Loan receivables from clients are measured at the end of the reporting period as follows:
- at fair value through other comprehensive income – assets that satisfy the SPPI test and classified in a business model whose objective is achieved by both collecting contractual cash flows and selling the asset,
- at fair value through profit or loss – assets that do not pass the SPPI test because of the contractual financial leverage element that increases volatility of cash flows (this applies among others to student loans, loans with subsidies from the Agency for Restructuring and Modernization of Agriculture and some corporate exposures);
- at amortized cost – for other assets that satisfy the SPPI test and are held to obtain contractual cash flows.
Information on the SPPI test is presented in section 35.1.1.
Interest on loan receivables from clients measured at amortized cost or at fair value through other comprehensive income, accrued using the effective interest rate, are recognized in the profit and loss account, in the “Net investment income” item.
The change in the fair value of loan receivables from clients is recognized:
- for those measured at fair value through other comprehensive income – in revaluation reserve;
- for those measured at fair value through profit or loss – in the profit and loss account in the “Net movement in fair value of assets and liabilities measured at fair value” item.
Modification of financial assets
If terms and conditions of a financial asset agreement change, the modified and original cash flows are compared. If the identified difference is material then the original financial asset is removed from the balance sheet, while the modified financial asset is recognized in the ledgers at fair value.
Otherwise, the modification does not result in removing the financial asset from the balance sheet; just the new gross carrying amount is calculated and the result from the modification is recognized in the consolidated profit and loss account.
The assessment whether the modification of financial assets is material or immaterial is conditional upon satisfaction of certain qualitative and quantitative criteria.
The following criteria are used to assess the materiality of modifications:
- qualitative – change of currency (unless it results from existing contractual provisions or requirements of the applicable legal regulations), change (replacement) of debtor (except for addition/resignation of a joint debtor or inheritance of a loan), consolidation of several exposures into a single one under an annex or an arrangement/ restructuring agreement, change of terms of contract causing a change in the outcome of the SPPI test;
- quantitative – among others % thresholds of margin change, increase of the financing amount and changes in the residual financing period.
Occurrence of at least one of these criteria results in a material modification.