Okuzeka
Finance & Banking vocabulary · Risk Management

Expected credit loss

Meaning in finance & banking, with examples

nounAdvanced term

In finance & banking, expected credit loss means: An estimate of the credit losses a lender expects on its loans and other financial assets, weighted by the probability of default and used to set provisions.

In Turkish: beklenen kredi zararı, beklenen zarar karşılığı

How it is used

The core idea of the IFRS 9 accounting standard, shortened to ECL. Loans are placed in three stages: Stage 1 uses 12-month ECL, while Stage 2 (a significant increase in credit risk) and Stage 3 (credit-impaired loans) use lifetime ECL. Models combine probability of default (PD), loss given default (LGD) and exposure at default (EAD).

Example sentences

  1. Expected credit losses rose because we moved several hotel loans to Stage 2.

  2. The auditors challenged the economic scenarios in our expected credit loss model.

Common collocations

  • ECL model
  • 12-month ECL
  • lifetime ECL
  • Stage 2 loans
  • probability of default
  • provisionAn amount a bank sets aside from its profit to cover expected losses on loans that may not be repaid.
  • non-performing loanA loan on which the borrower has stopped making payments, usually for 90 days or more, or which is unlikely to be repaid in full.
  • credit riskThe risk that a borrower or another party will not pay back money it owes on time or in full, causing a loss for the lender.
  • defaultFailure to make loan or bond payments as agreed. A borrower is usually treated as in default after missing payments for a set period, often 90 days.
  • write offTo remove a debt or asset from the accounts because it has no value or will not be recovered, and record the amount as a loss.

More terms: Risk Management

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This page explains English vocabulary for learners. It is not financial advice.