75 Derecognition and modification of financial liabilities A financial liability is derecognised in whole or in part: • upon expiration; or • when quantitative or qualitative analyses conclude that it has been substantially modified in the event of restructuring. A substantial change to an existing financial liability must be recorded as an extinction of an initial financial liability and the recognition of a new financial liability (novation). Any differential between the carrying amount of the extinct liability and the new liability will be recognised immediately in the Income Statement. If the financial liability is not derecognised, the original EIR ismaintained. Adiscount/premiumis recognised immediately in the Income Statement on the date of modification and is then spread, using the original EIR, over the instrument's remaining lifetime. Negative interest on financial assets and liabilities In accordance with the IFRS IC decision of January 2015, negative interest income (expense) on financial assets that do not meet the definition of income under IFRS 15 is recognised as interest expense in the income statement, not as a reduction of interest income. The same applies to negative interest expense (income) on financial liabilities. Impairment / Provisioning for credit risk Scope of application In accordance with IFRS 9, CFM Indosuez Wealth Group recognises impairment for expected credit losses (ECL) on the following exposures: • financial assets in the form of debt instruments carried at amortised cost or at fair value through other comprehensive income recyclable to income (loans and receivables, debt securities); • financing commitments that are not measured at fair value through profit or loss; • guarantee commitments under IFRS 9 that are not measured at fair value through profit or loss; • lease receivables under IFRS 16; and • trade receivables generated by transactions under IFRS 15. Equity instruments (at fair value through profit or loss or through other comprehensive income on items that may not be reclassified) arenot affectedby impairment provisions. Derivatives and other financial instruments measured at fair value through profit or loss are subject to a counterparty risk calculation that is not covered by the ECL model. This calculation is described in Chapter 5 "Risks and Pillar 3". Credit risk and impairment / provisioning stages Credit risk is defined as the risk of losses related to default by a counterparty leading to its inability to meet its commitments to the Group. The credit risk provisioning process follows a three-stage model: • 1st stage (Stage 1): upon initial recognition of the financial instrument (loan, debt security, guarantee, etc.), the entity recognises the expected credit losses over 12 months; • 2nd stage (Stage 2): if the credit quality of a given transaction or portfolio deteriorates significantly, the entity recognises lifetime expected credit losses; • 3rd stage (Stage 3): when one or more default events involving the transaction or counterparty occur and adversely affect estimated future cash flows, the entity recognises a lifetime credit loss. Subsequently, if the conditions for classifying financial instruments in stage 3 are no longer met, the financial instruments are reclassified to stage 2 and then stage 1 according to subsequent improvements in the quality of the credit risk. From the 31 December 2021 financial statements, the term "bucket", which has been used since the transition to IFRS 9, has been replaced by the term "stage" throughout the financial statements. N.B. This is only a change in terminology and has no impact on the accounting for credit loss adjustments (CLA). Default definition The definition of default for the purposes of ECLprovisioning is identical to that used in management and to calculate regulatory ratios. Thus, a borrower is considered to have defaulted when at least one of the following two conditions is met: • where payments are past due by more than ninety days, unless special circumstances show that the arrears are due to events unrelated to the debtor’s situation; • CFM IndosuezWealth considers it unlikely that the debtor will fully settle its credit obligations without it having to apply measures such as the enforcement of a security. An outstanding loan (Stage 3) is depreciated when one or more events have an adverse effect on the estimated future cash flows of that financial asset. The indicators that a financial asset is impaired incorporate observable data related to the following events: • significant financial difficulties for the issuer or borrower; • a breach of contract, such as a default or overdue payment; • the granting by the lender(s) to the borrower, for economic or contractual reasons related to the borrower’s financial difficulties, of one or more favours that the lender(s) would not have considered in other circumstances; • an increasing probability of bankruptcy or financial restructuring of the borrower;
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