Page 139 - Exim iar24_Ebook

EXIM BANK MALAYSIA ANNUAL REPORT 2024

7 FINANCIAL STATEMENTS 137
NOTES TO THE FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENT (cont’d)

(a) Expected credit losses on loans, advances and financing and commitments and contingencies (cont’d)
The Group’s and the Bank’s ECL calculation under MFRS 9 are outputs of complex models with a number of underlying
assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are
considered accounting judgements and estimates include:
(i) Internal credit grading model, which assigns PDs to the individual grades;

(ii) Criteria for assessing if there has been a significant increase in credit risk and so allowances for financial assets
should be measured on a lifetime-ECL basis and the qualitative assessment;

(iii) The segmentation of financial assets when their ECL is assessed on a collective basis;
(iv) Development of ECL models, including the various formulas and the choice of inputs;
(v) Determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment
levels and collateral values, and the effect on Probability Defaults (PDs), Exposure at Defaults (EADs) and Loss Given
Defaults (LGDs); and

(vi) Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic
inputs in the ECL models.
The allowance for expected credit losses on loans, advances and financing is disclosed in Note 9(ix) and commitments
and contingencies is disclosed in Note 22.
Management overlays for ECL

Overlays and post-model adjustments have been applied to address emerging risk in order to determine a sufficiency
overall level of ECL as at reporting date.
These overlays and post-model adjustments were taken to reflect the latest macroeconomic outlook not captured in the
modelled outcome and the potential impact to delinquencies and defaults when the various relief and support measures
expire.
The overlays and post-model adjustments involved significant level of judgement and reflect the management’s views of
possible severities of the pandemic and paths of recovery in the forward-looking assessment for ECL estimation purposes.
The impact of these post-model adjustments were estimated at both portfolio and vulnerable obligors level amounting to
RM30,345,000 (2023: RM35,056,000) for the Group and the Bank as at 31 December 2024.
(b) Valuation of derivatives and hedge accounting
The Group and the Bank value the derivative instruments and apply hedge accounting to manage the exposures to
interest/profit rate and foreign currency risks. In order to manage particular risk, the Group and the Bank apply hedge
accounting for transactions which meet specified criteria. At the inception of each hedge relationship, the Group and
the Bank formally designate and document the relationship between the hedged item and the hedging instruments,
including the nature of the risk, the risk management objective and strategy for undertaking the hedge and the method
that will be used to assess the effectiveness of the hedging relationship at inception and ongoing basis.