Saturday, September 05, 2015

European banks: loss recognition —

European banks: loss recognition —  Lex looks at the new accounting provision for loans.

 "Bad loans are made in good times. And the International Accounting Standards Board wants banks’ expected credit losses to be recognised far sooner than they were in the crisis. Today’s practice is to make an initial provision when a loan payment is missed. IFRS 9, which takes effect in 2018, will force banks to make one when a loan is first granted, and top it up if risks mount. Standardised reporting should improve comparisons between banks, the thinking goes."

The aim seems to be to make provision in the good times;  the more loans made, the higher the provision. This aims to reduce the amount of cyclicality in bank earnings.

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