Aren't you going to overestimate the interest revenue if you keep the EIR constant?

Question

If you keep the EIR the same after credit deterioration, and use this EIR to determine your interest revenues, aren't you going to overestimate the interest revenue on average for deteriorated loans?

The logic is that the risk increased and you expect to earn less.

Please correct me on the logic here, since I am quite new to IFRS.

Answer 1

When the credit quality of assets deteriorates below credit-impaired, an alternative interest revenue presentation approach should be required to better represent the economic yield and to maintain the objective of reflecting the pattern of deterioration. 

If we adopt *** Interest approach method in which interest revenue is calculated on the basis of *** carrying amount, the EIR shall remain same and the impairment loss shall be presented separately. So we are not going to overestimate interest revenue in this case.