International Financial Reporting Standards_guide.pdf

386 Chapter 34 Financial Instruments: Disclosures (IFRS 7)
EXAMPLE 34.3, CONTINUED
For the purposes of the analysis of credit quality, the following internal measures of credit quality have
been used:
Retail lending
Wholesale lending
Financial statements
description Probability of default Probability of default
Default
grade
Strong 0.0–0.60% 0.0–0.05% 1–3
0.05–0.15% 4–5
0.15–0.30% 6–8
0.30–0.60% 9–11
Satisfactory 0.60–10.00% 0.60–2.15% 12–14
2.15–11.35% 15–19
Higher risk 10.00% + 11.35% + 20–21
Financial statement descriptions can be summarised as follows:
Strong—there is a very high likelihood that the asset being recovered in full.
Satisfactory—whilst there is a high likelihood that the asset will be recovered and therefore, of no
cause for concern to the Group, the asset may not be collateralised, or may relate to retail facilities,
such as credit card balances and unsecured loans, which have been classified as satisfactory, regardless
of the fact that the output of internal grading models may have indicated a higher classification.
At the lower end of this grade there are customers that are being more carefully monitored, for example
corporate customers, which are indicating some evidence of some deterioration, mortgages with
a high loan to value ratio, and unsecured retail loans operating outside normal product guidelines.
Higher risk—there is concern over the obligor’s ability to make payments when due. However, these
have not yet converted to actual delinquency. There may also be doubts over value of collateral or
security provided. However, the borrower or counterparty is continuing to make payments when due
and is expected to settle all outstanding amounts of principal and interest.
Loans and advances that are past due but not individually impaired
An age analysis of loans and advances that are past due but not individually impaired is set out
below.
For the purposes of this analysis an asset is considered past due and included below when any payment
due under strict contractual terms is received late or missed. The amount included is the entire
financial asset, not just the payment, of principal or interest or both, overdue.
The table below provides a breakdown of total financial assets past due but not individually impaired.
In general, retail and wholesale loans fall into this category for two separate reasons. Retail loans and
advances to customers may come under this category because the impairment allowance on such
loans is calculated on a collective—not individual—basis. This reflects the homogenous nature of the
assets, which allows statistical techniques to be used, rather than individual assessment.