scholarly journals Internal model for IFRS 9 - Expected credit losses calculation

2018 ◽  
Vol 69 (3) ◽  
pp. 269-297 ◽  
Author(s):  
Hrvoje Volarević ◽  
Mario Varović
Keyword(s):  
Financial Reporting ◽  
Internal Model ◽  
Balance Sheet ◽  
Analytic Hierarchy ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
External Data ◽  
Simple Implementation ◽  
Ifrs 9 ◽  
Credit Losses

This article explores and analyzes the implementation problem of International Financial Reporting Standard 9 (IFRS 9) which is in use from 1 January 2018. IFRS 9 is most relevant for financial institutions, but also for all business subjects with a significant share of financial assets in their Balance sheet. The main objective of this article is the implementation of new impairment model for financial instruments, which is measurable through Expected Credit Losses (ECL). The use of this model is in correlation with a credit risk of the company for which it is necessary to determine basic variables of the model: Exposure at Default (EAD), Loss Given Default (LGD) and Probability of Default (PD). Basel legislation could be used for LGD calculation while PD calculation is based on specific methodology with two different solutions. In the first option, PD is taken as an external data from reliable rating agencies. When there is no external rating, an internal model for PD calculation has to be created. In order to develop an internal model, authors of this article propose application of multi-criteria decision-making model based on Analytic Hierarchy Process (AHP) method. Input data in the model are based on information from financial statements while MS Excel is used for calculation of such multi-criteria problem. Results of internal model are mathematically related with PD values for each analyzed company. Simple implementation of this internal model is an advantage compared to other much more complicated models.

scholarly journals Methods of Calculation of Expected Credit Losses Under Requirements of IFRS 9

2019 ◽  
Vol 13 (4) ◽  
pp. 74-86
Author(s):  
Alfiya Vasilyeva ◽  
Elvina Frolova
Keyword(s):  
Credit Risk ◽  
Financial Reporting ◽  
Time Lag ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Macroeconomic Factors ◽  
Credit Risks ◽  
Ifrs 9 ◽  
The Impact ◽  
Credit Losses

The most important area of work for financial market regulators including International Accounting Standards Board is to clarify the metrics of credit assessment. This problem became particularly relevant after the financial crisis of 2008, when the insolvency of approaches to the assessment of credit risks adopted under the then international financial reporting standard IFRS (IAS) 39 became apparent, since credit losses on financial instruments were taken into account by the “loss model”, and therefore, the asset was recognized as financially impaired due to the fact of credit quality deterioration and significant time lag. From 1 January 2018 of a new international financial reporting standard IFRS9 IFRS 9 is based on a different approach — the principle of “expected credit losses” (ECL). The transition to IFRS 9 is intended to strengthen the banking system by increasing reserves , the banking system’s stability can be increased also. The new business model radically changes the approach to the formation of reserves, including by taking into account the impact of macroeconomic indicators on their value. According to various estimates, the scale of increase in reserves ranges from 30% to 50%. The purpose of this article is to systematize the methodological principles and approaches that underlie the requirements of IFRS 9 (basic and simplified and POCI approaches), as well as a comparison of the main methods for assessing the probability of default and expected credit losses (Weibul distribution, migration matrix, generator matrix ) In the framework of this article, the authors formulated criteria for the transfer of assets between the stages of credit risk (stage), and also formulated the principles for calculating expected credit risks for each stage, taking into account macroeconomic factors. This article is of practical value, as it can be the basis for the development of methods for calculating the expected credit risks of corporate clients of commercial banks, and can also be used to improve credit risk management models.

scholarly journals Adapting the Default Weighted Survival Analysis Modelling Approach to Model IFRS 9 LGD

Risks ◽  
2021 ◽  
Vol 9 (6) ◽  
pp. 103
Author(s):  
Morne Joubert ◽  
Tanja Verster ◽  
Helgard Raubenheimer ◽  
Willem D. Schutte
Keyword(s):  
Survival Analysis ◽  
Financial Reporting ◽  
Proportional Hazards ◽  
Proportional Hazards Model ◽  
Survival Curve ◽  
Cox Proportional Hazards ◽  
Cox Proportional Hazards Model ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Ifrs 9

Survival analysis is one of the techniques that could be used to predict loss given default (LGD) for regulatory capital (Basel) purposes. When using survival analysis to model LGD, a proposed methodology is the default weighted survival analysis (DWSA) method. This paper is aimed at adapting the DWSA method (used to model Basel LGD) to estimate the LGD for International Financial Reporting Standard (IFRS) 9 impairment requirements. The DWSA methodology allows for over recoveries, default weighting and negative cashflows. For IFRS 9, this methodology should be adapted, as the estimated LGD is a function of in the expected credit losses (ECL). Our proposed IFRS 9 LGD methodology makes use of survival analysis to estimate the LGD. The Cox proportional hazards model allows for a baseline survival curve to be adjusted to produce survival curves for different segments of the portfolio. The forward-looking LGD values are adjusted for different macro-economic scenarios and the ECL is calculated for each scenario. These ECL values are probability weighted to produce a final ECL estimate. We illustrate our proposed IFRS 9 LGD methodology and ECL estimation on a dataset from a retail portfolio of a South African bank.

IFRS 9 «FINANCIAL INSTRUMENTS» IN THE CONTEXT OF SECURITY ECONOMIC SECURITY OF CREDIT INSTITUTIONS

2021 ◽  
Author(s):  
Алена Михайловна Кабанова ◽  
Людмила Ивановна Кругляк
Keyword(s):  
Financial Reporting ◽  
Economic Security ◽  
Financial Instruments ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
New Knowledge ◽  
Ifrs 9 ◽  
Credit Institutions

В статье рассматриваются актуальные особенности Между-народного стандарта финансовой отчетности (IFRS) 9 при их внедрении в российской банковской отчетности. Применение МФСО требует новых знаний, принципов и навыков специалистов соответствующих служб. МСФО - это не свод строгих, конкретных правил, а определенный набор требований и принципов. The article discusses the current features of the International Financial Reporting Standard (IFRS) 9 in the implementation and transformation of Russian banking reporting. The application of IFRS requires new knowledge, principles and skills of specialists of the relevant services. IFRS is not a set of strict, specific rules, but a specific set of requirements and principles.

scholarly journals Analytical study of the implications of the adoption of IFRS 9 on the credit and financing policies of Arab banks: دراسة تحليلية للآثار المترتبة على تبني IFRS 9 على السياسات الائتمانية والتمويلية للمصارف العربية

2017 ◽  
Vol 1 (9) ◽  
Author(s):  
Salah Ali Ahmed Mohammed - Mahjoub Abdullah Hamid
Keyword(s):  
Financial Reporting ◽  
Banking System ◽  
Special Focus ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Accounting Systems ◽  
Financing Policies ◽  
Standard Application ◽  
Ifrs 9 ◽  
Application Requirements

The objective of this study was to analyze the anticipated effects of the application of the International Financial Reporting Standard (IFRS9), which replaced the International Standard ( IAS 39), on the Arab banks. The obligatory application of the new standard will take place on the beginning of 2018. The application requirements of this standard constitute a great challenge to the Arab banks, in the fields of credits, finance and the banking and accounting systems. The study represented the International Financial Reporting Standard (IFRS 9) and the requirements of classification and measurement of the obligations, with special focus on the differences between the two standards. The study as well, focused on the challenges which face the standard application and the effect of this application on the banking system, with special focus on the expected credits loss (ECL). The study represented examples of some Arab banks experiences and evaluated these experiences. The study has come out with some results, including that the change of the (ECL) model will create some impediments on the credit and finance policies of the Arab banks, whereas the standard (IFRS9) will strengthen the shareholders and depositors trust, because it adopts a perceptional policy which avoids the expected loss which, in turn, reduces the liquidity risk and the failure of the obligations payment. The study also proposed some recommendations.

scholarly journals The expected impact of the implementation of International Financial Reporting Standard (IFRS) 16 – Leases

2019 ◽  
Vol 12 (1) ◽  
Author(s):  
Milton Segal ◽  
Genevieve Naik
Keyword(s):  
South African ◽  
Financial Reporting ◽  
Balance Sheet ◽  
Current Standard ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Managerial Implications ◽  
Reporting Structure ◽  
Value Add ◽  
Economic Transaction

Orientation: The new standard on leases, International Financial Reporting Standard (IFRS) 16, will require the majority of lessees to account for lease arrangements on the face of the balance sheet. This is in contrast to the current standard and, as a result, the effects of this transition to on-balance sheet finance require analysis.Research purpose: The purpose of this article is to identify and examine the material change implications that may arise from the implementation of IFRS 16 and determine its effect on both preparers and users of the financial statements with a specific focus on lessee accounting.Motivation for the study: Leasing is a widely used economic transaction that affects the majority of corporates and individuals. There is a lack of formal academic literature surrounding the possible implications of the new accounting standard in a South African context.Research approach, design and method: The authors performed a detailed literature review as well as gathered information at a public debate held jointly by the International Accounting Standards Board (IASB) and the South African Institute of Chartered Accountants (SAICA) to investigate what the implications may be.Main findings: This article finds and concludes that there are potentially six change implications. The affected parties were identified as lenders, preparers and analysts with the banking and retail sectors requiring the most consideration.Practical/managerial implications: Care will need to be taken when new lease transactions are entered into so that the entity still adheres to potential liquidity and solvency targets as well as loan covenant obligations.Contribution/value-add: The normative and qualitative style sheds light on the effect of the imminent changes to South Africa’s financial reporting structure, making an important contribution to financial reporting knowledge, transparency and accountability.

scholarly journals The rules for the Cash Flow Statement in the International Financial Reporting Standard

2013 ◽  
Vol 7 (1-2) ◽  
pp. 71-73
Author(s):  
Anikó Türkössy
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Balance Sheet ◽  
Cash Flows ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Historical Changes ◽  
Income Statement ◽  
Cash Flow Statement ◽  
Statement Of Cash Flows

Cash flow statement may provide considerable information about what is really happening in a business beyond that contained in either the income statement or the balance sheet. Analyzing this statement should not present an intimidating task; instead it will quickly become obvious that the benefits of understanding the sources and uses of a company’s cash far outweigh the costs of undertaking some very straightforward analyses. The objective of IAS 7 is to require the presentation of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows, which classifies cash flows during the period according to operating, investing, and financing activities.

scholarly journals Preliminary impact of IFRS 9 implementation on the Lebanese banking sector

2021 ◽  
Vol 20 (3) ◽  
pp. 369-401
Author(s):  
Darine Dib ◽  
◽  
Khalil Feghali
Keyword(s):  
Banking Sector ◽  
Current Account Deficit ◽  
Research Question ◽  
Balance Sheet ◽  
Theoretical Aspect ◽  
Capital Inflows ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Ifrs 9 ◽  
The Impact

Research Question: What is the impact of the new requirements of the expected credit loss (ECL) model on the Lebanese banking sector? Motivation: In spite the expansion of research in respect of International Financial Reporting Standard N0. 9 (IFRS 9) in the past few years, it is still in its infancy in developing countries. Meanwhile, empirical IFRS 9 studies for banks is yet considered little as compared to the theoretical aspect. Our study seeks to fill this gap by testing the impact of IFRS 9 on the Lebanese banking sector. This paper is the first comprehensive attempt to empirically assess the estimated impact of IFRS 9 as disclosed in the 2017 financial statements. Idea: This study examines if the increase in provision based on the new ECL is strongly positively related to the average credit losses for the last 5 years, the current provisions level for the loans portfolio, the portfolio of investment securities, and the portfolio of liquid assets. Data: The data were collected from 19 consolidated banks representing 91% of the total consolidated balance sheet of all Lebanese banks. Tools: To test study’s hypotheses, we applied linear regression using SPSS. Findings: Two main results can be derived: First, we found that the impact of the new ECL model is not material to the banks’ equity if we consider the excess regulatory provisions booked in anticipation of IFRS 9. Second, we found that the increase in provision based on the ECL model is strongly positively related to the portfolio of investments securities and negatively related to the historical credit loss ratio. Contribution: Empirical IFRS 9 studies for banks is yet considered little as compared to the theoretical aspect. Our study seeks to fill this gap by testing the impact of IFRS 9 on the Lebanese banking sector. The Lebanese banks are an interesting case because they play a key role in the Lebanese economy, acting as the main channel for capital inflows into the country and financing the largest part of the government’s current account deficit.

scholarly journals Approaches to Building Default Probability Models for Financial Instruments of Project Financing at Long Time Horizons

2021 ◽  
Vol 15 (4) ◽  
pp. 66-87
Author(s):  
Alfia Vasilieva
Keyword(s):  
Credit Risk ◽  
Financial Reporting ◽  
Commercial Banks ◽  
Financial Instruments ◽  
Project Financing ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Time Horizons ◽  
Ifrs 9

  Project financing is one of the priority tools for stimulating the country's economic growth around the world, which allows the implementation of large-scale and capital-intensive projects, providing favorable credit conditions with insufficient creditworthiness of the project beneficiaries [1]. As a rule, project financing instruments are long-term (10-30 years, depending on the type of transaction), so this asset class is interesting for the implementation of the task of building long-term models for assessing credit risk associated with the introduction in 2018 of the new international financial reporting standard IFRS 9 "Financial Instruments". The new standard requires financial institutions to calculate their expected credit loss (ECL) at the time of granting loans and other banking products exposed to credit risk [2], taking into account different time horizons, which significantly changes the traditional approaches to assessing credit risk by commercial banks [3], [4]. As part of this work, a model was built to assess the long-term probability of default for the portfolio of assets of a Russian commercial bank belonging to the project finance segment in accordance with the requirements of the International Financial Reporting standard IFRS 9 "Financial Instruments". At present, the topic of this work is extremely relevant and may be of interest both for commercial banks that are faced with the problem of improving credit risk assessment models  

scholarly journals Catch the Heterogeneity: The New Bank-Tailored Integrated Rating

2021 ◽  
Vol 14 (7) ◽  
pp. 312
Author(s):  
Daniela Arzu ◽  
Marcella Lucchetta ◽  
Guido Max Mantovani
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Financial Reporting ◽  
Theoretical Framework ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
Tail Risk ◽  
Systemic Risks ◽  
Ifrs 9 ◽  
Future Direction

The purpose of this article is to develop a bank-oriented rating approach, tailored by incorporating the various heterogeneity dimensions characterizing financial institutions, named “Bank-Tailored Integrated Rating” (BTIR). BTIR is able to catch the financial cycle, including the pandemic crisis, and the ongoing change in banking normative from a microeconomic perspective, and it is inherently coherent with the challenging frontier of forecasting tail risk in financial markets in similar ways as in De Nicolò and Lucchetta (2017), although their approach is macroeconomic) since it considers the downside risk in the theoretical framework. The method employed was an innovative integrated rating (IR) statistical and econometrical panel pre-selection analysis that takes into account the characteristics of risk and the greater heterogeneity of the banks. The result is a challenge rating procedure delivering forward-looking preselection requested by the new International Financial Reporting Standard (IFRS-9). The future direction is extremely promising given the increase in idiosyncratic and systemic risks in financial markets.

Sign in / Sign up

Export Citation Format

Share Document