| CIM FINANCE. INTEGRATED REPORT 2022 128 EXPLANATORY NOTES 30 SEPTEMBER 2022 2. A CCOUNTING POLICIES (CONT’D) 2.7 Significant accounting policies (Cont’d) (q) Impairment of financial assets (Cont’d) (iii) Credit card and other revolving facilities For factoring debtors and credit card facilities that include both a loan and an undrawn commitment component, the Group and the Companymeasure ECL over a period longer than themaximumcontractual period if the Group’s and the Company’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s and the Company’s exposure to credit losses to the contractual notice period. These facilities do not have a fixed termor repayment structure and are managed on a collective basis. The Group and the Company can cancel themwith immediate effect but this contractual right is not enforced in the normal day-to-day management, but only when the Group and the Company become aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Group and the Company expect to take and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or turning the outstanding balance into a loan with fixed repayment terms. For revolving facilities that include both a loan and an undrawn commitment, ECLs are calculated and presented together with the loan. (iv) Forward looking information In its ECLmodels, theGroup and the Company rely on a broad range of forward looking information as economic inputs, such as: • GDP growth • Inflation rates The inputs and models used for calculating ECLs may not always capture all characteristics of the market at the date of the financial statements. To reflect this, qualitative adjustments or overlays are occasionally made as temporary adjustments when such differences are significantly material. (v) Collateral valuation The Group and the Company seek to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, guarantees, real estate, receivables, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at aminimum, at inception and when the Group and the Company determine there is a requirement to do so. To the extent possible, theGroup and the Company use activemarket data for valuing financial assets held as collateral. Other financial assets which do not have readily determinable market values are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by independent surveyors. (vi) Write-offs Financial assets are written off either partially or in their entirety only when the Group and the Company have stopped pursuing the recovery. If the amount to be written off is greater than the accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amount. Any subsequent recoveries are credited to credit loss expense. The Group and the Company assess at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset, or a group of financial assets, is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include: indications that the borrower or a group of borrowers is experiencing significant financial difficulty; the probability that they will enter bankruptcy or other financial reorganisation; default or delinquency in interest or principal payments; and where observable data indicates that there is ameasurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost, the Group and the Company first assess whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If theGroup and the Company determine that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
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