Banks grapple with IFRS 9 and CECL loan loss forecasting

Ambiguity in rules sets up potential clash between banks and auditors over “reasonable and supportable” projections

One small phrase is causing big headaches for banks subject to new accounting standards for credit loss provisioning: “reasonable and supportable”. The phrase refers to the information banks rely on when developing forecasts to determine whether loans on their books have suffered a material increase in credit risk between reporting periods.

For banks, a lot will turn on their definition of those words. It will directly affect the amount of loan loss reserves they need to set aside under IFRS 9