How to Develop an IFRS 9 Impairment Framework

From Open Risk Manual

How to Develop an IFRS 9 Impairment Framework

A high level overview of the steps required for establishing an IFRS 9 impairment framework. More detailed discussions available through the links. The list is compiled from the published regulatory guidance[1][2] and the Canadian Credit Union Implementation Guide [3]

A glossary of terms is available here

Decision Points

  • Determine the level of assessment (individual vs. collective assessment)
  • Whether there are prior developed credit risk models
  • Determine whether the “low credit risk assumption” will be applied to certain loans

Development Steps

  • Establish the definition of default
  • Determine indicators/measures of significant increase in credit risk including associated thresholds
  • Identify relevant forward-looking information and macro-economic factors
  • Incorporate Forward-Looking Information and multiple scenarios in staging assessments of loans
  • Stage loans based on the forward-looking assessment of significant increase in credit risk
  • Determine the method to be used for measuring Expected Credit Loss
  • Determine the estimation period – the Expected Lifetime of the financial instrument
  • Establish the respective Probability of Default for loans in Stage 1 and Stage 2
  • Estimate the Exposure at Default
  • Identify relevant Collateral and Credit Enhancement
  • Develop estimates of Loss Given Default (incorporating collateral and credit enhancements)
  • Incorporate forward-looking information and multiple scenarios in the measurement of Expected Credit Losses
  • Consider the Time Value of Money and calculate Expected Credit Losses
  • Identify modifications that occurred during the period and determine if each modification results in derecognition or no derecognition
  • Calculate the modification gain or loss and include the modified loan (or new loans)

Organizational Actions

  • Establish and document the appropriate processes, internal controls and governance for estimating Expected Credit Losses


  1. IFRS Standard 9, Financial Instruments
  2. BIS-D350, Dec 2015
  3. Impairment Implementation Guide, October 2016

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