Category according to IFRS 9 Key financial assets Criteria for classification in the category and accounting treatment for such assets The Bank will make provisions for losses on assets that are measured at amortised cost. For assets not having exhibited a significant increase in credit risk (loans in stage 1), the Bank will make provisions for expected losses from default which may arise in the lesser of the asset’s expected lifetime or 12 months from balance sheet date. For other assets (stage 2 and stage 3), the Bank will make provisions for expected losses over the asset’s expected remaining lifetime. The Bank has defined lifetime as the expected time horizon for default or full repayment of principal and interest, whichever occurs first. Defaulted loans comprise, amongst other, of loans which are 91 days or more overdue according to agreed payment schedule. Such loans continue to be considered defaulted regardless of future payment status. Defaulted loans also comprise of loans with indications of unlikeliness to pay. The Bank considers changes in the risk of default since initial recognition as decisive for assessing whether there is a significant increase in credit risk. The Bank considers a loan to be defaulted when it is 90 days or more past due, if the loan has been transferred to a DCA for recovery, if the client is deceased or if there is a suspicion of fraud. The Bank considers changes in the risk of default since initial recognition as decisive for assessing whether there is a significant increase in credit risk. The Bank considers a loan to be defaulted when it is 90 days or more past due, if the loan has been transferred to a DCA for recovery, if the client is deceased or if there is a suspicion of fraud. The Bank utilises various indicators to consider whether an asset has been subject to a significant increase in credit risk. Such information is based on the actual behaviour of the client, where the Bank has established set of rules that are identified as indicators for significant increase in credit risk. Examples of such rules include a high utilisation of credit limits combined with the loan being past due, new clients not paying their first invoice (”straight rollers”), and loans that in the past have been 30 days or more past due and that again are past due. All cases where the loan is more than 30 days past due are defined as a significant increase in credit risk compared to initial recognition. Transitions among stages 1, 2 and 3: A loan that is more than 90 days past due, will be transferred to a DCA. It is not possible for loans that have been sent to a DCA to be transferred back to stage 1 or 2, and such exposures will hence remain in stage 3 until they have been repaid or derecognised. Loans that are 90 days or more past due on the balance sheet date and where the client repays before being transferred to the DCA, an amount which is at least equivalent to the minimum payment, will have the possibility for a subsequent transfer to stage 2 or 1. Loans that previously have been at least 30 days past due in relation to a previously agreed payment plan, and that again are past due, will remain quarantined in stage 2 for three months. The quarantining does not restrict the loan from being transferred to stage 3 whilst in quarantine. Description of the model for calculating expected credit losses and the Bank’s calculation of PD, EAD and LGD: The Bank calculates the PD by using historical data based on the client’s actual behaviour. The Bank has categorised its exposures into segments that the Bank considers sharing the same credit risk profile. Each of these segments is monitored using monthly snapshots where each loan is monitored over the segment’s defined lifetime. For stage 1, the lifetime is limited to 12 months, while the lifetime may extend beyond this in stage 2 as the Bank here uses the PD for the lifetime. Whilst being monitored, it is then decided whether the loan is defaulted, and this is taken into consideration for the Bank’s probability calculations. The Bank has decided to use up to 24 data points for its assessment of PD. The Bank is updating its parameters for PD at least once per quarter. For new products, or for products with limited data points, the Bank will be using existing products with similar characteristics in order to extrapolate missing data points. The representativeness of the underlying data going forward is continually evaluated by the Bank’s management. Komplett Bank / Annual Report 2022 49
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