IIF Authors

Status: Will be live at 07/07/2015 00:00

IIF SAG comments on Basel Guidance on Accounting for ECL

Tuesday, July 7, 2015

The IIF SAG further comments on the Guidance on Accounting for ECL following its highly productive meeting with the Basel Accounting Expert Group.' Selected issues include : (i) the definition of a "significant increase of credit risk" for low credit risk exposures, because of the concern that a numerically small increase in credit risk could be regarded as "significant", (ii) the transfer criteria for homogenous groups of assets from "Stage 1" to "Stage 2" out of a concern that the Guidance should not make mandatory a systematic move of the entire group into Stage 2 in case of significant credit deterioration of a particular exposure, (iii) the incorporation of forward-looking information and macroeconomic analysis, where the Guidance should make a distinction between objective and non-empirical factors that can or cannot be incorporated in the ECL accounting, whether through the models or by overlays, and (iv) the use of overlays and its intersection with modeling to avoid encouraging over-reliance on overlays, which may exacerbate the disconnect between credit risk management and accounting.