Bank X gives 20 loans of $100,000 each, a total of $2,000,000 to company A. At initial recognition, the expected loss rate based on historical trend for company A is one default in the first year, with present value of loss at $90,000. The macroeconomic environment deteriorates significantly subsequently at reporting date. Bank X assesses company A’s credit risk to have increased significantly. At reporting date, company A is expected to have six defaults per 20 loans over the lifetime of the loans, with present values of the loss at $500,000.

Required
1. Calculate the loss rates at initial recognition and at the reporting date, and the increase in expected credit loss at reporting date from initial recognition.
2. State the factors to consider if a borrower’s credit risk has increased significantly at reporting date.