how to calculate ecl under general approach ifrs 9

​Calculating the Expected Credit Loss (ECL) under the general approach of IFRS 9 involves several steps. The ECL is a forward-looking estimate of the losses that might arise from default events over the expected life of a financial instrument. Here's a general method to calculate ECL:

1. **Segment Financial Instruments**: Group financial instruments into segments based on shared credit risk characteristics.

2. **Determine the Stage of the Instrument**:

   - **Stage 1**: Financial instruments that have not had a significant increase in credit risk since initial recognition. Losses are measured over a 12-month period.

   - **Stage 2**: Instruments with a significant increase in credit risk but no actual default. Losses are measured over the lifetime of the instrument.

   - **Stage 3**: Financial instruments that are credit-impaired. Losses are measured over the lifetime of the instrument.

3. **Estimate the Probability of Default (PD)**: Calculate the likelihood that a borrower will default within a given time horizon. For Stage 1, this is over the next 12 months; for Stages 2 and 3, it's over the lifetime of the instrument.

4. **Estimate Loss Given Default (LGD)**: Determine the amount of loss if there is a default. This includes considering collateral value and recovery costs.

5. **Estimate Exposure at Default (EAD)**: Calculate the total value exposed to risk at the time of default. This includes principal, interest, and fees due.

6. **Calculate the ECL**:

   - For Stage 1: Multiply the PD (for the next 12 months), LGD, and EAD.

   - For Stages 2 and 3: Multiply the lifetime PD, LGD, and EAD. Adjust for the time value of money using an effective interest rate.

7. **Consider Forward-Looking Information**: Include information such as economic forecasts or changes in market conditions that can affect credit risk.

8. **Discount Back to Present Value**: Adjust the calculated ECL for the time value of money, using the effective interest rate of the instrument.

9. **Adjust for Collateral and Other Credit Enhancements**: Deduct the value of any collateral or guarantees that reduce credit risk.

10. **Regular Reviews and Updates**: Update the ECL calculation regularly to reflect changes in credit risk and economic conditions.

11. **Document Assumptions and Methodologies**: Keep a record of the methodologies, assumptions, and information used in the ECL calculation.

It's important to note that the ECL calculation requires judgment and the use of estimates. Different entities may have different approaches based on the nature of their financial instruments and the availability of data. The process is inherently complex and often requires sophisticated credit risk models.