106. In developing their approach to determining a significant increase in credit risk, credit …

In developing their approach to determining a significant increase in credit risk, credit institutions should consider each of the 16 classes of indicators in IFRS 9 (insofar as they are relevant to the financial instrument being assessed) as set out in paragraphs B5.5.17(a)-(p) and, in addition, credit institutions should consider whether there is further information that should be taken into account. Such indicators (in both IFRS 9 and these guidelines) should not be viewed as a ‘checklist’. Some may be more relevant than others to assessing whether a particular type of lending exposure exhibits a significant increase in credit risk. At the same time, credit institutions should take particular care to avoid the risk of a significant increase in credit risk not being acknowledged promptly when it is, in fact, present. In particular, credit institutions should not restrict significant increases in credit risk to situations when a financial instrument is anticipated to become credit impaired (i.e. the third stage of IFRS 9 impairment requirements). Rather, debtors may exhibit a significant increase in credit risk without evidence that the related lending exposures are likely to become impaired. The fact that credit risk has increased significantly does not necessarily mean that default is probable — merely that it is more likely than at initial recognition. This point is underlined by the symmetry of the IFRS 9 model: it is possible for lending exposures to move to lifetime ECL but subsequently be moved back to 12-month ECL if the threshold of a significant increase in credit risk is no longer met.

1. Overview

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

3. Related Standards

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