Revenue recognition for banks

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Leo
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Joined: 05 Apr 2020, 22:31

Revenue recognition for banks

Post by Leo »

Hi everyone,

Would you mind sharing some documentation on how banks recognises their revenue on for example a loan given to a company with transaction costs ?

Lets say, bank A has given 1 000 loan to company B for a period of 5 year, to be reimburse in full at maturity. Bank A has charged 50 as arrangement fees. the interest rate is 10%, how should bank A recognise its first years revenue ?

Thanks
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Marek Muc
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Re: Revenue recognition for banks

Post by Marek Muc »

Looks like standard amortised cost accounting:
https://ifrscommunity.com/knowledge-bas ... rest-rate/
Leo
Posts: 401
Joined: 05 Apr 2020, 22:31

Re: Revenue recognition for banks

Post by Leo »

Hi Marek,

Thank you for sharing this, Ive read your post already, the thing is that I think your example was for a company that acquired a bond.

My question was how a bank as a lender, recognise the loan, which I hope is the same, if the transaction cost is considered as an incremental revenue incorporated into the loan at amortised costs. So only ETR will be recognises throughout the lifetime of the loan right?
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Marek Muc
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Re: Revenue recognition for banks

Post by Marek Muc »

principle is the same

in your example initial recognition is at 950 and then revenue recognised using effective interest rate method, so effectively this 50 of fees will be spread over the life of the loan
Leo
Posts: 401
Joined: 05 Apr 2020, 22:31

Re: Revenue recognition for banks

Post by Leo »

Thank you so much !
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