Page 39 - 2021 ANNUAL REPORT draft

• the risk of a default occurring at initial recognition (based on the original, unmodified contractual
terms)
In determining when a modification to terms of a financial asset is substantial or not to the existing terms,
the Bank will consider the following non-exhaustive criteria:

Quantitative criteria

A modification would lead to derecognition of existing financial asset and recognition of a new financial
asset, i.e. substantial modification, if:

• The discounted present value of the cash flows under the new terms, including any fees received net
of any fees paid and discounted using the original effective interest rate, is at least 10 per cent
different from the discounted present value of the remaining cash flows of the original financial
asset.

In addition to the above, the bank shall also consider qualitative factors as detailed below.

Qualitative criteria

Scenarios where modifications will lead to derecognition of existing loan and recognition of a new loan, i.e.
substantial modification, are:

• The exchange of a loan for another financial asset with substantially different contractual terms and
conditions such as the restructuring of a loan to a bond; conversion of a loan to an equity instrument
of the borrower
• Roll up of interest into a single bullet payment of interest and principal at the end of the loan term
• Conversion of a loan from one currency to another currency

Other factor to be considered:

• Extension of maturity dates

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with
a new one due to financial difficulties of the borrower, then an assessment is made of whether the
financial asset should be derecognized (see above) and ECL are measured as follows:

• If the expected restructuring will not result in derecognition of the existing asset, then the expected
cash flows arising from the modified financial asset are included in calculating the cash shortfalls
from the existing asset
• If the expected restructuring will result in derecognition of the existing asset, then the expected fair
value of the new asset is treated as the final cash flow from the existing financial asset at the time
of its derecognition.

Financial Liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or
expires. The Bank derecognises a financial liability when its terms are modified and the cash flows of the
modified liability are substantially different. In this case, a new financial liability based on the modified
terms is recognised at fair value. The difference between the carrying amount of the financial liability
extinguished and the new financial liability with modified terms is recognised in profit or loss.

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Guaranty Trust Bank (Gambia) Limited Financial Statements December 2021