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Credit risk forecasting modelling and projections under IFRS 9

Author

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  • Montesi, Giuseppe
  • Papiro, Giovanni
  • Ugolini, Laura
  • Ammendola, Giuseppe

Abstract

This paper presents the formal relations of a business planning model for credit risk consistent with the new International Financial Reporting Standard 9 (IFRS 9) accounting principles and the European Banking Authority (EBA) regulatory approach to stress testing. The model defines a flexible framework that helps to develop sound projections covering all the relevant figures related to the credit cycle: performing and non-performing exposures in the balance sheet, impairment adjustments of P&L and stock of provisions. The differences adopted in our model compared to the EBA methodology for the last supervisory stress test provide more flexibility, enabling the model to fit actual bank operations more closely, and allowing business planners to manage all kinds of dynamics and market conditions.

Suggested Citation

  • Montesi, Giuseppe & Papiro, Giovanni & Ugolini, Laura & Ammendola, Giuseppe, 2018. "Credit risk forecasting modelling and projections under IFRS 9," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 12(1), pages 79-101, December.
    • Handle: RePEc:aza:rmfi00:y:2018:v:12:i:1:p:79-101
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    Cited by:

    1. Szydlo, Jan, 2023. "Forecasting Credit Dynamics : VAR, VECM or modern Factor-Augmented VAR approach?," Warwick-Monash Economics Student Papers 63, Warwick Monash Economics Student Papers.

    More about this item

    Keywords

    business planning; credit risk; expected credit loss; IFRS 9; loan loss provisions; stress testing; 2018 EU-wide stress test; EBA stress test;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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