Page 129 - Exim iar24_Ebook

EXIM BANK MALAYSIA ANNUAL REPORT 2024

7 FINANCIAL STATEMENTS 127
NOTES TO THE FINANCIAL STATEMENTS

2. MATERIAL ACCOUNTING POLICY INFORMATION (cont’d)

2.4 Summary of material accounting policy information (cont’d)
(f) Financial assets (cont’d)

(vi) Derivative instruments and hedge accounting (cont’d)
(b) Hedge accounting (cont’d)

Fair value hedge (cont’d)
If the hedging instruments expire or are sold, terminated or exercised or where the hedge no longer meets
the criteria for hedge accounting, the hedge relationship is terminated. For fair value hedges relating to
items carried at amortised cost, any adjustment to carrying value is amortised through profit or loss over
the remaining term of the hedge using the EIR/EPR method. EIR and EPR amortisation may begin as soon
as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its
fair value attributable to the risk being hedged.
If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in
the statement of profit or loss.

The Bank enters into interest/profit rate swaps and cross currency interest/profit rate swaps that are
used as hedge for the exposure of changes in the fair value of some of its Medium Term Notes/Sukuk.
See Note 11 for more details.
The Bank has incorporated credit risk of counterparties and the Bank’s own credit risk in the fair valuation
of derivatives. These risks on derivative transactions are taken into account when reporting the fair values
through credit value adjustment (“CVA”) and debit value adjustment (“DVA”).
(g) Impairment of financial assets

The Group and the Bank assess at each reporting date whether there is any objective evidence that a financial
asset or a group of financial assets is impaired. The Group and the Bank recognise an allowance for expected credit
losses (“ECLs”) for all financial assets carried at amortised cost and debt instruments not classified at FVTPL.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and
all the cash flows that the Group and the Bank expect to receive, discounted at an approximation of the original
effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other
credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are
possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected
over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For debt instruments at FVOCI, the Group and the Bank apply the low credit risk simplification. At every reporting
date, the Group and the Bank evaluate whether the debt instrument is considered to have low credit risk using all
reasonable and supportable information that is available without undue cost or effort. In making that evaluation,
the Group and the Bank reassess the internal credit rating of the debt instrument. In addition, the Group and the
Bank consider that there has been a significant increase in credit risk when contractual payments are more than
30 days past due.