Effective Interest Rate Computation for Purchased Credit Deteriorated (CECL) or Purchased or Originated Credit Impaired (IFRS 9) Instruments

Under CECL and IFRS 9 guidelines, Purchased Credit Deteriorated or a Purchased or Originated Credit Impaired instrument requires the computation of the EIR using a different approach. In the case of IFRS 9, this rate is called Credit Adjusted EIR.

• CECL: Effective Interest Rate is computed using Expected (Recovery) Cash Flows and Purchase Price adjusted for deferred balances. Additionally, the application computes a non-credit discount.
• IFRS 9: Credit Adjusted Effective Interest Rate is computed using Expected (Recovery) Cash Flows and Purchase Price adjusted for deferred balances. Additionally, the application computes a non-credit discount.

This EIR is used to discount the Cash Flows for the computation of ECL and interest recognition.