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50. FULL CONVERGENCE WITH INTERNATIONAL FINANCIAL REPORTING
STANDARDS AND ADOPTION OF NEW ACCOUNTING STANDARDS
AND INTERPRETATIONS (continued)
50.1 APPLICABLE TO FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2018 (continued)
(II) SFRS(I) 9 (continued)
(ii) Impairment (continued)
Expected credit loss impairment model
Under SFRS(I) 9, credit loss allowances will be measured on each reporting date according to a three-stage expected credit loss
impairment model:
• Stage 1 – On initial recognition, expected credit loss will be that resulting from default events that are possible over the next
12 months (“12-month ECL”).
• Stage 2 – Following a significant increase in credit risk of the financial assets since its initial recognition, the credit loss allowance
will be that which results from all possible default events over the expected life of the asset (“Lifetime ECL”).
• Stage 3 – When a financial asset exhibits objective evidence of impairment and is considered to be credit-impaired, a loss allowance
will be the full lifetime expected credit loss.
Consistent with FRS 39, loans are written off against impairment allowances when all feasible recovery actions have been exhausted or
when the recovery prospects are considered remote. This does not significantly change on adoption of SFRS(I) 9.
Measurement
An ECL estimate will be produced for all relevant instruments established on probability-weighted forward-looking economic scenarios.
The measurement of ECL will primarily be calculated based on the probability of default (“PD”), loss given default (“LGD”), and exposure
at default (“EAD”). These parameters are derived from internal rating models after adjusting them to be un-biased and forward looking.
Where internal rating models are not available, such estimates are based on comparable internal rating models after adjusting for
portfolio differences.
12-month ECL will be based on a maximum of 12-month PD while Lifetime ECL will be based on the remaining lifetime of the
instrument. LGD reflects the expected loss value given default, after taking into account the effect of collateral. EAD reflects the
expected exposure at default, after taking into account of any expected repayments and/or drawdown. 12-month ECL and Lifetime
ECL will be the respective discounted value (using the effective interest rate) of 12-month PD and Lifetime PD, multiplied with LGD
and EAD.
Movement between stages
Movements between Stage 1 and Stage 2 are based on whether an instrument’s credit risk as at the reporting date has increased
significantly since its initial recognition.
In accordance with SFRS(I) 9, financial assets are classified in Stage 2 where there is a significant increase in credit risk since initial
recognition, where loss allowance will be measured using lifetime ECL.
The Group has considered both qualitative and quantitative parameters in the assessment of significant increase in credit risk. These
include the following:
1. The Group has established thresholds for significant increases in credit risk based on both a relative and absolute change in lifetime
PD relative to initial recognition.
2. The Group will also conduct qualitative assessment to ascertain if there has been significant increase in credit risk.
3. The Group plans to use 30 days past due as an indication of significant increase in credit risk.
Movements between Stage 2 and Stage 3 are based on whether financial assets are credit-impaired as at the reporting date. The
determination of whether a financial asset is credit-impaired under SFRS(I) 9 will be based on objective evidence of impairment,
similar to FRS 39.
The assessments for significant increase in credit risk since initial recognition and credit-impairment are performed independently as
at each reporting period. Assets can move in both directions through the stages of the impairment model. After a financial asset has
migrated to Stage 2, if it is no longer considered that credit risk has significantly increased relative to initial recognition in a subsequent
reporting period, it will move back to Stage 1. Similarly, an asset that is in Stage 3 will move back to Stage 2 if it is no longer considered
to be credit-impaired.
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