From Incurred Losses to Lifetime Expected Losses

IFRS 9 is a regulatory sea change in the accounting of financial instruments. The crisis in 2008 highlighted a strong discrepancy between market implied counterparty credit risks and those reported in financial statements. The International Accounting Standards Board (IASB) decided to align these reported credit risks more closely with the actual credit risk by impairing susceptible loans before actual defaults occur. The result was the IFRS 9 standard, which becomes effective in 2018 and replaces the existing IAS 39 regulations.

Our Approach

Financial institutions need additional processes and extended databases to estimate the 12 month and lifetime expected losses, and to pinpoint the moment when credit risk significantly increases. The processes have to be automated to a high level so that they can be run frequently with only minimal expert interaction. Members of our senior team worked for many years with IAS 39 and are in a perfect position to guide clients through the transition to IFRS 9.

Our Experience

  • Credit risk management is at the core of Fintegral’s expertise
  • Development of methodology to stress test IFRS 9 ECL
  • Development of methodology to stress test IFRS 9
  • Building and validating PD and LGD models for a number of banks in Switzerland, Germany, Ireland and Austria
  • Building and validating macroeconomic models for stress testing and the calculation of expected losses over the stress test horizon for a major UK bank
  • Building macroeconomic models for a national bank