Accounting, Reporting & Tax
Expected Credit Losses for Shipping Loans
Summary
Expected credit loss (ECL) is a forward-looking impairment model for qualifying financial assets and commitments under IFRS 9.
Why this matters in ship finance
Freight cycles, charterer defaults and collateral volatility make shipping loan loss estimates sensitive to scenarios and recovery assumptions.
The concept
For relevant financial instruments, ECL reflects probability-weighted cash shortfalls, time value of money and reasonable supportable information; the general approach distinguishes 12-month and lifetime ECL.
How it is used in practice
Model probability of default, exposure at default, loss given default, collateral recovery and macro/freight scenarios, with stage-transfer governance.
Practical issues
12-month ECL does not mean only the next year’s losses are counted; it concerns defaults possible in the next 12 months. Accounting ECL differs from regulatory capital models.
How ShipFinance.ai uses this concept
Offer a scenario-driven ECL worked example for a shipping loan and document model sensitivity.
Key takeaways
- ECL requires forward-looking probability-weighted cash shortfalls.
- Twelve-month ECL refers to default events, not a one-year loss horizon.
- Recovery and freight scenarios can drive estimates.