2016年-世界发展银行全球_Applying_IFRS_9_to_Central_Banks_Foreign_Reserves_15页_589kb

Summary of Applying IFRS 9 to Central Banks' Foreign Reserves

Core Content

This document discusses the application of IFRS 9 Financial Instruments to central banks' foreign reserve assets, focusing on the classification, measurement, and impairment of these assets under the new standard. It highlights the challenges and considerations for central banks in aligning their operations with IFRS 9, which replaces IAS 39, and provides insights based on practical experience from the World Bank RAMP accounting team.

Main Points

1. Overview of IFRS 9

• IFRS 9 was issued on July 24, 2014 and became effective for annual periods beginning on or after January 1, 2018.
• It introduces a new classification and measurement model based on:
  • Business model for managing financial assets
  • Contractual cash flow characteristics of the financial assets
• It also introduces a forward-looking Expected Credit Loss (ECL) model for impairment, replacing the incurred loss model under IAS 39.
• Hedge accounting is outside the scope of this paper.

2. Business Models for Financial Assets

• IFRS 9 identifies two primary business models:
  • Held-to-collect: Assets are held to collect contractual cash flows.
  • Collecting-and-selling: Assets are held to collect contractual cash flows and to sell them.
• A third residual category is available for assets that do not fit either of the above models.
• Central banks often use multiple business models for their foreign reserve portfolios due to varying objectives and strategies.

3. Key Factors for Determining Business Model

The RAMP team identified six factors that help central banks determine the appropriate business model for their foreign reserve assets:

• Objectives for each foreign reserve tranche
• Frequency, value, and timing of sales in prior periods and expectations for future sales
• Basis of management decision making (whether fair value or other metrics are used)
• Risk parameters under which the portfolio is managed
• Performance evaluation and compensation of portfolio managers
• Relative significance of income sources (interest income vs. fair value gains/losses)

4. SPPI Test for Contractual Cash Flow Characteristics

• The SPPI test determines whether contractual cash flows are solely payments of principal and interest.
• Assets that pass both the business model and SPPI tests can be classified and measured at:
  • Amortized cost (held-to-collect)
  • Fair value through other comprehensive income (FVOCI) (collecting-and-selling)
• Assets that fail either test are classified and measured at FVTPL.
• Derivatives and equity investments do not meet the SPPI test and are therefore classified at FVTPL.

5. Impairment Model Under IFRS 9

• IFRS 9 uses a three-stage ECL model for impairment:
  • Stage 1: 12-month expected credit losses
  • Stage 2: Lifetime expected credit losses if credit risk has significantly increased
  • Stage 3: Lifetime expected credit losses if credit risk is significantly increased and the loss is expected to be significant
• The practical expedient option allows entities to assume that credit risk has not increased significantly for assets with low credit risk, simplifying the impairment process.
• For high-quality foreign reserve assets, this option may lead to negligible expected credit loss provisions.

6. Empirical Application and Challenges

• The RAMP team conducted IFRS 9 implementation assessments with several central banks, revealing that foreign reserve portfolios often exhibit elements of multiple business models.
• Therefore, management judgment and clear accounting policies are essential for proper classification.
• The SPPI test is relatively straightforward for central banks holding sovereign debt instruments.
• The classification and measurement of similar assets may differ across central banks or within the same central bank, depending on their management objectives, trading strategies, and implementation styles.

Key Information

• Foreign reserves are critical for central banks to support monetary and exchange rate stability, external liquidity, and emergency preparedness.
• IFRS 9 requires a two-step classification process:
  1. Business model (prioritized by IASB)
  2. SPPI test (applied at the instrument level)
• Fair value through profit and loss (FVTPL) is the residual category for assets that do not meet the SPPI test or the business model criteria.
• Unrealized gains or losses for FVOCI assets are reported in other comprehensive income, while realized gains or losses for debt instruments are reclassified to profit or loss.
• Equity investments are generally classified at FVTPL unless an irrevocable election is made at initial recognition.

Conclusion

IFRS 9 introduces a more flexible and comprehensive framework for classifying and measuring financial assets, including foreign reserves, which is particularly relevant for central banks. While the standard enhances transparency and aligns with risk management practices, its implementation requires judgment and clear accounting policies. The SPPI test and business model analysis are central to this process, and the ECL model significantly changes how impairment is assessed. Central banks must carefully evaluate their management objectives and asset characteristics to ensure compliance and consistency in financial reporting.