Page 58 - Ecobank Gambia Annual Report 2020
P. 58
Financial Statements & Annual Report
Notes to the Financial Statements
for the year ended 31 December 2020 (in Thousands of Gambian Dalasis)
collateralisation and seniority of claim, cost of realisation to mitigate ECL, e.g. reduction in limits or cancellation of
of collateral and cure rates (i.e. exit from non-performing the loan commitment.
status). LGD models for unsecured assets consider time
of recovery, recovery rates and seniority of claims. The The measurement of ECL is based on probability weighted
calculation is on a discounted cash flow basis, where the average credit loss. As a result, the measurement of the
cash flows are discounted by the original EIR of the loan. loss allowance should be the same regardless of whether
EAD is an estimate of the exposure at a future default date, it is measured on an individual basis or a collective basis
taking into account expected changes in the exposure (although measurement on a collective basis is more
after the reporting date, including repayments of principal practical for large portfolios of items). In relation to the
and interest, and expected drawdowns on committed assessment of whether there has been a significant
facilities. The Bank’s modelling approach for EAD reflects increase in credit risk it can be necessary to perform the
expected changes in the balance outstanding over the assessment on a collective basis as noted below.
lifetime of the loan exposure that are permitted by the
current contractual terms, such as amortisation profiles, Groupings based on shared risks characteristics
early repayment or overpayment, changes in utilisation
of undrawn commitments and credit mitigation actions When ECL are measured on a collective basis, the
taken before default. The Bank uses EAD models that financial instruments are grouped on the basis of shared
reflect the characteristics of the portfolios. risk characteristics, such as:
The Bank measures ECL considering the risk of default over
the maximum contractual period (including extension ¦ instrument type;
options) over which the entity is exposed to credit risk ¦ credit risk grade;
and not a longer period, even if contact extension or ¦ collateral type;
renewal is common business practice. However, for ¦ date of initial recognition;
financial instruments such as credit cards, revolving credit ¦ remaining term to maturity;
facilities and overdraft facilities that include both a loan ¦ industry;
and an undrawn commitment component, the Bank’s ¦ geographic location of the borrower;
contractual ability to demand repayment and cancel the ¦ income bracket of the borrower; and
undrawn commitment does not limit the Bank’s exposure ¦ the value of collateral relative to the financial asset
to credit losses to the contractual notice period. For such
financial instruments the Bank measures ECL over the if it has an impact on the probability of a default
period that it is exposed to credit risk and ECL would not occurring (loan-to-value (LTV) ratios).
be mitigated by credit risk management actions, even The groupings are reviewed on a regular basis to ensure
if that period extends beyond the maximum contractual that each group is comprised of homogenous exposures.
period. These financial instruments do not have a fixed Credit quality
term or repayment structure and have a short contractual
cancellation period. However, the Bank does not enforce The Bank monitors credit risk per class of financial
in the normal day-to-day management the contractual instrument. The table below outlines the classes
right to cancel these financial instruments. This is because identified, as well as the financial statement line item
these financial instruments are managed on a collective and the note that provides an analysis of the items
basis and are cancelled only when the Bank becomes included in the financial statement line for each class of
aware of an increase in credit risk at the facility level. This financial instrument.
longer period is estimated taking into account the credit
risk management actions that the Bank expects to take
56 Ecobank Gambia Annual Report 2020 www.ecobank.com
