ALLOWANCE FOR CREDIT LOSSES Allowances for credit losses are maintained for expected credit losses (ECL) in the performing loan portfolio and assessed on a loan-by-loan basis for impaired loans. The performing loan allowance (Stage 1 and 2) consists of expected credit losses for losses in the portfolio that are not presently identifiable on an account-by-account basis. The allowance for impaired loans consists of the amounts required to reduce the carrying value of individually identified impaired loans to their estimated realizable value. We establish estimates through detailed analysis of both the overall quality and marketability of the security held against each impaired account. At October 31, 2023, the total allowance for credit losses of $175 million consisted of $132 million for performing loans and $43 million related to impaired loans (Stage 3). One year ago, the total allowance for credit losses of $167 million consisted of $120 million for performing loans and $47 million related to impaired loans. The change in the allowance for credit losses compared to last year, with the allowance for impaired loans split by loan portfolio, is provided in the following table. Table 11 – Allowance for Credit Losses ($ thousands) 2023
Provision for (Recovery of) Credit Losses
2023 Ending Balance
(Write-Offs) net of Recoveries (1)
Opening Balance
Impaired loan allowance (Stage 3) General commercial loans Equipment financing and leasing
$
32,469
$
(3,091)
$
(10,308) (6,484)
$
19,070
6,788 6,734
6,280
6,584
Commercial mortgages
10,738
(14)
17,458
Personal loans and mortgages Real estate project loans Oil and gas production loans
140 560
546 885
(644)
42 45
(1,400)
-
(15)
15
-
46,691 120,437 167,128
15,343 11,676 27,019
(18,835)
43,199 132,113 175,312
Performing loan allowance (Stage 1 and 2)
-
Total
$
$
$
(18,835)
$
Represented by: Loans
$
172,563
Committed but undrawn credit exposures and letters of credit (2)
2,749
Total
$
175,312
(1) Recoveries in fiscal 2023 totaled $18,215 (2022 – $5,858). (2) The performing allowance for credit losses related to committed but undrawn credit exposures and letters of credit is included in other liabilities on the consolidated balance sheets.
Performing loan allowance The performing loan allowance is estimated based on 12-month expected credit losses for loans in Stage 1, while loans in Stage 2 require the recognition of lifetime expected credit losses. The proportion of performing loans in Stage 2 was 13%, compared to 20% last year. The decrease in Stage 2 loans compared to last year primarily reflects a more pessimistic macroeconomic forecast in the prior year relative to the periods those loans were originated. The performing loan allowance of $132 million increased 10% from the prior year, primarily driven by a continued weakening in the economic outlook over the past year. The macroeconomic forecast in the current year, which is calibrated against an average of the large Canadian banks’ macroeconomic forecasts, reflects continued weak economic growth into fiscal 2024, before expanding in the latter half of the year. For further details on the economic factors and scenarios incorporated into the estimation of the performing loan allowance, see Note 6 of the audited consolidated financial statements for the year ended October 31, 2023. Key economic variables incorporated into our ECL models are inherently prone to volatility on a forward-looking basis. Continued increases in market interest rates, global geopolitical uncertainty, and a significant adverse shift in the macroeconomic outlook could result in negative revisions to expected economic assumptions. Hindsight cannot be used, so while these evolving assumptions may result in future forecasts that differ from those used in the ECL estimation at October 31, 2023, those changes will be reflected in future periods. In estimating the performing loan allowance, where required we supplement our modeled ECL to reflect expert credit judgments. These expert credit judgments incorporate the estimated impact of factors that are not fully captured through our modeled ECL. Impaired loan allowance The allowance for impaired loans (Stage 3) was $43 million, compared to $47 million last year. Given the larger average exposure size within our commercial portfolios in comparison to personal loans, our impaired loan allowances and provisions for credit losses may fluctuate as loans become impaired and are subsequently resolved. In determining allowances for impaired loans, we establish estimates through detailed analysis of both the overall quality and ultimate marketability of the security held against each impaired account on a case-by-case basis.
CWB Financial Group 2023 Annual Report | 29
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