Page 127 - EXIM-Bank_Annual-Report-2023

Management Discussion and Analysis Ensuring Sustainability Commitment to Lead Upholding Accountability Financial Statements 125

Notes to the fiNaNcial statemeNts

2. MATErIAL ACCouNTING PoLICy INForMATIoN (cont’d)
2.4 Summary of material accounting policy information (cont’d)

(f) Financial assets (cont’d)
The SPPI test

As a second step of its classification process, the Group and the Bank assesses the contractual terms to identify
whether they meet the SPPI test.
‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may
change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the
premium/discount).
The most significant elements if interest within a debt arrangement are typically the consideration for the time
value of money and credit risk. To make the SPPI assessment, the Group and the Bank apply judgement and
considers relevant factors such as the currency in which the financial assets is denominated, and the period for
which the interest rate is set.

(i) Financial assets at amortised cost
Financial assets at amortised cost are subsequently measured using the Effective Interest Rate (“EIR”) or
the Effective Profit Rate (“EPR”) method and are subject to impairment. Gains and losses are recognised in
statement of profit or loss when the asset is derecognised, modified or impaired.
(ii) Financial assets at FVOCI

For debt instruments at FVOCI, interest income, foreign exchange revaluation and impairment losses or
reversals are recognised in the statement of profit or loss and computed in the same manner as for financial
assets measured at amortised cost. The remaining fair value changes are recognised in other comprehensive
income (“OCI”). Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit
or loss.

(iii) Financial assets designated at FVOCI
Upon initial recognition, the Group and the Bank can elect to classify irrevocably its equity investments as
equity instruments designated at FVOCI when they meet the definition of equity under MFRS 9.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as
other income in the statement of profit or loss when the right of payment has been established, except when
the Group and the Bank benefit from such proceeds as a recovery of part of the cost of the financial asset,
in which case, such gains are recorded in OCI. Equity instruments designated at FVOCI are not subject to
impairment assessment.