2. SUMMARY OF MATERIAL 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 emerging risks in the local or global macroeconomic, microeconomic or political events, and natural disasters, post-model or ECL overlays will be considered. The Group and the Bank have made management overlay for potential deterioration in credit risks of its large customer. The factors associated with potential deterioration in credit risks includes; economic uncertainty due to geopolitical tensions, rising inflation, rapidly increasing profit rates, alongside other factors, which may have potential ramifications to the economy. Additionally, the deterioration in credit profile has yet to be fully reflected in modelling data due to the masking effects of observed defaults owing to various relief assistances to support businesses and individuals, hence management overlay is provided. (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. 293 1 2 3 4 5 6 7 8 9 www.bankislam.com FINANCIAL STATEMENTS
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