Page 38 - GTBANK GAMNBIA 2021 ANNUAL REPORT

3.6. Impairment of Financial Assets the probability of default over the remaining
estimated life of the financial instrument.
In line with IFRS 9, the Bank assesses the under listed ✓ Stage 3 – Financial instruments that are
financial instruments for impairment using Expected considered to be in default are included in this
Credit Loss (ECL) approach: stage. Similar to Stage 2, the allowance for
credit losses captures the lifetime expected
✓ Amortized cost financial assets; credit losses.
✓ Debt securities classified as at FVOCI; • Off-
balance sheet loan commitments; and The guiding principle for ECL model is to reflect the
✓ Financial guarantee contracts. general pattern of deterioration or improvement in the
credit quality of financial instruments since initial
recognition. The ECL allowance is based on credit
Equity instruments and financial assets measured at losses expected to arise over the life of the asset (life
FVTPL are not subjected to impairment under the time expected credit loss), unless there has been no
standard. significant increase in credit risk since origination.

Expected Credit Loss Impairment Model Measurement of Expected Credit Losses

The Bank’s allowance for credit losses calculations are The probability of default (PD), exposure at default
outputs of models with a number of underlying (EAD), and loss given default (LGD) inputs used to
assumptions regarding the choice of variable inputs and estimate expected credit losses are modelled based on
their interdependencies. The expected credit loss macroeconomic variables that are most closely related
impairment model reflects the present value of all cash with credit losses in the relevant portfolio.
shortfalls related to default events either over the
following twelve months or over the expected life of a Details of these statistical parameters/inputs are as
financial instrument depending on credit deterioration follows:
from inception. The allowance for credit losses reflects an
unbiased, probability-weighted outcome which considers ✓ PD – The probability of default is an estimate
multiple scenarios based on reasonable and supportable of the likelihood of default over a given time
forecasts.
horizon. A default may only happen at a certain
time over the remaining estimated life, if the
The Bank adopts a three-stage approach for impairment
assessment based on changes in credit quality since facility has not been previously derecognized
initial recognition. and is still in the portfolio.

✓ Stage 1 – Where there has not been a ✓ 12-month PDs – This is the estimated
significant increase in credit risk (SICR) since probability of default occurring within the next
initial recognition of a financial instrument, an 12 months (or over the remaining life of the
amount equal to 12 months expected credit financial instrument if that is less than 12
loss is recorded. The expected credit loss is months). This is used to calculate 12-month
computed using a probability of default ECLs. The Bank obtains the constant and
occurring over the next 12 months. For those relevant coefficients for the various
independent variables and computes the
instruments with a remaining maturity of less
than 12 months, a probability of default outcome by incorporating forward looking
corresponding to remaining term to maturity is macroeconomic variables and computing the
used. forward probability of default.
✓ Stage 2 – When a financial instrument
experiences a SICR subsequent to origination ✓ Lifetime PDs – This is the estimated probability
but is not considered to be in default, it is of default occurring over the remaining life of
included in Stage 2. This requires the the financial instrument. This is used to
computation of expected credit loss based on calculate lifetime ECLs for ‘stage 2’ and ‘stage
3’ exposures. PDs are limited to the maximum
Annual Report 2021

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