Page 192 - Bank-Muamalat-AR2020

190 BANK MUAMALAT MALAYSIA BERHAD About Us Our Leadership Our Strategy
ANNUAL REPORT FY2020

Notes to the fiNaNcial statemeNts
31 December 2020 (16 JamaDil awal 1442h)

2. SIGNIFICANT ACCOuNTING POLICIES (CONT’D.)
2.3 Summary of significant accounting policies (cont’d.)

(b) Financial assets (cont’d.)
(iii) Impairment of financial assets (cont’d.)
(6) valuation of collateral held as security for financial assets

The amount and type of collateral required depends on assessment of credit risk of the counterparty.
Guidelines are implemented regarding the acceptability of types and collateral and valuation parameters.

The main types of collateral obtained by the Group and the Bank are as follows:
- For home financing - mortgages over residential properties;
- For syndicated financing - charges over the properties being financed;
- For hire purchase financing - charges over the vehicles financed; and
- For other financing - charges over business assets such as premises, inventories, trade receivables
or deposits.

(7) Impairment process – written-off accounts
Where a financing is uncollectible, it is written-off against the related allowances for impairment. Such
financing are written-off after the necessary procedures have been completed and the amount of the loss
has been determined. Subsequent recoveries of the amounts previously written-off are recognised in the
statements of profit or loss.
(8) Impairment of other financial assets

The Group and the Bank apply the MFRS 9 simplified approach to measure expected credit losses, which
uses a lifetime expected loss allowance for other financial assets. The simplified approach excludes
tracking of changes in credit risk.
(iv) Determination of fair value

For financial instruments measured at fair value, the fair value is determined by reference to quoted market
prices or by using valuation models. For financial instruments with observable market prices, which are
traded in active markets, the fair values are based on their quoted market price or dealer price quotations.
For all other financial instruments, fair value is determined using appropriate valuation techniques.
In such cases, the fair values are estimated using discounted cash flow models and option pricing models, and
based on observable data in respect of similar financial instruments and using inputs (such as yield curves)
existing as at reporting date. The Bank generally uses widely recognised valuation models with market
observable inputs for the determination of fair values, due to the low complexity of financial instruments
held; with exception to investment in private equity funds.