Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Circular No. (79/2015)

To All Banks Operating in Palestine

Date: Tuesday, May 19, 2015

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Subject: Revenue Recognition from Fees and Commissions

Based on Article (46) of Legislative Decree No. (9) of 2010 concerning Banks, and due to the lack of uniform application by banks of the requirements of International Accounting Standard No. 18 (Revenue Recognition), particularly regarding revenues from fees and commissions, and in order to comply with international standards and unify recognition and measurement methods, all banks are hereby requested to recognize revenues from fees and commissions for financial services according to the service for which they were collected and on the accounting basis used to process the related financial performance. This requires distinguishing between fees and commissions that represent a portion of the effective yield on financial performance, fees and commissions that are earned upon service provision, and fees and commissions that are earned upon the execution of a significant act (completion of the banking process), in accordance with the Standard's requirements. Compliance with this shall be effective as of July 1, 2015, and any provisions conflicting with this Circular are hereby repealed.

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Deputy Governor
for Financial Stability Affairs

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• A list of fees and commissions is attached for reference.

Supervision and Inspection Department

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www.pma.ps

Ramallah - Palestine P.O. Box 452 | Tel: +970 2 2415250 | Fax: +970 2 2409922 | Phone: +970 2 2415250 | Fax: +970 2 2409922 | Ramallah - Palestine P.O. Box 452 Gaza - Palestine P.O. Box 4026 | Tel: +970 8 2825292 | Fax: +970 8 2844487 | Phone: +970 8 2825292 | Fax: +970 8 2844487 | Gaza - Palestine P.O. Box 4026 Email: info@pma.ps | Email: info@pma.ps

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Item

Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
First: Fees and Commissions Related to Direct Credit Facilities:
1. Submission of facility application	Earned (recorded) upon service provision.
2. Granting, renewing, extending credit facilities, and increasing facility limits and/or commitments (undrawn limits) within revenues until the facility is drawn.	Recognition of commission for granting, renewing, extending, and increasing facility limits and/or commitments (undrawn limits) within revenues is deferred until the facility is drawn.
If the bank expects the facility to be used, the yield rate on the facility is adjusted to reflect the commission using the effective interest rate method and recognized within facility yield (interest). If not drawn, commission is recognized as revenue upon expiration of the commitment period.
If the bank does not expect the facility to be drawn, commission revenue is recognized on a straight-line basis over the facility's life.
3. Exceeding current account debit limit	Commission represents a portion of the effective yield
4. Current account credit statement	Commission represents a portion of the effective yield
5. Deferral of one or more installments	Commission represents a portion of the effective yield
6. Early repayment	Earned (recorded) upon service provision
7. Rescheduling facilities (in case of default)	If changing facility terms results in derecognition of the original facility and recognition of a new one, commissions are recognized as part of the rescheduling profit. If changing facility terms does not result in derecognition
8. Replacement of guarantor	...of the original facility and recognition of a new one, the outstanding facility balance at the modification date is adjusted by the commission amount and amortized over the remaining facility life using the effective interest rate method.
9. Undrawn limit	If the bank expects the limit to be used, the yield rate on the facility is adjusted to reflect the commission using the effective interest rate method and recognized within facility yield (interest). If the limit is not drawn, the commission is recognized as revenue upon expiration of the commitment period.
If the bank does not expect the limit to be utilized, commission revenue is recognized on a straight-line basis over the facility's life.
10. Cancellation of facilities after administrative approval and before implementation	Earned (recorded) upon service provision
11. Modification or change of collateral (change of mortgage)	Earned (recorded) upon service provision

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Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
Second: Fees and Commissions Related to Indirect Credit Facilities

Standby Letters of Credit

Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
1. Opening or extending a standby LC	Earned (recorded) over the service period
2. Cancellation of a standby LC	Earned (recorded) upon service provision
3. Covering, advising, transferring, and amending a standby LC	Earned (recorded) upon service provision
4. Modifying terms of a (export / import) LC	Earned (recorded) upon service provision
5. Requesting a special LC certificate	Earned (recorded) upon service provision
6. Handling LC documents	Earned (recorded) upon service provision
7. Granting LC limits	Earned (recorded) over the service provision period.
8. Presentation or retention of documents non-compliant with LC terms	Earned (recorded) upon service provision

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Collection Bills

Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
1. Issuing collection bills	Earned (recorded) over the service period
2. Transferring collection bills	Earned (recorded) upon service provision
3. Renewing bill of lading	Earned (recorded) upon service provision
4. Returning documents for non-payment / non-acceptance	Earned (recorded) upon service provision

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Acceptances

Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
1. Accepting guaranteed / unguaranteed time drafts	Earned (recorded) upon service provision
2. Incoming deferred drafts	Earned (recorded) upon service provision
3. Guaranteeing outgoing / incoming drafts	Earned (recorded) over the service period
4. Delaying repayment of accepted guaranteed draft	Earned (recorded) upon service provision
5. Granting acceptance limits	Earned (recorded) over the service period

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Guarantees

Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
1. Issuing and extending guarantees of all types	Earned (recorded) over the service period
2. Amending and modifying guarantees of all types	Earned (recorded) upon service provision

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Foreign Exchange

Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
1. Foreign exchange discount	Commission represents a portion of the effective yield
2. Collecting foreign exchange and returning unpaid foreign exchange	Earned (recorded) upon service provision

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Third: Fees and Commissions Related to Credit Cards

Item	Recognition Mechanism for Commissions according to International Accounting Standard No. (18)
1. Issuing and renewing credit cards of all types, or issuing replacements for damaged or lost cards	Earned (recorded) upon service provision
2. Replacing credit card PINs	Earned (recorded) upon service provision
3. Cash withdrawal via credit card	Earned (recorded) upon service provision
4. Blacklisting a credit card, removing the flag, or lifting a freeze on a card frozen by other banks	Earned (recorded) upon service provision
5. Non-utilization of credit card limit	Earned (recorded) upon service provision
6. Chargeback and dispute fees for card transactions (for merchant / cardholder)	Earned (recorded) upon service provision
7. Issuing online shopping cards, prepaid cards, and reloading them	Earned (recorded) upon service provision
3. Granting guarantee limits	Earned (recorded) over the service period