IFRS9 - LGD Models
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We are actively collaborating with multiple banks across Brazil to implement IFRS9 locally. A particular point of interest has been the use of the effective interest rate for LGD estimation (given Brazil's notably high interest rates). A client has inquired about the possibility of other institutions employing alternative indices.
It would be beneficial to ascertain (i) the specific rates other banks are utilizing (e.g., cost of capital as they do for IRB) and (ii) their methodologies for justifying the use of a different rate to regulators and external auditors