Page 133 - EXIM-Bank_Annual-Report-2022

A VISION COMMITMENT EMPOWERING ENSURING ENHANCING FINANCIAL
TO SERVE TO LEAD GROWTH SUSTAINABILITY GOVERNANCE STATEMENTS 131

Notes to the fiNaNcial statemeNts

3. sIGNIFICANt ACCouNtING estIMAtes AND JuDGeMeNt
The preparation of the financial statements involved making certain estimates, assumptions and judgements that affects the
accounting policies applied and reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the financial statement in the period in which the estimate is revised and in any future periods affected.
Significant areas of estimation, uncertainty and critical judgements used in applying accounting policies that have significant
effect on the amount recognised in the financial statements include the following:

In the process of applying the Group’s and the Bank’s accounting policies, management has made the following judgements,
which have the most significant effect on the amounts recognised in the financial statements:

3.1 Judgements
(a) Expected credit losses on loans, advances and financing and commitments and contingencies
The Group and the Bank review its individually significant loans, advances and financing and commitments and
contingencies at each reporting date to assess whether the expected credit losses should be recorded in statement
of profit or loss. In particular, judgement by management is required in the estimation of the amount and timing
of future cash flows when determining the expected credit losses. In estimation the cash flows, the Group and
the Bank makes judgement about the borrower’s or the customer’s financial situation and the net realisable value
of collateral. These estimates are based on assumptions about a number of factors and actual results may differ,
resulting in future changes to the allowances.s

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 (cont’d.):
(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 PDs, EADs and LGDs; and
(vi) Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the
economic inputs into 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.

(b) Valuation of derivatives and hedge accounting

The Group and the Bank value the derivative instruments and apply the 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.