New accounting standard rule against banks’ losses from loans
A new international accounting standard, IFRS 9, will set as requirement that banks should set aside more money in order to protect against losses from customers who can’t repay loans.
The new rule will come into effect in 2018 as a response from the IASB to the financial crisis when many banks provided a more than usual optimism on their clients’ accounts until they needed rescuing by governments.
The Institute of Chartered Accountants in England and Wales (ICAEW) said that although the new accounting rule will give an earlier warning of potential losses, it was not a “panacea” to avoiding nasty surprises in banks’ accounts.
The ICAEW said that bank loan-loss provisions could rise by up to 50% when IFRS 9 starts.
Nigel Sleigh-Johnson, head of ICAEW’s financial reporting faculty, said: “The new loan loss requirements will provide earlier indications of potential losses on loans made by banks and other financial institutions, and that is a major and long over-due step forward.
“However, those who think that provisions made in the run-up to the global financial crisis were ‘too little, too late’ should not see the change as a panacea. Even an expected loss model won’t result in provisions being made for unexpected losses.”
Source: accountingweb
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