Impairment stage 3 is related to the objective evidence of impairment.
After minimum one individual financial asset has been assigned to impairment stage 3, the solution supports the impairment of customers.
In a first step a significance test is applied for such deals impaired in stage 3.
The significance test compares the total exposure of an individual deal with a configured threshold. If the total exposure exceeds the threshold, it will be classified as a significant deal. Otherwise, it will be classified as a non-significant deal. For details about the significance test please refer to Significance Test.
In both cases, the risk provision is calculated on individual deal level. The basis of calculation is the comparison of the Gross Carrying Amount (GCA) and the recoverable amount, but for
- Significant deals, the recoverable amount is derived on the basis of individual deal specific recovery cash flows.
Expected credit losses are posted as Specific Provision. - Non-significant deals, the recoverable amount is derived on the basis of a loss that is calculated using statistical methods applied to historic performance information on the portfolio to which the individual deal belongs.
Expected credit losses for non-significant financial assets are posted as Lump Sum Specific Provision.