Page 219 - Bank Muamalat_AR24

ANNUAL REPORT 2024 1 2 3 4 5 6 7 Our Numbers 8 217

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)

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

(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.
(4) Forward looking information

ECL are the unbiased probability-weighted credit losses determined by evaluating a range of possible
outcomes and considering future economic conditions. The reasonable and supportable forward
looking information is based on the collation of macroeconomic data obtained from various external
sources, such as, but not limited to regulators, government and foreign ministries as well as independent
research organisations.
Where applicable, the Bank incorporates forward-looking adjustments in credit risk factors of PD and
LGD used in the ECL calculation; taking into account the impact of multiple probability-weighted future
forecast economic scenarios.

Embedded in ECL is a broad range of forward-looking information as economic inputs, such as:
• Consumer Price Index;
• Unemployment rates;
• Overnight Policy Rate;
• Private consumption;
• Public consumption; and
• Gold price.
The Bank applies the following three (3) alternative macroeconomic scenarios to reflect an unbiased
probability-weighted range of possible future outcomes in estimating ECL:
Base scenario: This scenario reflects that current macroeconomic conditions continue to prevail; and
Upside and Downside scenarios: These scenarios are set relative to the base scenario, reflecting best and
worst-case macroeconomic conditions based on subject matter expert’s best judgement from current
economic conditions.