NOTE 2:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [continued]
2.12.
Loss allowance [continued]
Classification into risk classes [continued]
The
Bank
assumes
that
the
credit
risk
on
a
financial
instrument
has
not
increased
significantly
since
initial
recognition
if
the
financial
asset
is
determined
to
have
low
credit
risk
at
the
reporting
date.
This
might
occur
if
the
financial
asset
has
a
low
risk
of
default,
the
borrower
has
a
strong
capacity
to
meet
its
contractual
cash
flow
obligations
in
the
near
term
and
adverse
changes
in
economic
and
business
conditions
in
the
longer
term
may,
but
will
not
necessarily,
reduce
the
ability
of
the
borrower
to
fulfil
its
contractual
cash
flow
obligations.
The
Bank
considers souvereign exposures having low credit risk.
Credit risk of financial assets increases significantly at the following conditions:
•
the payment delay exceeds 30 days,
•
it is classified as performing forborne,
•
based
on
individual
decision,
its
currency
suffered
a
significant
"shock"
since
the
disbursement
of
the
loan,
•
the
transaction/client
rating
exceeds
a
predefined
value
or
falls
into
a
determined
range,
or
compared
to
the historic value it deteriorates to a predefined degree,
•
in the case household mortgage loans, the loan-to-value ratio (“LTV”) exceeds a predefined rate,
•
default on another loan of the retail client, if no cross-default exists,
•
in case of corporate and municipal clients:
o
financial difficulty (capital requirements, liquidity, impairment of asset quality),
o
significant decrease of activity and liquidity in the market of the asset,
o
client’s rating reflects higher risk, but better than default,
o
collateral value drops significantly, from which the client pays the loan,
o
more than 50% decrease in owner’s equity due to net losses,
o
client under dissolution,
o
negative
information
from
Central
Credit
Information
System:
the
payment
delay
exceeds
30
days
Financial assets classifies as non-performing, if the following conditions are met:
•
default,
•
non-performing forborne exposures,
•
in case of corporate and municipal clients:
o
breach of contract terms and conditions
o
critical
financial
difficulty
of
the
client
(capital
requirements,
liquidity,
impairment
of
asset
quality),
o
liquidation, dissolution or debt clearing procedures against client,
o
forced deregistration procedures from company registry,
o
terminated loans by the Bank,
o
in case of fraud,
o
negative
information
from
Central
Credit
Information
System:
the
payment
delay
exceeds
90
days,
o
cessation of active markets of the financial asset,
o
default of ISDA based contracts.
For
lifetime
expected
credit
losses,
the
Bank
shall
estimate
the
risk
of
a
default
occurring
on
the
financial
instrument
during
its
expected
life.
12-month
expected
credit
losses
are
a
portion
of
the
lifetime
expected
credit
losses
and
represent
cash
flow
shortfalls
that
will
result
if
a
default
occurs
in
the
12
months
after
the
reporting
date
(or
a
shorter
period
fi
the
expected
life
of
the
financial
instrument
is
less
than
12
months),
weighted
by
the
probability of that default occurring.
Expected credit losses are measured in a way that reflects:
•
an
unbiased
and
probability-weighted
amount
that
is
determined
by
evaluating
a
range
of
possible
outcomes,
•
the time value of money, and
reasonable
and
supportable
information
that
is
available
without
undue
cost
of
effort
at
the
reporting
date
about
past events, current conditions and forecasts of future economic conditions.