2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.10 Impairment (continued) Impairment of financial assets (continued) (iii) Incorporation of forward-looking information (continued) 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) Recognition of ECL Overlays Changed in economic conditions should be reflected in MEVs scenarios and their weightings. If there is an event or situation that cannot be reflected in the MEVs such as the unprecedented COVID-19 pandemic, post-model or ECL overlays will be considered. ECL Overlays may be required in addition to the existing ECL modelling taking into account the following matters: •• Uncertainty of economic condition. •• Difficulty of predicting reliably the forecast period due to unprecedented nature of an event such as pandemic or economic crisis. •• Significant challenge to differentiate the good versus bad credit risk due to absence of delinquency data in effect of payment moratorium. •• Specific overlays on large exposure customer with significant increase in credit risk on case to case basis. •• Government support on mitigating the impact of unprecedented event such as the COVID-19 pandemic. ECL Overlays can be recognised or allocated to a specific financing customer or based on portfolio basis. (v) 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 obligatory 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. Notes to the financial statements for the financial year ended 31 December 2022 Integrated Report 2022 272
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