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Our Performance Sustainability Statement Governance Our Numbers Other Information

2. SIGNIFICANT ACCOuNTING POLICIES (CONT’D.)

2.3 Summary of significant accounting policies (cont’d.)
(i) Leases (cont’d.)
(b) recognition and initial measurement (cont’d.)

(i) The Group and the Bank as lessee (cont’d.)
Lease liabilities

At the commencement date of the lease, the Group and the Bank recognises lease liabilities measured
at the present value of lease payments to be made over the lease term. The lease payments include fixed
payments (including in substance fixed payments) less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to be paid under residual value
guarantees.
The lease payments also include the exercise price of a purchase option reasonably certain to be exercised
by the Group and the Bank and payments of penalties for terminating the lease, if the lease term reflects
the Group and the Bank exercising the option to terminate. Variable lease payments that do not depend
on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the
period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group and the Bank uses its incremental
financing rate at the lease commencement date because the profit rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to reflect the
accretion of profit and reduced for the lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease
payments (e.g. changes to future payments resulting from a change in an index or rate used to determine
such lease payments) or a change in the assessment of an option to purchase the underlying asset.
Short-term leases and leases of low-value assets

The Group and the Bank applies the short-term lease recognition exemption to its short-term leases of
office building (i.e. those leases that have a lease term of 12 months or less from the commencement date
and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption
to leases of office building that are considered to be low value. Lease payments on short-term leases and
leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

(ii) The Group and the Bank as lessor
Leases in which the Group and the Bank does not transfer substantially all the risks and rewards
incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted
for on a straight-line basis over the lease terms and is included in revenue in the statements of profit or
loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating
lease are added to the carrying amount of the leased asset and recognised over the lease term on the
same basis as rental income. Contingent rents are recognised as revenue in the period in which they are
earned.