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Our Performance Sustainability Statement Governance Our Numbers Other Information

3. SIGNIFICANT ACCOuNTING JuDGMENTS, ESTIMATES AND ASSuMPTIONS (CONT’D.)
3.3 Impairment losses on financing of customers (Notes 7 and 30) (cont’d.)

The Group’s and the Bank’s ECL calculations under MFRS 9 are outputs of complex models with a number of underlying
assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are
considered accounting judgements and estimates include:

(i) Criteria for assessing if there has been a significant increase in credit risk and the qualitative assessment;
(ii) The segmentation of financial assets when ECL is assessed on a collective basis;

(iii) Development of ECL models, including the various formulas and the choice of inputs;
(iv) Determination of associations between macroeconomic scenarios and economic inputs, such as, unemployment
levels and collateral values, and the effect on PDs, LGDs, and EADs including macroeconomic factors as disclosed
in note 46(a)(iii); and
(v) Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic
inputs into the ECL models.
Financing that have been assessed individually but for which no impairment is required as well as all individually
insignificant financing need to be assessed collectively, in groups of assets with similar credit risk characteristic. This is
to determine whether impairment should be made due to incurred loss events for which there is objective evidence but
effects of which are not yet evident. The collective assessment takes into account of data from the financing portfolios
(such as, credit quality, levels of arrears, credit utilisation, financing to collateral ratios, etc.) and judgments on the effect
of concentrations of risks (such as the performance of different individual groups).
3.4 Fair value estimation of financial investments at FvTPL and FvOCI (Notes 5(i) and 5(ii)) and derivative financial
instruments (Note 6)
For financial instruments measured at fair value, where the fair values cannot be derived from active markets, these fair
values are determined using a variety of valuation techniques, including the use of mathematical models. Whilst the
Group and the Bank generally use widely recognised valuation models with market observable inputs, judgement is
required where market observable data are not available. Such judgement normally incorporate assumptions that other
market participants would use in their valuations, including assumptions on profit rate yield curves, exchange rates,
volatilities and prepayment and default rates.

3.5 Taxation (Note 40)
Significant Management’s judgement is required in estimating the provision for income taxes, as there may be differing
interpretations of tax law for which the final outcome will not be established until a later date. Liabilities for taxation are
recognised based on estimates of whether additional taxes will be payable. The estimation process may involve seeking
the advise of experts, where appropriate. Where the final liability for taxation being assessed by the Inland Revenue
Board is different from the amounts that were initially recorded, these differences will affect the income tax expense and
deferred tax provisions in the period in which the estimate is revised or when the final tax liability is established.