Loan loss provisioning practices can materially affect the net income and capital accounts of banks, both of which are used by market participants and supervisors to assess an institution's financial health. The shift from incurred to expected credit loss (ECL) provisioning under the International Financial Reporting Standards IFRS 9 - starting in 2018 - is a welcome development. Yet IFRS 9 is a complex standard and subject to significant implementation challenges that also have prudential implications. We outline the key challenges and explore a range of prudential policy considerations that may be useful for all supervisory authorities planning to adopt ECL provisioning under IFRS 9.
The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS, its member central banks or the Basel-based standard-setting bodies.
