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10 Forward looking data Management overlays/Judgement
11 Metrics for credit risk Combine internal and external credit scores and
metrics
12 Definition of default Prudential guidelines definition
13 Use of qualitative information within transition test Specific qualitative information
14 Reliance on only 30 days past due for transition test No. Other factors will be considered
15 Rebuttal of 30 days past due assumption Yes, for specific portfolios
16 Restating comparatives Comparatives will not be restated

Impairment
The Group assesses on a forward-looking basis the expected credit losses (‘ECL’) associated with its debt instrument
assets carried at amortised cost and FVOCI and with the exposure arising from loan commitments and financial guaran-
tee contracts. The Group recognises a loss allowance for such losses at each reporting date. The measurement of ECL
reflects:
• An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
• The time value of money; and
• Reasonable and supportable information that is available without undue cost or effort at the reporting date about
past events, current conditions and forecasts of future economic conditions.

Staging Assessment
IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as sum-
marised below:
• A financial instrument that is not credit-impaired on initial recognition is classified in “Stage 1” and has its credit risk
continuously monitored by the Group.
• If a significant increase in credit risk (“SICR”) since initial recognition is identified, the financial instrument is moved to
“Stage 2’ but is not yet deemed to be credit-impaired.
• If the financial instrument is credit-impaired, the financial instrument is then moved to “Stage 3”.
• Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected
credit losses that result from default events possible within the next 12 months. Instruments in Stages 2 or 3 have
their ECL measured based on expected credit losses on a lifetime basis.
• A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward looking informa-
tion.
• Purchased or originated credit-impaired financial assets are those financial assets that are credit-impaired on initial
recognition. Their ECL is always measured on a lifetime basis (Stage 3).

Change in credit quality since initial recognition

Stage 1 Stage 2 Stage 3
(Initial Recognition) (Significant increase in credit risk (Credit-impaired assets)
since initial recognition)
12-months expected credit losses Lifetime expected credit losses Lifetime expected credit losses

Stage 1 and Stage 2 credit loss allowances effectively replace the collectively-assessed allowance for loans not yet iden-
tified as impaired recorded under IAS 39, while Stage 3 credit loss allowances effectively replace the individually assessed
allowances for impaired loans. Under IFRS 9, the population of financial assets and corresponding allowances disclosed as
Stage 3 will not necessarily correspond to the amounts of financial assets currently disclosed as impaired in accordance
with IAS 39. Consistent with IAS 39, loans are written off when there is no realistic probability of recovery. Accordingly, our
policy on when financial assets are written-off will not significantly change on adoption of IFRS 9.

Because all financial assets within the scope of the IFRS 9 impairment model will be assessed for at least 12-months of
expected credit losses, and the population of financial assets to which full lifetime expected credit losses applies is larger
than the population of impaired loans for which there is objective evidence of impairment in accordance with IAS 39, loss
allowances are generally expected to be higher under IFRS 9relative to IAS 39.

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Annual Report & Accounts 2017