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Must read: ESBG response to EBA consultation

Guidance too prescriptive, seems to promote automatic risk management based on decision trees rather than expert judgment based on risk indicators.

>> Read the .pdf version of ESBG response

​​​​​​ESBG response to consultation on EBA draft guidelines 

on credit institutions' credit risk management practices and accounting 

for expected credit losses


ESBG (European Savings and Retail Banking Group)

Rue Marie-Thérèse, 11 - B-1000 Brussels

ESBG Transparency Register ID 8765978796-80

26 October 2016​

European Savings and Retail Banking Group (ESBG) members are most appreciative of the opportunity afforded to them by the European Banking Authority to comment on the Draft Guidelines on credit institutions' credit risk management practices and accounting for expected credit losses. May we also express our thanks for the public hearing on this topic, we found it to be most informative.

We are confident that the below feedback will prove useful in this process.

General Comments

Before answering the specific questions asked in this consultation we would like to provide you with some general comments on this topic. The draft guidelines that we have been asked to consider in this consultation, as we know, stem from the guidance issued by the Basel Committee on Banking Supervision (BCBS). The view of our members on this guidance has been long established and although accounting and prudential reporting are inextricably linked, concerns were raised that the guidelines will force preparers to apply the accounting standard IFRS 9 in a way that is contradictory to the underlying principles of the IASB and thus counter to the manner in which IFRS should be applied. While understanding that there is a limit to how flexible the EBA can be in implementing the BCBS guidance it is with slight disappointment that we have learned that the EBA's plan is to implement this guidance as closely as possible to the original text. We believe that it would be preferential if the principles, as set out by the IASB in regards to the accounting for expected credit losses for those entities which report according to IFRS 9, were followed. Straying from this application may cause inconsistencies in practice, which could possibly impact the relevance and reliability of the financial statements. As the premises for accounting and prudential regulation are very different concerns have been raised that the guidelines, may go too far beyond this remit and introduce guidelines for the accounting models themselves.

In addition to the above concerns members are of the opinion that clarification is needed regarding the definition of high level NPL and the extent to which the guidance applies for banks with high level NPL and those with low level NPL. Members would also appreciate further information on how the guidance applies within a group with a low level NPL at the group level.

In general, the guidance is too prescriptive and seems to promote automatic risk management based on decision trees rather than expert judgment based on risk indicators (see Forbearance). In addition to this the level of additional disclosures exceeds the requirements of IFRS 7 and Pillar III. As the guidance will be public, the distinction made between public disclosures and supervisory reporting appears to be ineffective. The point has also been made by members that the flood of regulatory texts raises the issue of the connection between them.

Along with these general comments please see our answers to the consultation questions below.

Question 1: Is the scope of application of the guidelines appropriate and sufficiently clear?


Question 2: Is the date of application of the guidelines of 1 January 2018 appropriate?  

As the EU IFRS9 endorsement process is coming to an end and there is greater certainty regarding its implementation, the date of application should be tied to the implementation date of IFRS9 within the EU, for example: "These guidelines should be implemented by 1 January 2018 (or at any later date) that being the implementation date of IFRS9 within the European Union."

Question 3: Please provide any comments you may have on the appropriateness of the proposed proportionality approach (please also see the additional criteria included in the section covering the use of practical expedients).  

Regarding the application of the proportionality principle we would like to point out that this should be applied on the individual bank or portfolio level, also where the bank or portfolio is part of a larger banking group. The challenges regarding developing sophisticated measures and obtaining most comprehensive information arise at the level of the individual bank or portfolio, even if this is part of a larger operation.

Question 4: Do you agree with the draft guidelines which introduce the relevant BCBS guidance in the EU regulatory framework? Are there additional issues for which the EBA Guidelines should be amended in the context of finalising the guidelines?

The guidelines put restrictions on banks' access to apply choices located in IFRS 9. This is has caused some concern amongst members. We do not think that possible choices, within an approved IFRS, should be restricted.

The guidelines should at least include a statement clarifying that, should there be any conflicts between the guidelines and the IFRS9/IFRIC statements related to IFRS9, the latter should prevail.

Principle 8, regarding disclosure, should not request disclosures beyond the requirements in IFRS7 and CRR pillar 3. The text of the guideline could be interpreted as partly extending such requirements – especially 81 and 83. Our members are of the opinion that it would be preferential if the guidelines only included:

  • high level disclosure principles, and

  • A request to comply with all relevant accounting rules and regulatory requirements.

    As an alternative, the text could include a clear statement that the guidelines do not request any disclosure beyond the requirements in the applicable accounting and regulatory rules.

Question 5: Do you agree with the impact assessment and its conclusions, having regard to the baseline scenario used for this impact assessment? Please provide any additional information regarding the costs and benefits from the application of these guidelines.

No comment.

Question 6: Please provide any additional comments on the draft guidelines.

In part 4.3 of the guidelines there are interpretations regarding how to implement and practice IFRS9. Members are of the opinion that the interpretations of IFRS should be the responsibility of the IFRS Interpretations Committee (IFRIC) thus avoiding conflicting views between the guidelines and IFRS/IFRIC.

The general rules outlined regarding the risk management seem to be duplicative with respect to existing regulation. EBA should provide clear references to existing rules and interpretations and clarify whether any existing rules, guidance or interpretation are superseded with this guideline, or whether this provides simply additional interpretation. This will also make it easier for firms to link the content of the EBA guideline to the existing rule framework. EBA should seek to ensure that these new guidelines do not provide any contradiction with existing rules or guidelines.

As a general point of concern we point out that IFRS9 is a completely new and untested standard. Only limited impact studies exist. In particular it is unknown how the standard will operate in deteriorating economic conditions. Many market participants and observers expect a strongly cyclical, or even pro-cyclical (i.e. amplifying the cycle), behavior and influence. At the same time a common interpretation of key features of the Standard has not yet been achieved. This will only be possibly after its practical application.

Consequently we encourage the EBA

  • to ensure that any cyclical impacts on bank capital are minimized from adoption and in continuous application of IFRS9. This would be to the benefit of the general economy and the financial system as a whole.

  • to allow firms to adopt to a common and practically workable interpretation of the standard over time in dialogue with its auditors.


To conclude we thank you again for this opportunity to express our views and are sure that they will be helpful to the process. Should you have any queries on any of the above or any other issues we would be more than happy to discuss them with you at your convenience.


About ESBG (European Savings and Retail Banking Group)

​​ESBG brings together nearly 1000 savings and retail banks in 20 European countries that believe in a common identity for European policies. ESBG members represent one of the largest European retail banking networks, comprising one-third of the retail banking market in Europe, with 190 million customers, more than 60,000 outlets, total assets of €7.1 trillion, non-bank deposits of €3.5 trillion, and non-bank loans of €3.7 trillion. ESBG members come together to agree on and promote common positions on relevant regulatory or supervisory matters.


European Savings and Retail Banking Group – aisbl

Rue Marie-Thérèse, 11 ■ B-1000 Brussels ■ Tel: +32 2 211 11 11 ■ Fax : +32 2 211 11 99

Info@wsbi-esbg.org ■ www.wsbi-esbg.org


Published by ESBG. 26 October 2016​

IFRS; Accounting Standards; European Supervisory Authorities (EBA-ESMA); Proportionality