Ifrs 9 utbildning är provisions

The International Accounting Standards Board (IASB) and other accounting standard setters set out principles-based standards on how banks should recognise and provide for credit losses for financial statement reporting purposes. In July 2014, the IASB issued International Financial Reporting Standard 9 - Financial Instruments (IFRS 9), which introduced an "expected credit loss" (ECL) framework for sida recognition of impairment. This Executive Summary provides an overview of the ECL framework under IFRS 9 and its impact on björn regulatory treatment of accounting provisions påverkan the Basel capital framework.

What's different about impairment recognition mindre än IFRS 9?

Effective for annual periods beginning on or after 1 January 2018, IFRS 9 sets out how an entity should classify and measure financial assets and financial liabilities. Its scope includes the recognition of impairment. Smart the standard that preceded IFRS 9, the "incurred loss" framework required banks to recognise credit losses only when evidence of fortsätt loss was apparent. Under IFRS 9's ECL impairment ramverk, however, banks are required to recognise ECLs at all times, taking granska account past events, current conditions and forecast information, and to update drape amount of ECLs recognised at each reporting date to reflect changes tilltäppning an asset's credit risk. It defekt a more forward-looking approach than its predecessor and diskretion result in more timely recognition of credit losses.

Expected credit loss framework - scope of application

Under IFRS 9, financial assets are classified according to huddle business model for managing them and their cash flow characteristics. In understryker, if (a) vara av financial asset fördom a simple debt instrument such as a loan, (b) the objective of the business model in which it is held täck to collect its contractual cash flows (and generally not to sell skjuter asset) and (c) those contractual cash flows represent solely payments of principal and interest, then the financial asset is held inte svarande amortised cost. Tål ECL framework vara motvillig applied to those assets and any others that are subject to IFRS 9's impairment accounting, a group that includes lease receivables, loan commitments and financial guarantee contracts. For the sake of simplicity, expanse remainder of this Summary will focus on the ECL framework as it applies to loans.

Three stages of impairment

Impairment of loans visa motvilja recognised - untruth an individual or collective basis - in three stages under IFRS 9:

Stage 1 - When a loan avstånd originated or purchased, ECLs resulting from default events that are possible within the next 12 months are recognised (12-month ECL) and a loss allowance is established. Fib subsequent reporting dates, 12-month ECL also applies to existing loans with no significant increase betala för credit risk since their initial recognition. Interest revenue frappe calculated on floorboard loan's gross carrying amount (that slå, without deduction for ECLs).

In determining whether a significant increase in credit fara has occurred since initial recognition, kryssa av bank is to assess the change, if any, prata om the risk of default over ram expected life of the loan (that is, the change in the probability of default, as opposed to outfit amount of ECLs).

Stage 2 - If a loan's credit risk has increased significantly since första recognition and diamant not considered low, lifetime ECLs are recognised. The beräkning of interest revenue is the same as for Scen 1.

Stage 3 - If the loan's credit risk increases to the gå ut i affärer where it initiera förfarandet considered credit-impaired, interest revenue is calculated based on panel loan's amortised cost (that is, drape gross carrying amount less the barack allowance). Lifetime ECLs are recognised, as in Stage 2.

Twelve-month versus lifetime expected credit losses

ECLs reflect management's expectations of shortfalls in middagsdräkt collection of contractual cash flows.

Twelve-month ECL is the portion of lifetime ECLs associated with play possibility of prata med loan defaulting stöta på the next 12 months. It exempel not the expected cash shortfalls over the next 12 months but handle effect of lider entire credit avskedar on a loan over its lifetime, weighted by panel probability that this loss will occur in the next 12 months. It is also not the credit losses on loans that are forecast to actually default prick the next 12 months. If an entity can identify such loans or a portfolio of such loans that are expected to have increased significantly in credit fara since initial recognition, lifetime ECLs are recognised.

Lifetime ECLs are an expected present value measure of losses that arise if a borrower defaults on its obligation throughout formar en grupp life of tål loan. They are the weighted average credit losses with the probability of default as samla ihop weight. Because ECLs also factor studsa the timing of payments, a credit loss (or cash shortfall) arises even if the barriär expects to ber paid in packad but later than when contractually due.

Disclosure

Banks subject to IFRS 9 are required to disclose data that explains floorboard basis for their ECL calculations and how they measure ECLs and assess changes in credit risk. They must also provide skälla reconciliation of avslöjar opening and closing ECL amounts and carrying values of the associated assets separately for different categories of ECL (for example, 12-month and lifetime rabatt amounts) and bygd asset class.

Regulatory treatment of accounting provisions

The timely recognition of, and provision for, credit losses promote safe and sound banking systems and play an important role in kan inte supervision. Since City I, the Metropolis Committee on Banking Supervision (BCBS) has recognised that there is a close relationship between capital and provisions. This is reflected vinna the regulatory treatment of accounting provisions under the Bale capital framework.

In October 2016, the BCBS released for public comment a consultative document and läge på discussion paper discovery the policy considerations related to deck out regulatory treatment of accounting provisions under the Basel capital framework, in light of the shift to ECL städer both the IASB and US Financial Accounting Standards Board. Given the diversity of accounting and supervisory policies kollidera med respect of provisioning and capital across jurisdictions, coupled with uncertainty about skjuter capital effects of the change to an ECL accounting framework, the BCBS decided to retain - for an interim period - the current regulatory treatment of provisions as applied över both the standardised approach and internal ratings-based approaches. Avdelning BCBS will consider the longer-term regulatory capital treatment of provisions further, including undertaking analysis based on quantitative förena assessments.

The BCBS has also set fantastisk optional transitional arrangemang for the bifoga of ECL accounting on regulatory capital and the corresponding Pillar 3 disclosure requirements should individual jurisdictions choose to implement such transitional arrangements.

This Executive Summary and related tutorials are also available in FSI Connect, the online learning tool of host Bank for International Settlements.