Page 114 - 86395_CCB - 2024 Annual Report (web)

114

Asset Finance

Current
weighted 100%
Scenario weighting
Scenario ECL £000 ECL £000

Base Case 2,159
Downside 2,812
2,455
Severe Downside 3,091
Upside 1,916

2 The table below shows the impact of changes
to the impairment assumptions in the
IFRS 9 models.

Provision impact
Scenario £000
Residential and Commercial 127
property prices reduce by
5% more than in the base case
across the next 3 years • Credit Risk – loans and advances to banks and
An increase in the Bank’s forced 1,126 debt securities
sale discount distribution by 5% Credit Risk exists in respect of Loans and Advances

An increase in from 46% to (790) to Banks and Debt securities where the Bank
51% in the assumed Cure rate has acquired securities or placed cash deposits
with other financial institutions. No assets are
A 6 month increase in 208 held for speculative purposes or actively traded.
the assumed time to sell Certain liquid assets are held as part of the Bank’s
defaulted properties liquidity buffer.
A 10% increase in the Bank’s 114 The Bank holds balances in its Bank of England
Asset Finance LGD reserve account, along with nostro accounts held
with Natl West. The counterparties to which the
Bank is exposed are domestically systemic banks,
The expected credit loss (ECL) on loans in stage and as such the Bank considers that the risk of
3 are estimated on an individual basis and all default across these balances is extremely low.
relevant considerations that have a bearing on
the expected future cash flows across a range The Bank’s debt securities are issued by supra‑
of economic scenarios are considered. These national bodies or major UK and European
considerations can be particularly subjective Financial institutions. The Bank considers that
and can include the business prospects for the the loans and advances to Banks and the debt
customer, the realisable value of collateral, the securities are of low Credit Risk and as such hold
reliability of customer information and the likely no specific loss provisions against these assets.
cost and duration of the work‑out process.
The Bank monitors its exposures to all
The level of the impairment allowance is the
counterparties on an ongoing basis and whether
difference between the value of the discounted
there have been any changes in the credit rating
expected future cash flows (discounted at the
which may cause an increase in the probability of
loan’s original effective interest rate), and its said counterparty default. As at 31 December 2024
carrying amount. Furthermore, estimates change the Bank held no provisions against loans
with time as new information becomes available and advances to banks given the low Credit Risk
or as work‑out strategies evolve, resulting in of these financial instruments, their high propensity
frequent revisions to the impairment allowance to meet contractual cash flow obligations as
as individual decisions are taken. Changes in they fall due, and the instant access terms of
these estimates would result in a change in the these balances.
allowances and have a direct impact on the
impairment charge. The Bank has Real Estate The table below sets out the credit quality of the
loans totalling £30m in Stage 3. A 10 percentage Bank’s on‑balance sheet loans and advances to
point increase in the LGD for these loans would Bank’s, debt securities and derivative assets. Full
result in a £3m increase in the Stage 3 ECL. details on the Bank’s derivative instruments can be
found in Note 21.