6.2.11 Loss allowance
Loss allowance
The loss allowance recognized in the period is impacted by a variety of factors, as described below:
– Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and Lifetime ECL;
– Additional allowances for new financial instruments recognized during the period, as well as releases for financial instruments derecognized during the year;
– Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of inputs to models;
– Impacts on the measurement of ECL due to changes made to models and assumptions;
– Discount unwind within ECL due to the passage of time, as ECL is measured on a present value basis; and
– Financial assets derecognized during the period and write-offs of allowances related to assets that were written off during the period.
The following table explain the changes in the loss allowance between the beginning and the end of the annual period due to these factors:
| 2,022 | ||||
| Stage 1 | Stage 2 | Stage 3 | ||
| 12-month ECL | Lifetime ECL | Lifetime ECL | ||
| Total | ||||
| AED’000 | AED’000 | AED’000 | AED’000 | |
| Loans and advances | ||||
| Loss allowance as at 1 January | 20,387 | 28,562 | 362,602 | 411,551 |
| Transfers | ||||
| Transfer from Stage 1 to Stage 2 | (225) | 225 | – | – |
| Transfer from Stage 1 to Stage 3 | (4,368) | – | 4,368 | – |
| Transfer from Stage 2 to Stage 1 | 1,616 | (1,616) | – | – |
| Transfer from Stage 2 to Stage 3 | – | (4,837) | 4,837 | – |
| Transfer from Stage 3 to Stage 1 | 820 | – | (820) | – |
| Transfer from Stage 3 to Stage 2 | – | 27,367 | (27,367) | – |
| New financial assets originated | 2,551 | 2,408 | – | 4,959 |
| Net remeasurement of loss allowance | 5,083 | 809 | 23,445 | 29,337 |
| Reversal of no longer required impairment charges | ||||
| (3,247) | (3,553) | (3,316) | (10,116) | |
| Changes in PDs/LGDs/EADs | – | – | 8,308 | 8,308 |
| ———————— | ———————— | ———————— | ———————— | |
| Loss allowance as at 31 December 2022 | ||||
| 22,617 | 49,365 | 372,057 | 444,039 | |
| ============= | ============= | ============= | ============= | |
| Islamic financing and investing assets | ||||
| Loss allowance as at 1 January | 397 | 227 | 62,335 | 62,959 |
| Transfers | – | – | – | – |
| Transfer from Stage 1 to Stage 2 | – | – | – | – |
| Transfer from Stage 1 to Stage 3 | – | – | – | – |
| Transfer from Stage 2 to Stage 1 | – | – | – | – |
| Transfer from Stage 2 to Stage 3 | – | (34) | 34 | – |
| Transfer from Stage 3 to Stage 1 | – | – | – | – |
| Transfer from Stage 3 to Stage 2 | – | – | – | – |
| New financial assets originated | – | – | – | – |
| Net remeasurement of loss allowance | 32 | 7 | 1,070 | 1,109 |
| Reversal of no longer required impairment charges | ||||
| (236) | (100) | (3,116) | (3,452) | |
| ———————— | ———————— | ———————— | ———————— | |
| Loss allowance as at 31 December 2022 | 193 | 100 | 60,323 | 60,616 |
| ============= | ============= | ============= | ============= | |
| 2,021 | ||||
| Stage 1 | Stage 2 | Stage 3 | ||
| 12-month ECL | Lifetime ECL | Lifetime ECL | ||
| Total | ||||
| AED’000 | AED’000 | AED’000 | AED’000 | |
| Loans and advances | ||||
| Loss allowance as at 1 January | 12,161 | 41,961 | 325,132 | 379,254 |
| Transfers | ||||
| Transfer from Stage 1 to Stage 2 | (61) | 80 | – | 19 |
| Transfer from Stage 1 to Stage 3 | – | – | – | – |
| Transfer from Stage 2 to Stage 1 | 270 | (785) | – | (515) |
| Transfer from Stage 2 to Stage 3 | – | (19,467) | 38,699 | 19,232 |
| Transfer from Stage 3 to Stage 1 | – | – | – | – |
| Transfer from Stage 3 to Stage 2 | – | – | – | – |
| New financial assets originated | 14 | – | – | 14 |
| Net remeasurement of loss allowance | 16,471 | |||
| 8,088 | 9,039 | (656) | ||
| Reversal of no longer required impairment charges | ||||
| (85) | (2,266) | (573) | (2,924) | |
| ———————— | ———————— | ———————— | ———————— | |
| Loss allowance as at 31 December 2021 | ||||
| 20,387 | 28,562 | 362,602 | 411,551 | |
| ============= | ============= | ============= | ============= | |
| Islamic financing and investing assets | ||||
| Loss allowance as at 1 January | 407 | 1,332 | 59,131 | 60,870 |
| Transfers | ||||
| Transfer from Stage 1 to Stage 2 | (48) | 56 | – | 8 |
| Transfer from Stage 1 to Stage 3 | – | – | – | – |
| Transfer from Stage 2 to Stage 1 | – | – | – | – |
| Transfer from Stage 2 to Stage 3 | – | (950) | 2,051 | 1,101 |
| Transfer from Stage 3 to Stage 1 | – | – | – | – |
| Transfer from Stage 3 to Stage 2 | – | – | – | – |
| New financial assets originated | – | – | – | – |
| Net remeasurement of loss allowance | ||||
| 61 | (192) | 1,153 | 1,022 | |
| Reversal of no longer required impairment charges | ||||
| (23) | (19) | – | (42) | |
| ———————— | ———————— | ———————— | ———————— | |
| Loss allowance as at 31 December 2021 | ||||
| 397 | 227 | 62,335 | 62,959 | |
| ============= | ============= | ============= | ============= | |
