• Document: IFRS 9 Readiness for Credit Unions
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IFRS 9 R e a d i n e s s f o r C r e d i t U n i o n s Impairment Implementation Guide June 2017 IFRS READINESS FOR CREDIT UNIONS This document is prepared based on Standards issued by the International Accounting Standards Board and interpretations that exist as of October 2016. As the Standard is still new, interpretations/views are continuously evolving and if such interpretations change from those documented in this guide, the contents of the guide may need to be updated. 2 IFRS 9 Impairment Implementation Guide Table of Contents 1. Introduction 5 1.1 Background 5 1.2 Purpose of the Impairment Implementation Guide 5 1.3 In scope portfolios 5 1.4 Materiality 6 1.5 General steps to consider in applying IFRS 9 impairment 6 1.6 Proposed Loan Loss Model 8 2. Key terms and concepts 9 3. Assessment of significant increase in credit risk 11 3.1 Summary of key technical accounting requirements 11 3.2 GPPC Guidance 12 3.2.1 Default 12 3.2.2 Probability of default 14 3.2.3 Staging assessment 17 3.3 Practical Implementation Considerations 22 3.3.1 Low credit risk 22 3.3.2 Impact of mortgage insurance 23 3.3.3 Quantitative Elements 23 3.3.4 Qualitative Elements 28 3.3.5 Backstop Indicators 28 3.4 Credit Risk Management Practices 28 3.4.1 Risk Rating Guidelines 28 3.4.2 Rating Criteria 28 3.5 Staging Considerations 29 3.6 Forward-looking Information 32 3.7 Definition of Default 32 IFRS 9 Impairment Implementation Guide 3 4. Forward-looking information (FLFI) and macro-economic forecasts 35 4.1 Summary of key technical accounting requirements 35 4.2 GPPC Guidance 35 4.3 Practical Implementation Considerations 38 4.4 Relevant Forward Looking Factors 39 4.4.1 Exposure at Default (EAD) 40 4.5 Multiple Scenarios 47 5. Loss given default, collateral and credit enhancements 53 5.1 GPPC Guidance 53 5.2 Practical Implementation Considerations 55 5.3 Calculating LGD using the Workout Method 56 5.4 Calculating LGD using a Loss Rate Approach 59 5.5 Applying the Loss Rate to EAD 62 5.6 Calculating LGD Curve 64 5.6.1 LGD Term Structure using Loan Vintage 64 5.6.2 LGD Term Structure using LTV 67 5.7 Calculating the EAD curve 70 6. Measurement of expected credit

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