Loan classification under IFRS 9

IFRS 9 requires classifying non-defaulted loans in two stages depending on their credit quality evolution since initial recognition by the bank. In this paper, Vivien Brunel proposes an optimal way to perform this classification. Target values of some key performance indicators of the provisioning model emerge from the implementation of this process. In particular he computes the target value of the stage 2 ‘hit rate’ and the size of the stage 2 portfolio


Scoring and rating models have been used in the field of the granting of credit and in credit risk management for some time. In 2001, the Basel Committee required the use of internal models to be extended to capital charge measurement (Basel Committee on Banking Supervision 2001). Since then, banks and regulators have both developed statistical tools to evaluate the quality of internal rating models because bad performance can lead to inefficient allocation of capital.


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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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