Default Rate calculation

As part of the implementation of IFRS9 on the 1st of Jan 2018 banks may have also implemented a new Definition of Default. A new definition could result in a large uplift in default stock. However, by virtue of the way that new defaults are captured in COREP, the impact of this is that ‘New Defaults’ for the year could be artifically inflated by this stock adjustment due to the newly implemented definition. This inflated default rate is not representative of real ‘New Defaults’ in the year. Should default rate be reported in the data submission as reported in COREP or should the default rate by adjusted to mitigate the effects of the implementation of the new definition of default (i.e. by removing the stock adjustment facilities from the ‘New Defaults’ population and from the start of year performing population and calculate what we believe is the real 1 year default rate)? If no adjustment is made, this will distort default rate values.

Changes to a bank's definition of default with the implementation of IFRS9 standards.