Significant increase in credit risk (SICR)

SICR is the most judgemental part of IFRS 9 staging and the one auditors and regulators examine most closely. The standard does not define 'significant', so each lender designs its own criteria. This guide explains how the comparison works, the quantitative and qualitative indicators lenders use, the low credit risk exemption, and works through two loans.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

A significant increase in credit risk (SICR) is the test that moves an asset from stage 1 to stage 2 under IFRS 9. At each reporting date, the lender compares the risk of default over the asset's remaining life with the risk expected at initial recognition for that same period. Most lenders combine a quantitative test, such as lifetime PD at least doubling with a minimum absolute increase, with qualitative indicators such as watchlist status or forbearance, and the 30 days past due backstop. Assets with low credit risk at the reporting date may be assumed not to have a SICR.

At a glance

Compares
Lifetime default risk now vs at origination
Quantitative test
Relative and absolute PD change
Qualitative indicators
Watchlist, forbearance, covenant breach
Backstop
More than 30 days past due
Exemption
Low credit risk, e.g. investment grade
Excel
ECL staging and lifetime calculator
Significant increase in credit risk (SICR)Compares: Lifetime default risk now vs at origination; Quantitative test: Relative and absolute PD change; Qualitative indicators: Watchlist, forbearance, covenant breach; Backstop: More than 30 days past due; Exemption: Low credit risk, e.g. investment grade; Excel: ECL staging and lifetime calculator.KEY FACTS AT A GLANCESignificant increase in credit risk (SICR)ComparesLifetime default risk nowvs at originationQuantitative testRelative and absolute PDchangeQualitative indicatorsWatchlist, forbearance,covenant breachBackstopMore than 30 days pastdueExemptionLow credit risk, e.g.investment gradeExcelECL staging and lifetimecalculatorTax BakersSignificant increase in credit risk (SICR)Compares: Lifetime default risk now vs at origination; Quantitative test: Relative and absolute PD change; Qualitative indicators: Watchlist, forbearance, covenant breach; Backstop: More than 30 days past due; Exemption: Low credit risk, e.g. investment grade; Excel: ECL staging and lifetime calculator.KEY FACTS AT A GLANCESignificant increase in creditrisk (SICR)ComparesLifetime default risk now vs at originationQuantitative testRelative and absolute PD changeQualitative indicatorsWatchlist, forbearance, covenant breachBackstopMore than 30 days past dueExemptionLow credit risk, e.g. investment gradeExcelECL staging and lifetime calculatorTax Bakers
Key facts at a glance, as set out in this guide.

How is a significant increase in credit risk assessed?

Has credit risk increased significantly?Has credit risk increased significantly?Does the low credit riskexemption apply?YesStage 1:12-month ECLNoIs the asset more than30 days past due?YesStage 2:lifetime ECLNoHas lifetime PD risen pastthe relative and absolute tests?YesStage 2:lifetime ECLNoDo qualitative indicatorsshow deterioration?YesStage 2:lifetime ECLNoStays in stage 1: 12-month ECL
Any one trigger moves the asset to stage 2.

The comparison is relative: what matters is how much credit risk has changed since the asset was originated, not its absolute level. A loan made to a risky borrower at a high price is not in stage 2 merely because the borrower is risky; a loan to a strong borrower whose risk has tripled may be.

What quantitative SICR tests do lenders use?

  • Relative lifetime PD change: stage 2 if lifetime PD for the remaining term has increased by a multiple, often between 2 and 3 times, since origination.
  • Absolute floor: combined with a minimum increase in percentage points, so that a tiny PD doubling, from 0.1% to 0.2%, does not trigger stage 2.
  • Rating downgrades: for corporate portfolios, a drop of a set number of notches on the internal rating scale.
  • 12-month PD as a proxy: allowed where changes in 12-month PD are a reasonable approximation of changes in lifetime PD, typically for simple, short-term products.

An example: two loans, the same multiple

A lender's test is lifetime PD at least 2.0 times the origination PD and at least 1 percentage point higher.

LoanLifetime PD at originationLifetime PD nowMultipleIncreaseStage
B3.0%7.5%2.5x4.5 points2: both tests met
C0.5%1.2%2.4x0.7 points1: absolute floor not met

Both loans more than doubled their PD, but only loan B crossed the floor. Without the floor, loan C would carry lifetime ECL despite a lifetime PD of just 1.2%. The ECL staging and lifetime calculator (Excel) applies this test to a whole portfolio.

Which qualitative indicators trigger stage 2?

  • The borrower is placed on a watchlist or transferred to a special credit team.
  • Forbearance or modification of terms because of financial difficulty.
  • Breaches of covenants, or a waiver being requested.
  • Significant adverse changes in the borrower's business, industry or regulatory environment.
  • For individual assets assessed collectively, a deterioration affecting a whole segment, such as a sector hit by a downturn.

What is the low credit risk exemption?

A lender may assume that credit risk has not increased significantly for an asset with low credit risk at the reporting date, broadly equivalent to an investment grade rating, such as a government bond or a deposit with a strong bank; see ECL on cash and bank balances. The asset stays in stage 1 for as long as it remains low credit risk. Banks generally do not use this for loan portfolios.

What role do days past due play?

IFRS 9 presumes that credit risk has increased significantly when payments are more than 30 days past due, but this is a backstop: lenders are expected to identify SICR earlier using forward-looking information. See the 30 days past due backstop.

Can SICR be assessed collectively?

For how banks monitor the result, see stage 2 lending.

Yes. When individual information is not available on time, lenders group assets with shared credit risk characteristics and move a share of a segment to stage 2 when forward-looking information shows the segment has deteriorated, for example borrowers in a region affected by a plant closure. See ECL stages explained.

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Questions people ask

What is a significant increase in credit risk under IFRS 9?

An increase in the risk of default over an asset's remaining life, compared with the risk at initial recognition, large enough to move the asset from stage 1 to stage 2.

How do banks measure SICR?

Usually with a relative lifetime PD threshold, an absolute floor, rating downgrades, qualitative indicators and the 30 days past due backstop.

What is the low credit risk exemption?

An option to assume no significant increase in credit risk for assets with low credit risk at the reporting date, broadly investment grade.

Does IFRS 9 define significant?

No. Each lender sets and documents its own criteria, applied consistently.

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.

ECLECL stages 1, 2 and 3 explainedECLThe 30 days past due backstopECLCredit-impaired assets and stage 3

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