The exposure at default (‘EAD’) refers to the gross carrying amount of the financial instruments in the event of obligor default. The period over which cash flows are determined is generally limited to the maximum contractual period for which the Company is exposed to credit risk, with the exception of credit cards – the maximum period for which the credit losses are determined is the contractual life of a financial instrument unless the Company has the legal right to call it earlier. These expected cash flows are discounted using the effective interest rate on the financial instruments. An analysis of the Group’s credit loss allowances at 30 September 2023 is set out in note 10, 15 and 16 of the financial statements on page 98. Incorporation of forward-looking information CFSL incorporates forward-looking information into ECL models, that are available without undue cost, and effort into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. CFSL updated the macroeconomic and correlation analysis along with sense check to determine key macro-economic variables, which will be considered for the purpose of PIT PDs. CFSL has considered macroeconomic factors which are published by the IMF as part of its estimates. CFSL formulates a ‘baseline’ view of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. This process involves developing two or more additional economic scenarios and considering the relative probabilities of each outcome. When estimating the macroeconomic variables used in ECL calculation, the CFSL considers three scenarios (a baseline, an upside and a downside). These economic scenarios are subject to different assumptions, with the base scenario being the best estimate. The baseline scenario represents a most-likely outcome and is aligned with information used by the Group for other purposes such as strategic planning and budgeting. The other scenarios represent more optimistic and more pessimistic outcomes. 75 OUR YEAR AT A GLANCE OUR PEOPLE GOVERNANCE FINANCIAL STATEMENTS
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