverable amount of a CGU is the higher of the CGU’s fair value less cost to sell and its value-in-use. An impairment loss on goodwill recognised in the income statement cannot be reversed in subsequent periods. Properties and other fi xed assets, and investment in subsidiaries, associates and joint ventures Properties including investment properties and other fi xed assets, and investment in subsidiaries, associates and joint ventures are reviewed for impairment at each balance sheet date to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. If such an indication exists, the carrying value of the asset is written down to its recoverable amount being the higher of the fair value less cost to sell and the value-in-use. The impairment loss is charged to the income statement.

2.13 Financial liabilities The Group classifi es its fi nancial liabilities in the following

categories: a fi nancial liabilities at fair value through profi t or loss; and b fi nancial liabilities at amortised cost. Financial liabilities are classifi ed as fi nancial liabilities at fair value through profi t or loss if they are incurred for the purpose of short-term repurchasing held for trading or designated by management on initial recognition designated under the fair value option. Derivatives are classifi ed as held for trading unless they are designated as hedging instruments. The specifi c Group accounting policy on derivatives is detailed in Note 2.15. Financial liabilities designated under the fair value option meet at least one of the following criteria upon designation: • it eliminates or signifi cantly reduces measurement or recognition inconsistencies that would otherwise arise from measuring fi nancial liabilities, or recognising gains or losses on them, using different bases; or • the fi nancial liability contains an embedded derivative that would otherwise need to be separately recorded. Financial liabilities are initially recognised at fair value, net of transaction costs incurred, except for fi nancial liabilities at fair value through profi t or loss, for which transaction costs are expensed off immediately. Financial liabilities classifi ed as fair value through profi t or loss are subsequently carried at fair value. Realised or unrealised gains or losses on fi nancial liabilities held for trading and fi nancial liabilities designated under the fair value option, except interest expense, are taken to “Net trading income” and “Net income from fi nancial instruments designated at fair value” respectively in the income statement in the period they arise. All other fi nancial liabilities are subsequently carried at amortised cost using the effective interest method. The fair value of fi nancial liabilities is estimated by discounting the future contractual cash fl ows at the current market interest rate that is available to the Group for similar fi nancial instruments. Where applicable, a valuation reserve or pricing adjustment is applied to arrive at the fair value. A fi nancial liability is removed or derecognised from the balance sheet when the obligation specifi ed in the contract is discharged, cancelled or expired.

2.14 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 outfl ow of resources embodying economic benefi ts 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.

2.15 Derivative fi nancial instruments and hedge

accounting Derivatives are initially recognised at fair value at the date on which a derivative contract is entered into and are subsequently remeasured at fair value. All derivatives are classifi ed as assets when the fair value is positive Positive fair values for fi nancial derivatives and as liabilities when the fair value is negative Negative fair values for fi nancial derivatives. Changes in the fair value of derivatives other than those designated as fair value hedges, cash fl ow hedges or net investments in foreign operations hedges are included in “Net trading income”. Certain derivatives embedded in other fi nancial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profi t or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in “Net trading income”. For fi nancial instruments designated as hedging instruments, each entity within the Group documents at the inception the relationship between the hedging instrument and hedged item, including the risk management objective for undertaking various hedge transactions and methods used to assess the effectiveness of the hedge. Each entity within the Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivative is highly effective in offsetting changes in the fair value or cash fl ows of the hedged item. Fair value hedge For a qualifying fair value hedge, the changes in the fair value of the hedging derivatives are recorded in the income statement, together with any changes in the fair value of the hedged item attributable to the hedged risk. Gain or loss arising from hedge ineffectiveness is recognised in the income statement. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item is amortised to the income statement over its remaining maturity, using the effective interest method. Cash fl ow hedge The effective portion of changes in the fair value of a derivative designated and qualifying as a hedge of future cash fl ows is recognised in other comprehensive income and accumulated under the cash fl ow hedge reserve in equity, and reclassifi ed to the income statement in the periods when the hedged item affects profi t or loss. The ineffective portion of the gain or loss is recognised immediately in the income statement under “Net trading income”. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in the cash fl ow hedge reserve remains until the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss in the cash fl ow hedge reserve is reclassifi ed from equity to profi t or loss. Hedge of net investment in a foreign operation Hedges of net investments in the Group’s foreign operations are accounted for in a manner similar to cash fl ow hedges. The gain or loss from the derivative relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated under the capital reserve in equity. The gain or loss relating to the ineffective portion of the hedge is recognised immediately in the income statement under “Net trading income”. On disposal of the foreign operations, the cumulative gain or loss in the capital reserve is reclassifi ed to profi t or loss under “Net trading income”.

2.16 Employee benefi ts Employee benefi ts, which include base pay, cash bonuses,