Page 61 - UBF AR 2018 - E Version

NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 March 2018
occurring before the reporting date, which the Group
is not able to identify on an individual loan basis,
and that can be reliably estimated. These losses will
only be individually identified in the future. As soon
as information becomes available which identifies
losses on individual financial assets within the group,
those financial assets are removed from the group and
assessed on an individual basis for impairment.
The collective impairment allowance is determined after
taking into account:
• Historical loss experience in portfolios of similar
credit risk; and
• Management’s experienced judgment as to
whether current economic and credit conditions
are such that the actual level of inherent losses
at the reporting date is likely to be greater or
less than that suggested by historical experience.
Homogeneous groups of financial assets
Statistical methods are used to determine impairment
losses on a collective basis for homogeneous groups
of financial assets. Losses in these groups of financial
assets are recorded on an individual basis when
individual financial assets are written off, at which point Impairment of Available For Sale Financial Investments
they are removed from the group.
The Company uses the Net Flow Rate method to
calculate the historical loss experience on collective
basis. Under this methodology the movement in the
outstanding balance of customers into bad categories
over the periods are used to estimate the amount of
financial assets that will eventually be written off as a
result of the events occurring before the reporting date
which the Group is not able to identify on an individual
loan basis, and that can be reliably estimated.
Reversal of Impairment
If the amount of an impairment loss decreases in a
subsequent period, and the decrease can be related
objectively to an event occurring after the impairment
was recognized, the excess is written back by reducing
the financial asset impairment allowance account
accordingly. The write-back is recognized in the
Statement of Profit or Loss.
Write-off of Financial Assets carried at Amortized Cost
Financial assets (and the related impairment allowance
accounts) are normally written off, either partially or
in full, when there is no realistic prospect of recovery.
Where financial assets are secured, this is generally
after receipt of any proceeds from the realization of
security.
Impairment of Rescheduled Loans and Advances
Where possible, the Company seeks to restructure loans
rather than to take possession of collateral. This may
involve extending the payment arrangements and the
agreement of new loan conditions. Once the terms have
been renegotiated, any impairment is measured using
the original EIR as calculated before the modification
of terms and the loan is no longer considered past due.
Management continually reviews renegotiated loans to
Annual Report 2018
ensure that all criteria are met and that future payments
are likely to occur. The loans continue to be subjected
to an individual or collective impairment assessment,
calculated using the loan’s original EIR.
Collateral Valuation
The Company seeks to use collateral, where possible,
to mitigate its risks on financial assets. The collateral
comes in various forms such as cash, gold, securities, To
the extent possible, the Group uses active market data
for valuing financial assets, held as collateral. Other
financial assets which do not have readily determinable
market value are valued using models. Non-financial
collateral, such as real estate, is valued based on data
provided by third parties such as independent valuers,
Audited Financial Statements and other independent
sources.
Collateral Repossessed
The Company’s policy is to determine whether a
repossessed asset is best used for its internal operations
or should be sold. Assets determined to be useful for
the internal operations are transferred to their relevant
asset category at the market value.
For available for sale financial investments, the
Company assesses at each reporting date whether there
is objective evidence that an investment is impaired.
In the case of debt instruments classified as available
for sale, the Company assesses individually whether
there is objective evidence of impairment based on the
same criteria as financial assets carried at amortized
cost. However, the amount recorded for impairment
is the cumulative loss measured as the difference
between the amortized cost and the current fair value,
less any impairment loss on that investment previously
recognized in the income statement. Future interest
income is based on the reduced carrying amount and
is accrued using the rate of interest used to discount
the future cash flows for the purpose of measuring the
impairment loss. The interest income is recorded as
part of ‘Interest and similar income’. If, in a subsequent
period, the fair value of a debt instrument increases and
the increase can be objectively related to a credit event
occurring after the impairment loss was recognized in
the income statement, the impairment loss is reversed
through the income statement.
In the case of equity investments classified as available
for sale, objective evidence would also include a
‘significant’ or ‘prolonged’ decline in the fair value of
the investment below its cost. The Company treats
‘significant ‘generally as 20% and ‘prolonged’ generally
as greater than six months. Where there is evidence
of impairment, the cumulative loss measured as the
difference between the acquisition cost and the current
fair value, less any impairment loss on that investment
previously recognized in the income statement – is
removed from equity and recognized in the income
statement.
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