Page 110 - 86395_CCB - 2024 Annual Report (web)

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Under IFRS 9 customers move from a stage 1 – the remaining lifetime PD at the reporting date
provision exposure to a stage 2 exposure as a result based on the modified terms; with
of a significant increase in Credit Risk. To determine – the remaining lifetime PD estimated based
whether the Credit Risk on a particular financial on data on initial recognition and the original
instrument has increased significantly since initial contractual terms.
recognition the Bank reviews each account annually,
or more regularly, should the customer’s payment Should modification result in a derecognition
record show any deterioration. event, the Bank would make an assessment as to
whether the new financial asset is credit impaired at
As a backstop, and as required by IFRS 9, the Bank initial recognition.
will presumptively consider that a significant increase
in Credit Risk occurs no later than when an asset is Forbearance can be temporary or permanent
more than 30 days past due. depending on the circumstances, progress on
rehabilitation, and the detail of the concession agreed.
For an account to be ‘cured’ i.e. evidence a
significant reduction in Credit Risk, and return from Forbearance – curing
stage 2 to stage 1, the customer would need to Loans are classified as forborne at the time a customer
demonstrate a good track record of payments.
in financial difficulty is granted a concession.
Movement from stage 3 to stage 2 will only occur The customer will remain treated and recorded as
when the borrower satisfies all the criteria in the forborne until the following exit conditions are met:
table above.
– When all due payments, as per the amended
All staging classifications are subject to contractual terms, have been made in a timely
Management review and can be overridden manner over a continuous repayment period (loan
subject to appropriate approval at the Bank’s is considered as performing);
Provision or Credit Committees.
– A minimum two‑year probation period has
Forbearance
passed from the date the forborne exposure was
The Bank can implement forbearance agreements considered as performing;
for the servicing and management of customers who – None of the customer’s exposures are more
are in financial difficulty and require some form of than 30 days past due at the end of the
concession to be granted, even if this concession probation period.
entails a loss for the Bank. A concession may be
either a modification of the previous terms and
conditions of an agreement, which the borrower
is considered unable to comply with due to
financial difficulties, or a total or partial refinancing of
an agreement that would not have been granted had
the borrower not been in financial difficulties.

The Bank may modify the contractual terms of a loan
for several reasons, including to reflect changing
market conditions, or where forbearance (i.e. a
renegotiation of the terms of a loan) is granted at the
request of a borrower. This modification may have an
impact on the IFRS 9 impairment provision stage to
which the asset is allocated.

An existing loan whose terms have been modified
may require derecognition, and the renegotiated
loan recognised as a new loan at fair value, with any
adjustments taken through the income statement.
Derecognition is assessed using the same ’10
percent’ test applied to financial liabilities. Where a
modification does not result in derecognition, the
gross carrying amount of the asset is recalculated
as the present value of the modified cash flows,
discounted at the financial assets original effective
interest rate. Any subsequent modification gain or
loss is then recognised in the Income Statement.

When the terms of a financial asset are modified, and
the modification does not result in derecognition, the
determination of whether the asset’s Credit Risk has
increased significantly reflects comparisons of: