Page 43 - Agib Bank Limited Annual Report 2021

• Credit rating information supplied by external rating The Bank has monitoring procedures in place to
agencies; make sure that the criteria used to identify significant
increases in credit are effective, meaning that
• For retail exposures: internally generated data of significant increase in credit risk is identified before
customer behaviour, affordability metrics etc.; and
the exposure is defaulted or when the asset
• For corporate exposures: information obtained by becomes 30 days past due.
periodic review of customer files including audited The Bank performs periodic back-testing of its
financial statements review, market data such as ratings to consider whether the drivers of credit risk
prices of credit default swaps (CDS) or quoted that led to default were accurately reflected in the
bonds where available, changes in the financial rating in a timely manner.
sector the customer operates etc.
Incorporation of forward-looking information
The Bank uses credit risk grades as a primary input
into the determination of the term structure of the PD The Bank uses forward-looking information that is
for exposures. The Bank collects performance and available without undue cost or effort in its
default information about its credit risk exposures assessment of significant increase of credit risk as
analysed by jurisdiction or region and by type of well as in its measurement of ECL.
product and borrower as well as by credit risk
grading. The information used is both internal and The Bank employs experts who use external and
external depending on the portfolio assessed. internal information to generate a ‘base case’
scenario of future forecast of relevant economic
The Bank analyses all data collected using statistical variables along with a representative range of other
models and estimates the remaining lifetime PD of possible forecast scenarios.
exposures and how these are expected to change
over time. The factors taken into account in this The external information used includes economic
process include macro-economic data such as GDP data and forecasts published by governmental
growth, unemployment, benchmark interest rates bodies and monetary authorities. The Bank applies
and house prices. probabilities to the forecast scenarios identified. The
base case scenario is the single most-likely outcome
The Bank generates a ‘base case’ scenario of the and consists of information used by the Bank for
future direction of relevant economic variables as strategic planning and budgeting.
well as a representative range of other possible
forecast scenarios. The Bank then uses these The Bank has identified and documented key drivers
forecasts, which are probability-weighted, to adjust of credit risk and credit losses for each portfolio of
its estimates of PDs. financial instruments and, using a statistical analysis
of historical data, has estimated relationships
The Bank uses different criteria to determine between macro-economic variables and credit risk
whether credit risk has increased significantly per and credit losses. The Bank has not made changes
portfolio of assets. The criteria used are both in the estimation techniques or significant
quantitative changes in PDs as well as qualitative. assumptions made during the reporting period.
The table below summarises per type of asset the
range above which an increase in lifetime PD is
determined to be significant, as well as some
indicative. Predicted relationships between the key indicators
and default and loss rates on various portfolios of
Loan commitments are assessed along with the financial assets have been developed based on
category of loan the Bank is committed to provide, analysing historical data over the past years.
i.e. commitments to provide mortgages are
assessed using similar criteria to mortgage loans,
while commitments to provide a corporate loan are
assessed using similar criteria to corporate loans. Measurement of ECL

Irrespective of the outcome of the above
assessment, the Bank presumes that the credit risk The key inputs used for measuring ECL are:
on a financial asset has increased significantly since • probability of default (PD); Annual Report and IFRS Financial Statements
initial recognition when contractual payments are
more than 30 days past due unless the Bank has • loss given default (LGD); and
reasonable and supportable information that
demonstrates otherwise. • exposure at default (EAD).

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