IFRS 9 and Expected Credit Losses
The IFRS9 Expected Credit Loss (ECL) standard was put in force in 2018 as a replacement for the Incurred Loss standard. IFRS9 accounting requires banks to hold provisions for credit losses that are expected to occur under scenario projections. The amount of provisions is dependent on a staged methodology for ECL with increase of provisions for loans whose credit quality has substantially deteriorated.
Our ECL engine used for illustration of computation under the IFRS 9 framework is compounded of multiple core and satellite models e.g. Scenario generation based on econometric and expansion models, satellite models for non-core variables and PIT credit drivers. We illustrate the approach to Scenario generation below with a fully fledged ECL engine, based on a mixture of three portfolios comprising HK sectors Mortgages, CRE, Manufacturing.
