Page 86 - ICD-AR22-English

Notes to the Separate Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2022
Impairment of financial assets other than equity instrument
The Corporation applies the credit loss approach to financial instruments measured at amortized cost. To assess the extent of credit risk, the financial assets are divided into three (3) categories:
i. Stage 1 – No significant increase in credit risk;
ii. Stage 2 – Significant increase in credit risk (SICR); and
iii. Stage 3 – Credit impaired financial assets.
Allocation to different stages is based on the degree of deterioration in the credit quality of the financial asset. At each reporting date, the Corporation assesses whether there has been a significant increase in credit risk. The Corporation monitors all financial assets, and financial guarantee contracts that are subject to the impairment requirements to assess whether there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk the Corporation will measure the loss allowance based on lifetime rather than 12-month ECL.
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Corporation compares the risk of a default occurring on the financial instrument at the reporting date based on the remaining maturity of the instrument with the risk of a default occurring that was anticipated for the remaining maturity at the current reporting date when the financial instrument was first recognised. In making this assessment, the Corporation considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue
cost or effort, based on the Corporation’s historical experience and expert credit assessment including forward- looking information.
Multiple economic scenarios form the basis of determining the probability of default at initial recognition and at subsequent reporting dates. Different economic scenarios will lead to a different probability of default. It is the weighting of these different scenarios that forms the basis of a weighted average probability of default that is used to determine whether credit risk has significantly increased.
Forward-looking information includes the future prospects of the countries and industries in which the Corporation’s counterparties operate, obtained from economic expert reports, financial analysts, governmental bodies, relevant think-tanks and other similar organizations, as well as consideration of various internal and external sources of actual and forecast economic information. The Corporation allocates its counterparties to
a relevant internal credit risk grade depending on their credit quality. The quantitative information is a primary indicator of significant increase in credit risk and is based on the change in lifetime PD by comparing, Given that macro-economic scenario data and models for certain countries are not readily available, in such cases proxy scenarios and models have been used.
The PDs used are forward-looking and the Corporation uses the same methodologies and data used to measure the loss allowance for ECL.
The qualitative factors that indicate significant increase in credit risk are reflected in PD models on a timely basis. However, the Corporation still considers separately some qualitative factors to assess if credit risk has increased significantly.
84 ICD ANNUAL REPORT 2022