303 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2025 06 / FINANCIAL STATEMENTS 01 02 03 04 05 07 08 09 51. FINANCIAL RISK MANAGEMENT (CONT’D.) (a) Credit risk (cont’d.) Impairment assessment (cont’d.) Period over which ECL is measured The Group and the Bank measure ECL considering the risk of default over the maximum contractual period (including extension options) over which the Group and the Bank are exposed to credit risk and not over a longer period, even if contract extension or renewal is a common business practice. However, for financial instruments such as revolving credit facilities that include both a loan and an undrawn commitment component, the Group’s and the Bank’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s and the Bank’s exposure to credit losses to the contractual notice period. For such financial instruments, the Group and the Bank measures ECL over the period which they are exposed to credit risk and credit loss would not be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period. These financial instruments do not have a fixed term or repayment structure and have a short contractual cancellation period. Significant increase in credit risk (“SICR”) SICR is defined as a significant change in the estimated default risk over the remaining expected life of the financial instrument. A SICR event triggers the measurement of a loss allowance at an amount equal to lifetime ECL instead of the 12-month ECL estimate. The indicators for SICR are established to facilitate the staging assessment (from Stage 1 to Stage 2) for portfolios that apply the general approach in the measurement of ECL. An asset moves from 12-month ECL (Stage 1) to lifetime ECL (Stage 2) when there is a significant deterioration in credit quality after initial recognition. In assessing whether the credit risk of an asset has significantly increased, the Group and the Bank take into account qualitative and quantitative reasonable and supportable forward looking information. An asset classified under Stage 2 can potentially be transferred to Stage 3 if the credit quality deteriorates further. It is also possible that an asset classified under Stage 1 experiences drastic credit deterioration and is required to be directly transferred to Stage 3. Accordingly, different stage transfer criteria/triggers are established to satisfy the above staging assessment. The assessment of SICR incorporates forward-looking information and is performed on a quarterly basis at a portfolio level for all the above portfolios. The criteria used to identify SICR are monitored and reviewed periodically for appropriateness by the Group Risk Management. Grouping financial assets measured on a collective basis Asset classes where the Bank calculates ECL on a collective basis include: - Debt instruments at fair value through other comprehensive income - Debt instruments at amortised cost - Loans, advances and financing - Balances due from clients and brokers - Other receivables
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