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      Question

      A lender’s portfolio of unsecured retail loans shows a

      moderate uptick in 30-day delinquencies and a macro overlay indicating deterioration in borrower affordability. No individual exposures are credit-impaired, but overlays suggest a meaningful increase in credit risk since initial recognition. Management proposes staying in Stage 1 with 12-month ECL, citing absence of defaults. What is the most appropriate classification for impairment measurement?
      A Stage 1 for all loans—no default observed Correct Answer Incorrect Answer
      B Stage 2 (lifetime ECL) for the affected portfolio segment due to SICR indicators Correct Answer Incorrect Answer
      C Stage 3 for loans >30 days past due Correct Answer Incorrect Answer
      D Stage 3 for the entire portfolio due to overlays Correct Answer Incorrect Answer
      E Remain in Stage 1 but double the PDs to cover overlays Correct Answer Incorrect Answer

      Solution

      A significant increase in credit risk (SICR) since initial recognition moves exposures to Stage 2 with lifetime ECL even without objective evidence of impairment/default. 30-day delinquency uptick plus macro overlays can justify SICR at a portfolio/segment level.

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