Page 29 - GTBank Annual Report 2020 eBook

The Bank’s internal credit grading model, The inputs to these models are taken from
which assigns PDs to the individual grades observable markets where possible, but where this
The Bank’s criteria for assessing if there is not feasible, estimation is required in establishing
has been a significant increase in credit risk fair values. Judgements and estimates include
and so allowances for financial assets considerations of liquidity and model inputs related
should be measured on a LTECL basis and to items such as credit risk (both own and
the qualitative assessment counterparty), funding value adjustments,
Development of ECL models, including the correlation and volatility.
various formulas and the choice of inputs
Determination of associations between 2.4.4. Effective Interest Rate (EIR) method
macroeconomic scenarios and, economic
inputs, such as unemployment levels and The Bank’s EIR method, recognizes interest
collateral values, and the effect on PDs, income using a rate of return that represents the
EADs and LGDs best estimate of a constant rate of return over the
Selection of forward-looking expected behavioral life of loans and deposits and
macroeconomic scenarios and their recognizes the effect of potentially different interest
probability weightings, to derive the rates charged at various stages and other
economic inputs into the ECL models characteristics of the product life cycle (including
It has been the Bank’s policy to regularly prepayments and penalty interest and charges).
review its models in the context of actual This estimation, by nature, requires an element of
loss experience and adjust when judgement regarding the expected behavior and
necessary. life-cycle of the instruments, as well expected
changes to the base rate and other fee
2.4.2 Going concern income/expense that are integral parts of the
instrument.
The Bank’s management has made an assessment
of its ability to continue as a going concern and is 2.4.5 Provisions and other contingent liabilities
satisfied that it has the resources to continue in
business for the foreseeable future. Furthermore, The Bank operates in a regulatory and legal
management is not aware of any material environment that, by nature, has a heightened
uncertainties that may cast significant doubt on the element of litigation risk inherent to its operations.
Bank’s ability to continue as a going concern. As a result, it is involved in various litigation,
Therefore, the financial statements continue to be arbitration and regulatory investigations and
prepared on the going concern basis proceedings, arising in the ordinary course of the
Bank’s business. When the Bank can reliably
measure the outflow of economic benefits in
2.4.3 Fair value of financial instruments relation to a specific case and considers such
outflows to be probable, the Bank records a
The fair value of financial instruments is the price provision against the case. Where the probability of
that would be received to sell an asset or paid to outflow is considered to be remote, or probable, but
transfer a liability in an orderly transaction in the a reliable estimate cannot be made, a contingent
principal (or most advantageous) market at the liability is disclosed. However, when the Bank is of
measurement date under current market conditions the opinion that disclosing these estimates on a
(i.e., an exit price) regardless of whether that price case-by-case basis would prejudice their outcome,
is directly observable or estimated using another then the Bank does not include detailed, case-
valuation technique. When the fair values of specific disclosers in its financial statements. Given
financial assets and financial liabilities recorded in the subjectivity and uncertainty of determining the
the statement of financial position cannot be probability and amount of losses, the Bank takes
derived from active markets, they are determined into account a number of factors including legal
advice, the stage of the matter and historical
using a variety of valuation techniques that include
evidence from similar incidents. Significant
the use of valuation models. judgement is required to conclude on these
estimates. For further details on provisions and
other contingencies see Note 29. Annual Report 2020

Guaranty Trust Bank Gambia Limited www.gtbankgambia.com 27