The challenge of the financial industry is coming! On the financial institutions are a huge challenge, “the financial institutions to stay at least a year and a half of the transition and implementation.” Industry believes that.
In the third year after the release of IFRS 9: Financial Instruments (IFRS9), the “IFRS9 version of China” has finally landed this week.
As most of the assets held by commercial banks are financial assets, IFRS9 and China’s new financial instruments accounting standards will undoubtedly have a significant impact on its operating and financial results. Overall, the objectives of IFRS 9 and China’s new financial accounting standards are basically consistent with the regulatory thinking of our banks, but need to be further refined in practice.
On the one hand, the new financial instruments accounting standards will be the original financial assets “four categories” to “three categories”, financial assets impairment accounting by the “loss of law” to “expected loss law”, emphasizing credit risk losses Of the advance confirmation;
On the other hand, the timing of leaving the listed bank is not well established in accordance with the relevant timetable for the entry into force of the guidelines.
“We suggest that banks should set aside at least a year and a half to join the transition and implementation.” Deloitte Touche Tohmatsu Certified Public Accountants financial services professional and technical partners, the Ministry of Finance Accounting Standards Advisory Committee Yang Liang that this time how distribution:
– the first three months to do the status quo analysis and program involved, including the analysis of differences, including quantitative analysis, including quantitative analysis;
– the next six months to nine months to carry out specific implementation work, including the “three categories” under the system reconstruction, internal reporting account reconstruction, and impairment model changes brought about by modeling, system implementation and so on;
– the last may be set aside for half a year in parallel, the old guidelines and the new guidelines used in parallel to see how the actual effect of the final operation.
Brokers Chinese journalists in the survey found that the current domestic banks to prepare for the new guidelines are still in the first two stages, basically no banks began to apply in parallel to the old and new criteria.
In addition, both the accounting firms and the banks, there are practical people put forward such a view: the new standard is expected to bear the impairment model, the bank risk management level, the adequacy of the provision will be improved, whether still Need to be allocated to the ratio, provision coverage and other indicators to be bound? Is it possible to adjust or even cancel accordingly? This may still be subject to regulatory research and discussion.
Just as Pudong Development Bank Vice President Pan Weidong told the Chinese journalists, the new financial instruments accounting standards change, the banks and regulators are new topics.
Change and change
The international financial crisis in 2008 led to various aspects of the financial market reflection. The industry generally believes that the old accounting standards in the measurement of financial instruments, impairment and hedge accounting and so there are many drawbacks: financial instruments classification and measurement is too complex and subjective, affecting the information comparability; financial assets, credit loss confirmed too late Different types of financial asset impairment models are different, increasing the maneuvering space.
Therefore, there is an urgent need to revise the relevant accounting standards of financial instruments to solve these problems in a timely and effective manner. The International Accounting Standards Board (IAS) has revised the International Financial Reporting Standards (IFRS) for financial instruments and issued IFRS9 finals in July 2014 to enter into force on 1 January 2018 to replace the existing International Accounting Standards 39: Financial Instruments “(hereinafter referred to as” IAS39 “).
In accordance with the China Enterprise Accounting Standards and International Financial Reporting Standards continue to converge in the direction of the Ministry of Finance recently revised the issuance of the Enterprise Accounting Standards No. 22, 23, 24 three new financial instruments related accounting standards, the three collectively known as the “China version IFRS9 “.
Why is it “triple play”? According to the reporter to understand that there is a historical reason. The Ministry of Finance in 2006 to develop new accounting standards, taking into account the guidelines are too large, so split into 22, 23, 24 three criteria, corresponding to IAS39, this time IAS39 upgrade to IFRS9, China’s Ministry of Finance is also On the basis of the three criteria.
In general, the Chinese version of IFRS9 mainly covers the “financial instrument classification and measurement”, “financial asset impairment”, “hedge accounting”, “financial asset transfer” four blocks.
“But because the transfer of financial assets is aimed at asset securitization, this part of the old and new standards and no subversive changes, but the details of the amendment, hedge accounting is to solve some of the problems in risk management practice, so these two parts will not Mainly to discuss. “A bank auditor told reporters.
The auditors believe that the classification and measurement of financial instruments is the basis for subsequent impairment and hedging, and the changes in the impairment model are those that have never been followed and are “difficult” for the new guidelines.
Fundamentals: Classification and measurement of financial instruments
For all financial assets, the new rules are divided into three categories according to the business model and cash flow characteristics of the financial assets managed by the main body, including financial assets measured at amortized cost, financial assets at fair value through profit or loss Assets, financial assets at fair value through profit or loss.
The so-called business model, refers to how the main body through the financial assets to generate cash flow, through the collection of contract cash flow, or through the sale of financial assets to benefit, or both; and cash flow characteristics of its contract cash flow is only Principal and interest payments.
This changed the way IAS39 classified according to the intent of the subject’s holding of financial assets, from the original “four categories” to “three categories”.
Specifically, the new criteria for the “business model of the goal is to obtain the contract cash flow” and “contract cash flow is only the principal and interest payments” two conditions for the dimension, the specific classification: at the same time to meet the two conditions, Is the “amortized cost class”; if the business model is achieved by both the contractual cash flow and the sale of the financial asset to achieve the target, and the “contract cash flow is only the principal and interest payments”, it is classified as “measured at fair value The financial assets that are recorded in other consolidated gains and losses “shall be” measured at fair value and whose changes are recorded into the current profits and losses “for those who do not meet the contractual cash flow test or other business model.
In this regard, loans and receivables under IAS39, held-to-maturity investments appear to be able to move to IFRS9, measured at amortized cost, but this is not the case, the original “four categories” can not And “three categories” to form an equation relationship.
Yang Liang believes that the types of financial assets in China and other countries there is a certain difference, such as non-standard investment is a rare international concept, the international securities investment is usually either stock, or bonds, the structure is relatively clear , And China’s non-standard investment to the trust plan, management plan and the main structure of the main investment.
“Therefore, from the classification point of view, or to see the business model and cash flow characteristics of the two dimensions of the test results for non-standard investment in Chinese financial assets with these characteristics may need to open layers, depending on the underlying assets to follow-up classification , Which is difficult, can not simply correspond. “Yang Liang said.
One of the shares of the financial sector also believe that, on the surface, the three categories of financial assets is the classification of the simplification of the possibility of bank adjustment, but in practice, the classification of financial assets is not a simple non-black that White, let alone from four categories to three categories, accounting system should follow the reconstruction, the original receivables investment, held to maturity investment, available for sale financial assets of the three accounting subjects are no longer exist.
The most difficult: the expected loss model
Unlike IAS39, the new guidelines emphasize the early recognition of credit risk losses and the same measurement basis for impairment of all financial assets. This is also to solve the IAS39 in the financial crisis exposed financial assets loss prepared to mention less, too late.
The difference between the expected loss model and the loss model has also been the biggest difference between the new criteria and the current corporate accounting standards.
According to the requirements of the new standard, the financial assets will be based on the degree of gradual increase in credit risk, the specific provision for impairment provision and accounting treatment is divided into three stages, the distinction lies in whether the credit risk “significant increase”
If the credit risk of a financial asset has not increased substantially since the initial recognition, the provision for impairment of the financial asset is equal to the expected credit loss of 12 months; if the credit risk of the financial asset is “significantly increased”, even the substantial Credit impairment, the provision for impairment shall be equal to the expected loss of credit for the entire life cycle.
“This brings two huge problems: First, how to determine a class of financial assets, credit risk significantly deteriorated; Second, how to make the entire life cycle of financial assets expected loss, after all, even if the internal assessment method, The expected loss for the next 12 months, “said the head of the assets and liabilities department of a large city firm.
Yang Liang said that the expected impairment loss model of the new standard is “subversive”, and that the commercial banks still need to determine the criteria for the significant deterioration of the credit risk, including the type and characteristics of the loan, the bank’s own risk management, according to its specific circumstances The practice and so on.
“The actual use of the usual considerations, one is the internal rating changes, some banks have some of the loans have a better classification than the five classification, according to different circumstances, such as the ten levels from the Which level to which a level to determine a significant deterioration of the standard, which is a method; also consider the use of default probability changes to determine the credit risk deterioration, the probability of default and the bank is now doing the internal assessment Similar, of course, the new guidelines which also mentioned that if you do not have other better criteria to judge, overdue 30 days can also be from the first stage to the second stage of the division criteria. “Yang Liang think.
In addition to the above “quantitative” standard, Yang Liang believes that qualitative analysis can also be used to solve the credit risk significantly worse judgments difficult. “For example, within the bank in the credit risk management will also be used in the list of warnings, including customer defaults such as contract default or financial deterioration events, some negative news on the market, or the announcement of the financial statements exposed, credit rating decline And so on, “she said.
In the survey of journalists, there are also bank financial people mentioned, whether by virtue of the current loan five classification to determine the credit risk significantly deteriorated, saving work processes. In this regard, Yang Liang said that the loan five classification can be used as a reference, but the same can not be formed with the three-stage model equation.
“On the one hand, ‘significantly worse’ is a relatively comparative concept of the concept of financial assets at the end of the credit risk and the beginning of the changes in credit risk, and five classification is the absolute comparison method is standing at the end of the loan at the time point Which category; on the other hand, the five-level classification of granularity is not fine enough, if it can be divided into ten categories, coupled with the rating changes, default probability changes, etc., will meet the requirements of the new guidelines.
It is more difficult to deal with the expected loss of the entire life cycle of a financial asset after dealing with the difficulty of measuring the “significant deterioration” of credit risk, which is a problem that has never been dealt with before. Yang Liang believes that the bank in the expected loss of the process of modeling, usually you can consider two ways:
First, with the internal assessment method, has been using the credit risk internal rating method to replace the weight of the commercial banks, can be based on the internal assessment of the probability of default data to do the adjustment. Of course, even if the expected loss of 12 months, can not directly adopt the internal assessment method data, after all, the internal assessment of the probability of default requirements and the requirements of the new guidelines there is a certain difference, so to adjust, on this basis And then to do the entire life cycle default probability (PD), loss of default (LGD) data;
Second, there are two approaches to banks that have not yet adopted an internal assessment method, or a bank whose partial loans have not been covered by the IRA. One is to develop a new IFRS9 PD, LGD model; followed by PD, LGD these data, directly to do a expected loss rate model (which may be an improved rolling rate model).
Bank prepared for busy
Whether it is the classification and measurement of financial instruments, or the construction of financial asset impairment models, the banks are a huge challenge, especially in the effective date has been set, commercial banks, especially listed banks, need to actively down Push related work arrangements.
In accordance with the requirements of the Ministry of Finance, H-share listed banks and “A + H” listed banks from January 1, 2018 on the need for the implementation of the new guidelines, other A-share listed banks in January 1, 2019, the rest of the non-listed banks Since the beginning of 2021 the implementation of the new guidelines to encourage the ability of banks in advance.
Reporters survey found that although a number of banks have been funded by the financial sector, risk management departments or asset-liability departments to lead the preparation, but was asked about specific progress, often not elaborate. Shanghai Pudong Development Bank Vice President Pan Weidong told reporters that many banks are currently hiring intermediaries, and set up the relevant project team, the system and system adjustments, the Shanghai Pudong Development Bank in the first half of 2016 to deploy, in accordance with the requirements of the work.
Yang Liang suggested that banks should set aside at least a year and a half to connect the transition and implementation. “The first three months to do the status quo analysis and program involved, including the analysis of differences, including quantitative analysis, including quantitative analysis; the next six months to nine months to carry out specific implementation work, including ‘three categories’ under the system reconstruction, internal statements The reconstruction of the account, and the modeling of the impairment model, the implementation of the system, and so on. Finally, it may be necessary to set aside half a year in parallel, and the old criteria will be used in parallel with the new guidelines to see how the final operational effect is, “she said.
In practice, a H-share listed banks, for example, need to implement the new guidelines early next year, its 2017 annual report need to directly into the new criteria under the classification of measurement and impairment treatment?
Yang Liang believes that this need to look at the follow-up regulatory arrangements and disclosure requirements, such as in the 2017 annual report to continue to use the old guidelines, but whether the need to supplement the disclosure of new changes in the impact of the standard, which in China before the change of accounting standards is a precedent The
In addition to the time constraints, the banks are more concerned about the expected loss of impairment model to bring the assets of the provision for impairment of the existing standards to improve: on the one hand, the need to provision for impairment of financial assets from the loss of assets have increased to all Financial assets, the base increased; the other hand, the credit risk significantly deteriorated financial assets, the provision for impairment losses for the entire life cycle of the expected loss of credit.
In this way, after the implementation of the new criteria, it seems that banks need to mention the provision will be substantially increased, thus affecting the asset structure adjustment, capital supplement and asset pricing strategy. Yang Liang believes that from the new standard itself, from the loss model has been to the expected loss model, the amount of money is certainly increased, but the specific increase in the number is not yet quantified, “we understand the situation is that the domestic bank The increase may be relatively limited. ”
A stake in the wealth sector also agree with this view. “Taking into account the existing capital of listed banks to add pressure, the new standard is still a substantial increase in provision is unrealistic, IFRS9 greater significance is to promote the bank to further strengthen risk management, so the impact of the subsequent asset structure adjustment is also relatively Limited, the bank’s existing asset preferences have been relatively stable. “The shares of the bank accountants said.