Page 28 - GTBANK GAMBIA ANNUAL REPORT 2021

choice of variable inputs and their interdependencies. feasible, estimation is required in establishing fair values.
Elements of the ECL models that are considered Judgements and estimates include considerations of
accounting judgements and estimates include: liquidity and model inputs related to items such as credit
risk (both own and counterparty), funding value
✓ The Bank’s internal credit grading model, which adjustments, correlation and volatility.
assigns PDs to the individual grades
✓ The Bank’s criteria for assessing if there has 2.4.4. Effective Interest Rate (EIR) method
been a significant increase in credit risk and so
allowances for financial assets should be The Bank’s EIR method, recognizes interest income using
measured on a LTECL basis and the qualitative a rate of return that represents the best estimate of a
assessment constant rate of return over the expected behavioral life of
✓ Development of ECL models, including the loans and deposits and recognizes the effect of potentially
various formulas and the choice of inputs different interest rates charged at various stages and
✓ Determination of associations between other characteristics of the product life cycle (including
macroeconomic scenarios and, economic prepayments and penalty interest and charges). This
inputs, such as unemployment levels and estimation, by nature, requires an element of judgement
collateral values, and the effect on PDs, EADs regarding the expected behavior and life-cycle of the
and LGDs instruments, as well expected changes to the base rate
✓ Selection of forward-looking macroeconomic and other fee income/expense that are integral parts of
scenarios and their probability weightings, to the instrument.
derive the economic inputs into the ECL models
✓ It has been the Bank’s policy to regularly review 2.4.5 Provisions and other contingent liabilities
its models in the context of actual loss
experience and adjust when necessary. The Bank operates in a regulatory and legal environment
that, by nature, has a heightened element of litigation risk
inherent to its operations. As a result, it is involved in
2.4.2 Going concern
various litigation, arbitration and regulatory investigations
The Bank’s management has made an assessment of its and proceedings, arising in the ordinary course of the
Bank’s business. When the Bank can reliably measure
ability to continue as a going concern and is satisfied that the outflow of economic benefits in relation to a specific
it has the resources to continue in business for the case and considers such outflows to be probable, the
foreseeable future. Furthermore, management is not Bank records a provision against the case. Where the
aware of any material uncertainties that may cast probability of outflow is considered to be remote, or
significant doubt on the Bank’s ability to continue as a probable, but a reliable estimate cannot be made, a
going concern. Therefore, the financial statements contingent liability is disclosed. However, when the Bank
continue to be prepared on the going concern basis is of the opinion that disclosing these estimates on a case-

by-case basis would prejudice their outcome, then the
2.4.3 Fair value of financial instruments Bank does not include detailed, case-specific disclosers
in its financial statements. Given the subjectivity and
The fair value of financial instruments is the price that uncertainty of determining the probability and amount of
would be received to sell an asset or paid to transfer a losses, the Bank takes into account a number of factors
liability in an orderly transaction in the principal (or most including legal advice, the stage of the matter and
advantageous) market at the measurement date under historical evidence from similar incidents. Significant
current market conditions (i.e., an exit price) regardless of judgement is required to conclude on these estimates. For
whether that price is directly observable or estimated further details on provisions and other contingencies see
using another valuation technique. When the fair values Note 29.
of financial assets and financial liabilities recorded in the
statement of financial position cannot be derived from 2.4.6 Determination of the lease term for lease contracts
active markets, they are determined using a variety of with renewal and termination options (Bank as a lessee)
valuation techniques that include the use of valuation
models. The inputs to these models are taken from The Bank determines the lease term as the non-
observable markets where possible, but where this is not cancellable term of the lease, together with any years
Annual Report 2021

www.gtbankgambia.com Guaranty Trust Bank Gambia Limited 28