26 July 2016

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

The European Banking Authority (EBA) specified sound credit risk management practices for credit institutions associated with the implementation and on-going application of the accounting for expected credit losses. High-quality and consistent application of the accounting standards is the basis for the effective and consistent application of the regulatory capital standards. These draft Guidelines build on the BCBS guidance on credit risk and accounting for expected credit losses published by the Basel Committee on Banking Supervision (BCBS) in December 2015.

A significant number of credit institutions in the EU apply the IFRS Standards which will eventually require the measurement of impairment loss provisions to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. 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.

The EBA guidelines would not prevent a credit institution from meeting the impairment requirements of IFRS 9. Rather these guidelines should be read as the supervisory approach to support the appropriate application of those standards. These guidelines do not set out requirements regarding the determination of expected losses for regulatory capital purposes.

‎Comments to this consultation can be sent to the EBA by 26 October 2016. A public hearing will take place at the EBA premises on Monday 3 October 2016 from 14.30 to 16.30 UK time.

Press release

Consultation paper

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