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Banks – Accounting for expected credit losses

Banks – Accounting for expected credit losses

The Basel Committee has issued proposals on sound credit risk practices.


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The Basel Committee has set out 11 principles for sound credit risk practices where ECL accounting models are used

Proposals for supervisory requirements

In response to the recent global shift towards using expected credit loss (ECL) accounting models, the Basel Committee on Banking Supervision has issued proposals for supervisory requirements on sound credit risk practices associated with the implementation and ongoing application of ECL accounting models.

The proposals contain 11 fundamental principles for sound credit risk practices that interact with ECL measurement. 

They also include guidance specific to jurisdictions applying IFRS, and relating to the new ECL model in IFRS 9 Financial Instruments, issued in July 2014. The guidance focuses on three areas:

  • the loss allowance equal to 12-month ECL;
  • the assessment of significant increases in credit risk; and 
  • the use of practical expedients. 

Towards consistency

The Basel Committee stresses that the proposals do not intend to drive convergence between different accounting frameworks, but rather consistent interpretations and practices where common ground exists.

Next steps for the project

When finalised, the proposals would replace the current supervisory guidance on Sound credit risk assessment and valuation for loans, issued by the Basel Committee in June 2006.

With the comment period having closed on 30 April 2015, visit our IFRS – Financial instruments hot topics page for the latest developments on this project. 

Visit our IFRS for Banks hot topics page for the latest on IFRS developments that directly impact banks, and the potential accounting implications of regulatory requirements.

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