Implementing IFRS 9: Quantifying Expected Credit Losses in Retail and Wholesale Portfolios

Juan M Licari, Yashan Wang

INTRODUCTION

This chapter discusses how to address the specific challenges IFRS 9 poses for retail and wholesale portfolios, focusing on incorporating forward-looking information into impairment models, recognising significant credit-risk increases for stage allocation purposes and capturing an exposure’s lifetime. We also describe various practical and effective approaches for leveraging internal and external data for building impairment models and processes in line with IFRS 9 guidelines. We then answer common questions pertaining to consumer and commercial credit portfolios.

The new international accounting standard, IFRS 9, requires measuring and reporting financial assets from a more point-in-time (PIT) and forward-looking perspective, when compared with IAS 39’s incurred-loss model. At the core of this new requirement is the need to measure credit impairment in an objective and unbiased manner, using information regarding past events, current conditions and economic forecasts. This chapter focuses on quantifying loss allowance for wholesale and retail portfolios under IFRS 9. We discuss key components in the expected credit losses (ECLs) quantification: probability of de

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