Page 41 - GTBank Annual Report 2020 eBook
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pessimistic outcomes. The Bank has identified may be except there is a reasonable and
and documented key drivers of credit risk and supportable evidence available without undue
credit losses for each portfolio of financial cost to rebut the presumption.
instruments and, using an analysis of historical
data, has estimated relationships between Definition of Default and Credit Impaired
macro-economic variables, credit risk and Financial Assets
credit losses. At each reporting date, the Bank assesses
whether financial assets carried at amortised
Assessment of significant increase in credit cost and debt financial assets carried at FVOCI
risk (SICR) are credit-impaired. A financial asset is ‘credit-
At each reporting date, the Bank assesses impaired’ when one or more events that have a
whether there has been a significant increase detrimental impact on the estimated future
in credit risk for exposures since initial cash flows of the financial asset have occurred.
recognition by comparing the risk of default Evidence that a financial asset is credit-
occurring over the remaining expected life from impaired includes the following observable
the reporting date and the date of initial data:
recognition. The assessment considers
borrower-specific quantitative and qualitative Significant financial difficulty of the
information without consideration of collateral, borrower or issuer;
and the impact of forward-looking A breach of contract such as a default
macroeconomic factors. The common or past due event;
assessments for SICR on retail and non-retail The lender(s) of the borrower, for
portfolios include macroeconomic outlook, economic or contractual reasons
management judgement, and delinquency and relating to the borrower’s financial
monitoring. Forward looking macroeconomic difficulty, having granted to the
factors are a key component of the borrower a concession(s) that the
macroeconomic outlook. The importance and lender(s) would not otherwise
relevance of each specific macroeconomic consider;
factor depends on the type of product, It is becoming probable that the
characteristics of the financial instruments and borrower will enter bankruptcy or other
the borrower and the geographical region. financial reorganisation; or
The disappearance of an active market
The Bank adopts a multi factor approach in for a security because of financial
assessing changes in credit risk. This difficulties.
approach considers: Quantitative (primary), The purchase or origination of a
Qualitative (secondary) and Back stop financial asset at a deep discount that
indicators which are critical in allocating reflects the incurred credit losses.
financial assets into stages. Others include death, insolvency,
breach of covenants, etc.
The quantitative models consider deterioration
in the credit rating of obligor/counterparty A loan that has been renegotiated due to
based on the Bank’s internal rating system deterioration in the borrower’s condition is
while qualitative factors consider information usually considered to be credit-impaired unless
such as expected forbearance, restructuring, there is evidence that the risk of not receiving
exposure classification by licensed credit contractual cash flows has reduced
bureau, etc. significantly and there are no other indicators
of impairment. In addition, loans that are more
A backstop is typically used to ensure that in than 90 days past due are considered
the (unlikely) event that the primary impaired.
(quantitative) indicators do not change and
there is no trigger from the secondary In making an assessment of whether an
(qualitative) indicators, an account that has investment in sovereign debt is credit-impaired,
breached the 30 days past due criteria for the Bank considers the following factors:
SICR and 90 days past due criteria for default The market’s assessment of
is transferred to stage 2 or stage 3 as the case
creditworthiness as reflected in the Annual Report 2020
Guaranty Trust Bank Gambia Limited www.gtbankgambia.com 39
