DMIT_Annual_Report_2018_EN

N OTES TO THE C ONSOLIDATED F INANCIAL S TATEMENTS (Thousands of US dollars) Dar Al-Maal Al-Islami Trust 41 more than 30 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower. The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews and validations. The Group classifies its financial instruments into stage 1, stage 2 and stage 3, based on the applied impairment methodology, as described below: • Stage 1: for financial instruments where there has not been a significant increase in credit risk since initial recognition and that are not credit- impaired on origination, the Group recognises an allowance based on the 12-month ECL. • Stage 2: for financial instruments where there has been a significant increase in credit risk since initial recognition but they are not credit- impaired, the Group recognises an allowance for the lifetime ECL for all financings categorized in this stage based on the actual / expected maturity profile including restructuring or rescheduling of facilities. • Stage 3: for credit-impaired financial instruments, the Group recognises the lifetime ECL. Default identification process i.e. DPD of 90 more is used as stage 3. Non-Retail: The Group has set out the following definition of default. Non-retail customers with the following characteristics: • All or any of the facilities in which any instalment or part thereof is outstanding for a period of 90 days or more; • All or any of the facilities put on non-accrual status (i.e. profit suspended); • All or any of the facilities wherein ‘specific provision’ is set aside individually; • Event driven defaults such as declaration of bankruptcy, death of borrower (in absence of succession plan or professional management), and other specific events which would significantly impact the borrower’s ability the Group. The Group will not consider the 90 days past due criteria in cases of technical defaults (e.g. facilities marked as 90+DPD due to administrative reasons and not credit related concerns and there is no dispute regarding repayment). Retail: The Group has set out the following definition of default: • All facilities in which any instalment or part thereof is outstanding for a period of 90 days or more. The Group will not consider the 90 days past due criteria in cases of technical defaults (e.g. facilities marked as 90+DPD due to administrative reasons and not credit related concerns and there is no dispute regarding repayment). Forward-looking information incorporated in the ECL models The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. The Group annually source macro-economic forecast data from the International Monetary Fund (IMF) database for the relevant exposure country. Macro-economic variables checked for correlation with the probability of default for the past five years and only those variables for which the movement can be explained are used. Management judgement is exercised when assessing the macroeconomic variables. The macro economic variables used for PD modelling include, among others, GDP, population and net lending. Generating the term structure of PD Credit risk grades and days past due (DPD) are primary inputs into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analyzed by type of borrower, days past due and as well as by credit risk grading. The Group employs statistical models to analyze the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time. This analysis includes the identification and calibration of relationships between changes in default rates and macro-economic factors as well as in-depth analysis of the impact of certain other factors (e.g. forbearance experience) on the risk of default. For most exposures, key macro-economic indicators include: GDP, Net Lending and Population. Based on consideration of a variety of external actual and forecast information, the Group formulates a 'base case' view of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios (i.e. on incorporation of forward-looking