Which impairment approach is commonly referred to as the “three-bucket approach” in practice?
Simplified approach
General approach
Incurred loss approach
Purchased or originated credit-impaired approach
The "three-bucket approach" commonly refers to the "three-stage model" as described in the application of the expected credit loss (ECL) model under IFRS 9. This model divides the potential impairment of financial instruments into three stages, reflecting the increasing likelihood of default as the asset moves from Stage 1 to Stage 2 and then to Stage 3. This approach is a key aspect of the expected credit loss methodology for recognizing impairment provisions under IFRS 9.
