AfrAsia Bank Limited (“the Bank”) is a public company incorporated and domiciled in the Republic of Mauritius. The principal activity of the Bank and those of its subsidiaries (together referred to in this report as “the Group”) is the provision of financial services in the Indian Ocean region. Its registered office is at 10, Dr Ferrière Street, Port Louis, Mauritius.
The Bank has 1 offshore representative office in Johannesburg. The relevant costs and income derived from this office have been included in these financial statements.
The consolidated and separate financial statements for the year ended 30 June 2019 were authorised for issue through a resolution of the directors on 19 September 2019.
In the current year, the Group and the Bank have applied all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 July 2018.
New and revised Standards that are effective for the current year
The following relevant revised Standards have been applied in these financial statements. Except for IFRS 9, their application has not had any significant impact on the amounts reported for the current and prior periods but may affect the accounting treatment for future transactions or arrangements.
|IAS 39||Financial Instruments - Recognition and; Measurement - Amendments to permit an entity to elect to continue to apply the hedge accounting requirements in IAS 39 for a fair value hedge of the interest rate exposure of a portion of a portfolio of financial assets or financial liabilities when IFRS 9 is applied, and to extend the fair value option to certain contracts that meet the 'own use' scope exception|
|IFRS 9||Financial Instruments|
|IFRS 15||Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group and the Bank initially applied IFRS 15 on 1 July 2018 using the modified retrospective method. The timing or amount of the fee and commission income from contracts with customers was not impacted by the adoption of IFRS 15. The impact of IFRS 15 was limited to the new disclosure requirements.|
|IFRIC 22||Foreign Currency Transactions and Advance Consideration issued|
Impact of initial application of IFRS 9 Financial Instruments
In the current year, the Group and the Bank have applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1 January 2018. The Group and the Bank initially applied IFRS 9 on 1 July 2018. In accordance with the transition provisions of IFRS 9, the Group and the Bank have elected not to restate the comparative information, which continues to be reported under IAS 39. Differences arising from the adoption of IFRS 9 have been recognised directly in retained earnings.
As a result of the adoption of IFRS 9, the Group and the Bank have adopted consequential amendments to IAS 1 Presentation of Financial Statements, which require separate presentation in the statement of profit or loss and other comprehensive income of interest revenue calculated using the effective interest method.
Additionally, the Group and the Bank adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were applied to the disclosures for 2019 but have not been applied to the comparative information.
IFRS 9 introduced new requirements for:
The Group and the Bank have not applied hedge accounting to its financial instruments during the years ended 30 June 2017, 2018 and 2019.
Details of these new requirements as well as their impact on the Group’s and the Bank’s financial statements are described below.
(a) Classification and measurement of financial assets
The date of initial application (i.e. the date on which the Group and the Bank have assessed their existing financial assets and financial liabilities in terms of the requirements of IFRS 9) is 1 July 2018. Accordingly, the Group and the Bank have applied the requirements of IFRS 9 to instruments that continue to be recognised as at 1 July 2018 and have not applied the requirements to instruments that have already been derecognised as at 1 July 2018. Comparative amounts in relation to instruments that continue to be recognised as at 1 July 2018 have not been restated.
All recognised financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets, specifically:
Despite the aforegoing, the entity may make the following irrevocable election/designation at initial recognition of a financial asset:
In the current year, the Group and the Bank have not designated any debt investments that meet the amortised cost or FVTOCI criteria as measured at FVTPL.
When a debt investment measured at FVTOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. When an equity investment designated as measured at FVTOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is subsequently transferred to retained earnings.
Debt instruments that are measured subsequently at amortised cost or at FVTOCI are subject to impairment. See (b) below.
Management reviewed and assessed the Group’s and the Bank’s existing financial assets as at 1 July 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of IFRS 9 has had the following impact on the Group’s and the Bank’s financial assets as regards their classification and measurement:
There were no financial assets or financial liabilities which the Group and the Bank had previously designated as at FVTPL under IAS 39 that were subject to reclassification or which the Group and the Bank have elected to reclassify upon the application of IFRS 9. There were no financial assets or financial liabilities which the Group and the Bank have elected to designate as at FVTPL at the date of initial application of IFRS 9.
The changes in financial assets are disclosed in Note 4 – Transition disclosure.
(b) Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires the entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
Specifically, IFRS 9 requires the entity to recognise a loss allowance for expected credit losses on:
In particular, IFRS 9 requires the entity to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial asset), the entity is required to measure the loss allowance for that financial instrument at an amount equal to 12-months ECL.
The impact of impairment of financial asset is disclosed in Note 4 – Transition disclosure.
(c) Classification and measurement of financial liabilities
A significant change introduced by IFRS 9 in the classification and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability designated as at FVTPL attributable to changes in the credit risk of the issuer.
The application of IFRS 9 has had no impact on the classification and measurement of the Group’s and the Bank’s financial liabilities which continue to be measured at amortised cost except for financial liabilities held for trading which continue to be measured at FVTPL
New and revised Standards in issue but not yet effective
At the date of authorisation of these financial statements, the following relevant Standards were in issue but effective on annual periods beginning on or after the respective dates as indicated:
|IAS 1||Presentation of Financial Statements – Amendments regarding the definition of material (effective 01 January 2020)|
|IAS 8||Accounting Policies, Changes in Accounting Estimates and Errors – Amendments regarding the definition of material (effective 01 January 2020)|
|IAS 12||ome Taxes – Amendments resulting from Annual Improvements 2015-2017 Cycle (income tax consequences of dividends) (effective 01 January 2019)|
|IAS 19||Employee Benefits – Amendments regarding plan amendment, curtailment or settlement (effective 01 January 2019)|
|IFRS 9||Amendment Prepayment Features with Negative Compensation (effective 01 January 2019)|
|IFRS 16||Leases (effective 01 January 2019)|
|IFRIC 23||Uncertainty over Income Tax Treatments (effective 01 January 2019)|
The directors anticipate that these Standards and Interpretations will be applied in the Group’s and the Bank’s financial statements at the above effective dates in future periods. Except for the impact of IFRS 16 which is detailed below, the directors have not yet had an opportunity to consider the potential impact of the application of these amendments.
IFRS 16 Leases
IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related Interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The date of initial application of IFRS 16 for the Group and the Bank will be 1 July 2019.
Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. The only exceptions are short-term and low-value leases.
Under IFRS 16, right‑of‑use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This will replace the previous requirement to recognise a provision for onerous lease contracts.
For short‑term leases (lease term of 12 months or less) and leases of low‑value assets (such as personal computers and office furniture), the Group and the Bank will opt to recognise a lease expense on a straight‑line basis as permitted by IFRS 16.
As at 30 June 2019, the Group and the Bank have non-cancellable operating lease commitments of MUR 34.1M.
A preliminary assessment indicates that the above non-cancellable operating lease arrangements relate to leases other than short-term leases. The Group and the Bank will recognise a right of use asset of MUR 92.8M and a corresponding liability of MUR 90.1M in respect of all these leases. The impact on profit or loss is to decrease other expenses by MUR 34.5M, to increase depreciation by MUR 31.9M and to increase interest expense by MUR 4.7M.
Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently.
The Group’s and the Bank’s activities as a lessor are not material and hence the Group and the Bank do not expect any significant impact on the financial statements. However, some additional disclosures will be required from next year.