Which impairment approach is commonly referred to as the “three-bucket approach” in practice?
A. Simplified approach
B. General approach
C. Incurred loss approach
D. Purchased or originated credit-impaired approach
The "three-bucket approach" commonly refers to the expected credit loss (ECL) model under IFRS 9, where financial assets are segmented into three stages based on the level of expected credit losses: 1) 12-month ECL, 2) lifetime ECL for significant increases in credit risk since initial recognition, and 3) lifetime ECL for assets that have suffered a credit loss. This approach is designed to recognize and provision for potential losses at an earlier stage, enhancing transparency and provisioning for credit risks.
