Goeasy shows that it’s still too easy to hide a credit loss
Prasad Gollakota
The easiest way to hide a credit loss is not to deny it. It is to say it has not yet arrived. That was one of the quiet accounting failures exposed by the global financial crisis: losses were often recognised too late, only after the damage was obvious. IFRS 9 was supposed to fix that by forcing lenders to book expected credit losses earlier, using forward-looking judgment rather than waiting for the wreckage.
Yet timing is still the whole game. We saw that most recently with goeasy, the Canadian non-prime consumer lender, when an update on March 10 pointed to a much larger cleanup than its creditors might have expected.
The company reported total writeoffs of C$331m (US$241m) for the fourth quarter of 2025, including an unexpected incremental C$178m writeoff, alongside a separate C$86m increase in loan-loss allowance. The surprise C$178m component was nearly two-thirds of its 2024 net income. The market treated that as new information, with shares falling as much as 60% and its 2030 bond hitting a record low of 80.75.
This matters because it is exactly what IFRS 9 was meant to prevent. Under IAS 39, the old accounting approach, lenders could often wait until there was clearer evidence that a loan had gone bad before recognising the loss. IFRS 9 was supposed to bring that recognition forward so weakening credit would show up earlier and more gradually through provisions and allowances. But while the standard changed, the judgment problem did not.
Where discretion hides
IFRS 9 is designed to bring loss recognition forward through an expected credit loss model. In practice, expected credit loss is driven by exposure at default, probability of default and loss given default, discounted for the time value of money. It may be assessed loan by loan for material exposures, or collectively across smaller, more homogeneous portfolios.
In simple terms, a newly originated loan starts in Stage 1, where the lender books a small provision, reflecting the lender’s modelled expectation of losses over the next 12 months. If credit risk increases significantly, the loan moves to Stage 2, and the lender must provide for losses over the remaining life of the loan. If the borrower falls into serious financial difficulty and the loan becomes credit-impaired, it moves to Stage 3, which still uses lifetime expected loss but in a more severe state of deterioration. In practice, more than 30 days past due typically pushes a loan into Stage 2, while 90 days past due is often treated as the outer boundary for default.
This matters because it can be a major source of volatility in a lender’s profit and loss. A simple US$100 loan shows how this works. On day one, the lender might book a US$2 Stage 1 provision. That hits profit and loss as an impairment charge and appears on the balance sheet as a loss allowance against the loan, so the lender still has a US$100 loan, but only carries it at a net US$98.
If the borrower starts missing payments and moves beyond 30 days past due, the loan may shift to Stage 2, and the allowance might rise to US$20 or US$25 because the lender is now estimating losses over the rest of the loan’s life. If the borrower then stops paying in a meaningful way, the loan moves to Stage 3, and the allowance might rise to US$70 or US$80.
Only later, when the lender concludes there is no reasonable expectation of recovering part of the balance, does it actually write off that amount. That is the key distinction: the stages are about recognising worsening losses earlier through the P&L and building an allowance on the balance sheet; the writeoff is the later point when the lender stops carrying the unrecoverable amount as if it will come back.
IFRS 7 is the disclosure standard through which the IFRS 9 judgments become visible, including assumptions, stage migration, allowances, modifications and writeoffs.
It is also important to note that IFRS 9 judgments do not track the loan documents. The documents tell a legal story while IFRS 9 tells an accounting one. A missed payment may trigger arrears notices, default interest or collections while a formal default can lead to acceleration or enforcement. But IFRS 9 is not supposed to wait for that legal end-state: it is meant to recognise deterioration earlier.
Walking the tightrope
Back to the goeasy example: if credit losses were already being captured adequately through staging and allowances under IFRS 9, why did they disclose such a significant surprise writeoff for Q4?
The answer is that material discretion hides inside the staging process. IFRS 9 leaves management to form views about delinquency, borrower behaviour, recoveries, loan modifications and forward-looking macroeconomic conditions. None of that discretion is a flaw in itself. But if delinquency data is made to look better than the underlying economics, modified loans are treated too generously, recoveries are assumed for too long, or macroeconomic scenarios are weighted too benignly, then a regime designed to accelerate loss recognition can still permit delay.
Consumer credit rarely deteriorates in a neat straight line. Borrowers may miss some payments, make partial payments, receive deferrals or have terms extended. That leaves lenders having to decide when a loan has genuinely deteriorated, whether a modification reflects real improvement or merely administrative stabilisation, and how much worsening macro conditions should feed into provisions.
Moving upstream
To be clear, a delayed writeoff is not necessarily a problem if the earlier staging and allowance already captured the loss economically, but if those judgments are too optimistic, the longer runway can become one more way for bad news to appear later than the underlying economics would suggest.
Goeasy is not unique, and its disclosures illustrate these judgment points in practice. The issue is that disclosures may sound entirely credible, while the decisive judgment remains hidden in how those policies are applied behind the scenes. Internal risk ratings, amended loan terms, writeoff timing and macroeconomic scenario weightings show how much IFRS 9 still depends on management’s judgment of the underlying credit.
IFRS 9 was supposed to end the old habit of waiting too long. In one sense it did. In another, it simply moved the issues upstream – from whether a loss has happened, to whether management is ready to accept that a loss is expected. Goeasy’s writeoffs look less like a sudden deterioration than a late admission.
Prasad Gollakota is a former FIG banker and co-head of the global capital solutions group at UBS. He was later chief content and operating officer at edtech company xUnlocked and specialises in financial institutions, banking regulation, capital markets and complex capital and funding solutions