ECL glossary: the terms explained

Expected credit loss work comes with its own vocabulary, borrowed from banking risk management, and the same idea often goes by two names. This glossary puts every common term in one place, in plain English, with links to the guides that explain each one in depth.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 4 minute read.

Short answer

This ECL glossary explains the 26 terms used most often in expected credit loss work under IFRS 9 and CECL. The core of ECL is three risk parameters: PD, the probability of default; LGD, the loss given default; and EAD, the exposure at default. Around them sit the staging terms, stage 1, stage 2 and stage 3, the SICR test that moves assets between stages, and terms such as POCI, cure and write-off that describe how impaired assets are treated.

At a glance

Risk parameters
PD, LGD, EAD
Staging
Stage 1, 2, 3 and SICR
Impaired assets
Credit-impaired, POCI, cure, write-off
Corporate tools
Provision matrix, roll rates
Adjustments
Scenarios and overlays
Terms
26
ECL glossary: the terms explainedRisk parameters: PD, LGD, EAD; Staging: Stage 1, 2, 3 and SICR; Impaired assets: Credit-impaired, POCI, cure, write-off; Corporate tools: Provision matrix, roll rates; Adjustments: Scenarios and overlays; Terms: 26.KEY FACTS AT A GLANCEECL glossary: the terms explainedRisk parametersPD, LGD, EADStagingStage 1, 2, 3 and SICRImpaired assetsCredit-impaired, POCI,cure, write-offCorporate toolsProvision matrix, rollratesAdjustmentsScenarios and overlaysTerms26Tax BakersECL glossary: the terms explainedRisk parameters: PD, LGD, EAD; Staging: Stage 1, 2, 3 and SICR; Impaired assets: Credit-impaired, POCI, cure, write-off; Corporate tools: Provision matrix, roll rates; Adjustments: Scenarios and overlays; Terms: 26.KEY FACTS AT A GLANCEECL glossary: the terms explainedRisk parametersPD, LGD, EADStagingStage 1, 2, 3 and SICRImpaired assetsCredit-impaired, POCI, cure, write-offCorporate toolsProvision matrix, roll ratesAdjustmentsScenarios and overlaysTerms26Tax Bakers
Key facts at a glance, as set out in this guide.

ECL glossary: the core terms PD, LGD and EAD

The core ECL termsThe core ECL termsStands forWhat it measuresPDProbabilityof defaultChance the borrowerdefaultsLGDLoss givendefaultShare lost ifdefault happensEADExposure atdefaultAmount owed atdefaultSICRSignificant increasein credit riskMove to stage 2POCIPurchased or originatedcredit-impairedImpaired fromday one
Three risk parameters and two staging terms carry most of the meaning.

Expected credit loss for one period is PD x LGD x EAD, discounted. Getting each parameter right is the main work of an ECL model; see how to calculate ECL.

ECL terms from A to Z

TermMeaning
Allowance for credit losses / loss allowanceThe amount deducted from the gross carrying amount of financial assets for expected credit losses.
Amortised costGross carrying amount less the loss allowance.
Credit-impairedAn asset affected by one or more events with a detrimental impact on its future cash flows, such as default. Stage 3.
CureA stage 3 or stage 2 asset returning to a lower stage once its credit risk has improved, often after a probation period.
DefaultFailure to meet contractual obligations, defined consistently with credit risk management; presumed after 90 days past due.
Discount factor1 / (1 + effective interest rate)^t, used to bring expected losses back to the reporting date.
EAD (exposure at default)The amount expected to be owed when default occurs, including expected drawdowns of undrawn facilities. See exposure at default.
CCF (credit conversion factor)The share of an undrawn commitment expected to be drawn by the time of default. See credit conversion factors.
ECL (expected credit loss)The probability-weighted present value of cash shortfalls over 12 months or the lifetime.
General approachThe three-stage model with 12-month ECL until a significant increase in credit risk.
Gross carrying amountAmortised cost before deducting the loss allowance.
LGD (loss given default)The share of EAD not recovered after default, after collateral and costs.
Lifetime ECLExpected losses from default events over the expected life of the asset.
Low credit risk exemptionAn option to assume no significant increase in credit risk for assets with low credit risk, such as investment grade.
Management overlay (post-model adjustment)An adjustment to modelled ECL for risks the model does not capture. See management overlays and their governance.
Marginal PDThe probability of defaulting in a given period and not before. See lifetime PD.
PD (probability of default)The likelihood of default over a period, 12 months or lifetime.
Point-in-time PDA PD reflecting current and forecast conditions, as IFRS 9 requires, unlike a through-the-cycle PD.
POCIPurchased or originated credit-impaired assets, measured using a credit-adjusted effective interest rate.
Provision matrixLoss rates by ageing bucket applied to receivables, a common simplified approach tool. See historical loss rates and common mistakes.
Roll rateThe share of balances moving from one ageing or delinquency bucket to the next in a period.
Scenario weightingWeighting ECL calculated under several economic scenarios by their probabilities. See scenario weighting and sensitivity analysis.
SICR (significant increase in credit risk)The test that moves an asset from stage 1 to stage 2.
Simplified approachLifetime ECL always, with no staging; required for most trade receivables.
Stage 1, 2, 3Performing (12-month ECL), significantly deteriorated (lifetime ECL), credit-impaired (lifetime ECL, interest on net amount).
Write-offReducing the gross carrying amount when there is no reasonable expectation of recovery. See ECL journal entries.

Which terms mean the same thing?

  • Loss allowance (IFRS 9) and allowance for credit losses (CECL) are the same balance.
  • Management overlay and post-model adjustment are used interchangeably.
  • Delinquency and days past due both describe late payment.
  • Stage 3 and credit-impaired describe the same population under IFRS 9.

Which terms are often confused?

Marginal, cumulative and conditional PD. A conditional PD of 2% a year means 2% of surviving borrowers default each year. The marginal PD for year 2 is 98% x 2% = 1.96%. The cumulative PD over two years is 2% + 1.96% = 3.96%. Lifetime ECL uses marginal PDs year by year.

Default and credit-impaired. Default is a definition used for PD models, usually 90 days past due; credit-impaired is the IFRS 9 accounting term for stage 3. Lenders align the two.

12-month ECL and 12-month PD. 12-month ECL is not the loss expected over 12 months; it is the lifetime loss on defaults expected to occur in the next 12 months.

Where to go next

See ECL stages explained, significant increase in credit risk and credit-impaired assets.

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Questions people ask

What do PD, LGD and EAD stand for?

Probability of default, loss given default and exposure at default: the three parameters multiplied to estimate expected credit loss.

What is SICR?

A significant increase in credit risk since initial recognition, which moves an asset from stage 1 to stage 2 under IFRS 9.

What is POCI?

A purchased or originated credit-impaired financial asset, measured using a credit-adjusted effective interest rate.

What is the difference between 12-month ECL and lifetime ECL?

12-month ECL covers defaults expected in the next 12 months; lifetime ECL covers defaults over the asset's whole remaining life.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 9 Financial Instruments

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.

ECLHow to calculate ECL, step by stepECLECL stages 1, 2 and 3 explainedECLSignificant increase in credit risk (SICR)

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This guide is general information. It is not tax or legal advice for your situation.