h) Change in accounting estimates
Allowance for impairment losses
During 2015, the Bank revised its estimates for allowance for impairment losses on loans and receivables of all loan portfolios and for the provision for off-balance sheet risk with the purpose of making certain refinements to the impairment models as part of its policy to continuously enhance the existing impairment models and accounting estimates.
The main refinements made to the impairment models in order to provide a greater level of precision of incurred losses are the following:
Specific and objective guidelines to classify customers according to their total current risk exposure (individually significant customers – see Note 2.g.) and deterioration in creditworthiness (objective evidence of impairment – see Note 2.g.), aligning such factors with credit risk management.
Finer segmentation of loans in groups with similar credit risk characteristics.
More detailed historical data for the determination of certain inputs or variables (PD, LGD, LIP and CCF – see Note 2.g.) used to calculate the allowance for impairment losses and the provisions for off-balance sheet risk.
Conformed definition of impaired assets with the aim of making it consistent across all the loan portfolios when determining the allowance for impairment losses (see Note 2.g.).
The change in accounting estimates did not have a material impact on the net loan portfolio as of December 31, 2015, on the provision for off-balance sheet risk as of December 31, 2015 and in the profit for the year then ended. However, the change resulted in a net decrease in the allowance for impairment losses of 176 million pesos, a net decrease in the provision for off-balance sheet risk of 436 million pesos, a decrease in impaired assets of 438 million pesos and an increase in the profit for the year of 428 million pesos.
Management considered that it was impracticable to estimate the effect on forthcoming periods of this change in accounting estimates due to the fact that the Bank could not reliably determine all the necessary inputs and factors to calculate this effect, such as risk exposure, PD, LGD, LIP, qualitative factors, etc.
Useful lives for automated teller machines
During 2016, the Bank revised its estimates for useful lives of automated teller machines (ATM) recognized within Tangible Assets in the consolidated balance sheet. The review performed by the Bank was based on the acquired observable experience and the economic benefits obtained by the use of ATMs. The Bank determined that the period over which ATMs is expected to be available for use and to generate economic benefits is 8 years instead of 4 years.
The change in the aforementioned accounting estimates did not have a material impact on Tangible assets as of December 31, 2016 and in the profit for the year then ended. However, the change in the useful lives of ATMs resulted in a decrease in the depreciation charge recognized in the consolidated income statement of 2016 of 49 million pesos.
Management considered that it was impracticable to estimate the effect on forthcoming periods of this change in accounting estimates due to the fact that the Bank could not reliably determine the number of ATMs that would be acquired.