Skip to main content
Mobile
  • Finance, Accounting & Economics
  • Global Business Management
  • Management, Leadership & Organisation
  • Marketing & Sales
  • Strategy
  • Technology & Operations
HS Talks HS Talks
Subjects  
Search
  • Notifications
    Notifications

    No current notifications.

  • User
    Welcome Guest
    You have Limited Access The Business & Management Collection
    Login
    Get Assistance
    Login
    Forgot your password?
    Login via your organisation
    Login via Organisation
    Get Assistance
Finance, Accounting & Economics
Global Business Management
Management, Leadership & Organisation
Marketing & Sales
Strategy
Technology & Operations
Practice paper

Stage transfer effect on impairment forecasts

Jimmy Skoglund and Wei Chen
Journal of Risk Management in Financial Institutions, 11 (3), 244-256 (2018)
https://doi.org/10.69554/VKBM1965

Abstract

With the introduction of expected credit loss-based impairment methodology, banks’ stress testing programmes must include forecasts of stressed impairment losses as an important component in the firm-wide stress testing programmes. The forecasts of stressed impairment losses comprise projected incurred loss up to the forecasting horizon of the stress test, and the regular expected credit loss after the stress test horizon. This paper analyses the effect of IFRS 9 stage transfer on the stressed impairment forecasts. For a sample state transition model, portfolio and stage transfer rules, it is shown that the stage transfer can have significant effects on the staged impairment forecast compared to the IFRS 9 actuals (current expected credit loss). Specifically, stage 1 dominated initial portfolios can have significantly increased stressed impairments forecasts compared to the IFRS 9 actuals impairment calculation under stressed scenarios. This reflects their downside in terms of stage transfer potential to stage 2 up until forecast time. Recently downgraded or lower quality portfolios in stage 2 can have the opposite effect of decreased stressed impairments forecasts compared to the IFRS 9 actuals impairment calculation under stressed scenarios. This reflects their upside in terms of stage transfer potential to stage 1 up until forecast time. A lifetime measurement only approach for all assets (as in US CECL) ensures a direct link between actuals stressed impairment amounts and stressed impairment forecast amounts. Their difference can be attributed to the forecast new business assumptions and natural decay due to run-off. Taking into account stage transfer in impairment forecasts, we find it is more natural to analyse the stressed impairment forecast relative to a baseline scenario impairment forecast benchmark. Such an approach focuses more specifically on the macroeconomic stress effect and its impact.

Keywords: credit risk; IFRS 9; impairment forecasting; stress testing; stage transfer

The full article is available to subscribers to the journal.

Already a subscriber? Login or review other options.

Author's Biography

Jimmy Skoglund is Principal Product Manager at SAS. He has more than 15 years’ experience developing and implementing risk methodologies, both at SAS and previously at banks. Jimmy has worked in various areas of risk management, including market, credit and liquidity risk. He holds a PhD from Stockholm School of Economics and is a regular contributor to publications in risk and finance journals.

Wei Chen is a Director of Stress Testing Solution at SAS Institute Inc. He has more than 15 years’ industry experience in risk analytics and technology for both banking and insurance. At SAS he has managed the research and development of solutions and business consulting in market, credit and liquidity risk management. Wei has published frequently in risk journals. He received his PhD, his primary research area being in financial econometric modelling, from the University of Iowa. He is a certified Financial Risk Manager (FRM).

Citation

Skoglund, Jimmy and Chen, Wei (2018, August 1). Stage transfer effect on impairment forecasts. In the Journal of Risk Management in Financial Institutions, Volume 11, Issue 3. https://doi.org/10.69554/VKBM1965.

Options

  • Download PDF
  • Share this page
    Share This Article
    Messaging
    • Outlook
    • Gmail
    • Yahoo!
    • WhatsApp
    Social
    • Facebook
    • X
    • LinkedIn
    • VKontakte
    Permalink
cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 11 / Issue 3
© Henry Stewart
Publications LLP

The Business & Management Collection

  • ISSN: 2059-7177
  • Contact Us
  • Request Free Trial
  • Recommend to Your Librarian
  • Subscription Information
  • Match Content
  • Share This Collection
  • Embed Options
  • View Quick Start Guide
  • Accessibility

Categories

  • Finance, Accounting & Economics
  • Global Business Management
  • Management, Leadership & Organisation
  • Marketing & Sales
  • Strategy
  • Technology & Operations

Librarian Information

  • General Information
  • MARC Records
  • Discovery Services
  • Onsite & Offsite Access
  • Federated (Shibboleth) Access
  • Usage Statistics
  • Promotional Materials
  • Testimonials

About Us

  • About HSTalks
  • Editors
  • Contact Information
  • About the Journals

HSTalks Home

Follow Us On:

HS Talks
  • Site Requirements
  • Copyright & Permissions
  • Terms
  • Privacy
  • Sitemap
© Copyright Henry Stewart Talks Ltd

Personal Account Required

To use this function, you need to be signed in with a personal account.

If you already have a personal account, please login here.

Otherwise you may sign up now for a personal account.

HS Talks

Cookies and Privacy

We use cookies, and similar tools, to improve the way this site functions, to track browsing patterns and enable marketing. For more information read our cookie policy and privacy policy.

Cookie Settings

How Cookies Are Used

Cookies are of the following types:

  • Essential to make the site function.
  • Used to analyse and improve visitor experience.

For more information see our Cookie Policy.

Some types of cookies can be disabled by you but doing so may adversely affect functionality. Please see below:

(always on)

If you block these cookies or set alerts in your browser parts of the website will not work.

Cookies that provide enhanced functionality and personalisation. If not allowed functionality may be impaired.

Cookies that count and track visits and on website activity enabling us to organise the website to optimise the experience of users. They may be blocked without immediate adverse effect.