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Section 06 Financial Statements
87

Key Audit Matters (cont’d.)

Risk area and rationale Our response

Expected credit losses (“ECL”) of loans, advances and financing,
and financial investments not carried at fair value through
profit or loss
As at 31 December 2020, loans, advances and financing Our audit procedures included the assessment of controls over
represent 42.60% of the total assets of the Group and of the the approval, recording and monitoring of loans, advances and
Bank, respectively, and financial investments not carried at fair financing, and financial investments not carried at fair value, and
value through profit or loss represent approximately 5.64% of evaluating the methodologies, inputs and assumptions used
the total assets of the Group and of the Bank, respectively. by the Group and the Bank in calculating the respective ECL
allowances for the respective underlying assets.
As at 31 December 2020, ECL allowance amounting to
approximately RM2.1 billion has been provided for the For measurement of individual ECL allowance for stage
loans, advances and financing of the Group and of the Bank, 3 impaired loans, advances and financing and financial
respectively. investments not carried at fair value, we tested a sample of
loans, advances and financing and financial investments not
The measurement of ECL requires the use of a forward-looking carried at fair value to evaluate the timely identification by the
ECL approach, and the application of significant judgement Group and the Bank of exposures with significant deterioration
and increased complexity which include the identification of in credit quality or which have been impaired.
on and off-balance sheet credit exposures, the determination
of the different stages of credit risk of the underlying assets, For cases in stage 3 which have defaulted, we assessed the
the assessment of expected future cash flows of the Group’s and the Bank’s specific assumptions on the expected
respective assets, available proxies or benchmarks for future cash flows for each asset, including the value of realisable
collective assessment, forward looking macroeconomic collaterals based on available market information and the
factors and probability-weighted multiple scenarios. multiple scenarios considered. We also challenged the
assumptions and compared estimates to external evidence
Management also uses externally available industry and financial where available.
data, as appropriate, to supplement internally available credit
experiences. With respect to the measurement of collective ECL allowances
for stage 1 and stage 2 accounts/assets, we verified the
Refer to summary of significant accounting policies in Note reasonableness of the ECL models, including model input,
2.4(g), significant accounting estimates and judgement in Note model design and model performance. We challenged
3 and the disclosures of loans, advances and financing and whether historic or historical experience is representative of
investments in Notes 7 and 6, respectively, to the financial current circumstances and of the recent losses incurred in the
statements. portfolios and assessed the reasonableness of forward looking
adjustments, macroeconomic factor analysis and probability-
weighted multiple scenarios.
We involved our credit modelling specialists in the performance
of these procedures where their specific expertise was required.

We also assessed whether the financial statements’
disclosures appropriately reflect the Group’s and the Bank’s
exposures to credit risk.