Page 217 - Bank Muamalat_AR24

ANNUAL REPORT 2024 1 2 3 4 5 6 7 Our Numbers 8 215

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)

(b) Financial assets (cont’d.)
(iii) Derecognition

A financial asset is derecognised when:
- The rights to receive cash flows from asset have expired.
- The Group and the Bank have transferred their rights to receive cash flows from the asset or have assumed an
obligation to pay the received cash flows in full without material delay to a third party under a “pass through”
arrangement; and either:
- The Group and the Bank have transferred substantially all the risks and rewards of the asset; or
- The Group and the Bank have neither transferred nor retained substantially all the risks and rewards of the
assets, but has transferred control of the financial asset.

When the Group and the Bank have transferred their rights to receive cash flows from a financial asset or have
entered into a pass through arrangement, and have neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the financial asset, the financial asset is recognised to the extent
of the Group’s and the Bank’s continuing involvement in the financial asset. In that case, the Group and the Bank
also recognise an associated liability. The transferred asset and associated liability are measured on a basis that
reflects the rights and obligations that the Group and the Bank have retained.
(iv) Impairment of financial assets

The MFRS 9 Financial Instruments impairment requirements are based on an Expected Credit Loss (“ECL”)
model. The ECL model applies to financial assets measured at amortised cost or at FVOCI (with recycling to profit
or loss), irrevocable financing commitments and financial guarantee contracts, and financing of customers
and debt instruments held by the Group and the Bank. The ECL model also applies to contract assets under
MFRS 15 Revenue from Contracts with Customers and lease receivables under MFRS 117 Leases.

The measurement of ECL involves increased complexity and judgement that include:
(1) Determining a significant increase in credit risk since initial recognition
The assessment of significant deterioration since initial recognition is critical in establishing the point of
switching between the requirement to measure an allowance based on 12-month ECL and one that is
based on lifetime ECL. The quantitative and qualitative assessments are required to estimate the significant
increase in credit risk by comparing the risk of a default occurring on the financial assets as at reporting
date with the risk of default occurring on the financial assets as at the date of initial recognition.
The criteria for determining whether credit risk has increase significantly vary by portfolio and include
quantitative factors such as delinquency, historical delinquency trend, changes in credit ratings and
qualitative factors as well as a backstop based on delinquency. For retail portfolio, a combination of
deliquency, historical delinquency trend and qualitative factors are used to determine significant increase
in credit risk. For non-retail portfolio, internally derived credit ratings have been identified as representing
the best available determinant of credit risk whilst for financial securities, external ratings attributed by
external agencies are used.