Page 40 - 2021 ANNUAL REPORT draft

Derecognition of financial instruments
The Bank derecognizes a financial asset only when the contractual rights to the cash flows from the asset
expire or it transfers the financial asset and substantially all the risks and rewards of ownership of the
asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of
ownership and continues to control the transferred asset, the Bank recognises its retained interest in the
asset and an associated liability for amounts it may have to pay. If the Bank retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Bank continues to recognise the
financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial assets that are transferred to a third party but do not qualify for derecognition are presented in
the statement of financial position as ‘Assets pledged as collateral’, if the transferee has the right to sell or
re-pledge them.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the
carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration
received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain
or loss that had been recognized in other comprehensive income is recognized in profit or loss.

3.6. Impairment of Financial Assets

In line with IFRS 9, the Bank assesses the under listed financial instruments for impairment using Expected
Credit Loss (ECL) approach:

• Amortized cost financial assets;
• Debt securities classified as at FVOCI; • Off-balance sheet loan commitments; and
• Financial guarantee contracts.

Equity instruments and financial assets measured at FVTPL are not subjected to impairment under the
standard.

Expected Credit Loss Impairment Model

The Bank’s allowance for credit losses calculations are outputs of models with a number of underlying
assumptions regarding the choice of variable inputs and their interdependencies. The expected credit loss
impairment model reflects the present value of all cash shortfalls related to default events either over the
following twelve months or over the expected life of a financial instrument depending on credit deterioration
from inception. The allowance for credit losses reflects an unbiased, probability-weighted outcome which
considers multiple scenarios based on reasonable and supportable forecasts.
The Bank adopts a three-stage approach for impairment assessment based on changes in credit quality
since initial recognition.

• Stage 1 – Where there has not been a significant increase in credit risk (SICR) since initial
recognition of a financial instrument, an amount equal to 12 months expected credit loss is
recorded. The expected credit loss is computed using a probability of default occurring over the
next 12 months. For those instruments with a remaining maturity of less than 12 months, a
probability of default corresponding to remaining term to maturity is used.
• Stage 2 – When a financial instrument experiences a SICR subsequent to origination but is not
considered to be in default, it is included in Stage 2. This requires the computation of expected
credit loss based on the probability of default over the remaining estimated life of the financial
instrument.
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Guaranty Trust Bank (Gambia) Limited Financial Statements December 2021