IFRS 9 versus IRB Models
From Open Risk Manual
IFRS 9 versus IRB Models
Both IFRS 9 and Regulatory Internal Rating Based frameworks require the use of quantitative Credit Risk estimates. This entry summarizes their relationship[1]
Aspect | Internal Ratings-Based Model | IFRS 9 Model |
---|---|---|
Default Definition | Specific definition based on a combination of days past due and unlikely to pay. | Consistent with Credit Risk Management practice plus rebuttable presumption that default does not occur later than 90 days past due |
Lifetime vs. 12-month Horizon | Credit Rating System and associated PDs are based on a 12-month horizon | Stage 1 Assets allowances are based on a 12-month horizon. Stage 2 and stage 3 allowances are based on lifetime expected losses. |
Point-in-time (PIT) vs. Through-the-cycle (TTC) | Models are generally developed using a hybrid approach (considering both cyclical and non-cyclical variables) which determines the ratings, which are then calibrated to a PD which may be somewhere between PIT and TTC. | Expected losses should reflect current conditions. This may require a PIT adjustment over historically based estimates. |
Quantitative Floors | The regulatory PD has a floor at 0.03% for all exposures except sovereign counterparties. | No floor on the PD. |
LGD Estimates | Conservative estimate (Downturn LGD). | Unbiased, PIT estimate. |
Frequency of estimates | Annual. | Continuous basis (at least, every time Financial Statements are prepared). |
Auditing of figures | Bank supervisors. | Auditors and market supervisors. |
References
- ↑ ESRB, Financial stability implications of IFRS 9, July 2017