IFRS 9: lifetime expected losses

Dealing with lifetime expected losses and forward looking adjustments with different scenarios is par for the course when complying with IFRS 9, says Christopher Warhurst, associate director of 4most Europe

Previously, expected loss (EL) has been directly associated with Basel and the internal ratings base (IRB), where models are built to predict the expected loss for all assets under the IRB umbrella. In the IRB context, the expected loss is a 12-month EL and, therefore, considers defaults occurring within the next year. As with all predictive modelling, there is the challenge of predicting the unknown and assigning probabilistic outcomes to all assets.

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