2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.9 Impairment (continued) Impairment of financial assets (continued) (iii) Incorporation of forward-looking information Relevant macroeconomic factors are incorporated in the risk parameters as appropriate. The key macroeconomics variables (“MEV”) that are incorporated in determining ECLs include, Oil Price (“OP”), Gross Domestic Product (“GDP”), House Price Index (“HPI”), and Kuala Lumpur Composite Index (“KLCI”). Forward-looking macroeconomic forecasts are generated by the Group’s and the Bank’s Economist as part of the ECL process. An economic forecast is accompanied with three economic scenarios: a base case (60%), which is the median scenario, and two less likely scenarios, one upside (20%) and one downside (20%). Selected MEVs are projected over the forecast period, and they could have a material impact in determining ECLs. Forecasted MEVs are derived by Economist using time series econometrics. The data series are procured from the official source such as Department of Statistics Malaysia (“DOSM”), BNM and other government agencies. Prior to MEV forecast, Economist would gather his or her intelligence from discussion with the policy makers, institutional investors and other news flow (main stream and social media) in order to form an opinion. The opinion may cover the economic policies, business cycle and financial market condition. This will be the main input before embarking MEV forecast exercise. The methodology and assumptions including any forecasts of future economic conditions are reviewed regularly. (iv) Credit impaired financial assets At each reporting date, the Group and the Bank assess whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a negative impact on the estimated future cash flows of the financial asset have occurred. Certain mandatory and judgmental triggers that the Group and the Bank use to determine that there is objective evidence of an impairment loss include: • • significant financial difficulty of the issuer or obligor; • • a breach of contract, such as default or delinquency in profit or principal payments; • • the restructuring of a financing or advance by the Group and the Bank on terms that the Group and the Bank would not consider otherwise; • • it is probable that the borrower will enter bankruptcy or other financial reorganisation; or • • based on external credit assessment institutions rating which indicates high likelihood of default. (v) Presentation of allowance for ECL in the statement of financial position Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised in other comprehensive income. BANK I SLAM MALAYS IA BERHAD NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 31 December 2021 258
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