4.1 General provisions

Credit institutions should comply with these guidelines in a manner that is appropriate to their size and internal organisation and the nature, scope and complexity of their activities and portfolios, and, more generally, all other relevant facts and circumstances of the credit institution (and the group (if any) to which it belongs). The use of properly designed proportionate approaches should not jeopardise the high-quality implementation of the ECL accounting frameworks.

Credit institutions should also give due consideration to the application of the principle of materiality. However, this should not result in individual exposures or portfolios being considered immaterial if, cumulatively, these represent a material exposure to the credit institution. In addition, materiality should not be assessed only on the basis of the potential impact on the profit or loss statement at the reporting date. For instance, large portfolio(s) of lending exposures such as real estate mortgages would generally be considered material even if they are highly collateralised.

In considering how to take proportionality or materiality into account in the design of an ECL methodology or in its implementation, it is important to ensure that bias is not being introduced.

The timely recognition of credit deterioration and allowances should not be delayed without prejudice to the fact that ECL accounting frameworks are symmetrical in the way that subsequent changes (both deteriorations and reversals of those deteriorations) in the credit risk profile of a debtor should be considered in the measurement of the allowances.

4.1.2 Consideration of reasonable and supportable information

Credit institutions should consider a wide range of information when applying ECL accounting models. Information considered should be relevant to the assessment of credit risk and measurement of ECL of the particular lending exposure being assessed, and should include information about past events, current conditions and forecasts of future economic conditions. Information which is ultimately included in the assessment of credit risk and measurement of ECL should also be reasonable and supportable. Credit institutions should use their experienced credit judgement in determining the range of relevant information that should be considered and in determining whether information is considered to be reasonable and supportable. Reasonable and supportable information should be based on relevant facts and sound judgement.

4.1.3 Consideration of forward-looking information

In order to ensure a timely recognition of credit losses, credit institutions should consider forward-looking information, including macroeconomic factors. When considering forward-looking information, credit institutions should apply sound judgement consistent with generally accepted methods for economic analysis and forecasting, and supported by a sufficient set of data.

Credit institutions should be able to demonstrate how they have considered relevant, reasonable and supportable information in the ECL assessment and measurement process. Credit institutions should apply experienced credit judgement in the consideration of future scenarios and take into account the potential consequence of events occurring or not occurring, and the resulting impact on the measurement of ECL. Information should not be excluded from that process simply because an event has a low likelihood of occurring or the effect of that event on the credit risk or the amount of expected credit losses is uncertain. In certain circumstances information relevant to the assessment and measurement of credit risk may not be reasonable and supportable and should therefore be excluded from the ECL assessment and measurement process. Given that these circumstances would be exceptional in nature, credit institutions should provide a clearly documented, robust justification.

The information used shall include an unbiased consideration of relevant factors and their impact on creditworthiness and cash shortfalls. Relevant factors include those intrinsic to the bank and its business or derived from external conditions.