Exposure by credit risk rating grade

Learning objectives

• Explain the breakdown of the gross carrying amount by credit risk rating grade and by expected credit loss category (12-month, lifetime, credit-impaired).L2
• Calculate the total by expected credit loss category and check that it equals the total gross carrying amount.L3

Normative references

• IFRS 7 §35MThe entity discloses, by credit risk rating grade, the gross carrying amount of financial assets and the exposure to credit risk on loan commitments and financial guarantee contracts, broken down according to whether the loss allowance is measured at 12-month expected credit losses, at lifetime expected credit losses (significant increase in credit risk without impairment, credit-impaired assets, simplified approach) or relates to purchased or originated credit-impaired financial assets; a provision matrix may be used for receivables under the simplified approach (35N).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Which statements about the credit risk table by rating grade are correct? Several answers are possible.L2
• Phare SA prepares its credit risk table on its loans (gross carrying amounts, case data). 12-month expected losses: grade A {m12_a}, grade B {m12_b}, grade C {m12_c}. Lifetime expected losses, not credit-impaired: grade C {life_c}, grade D {life_d}. Credit-impaired assets: grade D {impaired_d}. Calculate the total gross carrying amount in 12-month expected losses, then the total of the table, which must equal the gross carrying amount of the loans.L3
• An analyst checks a bank's credit risk table by rating grade. Which of the analyst's conclusions is wrong?L3