IFRS 9 replaces IAS 39 incurred loss model with a “three stage forward-looking” expected credit loss model that will result in more timely recognition of loan losses and is a single model that is applicable to all financial instruments subject to impairment accounting.

The new requirements are designed to result in earlier recognition of credit losses, by necessitating a 12-month ECL allowance for all credit exposures. In addition, the recognition of lifetime ECLs is expected to be earlier and larger for all credit exposures that have significantly deteriorated since initial recognition.

  • Stage 1 (12-month ECLs), which applies to all items (from initial recognition) as long as there is no significant deterioration in their credit quality;
  • Stage 2 and 3 (Lifetime ECL), which applies when a significant increase in credit risk has occurred on an individual or collective basis.

The computation of ECL is reliant upon risk parameter models that can provide forward looking estimates of Probability of Default, Loss given default and Exposure at Default.

At Aptivaa, we provide subject matter expertise on developing and managing the Impairment framework. Our services include:

  • Model Validation
  • PD, LGD and EAD Model Development
  • PD Calibration (TTC to PIT PD)
  • Credit Risk Deterioration Identification (stage assessment) framework
  • Credit deterioration triggers identification
  • Feasibility to use practical expedients
  • Lifetime PD estimation
  • Scenario Analysis (inclusion of forward looking information)
  • Expected Loss evaluator

We have developed a suite of proprietary tools and accelerators to meet the IFRS 9 impairment requirements in each of the above specified areas, and you will benefit from the experience that we bring into your project.