ar-2013

Notes to the Consolidated Financial Statements
1. Corporate information, basis of preparation and significant accounting policies (continued)
However, in certain circumstances an individual assessment will be carried out and an impairment charge will be calculated. Loans are individually
assessed when certain criteria have been met. The criteria for the individual portfolios are as follows:
ROI residential mortgages: exposures in excess of €5m and/or greater than 90 days in arrears. For exposures over €1m and less than €5m, a risk based
approach is adopted where collateral values are benchmarked to sample market comparatives;
UK residential mortgages: in litigation and/or greater than 90 days in arrears;
Commercial mortgages: exposures in excess of €0.75m and greater than 90 days in arrears.
The impairment provisions on individually significant accounts are reviewed at least quarterly and more regularly when circumstances require.
When a loan is impaired, interest income continues to be recognised at the original effective interest rate (in the case of a portfolio assessment, the
weighted average interest rate of the portfolio) on the carrying amount, representing the unwind of the discount of the expected cash flows.
Incurred But Not yet Reported ("IBNR") impairment
Loans for which no evidence of loss has been specifically identified are grouped together according to their credit risk characteristics (such as owner
occupier or buy‐to‐let, geographical location, type of collateral, loan‐to‐value ratio, past due status, forbearance treatment status) for the purpose of
calculating an estimated collective provision. This reflects impairment losses that the Group has incurred as a result of events occurring before the
statement of financial position date, which the Group is not able to identify on an individual loan basis, and that can be reliably estimated. These losses
will only be individually reported in the future when more evidence of impairment becomes available at which stage the relevant loans are moved from
IBNR to specific impairments.
IBNR impairment provision is determined after taking into account:
‐ historical loss experience in portfolios of similar credit risk characteristics adjusted for current observable data to reflect the effects of current
conditions that did not affect the period in which the historical loss experience is based and to remove the effects of the condition in the
historical period that do not exist currently;
‐ the estimated period between impairment occurring and the loss being identified and evidenced by the establishment of a specific provision
against the loan (known as the emergence period); and
‐ management’s experienced judgement as to whether current economic and credit conditions are such that the actual level of inherent losses at
the statement of financial position date is likely to be greater or less than that suggested by historical experience.
To effect this, when appropriate empirical information is available, the Group utilises a roll rate methodology. This methodology employs statistical
analyses of historical data and experience of delinquency and losses as a result of the events occurring before the statement of financial position date
which the Group is not able to report on an individual loan basis, and that can be reliably estimated. Under this methodology, loans are grouped into
ranges according to the number of days past due and a statistical model is used to estimate the likelihood that loans in each range will progress through
the various stages of delinquency, and ultimately prove to be specifically impaired. The estimated loss is calculated as the product of the probability of
the customer defaulting, Group’s exposure to the customer and the historical loss rate adjusted for current market conditions.
Write‐off of loans and advances
Loans (and the related impairment provisions) are written off, either partially or in full, when it is viewed that it is unlikely that the loan will be
collectible. In the case of secured debt where the collateral has been realised and where there are insufficient funds from the realisation of the
collateral, the Group must determine whether there is a reasonable expectation of further recovery. Recoveries of amounts previously written off are
offset against the loan impairment provision charge in the income statement.
Reversals of impairment
If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event occurring after the
impairment was recognised, the excess is written back by reducing the loan impairment provision account accordingly. The write‐back is recognised in
the income statement.
Forbearance strategies – residential mortgage loans
Forbearance strategies are employed in order to improve the management of customer relationships, maximise collection opportunities and, if possible,
avoid foreclosure or repossession. Such arrangements can include extended payment terms, a temporary reduction in interest or principal repayments,
payment moratorium and other modifications.
All loans that are considered for a forbearance solution are assessed for impairment under IAS 39 and where a loan is deemed impaired, an appropriate
provision is created to cover the difference between the loan’s carrying value and the present value of estimated future cash flows discounted at the
loan’s original effective interest rate. Where, having assessed the loan for impairment and the loan is not deemed to be impaired, it is included within
the IBNR assessment.
Forbearance loans classified as impaired, may be reclassified as not impaired, following a satisfactory assessment of the customer’s continuing ability
and willingness to repay, displayed by 12 consecutive payments of instalments as required under the newly restructured terms. Loans that are
reclassified as not impaired are included in the Group’s IBNR assessment.
Impairment of AFS financial assets
For AFS financial assets, the Group assesses at each reporting date whether there is objective evidence that the asset is impaired.
Impairment losses on AFS financial assets are recognised by reclassifying the losses accumulated in the AFS reserve to income statement. The amount
reclassified as impairment is the difference between the amortised cost and the current fair value, less any impairment loss previously recognised in the
income statement. If the fair value of a debt instrument classified as an AFS financial asset increases subsequently and the increase can be objectively
related to a credit event occurring after the impairment loss was recognised, then the impairment loss is reversed through the income statement.
Impairment losses recognised as AFS equity instruments are not reversed through the income statement.
Page 74