J 2021

Validation nightmare: the slotting approach under International Financial Reporting Standard 9

PROROKOWSKI, Lukasz, Oleg DEEV and Jena-Daniel GUIGOU

Basic information

Original name

Validation nightmare: the slotting approach under International Financial Reporting Standard 9

Authors

PROROKOWSKI, Lukasz (616 Poland, guarantor, belonging to the institution), Oleg DEEV (643 Russian Federation, belonging to the institution) and Jena-Daniel GUIGOU

Edition

Journal of Risk Model Validation, LONDON, INCISIVE MEDIA, 2021, 1753-9579

Other information

Language

English

Type of outcome

Článek v odborném periodiku

Field of Study

50206 Finance

Country of publisher

United Kingdom of Great Britain and Northern Ireland

Confidentiality degree

není předmětem státního či obchodního tajemství

References:

Impact factor

Impact factor: 0.250

RIV identification code

RIV/00216224:14560/21:00122805

Organization unit

Faculty of Economics and Administration

DOI

UT WoS

000710932000005

Keywords in English

slotting approach; specialized lending; real estate; International Financial Reporting Standard 9 (IFRS 9); staging; polynomial fitting

Tags

International impact, Reviewed
Změněno: 16/5/2022 10:13, Mgr. Pavlína Kurková

Abstract

V originále

This paper makes an important contribution to the practice of validation by focusing on an under-researched area of the slotting approach to real estate specialized lending under the International Financial Reporting Standard 9 (IFRS 9) framework. The paper introduces the concept of mapping the probability of default estimates to the slotting scores. A sequential process for deriving the correspondence between the slotting scores and probabilities of default of a particular obligor is proposed as a solution to adapting the slotting approach to the IFRS 9 rules. This solution is especially useful for capturing the increase in credit risk under the IFRS 9 rules using denotching and staging processes. All in all, this paper addresses the research questions of whether and how a slotting model can be used for IFRS 9 compliance purposes. In addition to the core aim of the paper, which is the provision of a probability of default mapping solution under the IFRS 9 framework, we also explain the methodology of a slotting model, discussing specific modeling choices for the real estate slotting approach aligned to the relevant regulatory framework. In doing so, we provide an example of a slotting model that can be used by practitioners as a challenger model during the validation exercise.