Page 42 - Agib Bank Ltd Annual Report and IFRS Financial statements 2020

▪ an instrument’s credit risk is considered higher based on qualitative criteria of the Bank.

The instruments moved to stage 2 from stage 1 remain in the stage until they perform for a sustained period
as per Bank’s policy.

Movement from stage 2 to stage 3 are based on whether the financial assets are credit impaired at the
reporting date. The determination of the credit impairment remains unchanged in IFRS 9 consistent with
IAS 39.

Experienced credit judgement

The Bank’s ECL allowance methodology requires the use of experienced credit judgement to incorporate
the estimated impact of factors not captured in the modelled ECL results, in all reporting periods.
When measuring ECL, the Bank considers the maximum contractual period over which the Bank is exposed
to credit risk. All contractual terms are considered when determining the expected life, including prepayment
options and extension and rollover options.

Expected life

When measuring expected credit loss, the Bank considers the maximum contractual period over which the
Bank is exposed to credit risk. All contractual terms are considered when determining the expected life,
including prepayment, and extension and rollover options.

Definition of default

The Bank considers a financial asset to be in default when:

▪ it is established that due to financial or non-financial reasons the borrower is unlikely to pay its credit
obligations to the Bank in full without recourse by the Bank to actions such as realising security (if
any is held); or
▪ the borrower is past due 90 days or more on any material credit obligation to the Bank.

In assessing whether a borrower is in default, the Bank considers indicators that are:
i qualitative - e.g. material breaches of covenant;
ii quantitative - e.g. overdue status and non-payment on another obligation of the same
customer /customer group to the banks; and
iii based on data developed internally and obtained from external sources.

Inputs into the assessment of whether a financing exposure is in default and their significance may vary
over time to reflect changes in circumstances.

4.13.6 Reclassifications

If the business model under which the Bank holds financial assets changes, the financial assets affected
are reclassified. The classification and measurement requirements related to the new category apply
prospectively from the first day of the first reporting period following the change in business model that
results in reclassifying the Bank’s financial assets.

During the current financial year and previous accounting period there was no change in the business model
under which the Bank holds financial assets and therefore no reclassifications were made.

4.13.7 Modification and derecognition of financial assets

A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial
asset are renegotiated or otherwise modified between initial recognition and maturity of the financial asset.
A modification affects the amount and/or timing of the contractual cash flows either immediately or at a
future date.

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Annual Report and IFRS Financial Statements for the year ended 31 December 2020 41