Page 43 - 2021 ANNUAL REPORT draft

Multiple forward-looking scenarios

The Bank determines allowance for credit losses using three probability-weighted forward-looking
scenarios. The Bank considers both internal and external sources of information in order to achieve an
unbiased measure of the scenarios used. The Bank prepares the scenarios using forecasts generated
by credible sources such as Business Monitor International (BMI), International Monetary Fund (IMF),
Gambia Bureau of Statistics (GBoS), World Bank and Central Bank of The Gambia (CBG).

The Bank estimates three scenarios for each risk parameter (LGD, EAD, CCF and PD) – Normal, Upturn
and Downturn, which in turn is used in the estimation of the multiple scenario ECLs. The ‘normal case’
represents the most likely outcome and is aligned with information used by the Bank for other purposes
such as strategic planning and budgeting. The other scenarios represent more optimistic and more
pessimistic outcomes. The Bank has identified and documented key drivers of credit risk and credit losses
for each portfolio of financial instruments and, using an analysis of historical data, has estimated
relationships between macro-economic variables, credit risk and credit losses.

Assessment of significant increase in credit risk (SICR)

At each reporting date, the Bank assesses whether there has been a significant increase in credit risk for
exposures since initial recognition by comparing the risk of default occurring over the remaining expected
life from the reporting date and the date of initial recognition. The assessment considers borrower-specific
quantitative and qualitative information without consideration of collateral, and the impact of
forwardlooking macroeconomic factors. The common assessments for SICR on retail and non-retail
portfolios include macroeconomic outlook, management judgement, and delinquency and monitoring.
Forward looking macroeconomic factors are a key component of the macroeconomic outlook. The
importance and relevance of each specific macroeconomic factor depends on the type of product,
characteristics of the financial instruments and the borrower and the geographical region.

The Bank adopts a multi factor approach in assessing changes in credit risk. This approach considers:
Quantitative (primary), Qualitative (secondary) and Back stop indicators which are critical in allocating
financial assets into stages.

The quantitative models considers deterioration in the credit rating of obligor/counterparty based on the
Bank’s internal rating system while qualitative factors considers information such as expected
forbearance, restructuring, exposure classification by licensed credit bureau, etc.

A backstop is typically used to ensure that in the (unlikely) event that the primary (quantitative) indicators
do not change and there is no trigger from the secondary (qualitative) indicators, an account that has
breached the 30 days past due criteria for SICR and 90 days past due criteria for default is transferred
to stage 2 or stage 3 as the case may be except there is a reasonable and supportable evidence available
without undue cost to rebut the presumption.

Definition of Default and Credit Impaired Financial Assets

At each reporting date, the Bank assesses whether financial assets carried at amortised cost and debt
financial assets carried at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or
more events that have a detrimental impact on the estimated future cash flows of the financial asset have
occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

• Significant financial difficulty of the borrower or issuer;

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Guaranty Trust Bank (Gambia) Limited Financial Statements December 2021