Download Albanian approach to adaption to IFRS for loan loss provisions Indrit

Albanian approach to adaption to IFRS
for loan loss provisions
Indrit Banka
Bank of Albania
October 2014
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CONTENT
• Albanian banking system context
• Current legal & regulatory framework on financial reporting
• Key differences between IFRS and regulatory reporting
• Current regulatory provision approach
• Our approach on IFRS approximation
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Albanian Banking System Context
• Banks and other financial institutions supervised by BoA:
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16 banks
21 non-bank financial institutions
2 unions of SLA-s (121 SLA-s)
333 foreign-exchange bureaus
• Two tier banking system created in 1992:
– Banking system’s capital structure dominated by foreign capital:
• 92% of paid-in capital of the banking system is of foreign origin, out of which
• 74% of EU origin
– No state owned banks
– Two banks with predominantly local capital
• Key indicators (as of June 2014)
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Banking system assets to GDP: 89.6%
Outstanding loans to GDP: 40.5%
Non-performing loans ratio: 24.1%
Loan loss provisions to non-performing loans: 66.9%
Restructured loans to outstanding loans: 12.5%
Loans under foreclosure to outstanding loans: 19.2%
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Current legal & regulatory
framework on financial reporting
• The law “On accounting” required IFRS reporting from 2008.
This was applied to banks, other financial institutions and
other big companies.
• Reporting of banks to the central bank is based on a “local
reporting methodology” – based mostly on 1998 IFRS.
• The local reporting methodology is continuously updated
aiming approximation to best supervisory standards and to
the latest IFRS version.
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Key differences between IFRS and
regulatory reporting
1. Loan provisions
- This is considered the main factor influencing in
quantitative terms the difference between standards.
- In some cases the provisions as per local methodology
may be double to impairments created as per IFRS
Other less relevant items contributing in the difference are:
2. Accounting treatment for “available for sale assets”
3. Accounting treatment for “shareholder’s capital”
4. Accrued interest for NPL-s
5. Fees and commissions
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Current regulatory provision
approach
• The current methodology requires categorization of loans in 5
classes/categories
• Each class is referred a provisioning rate
• Categorization is based on certain criteria:
- Days past due
- Financial position
- Collateralization
- Restructuring status
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Our approach on IFRS
approximation
• The approach: Gradual implementation of IFRS in the local reporting
methodology
• The rationale: Keeping the regulatory/local treatment for items that
present relevant gaps between standards.
No Items
Moving to IFRS
treatment
1
Loan provisions
2
Treatment of
available for sale
assets
X
3
Treatment of
shareholder’s capital
X
4
Accrued interests for
NPL-s
X
5
Fees and
commissions
X
Keeping local
treatment
X
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…Our approach on IFRS
approximation
• BoA will keep its local treatment for provisions. However, we
aim to reduce the gap by developing the regulatory provision
with IFRS requirements in terms of:
- collateral recognition
- better combination of excepted & incurred loss
methodologies
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Thank you!
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