Page 103 - Learn Africa 2021 Annual Report

Learn Africa Plc
Notes to the Financial Statements (cont’d)

For the year ended 31 March 2021

12-month ECL). For those credit exposures for which there has been a significant increase
in credit risk since initial recognition, a loss allowance is required for credit losses expected
over the remaining life of the exposure, irrespective of the timing of the default (a lifetime
ECL).

The ECL is determined by projecting the PD, LGD and EAD for each future month and
for each individual exposure. These three components are multiplied together and adjusted
for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earlier
month). This effectively calculates an ECL for each future month, which is then discounted
back to the reporting date and summed. The discount rate used in the ECL calculation is the
original effective interest rate or an approximation thereof.

The 12-month and Lifetime PDs are derived by mapping the internal rating grade of the
obligors to the PD term structure of an external rating agency for all asset classes. The
12-month and lifetime EADs are determined based on the expected payment profile, which
varies by product type. The assumptions underlying the ECL calculation – such as how
the maturity profile of the PDs – are monitored and reviewed on a regular basis. There
have been no significant changes in estimation techniques or significant assumptions
made during the reporting period. The significant changes in the balances of the other
financial assets including information about their impairment allowance are disclosed
below respectively.

The Company considers a financial asset in default when contractual payments are 90
days past due. However, in certain cases, the Company may also consider a financial
asset to be in default when internal or external information indicates that the Company
is unlikely to receive the outstanding contractual amounts in full before taking into account
any credit enhancements held by the Company. A financial asset is written off when there
is no reasonable expectation of recovering the contractual cash flows.

b) Cash and short-term deposits
Credit risk from balances with banks and financial institutions is managed by
the Learn Africa’s Treasury Department in accordance with the Company’s policy.
Investments of surplus funds are made only with approved counterparties and within
credit limits assigned to each counterparty.

Counterparty credit limits are reviewed by the Company’s Board of Directors on
an annual basis, and may be updated throughout the year subject to approval of the
Company’s Finance Committee. The limits are set to minimise the concentration of
risks and, therefore, mitigate financial loss through potential counterparty’s failure.

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