2022 Annual Report

UNITY BANK LIMITED 2022 Financial Report

ABN 11 087 650 315

Grouping of similar assets Since the loans are homogenous in terms of borrower type and contractual repayment terms, the portfolio is currently managed through the dissection of the portfolio arrears reports. The Bank has grouped exposures by type on the basis of shared risk characteristics that include: • instrument type • collateral type • LVR ratio for retail mortgages • date of initial recognition (vintage) • remaining term to maturity • industry; and • geographic location of the borrower. The Bank has elected to use the following segments when assessing credit risk under the impairment model: Residential mortgages Commercial loans Personal loans Other – representing credit cards, overdrafts The groupings are subject to regular review to ensure that exposures within a particular group

remain appropriately homogeneous. Significant increase in credit risk

The Group is not required to develop an extensive list of factors in defining a ‘significant increase in credit risk’. In assessing significant increases in credit risk where a loan or group of loans must move to Stage 2 the following factors have been con sidered in the Group’s current model ;

Loans more than 30 days past due

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• Loans with approved hardship or modified terms

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Bank considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Bank’s historical experience and expert judgement, relevant external factors and including forward-looking information. The Group presumes that the credit risk on a financial asset has increased significantly since initial recognition when the exposure is more than 30 days past due unless the Group has reasonable and supportable information that demonstrates otherwise. The approach to determining the ECL includes forward-looking information. The Group has performed historical analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio segment. Given the lack of loss experience by the Group and across the wider industry, more emphasis has been applied to the historical data available as opposed to forward looking information. Consideration has also been given to the level of undue cost and effort involved in utilising complex statistical models, which is not considered appropriate for the size and complexity of the portfolio. The Group has considered other forward-looking considerations such as the impact of future unemployment rates, property prices, regulatory change and external market risk factors. This is reviewed and monitored for appropriateness on a quarterly basis. The Group considers the ECL to represent its best estimate of the possible outcomes and is aligned with information used by the Group for other purposes such as strategic planning and budgeting. Periodically the Group carries out stress testing of more extreme shocks to calibrate its determination of other potential scenarios.

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