Page 215 - Bank-Muamalat_Annual-Report-2023

ANNUAL REPORT 2023
OUR NUMBERS

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)
2.2 Material accounting policy information (cont’d.)

(b) Financial assets (cont’d.)
(iv) Impairment of financial assets (cont’d.)

(1) Determining a significant increase in credit risk since initial recognition (cont’d.)
The Group and the Bank has not used the low credit risk exemption for any financial assets in
the current financial year.

The Group and the Bank apply a 3-stage approach based on the change in credit quality since
initial recognition:

Stage 1 Stage 2 Stage 3
3-Stage Approach
Performing Under-performing Non-performing

ECL Approach 12-month ECL Lifetime ECL Lifetime ECL

No significant Credit risk increased Credit-impaired
Criterion
increase in credit risk significantly assets

Recognition of profit On gross carrying On gross carrying On net carrying
income amount amount amount

(2) ECL Measurement
There are three (3) main components to measure ECL, which include: (i) probability of default (“PD”)
model; (ii) loss given default (“LGD”) model; and (iii) exposure at default (“EAD”) model.
MFRS 9 Financial Instruments does not distinguish between individual assessment and collective
assessment. Therefore, the Group and the Bank have decided to continue to measure the
impairment mainly on an individual transaction basis for financial assets that are deemed to be
individually significant.

(3) Expected life
Lifetime ECL must be measured over the expected life of the financial asset. This is restricted
to the maximum contractual life and takes into account expected prepayment, extension, call and
similar options, except for certain revolving financial instruments such as overdraft. The expected
life for these revolving facilities generally refers to their behavioural life.

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