Page 109 - EXIM-BANK-AR20

Section 06 Financial Statements
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2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.4 Summary of significant accounting policies (cont’d.)
(f) Financial assets (cont’d.)

Initial recognition and measurement (cont’d.)
In order for a financial asset to be classified and measured at amortised cost or FVOCI, it needs to give rise
to cash flows that are ‘solely payments of principal and interests (“SPPI”) on the principal amount outstanding.
This assessment is referred to as the SPPI test and is performed at an instrument level.
Business Model assessments

The Group and the Bank determine its business model at the level that best reflect how it manages groups of
financial assets to achieve its business objective.
The Group and the Bank holds financial asset to generate returns and provide a capital base to provide for settlement
of claims as they arise. The Group and the Bank considers the timing, amount and volatility of cash flow requirements
to support insurance liability portfolios in determining the business model for the assets as well as the potential to
maximise return for shareholders and future business development.
The Group and the Bank business model is not assessed on an instrument-by-instrument basis, but a higher level
of aggregated portfolios that is based on observable factors and is determined by the key management personnel
on the basis of both:
– The way that assets are managed and their performance is reported to them; and
– The contractual cash flow characteristics of the financial asset.
The expected frequency, value and timing of asset sales are also important aspects of the Group’s and the
Bank’s assessment. The Group and the Bank assess its business models at each reporting period in order to
determine whether the models have changed since the preceding period.
The business model assessments are based on reasonably expected scenarios without taking ‘worst case’ or
‘stress case’ scenarios into account. If cash flows after initial recognition are realised in a way that is difference from
the Group’s and the Bank’s original expectations, the Group and the Bank do not change the classification of the
remaining financial assets held in that business model, but incorporates such information when assessing newly
originated or newly purchased financial assets going forward.
Change in business model is not expected to be frequent, but should such event take place, it must be:

– Determined by the Group’s and the Bank’s senior management as a result of external on internal changes;
– Significant to the Group’s and the Bank’s operations; and
– Demonstrable to external parties.
A change in the business model will occur only when the Group and the Bank begin or cease to perform an activity
that is significant to its operations. Change in the objective of the business model must be effected before the
reclassification date.
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).