Page 39 - GTBANK GAMBIA ANNUAL REPORT 2021

year of exposure required by IFRS 9. The Bank conditions. The estimation and application of forward-
obtains 3 years forecast for the relevant looking information requires significant judgement.
macroeconomic variables and adopts
exponentiation method to compute cumulative The measurement of expected credit losses for each
PD for future time years for each obligor. stage and the assessment of significant increases in
credit risk considers information about past events and
✓ EAD – The exposure at default is an estimate current conditions as well as reasonable and
of the exposure at a future default date, taking supportable forecasts of future events and economic
into account expected changes in the exposure conditions. The estimation and application of forward-
after the reporting date, including repayments looking information requires that:
of principal and interest, whether scheduled by
contract or otherwise, expected drawdowns on ✓ The Bank uses internal subject matter experts
committed facilities, and accrued interest from from Risk, Treasury and Business Divisions to
missed payments. consider a range of relevant forward looking
data, including macro-economic forecasts and
✓ LGD – The loss given default is an estimate of assumptions, for the determination of unbiased
the loss arising in the case where a default general economic adjustments in order to
occurs at a given time. It is based on the support the calculation of ECLs.
difference between the contractual cash flows
due and those that the lender would expect to ✓ Macro-economic variables taken into
receive, including from the realization of any consideration include, but are not limited to,
collateral. It is usually expressed as a unemployment, interest rates, gross domestic
percentage of the EAD. product, inflation and exchange rate, and
requires an evaluation of both the current and
To estimate expected credit loss for off balance sheet forecast direction of the macro-economic
exposures, credit conversion factor (CCF) is usually cycle.
computed. CCF is a modelled assumption which
represents the proportion of any undrawn exposure that ✓ Macro-economic variables considered have
is expected to be drawn prior to a default event strong statistical relationships with the risk
occurring. It is a factor that converts an off balance parameters (LGD, EAD, CCF and PD) used in
sheet exposure to its credit exposure equivalent. In the estimation of the ECLs, and are capable of
modelling CCF, the Bank considers its account predicting future conditions that are not
monitoring and payment processing policies including captured within the base ECL calculations.
its ability to prevent further drawings during years of
increased credit risk. CCF is applied on the off balance ✓ Forward looking adjustments for both general
sheet exposures to determine the EAD and the ECL macro-economic adjustments and more
impairment model for financial assets is applied on the targeted at portfolio / industry levels. The
EAD to determine the ECL on the off balance sheet methodologies and assumptions, including any
exposures. The Bank used 20% for Letters of Credit forecasts of future economic conditions, are
(LC’S) and 50% for Bank Guarantees (BG’s) based on reviewed regularly.
the BASEL guidelines on the treatment of Trade
Finance under the Basel Capital Framework.
Macroeconomic factors

Forward-looking information
The Bank relies on a broad range of forward looking
information as economic inputs, such as: GDP growth,
The measurement of expected credit losses for each unemployment rates, central bank of The Gambia base
stage and the assessment of significant increases in rates, inflation rates and foreign exchange rates. The
credit risk considers information about past events and inputs and models used for calculating expected credit
current conditions as well as reasonable and losses may not always capture all characteristics of the
supportable forecasts of future events and economic
market at the date of the financial statements. To reflect
this, qualitative adjustments or overlays may be made
Annual Report 2021

www.gtbankgambia.com Guaranty Trust Bank Gambia Limited 39