Review of credit risk modelling under IFRS 9. An application in Chile

The management of credit risk represent a day-to-day most critical area for financial entities, affecting their results and long/medium-term collocations. Therefore, a proper model must satisfy different objectives at the same time as well as shall be used for different applications. Two years ago, the IASB issued the latest version of IFRS 9 Financial Instruments. The new approach considers the transition from a loss given default model (IAS39) allowing banks to provision credit losses when was enough evidence of losses to an expected losses model (IFRS 9) which seeks to recognize losses towards the life of the financial asset. A review of the new IFRS 9 model is presented for the analysis and modelling of components of credit risk for a financial institution in Chile. It can conclude that the entity incorporate in their model many of the essential requirements of aligned with the requirements under IFRS9, even tough, there is still plenty work to do to improves the entity’s risk management.