From the attached agenda link to IFRS-9, I have come to know that the Expected Credit Loss (ECL) allowance is indicated as a discounted value. Consequently, the impact of unwinding will also be adjusted in it at the end of each reporting period. For instance, if the ECL allowance at the beginning of the year stood at CU 100 and our Effective Interest Rate (EIR) is 10%, this ECL allowance would amount to CU 110 by the year's end. I did not locate such specifics in the original IFRS documentation. Can you please guide whether this interpretation remains valid or has been superseded by the subsequent revisions?
https://www.ifrs.org/content/dam/ifrs/p ... slides.pdf
IFRS-9 Discounting assumption
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JakobLavrod
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Re: IFRS-9 Discounting assumption
Hi!
As long as the account is performing, this question is reasonably straightforward and comes from IFRS 9.5.5.17 b), time value of money. One way to view it is that over time, the asset will accrue interest, but if this interest is not yet paid, the interest part should also have an impairment component, in your case the extra 10 CU. This is the case for a zero coupon bond. When it comes to a loan with payments over time, each payment will lead to a lowering of the ECL as the impairment of that payment get relased.
The question becomes more tricky if we now involve an impaired asset in stage 3. There, IASB has considered it misleading to have the full contractual EIR being accrued on the interest income line (in particular since alot of these assets might have limited cash flows). Instead, on the interest line, one takes additionally accrued interest - impairment of such interest payments, so only the net interest is placed on the interest income line. This means that on the impairment line, there is no longer any unwinding, but rather only changes for LGD.
Things become then even more complex if the account cure back, as it means as these net changes are not reversed, as shown in the reference you link to.
As long as the account is performing, this question is reasonably straightforward and comes from IFRS 9.5.5.17 b), time value of money. One way to view it is that over time, the asset will accrue interest, but if this interest is not yet paid, the interest part should also have an impairment component, in your case the extra 10 CU. This is the case for a zero coupon bond. When it comes to a loan with payments over time, each payment will lead to a lowering of the ECL as the impairment of that payment get relased.
The question becomes more tricky if we now involve an impaired asset in stage 3. There, IASB has considered it misleading to have the full contractual EIR being accrued on the interest income line (in particular since alot of these assets might have limited cash flows). Instead, on the interest line, one takes additionally accrued interest - impairment of such interest payments, so only the net interest is placed on the interest income line. This means that on the impairment line, there is no longer any unwinding, but rather only changes for LGD.
Things become then even more complex if the account cure back, as it means as these net changes are not reversed, as shown in the reference you link to.
IFRS 9 Impairment Specialist
Risk Control at Svenska Handelsbanken
Risk Control at Svenska Handelsbanken