Regulators urge softer forward provisioning

摘要

Regulators are asking banks not to be overzealous when provisioning for bad loans under the IFRS 9 accounting standard that came into force in 2018. The US equivalent is the Current Expected Credit Loss (CECL) standard, coming into force in 2020. These standards were finally brought in a decade after the 2007-09 global financial crisis at the behest of regulators, who were unsatisfied with the previous incurred loss model where banks declared loans as non-performing after the event. Many reported too many losses too late or simply tried to hide them for years. The solution was the IFRS 9 forward-looking approach where banks, looking at economic forecasts, try to predict how many of their loans may go sour (for instance, if a recession is looming) and set aside capital for such an event. This was meant to better prepare them for a rise of non-performing loans (NPLs) that normally accompanies a downturn.