Investor Presentaiton
NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
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USE OF JUDGEMENTS AND ESTIMATES (CONTINUED)
NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
5
USE OF JUDGEMENTS AND ESTIMATES (CONTINUED)
(i) Financial instruments (continued)
Inputs, assumptions and techniques used for ECL calculation (continued)
Macroeconomic Factors, Forward Looking Information (FLI) and Multiple Scenarios (Covid-19) (continued)
Expected Life
When measuring ECL, the Group must consider the maximum contractual period over which it is exposed
to credit risk. All applicable contractual terms are considered when determining the expected life, including
prepayment options and extension and rollover options. For certain revolving credit facilities that do not
have a fixed maturity, the expected life is estimated based on the period over which the Group is exposed
to credit risk and where the credit losses would not be mitigated by management actions.
Governance
In addition to the existing risk management framework, the Group has established an internal
Committee to provide oversight to the IFRS 9 impairment process. The Committee is comprised of senior
representatives from Finance, Risk Management, Internal Audit and Business teams and are responsible
for reviewing and approving key inputs and assumptions used in the Group ECL estimates. It also assesses
the appropriateness of the overall allowance results to be included in the Group consolidated financial
statements.
(ii) Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of
financial position cannot be derived from quoted prices, they are determined using a variety of valuation
techniques that include the use of mathematical models. The input to these models is taken from
observable market data where possible, but where this is not possible, a degree of judgement is required
in establishing fair values. The judgements include consideration of liquidity and model inputs such as
correlation and volatility for longer dated derivatives.
Fair values are subject to a control framework designed to ensure that they are either determined or
validated, by a function independent of the risk taker.
(iii) Impairment of goodwill
On an annual basis, the Group determines whether goodwill is impaired. This requires an estimation of
the recoverable amount using value in use of the cash generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate of the expected future cash flows
from the cash generating units and also to choose a suitable discount rate in order to calculate the
present value of those cash flows.
(iv) Impairment loss on investment in associates and jointly controlled entities
Management reviews its share of investments in associates and jointly controlled entities to assess
impairment on a regular basis. In determining the assessment, management compares the recoverable
amount with the carrying value of the investment. Estimating recoverable amount using value in use
requires the Group to make an estimate of the expected future cash flows from the associates and jointly
controlled entities and choosing a suitable discount rate in order to calculate the present value of those
cash flows.
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(v) Contingent liability arising from litigations
Due to the nature of its operations, the Group may be involved in litigations arising in the ordinary course
of business. Provision for contingent liabilities arising from litigations is based on the probability of outflow
of economic resources and reliability of estimating such outflow. Such matters are subject to many
uncertainties and the outcome of individual matters is not predictable with assurance.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are applied
prospectively.
CHANGES IN ACCOUNTING POLICIES
The Group has consistently applied the accounting policies as set out in Note 7 to all periods presented in
these consolidated financial statements, except for the following accounting policies which are applicable
from 1 January 2021:
IBOR TRANSITION (INTEREST RATE BENCHMARK REFORMS)
Effective from 1 January 2021, the Group implemented Phase 2 of the Interest Rate Benchmark Reform
-Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. The areas impacted by the amendments
include application of practical expedient for accounting for modifications to financial instruments that
are measured at other than fair value through profit or loss when transactions are updated for the new
Risk Free Rate (RFR) rates (will not result in derecognition), relief on changes to hedge designations and
hedge documentation (a change to hedge designations and hedge documentation required by IBOR reform
would not result in discontinuation of hedge accounting) and providing disclosures that enable users to
understand nature and extent of risks arising from interest rate benchmark reform to which the Group is
exposed and how it manages those risks. The amendments are applied retrospectively with no restatement
required for prior periods.
During 2020, the Group implemented Phase 1 of the Interest Rate Benchmark Reform (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16), which provided relief on hedge accounting requirements for those
hedges existing before the IBOR replacement. The Group's exposure to hedging instruments (Interest Rate
Swaps and Cross-Currency Swaps) and hedged items maturing from the year 2021 onwards which are in
scope of Phase 1 amendments include Fair Value Hedges with notional values of USD 1.35 billion on the
receiving leg and USD 4 billion on the paying leg; and Cash Flow Hedges with notional values of USD 0.8
billion on the receiving leg.
Under the Phase 1 amendments the Group determined that:
.
Hedge accounting relationships will continue:
for cash flow hedges of IBOR cash flows despite the uncertainty about the timing and amount of the
hedged cash flows due to the interest rate benchmark reform;
The Group will not discontinue hedge accounting due to the application of practical expedient
The Group will retain the cumulative gain or loss in the cash flow hedge reserve for designated IBOR cash
flow hedges that are subject to the interest rate benchmark reform even though there is uncertainty
arising from the interest rate benchmark reform with respect to the timing and amount of the cash flows
of the hedged items.
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EMIRATES NBD BANK PJSC - GROUP CONSOLIDATED FINANCIAL STATEMENTS - FOR THE YEAR ENDED 31 DECEMBER 2021
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