Overview of Expected Credit Losses in IFRS 9

Overview of Expected Credit Losses in IFRS 9

We have always known that all financial assets carry a risk of not being paid on time and in full. This is known as the credit risk of that asset. We measure this risk by considering the chances of this credit event happening (Probability of Default or PD), the amount that will be owing on the date of the default (Exposure At Default or EAD) and the amount that will not be recovered (Loss Given Default or LGD). IFRS 9 refers to the measurement of the credit risk as Expected Credit Losses (ECL’s).

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