Expected Credit Loss: The New Way Banks Must Recognise Shifting Credit Risk
In OTC derivatives trading in Australia – are you playing by the rules? we looked at how new regulatory requirements have been introduced for some financial products (in that case, over-the-counter (OTC) derivatives), in the wake of the global financial crisis. New reporting rules and ‘mandatory clearing’ are intended to make the risks in these trades more transparent. By Dr. Drew Donnelly, Compliance Quarter Similarly, today’s topic concerns new rules intended to increase the transparency in the risk profile of a bank’s (or any other authorised deposit-taking institution’s), loan portfolio. On July 4, the Australian Prudential Regulation Authority (APRA) issued a letter to all Authorised Deposit-Taking Institutions titled Provisions for Regulatory Purposes and AASB 9 Financial Instruments. It sets out how APRA will apply a new ‘expected credit loss’ model…