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EBA publishes final guidance on accounting for expected credit losses

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15 May 2017

The European Banking Authority (EBA) has finalised its guidelines on credit institutions' credit risk management practices and accounting for expected credit losses.

The EBA guidelines build on the guidance by the Basel Committee on Banking Supervision (BCBS) in December 2015 on the same matter and feature a detailed section on the application of IFRS 9 Financial Instruments. A draft of the guidelines was subject to a three-month consultation period between July 2016 and October 2016. The guidance notes:

The EBA welcomes the move from an incurred loss model to an ECL model under IFRS 9. IFRS 9 is, overall, an improvement compared to IAS 39 in the accounting for financial instruments and the changes on credit loss provisioning should contribute in addressing the G20’s concerns about the issue of ‘too little, too late’ recognition of credit losses and improve the accounting recognition of loan loss provisions by incorporating a broader range of credit information. IFRS 9 is therefore expected to address some prudential concerns and contribute to financial stability. However, the application of IFRS 9 also requires the use of judgement in the ECL assessment and measurement process which could potentially affect the consistent application of IFRS 9 across credit institutions and the comparability of credit institutions’ financial statements.

The EBA notes that the objective of the guidelines is to be in line with the BCBS guidance. The EBA guidelines would also not prevent credit institutions from meeting the impairment requirements in IFRS 9. The guidelines should be implemented by 1 January 2018.

Please click for the following additional information on the EBA website:

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