Consultation on Guidelines on credit risk management practices and accounting for expected credit losses

The European Banking Authority (EBA) launched today a consultation on draft Guidelines on credit institutions’ credit risk management practices and accounting for expected credit losses; it follows the publication of Guidance by the Basel Committee in December 2015 on the same matter. These Guidelines aim at ensuring sound credit risk management practices associated with the implementation and on-going application of the accounting for expected credit losses. The consultation will run until 26 October 2016.

 

The EBA specified sound credit risk management practices for credit institutions associated with the implementation and on-going application of the accounting for expected credit losses. High-quality and consistent application of the accounting standards is the basis for the effective and consistent application of the regulatory capital standards. These draft Guidelines build on the BCBS guidance on credit risk and accounting for expected credit losses published by the Basel Committee on Banking Supervision (BCBS) in December 2015.

 

A significant number of credit institutions in the EU apply the IFRS Standards which will eventually require the measurement of impairment loss provisions to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The EBA welcomes this approach on credit loss provisioning, as it should also contribute in 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 EBA guidelines would not prevent a credit institution from meeting the impairment requirements of IFRS 9. Rather these guidelines should be read as the supervisory approach to support the appropriate application of those standards. These guidelines do not set out requirements regarding the determination of expected losses for regulatory capital purposes.

 

‎Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. All contributions received will be published following the close of the consultation, unless requested otherwise. Please note that the deadline for the submission of comments is 26 October 2016. A public hearing will take place at the EBA premises on Monday 3 October 2016 from 14.30 to 16.30 UK time. 
 

The EBA has developed these Guidelines on its own initiative in accordance with Article 16 of Regulation (EU) No 1093/2010 which envisages that the Authority shall issue guidelines with a view to ensuring the common, uniform and consistent application of Union law and to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision.