Page 176 - ACCESS BANK ANNUAL REPORTS_eBook

is based on historical observed data and is assumed to be the same across all assets within a portfolio and credit grade
band. This is supported by historical analysis.

The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by product type.

• For amortising products and bullet repayment loans, this is based on the contractual repayments owed by the bor-
rower over a 12month or lifetime basis. This will also be adjusted for any expected overpayments made by a borrower.
Early repayment/refinance assumptions are also incorporated into the calculation.

• For revolving products, the exposure at default is predicted by taking current drawn balance and adding a credit con-
version factor which allows for the expected drawdown of the remaining limit by the time of default. These assump-
tions vary by product type and current limit utilisation band, based on analysis of the Group’s recent default data.

The 12-month and lifetime LGDs are determined based on the factors which impact the recoveries made post default.
These vary by product type.
• For secured products, this is primarily based on collateral type and projected collateral values, historical discounts to
market/book values due to forced sales, time to repossession and recovery costs observed.
• For unsecured products, LGD’s are typically set at product level due to the limitation in recoveries achieved across
different across different borrower. These LGD’s are influenced by collection strategies, including contracted debt
sales and price.

Incorporation of forward looking information and multiple economic scenarios

The Bank is required to incorporate forward-looking macroeconomic information into its assessment of expected credit
loss Paramaters. The macroeconomic indices were projected for three possible scenarios being; best estimate, optimis-
tic and downturn forecasts. The macroeconomic variables considered for the adjustment of the probabilities of default
are listed below:

- Crude oil prices,
- Inflation,
- Interest rates,
- Exchange rates (USD/NGN), and
- Monetary Policy rate

In line with the aforementioned IFRS 9 requirements, the Bank has adjusted its probabilities of default with the above-list-
ed macroeconomic variables. By stressing the macroeconomic indicators, the Bank was able to estimate ECLs for the
different economic scenarios. Probability weights were assigned to these scenarios to arrive at the weighted average
expected credit losses

Impact assessments have done to estimate the adjustments required and impact on capital upon adoption. Based on the
assessments that been carried out, the following estimated adjustments on the opening balance of the Bank’s equity at 1
January 2018 is between N40 billion and N45 billion. However, the impact on equity will be compensated for by reduction
in Regulatory Risk Reserve.

176 Access BAnk Plc
Annual Report & Accounts 2017