Assessing the Impact of Modelling on the Expected Credit Loss (ECL) of a Portfolio of Small and Medium-sized Enterprises

This paper studies the impact of the internal modelling on the calculation of expected credit loss in the framework of the international standard IFRS 9. Indeed, the probability of default of counterparty depends on the model used for the conception of the internal rating system. The multitude of probabilistic models renders uncertain and imprecise, the calculation of the expected loss for the same SMEs portfolio of a Moroccan bank, as well as the comparison of losses over time due to the non-permanence of the rating system used. As a result, the regulator will be unable to guarantee an equitable and transparent system of provisioning of the losses because of the absence of standardization of the elaboration process of the rating tool. To show this risk associated with the multitude of models, this paper studied the impact of choice of the model on the expected credit loss, by calculating of the probability of default for several types of modelling based respectively on the pure logistic regression and the logistic regression on the principal components.