Investor Presentaiton slide image

Investor Presentaiton

NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 4 BASIS OF MEASUREMENT 5 The Group consolidated financial statements have been prepared under the historical cost basis except for the following: Derivative financial instruments are measured at fair value; Financial instruments classified as trading and at fair value through profit or loss (FVTPL) are measured at fair value; Financial assets at fair value through other comprehensive income are measured at fair value; and Recognised assets and liabilities that are hedged are measured at fair value in respect of the risk that is hedged. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Group consolidated financial statements are disclosed in Note 5. USE OF JUDGEMENTS AND ESTIMATES The preparation of the Group consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amount of financial assets and liabilities and the resultant allowances for impairment and fair values. In particular, considerable judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowances required for impaired loans and receivables as well as allowances for impairment provision for unquoted investment securities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Significant items where the use of estimates and judgements are required are outlined below: (i) Financial Instruments Judgements made in applying accounting policies that have most significant effects on the amounts recognised in the consolidated financial statements for the year ended 31 December 2021 pertain to: Classification of financial assets: assessment of business model within which the assets are held and assessment of whether the contractual terms of the financial assets are solely payment of principal and interest of the principal amount outstanding. Calculation of expected credit loss (ECL): Assumptions and estimation uncertainties that have a significant impact on ECL for the year ended 31 December 2021. The impact is mainly driven by inputs, assumptions and techniques used for ECL calculation under IFRS 9 methodology. Inputs, assumptions and techniques used for ECL calculation Key concepts that have the most significant impact and require a high level of judgement, as considered by the Group while determining the ECL, are: Assessment of Significant Increase in Credit Risk ("SICR") The assessment of a significant increase in credit risk is done on a relative basis. To assess whether the 5 USE OF JUDGEMENTS AND ESTIMATES (CONTINUED) (i) Financial Instruments (continued) Inputs, assumptions and techniques used for ECL calculation (continued) Assessment of Significant Increase in Credit Risk (continued) credit risk on a financial asset has increased significantly since origination, the Group compares the risk of default occurring over the expected life of the financial asset at the reporting date to the corresponding risk of default at origination, using key risk indicators that are used in the Group's existing risk management processes. The Group's assessment of significant increases in credit risk is being performed at least quarterly for each individual exposure based on three factors. If any of the following factors indicates that a significant increase in credit risk has occurred, the instrument will be moved from Stage 1 to Stage 2: 1. The Group has established thresholds for significant increase in credit risk based on movement in Probability of Default relative to initial recognition. 2. Additional qualitative reviews have been performed to assess the staging results and make adjustments, as necessary, to better reflect the positions which have significantly increased in risk. 3. IFRS 9 contains a rebuttable presumption that instruments which are 30 days past due have experienced a significant increase in credit risk. Movements between Stage 2 and Stage 3 are based on whether financial assets are credit-impaired as at the reporting date. The determination of credit-impairment is based on individual assessment of financial assets for objective evidence of impairment. The Group reviews its loans and receivables portfolio and Islamic financing receivables to assess impairment on a regular basis. In determining whether an impairment loss should be recorded in the consolidated income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the contractual future cash flows from a loan or homogenous group of loans and receivables or Islamic financing receivables. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss. Assessment of Significant Increase in Credit Risk (Covid-19) The Group continues to assess borrowers for other indicators of unlikeliness to pay, taking into consideration the underlying cause of any financial difficulty and whether it is likely to be temporary as a result of Covid-19 or long term. The Group continues to support its impacted customers through a program of payment relief that was initiated in 2020 by deferring interest/principal due. These payment reliefs are considered as short-term liquidity support to address borrower cash flow issues. The Group believes that the extension of payment reliefs does not automatically trigger SICR where the impact on customer's business is expected to be short term. For all other customers, the Group continues to consider severity and extent of potential Covid-19 impact on economic sector and future outlook, cash flow and financial strength, agility and change in risk profile along with the past track record in determining SICR. As per the disclosure requirements of the Central Bank of UAE (CBUAE) in the context of Covid-19, for the UAE operations, the Group has divided its customers benefitting from payment deferrals into two groups 17 EMIRATES NBD BANK PJSC - GROUP CONSOLIDATED FINANCIAL STATEMENTS - FOR THE YEAR ENDED 31 DECEMBER 2021 18 بنك الإمارات دبي الوطني Emirates NBD
View entire presentation