Guidance on accounting for expected credit losses issued by the Basel Committee

The Basel Committee has today issued, for consultation, guidance on accounting for expected credit losses. Comprising 11 fundamental principles, the guidance sets out supervisory expectations for banks relating to sound credit risk practices associated with implementing and applying an expected credit loss (ECL) accounting framework. It also covers supervisory expectations of how an ECL accounting framework should interact with a bank's overall credit risk practices and the regulatory framework.

The financial condition of a bank is highly sensitive to rapid increases in credit risk. Therefore, appropriately determining how, when and in what amount to recognise the effects of increases in credit risk should be a priority for all bank stakeholders.

An ECL accounting framework reflects the fact that credit quality deteriorates far earlier than when loss events are incurred. A further important feature of an ECL accounting framework is that the assessment and measurement of ECL must take into account forward-looking information and macroeconomic factors and cannot therefore rely exclusively on current conditions and historical data.

All comments should be uploaded here by 30 April 2015. Comments will be published on the website of the Bank for International Settlements unless a respondent specifically requests confidential treatment.