Analysis of the credit portfolio impairment in the local banking scenario and expected impact on the IFRS 9

Abstract

The main objective of this dissertation is to determine the impact of the revised IFRS 9 on credit impairment that is expected to be operative 1st January 2015 and which will see loans being segmented into three buckets. Determining how the sanctioned loans are monitored is essential since it is a key step in rating a loan in terms of the Banking Rule 9, Credit and Country risk Provisioning (Credit Grading) as being regular; watch; substandard; default; and loss. The study also analyses the probability of defaults and the loss given defaults that credit ratings attract. Moreover, this dissertation will walk through the processes of how credit is approved; the patterns of deterioration of the credit quality when it is captured and monitored; and any changes to the information that impact credit expectations. Finally, this study delves into the specific changes that IFRS 9 will bring about from the current methodologies; reveals whether banks have sufficient data granularity to meet its requirements; and itemises the major changes to the processes that banks would need to make, especially in light of the expected future credit losses requirement.