Page 139 - EXIM-Bank_Annual-Report-2023

Management Discussion and Analysis Ensuring Sustainability Commitment to Lead Upholding Accountability Financial Statements 137

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 estimation 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 (ECL) should be recorded in
statement of profit or loss. In particular, judgement by management is required in the estimating 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.

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.

(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.