IFRS9 Expected Credit Losses (ECL) are commonly calculated as the sum of the marginal future expected losses in each period following the reporting date, using PD, LGD and EAD components. ECL can also be calculated directly from expected future cash flows. This could be an attractive option for many short-term lenders, especially for those that cannot leverage existing PD, LGD and EAD models, as it requires developing a single cash flow model.
The Bank of England has today published the latest outlook from the Financial Policy Committee and outlined the scenario for 2018’s bank stress tests, providing us with an indication of its likely areas of focus in assessing UK financial stability.
Open Banking will transform UK banking. For consumers, the whole experience will be more convenient, with better digital banking capability, more targeted and appropriate products and potentially better deals.
4th December 2017, London: 4most, a leading risk management consultancy, has been ranked 22nd in the 21st annual Sunday Times Virgin Fast Track 100. This represents an eleven place rise from 2016, where 4most were ranked 33rd and prior to that placed 63rd in 2015.
17th October 2017, London: 4most, the global credit risk consultancy, today announces the appointment of Ramesh Indran as Head of Insurance. Ramesh joins 4most from Deloitte’s Actuarial & Advanced Analytics practice where he was a Senior Manager.
25 April 2017, London: 4most, the global credit risk consultancy, today announces the appointment of John Webb as Head of Commercial Credit Risk. John joins 4most from Deloitte’s Risk and Regulation practice where he was Associate Director within the Risk Adjusted Applications Team. He will be responsible for providing subject matter expertise on corporate credit risk.
In case you missed it in The Times and The Mail on Sunday, 4most have reported that there could be a potentially substantial credit risk to UK lenders should the UK government fail to reach an agreement on the status of EU nationals.
Yesterday the Bank of England kicked off the 2017 stress testing season with publication of two economic scenarios. While the second Annual Cyclical Scenario (ACS) looks at capital positions under stress and – given the economic assumptions are little different from last year, succeeds in its aim of making the exercise predictable – the first ever Bank Exploratory Scenario (BES) tests the banks’ ability to react to a world where the picture is one of compressed profit margins and competition for funding.
07 March 2017, London: 4most, the global credit risk consultancy, has announced the appointment of Keith Church as Head of Economic Modelling. Keith joins 4most from Oxford Economics, where he was Director of Macro Modelling, holding responsibility for the development and coherence of Oxford Economics Global Economic Model.
31 January 2017, London: 4most, the global credit risk consultancy, has appointed Robert King as Director of Consulting. Previously Chief Risk Officer at GE Money Home Lending, Robert brings considerable experience in consumer credit risk management.
Last week we heard that the European Central Bank had closed ranks with the Bank of England to avert the Brexit crunch. With the vote of the EU Referendum hanging in the wings, the European Central Bank has pledged to flood the financial system with euro liquidity if credit markets seize up after a Brexit vote.
A recent report has suggested that European MEPs want more scrutiny of accounting standards issued by the International Accounting Standards Board (IASB) with an emphasis less complex rules, in addition to calling for scrutiny of whether standards allow tax fraud as well as improved governance of the IFRS Foundation, which governs the IASB.
The FT covered a piece on a regulatory crackdown that it claims removes the key incentive for measuring risk – view the full article here https://next.ft.com/content/672e8d6a-1d63-11e6-b286-cddde55ca122 Here is our response - this certainly covers the impact for investment banks as rather than retail. What BCBS have announced is that they are potentially withdrawing IRB treatments for exposures against large corporates and other banks.
While Brexit may be dominating the headlines at the moment, some experts believe that a debt of €360bn in bad loans within a fragmented Italian banking sector, could be the biggest threat of all. The suggestion is that even a “small crisis” could trigger a chain of events that could potentially threaten the stability of the European Union, credit ratings agency Moody’s is reported to have said.
We’ve got quite used to hearing the misery and bad news associated with UK banks since the financial crisis, yet one of the positive sides to this debate has been the rise of the challenger banks. These secondary players have grown quickly, with several listing last year as the sector continues to attract both customer and investor interest. The challenger banks have also long been praised by some politicians as being responsible for injecting much-needed further competition into the UK banking sector.
Traditionally, the relationship between collections and impairment is one way under IAS39. Collections activity can influence the severity of the loss and in the best case, can return accounts to order. This impacts the impairment line in two ways, the amount recovered and the direct cost of collecting it.
Regulations that aim to increase understanding of risks for management, investors and the general public are effective, self-reinforcing and are likely to change emergent behaviour. Market wide stress testing initiatives have been particularly powerful in this regard – by requiring banks to consider explicitly the worst scenarios and publish the outcomes, the market has been driven to protect and plan for those events.
Based on our experience, there are a number of aspects that are common to every IFRS 9 project – they include:The solution you thought you would arrive with at the start is not actually the solution you end up with IFRS 9 is a vastly complex challenge and whilst simplifications can be applied, they need to be relevant and justifiable for your organisation.
Another interesting consideration ahead of the impending accounting standard IFRS 9, is the effect this could have on valuation and pricing. Under IAS39 you only consider lifetime losses when the impairment event has already happened so you only hold a small amount of provision for your entire up to date book.
At this stage, most organisations are well on their way to coming up with a compliant solution for the new accounting standard IFRS9, which becomes mandatory on 1 January 2018. Management teams are also starting to understand the direct impact of IFRS9 to their profit and loss (P&L) and as a result, thought naturally leans towards the secondary impacts of the implementation of this regulation.
Challenger banks have welcomed moves to allow them to operate with lower capital than their larger “too big to fail” banking rivals. Chief Executive of Secure Trust has been reported to have said that small banks need to get bigger and take business away from the bigger banks believing it is the only way in which the taxpayer will be off the hook for bailing out ‘too big too fail’ banks in the future.
The changes needed to meet the new IFRS 9 requirements are substantial and will require significant thought and effort by individual organisations and their advisors to develop a compliant solution that is right for them. Some larger, more complex and systemically significant organisations have been working on this for a number of years and still don’t have all of the answers
Last week the headlines unveiled ramblings of a new stress test from Europe’s top banking regulator, which it suggests is impossible for the region’s lenders to fail. True? Well, the watered-down, stress-free stress tests come at a time of market chaos, according to reports, and also amid investor concerns over the strength and stability of the European banking industry.
In line with the impending changes to accounting rules via IFRS 9 Financial instruments standard in the EU, it’s been announced that the European Banking Authority (EBA) is launching an impact assessment of the standard on a sample of approximately 50 institutions across the EU.
That is exactly what Albert Edwards strategist at the bank Société Générale would have us believe. Alongside RBS, he is warning of a new crash, saying oil price plunge and deflation from emerging markets will overwhelm central banks, tip the markets and collapse the Eurozone.
Since the publication of the Final Standard in July 2014 and the previous release of the Exposure Draft, there has been a lot of thinking and analysis on what the requirements for IFRS 9 really mean and how practically to implement them in different organisations.
The team at 4most were celebrating last week because the company made it onto the 2015 Sunday Times Virgin Fast Track 100 league table. The league table, now in its 19th year, ranks Britain’s top 100 private companies with the fastest-growing sales over their latest three years.