Alarm System for Credit Losses Impairment under IFRS 9

Abstract : The recent financial crisis has led the IASB to settle new reporting standards for financial instruments. The extended ability to measure some debt instruments at amortized cost is associated with a new impairment losses mechanism: Expected Credit Losses. The standards set out some disposals based on so-called three-stage provision measures. To implement this insurers are invited to use forward-looking measures of creditworthiness in order to anticipate and provision future deterioration. To do so, the norms explicitly invoke the use of available market information. In this paper, after a brief description of the principles elaborated by IASB for IFRS~9, we investigate a simple yet interesting procedure using credit default swaps (CDS for short) market prices in order to monitor significant changes in credit quality of financial instruments and subsequent credit losses impairment. This methodology is implemented in detail to a real world dataset. Numerical tests are drawn to assess the effectiveness of the procedure especially compared to changes of notation from credit rating agencies.
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Submitted on : Thursday, April 19, 2018 - 10:48:07 AM
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Yahia Salhi, Pierre-Emmanuel Thérond. Alarm System for Credit Losses Impairment under IFRS 9. Bulletin Français d'Actuariat, Institut des Actuaires, 2017, 17 (33), pp.131-161. ⟨hal-00927391v2⟩



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