Page 49 - Ecobank Gambia Annual Report 2020
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A) Financial Assets is measured at amortized cost if it sale of assets. If neither of these is applicable (e.g.
meets the following conditions: financial assets are held for trading purposes), then the
¦ The Asset is held within a business model whose financial assets are classified as part of ‘other’ business
model and measured at FVTPL. Factors considered by the
objective is to hold assets to collect contractual cash Bank in determining the business model for a group of
flows; assets include past experience on how the cash flows for
¦ The contractual terms of the financial Assets give rise these assets were collected, how the asset’s performance
on specific dates to cash flows that are solely for the is evaluated and reported to key management personnel,
purpose of principal and interest on the outstanding how risks are assessed and managed and how managers
principal amount outstanding. are compensated. The Bank makes an assessment of the
After initial measurement, debt instruments in this objective of a business model in which an asset is held
category are carried at amortized cost using the effective at a portfolio level because this best reflects the way
interest rate method. Amortized cost is calculated taking the business is managed and information is provided to
into account any discount or premium on acquisition, management.
transaction costs and fees that are an integral part of
the effective interest rate. Impairment on financial Other factors considered in the determination of the
assets measured at amortized cost is calculated using business model include:
the expected credit loss approach. The carrying amount
of these assets is adjusted by any expected credit loss ¦ the stated policies and objectives for the portfolio
allowance recognised. Interest income from these and the operation of those policies in practice. In
financial assets is included in ‘Interest and similar income’ particular, whether management’s strategy focuses
using the effective interest rate method. on earning contractual interest revenue, maintaining
C) Equity Instruments a particular interest rate profile, matching the
Equity instruments are instruments that meet the duration of the financial assets to the duration of the
definition of equity from the issuer’s perspective; that is, liabilities that are funding those assets or realising
instruments that do not contain a contractual obligation cash flows through the sale of the assets;
to pay and that evidence a residual interest in the issuer’s
net assets. Equity instruments are measured at FVTPL. ¦ how the performance of the portfolio is evaluated
However, on initial recognition of an equity investment and reported to the Affiliate’s management;
that is not held for trading, the Bank may irrevocably elect
for strategic or long-term investment reasons to present ¦ the risks that affect the performance of the business
subsequent changes in fair value in OCI. This election is model (and the financial assets held within that
made on an investment-by-investment basis. The Bank business model) and how those risks are managed;
does not hold any equity Investments as at period ended
31st December 2020. ¦ how managers of the business are compensated –
All other financial assets not classified as measured e.g. whether compensation is based on the fair value
at amortized cost or FVTOCI as discussed above are of the assets managed or the contractual cash flows
measured at FVTPL. In addition, on initial recognition, collected; and
it is permissible to irrevocably designate a financial
asset that otherwise meets the requirements to be ¦ the frequency, volume and timing of sales in
measured at amortized cost or at FVTOCI as at FVTPL if prior periods, the reasons for such sales and its
doing so eliminates or significantly reduces an accounting expectations about future sales activity. However,
mismatch that would otherwise arise. information about sales activity is not considered
D) Business Model Assessment in isolation, but as part of an overall assessment of
Business model reflects how the Affiliate manages the how the Bank’s stated objective for managing the
assets in order to generate cash flows. That is, whether financial assets is achieved and how cash flows are
the Bank’s objective is solely to collect the contractual realised.
cash flows from the assets or is to collect both the
contractual cash flows and cash flows arising from the E) Assessment of whether contractual cash flows are
solely payments of principal and interest:
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For the purposes of this assessment, ‘principal’ is defined
as the fair value of the financial asset on initial recognition.
Principal may change over the life of the instruments due
to repayments. ‘Interest’ is defined as consideration for
the time value of money and for the credit risk associated
with the principal amount outstanding during a particular
Ecobank Gambia Annual Report 2020 47
