ECL sensitivity analysis

A single ECL number hides how sensitive it is to judgement. Investors, auditors and supervisors look to sensitivity disclosures to understand the range. This guide explains the common ECL sensitivities, how to calculate them, and what the disclosures require.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 3 minute read.

Short answer

ECL sensitivity analysis shows how much the loss allowance would change if key assumptions were different. Lenders typically show ECL with 100% weight on each scenario, the effect of shifting weight between scenarios, the effect of moving loans between stages, and sensitivity to PDs or property prices. IFRS 7 requires information about the inputs and assumptions behind ECL, and the estimation uncertainty disclosures require sensitivities for estimates with a significant risk of material adjustment. In this guide's example, ECL ranges from 18,900 under the upside to 62,400 under the downside, against 38,610 reported.

At a glance

Scenario sensitivity
ECL at 100% of each scenario
Weight sensitivity
Shift weight between scenarios
Staging sensitivity
More or fewer loans in stage 2
Parameter sensitivity
PD, LGD, property prices
Disclosure
IFRS 7 and estimation uncertainty
Excel
Scenario weighting model
ECL sensitivity analysisScenario sensitivity: ECL at 100% of each scenario; Weight sensitivity: Shift weight between scenarios; Staging sensitivity: More or fewer loans in stage 2; Parameter sensitivity: PD, LGD, property prices; Disclosure: IFRS 7 and estimation uncertainty; Excel: Scenario weighting model.KEY FACTS AT A GLANCEECL sensitivity analysisScenario sensitivityECL at 100% of eachscenarioWeight sensitivityShift weight betweenscenariosStaging sensitivityMore or fewer loans instage 2Parameter sensitivityPD, LGD, property pricesDisclosureIFRS 7 and estimationuncertaintyExcelScenario weighting modelTax BakersECL sensitivity analysisScenario sensitivity: ECL at 100% of each scenario; Weight sensitivity: Shift weight between scenarios; Staging sensitivity: More or fewer loans in stage 2; Parameter sensitivity: PD, LGD, property prices; Disclosure: IFRS 7 and estimation uncertainty; Excel: Scenario weighting model.KEY FACTS AT A GLANCEECL sensitivity analysisScenario sensitivityECL at 100% of each scenarioWeight sensitivityShift weight between scenariosStaging sensitivityMore or fewer loans in stage 2Parameter sensitivityPD, LGD, property pricesDisclosureIFRS 7 and estimation uncertaintyExcelScenario weighting modelTax Bakers
Key facts at a glance, as set out in this guide.

What does an ECL sensitivity analysis show?

ECL under each sensitivity caseECL under each sensitivity case18,900100% upside30,000100% base35,370Downside -10 pts38,610Reported41,850Downside +10 pts62,400100% downsideSensitivity caseReported
The range of outcomes behind one reported number.
CaseECLChange from reported
Reported, probability-weighted38,610
100% base case30,000-8,610
100% downside62,400+23,790
100% upside18,900-19,710
Downside weight +10 points, from base41,850+3,240
Downside weight -10 points, to base35,370-3,240

The 100% downside figure is not a forecast; it shows how much of the allowance depends on the downside scenario. Shifting 10 points of weight moves ECL by 3,240, about 8%. The Sensitivity sheet of the Scenario weighting model (Excel) calculates each case.

How is staging sensitivity calculated?

By recalculating ECL as if more or fewer loans were in stage 2, for example if all loans in a watchlist segment moved to stage 2, or if the SICR threshold were tighter. Because stage 2 carries lifetime ECL, the effect can be large for long-dated loans. Under a 100% downside, more loans typically cross the SICR threshold, so the 100% downside sensitivity includes a staging effect as well as higher PDs and LGDs.

Why do combined sensitivities matter?

In a real downturn, PDs, LGDs and staging all move at once. The 100% downside case captures that combination, which is why it moves ECL far more than any single-parameter sensitivity. Showing both kinds helps readers see which assumptions matter most.

Which parameter sensitivities are useful?

  • A relative change in PDs, such as +10%, across a portfolio.
  • A fall in property prices of 10% or 20%, through LGD on secured lending.
  • A change in a key economic variable, such as one percentage point higher unemployment in all scenarios.

What do IFRS 7 and the estimation uncertainty rules require?

IFRS 7 requires disclosure of the inputs, assumptions and estimation techniques used to measure ECL, including how forward-looking information is incorporated. The requirements on sources of estimation uncertainty, in IAS 1 and from 2027 in IAS 8 as amended by IFRS 18, require the nature of the assumptions and the sensitivity of carrying amounts to them when there is a significant risk of a material adjustment within the next year. For banks, ECL almost always meets that test, which is why their reports include sensitivity tables.

What makes a sensitivity disclosure useful?

Clear descriptions of what each case assumes, results that a reader can relate to the scenarios disclosed, and changes explained from the previous year. Sensitivities that move only one input while holding everything else fixed should say so, because in reality inputs move together.

How should sensitivities be presented?

A table listing each case, what it assumes, the resulting ECL and the change from the reported amount, ideally split by portfolio or stage. A sentence explaining the main driver of each result helps: for example, that the 100% downside is driven by more loans moving to stage 2 and lower property values.

What are common sensitivity mistakes?

Presenting the 100% downside as if it were an expected outcome; sensitivities that hold staging fixed when it would clearly change; and results that cannot be reconciled to the scenarios disclosed elsewhere in the report.

Do companies outside banking need sensitivity analysis?

Only where ECL is a key source of estimation uncertainty, such as for a company with large customer exposures in a stressed sector. Most commercial companies give qualitative information about their provision matrix instead. See scenario weighting and macroeconomic scenarios.

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Questions people ask

What is ECL sensitivity analysis?

An analysis of how the loss allowance would change under different assumptions, such as 100% weight on each scenario, different scenario weights, staging or PD changes.

Why do banks disclose 100% downside ECL?

To show how much of the allowance depends on the downside scenario; it is a sensitivity, not a forecast.

Is ECL sensitivity disclosure required?

IFRS 7 requires information about inputs and assumptions, and the estimation uncertainty rules require sensitivities where there is a significant risk of material adjustment.

What is a staging sensitivity?

The change in ECL if more or fewer loans were in stage 2, for example under a tighter SICR threshold.

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.

ECLWeighting ECL scenariosECLMacroeconomic scenarios for ECLECLSignificant increase in credit risk (SICR)

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