The expected credit losses that would result from all possible default events to occur over the entire expected life of a receivable or a loan or irrevocable unutilized commitment component. In other words, these losses reflect the expected present value of losses that would arise if borrowers/ debtors default on their obligations anytime over the lifespan of a given financial asset(s).

This measure of loss is only relevant for loans which feature a deterioration of credit quality. However, prepayments, if material, have to be considered in calculation of these losses, particularly for loans that have become arrears.