In this workout, we're looking at Bank A that has granted 100 million of auto loans, but we're also told that there's some recent evidence that the portfolio's credit quality has deteriorated due to a pattern of delayed payments.

As a result of this, the bank's internal thresholds mean that this is now classified as an underperforming loan, and as a result, will need to be accounted for as a stage two asset.

Under IRS, within the expected credit loss model, we're asked to calculate the expected credit loss provision based on the information below.

And given that it's stage two, we need to reflect the expected lifetime credit loss.

So we do that by multiplying the 100 million size of the loan portfolio by the expected lifetime, probability of default of 5%, and the expected lifetime loss given default of 40%.

This gives us an expected credit loss provision of 2 million.

Now, this is not what would be shown in the income statement because there would already be a provision from the date when the loans were initially recorded in the balance sheet.

What would go in the income statement would be the increase from the previous provision when this was previously classified as a stage one asset.

Moving on to out two, while asked to calculate the interest income from this loan portfolio.

That will be shown in the income statement, and the important point to note here under stage two is that even though this loan portfolio is now underperforming, it doesn't definitely mean that these loans are all gonna default.

So as a result, we still base the interest income on the gross loan amount before any deductions for that expected credit loss provision and multiply that by the interest rate of 10%.

Give us the interest. Income of 10 million will be shown in.