Page 34 - Agib Bank Limited Annual Report 2021
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Under Stage 2, where there has been a The loss given default (LGD) is an estimate of
significant increase in credit risk since the loss arising in the case where a default
initial recognition but the financial occurs at a given time. It is based on the
instruments are not considered credit difference between the contractual cash flows
impaired, an amount equal to the default due and those that the lender would expect to
probability weighted lifetime ECL will be receive, including from the realization of any
recorded. The PD and LGD are estimated collateral. It is usually expressed as a
over the lifetime of the instrument and the percentage of the EAD.
expected cash shortfalls are discounted
by an approximation to the original Macroeconomic factors, forward looking
effective profit rate. information and multiple scenarios
Under the Stage 3, where there is
objective evidence of impairment at the IFRS 9 requires an unbiased and probability
reporting date these financial instruments weighted estimate of credit losses by
will be classified as credit impaired and evaluating a range of possible outcomes that
an amount equal to the lifetime ECL will incorporates forecasts of future economic
be recorded for the financial assets, with conditions.
the PD set at 100%.
When estimating the ECLs, the Bank considers
The ECL model is forward looking and requires three scenarios (a base case, an upside and a
the use of reasonable and supportable downside). Each of these is associated with
forecasts of future economic conditions in the different PDs, EADs and LGDs. When
determination of significant increases in credit relevant, the assessment of multiple scenarios
risk and measurement of ECL. also incorporates how defaulted financing are
expected to be recovered, including the
Measurement of ECL probability that the financing will cure and the
value of collateral or the amount that might be
The Bank calculates ECLs based on received for selling the asset.
probability-weighted scenarios to measure the
In its ECL models, the Bank relies on a broad
expected cash shortfalls, discounted at an range of forward looking information as
approximation to the effective profit rate. A economic inputs, such as:
cash shortfall is the difference between the
cash flows that are due to the Bank in
accordance with the contract and the cash Inflation rate
Lending rate
flows that the Bank expects to receive. IFRS 9
considers the calculation of ECL by multiplying Foreign Exchange rates
the Probability of default (PD), Loss Given GDP
Default (LGD) and Exposure at Default (EAD).
The Bank has developed methodologies and Macroeconomic factors and forward looking
models taking into account the relative size, information are required to be incorporated into
quality and complexity of the portfolios. the measurement of ECL as well as the
determination of whether there has been a
These parameters are generally derived from significant increase in credit risk since
internally developed statistical models and origination. Measurement of ECLs at each
other historical data and are adjusted to reflect reporting period should reflect reasonable and
supportable information at the reporting date
forward-looking information. about past events, current conditions and
forecasts of future economic conditions. The
Details of these statistical parameters/inputs inputs and models used for calculating ECLs
are as follows: may not always capture all characteristics of
the market at the date of the financial
The probability of default (PD) is an statements. To reflect this, qualitative
estimate of the likelihood of default adjustments or overlays are occasionally made
over a given time horizon; as temporary adjustments when such
The exposure at default (EAD) is an differences are significantly material.
estimate of the exposure at a future Annual Report and IFRS Financial Statements
default date, taking into account Assessment of significant increase in credit
expected changes in the exposure risk
after the reporting date; and
The assessment of a significant increase in
credit risk is done on a relative basis. To
Agib Bank Annual Report 2021 www.agib.gm 34
