Credit Risk According to IFRS 9: Significant Increase in Credit Risk and Implications for Financial Institutions

Beerbaum, Dirk; Ahmad, Sammar

doi:10.2139/ssrn.2654120

Cited by 18 publications

(15 citation statements)

References 6 publications

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“…The findings of the analysis also show that the formation of CKPN on the basis of the impairment loss allowance model of Indonesian financial accounting standards 71 proposed by the authors is higher than the formation of CKPN on the basis of PSAK 55. Thus, the implementation of lifetime ECL models on PSAK 71 was more prudent than the implementation of incurred loss model in PSAK 55 (Beerbaum, 2015;Johannes et al, 2018).…”

Section: Resultsmentioning

confidence: 99%

“…For the majority of banks analysed, the transition to IFRS 9 generally results in an increase in allowances, ranging from a few millions to EUR4 billion (EY, 2018). As a result, banks must set aside a portion of their capital to foster more reserves (Beerbaum 2015). Although it is more unfavorable for banks to record ECLs that become a considerable "burden" in their financial JABES 27,3 statements, it is to be noted that IFRS 9 will contribute in providing a more objective and prospective view of banks (Johannes et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

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Innovation of impairment loss allowance model of Indonesian financial accounting standards 71

Sugiarto¹,

Suroso

2020

JABES

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PurposeThis study aims to develop a high-quality impairment loss allowance model in conformity with Indonesian Financial Accounting Standards 71 (PSAK 71) that has significant contribution to national interests and the banking industry.Design/methodology/approachThe determination of the impairment loss allowance model is settled through 7 stages, using integration of some statistical methods such as Markov chain, exponential smoothing, time series analysis of behavioral inherent trends of probability of default, tail conditional expectation and Monte Carlo simulation.FindingsThe model which is developed by the authors is proven to be a high-quality and reliable model. By using the model, it can be shown that the implementation of the expected credit losses model on Indonesian Financial Accounting Standards 71 is more prudent than the implementation of the incurred loss model on Indonesian Financial Accounting Standards 55.Research limitations/implicationsDetermination of defaults was based on days past due, and the analysis in this study did not touch the aspects of hedge accounting in general.Practical implicationsThis developed model will contribute significantly to national interests as a source of reference for other banks operating in Indonesia in calculating impairment loss allowance (CKPN) and can be used by the Financial Services Authority of Indonesia (OJK) as a guideline in assessing the formation of impairment loss allowance for banks operating in Indonesia.Originality/valueAs so far there is not yet an available standardized model for calculating impairment loss allowance on the basis of Indonesian Financial Accounting Standards 71, the model developed by the authors will be a new breakthrough in Indonesia.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Innovation of impairment loss allowance model of Indonesian financial accounting standards 71

Sugiarto¹,

Suroso

2020

JABES

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“…Bernhardt et al (2014) discuss the new rules for hedge accounting, especially from the risk management's perspective. Beerbaum (2015) gives some remarks on selected aspects of the new impairment requirements, especially a significant increase in credit risk. Novotny-Farkas (2016) discusses the IFRS 9 impairment requirements in the context of financial stability.…”

Section: Ifrs 9 Financial Instrumentsmentioning

confidence: 99%

The Probability of Default Under IFRS 9: Multi-period Estimation and Macroeconomic Forecast

Vaněk

Hampel

2017

Acta Univ. Agric. Silvic. Mendelianae Brun.

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In this paper we propose a straightforward, flexible and intuitive computational framework for the multi-period probability of default estimation incorporating macroeconomic forecasts. The concept is based on Markov models, the estimated economic adjustment coefficient and the official economic forecasts of the Czech National Bank. The economic forecasts are taken into account in a separate step to better distinguish between idiosyncratic and systemic risk. This approach is also attractive from the interpretational point of view. The proposed framework can be used especially when calculating lifetime expected credit losses under IFRS 9.

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“…The financial statements of banks are expected to reflect the IFRS 9 accounting standards as of 1 January 2018 (European Banking Authority (EBA)). Banks found that IFRS 9 had a significant impact on systems and processes (Beerbaum 2015). While the IAS 39 standard made use of provisions on incurred losses, the financial crisis showed that expected losses, instead of incurred losses, are better used to calculate provisioning for banks (Global Public Policy Committee (GPPC)).…”

Section: Introductionmentioning

confidence: 99%

Developing an Impairment Loss Given Default Model Using Weighted Logistic Regression Illustrated on a Secured Retail Bank Portfolio

Breed

Verster

Schutte

et al. 2019

Risks

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This paper proposes a new method to model loss given default (LGD) for IFRS 9 purposes. We develop two models for the purposes of this paper—LGD1 and LGD2. The LGD1 model is applied to the non-default (performing) accounts and its empirical value based on a specified reference period using a lookup table. We also segment this across the most important variables to obtain a more granular estimate. The LGD2 model is applied to defaulted accounts and we estimate the model by means of an exposure weighted logistic regression. This newly developed LGD model is tested on a secured retail portfolio from a bank. We compare this weighted logistic regression (WLR) (under the assumption of independence) with generalised estimating equations (GEEs) to test the effects of disregarding the dependence among the repeated observations per account. When disregarding this dependence in the application of WLR, the standard errors of the parameter estimates are underestimated. However, the practical effect of this implementation in terms of model accuracy is found to be negligible. The main advantage of the newly developed methodology is the simplicity of this well-known approach, namely logistic regression of binned variables, resulting in a scorecard format.

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Credit Risk According to IFRS 9: Significant Increase in Credit Risk and Implications for Financial Institutions

Cited by 18 publications

References 6 publications

Innovation of impairment loss allowance model of Indonesian financial accounting standards 71

Innovation of impairment loss allowance model of Indonesian financial accounting standards 71

The Probability of Default Under IFRS 9: Multi-period Estimation and Macroeconomic Forecast

Developing an Impairment Loss Given Default Model Using Weighted Logistic Regression Illustrated on a Secured Retail Bank Portfolio

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