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How to estimate expected credit losses – ECL – for provisioning under IFRS 9 by Mariya Gubareva is a Economics, Econometrics and Finance article available to read on EtoBox.

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## Purpose This paper provides an objective approach based on available market information capable of reducing subjectivity, inherently present in the process of expected loss provisioning under the IFRS 9. ## Design/methodology/approach This paper develops the two-step methodology. Calibrating the Credit Default Swap (CDS)-implied default probabilities to the through-the-cycle default frequencies provides average weights of default component in the spread for each forward term. Then, the impairment provisions are calculated for a sample of investment grade and high yield obligors by distilling their pure default-risk term-structures from the respective term-structures of spreads. This research demonstrates how to estimate credit impairment allowances compliant with IFRS 9 framework. ## Findings This study finds that for both investment grade and high yield exposures, the weights of default component in the credit spreads always remain inferior to 33%. The research's outcomes contrast with several previous results stating that the default risk premium accounts at least for 40% of CDS spreads. The proposed methodology is applied to calculate IFRS 9 compliant provisions for a sample

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Author

Mariya Gubareva

Publisher

Emerald

Published

2021

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)