6.2.5 Expected credit loss measurement

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Expected credit loss measurement

IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as summarized below:

  • A financial instrument that is not credit-impaired on initial recognition is classified in ‘Stage 1’ and has its credit risk continuously monitored by the Group.
  • If a significant increase in credit risk (‘SICR’) since initial recognition is identified, the financial instrument is moved to ‘Stage 2’ but is not yet deemed to be credit impaired.
  • If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’.
  • Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. Instruments in Stages 2 or 3 have their ECL measured based on expected credit losses on a lifetime basis. Please refer to following note for a description of inputs, assumptions and estimation techniques used in measuring the ECL.
  • A pervasive concept in measuring the ECL in accordance with IFRS 9 is that it should consider forward-looking information. The below note includes an explanation of how the Group has incorporated this in its ECL models.

The following diagram summarizes the impairment requirements under IFRS 9:

Change in credit quality since initial recognition
<—————————————————————————————————————————————————————————————————————————>
Stage 1 Stage 2 Stage 3
(Initial recognition) (Significant increase in credit risk since initial recognition)

 

 (Credit-impaired financial assets)
12-month expected credit losses Lifetime expected credit losses Lifetime expected credit losses

 

Significant increase in credit risk (SICR)

The Group considers a financial asset to have experienced a significant increase in credit risk when a significant change in one-year probability of default occurs between the origination date of a specific facility and the IFRS 9 ECL run date.

Quantitative criteria

Corporate Loans:
For Corporate loans, if the borrower experiences a significant increase in probability of default which can be triggered by the following factors: –

  • Loan facilities restructured in the last 12 months;
  • Loan facilities that are past due for 30 days and above but less than 90 days;
  • Actual or expected change in external ratings and / or internal ratings

Retail:
For Retail portfolio, if the borrowers meet one or more of the following criteria:

  • Adverse findings for an account/ borrower as per credit bureau data;
  • Loan rescheduling before 30 Days Past Due (DPD);
  • Accounts overdue between 30 and 90 days.

Treasury:

  • Significant increase in probability of default of the underlying treasury instrument;
  • Significant change in the investment’s expected performance & behaviour of borrower (collateral value, payment holiday, Payment to Income ratio etc.).

Qualitative criteria:

Corporate Loans:

  • Feedback from the Early Warning Signal framework of the Group (along factors such as adverse change in business, financial or economic conditions).

Backstop:

A backstop is applied, and the financial asset is considered to have experienced a significant increase in credit risk if the borrower is more than 30 days past due on its contractual payments




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