The tool is used to estimate the Expected Credit Loss (ECL) of stage 3 exposures within the scope of the IFRS 9 General Approach. These are exposures for which there is objective evidence of impairment and consequently are in a state of default.
The tool relies on a detailed approach with a number of automations. In brief:
- The tool allows for easy entry of historical information - the key parameters of the exposure, its gross carrying amount and effective interest rate/discount rate
- Each exposure allows for creating of analyses for it, which model the scenarios to be applied to the instrument
- Each scenario has individual expected cash flow
- The tool estimates ECL for each scenario, based on its cash flow and the historical instrument information
- A total ECL is calculated for the instrument based on the defined probabilities for realization of each scenario.
- Easy to use interface for entering historical data and cash flows
- Ability to test unlimited analysis on the instrument
- Ability to test unlimited scenarios for each analysis
- Ability to test various probabilities for each scenario and the effect they will have on the scenario ECL and the total instrument ECL
- Speed and ease of operation