Notes to the Financial Statements - HSBC Bangladesh

specific provisions are raised. If the specific provisions assessed under the qualitative methodology are higher than thespecific provisions assessed under the formulaic approach above, the higher of the two is recognised in liabilities underProvisions for loans and advances” with any movement in the provision charged/released in the profit and loss account.4.5 Loan write-offLoans are normally written off, when there is no realistic prospect of recovery of these amounts and in accordance withBRPD Circular No.2 (13 January 2003). A separate Debt Collection Unit (DCU) has been set up at the Banks Head Officewhich monitors loans written off and legal action taken through the money loan court. These write-offs do not undermine oraffect the amount claimed against the borrower by the Bank.The DCU maintains a separate ledger for all individual cases written off by each branch. The DCU follow-up on therecovery efforts of these written off loans and reports to management on a periodic basis. Written off loans and advances arereported to the Credit Information Bureau (CIB) of Bangladesh Bank.4.6 Provisions on balances with other banks and financial institutions (Nostro accounts)Provisions for unsettled transactions on nostro accounts made are reviewed at each balance sheet date by management andcertified by our external auditors in accordance with Bangladesh Bank Foreign Exchange Policy Department (FEPD)Circular No. 677 (13 September 2005).4.7 Provisions for off balance sheet exposuresBRPD Circular No.10 (18 September 2007) requires a general provision for off balance sheet exposures to be calculated at1% (2007: 0.50%) on all off balance sheet exposures as defined in BRPD Circular No.10 (24 November 2002). Accordinglywe have recognised a provision of 1% on the following off balance sheet items:►►►►Acceptance and endorsementsLetters of guaranteeIrrevocable letters of creditForeign exchange contracts4.8 InvestmentsIn accordance with BRPD Circular No.15 (31 October 2005) treasury bills and bonds which were held to comply with theStatutory Liquidity Requirement (SLR) by the Bank were classified as Held to Maturity (HTM) and revalued on the basis ofmarking to market at the year end. Any gains or losses on revaluation were recognised in other reserve as a part of equity.Treasury bills and bonds which were held in excess of the SLR by the bank were classified as held for trading ( HFT) andwere revalued on the basis of marking to market. Any gains or losses on revaluation were recognised in the profit and lossaccount.However following the issuance of DOS Circular No. 5 (26 May 2008). Treasury securities held for SLR compliance maynow be classified as either HTM or HFT. Whilst there is no change in the accounting treatment of HTM securities, HFTsecurities are now revalued on the basis of marking to market and at year end any gains or losses on revaluation of securitieswhich have not matured as at the balance sheet date are recognized in other reserves as a part of equity.All investments in shares are revalued at the year-end. Unquoted shares are valued based on book value of the most recentaudited financial statements. Provisions are made for any loss arising from diminution in value of investments.4.9 Provisions for other assetsBRPD Circular No.14 (25 June 2001) requires a provision of 100% on other assets which are outstanding for one year andabove.4.10 Fixed assets (Property, plant and equipment)Fixed assets (including assets acquired under finance leases where the Bank is the lessee) are stated at cost less anyimpairment losses and depreciation calculated on a straight-line basis, from the month in which the asset is recognized tomonth prior to the month in which the asset is disposed, so as to write off the assets over their useful lives, which are asfollows:Furniture and fittings 10 years 10% paEquipment 5 to 7 years 14.28% to 20% paLeasehold improvements 10 years 10% paMotor vehicles 5 years 20% paComputers 3 years 33% pa