Page 34 - 2021 ANNUAL REPORT draft

The IFRS 9 impairment model is applicable to all financial assets at amortized cost, debt instruments
measured at fair value through other comprehensive income, lease receivables, loan commitments and
financial guarantees not measured at fair value through profit or loss.

IFRS 9 replaces the ‘incurred loss’ impairment approach with an Expected Credit Loss (‘ECL’) model,
resulting in earlier recognition of credit losses.
Expected credit losses are the unbiased probability weighted average credit losses determined by
evaluating a range of possible outcomes and future economic conditions.

The ECL model has three stages. Entities are required to recognise a 12 month expected loss allowance
on initial recognition (stage 1) and a lifetime expected loss allowance when there has been a significant
increase in credit risk since initial recognition (stage 2). Stage 3 requires objective evidence that an asset
is credit-impaired, which is similar to the guidance on incurred losses in IAS 39.

The requirement to recognise lifetime ECL for loans which have experienced a significant increase in
credit risk since origination, but which are not credit impaired, does not exist under IAS 39. The
assessment of whether an asset is in stage 1 or 2 considers the relative change in the probability of
default occurring over the expected life of the instrument, not the change in the amount of expected credit
losses. Reasonable and supportable forward looking information will also be used in determining the
stage allocation. In general, assets more than 30 days past due, but not credit impaired, will be classed
as stage 2.

IFRS 9 requires the use of more forward looking information including reasonable and supportable
forecasts of future economic conditions. The Bank has developed the capability to model a number of
economic scenarios and capture the impact on credit losses to ensure the overall ECL represents a
reasonable distribution of economic outcomes. Appropriate governance and oversight has been
established around the process.

An assessment of the ECL in the Bank’s balance sheet reflects an increase in the provisions for credit
losses. However, this increase will not have a significant impact on regulatory capital and invariably the
Capital adequacy due to the Bank’s strong earnings and retention capacity over the years.

The Bank has not applied the following new or amended standards in preparing this financial statement
as it plans to adopt these standards at their respective effective dates. Commentaries on these new
standards/amendments are provided below.

Recognition

The Bank on the date of origination or purchase recognizes loans, debt and equity securities, deposits
and subordinated debentures at the fair value of consideration paid. For non-revolving facilities,
origination date is the date the facility is disbursed, origination date for revolving facilities is the date the
line is availed. All other financial assets and liabilities, including derivatives, are initially recognized on
the trade date at which the Bank becomes a party to the contractual provisions of the instrument.

Classification and Measurement

Initial measurement of a financial asset or liability is at fair value plus transaction costs that are directly
attributable to its purchase or issuance. For instruments measured at fair value through profit or loss,
transaction costs are recognized immediately in profit or loss. Financial assets include both debt and
equity instruments.

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Guaranty Trust Bank (Gambia) Limited Financial Statements December 2021