Credit-Impaired Financial Asset
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred.
Informally credit-impaired assets are also denoted Stage 3 Assets
Evidence of Impairment
Evidence that a financial asset is credit-impaired include observable data about the following events:
- Significant Financial Difficulty of the issuer or the borrower
- A Breach of Contract, such as a default or Past Due event
- The lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider
- It is becoming probable that the borrower will enter Bankruptcy or other financial reorganisation
- The disappearance of an active market for that financial asset because of financial difficulties
- The purchase or origination of a financial asset at a deep discount that reflects the incurred Credit Loss
It may not be possible to identify a single discrete event—instead, the combined effect of several events may have caused financial assets to become credit-impaired.
- IFRS Standard 9, Financial Instruments