EBA Publishes Final Guidelines on Credit Insitutions’ Credit Risk Management Practices and Accounting for Expected Credit Losses

 

On May 12, 2017, the EBA published its final guidelines on credit institutions’ credit risk management practices and accounting for expected credit losses. The aim of the guidelines is to ensure sound credit risk management practices associated with the implementation and ongoing application of the accounting for expected credit losses. They are part of the EBA’s work on the implementation of IFRS 9 and its interaction with prudential requirements, and they build on the guidance published by the Basel Committee on the same matter.

Several credit institutions in the EU apply the IFRS standards, which require the measurement of impairment loss provisions to be based on an expected credit loss accounting model (IFRS 9) rather than on an incurred loss accounting model (IAS 39). The EBA welcomes this approach on credit loss provisioning, as it should also contribute to addressing the G20’s concerns about the issue of the ‘too little, too late’ recognition of credit losses, and improve the accounting recognition of credit losses by incorporating a broader range of credit information.

The guidelines set out strong credit risk management practices for credit institutions associated with the implementation and on-going application of the accounting for expected credit losses. They note that high-quality and consistent application of the accounting standards is the foundation for the effective and consistent application of the regulatory capital standards.