T1 - Implementación NIIF 9 Instituciones Financieras- Darrel Scott by INCP

International Financial Reporting Standards

IFRS 9 Financial Instruments Joint IFRS Foundation and INCP IFRS Conference, Cartagena November 2015 Darrel Scott IASB member The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation. ÂŠ IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

A Standard for financial instruments Classification and measurement • Classification approach driven by cash flow characteristics and business model • Gain on own debt no longer affects profit Impairment • A forward-looking ‘expected loss’ model that improves the timeliness of information about credit risk Hedge accounting • A model that better aligns accounting with risk management and utilises risk information

International Financial Reporting Standards

Classification and measurement

The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation

ÂŠ IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Classification and measurement • Principle-based, unified model with a logical structure and rationale for classification and measurement of financial assets – measurement categories and use of business model reflect nature of cash flows and how they are managed

• Improved reclassification requirements consistent with changes in business model • Single approach eliminates complex bifurcation requirements and multiple impairment approaches • Elimination of IAS 39 tainting rules

Financial Assets

Classification process Test

Then test

Cash flow characteristics

Accounting FV P&L

Business model Satisfy Do not satisfy

Hold to collect and sell Hold to collect

FV OCI Amortised cost

Financial Assets Classification Test

Accounting

Cash flow characteristics

Amortised cost

Business Model

FV OCI

Instruments which fail either test

FV P&L

â&#x20AC;Ą Reclassification required if business model changes * Same impairment model for amortised cost and FVOCI

Option FV for accounting mismatch

Equities through OCI

Financial Assets

Fair Value Option (FVO) Option

Scope

Restrictions

FV for accounting mismatch

Accounting mismatch

Irrevocable

Equities through OCI

ÂŠ IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Not held for trading

Irrevocable No recycling

Financial Liabilities Classification Test

Accounting

Held for trading

FV P&L

All other financial liabilities

Amortised cost

Option

FV for accounting mismatch

Financial Liabilities FVO and own credit • What is ‘own credit’? – fair value changes in liability arising from changes in the liability’s credit quality

• How is it measured? – often measured as change in margin over a benchmark interest rate

• What is the concern? – gain when credit quality deteriorates, loss when credit quality improves – reporting such gains and losses is not considered useful

Financial Liabilities FVO and own credit

Financial Statements (IFRS 9) Balance Sheet

Comprehensive Income

Liability: All changes including P&L: all changes except own own credit credit OCI: changes in own credit

• Otherwise, P&L gain when ‘own credit’ deteriorates, loss when it improves • Limited amendments propose allowing the ‘own credit’ requirements to be applied before the rest of IFRS 9 • Required by IFRS 9 for liabilities under the FVO © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

Impairment

The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation

ÂŠ IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Impairment Forward-looking model that is responsive to changes in credit risk and responds to the calls of the G20 and others • Expected credit losses always recognised • Builds on existing risk management systems to balance costs and benefits • Differentiates assets that are underperforming or nonperforming to inform investors • Robust disclosures to illustrate estimates and credit risk

Deterioration model Credit quality deterioration since initial recognition

Impairment recognition 12 month expected loss

Lifetime expected loss

Interest revenue

Gross basis Stage 1 Performing

Gross basis

Net basis

Stage 2 Under-performing

Stage 3 Non-performing

International Financial Reporting Standards

Other initiatives

The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation

ÂŠ IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Transition Resource Group • ITG established to provide support for IASB’s stakeholders implementing expected credit loss requirements: – – – – –

Forum for questions regarding implementation Make the IASB aware of implementation issues Educational role Limited life during the transition period Will not publish any guidance

• 3 meetings to date • One issue (revolving credit facilities) raised with IASB: – Staff did not propose any further action – The IASB observed requirements of IFRS 9 were clear

Transition Resource Group Topics discussed (April) • • • • • • • •

Forecasts of future economic conditions Loan commitments ‒ scope ECL – measurement date Assessment of significant increase in credit risk for guaranteed debt instruments The maximum period to consider when measuring expected credit losses Revolving credit facilities Measurement of ECL for issued financial guarantee contract Measurement of ECL for modified financial asset

Transition Resource Group Topics discussed (September)

• Significant increases in credit risk • Use of changes in the risk of default occurring over the next 12 months when assessing for significant increases in credit risk • Measurement of expected credit losses for revolving credit facilities • Forward-looking information

Basel Initiative

SCRAVL (Sound credit risk assessment and valuation of loans) IASB supportive of Basel initiative to support consistent, high quality application globally • SCRAVL emphasises key aspects of IFRS 9 - using forward looking information and considering effects on portfolio basis • IFRS 9 allows a range of simplifications and also emphasises the notion of ‘undue cost and effort’ • SCRAVL notes some simplifications may not be justified for internationally active banks for example: – reliance on 30 days past due information – use of investment grade simplification

• Also makes recommendations re disclosures

Enhanced Disclosure Task Force • The Enhanced Disclosure Task Force (EDTF) is considering the impact of ECL approaches on bank risk disclosures. • The EDTF will issue its report imminently and builds on existing EDTF principles and recommendations. • The report is also consistent with IFRS7 "Financial Instruments: Disclosures", illustrating and corroborating that standard.

International Financial Reporting Standards

Hedge accounting

The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation

ÂŠ IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Introduction • Greater alignment with risk management including: • Designate risk components of non-financial instruments. • Ability to hedge aggregated exposures (combinations of derivatives and non-derivatives). • Introduction of ‘costs of hedging’ to improve the transparency around some hedging instrument. • A principle-based hedge effectiveness assessment to achieve hedge accounting. • Objectives of disclosure is to understand hedged risks; how the risks are managed; and the effect of hedging © IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions or comments?

ÂŠ IFRS Foundation. 30 Cannon Street | London EC4M