Credit losses

Expected Credit Losses (ECL) under IFRS 9 represent management’s anticipation of potential shortfalls in collecting contractual cash flows.

Let’s delve into the details:

Definition:

ECLs are the expected impairments of loans, leases, or other financial assets.
These losses are recognized on a forward-looking basis, even before any actual credit event occurs12.

Two Key Components:

• Twelve-Month ECL: This portion of lifetime ECLs pertains to the possibility of a loan defaulting within the next 12 months.
• Lifetime ECL: Reflects the entire expected credit losses over the asset’s lifetime1.
• Significance:
  IFRS 9’s ECL model ensures earlier recognition of losses compared to previous standards.

It impacts financial institutions and entities with substantial financial assets3.

Implementation:
Effective for annual periods starting on or after January 1, 2018 (subject to endorsement in specific regions).
The model replaces much of the guidance in IAS 39, including classification and measurement of financial assets3.