What is a credit conversion factor?
When a borrower heads towards default, it usually draws down whatever credit it can. A CCF captures that behaviour: a CCF of 60% means that, on average, 60% of the limit that was undrawn some time before default had been drawn by the time of default. CCFs apply to revolving credit facilities, overdrafts, credit cards and other loan commitments that are not unconditionally cancellable in practice.
An example: EAD and ECL on a revolving credit facility
| Item | Amount |
|---|---|
| Facility limit | 1,000,000 |
| Drawn today | 400,000 |
| Undrawn x CCF 60% | 360,000 |
| Exposure at default | 760,000 |
| 12-month ECL: EAD x PD 3% x LGD 45% | 10,260 |
| Of which on the drawn balance | 5,400 |
| Of which on the undrawn commitment | 4,860 |
Ignoring the undrawn limit would have understated ECL by almost half, because the drawn balance alone gives an exposure of only 400,000.
How is a CCF estimated?
For each facility that defaulted, the realised CCF is the increase in drawings between a reference date, typically 12 months before default, and the default date, divided by the undrawn amount at the reference date.
| Facility | Limit | Drawn 12 months before | Drawn at default | Realised CCF |
|---|---|---|---|---|
| F-01 | 500,000 | 200,000 | 420,000 | 73% |
| F-02 | 300,000 | 150,000 | 270,000 | 80% |
| F-03 | 800,000 | 300,000 | 550,000 | 50% |
| F-04 | 250,000 | 50,000 | 200,000 | 75% |
| F-05 | 600,000 | 400,000 | 580,000 | 90% |
The simple average is 73.7% and the average weighted by undrawn amount 68.1%. Lenders segment CCFs by product and by how much of the limit was already used, because nearly fully drawn facilities behave differently from barely used ones, and by borrower type, since companies and individuals draw differently. The EAD and CCF calculator (Excel) calculates both averages.
How is ECL on undrawn commitments presented?
ECL relating to the undrawn part of a commitment is a provision, a liability. If a lender cannot separate the ECL on the drawn and undrawn components of the same facility, IFRS 7 allows it to present the combined allowance against the drawn loan, with any excess over the loan's gross carrying amount shown as a provision.
What is special about credit cards?
Credit cards and overdrafts can usually be cancelled by the lender at short notice, but lenders rarely do so until problems are obvious. IFRS 9 therefore requires ECL on these facilities to be measured over the period the lender is exposed to credit risk in practice, not the short contractual notice period, using behavioural evidence such as the average time accounts stay open.
Are regulatory CCFs used for IFRS 9?
Not directly, although the data behind them is often shared. Regulatory capital rules set CCFs for some products, often conservatively, and some banks estimate their own with downturn adjustments. IFRS 9 needs unbiased, point-in-time estimates, so lenders start from the same data but remove regulatory conservatism and floors, and reflect current conditions.
What are common CCF mistakes?
Applying a CCF to commitments the lender can and actually does cancel; using one CCF for products that behave very differently; estimating CCFs from a period without stress, when drawdowns before default are lower; and forgetting the provision for ECL on the undrawn part.
Where to go next
See exposure at default, loss given default and ECL stages explained.
Need help applying the standards?
Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.
Questions people ask
What is a credit conversion factor?
The share of an undrawn commitment a borrower is expected to draw by the time it defaults.
How is EAD calculated with a CCF?
EAD = drawn balance + CCF x undrawn limit.
How do you estimate a CCF from historical data?
For defaulted facilities, divide the increase in drawings between a reference date and default by the undrawn amount at the reference date, then average.
Where is ECL on undrawn loan commitments presented?
As a provision, unless it cannot be separated from the drawn component, in which case it is presented with the loan's allowance and any excess as a provision.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.
Related guides
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This guide is general information. It is not tax or legal advice for your situation.