Incorporation of forward-looking information In its ECL calculation, the Group incorporates forward-looking information that is available without undue cost and effort. This is used to assess whether the credit risk of an instrument has increased significantly since initial recognition and its measurement of ECL. Macroeconomic and correlation analyses are performed, along with a sense check, to determine key macroeconomic variables, which are then considered for the purpose of Point-in-Time (PIT) PDs. The Group also incorporates macroeconomic factors from other sources, such as the IMF, into its estimates. Various economic scenarios are formulated based on different assumptions: the baseline scenario represents the best estimate and most likely outcome, aligning with the information used by the Group for strategic planning and budgeting. The upside and downside scenarios reflect a more optimistic and more pessimistic views, respectively. The probability of default (‘PD’) refers to the likelihood that a borrower will default over a particular time horizon. The PD of an obligor is a fundamental risk parameter in credit risk analysis and depends on obligor-specific characteristics, as well as on macroeconomic risk factors. PD models are built using logistic regression and the Vasicek approach to model monthly default rates. The modelling phase identifies key variables with significant predictive power for default, using the information value statistics. These variables are shortlisted based on their significance in predictive default, and possible combinations are assessed using multivariate analysis to achieve the best-fit model. The performance of the final models is assessed by comparing the estimated PD curves against the historical default rate. The PD term structures were updated in 2024 based on the latest available macroeconomic information and any data from external sources, as required by the PD model framework. Different segments use different macroeconomic variables, chosen for their statistical significance in explaining defaults ll and the intuitiveness of the coefficients. By definition, loss given default (‘LGD’) refers to the magnitude of the likely loss on a given facility in the event of default. It takes into account the loss of principal, interest foregone and workout expenses. The LGD estimation for Cim Finance has been updated with additional data for the recent period. The LGD estimates include the following key elements within the methodology: (i) Cure Rate, (ii) Recovery Rate, (iii) Discounting Rate, (iv) Administration Cost. The models are derived using the logistic regression technique and yielded to statistically significant estimates. When historical data is insufficient for modelling, Basel estimates of LGD for unsecured exposures are applied. The exposure at default (EAD’) refers to the gross carrying amount of the financial instruments in the event of obligor default. The period for which cash flows are determined is generally limited to the maximum contractual period for which the Company is exposed to credit risk, except for credit cards, the maximum period for which the credit losses are determined is the contractual life of 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. The ECL Calculation ECLs are calculated as unbiased, probability-weighted amounts, determined by evaluating a range of reasonably possible outcomes. This calculation takes into account the time value of money, and considers all reasonable and supportable information, including forward-looking data. The calculation also incorporates how defaulted loans are expected to be recovered, including the probability that the loans will cure (the likelihood that loans will recover) and the value of collateral or the potential amount that may be received from selling the asset. The maximum period for determining credit losses is the contractual life of the financial instrument, unless the Company has the legal right to call it earlier. The ECL is the product of the following parameters: PD, LGD and EAD. These parameters are derived and are adjusted to reflect forwardlooking information as described below: An analysis of the Group’s credit loss allowances as at 30 September 2024 is set out in note 10, 15 and 16 of the financial statements on page 116. Probability of default Loss given default Exposure at default 91 Introduction Group Overview Leadership Strategy & Performance Risk Management Corporate Governance Statutory Disclosures Financial
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