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3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENT (CONT’D)
3.1 Key sources of estimation uncertainty (cont’d)
(b) Allowance for impairment on loans, advances and financing (cont’d)
(ii) Collective impairment allowance
For the purposes of a collective evaluation of impairment under MFRS 139 Financial Instruments: Recognition
and Measurement (“MFRS 139”), loans, advances and financing are grouped on the basis of similar credit risk
characteristics, taking into account the historical loss experience of such financing.
In deriving the collective impairment estimates, the Bank makes reference to the publicly available data
particularly relating to Probability of Default (“PD”) and Loss Given Default (“LGD”) as benchmarks. The derived
PD and LGD are then adjusted for by the management where deemed necessary.
(c) Uncertainty in accounting estimates for credit insurance/Takaful business
The principal uncertainty in the credit insurance/Takaful business arises from the technical provisions which include
the premium/contribution liabilities and claims liabilities. The premium/contribution liabilities comprise unearned
premium reserves and unexpired risk reserves while claim liabilities comprise provision for outstanding claims. The
estimation bases for unearned premium/contribution reserves and unexpired risk reserves are explained in the
related accounting policy statement.
Generally, claim liabilities are determined based upon previous claims experience, existing knowledge of events,
the terms and conditions of the relevant policies and interpretation of circumstances. Particularly relevant is past
experience with similar cases, historical claims development trends, legislative changes, judicial decisions and
economic conditions. It is certain that actual future premiums/contribution and claims liabilities will not exactly
develop as projected and may vary from the projections.
The estimates of premiums/contribution and claims liabilities are therefore sensitive to various factors and
uncertainties. The establishment of technical provisions in an inherently uncertain process and, as a consequence
of this uncertainty, the eventual settlement of premiums/contribution and claims liabilities may vary from the
initial estimates.
There may be significant reporting lags between the occurrence of an insured event and the time it is actually
reported. Following the identification and notification of an insured loss, there may still be uncertainty as to the
magnitude of the claim. There are many factors that will determine the level of uncertainty such as inflation,
inconsistent judicial interpretations, legislative changes and claims handling procedures.
(d) Deferred tax assets
Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that future taxable profit
will be available against which the losses can be utilised. Judgment is required to determine the amount of deferred
tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with
future tax planning (see Note 12).
EXIM Bank Annual Report 2013
125