Quantica Risk Modelling
IFRS 9 expected credit loss without the guesswork
Forward-looking information is where most ECL models quietly become untestable.
By Jonas Mohamed Osman Abdelghafour, known as Yonas Osman (Yonas Osman) ·
IFRS 9 asks for probability-weighted, forward-looking expected loss. In practice, scenario weights are often set by committee and never revisited, which makes the most influential parameter in the model the least evidenced one.
A defensible approach ties macroeconomic scenarios to observable relationships with default and loss experience, tests the sensitivity of ECL to weight changes, and discloses that sensitivity to the audit committee. If a ten-point shift in weights moves the provision materially, that fact belongs in the paper.
Staging criteria deserve equal scrutiny. Significant increase in credit risk thresholds should be calibrated and monitored, not inherited from an implementation project that ended years ago.
Jonas Mohamed Osman Abdelghafour, known as Yonas Osman, is an actuary and FRM who has spent more than twenty years building and validating risk models across banking, insurance and marine markets.
Key takeaways
- Scenario weights are a model parameter and need evidence.
- Disclose ECL sensitivity to those weights.
- Recalibrate staging thresholds; they age badly.
Author bio
Jonas Mohamed Osman Abdelghafour, known as Yonas Osman is an actuary, FRM and financial risk professional specialising in banking, insurance, model risk, capital modelling and quantitative risk management.