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Dec, 2016

IFRS 9 Impairment Solution: The Future is Now

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Are you still clinging on to your rusty legacy technology that’s gracefully aging towards obsolescence? Perhaps you are still running important applications on legacy databases with legacy operating systems because they’re “good enough” and still “work fine.” In many aspects, your old legacy technologies are like a rusty old car. You know where the kinks are and it gets you where you need to go. But lurking below the surface of that rusty old car and your old technologies can be hidden risks that can result in very big problems, […]



Nov, 2016

Effective Interest Rate – Solving the Riddle

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Aptivaa has been a key representative speaker across panels of various risk events held recently such as the PRMIA Qatar chapter event, a Workshop on IFRS 9 organized by FIS for banks at Kuwait City, 3rd Banks Risk Management conference 2016 at Amman and the IFRS 9 workshop at GARP Istanbul chapter. During these interactions a number of participants have reached out to us for views on the approach for estimation of Effective Interest Rate (EIR). Also, as a part of our current engagements on IFRS 9 with several Banks, […]



Aug, 2016

IFRS9 Model Risk Management – Given the Short Shrift?

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Banks are scrambling to meet with IFRS 9 guidelines and are setting down on the path to implement various ECL estimation methodologies and models. But a topic that hasn’t been given enough attention is the need for governance of these models and the attendant model risk management framework that needs to be set up to lend credibility to the model estimates. IFRS 9 is the new accounting standard for recognition and measurement of financial instruments that will replace IAS 39. Several banks are planning to perform parallel run by Q1 […]



Jun, 2016

Exposure at Default: IFRS 9 Ramifications

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Under IFRS9 Framework, impairment assessment requires computation of Expected Credit Loss (ECL) that reflects a probability-weighted outcome, the time value of money and the best available forward-looking information. The ECL can be computed using cash shortfall approach or modular approach using risk parameters like PD, LGD, EAD and Maturity. Of these, we have discussed PD and LGD in detail in our previous blogs. In this blog we intend to touch upon Exposure at Default (EAD). Exposure at Default (EAD) is an estimate of a financial institution’s (FI) exposure to its counterparty at the time […]



Jun, 2016

Cash Shortfall & LGD – Two Sides of the Same Coin

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Under IFRS 9, Expected Credit Loss (ECL) for financial instruments should be an unbiased and probability weighted amount, which is determined by evaluating a range of possible outcomes. To meet this requirement, banks will be required to determine “Expected” default path of the financial instruments and estimate the possible “Credit Losses” along that path. IFRS 9 defines “Credit Loss” in terms of “Cash Shortfall” or credit loss estimation through projected cash flow discounting. However, there is little explicit information available as to how “Cash Shortfall” should be computed; should it be computed separately or along […]



May, 2016

Crystal Gazing – Estimating Lifetime PDs

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In our earlier blog, we discussed PD terminology and PD calibration approaches as applicable to the IFRS 9 framework. IFRS 9 has mandated computation of Impairment Losses, approach for which has been discussed in our 6th blog post. For computation of Expected Credit Loss (ECL), IASB expects organizations to consider forward looking information including macroeconomic factors that are relevant to the exposure being evaluated and that must go beyond historical and current available data. BCBS strongly endorsed this requirement in its paper published on 18th December 2015 (Please refer to our white paper around BCBS Guidelines […]



Apr, 2016

PD Calibration- A Delicate Balancing Act

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As discussed in our previous blog, PIT PD describes an expectation of the future, starting from the current situation and integrating all relevant cyclical changes & all values of the obligor idiosyncratic effect with appropriate probabilities. A PIT PD mimics the observed default rates over a period of time. TTC PDs, in contrast, reflect circumstances anticipated over an extremely long period, and thus nullify the effects of the credit cycle.



Apr, 2016

Demystifying PD Terminologies

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A key metric that summarizes the credit worthiness of a bank’s obligor is the Probability of Default (PD). Besides credit worthiness assessment and capital computation under IRB, PD is one of the key metrics required in the updated IFRS 9 accounting standards. At present, there are many PD related terminologies used in the banking industry, such as: PIT PD, TTC PD, 12-month PD and so on. Such a wide spectrum of terminologies has led to confusion among users, especially when it comes to IFRS 9, which lays special focus on […]



Mar, 2016

Target Operating Model – Engaging with the Auditors early

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As the methodologies for IFRS 9 Implementation are still evolving, many banks are in the process of developing a roadmap towards implementation and are still evaluating methodologies that are likely to conform to the principles of proportionality and materiality. To meet the January 2018 deadline, several banks will not be able to embrace a textbook implementation, and will have to adopt practical approaches to several principles espoused in the guidelines. In our blog ‘Impairment Modelling – No silver bullets’, we spoke about the options that banks have with respect to […]