A Modular, Flexible, and Comprehensive Model for Impairment Calculations

As with stress testing and scenario analysis for capital planning, impairment calculations rely on a forward-looking assessment rather than current incurred loss calculations. Processes and infrastructure to accommodate significant calculations must be developed and implemented to support the new approach. Capital requirements likely will be impacted as a result, and volatility of calculated allowances is a major concern of financial institutions.

Moody’s Analytics ImpairmentCalc provides expected credit loss impairment calculations consistent with IFRS 9 and CECL guidance, taking user-defined asset classifications, credit risk measures, including probability of default (PD), loss given default (LGD), and exposure at default (EAD) to produce loss allowance. The tool converts an internal rating or a through-the-cycle PD to a point-in-time PD term structure to facilitate calculation of lifetime expected credit losses.