Update on Impairment Transition Group

Date recorded:

Revolving credit facilities (Agenda paper 20)

The issue raised by the submitter concerned the application of the impairment requirements to a portfolio of revolving credit facilities. It related to how an entity should estimate future drawdowns on undrawn lines of credit when an entity has a history of allowing customers to exceed their contractually set credit limits on their overdrafts and other revolving credit facilities such as credit cards. In particular, it was discussed whether the potential exposure at default that is used to determine expected credit losses should include potential exposures beyond the contractual credit limit.

The staff had analysed that it would not be appropriate to extend the specific exception relating to the contractual commitment period to the contractual credit limit. The ITG confirmed that IFRS 9 does not permit an entity to increase the amount of the exposure beyond the contractually committed amount. Consequently, amounts in excess of the maximum contractually agreed credit limits are not taken into account.

The staff is not proposing any further action and asked if the Board members had any views on the issue.

As anticipated, the Board discussion focused on expected credit losses for revolving credit facilities.  The Board generally supported the view established by the ITG. Diverging from this view would take behaviour into account which was not intended by the Board when drafting IFRS 9, even when this behaviour occurred between the balance sheet date and the date of authorisation for issue of the financial statements. IAS 10 is clear on this point.

No decisions were made.


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