IFRS-9 Default Definitions

1
358

Default Definitions: In the continuation of series on IFRS-9, let us first compare default definitions and other basic requirements for the calculation of PD, LGD and EAD within different frameworks.

Below table is a snapshot of comparison between BASEL, IFRS-9 and IAS-39. We would start with comparison of default definition and then move onto calculation of PD, LGD and EAD.

 

Driver IAS-39 BASEL (Unexpected Losses) IFRS-9(Expected Losses)
Default Definition 180 Days Past Due or Bankruptcy or deceased 90 Days Past Due or Bankruptcy or deceased and Forbearance(including Term extension or Restructuring of Loans) 90 Days Past Due or Bankruptcy or deceased and Forbearance(including Term extension or Restructuring of Loans)
EAD Actual Balance at observation Expected Balance at default over next 12 months, downturn expectations Expected Balance at default over next 12 months or Lifetime, downturn expectations
PD Calculations based on observed default Point in Time Probability of Default Point in Time Probability of Default
LGD Expected Future Cash-flows from Default Expected Future Cash-flows from Default Expected Future Cash-flows from Default

 

Important Points:

  1. BASEL-3 is also known as CRDIV-CRR (The Capital Requirements Directives/ Capital Requirements Regulation)
  2. In case of IFRS-9 PD will be calculated either for 12 months or for Lifetime depending upon the stage a particular account falls into(Stage1- 12 Months PD, Stage2 Lifetime PD)

In the following articles we would cover each of the aspect mentioned in the table above in detail.

Previous Article(Introduction to IFRS-9)

Next Section: Classification and Measurement of Financial Assets and Liabilities

 

1 COMMENT

LEAVE A REPLY

Please enter your comment!
Please enter your name here