Impairment of financial assets

Last Updated on 23/02/2021 by 75385885

Financial assets that have to record impairment allowances under IFRS 9 are:

Financial assets at amortised costs (incl. trade receivables),
Financial assets measured at fair value through other comprehensive income,
Loan commitments at below market interest rates,
Financial guarantee contracts which are not insurance contracts,
Lease receivables.

The impairment model follows a three stage approach on changes in expected credit losses of a financial asset that determine:

the recognition of an impairment allowance, and
the recognition of interest revenue.

Initial recognition of financial assets includes a stage 1 (see below) impairment, except for purchased or originated credit impaired financial assets.

Three stage approach
Stage 1	Stage 2	Stage 3
Applicable when no significant increase in credit risk exists	Applicable in case of a significant increase in credit risk	Applicable in case of credit impairment
12-month expected credit losses	Lifetime expected credit losses
Effective interest on gross carrying amount (before deduction expected credit losses)		Effective interest on the net (carrying) amount (ie after deduction expected credit losses)

IFRS Synonyms:

Impairment of loan commitments, Impairment of financial guarantees, Impairment of lease receivables, Impairment of financial assets at amortised costs, Impairment of financial assets at FVOCI, Impairment of financial assets at fair value through other comprehensive income