IFRS Provision expert speaks

IFRS Provision expert speaks

Since a financial institution is exposed to various risks, especially credit risk, which relates to the possible change in the credit quality that affects the profit of the institution, the Bank’s primary aim is to calculate Loan Loss Provisions as precisely as possible. In this way the financial institution is able to create reserves against credit losses, presents true and fair view about the value of its portfolio, and complies with national and international regulations.

The mentioned became extremely important during the financial crisis, both for the banks and for the regulators since the banks underestimating their risks have found themselves in trouble while their states had to decide in certain situations whether saving them for a huge cost or leaving them to fall is a better solution.

Taking into account the experience learnt during the crisis new standards have been issued in 2014, called IFRS 9. The standard contains significant changes compared to the IAS39, where the different segmentation (Stage 1-2-3 instead of PLLP/ILLP) and life time ECL determination are only a fraction of the required changes. To apply the new changes significant involvement is required from multiple banking departments including accounting, risk, IT, etc.

In Europe the new standard goes live in 2018, while other countries will also follow in the near future.

In such environment a system which covers the required processes in a parameterizable manner can significantly ease the implementation for the banks, so they can concentrate on other important tasks (like finding the most proper ECL models for the bank).

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