41. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) (iii) Credit quality of financing, advances and others (continued) Key macroeconomic variables The following table shows certain key macroeconomic variables (“MEV”) used in modelling the allowance for credit losses for Stages 1 and 2. For the base, upside and downside scenarios, the projections are provided for the next 12 months and for the remaining forecast period, which represents a medium-term view. Base scenario Upside scenario Downside scenario Next 12 months (2023) Remaining forecast period (2024) Next 12 months (2023) Remaining forecast period (2024) Next 12 months (2023) Remaining forecast period (2024) Consumer Price Index (“CPI”) 1.90% 2.30% 2.04% 2.44% 1.10% 1.50% Gross Domestic Production (“GDP”) 4.45% 4.70% 5.67% 5.92% -1.81% -1.50% House Price Index (“HPI”) 1.74% 2.70% 2.10% 3.06% 0.68% 1.64% Kuala Lumpur Composite Index (“KLCI”) 1,640 1,677 1,742 1,779 1,029 1,066 An increase in unemployment rate or CPI will generally correlate with higher allowances for credit losses, whereas an increase in the other macroeconomic factors (KLCI, HPI and GDP) will generally correlate with lower allowances for credit losses. 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 need to be considered. These overlays and post-model adjustments were taken to reflect the latest macroeconomic outlook not captured in the modelled outcome and potential impact to delinquencies and defaults. The impact estimated at portfolio and maintained by the Group and by the Bank as at 31 December 2022 are RM143,263,000 (31 December 2021: RM335,526,000). The reduction of ECL Overlays during the financial year were mainly due to the following: RM’000 Deterioration of accounts to stage 2 and stage 3 (93,121) Remeasurement of overlays and changes of assumptions used in estimating and measuring overlays (45,935) Reversal of overlays due to good conduct of accounts (49,304) Revision of the forward looking adjustments (“FLA”) for the extremely worst-case scenario (3,903) (192,263) Financial Statements 345 01 05 03 07 02 06 09 04 08 Bank Islam Malaysia Berhad
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