Page 220 - Bank Muamalat_AR24

218 BANK MUAMALAT MALAYSIA BERHAD

NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2024 (29 JAMADIL AKHIR 1446H)

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)

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

(5) Financial investments at FVOCI
The ECL for financial investments measured at FVOCI does not reduce the carrying amount of these
financial assets in the statement of financial position, which remains at fair value. Instead, an amount equal
to the allowance that would arise if the assets were measured at amortised cost is recognised in OCI as an
accumulated impairment amount, with a corresponding charge to profit or loss.

The accumulated loss recognised in OCI is recycled to profit and loss upon derecognition of the assets.
(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 vehicle 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 allowance 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 Financial Instruments 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.

(v) 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.