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You could allocate out the commitment fee based on what proportion is drawn and not drawn down. So if the limit is £100m and £25m is drawn down, 25 % of the fee is allocated to the £25m loan and 75 % of the fee is allocated to the remaining facility.

Agree with Mareks proposal. The simplest way to do this is to treat each of the splits initially as a separate loans, and once they go though the consolidation, you adjust the EIR so they are all the same and can now be treated as one loan.

Can you provide more details on the guarantee? Is the bank guaranteeing a specific loan?

The important factor is how often payment is being made. If yearly payment is made, then after 1 year, the outstanding balance on an initial nominal of 1 will be 1 + interest rate. If payments are being made quarterly, after 1 quarter, the balance will be 1 + interest rate/4, annualized, that is (1 ...

When you write to "waive the historic accrued loan interest", does it mean that the associate will no longer have to pay it? In such a case, I guess this would classify as a loan modification.

Yes, apologies if what I wrote above was unclear, this is what I mean. It will have the consequence of the balance sheet representing the fair value position, while ECL still flow though PnL.

The way I think about FVOCI is that you deal with the loan in the PnL as if it where amortized cost, while in the balance sheet as if it where FVPL. The mismatch between these two views goes to OCI. In other words, when computing ECL , you can follow the exact same process as for amortized cost.

When it comes to revolving facilities, they are treated as one instrument together, as can be seen from IFRS 9.5.5.20: However, some financial instruments include both a loan and an undrawn commitment component and the entity’s contractual ability to demand repayment and cancel the undrawn commitmen...

1. Yes, if the customer has 1 payment left, I would just use PD(1m) = 1 - [1 - PD12]^(1/12), that will give you a non-zero number. 2. One has to be incredibly careful in dealing with bullet loans. For example, for SICR assessment you should never use PD12, but has to use PD lifetime. If I was to be ...

As long as their are no fees or similar, just a simple nominal interest rate, the timing of the payments will not influence the EIR. Hence it is possible to compute the EIR without trying to forecast the repayment. For the impairment however, the place where it will get messy is when it comes to EAD...

Yes, it should be include in the EIR method. However in practice, in often does not make a huge material difference to just straight line amortize the fee (but EIR is the more correct method).

This is a great question. In general, as JRSB writes, the assumption is that if you are at the due date, the probability should be 0 since there is no time for the status to change. The issue however might be if the company does not have the capability to repay, for example bullet loans. Here it mat...

Agree with JRSB:s conclusion. Something important is however when the loan went to stage 3 (I assumed it sits there now since you are ready to write it off). When in stage 3 you only recognize interest income on amortize cost, so anything provisioned for acts like non-interest bearing. Has part of t...

Hi! Great question. From context I guess that what you have is some form of 12m PD model. When computing PD for other horizons outside of 12m, one need to make some sort of assumption (unless one wants to go back to the data and train a new model). One simple such assumption is that the default risk...

IFRS 9.4.2.1 (c) writes that: financial guarantee contracts. After initial recognition, an issuer of such a contract shall (unless paragraph 4.2.1(a) or (b) applies) subsequently measure it at the higher of: (i) the amount of the loss allowance determined in accordance with Section 5.5 and (ii) the ...

I tested with Vlookup as well, but got very strange results there, even if the number was not found in the referenced table, an output was generated

If you use XLOOKUP instead, any values not possible to match should show up as #N/A

Great reference Ketan, super thanks!

PD (associate's probability of default) x LGD (100% in this case) x shares' maket value Maye I have not read all the details here careful enough, but is it given that the LGD = 100 %? Sure, whatever is not possible to recover will fall upon the guarantor to pay, but typically that is first taken fr...

I think the point Marek is making (and which I agree with) is that if you lend to someone, you typically charge interest rate = risk free rate + credit spread + liquidity spread + ... + profit margin. In other words, when one derecgonize the loan and originate a new one, you need to assess how these...

What you are supposed to do is to calculate the market rate for this customer (in this case it could be the 17 %, or some other rate if that is applicable) and use that for the discounting of the future cash flows to get a fair value of the loan. That is the fair value you will recognize as the new ...

Hi!
When you write "markup rate" is that the EIR, APR or an addon to these? That will matter in order to be able to carry out the calculation. How long was the orginal loan from present date supposed to be?

Hi! As long as the account is performing, this question is reasonably straightforward and comes from IFRS 9.5.5.17 b), time value of money. One way to view it is that over time, the asset will accrue interest, but if this interest is not yet paid, the interest part should also have an impairment com...

This might be a little bit off topic, but as the credit risk analyst, I would be somewhat concerned if the customer cited delays and wanted loan extension already on their first month. It is quite common to have policies requiring at least some months of payments before any forbearance measures can ...

We usually take the forward rates from Bloomberg based on traded market contracts, and one can typically find curves there. EIOPA publishes yearly risk free rates (from 1 to 150 years into the future) for quite alot of countries which are to be used for insurance calculations, and they could be an a...

On the question on derivatives, please look here for more information:
https://en.wikipedia.org/wiki/Interest_ ... _and_floor

Hedge accounting is option, but derivatives must always be accounted for at fair value through PnL since they fail SPPI, so you will have to fair value account each period. I have very limited experience of what is an acceptable approximation, so will have to defer to someone else here

When you say that you have an interest rate cap, do you mean that you have purchased a derivative that starts to pay out if the interest rate exceed a certain level? If it is a derivative, you should account for it at fair value at each reporting date then right?

Love it, What You See Is What You Get

I see, thank you Ketan Marwah for highlighting this example