120. In accordance with IFRS 9, paragraph 5.5.9, the assessment of significant increases in credit …

In accordance with IFRS 9, paragraph 5.5.9, the assessment of significant increases in credit risk is based on comparing credit risk on exposures at the reporting date relative to credit risk upon initial recognition. IFRS 9, paragraph BC 5.161, and Illustrative Example 6 represent an example of the application of this principle in the Standard, rather than an exception to that principle. This example suggests that credit institutions can set a maximum credit risk for particular portfolios upon initial recognition that would lead to that portfolio moving to lifetime ECL measurement when credit risk increases beyond that maximum level. This simplification is only relevant when exposures are segmented on a sufficiently granular basis such that a credit institution can demonstrate that the analysis is consistent with the principles of IFRS 9. Specifically, credit institutions should be able to demonstrate that a significant increase in credit risk had not occurred for items in the portfolio before the maximum credit grade was reached.

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