Page 53 - Ecobank Gambia Annual Report 2020
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changes in lifetime expected credit losses since initial ¦ the borrower is unlikely to pay its credit obligations
recognition. At each reporting date, an entity shall to the Bank in full due to changes in economic
recognise in profit or loss the amount of the change in conditions;
lifetime expected credit losses as an impairment gain
or loss. An entity shall recognise favourable changes in ¦ when Customer risk rating deteriorates to 9-10 based
lifetime expected credit losses as an impairment gain, on internal risk rating (ORR)
even if the lifetime expected credit losses are less than
the amount of expected credit losses that were included The definition of default is appropriately tailored to
in the estimated cash flows on initial recognition. reflect different characteristics of different types of
ECLs are a probability-weighted estimate of the present assets. Overdrafts are considered as being past due
value of credit losses. These are measured as the present once the customer has breached an advised limit or has
value of the difference between the cash flows due to been advised of a limit smaller than the current amount
the Bank under the contract and the cash flows that the outstanding.
Bank expects to receive arising from the weighting of When assessing if the borrower is unlikely to pay its
multiple future economic scenarios, discounted at the credit obligation, the Bank takes into account both
asset’s EIR. qualitative and quantitative indicators. The information
For undrawn loan commitments, the ECL is the difference assessed depends on the type of the asset, for example
between the present value of the difference between the in corporate lending a qualitative indicator used is the
Contractual cash flows that are due to the Bank if the breach of covenants, which is not relevant for retail
holder of the commitment draws down the loan and the lending. Quantitative indicators, such as overdue status
cash flows that the Bank expects to receive if the loan is and non-payment on another obligation of the same
drawn down; and counterparty are key inputs in this analysis. The Bank
For financial guarantee contracts, the ECL is the difference uses a variety of sources of information to assess default
between the expected payments to reimburse the holder which are either developed internally or obtained from
of the guaranteed debt instrument less any amounts that external sources. This class of loans are categorized as
the Bank expects to receive from the holder, the debtor stage ‘3’ in the ECL model and assessed for lifetime
or any other party. impairment loss in line with the standard.
The Bank measures ECL on an individual basis, or on a Significant increase in credit risk
collective basis for portfolios of loans that share similar The Bank monitors all financial assets, issued loan
economic risk characteristics. The measurement of the commitments and financial guarantee contracts that are
loss allowance is based on the present value of the subject to the impairment requirements to assess whether
asset’s expected cash flows using the asset’s original EIR, there has been a significant increase in credit risk since
regardless of whether it is measured on an individual initial recognition. If there has been a significant increase
basis or a collective basis. in credit risk the Bank will measure the loss allowance
More information on measurement of ECLs is provided based on lifetime rather than 12-month ECL. The Bank’s
in note 11.10, including details on how instruments are accounting policy is not to use the practical expedient
grouped when they are assessed on a collective basis. that financial assets with ‘low’ credit risk at the reporting
Definition of default date are deemed not to have had a significant increase
Critical to the determination of ECL is the definition of in credit risk. As a result the Bank monitors all financial
default. The definition of default is used in measuring assets, issued loan commitments and financial guarantee
the amount of ECL and in the determination of whether contracts that are subject to impairment for significant
the loss allowance is based on 12-month or lifetime ECL, increase in credit risk.
as default is a component of the probability of default In assessing whether the credit risk on a financial
(PD) which affects both the measurement of ECLs and the instrument has increased significantly since initial
identification of a significant increase in credit risk. recognition, the Bank compares the risk of a default
The Bank considers the following as constituting an event occurring on the financial instrument at the reporting date
of default: based on the remaining maturity of the instrument with
¦ the borrower is past due more than 90 days on any the risk of a default occurring that was anticipated for the
remaining maturity at the current reporting date when
material credit obligation to the Bank; or the financial instrument was first recognised. In making
this assessment, the Bank considers both quantitative
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Ecobank Gambia Annual Report 2020 51
