Two banks — let’s call them BestPrac Bank and BareMin Bank — have credit card portfolios similar in size and account characteristics. On 1 January 2018, execs at both banks breathe a huge sigh of relief because they’ve achieved the objective of IFRS 9 compliance. Both institutions have Expected Credit Loss (ECL) models and stage classification rules in place. Both have incorporated probability-weighted macro-economic forecasts into their impairment reserve calculations. They can both run the required calculations and reports in a timely manner. And even though they’ve taken different approaches to modeling and are using different software solutions in operations, these competitors are starting out with very similar levels of impairment provisioning. Are they equally competitive going forward? Let’s find out…
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