Page 34 - GTBANK GAMNBIA 2021 ANNUAL REPORT

✓ Business Model 1(BM1): Financial assets held BM1 category that will not constitute a change
with the sole objective to collect contractual in business model:
cash flows;
✓ Business Model 2 (BM2): Financial assets held ➢ Selling the financial asset to realize
with the objective of both collecting contractual cash to deal with unforeseen need
cash flows and selling; and for liquidity (infrequent);
✓ Business Model 3 (BM3): Financial assets held ➢ Selling the financial asset to manage
with neither of the objectives mentioned in BM1 credit concentration risk (infrequent);
or BM2 above. These are basically financial ➢ Selling the financial assets as a
assets held with the sole objective to trade and result of changes in tax laws
to realize fair value changes. (infrequent);
➢ Other situations also depend upon
The Bank may decide to sell financial instruments held the facts and circumstances which
under the BM1 category with the objective to collect need to be judged by the
contractual cash flows without necessarily changing its management.
business model if one or more of the following
conditions are met: Cash flow characteristics assessment
✓ When the Bank sells financial assets to reduce
credit risk or losses because of an increase in The contractual cash flow characteristics assessment
the assets’ credit risk. The Bank considers sale involves assessing the contractual features of an
of financial assets that may occur in BM1 to be instrument to determine if they give rise to cash flows
infrequent if the sales is one-off during the that are consistent with a basic lending arrangement.
Financial Year and/or occurs at most once Contractual cash flows are consistent with a basic
during the quarter or at most three (3) times lending arrangement if they represent cash flows that
within the Financial Year.
✓ Where these sales are infrequent even if are solely payments of principal and interest on the
principal amount outstanding (SPPI).
significant in value. A Sale of financial assets is
considered infrequent if the sale is one-off
during the Financial Year and/or occurs at most Principal is defined as the fair value of the instrument at
once during the quarter or at most three (3) initial recognition. Principal may change over the life of
times within the Financial Year. the instruments due to repayments. Interest is defined
✓ Where these sales are insignificant in value both as consideration for the time value of money and the
individually and in aggregate, even if frequent. A credit risk associated with the principal amount
sale is considered insignificant if the portion of outstanding and for other basic lending risks and costs
the financial assets sold is equal to or less than (liquidity risk and administrative costs), as well as a
five (5) per cent of the carrying amount (book profit margin.
value) of the total assets within the business In assessing whether the contractual cash flows are
model. solely payments of principal and interest, the Bank
✓ When these sales are made close to the considers the contractual terms of the instrument. This
maturity of the financial assets and the proceeds includes assessing whether the financial asset contains
from the sales approximates the collection of the a contractual term that could change the timing or
remaining contractual cash flows. A sale is amount of contractual cash flows such that it would not
considered to be close to maturity if the financial meet this condition. In making the assessment, the
assets has a tenor to maturity of not more than Bank considers:
one (1) year and/or the difference between the
remaining contractual cash flows expected from ✓ contingent events that would change the amount
the financial asset does not exceed the cash and timing of cash flows;
flows from the sales by ten (10) per cent. • Other ✓ leverage features;
reasons: The following reasons outlined below ✓ prepayment and extension terms;
may constitute ‘Other Reasons’ that may
necessitate selling financial assets from the

Annual Report 2021

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