Staging Criteria

The three-stage impairment model and stage transfer logic

Three-Stage Model Overview

IFRS 9 uses a three-stage model for recognizing impairment losses. The stage determines whether 12-month or lifetime ECL is recognized and how interest revenue is calculated.

Stage 1
Performing
  • No significant increase in credit risk
  • 12-month ECL
  • Interest on gross carrying amount
Stage 2
Underperforming
  • Significant increase in credit risk
  • Lifetime ECL
  • Interest on gross carrying amount
Stage 3
Non-Performing
  • Credit impaired
  • Lifetime ECL
  • Interest on net carrying amount

Stage 1 Performing Assets

Stage 1 includes all financial instruments that have not experienced a significant increase in credit risk since initial recognition.

Characteristics
  • No significant credit deterioration
  • Generally current or less than 30 days past due
  • Performing according to contract terms
  • No adverse credit events
ECL Recognition
12-Month ECL
Expected credit losses from defaults within 12 months, weighted by the probability of default occurring in that period.

Stage 2 Underperforming Assets

Stage 2 includes financial instruments with a significant increase in credit risk (SICR) since initial recognition but are not yet credit-impaired.

Characteristics
  • Significant increase in credit risk
  • Often 30+ days past due (rebuttable presumption)
  • Rating downgrades
  • On watchlist or forbearance
  • Not yet defaulted
ECL Recognition
Lifetime ECL
Expected credit losses over the remaining expected life of the financial instrument.
30 Days Past Due Presumption

IFRS 9 includes a rebuttable presumption that credit risk has increased significantly when contractual payments are more than 30 days past due. This presumption can be rebutted with reasonable and supportable information.

Stage 3 Non-Performing Assets

Stage 3 includes credit-impaired financial instruments where there is objective evidence of impairment.

Credit Impairment Events
  • Significant financial difficulty of borrower
  • Breach of contract (e.g., default)
  • Lender grants concession due to financial difficulty
  • Probable bankruptcy or financial reorganization
  • Disappearance of active market
  • Purchase at deep discount reflecting losses
Key Differences
  • ECL: Lifetime (same as Stage 2)
  • Interest: Calculated on net carrying amount (gross amount less ECL allowance)
  • Disclosure: Enhanced disclosure requirements
90 Days Past Due Presumption

There is a rebuttable presumption that default has occurred when an exposure is more than 90 days past due, unless there is reasonable and supportable information to demonstrate that a more lagging default criterion is appropriate.

Significant Increase in Credit Risk (SICR)

SICR assessment is critical for stage allocation. Entities must use a combination of quantitative and qualitative indicators.

Quantitative Indicators
Indicator Description Example Threshold
PD Change Increase in lifetime PD since origination Doubling of PD or absolute increase >1%
Rating Migration Number of notches downgraded ≥3 notch downgrade
Days Past Due Delinquency status >30 days (rebuttable)
Behavioral Score Change in behavioral/application score Significant decline in score
Qualitative Indicators
Watchlist Status
Borrower placed on credit watchlist
Forbearance
Modification due to financial difficulty
Industry Stress
Significant adverse changes in borrower's industry
Adverse Financial Changes
Significant decline in financial performance

Stage Transfer Logic

The following flowchart illustrates the decision process for stage allocation:

Start: Assess Credit Risk
Credit Impaired?
(Default, 90+ DPD)
Yes
Stage 3
Lifetime ECL
No
SICR Since Origination?
(30+ DPD, Rating, etc.)
Yes
Stage 2
Lifetime ECL
No
Stage 1
12-Month ECL

Cure Period (Stage Improvement)

Assets can move back to better stages when credit risk improves, but a "cure period" or "probation period" may be required before transfer.

Stage 3 to Stage 2
  • Borrower cures from default status
  • Typically requires 3-6 months of regular payments
  • No new adverse events
  • May remain Stage 2 due to SICR history
Stage 2 to Stage 1
  • Credit risk improves to origination level
  • All SICR triggers resolved
  • Forbearance cure period completed (typically 24 months)
  • Rating restored to investment grade
Symmetric Approach

IFRS 9 requires a symmetric approach: if credit risk increases significantly, assets move to Stage 2; if risk subsequently decreases, they can move back to Stage 1. However, forbearance typically requires a longer probation period.

Try the Staging Assessment Calculator

Input credit indicators and get the recommended stage with explanation

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