The members of the EACB welcome the opportunity to comment on the EBA draft Guidelines (GL) on credit institutions’ credit risk management practices and accounting for expected credit losses (ECL).
EBA plays a key role in the international harmonisation of supervisory frameworks and rules, however we believe there should be a clear line between its role and the one of accounting standard setters in determining rules for financial statements within a given financial reporting framework.
Overall, we see that some of the requirements laid out in the draft guidelines are particularly challenging and complex making compliance extremely burdensome. This will only add upon the costs needed to comply with IFRS 9. As a consequence, we suggest to postpone the date of application of the guidelines until 1 January 2020.
We welcome that the adoption of a proportionate approach is contemplated in the draft GL, however the proportionality principle should be more appropriately reflected in the GL. For banks that apply the Standardised Approach and for the smaller ones, the implementation of the expected credit losses approach brings about many significant challenges. This is especially true if we bear in mind that these institutions are not ‘familiar with’ internal credit risk assessment systems based on an expected loss approach to the same extent as the larger ones. Therefore, before finalising the GL a clear understanding of the potential operational difficulties should be achieved. In this respect we believe transitional and grandfathering rules should be envisage according to which institutions, particularly less complex ones, may rely more on the use of practical expedients. We would like also to highlight that in a context in which not all EU banks apply the IFRS/IAS the right application of the proportionality principle is even more determinant.
We also believe that the draft GL would gain in clarity if it built on the existing risk management processes, so to focus purely on the use of sound credit risk management system for accounting purposes and ECL estimation. Moreover, we believe that the draft GL should be based on a clear set of principles rather than specific rules which might create inflexibility and redundancies. In addition, the draft GL should highlight more that the results of existing regulatory capital models for IRB-purposes for the measurement of expected losses would already be considered compliant to a certain extent with the draft GL, as in the case of the so-called ‘modular validation’.