Financial reporting standards require banks to use not just historical data but also forward-looking information when estimating credit losses. MEVs provide that forward-looking lens.
Under US President Donald Trump’s so-called trade policy, the on-and-off implementation of tariffs messes up global trade and supply chains. Although Asean growth has exceeded expectations in countries such as Singapore and Malaysia, companies and financial institutions remain prepared for uncertainty. As such, banks in Asia have to adjust their macroeconomic variables (MEV) to account for the impact of the volatile US president on global and regional economies.
MEVs are forward-looking economic indicators (for example, GDP growth, unemployment rates, inflation, interest rates, or housing prices) that banks incorporate into their expected credit loss (ECL) models.
