(d) Credit risk Credit risk is defined as the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms. Credit Risk at the Group and Company arises mainly from various forms of lending covering all the credit portfolios; credit facilities, money lending, credit cards, factoring, and leasing as well as deposits and balances held with banks. The effective management of credit risk is a critical component of risk management and essential to the long-term success of the organisation. The Risk Management Committee has oversight of the management of the credit risk framework. The Group and Company regularly monitor any significant concentration of credit risk, to single or group of connected customers, to industry sectors, and customer segments. The analysis of concentration by industry sector is disclosed in the Risk Management section of the annual report. Leases and other credit agreements granted are also effectively secured as the rights to the leased assets revert to the lessor in the event of default. The majority of the assets financed under lease are motor vehicles with the remaining being various types of equipment. The period is normally up to 10 years for leases and up to 5 years for other credit agreement; and the interest are a mix of both fixed and floating rates. The risk associated with any rights retained under operating lease arrangements in the underlying assets being leased are reduced through buy-back agreements, residual value guarantees and variable lease payments for use in excess of specified limits. The Group and Company also make the calculations of credit impairment, in line with the IFRS 9 Financial Instruments standard. In light of the macro economic uncertainties, CIM has adopted a probabilistic approach on forward looking scenarios incorporated in the base model so as to cater for the higher level of uncertainty in the economy, represented by three severities (baseline /most likely, upside and downside) with assigned weights suggesting the likelihood of such event occurring based on assessments of economic and market conditions. Various stress tests are conducted on the ECL to ensure adequacy of provision so as to withstand any loss arising from significant exposure to a sector, single customer and group of closely-related customers. With the revised models, the adequacy of provision has been reassessed for the three stages considering the macroeconomic environment. The Group and Company maintain a credit risk rating based on the days past due and qualitative factor as explained above. The obligor is categorised as follows: RISK RATING Description Performing (0-30 days) None of the facilities of the obligor have been due for more than 30 days. Watchlist (31-90 days) Any one of the facilities granted to the obligor has been in arrears for more than 30 days but is not considered to be credit-impaired. Non-performing (>90 days) Any one of the facilities granted to the obligor has been in arrears for more than 90 days or the obligor is unlikely to pay its credit obligations in full, without recourse to actions such as realising security. For financial assets within stage 2, these can only be transferred to stage 1 when they no longer considered to have experienced a significant increase in credit risk. Where significant increase in credit risk was determined using quantitative measures, the instruments will automatically transfer back to stage 1 when the criteria is no longer met. Where instruments were transferred to stage 2 due to assessment of qualitative factors, the issues that led to the reclassification must be cured before the instruments can be reclassified to stage 1. For financial assets within the Non-Performing category, it is the Group’s and the Company’s policy to consider a financial instrument as ‘cured’ and therefore re-classified out of stage 3 when none of the default criteria have been present for at least six consecutive months. The decision whether to classify an asset as stage 2 or stage 1 once cured depends on the updated credit score, reliable information on the client on the outlook for the client at the time of the cure, and whether this indicates there has been a significant increase in credit risk compared to initial recognition. Once an account has been classified as forborne, it will remain forborne for a minimum probation period of 6 months. In order for the accounts to be reclassified out of the forborne category, the customer has to meet all of the following criteria: • All of its facilities have to be considered performing; • The minimum probation of period of 6 months has passed; and • The company’s regular payments have been made in accordance with the terms and conditions agreed If modifications are substantial either quantitatively or qualitatively, the loan is derecognised as explained under write-offs (note 2.7(p) g). 147 Introduction Group Overview Leadership Strategy & Performance Risk Management Corporate Governance Statutory Disclosures Financial
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