Page 68 - BKT Annual Report 2024 EN

Notes to the Consolidated Financial Statements for the year ended 31 December 2024 Notes to the Consolidated Financial Statements for the year ended 31 December 2024
(amounts in USD, unless otherwise stated) (amounts in USD, unless otherwise stated)

Financial assets at fair value through other comprehensive income (T) (viii) Impairment of financial assets
The Group accounts for financial assets at FVOCI if the assets meet the following conditions: IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit
• they are held under a business model whose objective it is “hold to collect” the associated cash flows and sell and loss (ECL) model’.
• the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost
amount outstanding. and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial
Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon derecognition of the asset. The Group’s guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.
government bonds and treasury bills, corporate bonds, promissory notes, assets backed securities and equity portfolio that were Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a
previously classified as available for sale under IAS 39 fall into this category. broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions,
reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
(v) Offsetting ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the
the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability second category.
simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of
and losses arising from a group of similar transactions such as in the Bank’s trading activity. the financial instrument.

(vi) Amortised cost measurement (ix) Classification and measurement of financial liabilities
The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group’s financial liabilities were
minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between not impacted by the adoption of IFRS 9. The Group’s financial liabilities include Customer deposits borrowings from banks and other
the initial amount recognised and the maturity amount, minus any reduction for impairment. financial institutions, subordinated debt and other payables. Financial liabilities are initially measured at fair value, and, where applicable,
adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss.
(vii) Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial
participants at the measurement date. liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than
When available, the Bank measures the fair value of an instrument using quoted prices in an active market for that instrument. A derivative financial instruments that are designated and effective as hedging instruments). All interest-related charges and, if applicable,
market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income.
transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. Valuation techniques (x) Derivative financial instruments and hedge accounting
include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value The Group applies the new hedge accounting requirements in IFRS 9 prospectively.
of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation Derivative financial instruments are accounted for at fair value through profit and loss (FVTPL) except for derivatives designated as
technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Bank, incorporates all factors hedging instruments in cash flow hedge relationships, which require a specific accounting treatment. To qualify for hedge accounting,
that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial the hedging relationship must meet all of the following requirements:
instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent • there is an economic relationship between the hedged item and the hedging instrument
in the financial instrument. • the effect of credit risk does not dominate the value changes that result from that economic relationship
• the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually
The Bank calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item.
same instrument or based on other available observable market data.
When an asset is acquired or a liability is assumed in an exchange transaction for that asset or liability, the transaction price is the price All derivative financial instruments used for hedge accounting are recognised initially at fair value and reported subsequently at fair
paid to acquire the asset or received to assume the liability (an entry price). In contrast, the fair value of the asset or liability is the price value in the statement of financial position. To the extent that the hedge is effective, changes in the fair value of derivatives designated
that would be received to sell the asset or paid to transfer the liability (an exit price). In many cases the transaction price equals the as hedging instruments in cash flow hedges are recognised in other comprehensive income and included within the cash flow hedge
fair value (that might be the case when on the transaction date the transaction to buy an asset takes place in the market in which the reserve in equity. Any ineffectiveness in the hedge relationship is recognised immediately in profit or loss.
asset would be sold). When determining whether fair value at initial recognition equals the transaction price, the Bank takes in account
factors specific to the transaction and to the asset or liability. At the time the hedged item affects profit or loss, any gain or loss previously recognised in other comprehensive income is reclassified
When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at from equity to profit or loss and presented as a reclassification adjustment within other comprehensive income. However, if a non-
the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently financial asset or liability is recognised as a result of the hedged transaction, the gains and losses previously recognised in other
recognised in profit or loss depending on the individual facts and circumstances of the transaction but not later than when the valuation comprehensive income are included in the initial measurement of the hedged item. If a forecast transaction is no longer expected to
is supported wholly by observable market data or the transaction is closed out. occur, any related gain or loss recognised in other comprehensive income is transferred immediately to profit or loss. If the hedging

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