23 ECL Computation Using Hybrid Vintage Model

The vintage analysis accounts for expected losses by allowing an institution to calculate the cumulative loss rates of a given loan pool and in so doing, to determine that loan pool's lifetime expected loss experience. This includes a reasonable approximation of probable and estimable future losses gleaned by applying historical gross charge-off information to forward-looking qualitative and environmental factors.

The vintage analysis is a method of evaluating the credit quality of a loan portfolio by analyzing net charge-offs in a homogeneous loan pool where the loans share the same origination period. The method is widely used in the analysis of retail credit card and mortgage portfolios. The application uses historical charge-off rates and macro-economic variables to compute the Expected Credit Loss amount.