Page 90 - CCB_Annual Report_2022

90 Notes to the Financial Statements 91

Therefore, the going concern basis of accounting • Loan loss provisioning
has been used to prepare the financial statements.
The Bank’s provisioning methodology uses an
The Directors recognise that the current UK expected credit loss basis complying with the
macroeconomic outlook will continue to evolve requirements of IFRS 9
and is likely to create increased risk but believe The Bank has made key judgements and estimates
that these events have been considered within its in its loan loss provisions. The key judgements are:
going concern assessment. The scenarios modelled – The Bank uses four unbiased probability
Notes to the – A faster and deeper reduction in property prices weighted forward looking economic scenarios
consider the following events in particular:
in its calculation of loan loss provisions being
than already considered in the Bank’s base case
the base case, downside, severe downside, and
upside. These scenarios and their application
Financial – Lower new business volumes as investors – Significant Increase in Credit Risk (‘SICR’) –
in the calculation of loan loss provisions are
withdraw from the property market
described further in Note 28.
– Increased losses as customers are unable to repay
loans due to higher monthly instalments and
increased rental voids
Statements The Bank’s provisions and loss absorbing capacity The criteria selected to identify a significant
increase in credit risk is a key area of judgement
within the Bank’s ECL calculation as these
will continue to be assessed as part of the Bank’s
criteria determine whether a 12 month or
regular stress testing exercises. The Bank models
a range of stress scenarios which include the PRA lifetime provision is recorded. The criteria has
been reviewed and updated during 2022.
Annual Cyclical Scenario. Higher interest rate rises
could add upside to the Bank’s income growth rate The two key estimates are the Probability of
outlook (even after increased impairment losses), Default and the Loss Given Default.
whilst a lower rate of inflation could reduce cost All the Bank’s loans and advances are allocated to
growth. The Bank expects the current high rate a stage under IFRS 9. Stage 1 loans are loans which
of inflation to be mitigated through stabilisation are performing as expected with the expected
of energy markets, resolution of the Ukrainian credit loss calculation based on a 12-month
conflict as well as the impact of the Monetary Policy
1 Reporting entity 3 Changes in accounting policies Committee actions. Based on the forecasts and probability of default. Loans which have seen a
significant increase in credit risk since original
stresses performed, the Directors are satisfied that
Cambridge & Counties Bank Limited (referred There have been no changes to the Bank’s the Bank will have sufficient regulatory capital and inception, or are over 30 days in arrears, are held
to as ‘the Bank’) is a company incorporated and accounting policies during 2022. liquidity for a period of at least 12 months from the in Stage 2 with the expected credit loss based on
domiciled in the United Kingdom. The Bank is The Bank’s accounting policies are set out within the date of approval of these financial statements; a lifetime probability of default. Loans which are
registered in England and Wales and has the relevant note to the financial statements. considered credit impaired or in default are placed
registered number 07972522. The registered – Management have already incorporated an in Stage 3 with the expected credit loss calculation
address of the Bank is Charnwood Court, 4 Going concern expectation of increasing economic uncertainty assuming a 100% probability of default and a
5B New Walk, Leicester, England, LE1 6TE. into the Bank’s business plan. This uncertainty lifetime loss given default applied.
Cambridge & Counties Bank is a UK Bank that The financial statements are prepared on a going includes modelling the impact of the Bank For loans in stage 1 and 2 the Bank estimates
specialises in providing lending and deposit concern basis, as the Directors are satisfied that the of England’s Annual Cyclical Scenario which the probability of default (PD) and the loss
products to Small and Medium Enterprises (SMEs). Bank has the resources to continue in business for a tests the resilience of the UK banking system given default (LGD). The probability of default
The Bank is a private company limited by shares. period of at least 12 months from the date of signing to deep simultaneous recessions in the UK and is calculated using both quantitative and
these financial statements. In making this assessment, global economies.
2 Basis of accounting the Directors have considered a wide range of – The Bank maintains a strong liquidity position qualitative data including character, property
type and location. The LGD is calculated using
information relating to present and future conditions,
The Bank’s financial statements have been prepared including future projections of profitability, with its Liquidity Coverage Ratio (LCR) around the expected realisable collateral value and
in accordance with UK-adopted international impairment, cash flows and capital resources. 3.5 times higher than the regulatory minimum at associated sales costs.
accounting standards and with the requirements the end of 2022. The Bank’s 2022 Expected Credit Loss includes
of the Companies Act 2006 as applicable to The Board remains confident that the offering to the a Post Model Adjustment (PMA) of £685k
companies reporting under those standards. market remains relevant and attractive, and that 2023 5 Accounting estimates and judgements (December 2021: nil). This adjustment has been
They have been prepared under the historic cost will present further opportunities to continue to grow The preparation of financial statements in applied to reflect risks not fully captured by the
convention as modified by the revaluation of customer assets without strain on the Bank’s capital conformity with IFRS requires the use of certain Bank’s REF IFRS 9 model. Commercial property
financial instruments through profit or loss, and the or liquidity measures. The Bank’s 3-year strategic critical accounting estimates. It also requires prices recorded significant reductions in the
revaluation of financial instruments through other plan is updated quarterly to produce a forward- management to exercise its judgement in the final quarter of 2022 and Management do not
comprehensive income. The financial statements looking assessment. process of applying the Bank’s accounting policies. consider these to have been fully captured within
are presented in pounds sterling, which is the The Directors have a reasonable expectation that The areas involving a higher degree of judgement its model at the end of the year for loans drawn
functional and presentational currency of the Bank.
the Bank has adequate resources to continue in or complexity, or areas where assumptions and in the year. A Valuation Risk ECL adjustment has
Judgements made by the Directors in the operational existence for the foreseeable future. The estimates are significant to the financial statements, therefore been modelled and included as part
application of these accounting policies that projections for the Bank’s future performance, capital are disclosed below. For each area of management of the total stage 1 expected credit loss in 2022.
have significant effect on the financial statements strength and liquidity, for a period in excess of 12 judgement, along with any others which are This adjustment has been calculated by uplifting
and estimates with a significant risk of material months from the date of approval of these accounts considered material, management prepare a the Loss Given Default metric for all new loans
adjustment are discussed in Note 5 to the all show that the Bank has adequate resources to paper for review and approval by the Bank’s Audit drawn in the first 3 quarters of 2022 to reflect the
Financial Statements. meet its regulatory and operational requirements. Committee at least once a year. reported fall in commercial property prices in Q4.