We see no additional change introduced by IFRS 9 Classification and measurement to be reflected in FINREP templates.
Some clarifications are needed as follows:
F5.1. Loans and advances other than held for trading.
We understand that the line 90 “of which: mortgage loans [Loan collateralized by immovable property]” includes loans guaranteed by guarantee companies.
F41.2. Use of the fair value option.
Column 020 requires information regarding financial assets managed on a fair value basis. But IFRS 9 does not provide for the case of fair value option for a group of financial assets. The column 020 should be shaded for the part related to assets or clarification should be provided on the information to report in these cells.
IFRS 9 does not provide equity instruments to be designated at FV through P&L. Therefore, lines related to financial assets designated at FV through P&L should be deleted in templates F1.1, F14, F15, F17.01 and F20.01, notably as these lines have already been deleted in templates F4.2, F41.2 and F16.5.
We understand that, for the need of regulatory purposes, the accounting category of financial assets measured at fair value through P&L is split between trading financial assets, non-trading financial assets measured mandatorily at fair value and financial assets designated at fair value through P&L. However, we would like to stress that, in this regard, a clear border between trading book and banking book would be needed.
Regarding debt instruments measured at fair value through other comprehensive income we believe that further clarification is needed. Indeed, in the example of the Consultation paper page 19, if we refer to the IFRS 9 definition of gross carrying amount (GCA) (IFRS 9 Appendix A GCA stand for the amortised cost of a financial asset, before adjusting for any loss allowance”), we understand that the GCA will amount up to 1000 (IFRS9 definitions) whereas it will amount up to 980 according to the EBA instructions for FINREP.
F4.3.1 – F4.4.1. Low credit risk.
Column 020 “of which instruments with low credit risk” should be deleted as it is equivalent to column 015 related to stage 1 assets.
F4.3.1 – F4.4.1. Purchased Credit impaired financial assets.
F16.1. Interest income and expense by instrument and counterpart sector.
Under IFRS 9 and IFRS 7, purchased credit impaired financial assets are a distinct category of credit impaired assets and should be shown separately in disclosures. Therefore, it would be more appropriate to delete the lines “of which: purchased credit impaired financial assets” should be deleted.
F4.3.1 / 4.4.1: Annex V Part 2.67 states that accumulated partial or full write-off (columns 080 and 090) must be reported in these templates until the total extinguishment of all the institution’s right or until recovery of the loan. Therefore when the rights of an institution are not extinguished, written-off amounts shall be reported even though the loans has been entirely derecognised and no enforcement has been taking place.
We question the relevance of reporting written-off amounts once the institution’s rights are extinguished, which would lead institutions to maintain any reporting chain for loans where no enforcement is allowed anymore, this is burden reporting for banks, in addition the information does not appear relevant for us for supervisory purposes.
F12.1: We understand that written-off amounts of the reporting period should be reported in this template.
We wonder which amount should be reported in the columns ”amounts written-off”: gross carrying amount (we would prefer to report this amount) or net amount after impairment (as suggested by the example) ?
The off balance sheet commitments listed might be classified into two categories. The first one includes off balance sheet items recognised in the financial statements and measured according to IFRS9, the second one deals with the instruments which are not recognised in the financial statements and are neither measured according to IFRS9, nor to IAS37.
F9.1.1. Off balance-sheet exposures.
We see no commitments or guarantees to be measured at fair value or in accordance with IFRS 4. Therefore, we believe that the two related columns (100 and 110) of the template should be deleted. Would the EBA maintains the two columns, at least, it should be possible to report a nil amount or related checks should be abandoned as such off balance-sheet exposures might not exist.
F12.1 / F12.2: Even though reporting that considers any reconciliation from opening balances to closing is difficult to achieve in an industrialized way, the changes in allowances that FINREP requires should stick to IFRS9 and the revised IFRS 7 disclosure requirements.
Drivers of changes in loss allowances.
F12.1. The allocation of changes in loss allowance might have many different drivers. Thus, IFRS9 requires qualitative description of these drivers. The template F12.1 enters into a level of detail too specific that might be burdensome to report. For example, changes due to updates in methodologies are too difficult to define and track in the IT systems to provide a relevant information. Therefore we suggest to merge the columns 030, 040 and 080, as well as the column 110 and 120.
F12.1. Individual vs collective basis of measuring or assessment.
IFRS 9 9 B5.5.1 – B5.5.6 paragraphs refer to individual vs collective assessment in two different contexts, (i) assessing whether an increase in credit risk is significant, and (ii) measuring expected credit losses. The template requires to make a distinction between « individually assessed allowances » and « collectively assessed allowances », notably for allowances related to stage 1 and stage 2. We question such distinction as IFRS 7 does not require to disclose the information.
But, should the distinction be maintained, clarification should be provided on whether the requirement applies to the assessment of the significant deterioration of the credit risk or to the measurement of the expected credit losses.
Banks will define methodologies in compliance with IFRS 9.
Transfers between impairment stages. Gross carrying amount presentation. Impairment allowances presentation.
In the instructions, paragrah136 relates to F12.2 and gross carrying amount presentation. It indicates that intermediate transfers between impairment stages occurring during the reporting period should not be reported.
Therefore, should only be considered the impairment stages of the financial assets at the beginning of the reporting period and the impairment stage of those assets at the end of the reporting period. The Consultation Paper page 22 also explains that “Only transfers between the initial stage to the final stage shall be reported, not the intra-period transfers”. This should be clarified in Annexe V.
Reconciliation of the changes in the accumulated loss allowance. Amounts of movements of allowance to be reported when reclassification of assets between stages.
The measurement basis to apply for impairment losses is either 12-month expected credit losses or lifetime expected credit losses depending on the stage assets classification. When assets are reclassified - including modified assets – between stages due to a significant increase (or decrease) in the credit risk since initial recognition, the measurement basis of expected credit losses changes.
Therefore, when transfers between stages, amounts of impairment or amounts of reversal of impairment related to stage 1 assets and stage 2 assets are different and could not be equal. Indeed, the reversal of the stage 1 loss allowance is calculated on a 12-month expected credit losses and the provision of the stage 2 loss allowance is calculated on the lifetime expected credit losses.
The Consultation Paper page 19 shows an example of transfers of loss allowance from stage 1 assets that are modified and consequently reclassified in stage 2 assets due to an increase in credit risk. We understand that the amounts of loss allowances transferred out of stage 1 and into stage 2 in Q2 are equal –amount of 1 800 - for the only purposes to illustrate a simplified example. We believe this should be clarified and we wish no formulae would be implemented on the basis of this example. .
We believe that the templates should follow the way that the transactions are recognised in the financial statements, i.e. the impairment is recognised in P&L and the reversal to fair value in OCI, similar to the example in IFRS 9 IE88. .
F6.1 NACE Codes
The template deals with the NACE code of the loans and advance. The NACE code is not used to monitor the credit risk. We do not believe that it is used for supervisory purposes. We do not agree with the requirement according to the NACE code. This template should be deleted
F16.1. Interest income on credit-impaired financial assets.
We question the need to require interest income on credit-impaired financial assets as such information is not required under IFRS 7. We suggest deleting the line 280 of the template.
Application of information to institutions that use the option to apply IAS 39 rules for hedge accounting.
The revised IFRS 7 requires additional disclosures for both IFRS 9 and IAS 39 hedge accounting. However, some new disclosures that do apply to financial institutions that use the new IFRS 9 general hedge accounting model are not required to be provided by financial institutions that continue to apply IAS 39. Thus, we believe that such clear distinction should be made within the changes brought to the IFINREP templates related to hedging.
F10 - F11.1. Type of markets.
While the question on specification of derivative by type of market has already been raised in the Q&A, we believe that instructions should clarify how to define OTC or Organized market.
We question the relevance to have hedged items broken down by expected cash flows as it is not required by IFRS9 nor IFRS7 regarding hedging relationships. In addition, this information is already reported out in the Pillar 3 Disclosures. Thus, we advocate EBA to stick to IFRS9 requirements when revising FINREP and not to include in it information that is already disclosed in Pillar3.
Please refer to question 12.
Please refer to question 12.
We believe that FINREP reporting requirements should be consistent with revised IFRS 7 regarding hedging, i.e. break down of hedging instruments with expected cash flows should be required instead of requiring break down of hedged items by expected cash flows based upon IFRS7 B11B which is referring to liquidity risk, assuming FINREP does not provide with liquidity cash flow but NSFR and LCR do.
We welcome the removal of separate disclosures of fair value changes in credit risk for financial assets held for trading. However, we believe that such removal should apply to all financial assets measured at fair value through P&L, whether they are fair valued by designation or mandatorily. Splitting the reasons for changes in the fair value for financial assets managed on a fair value basis is of little interest and difficult to collect.
Moreover, information on fair value changes due to credit risk on forborne exposures and NPE is not required for debt instruments held for trading. We believe that it should not be required either for all debt instruments measured at fair value through P&L, whether they are fair valued by designation or mandatorily.
Please refer to question 15
we have no specific comments
Level (individual basis or portfolio basis) of measurement and tracking of fair value changes due to credit risk depends on the type and nature of financial instruments.
F18 – F19. Concerning the scope of financial assets to be considered for non-performing and forborne exposures, we understand that both financial assets designated at fair value and financial assets measured mandatory at FVPL should be included in the scope.
We would welcome clarification on the rationale to include those assets in the scope of non-performing and forborne exposures. We would favour to exclude them as these assets are measured at fair value through P&L.
Generally speaking, the proposed instructions are sufficiently clear. Clarifications when needed have been asked in our comments to the questions.
The revised FINREP requires more granular information than information required by IFRS 9 and the revised IFRS 7. Thus, these additional disclosures (for example breakdown by counterparty sector, geographical location) increase costs engaged when building IT systems and implementing IFRS 9.