CFSL Integrated Report 2025

105

Introduction

Group Overview

Leadership

Strategy & Performance

Risk Management Report (Continued)

Defining Credit Risk Parameters and Methodology

PROBABILITY OF DEFAULT

The Probability of Default (‘PD’) refers to the likelihood that a borrower will default over a particular time horizon. The PD of an obligor is a fundamental risk parameter in credit risk analysis and depends on obligor-specific characteristics, as well as on macroeconomic risk factors. The PDs have been obtained using a transition matrix approach, where the monthly interstage movements have been tracked historically and aggregated into a transition matrix. To extrapolate the 1-month PD estimates to lifetime PDs, matrix multiplication was applied in line with the Markovian properties of transitions or intensities. Moreover, forward-looking information that is available without undue cost and effort is incorporated in the model. This is used to assess whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. Cim Finance has considered macro-economic factors published by the IMF as part of its estimates. The relationship between macroeconomic factors and the default / predicted PDs is observed for the period of data under consideration or maximum available data with either the macroeconomic factors or the default/predicted PDs by each portfolio. In addition to checking the relationship strength, the intuitive sense of the relationship is also checked to determine relevant macro-adjustments. Three forward-looking macroeconomic scenarios were developed to capture a range of possible outcomes: Base Case Scenario: representing the central forecast and management’s most likely view of the economy. Pessimistic Scenario: capturing the effect of potential adverse conditions. Optimistic Scenario: reflecting potential improvements in economic conditions. The forward-looking adjustment to PDs was derived as a weighted average of scenario-specific NPL forecasts, benchmarked against the historical NPL ratio.

An analysis of the Group’s credit loss allowances as at 30 September 2025 is set out in note 10 on page 173, note 15 on page 177 and note 16 on page 182 of the financial statements.