The New Impairment Model Under IFRS 9 and CECL
First published:
ISBN: 978-1-78272-347-9
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Implications for Equity and Debt Investors
Adrian Docherty
Introduction
The New Era of Expected Credit Loss Provisioning
The Marking of CECL Standard: Comments and Reflections
Sources of Modelling Variation in CECL Allowances
A CRO’s Perspective: Implementing, Operationalising and Governing of IFRS 9
Implementing Both IFRS 9 and CECL
Macroeconomic Forecasting and Scenario Design for IFRS 9 and CECL
Technology Solutions for CECL and IFRS 9
Implementing IFRS 9: Quantifying Expected Credit Losses in Retail and Wholesale Portfolios
From Incurred Loss to CECL: Historical Perspectives and Practical Guidance
Loss Forecasting Retail and Commercial Portfolios for CECL
Implementing CECL at Small and Community Banks
The New Impairment Model: Audit and Disclosure Challenges
The New Impairment Model: Governance and Validation
The Impacts of CECL: Empirical Assessments and Implications
How the New Impairment Model Could Affect Banks’ Business Models
Measuring and Managing the Impact of New Impairment Models on Dynamics in Allowance, Earnings and Bank Capital
Integration into Regulatory Capital Frameworks
Implications for Equity and Debt Investors
Forward-looking provisioning is meant to be a positive development for the market, to address the perceived problem of loan-loss provisions coming “too little, too late” and market distrust of numbers based on tardy, incurred loss accounting. This chapter explores how market participants view the new accounting rules for ECL provisions and whether the changes are likely to have the intended positive impact on markets. It also considers how equity and debt investors might prepare for, and deal with, the new accounting regimes.
WHY DO WE HAVE FINANCIAL STATEMENTS?
Accounting information is crucial to the understanding of an entity’s financial situation. It alters our perception of the underlying reality – to some extent, it becomes the reality. And, occasionally, this reality can be so harsh that it causes failure of a bank due to low reported solvency levels. Accounts are not merely numbers.
A real incarnation of accounting numbers can be observed when people talk about loan losses. For many market participants, the point of provisioning in the accounts is considered to be the point of actual loss. Forward-looking provisions that feature in the income statement and in the
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