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120 EXIM BANK MALAYSIA
Annual Report 2020

NOTES TO THE FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.4 Summary of significant accounting policies (cont’d.)

(z) Expense liabilities (cont’d.)
(iii) Unexpired expense reserves
UER consists of the best estimate value of the unexpired expense reserves at the valuation date and a PRAD
as prescribed by BNM. The best estimate UER is determined based on the expected claims handling expenses
to be incurred as well as the expected expenses in maintaining certificated with unexpired risks. The method
used in computing UER is consistent with the calculation of unexpired risk reserves (“URR”).

(aa) Wakalah Fees
Wakalah fees represent fees charged by the shareholder’s fund to manage takaful certificates issued by the general
takaful fund under the principle of Wakalah and are recognised at a point of time as soon as the contributions to
which they relate can be reliably measured in accordance with the principles of Shariah.

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 and 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.

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;