IFRS 9 Stage 1, 2 and 3 Classification: A Practical Guide
IFRS 9 requires banks and fintechs to classify every loan into one of three stages and calculate Expected Credit Loss accordingly. Getting this classification right is critical — it directly determines your ECL provision and regulatory capital.
What is the three-stage impairment model?
IFRS 9 §5.5 introduces a forward-looking impairment model based on expected credit losses rather than incurred losses. Every financial asset must be assigned to Stage 1, Stage 2 or Stage 3 at each reporting date.
Stage 1: Performing loans
A loan is in Stage 1 if there has been no significant increase in credit risk since initial recognition. For Stage 1 loans, you recognise a 12-month ECL — the expected credit loss from default events possible within the next 12 months. Most loans start in Stage 1. Typical Stage 1 indicators: DPD = 0, borrower rating A-B, LTV below threshold, no SICR indicators.
Stage 2: Significant Increase in Credit Risk (SICR)
A loan moves to Stage 2 when there has been a significant increase in credit risk since initial recognition (IFRS 9 §5.5.3). For Stage 2 loans, you recognise a lifetime ECL — the full expected credit loss over the remaining life of the loan. SICR triggers include: DPD 30-89 days, borrower rating downgrade of 2+ notches, LTV above 90%, negative sector outlook with weak borrower rating, forbearance or restructuring.
Stage 3: Credit-impaired loans
A loan is in Stage 3 when there is objective evidence of impairment — the loan is credit-impaired (IFRS 9 §5.5.1). Stage 3 also uses lifetime ECL, but interest revenue is calculated on the net carrying amount (after ECL) rather than gross. Stage 3 triggers: DPD ≥ 90 days (rebuttable presumption per §B5.5.37), borrower in financial difficulty, bankruptcy, or default. Borrower rating E or F.
The 30-day rebuttable presumption
IFRS 9 §B5.5.28 states there is a rebuttable presumption that credit risk has increased significantly when contractual payments are more than 30 days past due. This means DPD > 30 should trigger Stage 2 unless you can rebut this presumption with other evidence.
The 90-day presumption of default
IFRS 9 §B5.5.37 creates a rebuttable presumption that default has occurred when a financial asset is more than 90 days past due. This triggers Stage 3 classification in most cases.
How LoanStage automates stage classification
LoanStage applies the IFRS 9 three-stage model automatically. Upload a CSV with loan_id, amount, days_past_due, borrower_rating, previous_rating, collateral_value and sector_outlook. The engine checks all SICR indicators and classifies each loan with the specific IFRS 9 paragraph reference logged in the audit trail.
Upload your loan portfolio CSV and get Stage 1/2/3 classification with ECL in under 2 seconds. Free plan includes 3 portfolios.
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