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Let's assume we calculate a Lifetime ECL of 5 years. How do we then distribute the expected losses in each of the following 20 quarters? Do we just divide the lifetime ECL by 20 and calculate the impairments for every quarter?

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In accordance with IFRS 9, risk provisions must be recognised immediately and are booked immediately.It can then be reversed later if necessary.

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  • $\begingroup$ so a bank needs to take the full lifetime provisions for every quarter? $\endgroup$ – adrCoder Nov 25 '20 at 6:59
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    $\begingroup$ ^The value adjustment that you enter through ECL is booked immediately. This is the basic idea of IFRS that losses in value are anticipated and not only booked when they are realised. Since IFRS 9.5.5.3 requires you to check every day whether the credit risk has increased or decreased significantly, you may be able to write off the impairment. In short, you post the impairment immediately and do not allocate it to subsequent periods. $\endgroup$ – Dennis Khavkin Nov 25 '20 at 11:34
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    $\begingroup$ And how many years do you need to use in your calculations in order to calculate the lifetime PDs / cumulative PDs in the future? $\endgroup$ – adrCoder Nov 28 '20 at 6:33
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    $\begingroup$ This depends on the term of the financial instrument. The doctoral thesis by Dipl.-Ök. Michael Bosse has a very clear example on page 32. It is in German, but that shouldn't be a problem, because the calculation and the accounting records are very well presented. repo.uni-hannover.de/handle/123456789/8701?show=full I hope that I could help you. Let me know if anything's unclear. Have a nice Sunday. $\endgroup$ – Dennis Khavkin Nov 29 '20 at 7:49

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