My first Publication ocbc_ar17_fullreport_english | Page 179

2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
2.21 FIDUCIARY ACTIVITIES
The Group acts as trustees and in other fiduciary capacities that
result in the holding or placing of assets on behalf of individuals,
trusts, retirement benefit plans and other institutions. The assets
and income from these assets do not belong to the Group, and
are therefore excluded from these financial statements.
2.22 EARNINGS PER SHARE
The Group presents basic and diluted earnings per share data
for its ordinary shares. Basic earnings per share is calculated by
dividing the profit or loss attributable to ordinary shareholders
of the Bank by the weighted-average number of ordinary shares
outstanding during the year, adjusted for own shares held.
Diluted earnings per share is determined by adjusting the profit
or loss attributable to ordinary shareholders and the weighted-
average number of ordinary shares outstanding, adjusted for
own shares held, for the effects of all dilutive potential ordinary
shares, which comprise share options granted to employees.
2.23 SEGMENT REPORTING
The Group’s business segments represent the key customer
and product groups, as follows: Global Consumer/Private
Banking, Global Corporate/Investment Banking, Global
Treasury and Markets, Insurance and OCBC Wing Hang. All
operating segments’ results are reviewed regularly by the senior
management to make decisions about resources to be allocated
to the segment and to assess its performance, and for which
discrete financial information is available. In determining the
segment results, balance sheet items are internally transfer
priced and revenues and expenses are attributed to each
segment based on internal management reporting policies.
Transactions between business segments are recorded within
the segment as if they are third party transactions and are
eliminated on consolidation.
A geographical segment engages in providing products and
services within a particular economic environment that
is subject to different risks from those of other economic
environments. Geographical segment information is prepared
based on the country in which the transactions are booked
and presented after elimination of intra-group transactions
and balances.
2.24 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Certain estimates are made in the preparation of the financial
statements. These often require management judgement in
determining the appropriate methodology for valuation of
assets and liabilities. A brief description of the Group’s critical
accounting estimates is set out below.
2.24.1 Impairment of loans
The Group assesses impairment of loans by calculating the
present value of future recoverable cash flows and the fair value
of the underlying collaterals, which is determined based on credit
assessment on a loan-by-loan basis. Homogeneous loans below a
materiality threshold are grouped together according to their risk
characteristics and collectively assessed taking into account the
historical loss experience on such loans. The portfolio allowances
set aside for unimpaired loans are based on management’s credit
experiences and judgement, taking into account geographical
and industry factors. A minimum 1% portfolio allowance is
maintained by the Group in accordance with the transitional
arrangement set out in MAS Notice 612. The assumptions and
judgements used by management may affect these allowances.
2.24.2 Impairment of available-for-sale financial assets
The Group follows the guidance of FRS 39 in determining
when an investment is impaired. This determination requires
significant judgement. The Group evaluates, among other
factors, the duration and extent to which the fair value of an
investment is less than its cost; and the financial health and
near-term business outlook of the investee, including factors
such as industry and sector performance, changes in technology
and operations, and financial cash flows.
2.24.3 Fair value estimation
Fair value is derived from quoted market prices or valuation
techniques which refer to observable market data. The fair
values of financial instruments that are not traded in an
active market (for example, over-the-counter derivatives) are
determined by using valuation techniques. Where unobservable
data inputs have a significant impact on the value obtained
from the valuation model, such a financial instrument is initially
recognised at the transaction price, which is the best indicator of
fair value. The difference between the transaction price and the
model value, commonly referred to as “day one profit and loss” is
not recognised immediately in the income statement.
The timing of recognition of deferred day one profit and loss
is determined individually. It is amortised over the life of the
transaction, released when the instrument’s fair value can
be determined using market observable inputs, or when the
transaction is derecognised.
2.24.4 Liabilities of insurance business
The estimation of the ultimate liabilities arising from claims
made under life and general insurance contracts is one of the
Group’s critical accounting estimates. There are several sources of
uncertainty that need to be considered in the estimation of the
liabilities that the Group will ultimately be required to pay as claims.
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