IFRS9 EBA's final guidelines

Time to look beyond impairment calculations

Banking alert | 19 May 2017

IFRS9: The EBA’s latest guidelines focus on management responsibilities, credit risk management and accounting practices. Additionally, banks must assess the impact of IFRS 9 on their prudential requirements

On May 12, 2017, the European Banking Authority (“EBA”) published the final version of Guidelines on credit institutions’ credit risk management practices and accounting for expected credit losses.

The Guidelines are built around Basel standards, and form part of the EBA’s work on the implementation of IFRS 9. They also cover the interaction of IFRS 9 with prudential requirements.

The guidelines set out principles on credit risk management practices and accounting for ECL, covering:

  • Responsibilities of the management body and senior management;
  • Need for sound ECL methodologies which result in appropriate and timely recognition of ECL;
  • Need for an adequate credit risk rating process which groups lending exposures on the basis of shared credit risk characteristics;
  • Need for ECL model validation;
  • Use of credit judgement based on experience;
  • Need for a sound credit risk assessment and measurement process that provides a strong basis for processes, systems, tools and data to assess credit risk and to account for ECL; and
  • Need for adequate and complete disclosures in order to promote transparency and comparability by providing timely, relevant and decision-useful information.

Additionally, the EBA highlights three supervisory evaluation principles for competent authorities. These cover credit risk management assessment, ECL measurement assessment and capital adequacy assessment.

Deloitte paper on the expected impact of IFRS 9 on capital adequacy of Maltese banks
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