IFRS Loan Loss Provisioning Poses Challenges for European Banks
Loan loss provisioning requirements under International Financial Reporting Standards (IFRS) differ significantly from the practices currently in force in those European countries that will be adopting IFRS from 1 January 2005, according to Moody’s. ‘The impact of the application of IFRS loan impairment methodology will vary not only from country to country but also from bank to bank within each country. We thus expect European banks to start communicating their views on the implications of IFRS on their loan loss provisions as soon as they are in a position to do so,’ explained Yaroslav Sovgyra, Vice-President, Senior Accounting Analyst at Moody’s. ‘In addition, while the IFRS loan loss provisioning requirements have some similarities with the Basel 2 Accord requirements for the calculation of credit risk capital charges, there are also some significant differences,’ said Sovgyra. Moody’s believes that a full convergence between these two sets of rules in the near future is necessary but likely to prove difficult.