What is Held to Maturity?
Held-to-maturity investments are debt instruments that a business intends and is able to hold until their contractual maturity date. Under IFRS 9 they are measured at amortised cost when both the business model and SPPI tests are satisfied.
How It Works
- Confirm the business model is ‘hold to collect contractual cash flows’.
- Apply the SPPI test — solely payments of principal and interest.
- Measure the asset at amortised cost using the effective interest method.
- Recognise interest income in the income statement each period.
- Reassess the classification only if the business model changes.
Saudi Context
Saudi banks and corporate treasuries holding government sukuk and corporate bonds typically classify the bulk of their fixed-income portfolio under the amortised cost (held to maturity) bucket. SAMA reviews these classifications during prudential supervision.
Example
A company buys a SAR 1,000,000 sukuk at par with a 4% coupon and a 5-year maturity. Each year it recognises SAR 40,000 of interest income; the carrying amount stays at par until maturity assuming no impairment.