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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 […]