Page 64 - Agib Bank Ltd Annual Report and IFRS Financial statements 2020

II. Establishing groups of assets with similar credit risk characteristics

When ECLs are measured on a collective basis, the financial instruments are grouped on the basis of shared
risk characteristics. The Bank monitors the appropriateness of the credit risk characteristics on an ongoing
basis to assess whether they continue to be similar. This is required in order to ensure that should credit risk
characteristics change there is appropriate re-segmentation of the assets. This may result in new portfolios
being created or assets moving to an existing portfolio that better reflects the similar credit risk characteristics
of that group of assets.

III. Models and assumptions used

The Bank uses various models and assumptions in measuring fair value of financial assets as well as in
estimating ECL. Judgment is applied in identifying the most appropriate model for each type of asset, as well
as for determining the assumptions used in these models, including assumptions that relate to key drivers of
credit risk.

IV. Impairment losses on Islamic financing and investing assets

The impairment allowance for Islamic financing and investing assets is established through charges to the
statement of comprehensive income in the form of an impairment allowance for doubtful Islamic financing and
investing assets.

Individually assessed Islamic financing and investing assets

Impairment losses for individually assessed Islamic financing and investing assets are determined by an
evaluation of exposure on a case-by-case basis. This procedure is applied to all classified corporate and
personal Islamic financing assets which are individually significant accounts or are not subject to the portfolio-
based-approach.

The following factors are considered by management when determining allowance for impairment on individual
Islamic financing and investing assets which are significant:

 The amount expected to be realised on disposals of collaterals;
 The bank’s ability to enforce its claim on the collaterals and associated cost of litigation;
and
 The expected time frame to complete legal formalities and disposals of collaterals.

The bank policy requires regular review of the level of impairment allowances on individual facilities and regular
valuation of the collateral and its enforceability.

Impaired Islamic financing and investing assets continue to be classified as impaired unless they are brought
fully current and the collection of scheduled profit and principal is considered probable.

Critical accounting judgements in applying the bank’s accounting policies

Critical accounting judgements made in applying the Bank’s accounting policies include:

Financial asset and liability classification

The bank’s accounting policies provide scope for assets and liabilities to be designated on inception into different
accounting categories in certain circumstances:

 In classifying financial assets as held-to-maturity, the Bank has determined that it has both the positive
intention and ability to hold the assets until their maturity date as required by accounting policy in note 4.

Details of the bank’s classification of financial assets and liabilities are given in note 4.
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Annual Report and IFRS Financial Statements for the year ended 31 December 2020 63