7.6 Derecognition of financial assets and liabilities
Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Bank has transferred substantially all the risks and rewards of ownership or in which the Bank neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
On derecognition of a financial asset, the difference between: (a) the carrying amount (measured at the date of derecognition) and (b) the consideration received (including any new asset obtained less any new liability assumed) is recognized in net income.
In transactions in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, the Bank continues to recognize 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 financial asset.
A financial liability is removed from the statement of financial position when it is extinguished, that is when the obligation is discharged, cancelled or expired.
Debt exchange
The Bank assesses whether the instruments subject to exchange are substantially different from each other, considering qualitative aspects such as currencies, terms, rates, conditions of subordination, regulatory framework, among others; and quantitative, in which is evaluated whether the present value of discounted cash flows under the conditions of the new instruments (including any commission paid net of any commission received) and using the original effective interest rate to calculate the discount, is at least 10 percent different from the discounted present value of the cash flows that still remain of the original financial liability.
When it is concluded that the instruments subject to debt exchange are not substantially different, the transaction is recognized as a modification of the debt. In this case, incremental costs and commissions adjust the carrying amount of the liability and are amortized over the remaining life of the modified liability, in accordance with its subsequent measurement at Amortized Cost. In debt exchanges that are considered substantially different, the financial instrument is derecognized and a new financial liability is recognized.
7.6.1 Written-Off loan portfolio balances and related allowances
Loans are written off when the Bank concludes there is no a realistic expectation of recovery of the principal and receivables balances from a client or third party. In general, this characteristic will be fulfilled when the following delinquency conditions are present:
| | |
| Consumer | 180 days, 450 for vehicles in BAM, 720 for loans with mortgage guarantee in Banco Agricola |
| Commercial | 360 days |
| Small Business Loan | 180 days, 720 for loans with guarantee in Banistmo |
| Mortgage | 1.620 days. For Banistmo and Banco Agrícola from 720 days. BAM 1440 days. |
Among the reasons underlying the portfolio's non-recoverability are the estimated recovery time of the obligation and the probable recovery percentage given the existence or lack of collaterals. When default conditions are present, it is initially necessary to evaluate whether the collaterals that support the loan generate a reasonable expectation of recovery; if so, the necessary steps are taken to realize of the collateral prior to writing-off; in cases where the collateral net fair value indicates that there are no reasonable expectations of recovery, loans are written-off. In most mortgage loan cases, there is still a high probability of recovery after the delinquency.
