Disclosure of Financial Information For the year ended 31 December 2015 1
Index for Disclosure of Financial Information Page N o 1. Article º 75(1) of FSAM (Financial System Act of Macau) (i) Balance Sheet 4-5 (ii) Profit & Loss Account 6-7 (iii) Summary of the Chairman s Report 8-9 (iv) Report from the Supervisory Board 10 (v) Summary of the External Auditors report 11-12 (vi) List of Institutions with more than 5% interests 13 (vii) List of shareholders with qualifying holdings 14 (viii) Names of the members of the company boards 15-16 2. Corporate Governance 17 3. Cash Flow Statement 18 4. Off-balance-sheet exposures other than derivatives transactions 19 5. Derivatives transactions 20 6. Accounting Policies 21-34 7. Related Party Transactions 35-37 (i) (ii) Qualitative disclosure - Policy for lending to related parties Quantitative disclosure - transactions and outstanding balances 8. Capital 38-39 (i) (ii) Qualitative disclosure Quantitative disclosure - components of own funds & solvency ratio 9. Solvency ratio for the top consolidated group & its significant bank subsidiaries 40 2
10. Credit Risk 41-43 (i)qualitative disclosure (ii)quantitative disclosure 11. Market risk 44 12. Interest rate risk 45 (i)qualitative disclosure (ii)quantitative disclosure - economic value on rate shocks 13. Operational risk 46 Operational risk management objectives and policies 14. Foreign exchange risk 47 (i)risk management objectives and policies (ii)total net long and net short positions in foreign currencies 15. Liquidity risk 48-49 (i)qualitative disclosure (ii)quantitative disclosure 16. Other information 50 3
(i) Balance Sheet 4 BANCO CHINÊ S DE MACAU, S.A. 澳門華人銀行股份有限公司 (Publicação ao abrigo do Artigo 75 do RJSF aprovado pelo Decreto-Lei no.32/93/m, de 5 de Julho ) ( 根據七月五日第三二 / 九三 /M 號法令核準之金融體系法律制度第七十五條之公告 ) BALANÇO ANUAL EM 31 DE DEZEMBRO DE 2015 資產負債表於二零一五年十二月三十一日 MOP 澳門幣 PROVISÕ ES ACTIVO AMORTIZAÇÕ ES E ACTIVO 資產 ACTIVO BRUTO MENOS - VALIAS LÍQUIDO 資產總額 備用金, 折舊和減值 資產淨額 CAIXA 34,298,775.39 34,298,775.39 現金 DEPÓ SITOS NA AMCM 50,154,575.50 50,154,575.50 存款 VALORES A COBRAR 應收賬項 DEPÓ SITOS À ORDEM NOUTRAS INSTITUIÇÕ ES DE CRÉDITO NO TERRITÓ RIO 75,007,377.26 75,007,377.26 在本地之其他信用機構活期存款 DEPÓ SITOS À ORDEM NO EXTERIOR 74,871,771.88 74,871,771.88 在外地之其他信用機構活期存款 OURO E PRATA 金, 銀 OUTROS VALORES 18,536.00 18,536.00 其他流動資產 CRÉDITO CONCEDIDO 458,788,993.21 33,653,977.29 425,135,015.92 放款 APLICAÇÕ ES EM INSTITUIÇÕ ES DE CRÉDITO 60,000,000.00 60,000,000.00 NO TERRITÓ RIO 在本澳信用機構拆放 DEPÓ SITOS COM PRÉ-AVISO E A PRAZO 22,058,120.00 22,058,120.00 NO EXTERIOR 在外地信用機構之通知及定期存款 ACÇÕ ES, OBRIGAÇÕ ES E QUOTAS 75,521,961.45 75,521,961.45 股票, 債券及股權 APLICAÇÕ ES DE RECURSOS CONSIGNADOS 承銷資金投資 DEVEDORES 16,303,140.07 16,303,140.07 債務人 OUTRAS APLICAÇÕ ES 其他投資 PARTICIPAÇÕ ES FINANCEIRAS 財務投資 IMÓ VEIS 169,999,861.72 1,002,901.47 168,996,960.25 不動產 EQUIPAMENTO 25,746,629.74 21,979,933.29 3,766,696.45 設備 CUSTOS PLURIENAIS 遞延費用 DESPESAS DE INSTALAÇÃ O 開辦費用 IMOBILIZAÇÕ ES EM CURSO 未完成不動產 OUTROS VALORES IMOBILIZADOS 其他固定資產 CONTAS INTERNAS E DE REGULARIZAÇÃ O 5,748,805.69 5,748,805.69 內部及調整賬 TOTAIS 1,068,518,547.91 56,636,812.05 1,011,881,735.86 總額
(i) Balance Sheet(continued) BANCO CHINÊ S DE MACAU, S.A. 澳門華人銀行股份有限公司 BALANÇO ANUAL EM 31 DE DEZEMBRO DE 2015 資產負債表於二零一五年十二月三十一日 MOP 澳門幣 PASSIVO SUB-TOTAIS TOTAL 負債 小結 總額 DEPÓ SITOS À ORDEM 179,308,202.42 活期存款 DEPÓ SITOS C/PRÉ-AVISO 通知存款 DEPÓ SITOS A PRAZO 405,139,631.17 定期存款 DEPÓ SITOS DE SECTOR PÚ BLICO 1,392.04 584,449,225.63 公共機構存款 RECURSOS DE INSTITUIÇÕ ES DE CRÉDITO NO TERRITÓ RIO 本地信用機構資金 RECURSOS DE OUTRAS ENTIDADES LOCAIS 其他本地機構資金 EMPRESTIMOS EM MOEDAS EXTERNAS 外幣借款 EMPRÉSTIMOS POR OBRIGAÇÕ ES 債券借款 CREDORES POR RECURSOS CONSIGNADOS 承銷資金債權人 CHEQUES E ORDENS A PAGAR 365,061.47 應付支票及票據 CREDORES 20,132,133.05 債權人 EXIGIBILIDADES DIVERSAS 504,481.00 21,001,675.52 各項負債 CONTAS INTERNAS E DE REGULARIZAÇÃ O 2,680,294.03 內部及調整賬 PROVISÕ ES PARA RISCOS DIVERSOS 1,659,359.00 各項風險備用金 CAPITAL 260,000,000.00 股本 RESERVA LEGAL 23,966,670.00 法定儲備 RESERVA ESTATUTÁ RIA 自定儲備 RESERVA DE REAVALIACAO 37,584,753.64 重估儲備 OUTRAS RESERVAS 3,003,985.00 其他儲備 324,555,408.64 RESULTADOS TRANSITADOS DE EXERCÍCIOS ANTERIORES 73,054,847.87 歷年營業結果 RESULTADO DO EXERCÍCIOS 4,480,925.17 77,535,773.04 本年營業結果 TOTAIS 1,011,881,735.86 總額 Nota: A rubrica Outras Reservas está Incluído um valor de MOP3,003,985 de provisões genéricas adicionais constituidas em comprimento das regras do Aviso No. 18/93-AMCM 備註 : - " 其他儲備 " 項目內包含一筆按照金融管理局第 18/93-AMCM 號公告規定而增撥之各項風險備用金, 金額為澳門幣 3,003,985 元 5
(ii) Profit & Loss Account BANCO CHINÊ S DE MACAU, S.A. 澳門華人銀行股份有限公司 DEMONSTRAÇÃ O DE RESULTADOS DO EXERCÍCIO DE 2015 二零一五年營業結果演算 CONTA DE EXPLORAÇÃ O 營業賬目 MOP 澳門幣 DÉBITO MONTANTE CRÉDITO MONTANTE 借方 金額 貸方 金額 CUSTOS DE OPERAÇÕ ES PASSIVAS 6,127,956.64 PROVEITOS DE OPERAÇÕ ES ACTIVAS 21,251,476.79 負債業務成本 資產業務收益 CUSTOS COM PESSOAL PROVEITOS DE SERVIÇOS BANCÁ RIOS 5,076,394.75 人事費用 銀行服務收益 REMUNERAÇÕ ES DOS ORGÃ OS 245,000.00 PROVEITOS DE OUTRAS OPERAÇÕ ES 1,625,634.02 DE GESTÃ O E FISCALIZAÇÃ O BANCÁ RIAS 董事及監察會開支 其他銀行業務收益 REMUNERAÇÕ ES DE EMPREGADOS 15,347,382.74 RENDIMENTOS DE TÍTULOS DE 職員開支 CRÉDITO E DE PARTICIPAÇÕ ES ENCARGOS SOCIAIS FINANCEIRAS 6,075,540.43 固定職員福利 證券及財務投資收益 OUTROS CUSTOS COM O PESSOAL OUTROS PROVEITOS BANCÁ RIOS 79,156.16 其他人事費用 其他銀行收益 FORNECIMENTOS DE TERCEIROS 1,486,546.54 PROVEITOS INORGÂ NICOS 7,064,112.75 第三者作出之供應 非正常業務收益 SERVIÇOS DE TERCEIROS 8,724,077.38 PREJUIZOS DE EXPLORÇÃ O 26,856,730.83 第三者提供之勞務 營業損失 OUTROS CUSTOS BANCÁ RIOS 101,810.22 DOTAÇÕ ES REDUÇÃ O PARA PROVISÕ ES 其他銀行費用 CONFORME RJSF IMPOSTOS 420,000.00 根據金融體系法律制度減撥的備用金 稅項 CUSTOS INORGÂ NICOS 55,391.48 非正常業務費用 DOTAÇÕ ES PARA AMORTIZAÇÕ ES 2,019,248.54 折舊撥款 DOTAÇÕ ES PARA PROVISÕ ES 33,501,632.19 備用金之撥款 LUCRO DA EXPLORAÇÃ O - 營業利潤 TOTAL 68,029,045.73 TOTAL 68,029,045.73 總額 總額 6
(ii) Profit & Loss Account (continued) BANCO CHINÊ S DE MACAU, S.A. 澳門華人銀行股份有限公司 CONTA DE LUCROS E PERDAS 損益計算表 MOP 澳門幣 DÉBITO MONTANTE CRÉDITO MONTANTE 借方 金額 貸方 金額 PREJUÍZO DE EXPLORAÇÃ O 26,856,730.83 LUCRO DE EXPLORAÇÃ O 營業損失 營業利潤 PREJUÍZO DE EXPLORAÇÃ O LUCROS RELATIVOS A EXERCÍCIOS ANTERIORES ANTERIORES 歷年之損失 歷年之利潤 PERDAS EXCEPCIONAIS LUCROS EXCEPCIONAIS 32,296,000.00 特別損失 特別利潤 DOTAÇÕ ES PARA IMPOSTOS SOBRE - PROVISÕ ES UTILIZADAS LUCROS DO EXERCÍCIO 備用金之使用 營業利潤之稅項撥款 DOTAÇÕ ES REDUÇÃ O PARA PROVISÕ ES DOTAÇÕ ES ADICIONAIS PARA PROVISÕ ES 958,344.00 CONFORME RJSF CONFORME RJSF 根據金融體系法律制度減撥的備用金 根據金融體系法律制度增撥的備用金 RESULTADO DO EXERCÍCIO 4,480,925.17 營業結果 TOTAL 32,296,000.00 TOTAL 32,296,000.00 總額 總額 7
(iii)summary of Business Report In the year 2015, notwithstanding that the road to recovery from the current weak global economy is still some way to go, and despite the fact that the slowing growth of China s economy, and Macau's continued decline in the gaming revenues and increase in competition in the banking industry are of concerns, The Macau Chinese Bank Limited (the Bank ), led by the senior management team with the full support from all staff members and operating under the advice, guidance and direction from Shareholders and Board of Directors, recorded a satisfactory result in meeting the set business targets and goals for the year. During the year 2015, through the participation of strong business and strategic partners, the Bank has improved its medium and long-term business development plan which paves the way for a future business expansion. Moreover, through a restructuring of the traditional banking services and products and developing new business models, the Bank s business volume and net profit have achieved a steady growth. Accordingly, the Bank s business development potential has also been strengthened. Besides, through the enhancement of the internal control and the Bank s risk management system, the Bank continues to grow in a sound and healthy manner. Furthermore, with more on-the-job trainings provided to the staff and recruitment of banking professionals, the Bank has prepared pool of experienced banking people to support the implementation of the medium and long-term business development plan. On behalf of the Bank's Board of Directors, I like to express our sincere thanks to AMCM for their advice and guidance, our customers and the community for their continuous trust and support, and all staff members of the Bank for their hard work over the past year. Without any of these, the Bank would not have achieved a satisfactory result for 2015. Looking forward into the year of 2016, the Bank will persistently and prudently pursue its goal in business development and focus on business expansion, and brand building, to provide variety of services and products, and increase market share and coverage. Through continued business development, prudent asset management, investment in advanced IT technology, and upgrade of electronic banking services, the Bank will continue to expand into the local market and deliver excellent services to its customers. At the same time it will actively look for opportunity to develop and provide financial and banking services to the customers across the border, to create a professional specialty to the core value of the Bank in order to strengthen its 8
(iii)summary of Business Report (continued) capability and ability in the keen competitive environment. The aim is to provide better and diversified customer services, create more value for shareholders, and contribute its efforts in promoting Macau as a special regional financial centre. Yau Wai Chu, Yolanda Executive Director 31 March 2016, Macau 9
(iv)report from the Supervisory Board Report from the Supervisory Board During the year of 2015, the Supervisory Board followed closely with the Bank s activities. By maintaining a close and frequent contact with the Board of Directors, the Supervisory Board obtained the best cooperation and information from the board to enable it to perform its duties and responsibilities effectively and efficiently. After reviewing and analyzing the documents submitted to it, the Supervisory Board is of the opinion that such documents clearly and truly reflect the assets and the economic and financial situation of the Bank. Therefore, the Supervisory Board considers that the financial accounts and report for the year 2015 submitted by Board of Directors should be presented to the shareholders general assembly for approval. Chairman of Supervisory Board Wang Yanping 31 March 2016 10
(v)summary of the External Auditors report Independent auditors' report To the shareholders of The Macau Chinese Bank Limited (Incorporated in Macao with limited liability) We have audited the financial statements of The Macau Chinese Bank Limited (the "Bank") set out on pages 3 to 41, which comprise the statement of financial position as at 31 December 2015, and the statement of profit or loss, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the financial statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Financial Reporting Standards promulgated by the Macao Special Administrative Region ("Macao Financial Reporting Standards") and, where applicable, International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' responsibility Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Auditing Standards and Technical Auditing Standards of the Macao Special Administrative Region and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 11
Independent auditors' report (continued) To the shareholders of The Macau Chinese Bank Limited (Incorporated in Macao with limited liability) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Bank as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with Macao Financial Reporting Standards and, where applicable, International Financial Reporting Standards. Bao, King To Registered Auditor Ernst & Young Macao 31 March 2016 12
(vi)list of Institutions with more than 5% interests NIL 13
(vii)list of shareholders with qualifying holdings Main shareholders: Agência Comercial e Industrial Nam Yue, Limitada (Incorporated in Macau) Winwise Holdings Ltd. (Incorporated in Hong Kong) Yang Jun 14
(Viii) Names of the members of the company boards CORPORATE INFORMATION GENERAL ASSEMBLY Cao Dahua (Appointed on 10th August 2015) Lee Luen Wai, John Yang Jun (Appointed on 10th August 2015) Yau Wai Chu (Secretary - Appointed on 10th August 2015) SUPERVISORY BOARD Chairman: Wang Yanping (Appointed on 10th August 2015) Member: Chan Nim Leung, Leon Chui Sai Cheong Leung Nai Chau, Jesse (Resigned on 10th August 2015) DIRECTORS BOARD Chairman: Cao Dahua (Appointed on 10th August 2015) Lee Luen Wai, John (Resigned on 10th August 2015) Executive Director: Yau Wai Chu ( Appointed on 10th August 2015) Director: Chan Tat Kong Ng Tai Chiu, David Yang Jun (Appointed on 10th August 2015)) Cheng Sai Chong (Resigned on 10th August 2015) 15
(Viii) Names of the members of the company boards (continued) CORPORATE INFORMATION (continued) EXECUTIVE COMMITTEE Cao Dahua (Appointed on 10th August 2015) Lee Luen Wai, John (Resigned on 10th August 2015) Cheng Sai Chong (Resigned on 10th August 2015) Yau Wai Chu (Appointed on 10th August 2015) Chan Tat Kong Ng Tai Chiu, David (Appointed on 10th August 2015) Yang Jun (Appointed on 10th August 2015) 31st March 2016 in Macau 16
Corporate governance The Macau Chinese Bank, Ltd. adopts a high standard of Corporate Governance practices in compliance with regulatory requirements. Under the Corporation Governance practices, each of the General Meeting, the Board of Directors, the Supervisory Board and the Senior Management has clearly defined responsibilities and accountability, coordination as well as an effective check and balance system. Responsibilities of the Shareholders General Meeting The Shareholders General Meeting is responsible for giving direction on strategic business and major investment planning of the Bank; reviewing and approving of the annual financial budget, annual financial report; electing and replacing members of Board of Directors and Supervisory Board including Independent members. Responsibilities of the Supervisory Board As the governing body of the Bank, the Supervisory Board shall report to the Shareholders General Meeting. The main responsibility of the Supervisors Board is to oversee the performance of duties by the Board of Directors and the Senior Management; supervise and review the Bank s financial activities and reports. Responsibilities of the Board of Directors Being the highest authority of the Bank, the Board of Directors shall report to the Shareholders General Meeting on the overall performance of the Bank; give direction on business plans and strategies of the Bank; review and approve the annual financial budgets and annual financial report; define principle and police guidelines on risk management and internal control, and supervise the implementation to ensure adherence. In this respect, The Board of Directors delegates its authority to formulate the Executive Committee which composes of five board members including the Chairman to oversee and to ensure the overall operations of the Bank are in compliance with the policies and guidelines and the Bank is run in a sound and efficient manner in according to the directions, objectives and goals of the shareholder. Responsibilities of the Executive Committee With the delegated authority by the Board, the Executive Committee is accountable and reported to the Board. The main responsibility of the Executive Committee is to oversee the overall operations of the Bank, supervise the implementation of business and investment plans as approved by the Board, and formulate clear policies and procedures guidelines in according to the regulatory requirements. 17
Cash flow statement Year ended 31 December 2015 Notes 2015 2014 MOP MOP CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 8,884,925 48,820,929 Adjustments for: Depreciation 7 2,019,249 2,116,629 Amortisation of discount on debt securities 154,212 407,694 Unrealised foreign exchange differences relating to available-for-sale investments 957,591 776,549 Impairment allowances provided for impaired assets, net 11 34,459,976 314,345 Changes in fair value of investment property 14 (36,700,000) (46,000,000) Loss on disposal of an available-for-sale investment 192,217-9,968,170 6,436,146 Increase in loans and advances to customers (127,346,402) (1,843,618) Increase in receivables and other assets (8,634,140) (1,062,362) Increase in deposits from customers 109,056,573 137,719,464 Increase/(decrease) in payables and other liabilities 1,641,703 (5,207,886) Net cash flows from/(used in) operating activities (15,314,096) 136,041,744 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale investments (16,832,813) (13,000,094) Purchases of items of property and equipment 13 (1,469,064) (439,598) Proceeds from disposal of available-for-sale investments 29,029,116 3,855,878 Net cash flows from/(used in) investing activities 10,727,239 (9,583,814) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (4,586,857) 126,457,930 Cash and cash equivalents at beginning of year 320,977,477 194,519,547 CASH AND CASH EQUIVALENTS AT END OF YEAR 316,390,620 320,977,477 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and balances with banks 184,177,924 233,850,236 Deposits with Monetary Authority 110,154,576 87,127,241 Placements with other bank with original maturity within three months 22,058,120-316,390,620 320,977,477 18
Off-balance sheet exposures other than derivatives transactions EM 31 DE DEZEMBRO DE 2015 CONTAS EXTRAPATRIMONIAIS 備查賬 MOP 澳門幣 MONTANTE 金額 VALORES RECEBIDOS EM DEPÓ SITO 代客保管賬 VALORES RECEBIDOS PARA COBRANÇ A 代收賬 VALORES RECEBIDOS EM CAUÇ Ã O 1,149,772,571.96 抵押賬 GARANTIAS E AVALES PRESTADOS 35,650,946.62 保證及擔保付款 CRÉDITOS ABERTOS 3,263,885.43 信用狀 ACEITES EM CIRCULAÇÃ O 承對匯票 VALORES DADOS EM CAUÇÃ O 代付保證金 COMPRAS A PRAZO 期貨買入 VENDAS A PRAZO 期貨賣出 OUTRAS CONTAS EXTRAPATRIMONIAIS 807,396.07 其他備查賬 19
Derivatives transactions -No such transactions- 20
Accounting Policies SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fair value measurement The Bank measures its investment property and debt securities investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Bank. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 - based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly Level 3 - based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable 21 For assets and liabilities that are recognised in the financial statements on a recurring basis, the Bank determines whether transfers have occurred between levels in the hierarchy b y reassessing
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair value measurement (continued) categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Impairment of non-financial assets Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than financial assets and investment property), the asset's recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's or cash-generating unit's value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset. An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, (only if there are revalued assets in the financial statements) unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset. 22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Related parties A party is considered to be related to the Bank if: (a) the party is a person or a close member of that person's family and that person (i) (ii) has control or joint control over the Bank; has significant influence over the Bank; or (iii) is a member of the key management personnel of the Bank or of a parent of the Bank; or (b) the party is an entity where any of the following conditions applies: (i) the entity and the Bank are members of the same group; (ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity); (iii) the entity and the Bank are joint ventures of the same third party; (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity; (v) the entity is a post-employment benefit plan for the benefit of employees of either the Bank or an entity related to the Bank; (vi) the entity is controlled or jointly controlled by a person identified in (a); (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and (viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Bank or to the parent of the Bank. Property and equipment and depreciation Property and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which 23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property and equipment and depreciation (continued) it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property and equipment are required to be replaced at intervals, the Bank recognises such parts as individual assets with specific useful lives and depreciation. Depreciation is calculated on the straight-line method to write off the cost of each item of property and equipment to its residual value over its estimated useful life as follows: Land and building Furniture, fixtures and equipment Computer equipment Motor vehicles 100 years 3 to 10 years 3 to 8 years 10 years Where parts of an item of property and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. An item of property and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. Investment property Investment property is interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the 24
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investment property(continued) end of the reporting period. Gains or losses arising from changes in the fair value of an investment property is included in the statement of profit or loss in the year in which it arises. Any gain or loss on the retirement or disposal of an investment property is recognised in the statement of profit or loss in the year of the retirement or disposal.. If a property occupied by the Bank as an owner-occupied property becomes an investment property, the Bank accounts for such property in accordance with the policy stated under "Property and equipment and depreciation" up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is accounted for as an asset revaluation reserve. On disposal of the asset, the relevant portion of the asset revaluation reserve realised in respect of previous valuations is transferred to the retained profits as a movement in reserves. Leases Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Bank is the lessor, assets leased by the Bank under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the lease terms. Where the Bank is the lessee, rentals payable under the operating leases are charged to the statement of profit or loss on the straight-line basis over the lease terms. Prepaid land lease payments under operating lease are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease payments are included in the cost of the land and buildings as finance lease in property and equipment. 25
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments and other financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as loans and receivables and available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus transaction costs that are attributable to the acquisition of the financial assets. All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Bank commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Loans and receivables Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation and the loss arising from impairment is recognised in profit or loss. Available-for-sale investments Available-for-sale investments are non-derivative financial assets in listed and unlisted equity investments and debt securities. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in market conditions. 26
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments and other financial assets (continued) Available-for-sale investments (continued) After initial recognition, available-for-sale investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the investment revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in profit or loss, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the investment revaluation reserve to profit or loss. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively and are recognised in profit or loss in accordance with the policies set out for "Revenue recognition" below. The Bank evaluates whether the ability and intention to sell its available-for-sale investments in the near term are still appropriate. When, in rare circumstances, the Bank is unable to trade these financial assets due to inactive markets, the Bank may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity. For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interst rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to profit or loss. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Bank's statement of financial position) when: the rights to receive cash flows from the asset have expired; the Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and either (a) the Bank has transferred substantially all the risks and 27
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Derecognition of financial assets (continued) rewards of the asset, or (b) the Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and reward of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Bank continues to recognise the transferred asset to the extent of the Bank's continuing involvement. In that case, the Bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Bank has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay. Impairment of financial assets The Bank assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Bank first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes 28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of financial assets (continued) Financial assets carried at amortised cost (continued) the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. The amount of any impairment loss identified is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to profit or loss. Available-for-sale financial investments For available-for-sale investments, the Bank assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired. If an available-for-sale investments is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is removed from other comprehensive income and recognised in profit or loss. 29
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of financial assets (continued) Available-for-sale financial investments (continued) In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. "Significant" is evaluated against the original cost of the investment and "prolonged" against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss - is removed from other comprehensive income and recognised in profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income. The determination of what is significant or prolonged requires judgement. In making this judgement, the Bank evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. Impairment losses on debt instruments are reversed through profit or loss if the subsequent increase in fair value of the instruments can be objectively related to an event occurring after the impairment loss was recognised in profit or loss. Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as loans and borrowings. 30 All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings,
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial liabilities (continued) net of directly attributable transaction costs. The Bank's financial liabilities include deposits from customers and payables and other liabilities. Subsequent measurement of loans and borrowings After initial recognition, loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in profit or loss. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss. Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired. For the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use. 31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Provisions A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in profit or loss. Income tax Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Bank operates. Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. 32
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income tax (continued) Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except: when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 33
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Bank and when the revenue can be measured reliably, on the following bases: (a) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial assets; (b) fees and commission income, when the relevant services have been rendered; and (c) rental income, on a time proportion basis over the lease terms. Retirement benefits scheme The Bank operates a defined contribution retirement benefit scheme for its employees. Contributions are made based on a percentage of the participating employees' basic salaries and are charged to profit or loss as they become payable in accordance with the rules of the scheme. Foreign currencies These financial statements are presented in MOP, which is the Bank's functional currency. Foreign currency transactions recorded by the Bank are initially recorded using the functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of reporting period. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively). 34