Page 35 - GTBank Annual Report 2020 eBook
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are solely payments of principal and interest on determining whether their cash flows are solely
the principal amount outstanding (SPPI). payment of principal and interest.
Principal is defined as the fair value of the a) Financial assets measured at FVOCI
instrument at initial recognition. Principal may
change over the life of the instruments due to Financial assets are measured at FVOCI if they
repayments. Interest is defined as are held within a business model whose
consideration for the time value of money and objective is to hold for collection of contractual
the credit risk associated with the principal cash flows and for selling financial assets,
amount outstanding and for other basic lending where the assets’ cash flows represent
risks and costs (liquidity risk and administrative payments that are solely payments of principal
costs), as well as a profit margin. and interest. Subsequent to initial recognition,
In assessing whether the contractual cash unrealized gains and losses on debt
flows are solely payments of principal and instruments measured at FVOCI are recorded
interest, the Bank considers the contractual in other comprehensive Income (OCI), unless
terms of the instrument. This includes the instrument is designated in a fair value
assessing whether the financial asset contains hedge relationship. Upon derecognition,
a contractual term that could change the timing realized gains and losses are reclassified from
or amount of contractual cash flows such that OCI and recorded in Other Income in the
it would not meet this condition. In making the Statement of Income. Foreign exchange gains
assessment, the Bank considers: and losses that relate to the amortized cost of
the debt instrument are recognized in the
contingent events that would change Statement of Income. Premiums, discounts
the amount and timing of cash flows; and related transaction costs are amortized
leverage features; over the expected life of the instrument to
prepayment and extension terms; Interest income in the Statement of Income
terms that limit the Bank’s claim to using the effective interest rate method.
cash flows from specified assets (e.g., Impairment on financial assets measured at
non-recourse asset arrangements); FVOCI is calculated using the expected credit
and loss approach.
Features that modify consideration of
the time value of money – e.g.,
periodical test of interest rates. b) Financial assets measured at FVTPL
The Bank holds a portfolio of long-term fixed Debt instruments measured at FVTPL include
rate loans for which it has the option to propose assets held for trading purposes, assets held
a revision of the interest rate at periodical reset as part of a portfolio managed on a fair value
dates. These reset rights are limited to the basis and assets whose cash flows do not
market rate at the time of revision. The right to represent payments that are solely payments
reset the rates of the loans based on the of principal and interest. Financial assets may
revision in market rates are part of the also be designated at FVTPL if by so doing
contractually agreed terms on inception of the eliminates or significantly reduces an
loan agreement, therefore the borrowers are accounting mismatch which would otherwise
obligated to comply with the reset rates without arise. These instruments are measured at fair
any option of repayment of the loans at par at value in the Statement of Financial Position,
any reset date. The bank has determined that with transaction costs recognized immediately
the contractual cash flows of these loans are in the Statement of Income as part of Other
solely payments of principal and interest Income. Realized and unrealized gains and
because the option varies with the interest rate losses are recognized as part of Other Income
in a way that is considered a consideration for in the Statement of Income.
the time value of money, credit risk, other basic
lending risks and costs associated with the c) Equity Instruments
principal amount outstanding.
Equity instruments are instruments that meet
Financial assets with embedded derivatives the definition of equity from the issuer’s
are considered in their entirety when perspective; that is, any contract that Annual Report 2020
Guaranty Trust Bank Gambia Limited www.gtbankgambia.com 33
