Determining the Significance of an Increase in Credit Risk

The standard also provides a viewpoint on the various factors that an organization must take into account to determine if a particular instrument, that is not Purchased or Originated Credit impaired has seen a significant increase in credit risk or not. Some of the factors suggested by the standard are the following:

• Internal Price indicators of Credit Risk
• Attributes of Financial Instruments such as Covenants, Collateral, and so on.
• Credit Spread, Credit Default Swaps, Fair Value less than Amortized Cost
• External Credit Rating
• Internal Credit Rating
• Forecast of Financial Conditions
• Forecast of Economic Conditions
• Forecast of Business Conditions
• Increased Credit Risk on other financial instruments of the borrower
• An adverse change in the Regulatory, Technology environment of the borrower
• Change in the value of the collateral
• Change in quality of guarantee
• Support from the Parent organization
• Expected changes in the Loan documentation
• Expected changes in the performance and behavior of the borrower
• Past due information
• Qualitative and non-Statistical Factors