Page 38 - GTBank Annual Report 2020 eBook
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substantially different. In this case, a new Financial guarantee contracts.
financial liability based on the modified terms is
recognised at fair value. The difference Equity instruments and financial assets
between the carrying amount of the financial measured at FVTPL are not subjected to
liability extinguished and the new financial impairment under the standard.
liability with modified terms is recognised in
profit or loss. Expected Credit Loss Impairment Model
Derecognition of financial instruments The Bank’s allowance for credit losses
calculations are outputs of models with a
The Bank derecognizes a financial asset only number of underlying assumptions regarding
when the contractual rights to the cash flows the choice of variable inputs and their
from the asset expire or it transfers the financial interdependencies. The expected credit loss
asset and substantially all the risks and impairment model reflects the present value of
rewards of ownership of the asset to another all cash shortfalls related to default events
entity. If the Group neither transfers nor retains either over the following twelve months or over
substantially all the risks and rewards of the expected life of a financial instrument
ownership and continues to control the depending on credit deterioration from
transferred asset, the Bank recognises its inception. The allowance for credit losses
retained interest in the asset and an associated reflects an unbiased, probability-weighted
liability for amounts it may have to pay. If the outcome which considers multiple scenarios
Bank retains substantially all the risks and based on reasonable and supportable
rewards of ownership of a transferred financial forecasts.
asset, the Bank continues to recognise the The Bank adopts a three-stage approach for
financial asset and also recognises a impairment assessment based on changes in
collateralised borrowing for the proceeds credit quality since initial recognition.
received.
Financial assets that are transferred to a third ✓ Stage 1 – Where there has not been a
party but do not qualify for derecognition are significant increase in credit risk
presented in the statement of financial position (SICR) since initial recognition of a
as ‘Assets pledged as collateral’, if the financial instrument, an amount equal
transferee has the right to sell or re-pledge to 12 months expected credit loss is
them. recorded. The expected credit loss is
computed using a probability of default
On derecognition of a financial asset, the occurring over the next 12 months. For
difference between the carrying amount of the those instruments with a remaining
asset (or the carrying amount allocated to the maturity of less than 12 months, a
portion of the asset transferred), and the sum probability of default corresponding to
of (i) the consideration received (including any remaining term to maturity is used.
new asset obtained less any new liability ✓ Stage 2 – When a financial instrument
assumed) and (ii) any cumulative gain or loss experiences a SICR subsequent to
that had been recognized in other origination but is not considered to be
comprehensive income is recognized in profit in default, it is included in Stage 2. This
or loss. requires the computation of expected
credit loss based on the probability of
3.6. Impairment of Financial Assets default over the remaining estimated
life of the financial instrument.
In line with IFRS 9, the Bank assesses the ✓ Stage 3 – Financial instruments that
under listed financial instruments for are considered to be in default are
impairment using Expected Credit Loss (ECL) included in this stage. Similar to Stage
approach: 2, the allowance for credit losses
captures the lifetime expected credit
Amortized cost financial assets; losses.
Debt securities classified as at FVOCI;
Off-balance sheet loan commitments; The guiding principle for ECL model is to reflect
and the general pattern of deterioration or Annual Report 2020
Guaranty Trust Bank Gambia Limited www.gtbankgambia.com 36
