EBA consults on guidelines on credit risk management and accounting for expected credit losses

The guidelines on credit risk management and accounting for expected credit losses build on guidance published by the Basel Committee on Banking Supervision in December 2015, although changed to reflect EU legal terminology and reference to EU legal texts. The IFRS 9 (International Financial Reporting Standards) which will replace IAS 39 (International Accounting Standards) for accounting periods beginning on or after 1 January 2018. will require organisations' measurement of impairment loss allowances to be based on an ECL accounting model rather than on an incurred loss accounting model, the EBA said.

"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," it said.

The EBA guidelines will not prevent a credit institution from meeting the impairment requirements of IFRS 9, it said.

"Rather these guidelines should be read as the supervisory approach to support the appropriate application of those standards," it said.

"High-quality and consistent application of the accounting standards is the basis for the effective and consistent application of the regulatory capital standards," the EBA said.

The consultation is open for responses until 26 October 2016.