EBA欧洲银行-2011-04-01-EBA-comments-Supplementary-ED-Impairment_11页_203kb

EBA Summary on the Supplement to ED/2009/12 Financial Instruments: Impairment

Core Content

The European Banking Authority (EBA) has provided detailed comments on the Supplement to ED/2009/12 Financial Instruments: Impairment, which is a joint initiative by the IASB and FASB to develop a common impairment model for financial assets. The EBA supports the move towards a more forward-looking and consistent impairment model that addresses the "too little, too late" problem of delayed credit loss recognition in current IFRS and US GAAP standards.

Main Views and Key Information

1. General Support for the Converged Model

• The EBA supports the joint effort of IASB and FASB in developing a common impairment model.
• The expected credit loss (EL) approach is seen as a significant improvement over the current models, especially for promoting transparency and comparability in financial reporting.
• The model addresses the delayed recognition of credit losses, which is a key weakness in existing standards.

2. Time-Proportional Approach

• The EBA supports the time-proportional approach to recording expected credit losses.
• This approach allows for more forward-looking provisioning and better use of credit information.
• However, the EBA notes that the "foreseeable future" concept is not clearly defined in the SD, which could lead to inconsistencies and earnings management.

3. Differentiation Between Good and Bad Books

• The EBA generally agrees with the differentiation between 'good book' and 'bad book' for impairment purposes.
• This distinction reflects the risk management practices of banks.
• However, the EBA is concerned that the flexibility in defining the 'good book' may lead to varied interpretations and practices, potentially reducing the consistency of impairment provisions.

4. Minimum Impairment Allowance (Floor)

• The EBA sees merits in the floor concept, which ensures that impairment allowances are sufficient to cover losses in the foreseeable future.
• The "foreseeable future" definition is not clear enough, and the EBA suggests that it should be operationally defined to avoid pro-cyclical effects and ensure comparability.
• The EBA prefers that the floor be based on losses expected within the foreseeable future (at least 12 months) and that it be applied consistently across portfolios.

5. Discounting and Flexibility

• The EBA does not support the flexibility in using either discounted or undiscounted estimates for open portfolios.
• They argue that discounting is essential for accurate financial reporting, especially for assets with complex cash flow structures.
• The EBA believes that discounting should be based on the original effective interest rate, as it reflects the initial risk and cash flow profile of the asset.

6. Operational and Auditable Requirements

• The EBA considers that the proposed model is operationally feasible for closed portfolios and other debt instruments, provided that consistent principles are applied.
• They suggest that additional guidance on the application to single large assets (e.g., leveraged loans) would be beneficial.
• The model should be auditable and based on objective criteria, especially when it comes to the transfer between good and bad books.

7. Disclosure Requirements

• The EBA supports most of the proposed disclosure requirements but emphasizes the need for transparent and detailed disclosures to help users understand the model's implementation.
• Key disclosures should include:
  • Breakdown of impairment losses between good and bad books.
  • Movement between the two books, including transfers, non-performing loans, and write-offs.
  • Sensitivity of loss estimates to key inputs and assumptions.
  • A clear policy for transfers between the good and bad books.
  • Comparison of the minimum impairment allowance with the time-proportional allowance.
  • Alignment with IFRS 7 requirements for internal risk management disclosures.

8. Consistency Across Standards

• The EBA encourages the IASB to ensure consistency in the treatment of financial instruments across IFRS 9, IAS 37, and IFRS 4.
• They advocate for a common expected loss model that applies to all relevant financial assets, including loan commitments and financial guarantee contracts.

Conclusion

The EBA believes that while the proposed impairment model represents a significant improvement, it requires further clarification and refinement, particularly in the areas of:

• Definition of the "foreseeable future."
• Operational and auditable criteria for the 'good book' and 'bad book' distinction.
• Consistency in the application of the model across different financial instruments and standards.
• Disclosure requirements to ensure transparency and comparability.

They also emphasize the importance of avoiding pro-cyclical effects and maintaining the reliability of impairment estimates over time.