npf microfinance bank plc - Nigerian Stock Exchange

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NPF NPF MICROFINANCE BANK PLC 3RD QUARTER REPORT 30 SEPTEMBER 2017

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~ NPF Microfinance Bank PLC

Monthly Report - 30 SEPTEMBER 2017

Corporate Information Directors:

Mr. Azubuko Joel Udah (Esq.) Mr. Akinwunmi Lawal Mr. Jude C. Ohanehi Mr. E.C. Wabali Prince Jude Ifeanyi Eke Mr. Audu Abubakar Mr. Mohammed D. Saeed Mrs. Abiodun Ige Mr. Joseph Daramola

Company Secretary:

Mrs. Osaro J. Idemudia Aliyu Atta House 1, Ikoyi Road, Obalende Lagos

Registered Office:

Aliyu Atta House 1, Ikoyi Road, Obalende Lagos

Auditors:

KPMG Professional Services KPMGTower, Bishop Aboyade Cole Street, Victoria Island, Lagos

Bankers:

Sterling Bank PLC First Bank of Nigeria PLC United Bank for Africa PLC Zenith Bank PLC Access Bank PLC First City Monument Bank PLC

Registrars:

CardinalStone Registrars Limited 358, Herbert Macaulay Way Yaba Lagos.

Chairman Managing Director Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive (Independent) Director Non-Executive Director Non-Executive Director

NPF Microfinance Bank PLC Monthly Report - 30 SEPTEMBER 2017

STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017 SEPTEMBER

SEPTEMBER

AUDITED

2017

2016

DEC 2016

Note

/11 thousands of naira ASSETS Cash and cash equivalents Pledged assets Loans and advances to customers Investment securities Trade and other receivables Property and equipment Deferred tax assets

14 15 16 17 18 19 21(c)

TOTAL ASSETS LIABILITIES Deposits from customers Current tax liabilities Deferred tax liabilities Other liabilities Borrowings TOTAL LIABILITIES

20 2 l(b) 2l(c) 22 23

CAPITAL AND RESERVES Share capital Share premium Retained earnings Other reserves TOTAL EQUITY

24 25(a) 25(b) 25(c) - (d)

TOTAL LIABILITIES AND EQUITY

5,189,508 588,510 9,165,576 45,376 380,134 469,637

3,392,529 575,525 8,867,045 37,024 963,488 423,533

1,889,881 581,425 9,095,801 37,574 257,545 499,646

15,838,741

14,259,146

12,361,872

10,066,379 52,688 19,910 319,350 505,085 10,963,412

6,932,134 65,727 (35,412) 2,293,383 451,643 9,707,475

6,792,391 199,571 19,910 537,353 349,249 7,898,474

1,143,328 1,517,485 918,894 1,295,622 4,875,329

1,143,328 1,517,485 801,859 1,088,999 4,551,671

1,143,328 1,517,485 506,963 1,295,622 4,463,398

15,838,741

14,259,146

12,361,872

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inwunmi Lawal Mana mg Director/Chief Executive Officer FRC/20 I 4/CIBN/00000006345

F.C. Nelson, FCA Chief financial Officer rRC/20 I 4/ICAN/00000006856

The accompanying notes are an integral part of these financial statements.

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NPF Microfinance Bank PLC Monthly Report- 30 SEPTEMBER 2017

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STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE MONTH ENDED 30 SEPTEMBER 2017 SEPTEMBER ~EPTEMBEF 2017 2016 /11 thousands of naira Interest income Interest expense

AUDITED DEC 2016

Note 7 8

Net interest income

1,845,671 (233,998)

1,446,220 (165,838)

1,997,486 (223,480)

1,611,673

1,280,382

1,774,006

Fee and commission income

9

558,244

503,068

716,876

Other revenue

10

192,463

149,981

210,867

2,362,380

1,933,431

2,701,749

Net operating income Net impairment loss on financial assets Personnel expenses Depreciation Administration and general expenses

11 12 19 13

Total operating expenses Profit before tax Tax expense

(101,915) (823,528) (86,636) (603,286)

(83,505) (661,526) (68,898) (432,463)

(39,866) (1,008,055) (96,014) (754,374)

(1,615,365)

(I ,246,392)

(I ,898,309)

747,015

687,040

2l(a)

Profit for the period

803,440 (248,537)

747,015

687,040

554,903

747,015

687,040

554,903

33

30

Other comprehensive income Items !h:i! \':'l! never be reclassified to profit or loss Items that are or may be reclassified to profit or loss Other comprehensive income for the period, net of tax

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Basic and diluted earnings per share (kobo)

32


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NPF Microfinance Bank Mnlh/yReport - 30 SEPTEMBER W17

STATEMENT OF CHANGES IN EQUITY FOR THE MONTH ENDED 30 SEPTEMBER '.W 17

Balance at 1 January 2017 Audit adjustment Profit for the period Other comprehensive income, net of tax Total comprehensive income

Share Capital

Share Premium

1,143,328

1,517,485

Retained Earnings 506,963 7,915 747,015

Statutory Reserve

Actuarial Reserve

1,145,124

Regulatory Risk Reserve

Total

150,498

4,463,398 7,915 747,015

754,930 1,143,328

1,517,485

Contributions by and distributions to equity holders Dividend paid

1,261,893

754,930 1,145,124

150,498

(342,999)

5,218,328

(342,999)

Transfer to regulatory risk reserve 1,143,328

1,517,485

Share

Share

Retained

Capital 1,143,328

Premium 1,517,485

Earnings 476,216

Reserve 1,006,398

Profit for the year

416,177

138,726

554,903

Other comprehensive income, net of tax Total comprehensive income

416,177

138,726

554,903

892,393

1,145,124

Balance as at 30 September 2017

918,894

1,145,124

150,498

4,875,329

Actuarial

Regulatory Risk

Total

Reserve

Reserve 108,066

4,251,493

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER2016

Balance at 1 January 2016

1,143,328

1,517,485

Statutory

108,066

4,806,396

Contributions by and distributions to equity holders (342,998)

Dividend paid

Balance at 31 December 2016

(342,998)

(42,432)

Transfer to regulatory risk reserve 1,143,328

1,517,485

506,963


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42,432 1,145,124

150,498

4,463,398

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;; NPF Microfinance Bank PLC Monthly Report - 30 SEPTEMBER 2017

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STATEMENT OF CASH FLOWS FOR THE MONTH ENDED 30 SEPTEMBER SEPTEMBER SEPTEMBER 2017 2016

/11 thousands of naira

Note

Cash flows from operating activities Profit for the year Adjustments for: Depreciation of property and equipment Net impairment loss on loans and advances to customers Net impairment loss on investments Net impairment loss on other receivables Net interest income Dividend income (Profit)/loss on sale of property and equipment Tax expense

19 11 11 11 7, 8 10 13, 10 2 l(a)

Change in pledged assets Change in loans and advances Change in trade and other receivables Change in deposits from customers Changes in retirement benefit obligations Change in other liabilities Change in borrowings

Interest received Interest paid Tax paid

Cash flows from investing activities Acquisition of property and equipment Proceeds from disposal of property and equipment Dividends received Net cash used in investing activities

25

(1,611,673) (24) (!, 169)

(1,280,382) (106)

(677,300)

(472,826)

96,014 35,178 580 4,108 (I, 774,006) (153) (2,285) 248,537 (837,124)

22 23

(124,062) 537,952 2,712,090 1,845,671 (233,998) (146,883) (93,941) 4,082,939

1,446,220 (111,083) (176,002) (308,866) 609,797

1,932,242 (221,831) (182,627) (172,130) (325,625)

(56,755) 1,297

(92,242)

24 (55,434)

106 (92,136)

(201,806) 2,501 153 (199,152)

(384,879) (342,999) (727,878)

(118,176)

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37,117 82,374 1,131

(515,576) 144,940 341,674 (116,304) 608,559 82,268 (258,713)

23(b)

Net increase in cash and cash equivalents Cash and Cash eguivalents as at I January Cash and Cash equivalents as at 30 September 2017

86,636 100,839 1,076

554,903

(7,085) (167,572) (123,831) 3,273,988

19

Cash flows from financing activities Repayment of borrowings Dividend paid Net cash used in financing activities

687,040

15 16 18 20

2l(b) 22(b)

Retirement benefit obligations paid Net cash from operating activities

747,015

DECEMBER 2016 AUDITED

3,299,627 1,889,881 5,189,508

(118,176)

399,485 3,540,991 3,940,486

10,761 (1,193,364) 85,315 176,090 56,846 20,197 (1,681,279)

(297,204) (342,998) (640,202)

(1,164,979) 3,054,860 1,889,881

r : NPF Microfinance Bank PLC Monthly Report- 30 SEPTEMBER 2017

NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 SEPTEMBER 2017 I Reporting entity NPF Microfinance Bank Pie ("the Bank") is a public limited liability company domiciled in Nigeria. The Bank's registered office is at Aliyu Atta House, I Ikoyi Road, Obalende, Lagos. The Bank is engaged in the provision of banking services to members of the police community, to poor and low income households and micro-enterprises of the public at large. Such services include retail banking, granting ofloans, advances and allied services. The Bank currently operates from its registered office and has twenty-eight (28) branches located at Obalende, lkeja, Garki-Abuja, Wuse-Abuja, Port-Harcourt, Kano, Osogbo, Benin, Akure, Onitsha, Sokoto, Lokoja, Latia, Bauchi, Yola, Enugu, Kaduna, Oji River, Ibadan, Abeokuta, Ikorodu, Tejuosho, Asaba, Calabar, Aba, Aswani, Awka and Port Harcourt 2. 2 Changes in accounting policies The Bank has consistently applied the accounting policies as set out in note 3 to all periods presented in these financial statements. There were new standards and amendments to standards that affect annual periods beginning 1 January 2016 as follows: /AS 16 and /AS 38: Acceptable methods of Depreciation and Amortization The requirements of !AS 16 are amended to clarify that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. This is because such methods reflects a pattern of generation of economic benefits that arise from the operation of the business of which an asset is part, rather than the pattern of consumption of an asset's cxpccteu ruture economic benefits. The requirements of !AS 38 on the other hand are amended to introduce a rebuttable presumption that a revenue-based amortisation method for intangible assets is inappropriate for the same reasons as in !AS 16. However, the IASB states that there are limited circumstances when the presumption can be overcome: The intangible asset is expressed as a measure of revenue (the predominant limiting factor inherent in an intangible asset is the achievement of a revenue threshold); and it can be demonstrated that revenue and the consumption of economic benefits of the intangible asset are highly correlated (the consumption of the intangible asset is directly linked to the revenue generated from using the asset). The amendment did not have any impact on the Bank's financial statements. Annual improvements to JFRS 2012 - 2014 cycle. The IASB issued various amendments and clarifications to existing IFRS, none of which had a material impact on the Bank's financial statements. 3

Significant Accounting Policies The Bank has consistently applied the following accounting policies to all periods presented in these financial statements, unless otherwise stated. The principal accounting policies adopted in the preparation of these financial statements are set out below.

(a) Basis of preparation (i) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by ilil~1:1~u,;,1u1 Accouuung Standards Board (IASB) and in the manner required by the Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria, 2004, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act, Cap 83, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) guidelines and circulars. The IFRS accounting policies have been consistently applied to all periods presented. The financial statements were approved by the directors on 6 March 2017. (ii) Basis of measurement These financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: • Investment securities (available-for-sale financial assets) measured at fair value • Loans and receivables from customers measured at amortised cost • Borrowings measured at amortised cost (iii) Functional and presentation currency These financial statements are presented in Naira, which is the Bank's functional currency. Except where indicated, financial information presented in Naira has been rounded to the nearest thousand.

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(iv) Use of estimates and judgments The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readuy apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainties and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 5. (b) Interest Interest income and expense on financial instruments are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, the next repricing date) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instruments but not future credit losses. The calculation of the effective interest rate includes contractual fees and points paid or received, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. Interest income and expense presented in the statement of comprehensive income include: - Interest income on financial assets measured at amortised cost calculated on an effective interest rate basis - Interest incoine on available-for-sale investment securities calculated on an effective interest rate basis - Interest expense on deposits and borrowings on an effective interest rate basis (c) Fees and commission F ccs uuJ commission income that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate which is used in the computation of interest income. Other fees and commission income, including loan account servicing fees, investment management fees, etc. are recognised as the related services are performed. ( d) Other revenue The total sum includes revenue from income on salary administration, service fees and charges, profit on disposal of property and equipment and dividend income.They are recognised as the related services are performed. (e) Tax expense Tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to items recognised directly in equity or in other comprehensive income. (i) Current income tax Income tax payable is calculated on the basis of the applicable tax law in the respective jurisdiction and is recognised as an expense for the period and adjustments to past years except to the extent that current tax relates to items that are charged or credited in other comprehensive income or directly to equity. In these circumstances, current tax is charged or credited to other comprehensive income or to equity (for example, current tax on available-for-sale investment). Where the Bank has tax losses that can be relieved only by carry-forward against taxable profits of future periods, a deductible temporary difference arises. Those losses carried forward are set off against deferred tax liabilities carried in the statement of financial position. Th; \L,:ic v,.,:ual~,positions stated in tax returns, ensuring information disclosed are in agreement with the underlying tax liability, which has been adequately provided for in the financial statements.

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(ii) Deferred tax Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred income tax is determined using tax rates enacted or substantively enacted at the reporting date and are expected to apply when the related deferred tax liability is settled. Deferred tax is not recognised for the following temporary differences: - temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or - temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and - taxable temporary differences arising on the initial recognition of goodwill. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset them, and they relate to taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which it can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (iii) Tax exposures In determining the amount of current and deferred tax, the Bank takes into account the impact of uncertain tax position and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Bank to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. (t) Financial assets and financial liabilities (i) Classification Financial assets The classification of financial instruments depends on the purpose and management's intention for which the financial instruments were acquired and their characteristics. The Bank classifies its financial assets into one of the following categories: - loans and receivables - held to maturity investments - available-for-sale financial assets - at fair value through profit or loss and within the category as: - held for trading; or - designated at fair value through profit or loss. Please refer to Note 6. Financial liabilities The Bank classifies its financial liabilities, other than financial guarantees and loan commitments, as either financial liabilities at fair value through profit or loss or other financial liabilities measured at amortised cost. (ii) Recognition Initial recognition The Bank initially recognises its financial instruments on the trade date at which the Bank becomes a party to the contractual provisions of the instrument. All financial assets or financial liabilities are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss. Subsequent recognition of financial assets and liabilities is at amortised cost or fair value, depending on the classification. Sub)'f..':_f!,'i.'J~!.tteesurement

See accounting policies (h) - (k) for the Bank's accounting policies on subsequent measurement of financial assets. See accounting policy (n) for the Bank's accounting policies on subsequent measurement of financial liabilities.

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,,. NPF Microfinance Bank PLC Monthly Report - 30 SEPTEMBER 2017

(iii) De-recognition Financial assets The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Bank continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. Fiuauciat liabilities The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. (iv) Offsetting Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions. (v) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. (vi) Fair value '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 in the principal or, in its absence, the most advantageous market to which the Bank has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is rezarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price - i.e. the fair value of the consideration given or received. If the Bank determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.

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NPF Micrafinance Bank PLC Monthly Report- 30 SEPTEMBER 2017

Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Bank on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. The Bank recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. (vii) Identification and measurement of impairment At each reporting date, the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably. Objective evidence that financial assets are impaired can include; (a) a breach of contract, such as a default or delinquency in interest or principal payments; (b) significant financial difficulty of the issuer or obligor; (c) the lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; ( d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; (e) the disappearance ofan active market for that financial asset because of financial difficulties; or (f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: (i) '.\d·,~r~e changes in the payment status of borrowers in the portfolio; and (ii) national economic conditions that correlate with defaults on the assets in the portfolio. (g) In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between one month and three months; in exceptional cases, longer periods are warranted. Assets classified as loans and receivables and held-to-maturity investment securities The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually 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 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 the loss 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 been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use ofan allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument's fair value using an observable market price. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (that is, on the basis of the Bank's grading process that considers asset type, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated.

30

NPF Microfinance Bank PLC Monthly Report· 30 SEPTEMBER 2017

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related allowance for loan impairment or to profit or loss. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined, lmpainnent charges are classified in 'Net impairment loss on financial and other assets'. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the statement of comprehensive income. Assets classified as available-for-sale The Bank assesses at each date of the statement of financial position whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of comprehensive income. (g) Cash and cash equivalents Cash and cash equivalents include bank notes and coins on hand, unrestricted balances held with central groups and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position. The reconciliation of the opening cash and cash equivalents to the closing cash and cash equivalents in the statement of cash flows is done using the indirect method. (h) Financial assets and financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial instruments classified as held for trading, and financial assets designated by the Bank at fair value through profit or loss upon initial recognition. (i) Trading assets and liabilities Trading assets and liabilities are those assets and liabilities that the Bank acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit. Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position with transaction costs recognised in profit or loss. All changes in fair value are recognised as part of net trading income in the statement of comprehensive income. (ii) Designation at fair value through profit or loss The Bank designates certain financial assets upon initial recognition at fair value through profit or loss (fair value option). This designation cannot subsequently be changed. According to !AS 39, the fair value option is only applied when the following conditions are met: · the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise or · the fir,~n